-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mqp/8tsz4qnn0qVo2j56ABthdR2MFW92UpuZBoCbuYHs9u1NbaIVNoYSJDM4Vcy8 TwcyrJbwZK+/47IHmcQ3SA== 0000950131-96-005358.txt : 19961101 0000950131-96-005358.hdr.sgml : 19961101 ACCESSION NUMBER: 0000950131-96-005358 CONFORMED SUBMISSION TYPE: 10-12B PUBLIC DOCUMENT COUNT: 40 FILED AS OF DATE: 19961030 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW TENNECO INC CENTRAL INDEX KEY: 0001024725 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 760515284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12B SEC ACT: 1934 Act SEC FILE NUMBER: 001-12387 FILM NUMBER: 96650698 BUSINESS ADDRESS: STREET 1: 1275 KING STREET CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2038631000 MAIL ADDRESS: STREET 1: 1010 MILAM STREET STREET 2: ROOM T 2560B CITY: HOUSTON STATE: TX ZIP: 77002 10-12B 1 FORM 10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- NEW TENNECO INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF 76-0515284 INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 1275 KING STREET GREENWICH, 06831 CONNECTICUT (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (203) 863-1000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ---------------- SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS TO NAMES OF EACH EXCHANGE ON BE SO REGISTERED WHICH CLASS IS TO BE REGISTERED ----------------- ------------------------------- Common Stock ($.01 Par Value) New York, Chicago, Pacific and (and associated Preferred London Stock Stock Purchase Rights) Exchanges
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT ---- ------------ --------------------------------- 1. Business.................... Summary of Certain Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; and Business and Properties. 2. Financial Information....... Summary of Certain Information; Unaudited Pro Forma Combined Financial Statements; and Management's Discussion and Analysis of Financial Condition and Results of Operations; and the Exhibits. 3. Properties.................. Business and Properties. 4. Security Ownership of Certain Beneficial Owners and Management............. Management. 5. Directors and Executive Officers................... Management and Liability and Indemnification of Directors and Officers. 6. Executive Compensation...... Management. 7. Certain Relationships and Related Transactions....... Summary of Certain Information; The Industrial Distribution; and Management. 8. Legal Proceedings........... Business and Properties. 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.................... Summary of Certain Information; The Industrial Distribution; and Description of Capital Stock. 10. Recent Sales of Unregistered Securities................. Not Applicable. 11. Description of Registrant's Securities to be Registered................. Description of Capital Stock. 12. Indemnification of Directors and Officers............... Liability and Indemnification of Directors and Officers. 13. Financial Statements and Supplementary Data......... Summary of Certain Information; Unaudited Pro Forma Combined Financial Statements; Management's Discussion and Analysis of Financial Condition and Results of Operations; and Combined Selected Financial Data. 14. Disagreements with Accountants and Accounting and Financial Disclosure... Not Applicable. 15. Financial Statements and Exhibits................... Combined Selected Financial Data and Exhibit Index.
INFORMATION STATEMENT NEW TENNECO INC. LOGO (TO BE RENAMED TENNECO INC.) COMMON STOCK (PAR VALUE $.01 PER SHARE) This Information Statement is being furnished to stockholders of Tenneco Inc., a Delaware corporation ("Tenneco"), in connection with the distribution (the "Industrial Distribution") by Tenneco to holders of its Common Stock, par value $5.00 per share ("Tenneco Common Stock"), of all the outstanding shares of Common Stock, par value $.01 per share ("Company Common Stock"), of its wholly owned subsidiary, New Tenneco Inc., a Delaware corporation (the "Company"). Concurrently, Tenneco will distribute to holders of Tenneco Common Stock all of the outstanding shares of Common Stock, par value $.01 per share ("Newport News Common Stock"), of Newport News Shipbuilding Inc., a Delaware corporation ("Newport News") (individually, the "Shipbuilding Distribution" and, together with the Industrial Distribution, the "Distributions"). The Distributions will occur immediately prior to the effective time (the "Merger Effective Time") of the proposed merger (the "Merger"), pursuant to an Agreement and Plan of Merger dated as of June 19, 1996, as amended (the "Merger Agreement"), of a wholly owned subsidiary of El Paso Natural Gas Company, a Delaware corporation ("El Paso"), with and into Tenneco (which upon consummation of the Merger will be renamed El Paso Tennessee Pipeline Co.). Pursuant to the Merger, Tenneco stockholders will receive Common Stock, par value $3.00 per share, of El Paso ("El Paso Common Stock") and, under certain circumstances, depositary shares each representing a 1/25th fractional interest in a share of Preferred Stock of El Paso ("El Paso Preferred Depositary Shares"). The Distributions, the Merger and the other transactions contemplated thereby are collectively referred to herein as the "Transaction." Unless the context otherwise requires, as used herein the term "Company" refers: (i) for periods prior to the Industrial Distribution, to the Tenneco Automotive, Tenneco Packaging and Tenneco Business Services businesses of Tenneco (collectively, the "Industrial Business") which New Tenneco Inc. will own and operate after the Industrial Distribution and (ii) for periods after the Industrial Distribution, to New Tenneco Inc. and its consolidated subsidiaries. See "The Industrial Distribution--Corporate Restructuring Transactions." The Company is a newly formed, wholly owned subsidiary of Tenneco that will conduct the Industrial Business. As part of the Transaction, the Industrial Business has been consolidated into the Company and disaffiliated with the other businesses of Tenneco as described under "The Industrial Distribution-- Corporate Restructuring Transactions." The consummation of the Transaction is conditioned upon, among other things, approval thereof by Tenneco stockholders. The consummation of the Distributions is subject to the satisfaction or waiver of a number of other conditions as described under "The Industrial Distribution--Conditions to Consummation of the Industrial Distribution." It is expected that the Industrial Distribution will be made on or about December 11, 1996 to holders of record of Tenneco Common Stock on the Distribution Record Date (as defined herein) on the basis of one share of Company Common Stock for each share of Tenneco Common Stock held of record. In addition, the Board of Directors of the Company will adopt a stockholder rights plan and cause to be issued, with each share of Company Common Stock to be distributed in the Industrial Distribution, one Right (as defined herein), entitling the holder thereof to, among other things, purchase under certain circumstances, and as described more fully herein, one one-hundredth of a share of Company Junior Preferred Stock (as defined herein). No consideration will be required to be paid by holders of Tenneco Common Stock for the shares of Company Common Stock to be distributed in the Industrial Distribution or the Rights associated therewith, nor will holders of Tenneco Common Stock be required to surrender or exchange their shares of Tenneco Common Stock in order to receive such shares of Company Common Stock and the Rights associated therewith. There is no current public market for Company Common Stock, although a "when issued" market is expected to develop prior to the effective date of the Industrial Distribution (the "Distribution Date"). The Company has applied to the New York Stock Exchange for the listing of the Company Common Stock upon notice of issuance and expects to receive approval of such listing prior to the Distributions. The Company is also applying to the Chicago, Pacific and London Stock Exchanges for approval of the listing of Company Common Stock upon notice of issuance. RECIPIENTS OF COMPANY COMMON STOCK SHOULD NOTE THE FACTORS DISCUSSED IN "RISK FACTORS" BEGINNING ON PAGE 30. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS INFORMATION STATEMENT IS , 1996. TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION..................................................... 1 SUMMARY OF CERTAIN INFORMATION............................................ 3 INTRODUCTION.............................................................. 15 THE INDUSTRIAL DISTRIBUTION............................................... 16 Manner of Distribution.................................................. 16 Corporate Restructuring Transactions.................................... 16 Debt and Cash Realignment............................................... 17 Relationships Among Tenneco, the Company and Newport News after the Dis- tributions............................................................. 20 Reasons for the Distributions........................................... 25 Conditions to Consummation of the Industrial Distribution............... 25 Amendment or Termination of the Distributions........................... 26 Trading of Company Common Stock......................................... 26 Certain Federal Income Tax Aspects of the Industrial Distribution....... 26 Reasons for Furnishing the Information Statement........................ 29 RISK FACTORS.............................................................. 30 No Current Public Market for Company Common Stock....................... 30 Uncertainty Regarding Trading Prices of Stock Following the Transaction. 30 Uncertainty Regarding Future Dividends.................................. 30 Potential Federal Income Tax Liabilities................................ 30 Certain Antitakeover Features........................................... 31 Potential Liabilities Due to Fraudulent Transfer Considerations and Le- gal Dividend Requirements.............................................. 31 THE COMPANY............................................................... 33 Introduction............................................................ 33 Business Strategy....................................................... 33 FINANCING................................................................. 36 CAPITALIZATION............................................................ 37 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 38 COMBINED SELECTED FINANCIAL DATA.......................................... 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................... 45 Proposed Merger with El Paso............................................ 45 Results of Operations for the Six Months Ended June 30, 1996 and 1995... 46 Results of Operations for the Years 1995, 1994 and 1993................. 52 BUSINESS AND PROPERTIES................................................... 60 Tenneco Automotive...................................................... 60 Tenneco Packaging....................................................... 68 Tenneco Business Services............................................... 73 Properties.............................................................. 74 Environmental Matters................................................... 75 LEGAL PROCEEDINGS......................................................... 76 MANAGEMENT................................................................ 77 Board of Directors...................................................... 77 Executive Officers...................................................... 79 Stock Ownership of Management........................................... 80
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PAGE ---- Committees of the Board of Directors.................................... 81 Executive Compensation.................................................. 81 Compensation of Directors............................................... 87 Employment Contracts and Termination of Employment and Change-in-Control Arrangements........................................................... 87 Transactions with Management and Others................................. 88 Compensation Committee Interlocks and Insider Participation............. 89 Benefit Plans Following the Industrial Distribution..................... 89 DESCRIPTION OF CAPITAL STOCK.............................................. 90 Authorized Capital Stock................................................ 90 Company Common Stock.................................................... 90 Company Preferred Stock................................................. 91 ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS................................ 91 Classified Board of Directors........................................... 91 Number of Directors; Removal; Filling Vacancies......................... 92 Special Meetings........................................................ 92 Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals.............................................................. 92 Record Date Procedure for Stockholder Action by Written Consent......... 93 Stockholders Meetings................................................... 94 Company Preferred Stock................................................. 94 Business Combinations................................................... 94 Amendment of Certain Provisions of the Certificate and By-laws.......... 95 Rights.................................................................. 95 Antitakeover Legislation................................................ 97 Comparison with Rights of Holders of Tenneco Common Stock............... 98 LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 101 Elimination of Liability of Directors................................... 101 Indemnification of Directors and Officers............................... 102 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE................................ F-1
ii AVAILABLE INFORMATION Tenneco is (and, following the Industrial Distribution, the Company will be) subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files (and the Company will file) reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The reports, proxy statements and other information filed by Tenneco (and to be filed by the Company) with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Commission's Regional Offices, including the following: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such information may be obtained by mail at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W. Street, N.W., Washington, D.C. 20549 or accessed electronically on the Commission's Web site at (http://www.sec.gov). The Company Common Stock has been approved for listing on the New York Stock Exchange and reports and other information concerning the Company can be inspected at the New York Stock Exchange offices, 20 Broad Street, New York, New York, 10005. The Company intends to furnish holders of Company Common Stock with annual reports containing consolidated financial statements prepared in accordance with United States generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent public accounting firm, as well as quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. The Company has filed with the Commission a Registration Statement on Form 10 (as amended, this "Registration Statement") under the Exchange Act covering Company Common Stock and the associated Rights. This Information Statement does not contain all of the information in the Registration Statement and the related exhibits and schedules. Statements in this Information Statement as to the contents of any contract, agreement or other document are summaries only and are not necessarily complete. For complete information as to these matters, refer to the applicable exhibit or schedule to the Registration Statement. The Registration Statement and the related exhibits filed by the Company with the Commission may be inspected at the public reference facilities of the Commission listed above. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR TENNECO. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR CONSUMMATION OF THE INDUSTRIAL DISTRIBUTION CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR TENNECO SINCE THE DATE HEREOF, OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Information Statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, the Company's prospects, developments and business strategies for its operations, all of which are subject to risks and uncertainties. These forward-looking statements are identified by their use of terms and phrases such as "intends," "intend," "intended," "goal," "expects," "expect," "expected," "plans," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe" and "believes" and similar terms and phrases, and in many cases are followed by a cross reference to "Risk Factors." The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include (a) the factors discussed in the section or sections under "Risk Factors" and particularly, in cases where the forward- looking statement is followed by a cross reference to "Risk Factors," the factors discussed in the section or sections under "Risk Factors" that are referred to in the cross reference, (b) the factors discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business and Properties" and (c) the following additional factors: (i) the general economic and competitive conditions in the markets and countries where the Company operates; (ii) changes in capital availability or costs such as changes in interest rates, market perceptions of the industries in which the Company operates or security ratings; (iii) fluctuations in demand for certain of the Company's products; (iv) the cost of compliance with changes in regulations, including environmental regulations; (v) employee workforce factors, including collective bargaining agreements or work stoppages; (vi) growth strategies through acquisitions and investments in joint ventures may face legal and regulatory delays and other unforeseeable obstacles beyond the Company's control; (vii) cost control efforts may be affected by the timing of related work force reductions and might be further offset by unusual and unexpected items resulting from such events as unexpected environmental remediation costs in excess of reserves; (viii) future operating results and success of business ventures in the United States and foreign markets may be subject to the effects of, and changes in, United States and foreign trade and monetary policies, laws and regulations, political and governmental changes, inflation and exchange rates, taxes, and operating conditions; and (ix) authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board and the Commission. When a forward-looking statement includes a statement of the assumptions or basis underlying the forward-looking statement, the Company cautions that, while it believes such assumptions or basis to be reasonable and makes them in good faith, assumed facts or basis almost always vary from actual results, and the differences between assumed facts or basis and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company or its management expresses 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. 2 SUMMARY OF CERTAIN INFORMATION This Summary is qualified by the more detailed and other information and financial statements set forth elsewhere in this Information Statement, which should be read in its entirety. Capitalized terms used but not defined in this Summary are defined elsewhere in this Information Statement. Unless the context otherwise requires, the term "Company" refers (i) for periods prior to the Industrial Distribution, to Tenneco's Industrial Business and (ii) for periods after the Industrial Distribution, to the Company and its consolidated subsidiaries. THE COMPANY The Company is a newly formed Delaware corporation which, upon completion of the Industrial Distribution, will be an independent, publicly held company (symbol "TEN"). The Company will own and operate, directly and through its direct and indirect subsidiaries, substantially all of the assets of, and will assume substantially all of the liabilities associated with, the principal industrial businesses of Tenneco: the Tenneco Automotive business ("Tenneco Automotive") and the Tenneco Packaging business ("Tenneco Packaging"). The Company will also own and operate the administrative services business of Tenneco: Tenneco Business Services ("TBS"). Upon consummation of the Merger, the Company will change its name to Tenneco Inc. Although the separation of the Industrial Business from the remainder of the businesses, operations and companies currently constituting the "Tenneco Group" has been structured as a "spin-off" of the Company pursuant to the Industrial Distribution for legal, tax and other reasons, the Company will succeed to certain important aspects of the existing Tenneco business, organization and affairs, namely: (i) the Company will be renamed "Tenneco Inc." upon the consummation of the Merger; (ii) the Company will be headquartered at Tenneco's current headquarters in Greenwich, Connecticut; (iii) the Company's Board of Directors (the "Company Board") will consist of those persons currently constituting the Tenneco Board of Directors (the "Tenneco Board"); (iv) the Company's executive management will consist substantially of the current Tenneco executive management; and (v) the Industrial Business to be conducted by the Company will consist largely of Tenneco Automotive and Tenneco Packaging. Tenneco Automotive is one of the world's leading manufacturers of automotive exhaust and ride control systems for both the original equipment market and the replacement market, or aftermarket. Tenneco Automotive is a global business that sells its products in over 100 countries. Tenneco Automotive manufactures and markets its automotive exhaust systems primarily under the Walker(R) brand name and its ride control systems primarily under the Monroe(R) brand name. Tenneco Packaging is among the world's leading and most diversified packaging companies, manufacturing packaging products for consumer, institutional and industrial markets. The paperboard business group manufactures corrugated containers, folding cartons and containerboard, has a joint venture in recycled paperboard, and offers high value-added products such as enhanced graphics packaging and displays and kraft honeycomb products. Its specialty products group produces disposable aluminum, foam and clear plastic food containers, molded fiber and pressed paperboard products, as well as polyethylene bags and industrial stretch wrap. Tenneco Packaging's consumer products include such recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R). TBS designs, implements and administers shared administrative service programs for the Tenneco businesses as well as, on an "as requested" basis, for former Tenneco business entities. The Company's principal executive offices are located at 1275 King Street, Greenwich, Connecticut 06831; telephone: (203) 863-1000. 3 BUSINESS STRATEGY The Company The Distributions and the Merger represent the most important step to date in accomplishing Tenneco's overall strategic objective of transforming itself from a highly diversified industrial corporation to a global manufacturing company focused on Tenneco Automotive and Tenneco Packaging. For the past several years, Tenneco's management team has redeployed resources from slower growth, more cyclical businesses to these higher growth businesses. The Distributions are expected to provide the Company with greater flexibility to pursue additional growth opportunities for Tenneco Automotive and Tenneco Packaging as a result of the increased management focus and additional financial flexibility at the Company. These additional growth opportunities are expected to include, among other things, strategic acquisitions, joint ventures, strategic alliances and further organic growth from additional product development and international expansion initiatives. Management Focus. As a result of the Distributions and the Merger, Tenneco's executive management team will be able to focus all of its efforts on exploring and implementing the most appropriate growth opportunities for Tenneco Automotive and Tenneco Packaging. Implementation of Management Programs. Tenneco's strategy of focusing on the Industrial Business will allow the Company to further refine and implement certain management processes that have been developed over the past several years in order to improve operating performance. These programs include: (i) the Cost of Quality program through which the Company has successfully reduced the failure costs in its manufacturing and administrative processes; (ii) the working capital initiative through which the Company plans to further reduce its working capital requirements; and (iii) the shared services program, administered by TBS, through which the Company plans on further improving efficiency and reducing the cost of general and administrative support functions. The Company believes that Tenneco Automotive and Tenneco Packaging are particularly well-suited to benefit from these types of programs due to the fragmented, non-regulated nature of the industries in which they operate. Strategic Acquisitions. Strategic acquisitions have been, and will continue to be, an important element of the Company's overall growth strategy. Tenneco's current executive management team, which will continue to serve as the Company's executive management team following the Industrial Distribution, has a proven track record of identifying, structuring and integrating strategic acquisitions. As a result of management's experience in implementing strategic acquisitions, the Company has developed comprehensive plans to efficiently integrate new companies into its existing corporate infrastructure. The Company intends to continue to pursue appropriate acquisition opportunities in which management can substantially improve the profitability of strategically related businesses by, among other things, rationalizing similar product lines and eliminating certain lower margin product lines; reconfiguring and upgrading manufacturing facilities; moving production to the lowest cost facilities; reducing selling, distribution, purchasing and administrative costs; increasing market share within either a geographic or product market; and acquiring businesses that possess leading brand name products. Continued growth in revenues and earnings at the pace sought by the Company will require continued success in completing major acquisitions and similar expansion efforts, and then successfully integrating the acquired businesses and operations into the Company. The identity, timing, frequency, terms and other factors involved in the overall acquisition/expansion program, and those relating to any particular major acquisition, will impact, positively or negatively, the Company's success in achieving its financial and other goals. Although certain factors in this regard will be beyond the Company's control, its executive management team believes that the Company will have the requisite significant opportunities, and the expertise, resources and commitment to successfully act on an appropriate number of those opportunities, to achieve its goals. Employee Incentives. In addition, the Distributions and the Merger will allow Tenneco's executive management team to develop incentive compensation systems for employees that are more closely aligned with the operational success of Tenneco Automotive and Tenneco Packaging. 4 Tenneco Automotive Tenneco Automotive's primary goal is to enhance its leadership position in the global automotive parts industry in which it is currently one of the world's leading manufacturers of exhaust and ride control systems. Tenneco Automotive intends to capitalize on certain significant existing and emerging trends in the automotive industry, including (i) the consolidation and globalization of the original equipment manufacturers' ("OEMs") supplier base, (ii) increased OEM outsourcing, particularly of more complex components, assemblies, modules and complete systems to sophisticated, independent suppliers and (iii) growth of emerging markets for both original equipment and replacement markets. Key components of Tenneco Automotive's strategy include: (a) capitalizing on brand-name strength; (b) retaining and enhancing market share; (c) continuing development of high value-added products; (d) increasing ability to deliver full-system capabilities (rather than merely component parts); (e) continuing international expansion and strategic acquisitions; (f) maintaining operating cost leadership; and (g) continuing focus on the customer. Tenneco Packaging Tenneco Packaging's primary goal is to maintain and enhance its position as a leading specialty packaging company offering a broad line of products suited to provide customers with the best packaging solutions. Tenneco Packaging intends to capitalize on certain significant existing and emerging trends in the packaging industry, including (i) increasing materials substitution, (ii) changing fiber availability and (iii) global demand growth. Key components of Tenneco Packaging's strategy include: (a) continued development and growth of multi-material uses, broad product lines and packaging offering customers enhanced functionality and value; (b) fiber flexibility (primarily in the mix of virgin and recycled fiber sources); (c) growth through domestic and international acquisitions and joint ventures; (d) internal growth in base businesses; (e) reduction of sensitivity to changes in economic cyclicality through the pursuit of specialty and other high value-added product growth; and (f) maintenance of market leadership positions in its primary business groups. ---------------- 5 SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA OF THE COMPANY The summary combined financial data as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993 were derived from the audited Combined Financial Statements of the Company. The summary combined financial data as of December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991 are unaudited and were derived from the accounting records of Tenneco. The summary combined financial data as of and for each of the six- month periods ended June 30, 1996 and 1995 were derived from the unaudited Combined Financial Statements of the Company. In the opinion of the Company's management, the summary combined financial data of the Company as of December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991, and as of and for the six months ended June 30, 1996 and 1995 include all adjusting entries (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The results of operations for the six months ended June 30, 1996 should not be regarded as indicative of the results that may be expected for the full year. The summary pro forma combined financial data as of and for the six months ended June 30, 1996 and for the year ended December 31, 1995, have been prepared to reflect: (i) the acquisition of The Pullman Company and its Clevite products division ("Clevite") in July 1996 and the acquisition of the Amoco Foam Products Company, a unit of Amoco Chemical Company ("Amoco Foam Products"), in August 1996; (ii) the effect on the Company of the Cash Realignment and Debt Realignment (as each are defined herein); (iii) the effect on the Company of the Corporate Restructuring Transactions, and other transactions pursuant to the provisions of the Distribution Agreement and Merger Agreement; and (iv) the issuance of Company Common Stock as part of the Industrial Distribution. The unaudited pro forma combined financial data for the year ended December 31, 1995 also reflects the pro forma results of operations of the Mobil Plastics Division of Mobil Oil Corporation ("Mobil Plastics") prior to its acquisition in November 1995. The Clevite and Amoco Foam Products acquisitions do not meet the Commission's criteria for inclusion of separate historical financial statements. The unaudited pro forma combined Statements of Income Data have been prepared as if the transactions occurred on January 1, 1995; the unaudited pro forma combined Balance Sheet Data have been prepared as if the transactions occurred on June 30, 1996. The summary pro forma combined financial data are not necessarily indicative of the results of operations of the Company had the transactions reflected therein actually been consummated on the dates assumed and are not necessarily indicative of the results of operations for any future period. This information should be read in conjunction with "Unaudited Pro Forma Combined Financial Statements," "Combined Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Combined Financial Statements, and notes thereto, included elsewhere in this Information Statement.
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, -------------------------- --------------------------------------------------------- PRO FORMA PRO FORMA (MILLIONS EXCEPT PER 1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991 SHARE AMOUNTS) --------- ------- ------- --------- ------- ------- ------- ------ ------ STATEMENTS OF INCOME DATA(B): Net sales and operating revenues from continuing operations-- Automotive............. $1,583 $1,463 $1,263 $2,710 $2,479 $1,989 $1,785 $1,763 $1,668 Packaging.............. 1,927 1,775 1,318 4,556 2,752 2,184 2,042 2,078 1,934 Intergroup sales and other................. (5) (5) (4) (10) (10) (7) (7) (5) (5) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total.................. $3,505 $3,233 $2,577 $7,256 $5,221 $4,166 $3,820 $3,836 $3,597 ====== ====== ====== ====== ====== ====== ====== ====== ====== Income from continuing operations before interest expense, income taxes and minority interest-- Automotive............. $ 170 $ 163 $ 134 $ 258 $ 240 $223 $ 222 $ 237 $ 188 Packaging.............. 280 256 244 548 430 209 139 221 139(e) Other.................. (5) (5) -- 2 2 24 20 7 3 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total.................. 445 414 378 808 672 456 381 465 330 Interest expense (net of interest capitalized)... 83 100 74 166 160 104 101 102 111 Income tax expense....... 147 126 124 291 231 114 115 154 80 Minority interest........ 10 10 12 23 23 -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from continuing operations.............. 205 178 168 328 258 238 165 209 139 Loss from discontinued operations, net of income tax.............. -- -- -- -- -- (31) (7) (7) (12) Cumulative effect of changes in accounting principles, net of income tax.............. -- -- -- -- -- (7)(d) -- (99)(d) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income............... $ 205 $ 178 $ 168 $ 328 $ 258 $ 200 $ 158 $ 103 $ 127 ====== ====== ====== ====== ====== ====== ====== ====== ====== Income from continuing operations per share.... $ 1.20 N/A N/A $ 1.89 N/A N/A N/A N/A N/A ====== ====== Net income per share..... $ 1.20 N/A N/A $ 1.89 N/A N/A N/A N/A N/A ====== ====== BALANCE SHEET DATA(B): Total assets............. $7,617 $6,523 $4,430 N/A $6,117 $3,940 $3,029 $2,812 $2,792 Short-term debt(e)....... 13 530 205 N/A 384 108 94 182 758 Long-term debt(e)........ 2,132 1,573 1,246 N/A 1,648 1,039 1,178 1,675 1,555 Minority interest........ 301 301 297 N/A 301 301 1 1 2 Combined equity.......... 2,988 2,168 1,163 N/A 1,852 987 533 (87) (553) OTHER DATA: EBITDA(f)................ $ 603 $ 551 $ 458 $1,023 $ 845 $ 598 $ 518 $ 595 $ 463
(continued on next page) 6 (continued from previous page) - ------- (a) For a discussion of the significant items affecting comparability of the financial information for 1995, 1994 and 1993 and for the six months ended June 30, 1996 and 1995, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Information Statement. (b) During 1995 and 1994, Tenneco Automotive and Tenneco Packaging each completed several acquisitions, the most significant of which was Tenneco Packaging's acquisition of Mobil Plastics for $1.3 billion in late 1995. See Note 4 to the Combined Financial Statements, included elsewhere in this Information Statement, for further information on the Company's acquisitions. (c) Includes a gain of $42 million recorded by Tenneco Packaging related to the sale of three short-line railroads. (d) In 1994, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 112, "Employers' Accounting for Postemployment Benefits." In 1992, the Company adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and FAS No. 109, "Accounting for Income Taxes." (e) Historical amounts include debt allocated to the Company from Tenneco based on the portion of Tenneco's investment in the Company which is deemed to be debt, generally based upon the ratio of the Company's net assets to Tenneco consolidated net assets plus debt. Tenneco's historical practice has been to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Management believes that the historical allocation of corporate debt and interest expense is reasonable; however, it is not necessarily indicative of the Company's debt upon completion of the Debt Realignment (as defined), nor debt and interest that may be incurred by the Company as a separate public entity. See the Combined Financial Statements, and notes thereto, included elsewhere in this Information Statement. (f) EBITDA represents income from continuing operations before interest expense, income taxes and depreciation, depletion and amortization. EBITDA is not a calculation based upon generally accepted accounting principles ("GAAP"); however, the amounts included in the EBITDA calculation are derived from amounts included in the combined historical or pro forma Statements of Income. In addition, EBITDA should not be considered as an alternative to net income or operating income, as an indicator of the operating performance of the Company or as an alternative to operating cash flows as a measure of liquidity. 7 THE INDUSTRIAL DISTRIBUTION Distributing Company.... Tenneco Inc. (which will be renamed El Paso Tennessee Pipeline Co. upon consummation of the Merger). Distributed Company..... New Tenneco Inc. (a wholly owned subsidiary of Tenneco) which will, upon consummation of the Industrial Distribution, directly and indirectly through its consolidated subsidiaries, own and operate Tenneco Automotive, Tenneco Packaging, and TBS. Immediately following consummation of the Industrial Distribution, Tenneco will not have an ownership interest in the Company and, upon consummation of the Merger, the Company will be renamed "Tenneco Inc." Distribution Ratio...... One share of Company Common Stock for each share of Tenneco Common Stock held of record on the Distribution Record Date (as defined herein). Securities to be Based on 170,644,461 shares of Tenneco Common Stock Distributed............. outstanding on July 31, 1996, 170,644,461 shares of Company Common Stock (and Rights associated therewith) will be distributed. Company Common Stock to be distributed will constitute all of the outstanding Company Common Stock immediately following the Industrial Distribution. See "Description of Capital Stock--Company Common Stock" and "Antitakeover Effects of Certain Provisions-- Rights." Distribution Record December 11, 1996. Date.................... Distribution Date....... December 11, 1996. Distribution Agent and Transfer Agent for the Shares................. First Chicago Trust Company of New York. Mailing Date............ Certificates representing the shares of Company Common Stock to be distributed pursuant to the Industrial Distribution will be delivered to the Distribution Agent on the Distribution Date. The Distribution Agent will mail certificates representing the shares of Company Common Stock to holders of Tenneco Common Stock as soon as practicable thereafter. Holders of Tenneco Common Stock should not send stock certificates to Tenneco, the Company or the Distribution Agent in connection with the Industrial Distribution (however, holders will receive instructions from the Distribution Agent with respect to the disposition of their certificates in connection with the Merger). See "The Industrial Distribution--Manner of Distribution." Conditions to the Industrial Distribution........... The Transaction (and, accordingly, the Industrial Distribution) is conditioned upon, among other things, declaration of the special distributions by the Tenneco Board authorizing the Distributions, receipt of a private letter ruling (the "IRS Ruling Letter") from the Internal Revenue Service (the "IRS") in form and substance satisfactory to the Tenneco Board (see "The Industrial Distribution-- Certain Federal Income Tax Aspects of the Industrial Distribution") and approval by the stockholders of Tenneco of the Transaction. The Distributions and the 8 Merger are part of a unified transaction and will not be effected separately (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 by Tenneco stockholders). See "The Industrial Distribution--Conditions to Consummation of the Industrial Distribution" and "The Industrial Distribution--Amendment or Termination of the Distributions." Reasons for the The Distributions and the Merger are designed to Distributions........... separate three types of businesses, namely the Industrial Business, the Shipbuilding Business (as defined below) and the Energy Business (as defined below), which have distinct financial, investment and operating characteristics, so that each can adopt strategies and pursue objectives appropriate to its specific needs. The Distributions will (i) enable the management of each company to concentrate its attention and financial resources on the core businesses of such company, (ii) permit investors to make more focused investment decisions based on the specific attributes of each of the three businesses, (iii) facilitate employee compensation programs custom-tailored to the operations of each business, including stock-based and other incentive programs, which will more directly reward employees of each business based on the success of that business and (iv) tailor the assets of Tenneco to facilitate the acquisition of the Energy Business by El Paso. Upon consummation of the Industrial Distribution, the Company will, primarily through its consolidated subsidiaries, own and operate Tenneco Automotive, Tenneco Packaging and TBS and Newport News will, primarily through its consolidated subsidiaries (principally Newport News Shipbuilding and Dry Dock Company), own and operate substantially all of the shipbuilding and related businesses of Tenneco (the "Shipbuilding Business"). Immediately following consummation of the Distributions, a subsidiary of El Paso will be merged with and into Tenneco, and thereafter the energy and other remaining businesses and operations of Tenneco, including liabilities and assets relating to discontinued Tenneco operations not related to the Industrial Business or the Shipbuilding Business (collectively, the "Energy Business") will be owned and operated by El Paso. See "The Industrial Distribution--Reasons for the Distributions." Federal Income Tax Consequences............ The Tenneco Board has conditioned the Industrial Distribution on receipt of the IRS Ruling Letter substantially to the effect, among other things, that the Industrial Distribution and the receipt of shares of Company Common Stock by holders of Tenneco Common Stock will be tax-free to Tenneco and its stockholders, respectively, for federal income tax purposes. Tenneco has requested a ruling from the IRS as to the foregoing, as well as to the tax-free treatment of certain transactions to be effected as part of the Corporate Restructuring Transactions (as defined herein) and the Merger. See "The Industrial Distribution--Certain Federal Income Tax Aspects of the Industrial Distribution" and "Risk Factors-- Certain Federal Income Tax Considerations." Trading Market.......... There is currently no public market for Company Common Stock, although a "when issued" market is expected to develop prior to the Distribution Date. The Company has applied to the New York Stock 9 Exchange for listing of the Company Common Stock upon notice of issuance and the Company expects to receive approval of such listing prior to the Distributions. The Company is also applying to the Chicago, Pacific and London Stock Exchanges for approval of the listing of Company Common Stock upon notice of issuance. The combined market value/trading prices of (i) Company Common Stock, (ii) Newport News Common Stock and (iii) El Paso Common Stock and, under certain circumstances, El Paso Preferred Depositary Shares after the Transaction may be less than, equal to or greater than the market value/trading price of Tenneco Common Stock prior to the Transaction. See "The Industrial Distribution--Trading of Company Common Stock" and "Risk Factors--No Current Public Market for Company Common Stock." Dividends............... The Company's dividend policy will be established by the Company Board from time to time based on the results of operations and financial condition of the Company and such other business considerations as the Company Board considers relevant. There can be no assurances that the combined annual dividends on (i) El Paso Common Stock and, if issued in connection with the Merger, El Paso Preferred Depositary Shares, (ii) Company Common Stock and (iii) Newport News Common Stock after the Transaction will be equal to the annual dividends on Tenneco Common Stock prior to the Transaction (and it is unlikely that the dividends would be greater than the annual dividends on Tenneco Common Stock prior to the Transaction). See "Risk Factors--Dividends" and "Description of Capital Stock--Company Common Stock." Antitakeover The Restated Certificate of Incorporation and the Provisions.............. Amended and Restated By-laws of the Company, as well as the Company's stockholder rights plan (which will expire on June 10, 1998 unless extended with stockholder approval) and Delaware statutory law, contain provisions that may have the effect of discouraging an acquisition of control of the Company in a transaction not approved by the Company Board. These provisions, which are substantially the same as those provisions which are currently applicable to Tenneco (see "Antitakeover Effects of Certain Provisions--Comparison with Rights of Holders of Tenneco Common Stock"), should better enable the Company to develop its business and foster its long- term growth without the disruptions that can be caused by the threat of certain types of takeovers not deemed by the Company Board to be in the best interests of the Company and its stockholders. Such provisions may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of the Company, although such proposals, if made, might be considered desirable by a majority of the Company's stockholders. Such provisions could further have the effect of making it more difficult for third parties to cause the immediate removal and replacement of the members of the then current Company Board or the then current management of the Company without the concurrence of the Company Board. See "Risk Factors-- Certain Antitakeover Features," "Description of Capital Stock," and "Antitakeover Effects of Certain Provisions." Risk Factors............ Stockholders of Tenneco should be aware that the Industrial Distribution and ownership of Company Common Stock involve certain risk factors, including those described under "Risk Factors," as well as elsewhere in this Information Statement, which could adversely affect the value of their 10 holdings. Such matters include, among others, the lack of a current public market for Company Common Stock, the absence of assurance that the combined market value/trading prices of, and dividends on, El Paso Common Stock and any El Paso Preferred Depositary Shares, Company Common Stock and Newport News Common Stock held by stockholders after the Transaction will be equal to or greater than the market value/trading price of or dividends on Tenneco Common Stock prior to the Transaction, the risk that the Industrial Distribution may not qualify as a tax- free distribution under Section 355 of the Code (as defined herein), certain antitakeover effects of certain provisions of the Company's Restated Certificate of Incorporation, the Amended and Restated By-laws, the Company's stockholder rights plan and Delaware statutory law, and the risk that the Transaction is subject to review under federal and state fraudulent conveyance laws. See "Risk Factors." Corporate Restructuring Transactions........... Prior to the consummation of the Industrial Distribution, Tenneco and its subsidiaries will undertake various intercompany transfers and distributions designed to restructure Tenneco's existing businesses, assets and liabilities so that substantially all of the assets, liabilities and operations of (i) the Industrial Business will be directly and indirectly owned and operated by the Company, (ii) the Shipbuilding Business will be directly and indirectly owned and operated by Newport News and (iii) the Energy Business will be directly and indirectly owned and operated by Tenneco, which will, upon consummation of the Merger, be a subsidiary of El Paso and be renamed El Paso Tennessee Pipeline Co. (the "Corporate Restructuring Transactions"). See "The Industrial Distribution-- Corporate Restructuring Transactions." Debt and Cash Realignment; Exchange Offer; Revolving Credit Financing....... The Merger Agreement, the Distribution Agreement to be entered into pursuant to the Merger Agreement (the "Distribution Agreement") and certain of the other agreements and documents attached as exhibits to the Merger Agreement or the Distribution Agreement (the "Ancillary Agreements") provide for (i) the restructuring (through debt tender and exchange offers, defeasances, prepayments, refinancings and the like), immediately prior to the Distributions, of the outstanding indebtedness for money borrowed ("Tenneco Energy Consolidated Debt") of Tenneco and certain of its consolidated subsidiaries (the "Debt Realignment") and (ii) the allocation of cash and cash equivalents of Tenneco and its consolidated subsidiaries (the "Cash Realignment"). As of June 30, 1996, the total book value of Tenneco Energy Consolidated Debt was $4,443 million, including $3,734 million book value ($3,955 million principal amount) of publicly held debt ("Tenneco Public Debt"). Tenneco will be allocated (and thereby retain) certain of the Tenneco Energy Consolidated Debt, as so restructured pursuant to the Debt Realignment. A post-Transaction audit will be conducted and if the amount of Tenneco Energy Consolidated Debt (together with the proceeds (which is currently expected to be approximately $275 million) of the public offering of one or more new series of junior preferred stock (the 11 "Tenneco Junior Preferred Stock") issued by Tenneco (the "NPS Issuance") prior to the Distributions) so retained by Tenneco exceeds $2.65 billion (subject to certain adjustments as more fully described in this Information Statement), the Company will pay the excess to Tenneco in cash, and conversely, if the amount of Tenneco Energy Consolidated Debt (together with the proceeds of the NPS Issuance) so retained by Tenneco is less than $2.65 billion (subject to the same adjustments), Tenneco will pay the difference to the Company in cash. As part of the Debt Realignment, the Company will offer to exchange (the "Debt Exchange Offers") $1,950 million aggregate principal amount of new, publicly traded debt securities of the Company ("Company Public Debt") for an equal amount of Tenneco Public Debt. The Company Public Debt will have similar maturities, but higher interest rates than the Tenneco Public Debt for which it is being exchanged. Upon consummation of the Debt Exchange Offers, Tenneco will purchase (and thereafter extinguish) the Tenneco Public Debt held by the Company, and the Company will then distribute such proceeds as a dividend to Tenneco. In addition, the Company will enter into a $1,750 million Revolving Credit Facility (the "Company Credit Facility"). The Company will use the Company Credit Facility primarily for working capital, acquisitions and other general corporate purposes; however, the Company may borrow funds under the Company Credit Facility and declare and pay a dividend to Tenneco of such amount in connection with the Debt Realignment. See "The Industrial Distribution--Debt and Cash Realignment." Also as part of the Debt Realignment, Tenneco has agreed with El Paso that Tenneco will make certain minimum capital expenditures with respect to the Energy Business pending consummation of the Transaction. If the actual amount of such capital expenditures exceeds the required amount, after consummation of the Transaction Tenneco will be required to pay the excess to the Company in cash. Likewise, the Company will be required to pay to Tenneco in cash the amount, if any, by which such actual capital expenditures are less than the required amount. The required amount of Energy Business capital expenditures is equal to $333,200,000 for 1996, plus $27,750,000 per month for each month (or pro rata portion thereof) from January 1, 1997 to the Merger Effective Time. Pursuant to the Cash Realignment, Tenneco will be allocated $25 million of cash and cash equivalents, Newport News will be allocated $5 million of cash and cash equivalents and the Company will be allocated all remaining cash and cash equivalents on hand as of the Merger Effective Time, which would have totalled approximately $200 million if the Transaction had been consummated as of June 30, 1996. Following the post-Transaction audit described above, the Company will be required to pay to each of Tenneco or Newport News, as the case may be, the amount by which such company's total cash and cash equivalents on hand as of the Merger Effective Time is less than the above- described allocation to such company. Likewise, Tenneco and Newport News will each be required to pay to the Company the amount of any excess as of the Merger Effective Time from the above-described allocation. See "The Industrial Distribution--Debt and Cash Realignment." 12 Relationships Among Tenneco, the Company and Newport News after the Distributions...... Tenneco will have no stock ownership in the Company upon consummation of the Industrial Distribution. The Company, Newport News and Tenneco will enter into the Distribution Agreement prior to the Industrial Distribution for the purposes of governing certain ongoing relationships among Tenneco, the Company and Newport News after the Industrial Distribution and to provide for an orderly transition in the disaffiliation of the Industrial Business, the Energy Business and the Shipbuilding Business. The Distribution Agreement provides for, among other things, the Distributions and the allocation among the Company, Tenneco and Newport News of assets and liabilities. The parties will also enter into the Ancillary Agreements, including: (i) the Benefits Agreement, providing for allocations of responsibilities with respect to employee compensation, benefits and labor matters; (ii) the Tax Sharing Agreement pursuant to which Tenneco, the Company and Newport News will allocate liabilities for taxes arising prior to, as a result of, and subsequent to the Distribution Date; (iii) the Debt Realignment plan pursuant to which the Tenneco Energy Consolidated Debt will be restructured, paid and/or refinanced by Tenneco, the Company and Newport News; (iv) the Debt and Cash Allocation Agreement, providing for, among other things, the allocation of cash among, and the restructuring and refinancing of certain of the debt of Tenneco existing prior to the Distributions by (or with funds provided by) the Company, Tenneco and Newport News; (v) the TBS Services Agreement, pursuant to which TBS will continue to provide certain administrative and other services to Tenneco and Newport News for a certain period of time; (vi) the Tenneco Transition Trademark License and the Shipbuilding Transition Trademark License Agreement, which will allow Tenneco and Newport News to use the trademark and tradenames of the Company for certain specified periods of time for certain purposes; and (vii) the Insurance Agreement, providing for, among other things, coverage arrangements for Tenneco, the Company and Newport News in respect of various insurance policies. In addition, pursuant to a Transition Services Agreement, the Company may also provide certain services to Tenneco and El Paso on a transitional basis at prevailing market rates. In addition, the Company and Newport News will share one common director, Dana G. Mead, and the Company and El Paso (which will be the parent of Tenneco) will share one common director, Peter T. Flawn. The Company, Newport News and El Paso will adopt policies and procedures to be followed by the Board of Directors of each company to limit the involvement of Mr. Mead and Dr. Flawn in situations that could give rise to potential conflicts of interest, including requesting them to abstain from voting as a director of either the Company or Newport News, with respect to Mr. Mead, or either the Company or El Paso, with respect to Dr. Flawn, on certain matters which present a conflict of interest between the Company and Newport News or El Paso, as the case might be. The Company believes that such conflict situations will be minimal. See "The Industrial Distribution--Relationships Among Tenneco, the Company and Newport News After the Distributions." 13 RECENT DEVELOPMENTS On October 22, 1996, Tenneco announced consolidated earnings for the nine months ended September 30, 1996. The Company's earnings, on a stand alone basis, for the nine months ended September 30, 1996 and 1995, are summarized below (amounts in millions).
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1996 1995 -------- -------- (UNAUDITED) Revenues............................................... $ 4,886 $ 3,839 ======== ======== Income before interest expense, income taxes and minor- ity interest.......................................... $ 585 $ 551 Interest expense....................................... 145 113 Income tax expense..................................... 171 180 Minority interest...................................... 15 17 -------- -------- Net income............................................. $ 254 $ 241 ======== ========
Tenneco Automotive's revenues for the year to date period increased approximately $360 million. Recent acquisitions contributed $136 million of the increase while the remainder resulted primarily from volume increases. Tenneco Packaging's revenues were $2,671 million for the first nine months of 1996 compared with $1,983 million in 1995. Lower price realizations in the paperboard business were more than offset by revenues from recent acquisitions of approximately $966 million. Operating income for Tenneco Automotive for the first nine months of 1996 was $245 million, an increase of $50 million from the same period in 1995. Of the increase, approximately $21 million was due to recent acquisitions with the remainder primarily due to volume increases. Tenneco Packaging reported operating income of $341 million compared to $355 million in 1995. The lower pricing realizations in the paperboard business were offset by operating income of approximately $127 million from recent acquisitions and a $50 million gain on the sale of two recycled paperboard mills and a recovered fiber recycling and brokerage business to a joint venture. Interest expense increased due to higher borrowings resulting from acquisitions completed late in 1995 and during 1996. 14 INTRODUCTION This Information Statement is being furnished to stockholders of Tenneco in connection with the Industrial Distribution pursuant to which Tenneco intends to distribute to holders of Tenneco Common Stock all of the outstanding shares of Company Common Stock. Concurrently, Tenneco will distribute to holders of Tenneco Common Stock all of the outstanding shares of Newport News Common Stock. The Distributions will occur prior to the consummation of the Merger pursuant to which a subsidiary of El Paso will merge with and into Tenneco (which will, upon consummation of the Merger, be renamed El Paso Tennessee Pipeline Co.) and whereby Tenneco will become a subsidiary of El Paso. It is expected that the Distribution Date of the Industrial Distribution will be on or about December 11, 1996 to holders of record of Tenneco Common Stock on December 11, 1996 (the "Distribution Record Date") on the basis of one share of Company Common Stock for each share of Tenneco Common Stock held of record. In addition, prior to the Industrial Distribution the Company Board will adopt a stockholder rights plan and cause to be issued, with each share of Company Common Stock to be distributed in the Industrial Distribution, one Right, entitling the holder thereof to, among other things, purchase under certain circumstances, and as described more fully herein, one one-hundredth of a share of Company Junior Preferred Stock. No consideration will be required to be paid by holders of Tenneco Common Stock for the shares of Company Common Stock to be distributed in the Industrial Distribution or the Rights associated therewith, nor will holders of Tenneco Common Stock be required to surrender or exchange their shares of Tenneco Common Stock in order to receive such shares of Company Common Stock and the Rights associated therewith. Upon consummation of the Distributions and the Merger (i) holders of Tenneco Common Stock as of the Distribution Record Date and Merger Effective Time will receive the securities of three publicly held companies--the Company, Newport News and El Paso and (ii) holders of Tenneco Preferred Stock (as defined herein) as of the Merger Effective Time will receive El Paso Common Stock. Immediately thereafter, the Company will own and operate the Industrial Business, Newport News will own and operate the Shipbuilding Business and El Paso will own and operate the Energy Business. The Industrial Distribution, the Shipbuilding Distribution and the Merger are separate components of the Transaction. However, the Industrial Distribution, the Shipbuilding Distribution and the Merger as described herein will not be consummated unless the Transaction as a whole is approved at a special meeting of the Tenneco stockholders (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 by Tenneco stockholders). Furthermore, the Industrial Distribution will not be consummated until all other conditions to the Merger have been satisfied (or can be contemporaneously satisfied) other than the filing of a Certificate of Merger with the Secretary of State of Delaware. See "The Industrial Distribution-- Conditions to Consummation of the Industrial Distribution" and "The Industrial Distribution--Amendment or Termination of the Distributions." Stockholders of Tenneco with inquiries relating to the Industrial Distribution should contact the Distribution Agent at (800) 446-2617, or Tenneco Inc., Shareholders Services, 1275 King Street, Greenwich, Connecticut 06831; telephone: (203) 863-1170. 15 THE INDUSTRIAL DISTRIBUTION The following descriptions of certain provisions of the Distribution Agreement and certain of the Ancillary Agreements are only summaries and do not purport to be complete. These descriptions are qualified in their entirety by reference to the complete text of the Distribution Agreement and the Ancillary Agreements. A copy of the Distribution Agreement and each of the Ancillary Agreements as currently agreed to is included as an exhibit to the Company's Registration Statement on Form 10 under the Exchange Act relating to Company Common Stock, and the following discussion with respect to such agreements is qualified in its entirety by reference to the subject agreement as filed. MANNER OF DISTRIBUTION Pursuant to the Distribution Agreement, the Tenneco Board will declare the special distribution necessary to effect the Industrial Distribution and will set the Distribution Record Date and the Distribution Date (which will be prior to the Merger Effective Time). Subject to the conditions summarized below, on the Distribution Date Tenneco will distribute, pro rata to all holders of record of Tenneco Common Stock as of the Distribution Record Date, one share of Company Common Stock for each share of Tenneco Common Stock so held (including the Right associated therewith). Pursuant to the Distribution Agreement as soon as practicable on or after the Distribution Date, Tenneco will deliver to the Distribution Agent, as agent for holders of Tenneco Common Stock as of the Distribution Record Date, certificates representing such shares of Company Common Stock as are required for the Industrial Distribution. If any shares of Company Common Stock are returned to the Distribution Agent as unclaimed or cannot be distributed by the Distribution Agent, any post- Distribution dividends or distributions thereon will be paid to the Distribution Agent (or set aside and retained by the Company). On the 180th day following the Distribution Date, the Distribution Agent will return to Tenneco all unclaimed shares of Company Common Stock and dividends or other distributions with respect thereto. Thereafter, holders of Tenneco Common Stock as of the Distribution Date will be entitled to look only to Tenneco for such amounts to which they are entitled, subject to applicable escheat or other abandoned property laws. NO HOLDER OF TENNECO COMMON STOCK WILL BE REQUIRED TO PAY CASH OR OTHER CONSIDERATION FOR THE SHARES OF COMPANY COMMON STOCK TO BE RECEIVED IN THE INDUSTRIAL DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF TENNECO COMMON STOCK IN ORDER TO RECEIVE COMPANY COMMON STOCK. CORPORATE RESTRUCTURING TRANSACTIONS Prior to consummation of the Distributions (and pursuant to the Distribution Agreement), Tenneco will effect the Corporate Restructuring Transactions. Upon completion of the Corporate Restructuring Transactions, Tenneco's existing businesses and assets will be restructured so that, in general, substantially all of the assets, liabilities and operations of (i) the Industrial Business will be owned and operated, directly or indirectly, by the Company and (ii) the Shipbuilding Business will be owned and operated, directly or indirectly, by Newport News. The remaining assets, liabilities and operations of Tenneco and its remaining subsidiaries will then consist solely of those related to the Energy Business, which includes liabilities and assets relating to discontinued Tenneco operations not related to the Industrial Business or the Shipbuilding Business. The assets which will be owned by the Company upon consummation of the Corporate Restructuring Transactions (the "Industrial Assets") are generally those related to the conduct of the past and current Industrial Business, as reflected on the Unaudited Pro Forma Combined Balance Sheet of the Company as of June 30, 1996 included herein under "Unaudited Pro Forma Combined Financial Statements" which is also attached as an exhibit to the Distribution Agreement (the "Pro Forma Balance Sheet") (plus any subsequently acquired asset which is of a nature or type that would have resulted in such asset being included on the Pro Forma Balance Sheet had it been acquired prior to the date thereof), plus all rights expressly allocated to the Company and its subsidiaries under the Distribution Agreement or any of the Ancillary Agreements. As part of the Corporate Restructuring Transactions, the Company will acquire various corporate assets of Tenneco such as the "Tenneco" trademark and associated rights. The assets which will be owned by Newport News (the "Shipbuilding Assets") upon consummation of the Corporate Restructuring Transactions are generally those related to the conduct of the past and current Shipbuilding Business, as reflected on the Newport News pro forma 16 balance sheet attached as an exhibit to the Distribution Agreement (plus any subsequently acquired asset which is of a nature or type that would have resulted in such asset being included thereon had it been acquired prior to the date thereof), plus all rights expressly allocated to Newport News and its subsidiaries under the Distribution Agreement or any Ancillary Agreement. The remaining assets (the "Energy Assets") will continue to be owned and operated by Tenneco (as a subsidiary of El Paso) following the Transaction. The liabilities to be retained or to be assumed by the Company and for which the Company will be responsible pursuant to the Distribution Agreement (the "Industrial Liabilities") generally include (i) those liabilities related to the Industrial Assets and the current and past conduct of the Industrial Business, including liabilities reflected on the Pro Forma Balance Sheet which remain outstanding as of the Distribution Date (plus subsequently incurred or accrued liabilities determined on a basis consistent with the determination of liabilities thereon), (ii) certain liabilities for possible violations of securities laws in connection with the Transaction and (iii) those liabilities expressly allocated to the Company or its subsidiaries under the Distribution Agreement or any Ancillary Agreement. The liabilities to be retained or assumed by Newport News and for which Newport News will be responsible pursuant to the Distribution Agreement (the "Shipbuilding Liabilities") generally include (i) those liabilities related to the Shipbuilding Assets and the current and past conduct of the Shipbuilding Business, including liabilities reflected on the aforementioned Newport News pro forma balance sheet which remain outstanding as of the Distribution Date (plus subsequently incurred or accrued liabilities determined on a basis consistent with the determination of liabilities thereon), (ii) certain liabilities for possible violations of securities laws in connection with the Transaction and (iii) those liabilities expressly allocated to Newport News or its subsidiaries under the Distribution Agreement or any Ancillary Agreement. The liabilities to be retained or assumed by Tenneco and for which Tenneco will be responsible pursuant to the Distribution Agreement (the "Energy Liabilities") generally include (i) those liabilities related to the Energy Assets and the current and past conduct of the Energy Business, including liabilities reflected on the Tenneco pro forma balance sheet attached as an exhibit to the Distribution Agreement which remain outstanding as of the Distribution Date (plus subsequently incurred or accrued liabilities determined on a basis consistent with the determination of liabilities thereon), (ii) those liabilities expressly allocated to Tenneco or its subsidiaries under the Distribution Agreement or any Ancillary Agreement and (iii) all other liabilities of Tenneco or any other member of the Energy Group which do not constitute Industrial Liabilities or Shipbuilding Liabilities. In connection with the Corporate Restructuring Transactions, the Company expects to obtain all consents relating to its material contracts necessary to effect the Transaction. For a description of certain liabilities that will be expressly allocated among Tenneco, the Company and Newport News by the Distribution Agreement and Ancillary Agreements, including liability for the Tenneco Consolidated Debt, taxes and certain employee benefits, see "--Debt and Cash Realignment" and "-- Relationships Among Tenneco, the Company and Newport News After the Distributions." DEBT AND CASH REALIGNMENT From and after the Distributions, each of Tenneco, the Company and Newport News will, in general, be responsible for the debts, liabilities and obligations related to the business or businesses that it owns and operates following consummation of the Corporate Restructuring Transactions. See "-- Corporate Restructuring Transactions." However, Tenneco's historical practice has been to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Accordingly, the Merger Agreement, the Distribution Agreement and the Ancillary Agreements provide for (i) the pre-Distribution restructuring of the Tenneco Energy Consolidated Debt pursuant to the Debt Realignment, (ii) the allocation among each of Tenneco, the Company and Newport News of the total amount of the cash and cash equivalents on hand as of the Merger Effective Time pursuant to the Cash Realignment and (iii) settlement payments with respect to certain capital expenditures related to the Energy Business, all as described below. The Debt Realignment is intended to facilitate the disaffiliation of the Industrial Business, the Energy Business and the Shipbuilding Business in connection with the Distributions and to facilitate the Merger. 17 Additionally, the Debt Realignment is intended to reduce the total amount of the Tenneco Energy Consolidated Debt to an amount that, when added to certain other liabilities and obligations of Tenneco outstanding as of the Merger Effective Time (the "Actual Energy Debt Amount"), equals $2.65 billion, less the proceeds of the NPS Issuance and subject to certain other specified adjustments (the "Base Amount"). As of June 30, 1996, the total book value of Tenneco Energy Consolidated Debt was $4,443 million, including $3,734 million book value ($3,955 million principal amount) of Tenneco Public Debt. The Debt and Cash Allocation Agreement to be entered into among the Company, Tenneco and Newport News (the "Debt and Cash Allocation Agreement") contemplates that, as of the Merger Effective Time, the Actual Energy Debt Amount be limited to the Base Amount. The "Base Amount" will equal $2.65 billion less the proceeds to Tenneco from the sale of Tenneco Junior Preferred Stock issued pursuant to the NPS Issuance plus (i) the sum of (a) the amount of all cash payments made by Tenneco and any of its subsidiaries after the date of the Merger Agreement to the Merger Effective Time with respect to Tenneco gas purchase contracts as a result or in respect of any settlement, judgment or satisfaction of a bond in excess of the market price for gas received by Tenneco and/or any of its subsidiaries reduced by the amount of any cash payments received by Tenneco and its subsidiaries from customers, insurers or other third parties with respect thereto (other than ones refunded prior to the Merger Effective Time) or with respect to any gas supply realignment costs which are so recovered (and not refunded) on or prior to the Merger Effective Time, (b) the amount of any purchase price paid by Tenneco or its subsidiaries to acquire an additional interest in certain pipeline operations prior to the Merger Effective Time and (c) the amount of all cash payments made from the date of the Merger Agreement to the Merger Effective Time by any member of the Energy Business in settlement of any significant claim, action, suit or proceeding to the extent such matter would be an Energy Liability with the consent of El Paso (less the amount of related recoveries in respect thereof from third parties), and less (ii) the amount, calculated as of the Merger Effective Time, of any rate refunds, including interest, which become payable to customers pursuant to the finally approved settlement of a certain gas rate case which have not been paid as of the Merger Effective Time. The Actual Energy Debt Amount is defined by the Debt and Cash Allocation Agreement to consist of (1) outstanding amounts of borrowings by Tenneco under a new credit facility to be entered into by Tenneco in connection with the Transaction (plus accrued and accreted interest and fees), (2) the value of remaining Tenneco Public Debt after the Tenneco Debt Tender Offers (as defined below) and the Debt Exchange Offers, (3) the outstanding amount of other Tenneco Energy Consolidated Debt (plus accrued and accreted interest and fees), (4) the unpaid amount of Transaction expenses incurred by Tenneco and its subsidiaries, (5) any sales and use, gross receipt or other transfer taxes applicable to the Transaction, (6) certain income taxes resulting from the Transaction, (7) the outstanding amount of any off-balance sheet indebtedness incurred after the date of the Merger Agreement to finance the acquisition by Tenneco of an additional interest in the aforesaid pipeline assets and (8) unpaid dividends on Tenneco Common Stock and Tenneco Preferred Stock (as defined herein) which have a record date before the Merger Effective Time. A post-Transaction audit will be conducted and if the Actual Energy Debt Amount as of the Merger Effective Time exceeds the Base Amount, the Company will be required to pay the excess to Tenneco in cash. Likewise, Tenneco will be required to pay to the Company in cash the amount, if any, by which such Actual Energy Debt Amount is less than the Base Amount. The Debt Realignment is expected to create tax benefits to Tenneco of approximately $120 million. Pursuant to the tax sharing agreement to be entered into by Tenneco, the Company and Newport News in connection with the Distribution, any such tax benefits will be allocated to the Company. For a description of this tax sharing arrangement, see "The Industrial Distribution-- Relationships Among Tenneco, the Company and Newport News After the Distributions--Tax Sharing Agreement." Also as part of the Debt Realignment, Tenneco has agreed to make certain minimum capital expenditures with respect to the Energy Business pending consummation of the Transaction. If the actual amount of such capital expenditures exceeds the required amount, after consummation of the Transaction, Tenneco will be required to pay the excess to the Company in cash. Likewise, the Company will be required to pay to Tenneco in cash the amount, if any, by which such actual capital expenditures are less than the required amount. The required amount of Energy Business capital expenditures is equal to $333,200,000 for 1996, plus $27,750,000 per month for each month (or pro rata portion thereof) from January 1, 1997 to the Merger Effective Time. 18 Pursuant to the Cash Realignment, as of the Merger Effective Time Tenneco will be allocated $25 million of cash and cash equivalents, Newport News will be allocated $5 million of cash and cash equivalents and the Company will be allocated all remaining cash and cash equivalents on hand which would total approximately $200 million if the Transaction had been consummated as of June 30, 1996. Following the post-Transaction audit described above, the Company will be required to pay to each of Tenneco or Newport News, as the case may be, the amount by which such company's total cash and cash equivalents on hand as of the Merger Effective Time is less than the above-described allocation to such company, as the case may be. Likewise, Tenneco and Newport News will each be required to pay to the Company the amount of any excess cash and cash equivalents as of the Merger Effective Time from the above-described allocation determined pursuant to such audit. The Merger Agreement contemplates that Tenneco, in its discretion, will, or will cause its relevant subsidiaries to, (i) defease or let mature approximately $428 million of Tenneco Public Debt and (ii) offer to purchase for cash approximately $1,580 million of aggregate principal amount of Tenneco Public Debt prior to the Distributions (the "Tenneco Debt Tender Offers"). As of June 30, 1996, there was outstanding approximately $4,443 million in net book value of Tenneco Energy Consolidated Debt. The defeasences and Tenneco Debt Tender Offers described above, as well as the retirement of existing short-term and certain non-public debt, will be financed by internally generated cash, borrowings by Tenneco under a new credit facility to be entered into by Tenneco in connection with the Transaction, the net proceeds received by Tenneco from the NPS Issuance, the sale of certain Tenneco Credit Corporation receivables and a cash dividend of $600 million to be paid by Newport News to Tenneco or one or more of its subsidiaries principally using borrowings under one or more credit facilities and/or financings to be entered into by Newport News in connection with the Transaction. The balance of the funding will be financed by a cash dividend to be paid by the Company to Tenneco principally using borrowings under the $1,750 million Company Credit Facility. See "Financing." Also in connection with the Debt Realignment, the Company will offer to exchange up to $1,950 million of aggregate principal amount of Company Public Debt for an equal amount of Tenneco Public Debt pursuant to the Debt Exchange Offers. The Company Public Debt will have similar maturities, but higher interest rates than the Tenneco Public Debt for which it is being exchanged. Upon consummation of the Debt Exchange Offer, Tenneco will purchase for cash (and thereafter extinguish) the Tenneco Public Debt held by the Company, and the Company will then distribute such proceeds as a dividend to Tenneco. Assuming all of the Tenneco Public Debt subject to the Debt Exchange Offers is tendered and accepted for exchange, the Company will have $1,950 million aggregate principal amount of Company Public Debt outstanding bearing interest at a weighted average of approximately 8.38% and with a weighted average maturity of approximately 11 years. Concurrently with the Debt Exchange Offer, the Company will solicit consents from the holders of the Tenneco Public Debt to certain amendments to the indenture governing such Tenneco Public Debt which would specifically permit Tenneco to consummate the Distributions and the transactions contemplated thereby without compliance with a covenant that, if held to apply, might otherwise require each of the Company and Newport News to become a co-obligor of the Tenneco Public Debt issued under such indenture in connection therewith (the application of which the Company and Tenneco believe, in any event, is uncertain in these circumstances). Consummation of the Debt Exchange Offers is conditioned on, among other things, acceptance of the Debt Exchange Offers and the Tenneco Debt Tender Offers by holders of at least a majority of the aggregate principal amount of the Tenneco Public Debt of all series taken together such that the necessary amendments to the relevant indenture have been approved. The offering of the Company Public Debt in the Debt Exchange Offers will be made by means of a separate prospectus that constitutes a part of the Company's Registration Statement on Form S-4 (File No. 333-14003) which has been filed with the SEC. If the Debt Realignment and the acquisitions of Clevite and Amoco Foam Products had been consummated on June 30, 1996, on a pro forma basis the Company would have had total indebtedness for money borrowed of approximately $2,145 million. See "Unaudited Pro Forma Consolidated Financial Statements." 19 RELATIONSHIPS AMONG TENNECO, THE COMPANY AND NEWPORT NEWS AFTER THE DISTRIBUTIONS The businesses to be owned and operated by the Company following consummation of the Industrial Distribution have historically been included in Tenneco's consolidated financial results. After the Transaction, neither the Company, Tenneco nor Newport News will have an ownership in the others. The Company and Newport News will be independent, publicly held companies, while Tenneco will become a subsidiary of El Paso. Prior to the Distributions Tenneco, the Company and Newport News will enter into the Distribution Agreement which governs certain aspects of their relationships both prior to and following the Distributions. In addition, prior to the Distributions, Tenneco, the Company and/or Newport News (and their appropriate subsidiaries) will enter into the Ancillary Agreements which are intended to further effect the disaffiliation of the Energy Business, the Industrial Business and the Shipbuilding Business and to govern certain additional aspects of their ongoing relationships. Terms of the Distribution Agreement In addition to providing for the terms of the Distributions and the various actions to be taken prior to the Distributions, the Distribution Agreement contains other provisions governing the relationship among Tenneco, the Company and Newport News prior to and following the Distributions. The Distribution Agreement provides that from and after the Distribution Date (i) Tenneco will (and will cause the other members of the Energy Business to) assume, pay, perform and discharge all Energy Liabilities in accordance with their terms, (ii) the Company will (and will cause the other members of the Industrial Business to) assume, pay, perform and discharge all of the Industrial Liabilities in accordance with their terms and (iii) Newport News will (and will cause the other members of the Shipbuilding Business to) assume, pay, perform and discharge all Shipbuilding Liabilities in accordance with their terms. In addition, the Distribution Agreement provides for cross-indemnities such that (i) Tenneco must indemnify the Company and Newport News (and their respective subsidiaries, their directors, officers, agents and employees, and certain other related parties) against all losses arising out of or in connection with the Energy Liabilities or the breach of the Distribution Agreement or any Ancillary Agreement by Tenneco, (ii) the Company must indemnify Tenneco and Newport News (and their respective subsidiaries, their directors, officers, agents and employees, and certain other related parties) against all losses arising out of or in connection with the Industrial Liabilities or the breach of the Distribution Agreement or any Ancillary Agreement by the Company and (iii) Newport News must indemnify Tenneco and the Company (and their respective subsidiaries, their directors, officers, agents and employees, and certain other related parties) against all losses arising out of or in connection with the Shipbuilding Liabilities or the breach of the Distribution Agreement or any Ancillary Agreement by Newport News. Notwithstanding the foregoing cross-indemnification provisions, the Company and Newport News have agreed to certain other arrangements with respect to certain inquiries from the Defense Contract Audit Agency (the "DCAA") concerning the disposition of the Tenneco Inc. Retirement Plan (the "Tenneco Retirement Plan"), which covers salaried employees of Newport News and other Tenneco divisions. The DCAA has been advised that (i) the Tenneco Retirement Plan will retain the liability for all benefits accrued by Newport News' employees through the Distribution Date, (ii) Newport News' employees will not accrue additional benefits under the Tenneco Retirement Plan after the Distribution Date and (iii) no liabilities or assets of the Tenneco Retirement Plan will be transferred from the Tenneco Retirement Plan to any plan maintained by Newport News. A determination of the ratio of assets to liabilities of the Tenneco Retirement Plan attributable to Newport News will be based on facts, assumptions and legal issues which are complicated and uncertain; however, it is likely that the Government will assert a claim against Newport News and/or the Company with respect to the amount, if any, by which the assets of the Tenneco Retirement Plan attributable to Newport News' employees are alleged to exceed the liabilities. The Company, with the full cooperation of Newport News, will defend against any claim 20 by the Government and, in the event there nevertheless is a determination that an amount with respect to this matter is due to the Government, the Company and Newport News will share the obligation for such amount and related defense expenses in the ratio of 80% and 20%, respectively. Although at this preliminary stage it is impossible to predict with certainty any eventual outcome regarding this matter, the Company does not believe that this matter will have a material adverse effect on its financial condition or results of operations. Pursuant to the Distribution Agreement, each of the parties has agreed to use all reasonable efforts to take or cause to be taken all action, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate the transactions contemplated by and carry out the purposes of the Distribution Agreement. As such, the Distribution Agreement provides that if any contemplated pre-Distribution transfers and assignments have not been effected on or prior to the Distribution Date, the parties will cooperate to effect such transfers as quickly thereafter as practicable. The entity retaining any asset or liability which should have been transferred prior to the Distribution Date will continue to hold that asset for the benefit of the party entitled thereto or that liability for the account of the party required to assume it, and must take such other action as may be reasonably requested by the party to whom such asset was to be transferred or by whom such liability was to be assumed in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or liability been transferred or assumed as contemplated by the Distribution Agreement. The Distribution Agreement provides for the transfer of books and records among Tenneco, the Company and Newport News and their respective subsidiaries and grants to each party access to certain information in the possession of the others (subject to certain confidentiality requirements). In addition, the Distribution Agreement provides for the allocation of shared privileges with respect to certain information and requires each party to obtain the consent of the others prior to waiving any shared privilege. Terms of the Ancillary Agreements Below are descriptions of the principal Ancillary Agreements to be entered into by Tenneco, the Company and/or Newport News (and, in certain circumstances, their appropriate subsidiaries) prior to consummation of the Distributions, as required under the terms of the Distribution Agreement. The Ancillary Agreements are intended to further effectuate the disaffiliation of the Industrial Business and the Shipbuilding Business from the Energy Business and to facilitate the operation of each of Tenneco, the Company and Newport News as a separate entity. Benefits Agreement. The Benefits Agreement to be entered into among Tenneco, the Company and Newport News (the "Benefits Agreement") will define certain labor, employment, compensation and benefit matters in connection with the Distributions and the transactions contemplated thereby. Pursuant to the Benefits Agreement, from and after the Distribution Date, each of Tenneco, the Company and Newport News will continue employment of each of their respective retained employees (subject to their rights to terminate said employees) with the same compensation as prior to the Distribution Date, continue to honor all related existing collective bargaining agreements, recognize related incumbent labor organizations and continue sponsorship of hourly employee benefit plans. The Company will become the sole sponsor of the Tenneco Retirement Plan and of the Tenneco Inc. Thrift Plan (the "Tenneco Thrift Plan") from and after the Distribution Date, and Tenneco and Newport News will establish defined contribution plans for the benefit of each of their respective employees to which the account balances of retained and former employees of Tenneco and Newport News in the Tenneco Thrift Plan will be transferred. The benefits accrued by Tenneco and Newport News employees in the Tenneco Retirement Plan will be frozen as of the last day of the calendar month including the Distribution Date, and the Company will amend the Tenneco Retirement Plan to provide that all benefits accrued through that day by Tenneco and Newport News employees are fully vested and non-forfeitable. Tenneco will retain and assume employment contracts with certain individuals related to the Energy Business. All liabilities under the Tenneco Inc. Benefit Equalization Plan and the Supplemental Executive Retirement Plan will be assumed by the Company pursuant to the Benefits Agreement; however, the Company is entitled to reimbursement for certain payments thereunder from Tenneco and Newport News. Generally, each of Tenneco, the Company and Newport News will retain liabilities with respect to the welfare benefits of its current and former employees and their 21 dependents, but Tenneco will assume all liabilities for retiree medical benefits of the employees of discontinued operations and their dependents. In addition, as of the Distribution Date, participation by retained and former employees of Tenneco and Newport News in the Tenneco Inc. Deferred Compensation Plan and the Tenneco Inc. 1993 Deferred Compensation Plan will be discontinued. See "Management." Debt and Cash Allocation Agreement. The Debt and Cash Allocation Agreement will govern the allocation among the parties of cash and cash equivalents of Tenneco and its subsidiaries on hand as of the Merger Effective Time, the Tenneco Consolidated Debt and settlement payments with respect to certain capital expenditures related to the Energy Business pursuant to the Cash Realignment and Debt Realignment, as described above. See "--Debt and Cash Realignment." Insurance Agreement. Tenneco has historically maintained at the parent- company level various insurance policies for the benefit or protection of itself and its subsidiaries. The Insurance Agreement to be entered into among Tenneco, the Company and Newport News (the "Insurance Agreement") will provide for the respective continuing rights and obligations from and after the Distribution Date of the parties with respect to these insurance policies other than directors' and officers' liability insurance policies (which are addressed by the Merger Agreement). In general, following consummation of the Transaction policies which relate exclusively to the Energy Business will be retained by and be the sole responsibility of Tenneco, policies which relate exclusively to the Industrial Business will be retained by the Company and policies which relate exclusively to the Shipbuilding Business will be retained by Newport News. Pursuant to the Insurance Agreement, any non-exclusive Tenneco policies which are in effect as of the Distribution Date (other than those which are cost plus, fronting, high deductible or retrospective premium programs, as described below) will either be transferred into the name of the Company or cancelled, at the Company's option. In general, "go-forward" coverage under these policies for the Energy Business and Shipbuilding Business (and certain related persons) will be terminated as follows: (i) coverage under "claims-made" policies (i.e., those policies which provide coverage for claims made during a specified period) will be terminated on the Distribution Date for any claims not made prior thereto and (ii) coverage under "occurrence-based" policies (i.e., those policies which provide coverage for acts or omissions occurring during a specified period) will be terminated on the Distribution Date for acts or omissions occurring thereafter. However, the Energy Business, Industrial Business and Shipbuilding Business (and certain related persons) will all continue to have access to these policies ("go-backward" coverage) for claims made prior to the Distribution Date, in the case of claims-made policies, and for acts or omissions which occurred prior to the Distribution Date, in the case of occurrence-based policies (subject to certain obligations to replace any policy limits exhausted by it). Each respective group will be liable for premiums, costs and charges under these policies that relate to its coverage thereunder (and will likewise get the benefit of any refunded amounts). Pursuant to the Insurance Agreement, policies which are cost plus, fronting, high deductible or retrospective premium programs will be retained by the Energy Business following the Distributions and will provide no go-forward coverage to the Industrial Business or Shipbuilding Business. However, go- backward coverage will continue to be available to these groups, subject to an obligation to reimburse Tenneco for premiums, costs and charges under these policies related to their respective coverages following the Distributions. Following the Transaction, Tenneco will be required to maintain in place certain letters of credit and surety bonds securing obligations under these policies. Tax Sharing Agreement. The Tax Sharing Agreement to be entered into among Tenneco, the Company, Newport News and El Paso (the "Tax Sharing Agreement") will provide for the allocation of tax liabilities among the parties arising prior to, as a result of, and subsequent to the Distributions. As a general rule, Tenneco will be liable for all taxes not specifically allocated to the Company or Newport News under the specific terms of the Tax Sharing Agreement. Generally, the Company will be liable for taxes imposed exclusively on the Company and its affiliates engaged in the Industrial Business (the "Industrial Group"), and Newport News will 22 be liable for taxes imposed exclusively on Newport News and its affiliates engaged in the Shipbuilding Business (the "Shipbuilding Group") (including for pre-Transaction periods, taxes imposed on Newport News). In the case of federal income taxes imposed on the combined activities of Tenneco, the Industrial Group and the Shipbuilding Group, each of the Company and Newport News will be liable to Tenneco for federal income taxes attributable to their activities, and each will be allocated an agreed-upon share of estimated tax payments made by the Tenneco consolidated group, except that (i) tax benefits attributable to the Debt Realignment ("Debt Discharge Items"), presently anticipated to total approximately $120 million, will be specifically allocated to the Industrial Group and Tenneco will make a cash payment to the Company equal to the amount of such tax benefits when and to the extent realized by Tenneco and (ii) tax benefits attributable to certain items included in the Base Amount ("Base Amount Adjustment Items") will be specifically allocated to Tenneco. The Company will also be responsible for tax items attributable to certain discontinued operations of Tenneco to the extent that such items exceed forecasted amounts by more than a specified amount. In the case of state income taxes imposed on the combined activities of the business groups, Tenneco will be responsible for payment of the combined tax to the state tax authority, and the Company and Newport News will pay Tenneco a deemed tax equal to the tax that would be imposed if the Industrial Group and the Shipbuilding Group had filed combined returns for their respective groups, except that Debt Discharge Items and Base Amount Adjustment Items will be specifically allocated to the Company and Tenneco, respectively. In general, and except as provided below, Tenneco will be responsible for any taxes imposed on or resulting from the Transaction ("Transaction Taxes"). The Company will be responsible for any Transaction Taxes resulting from any inaccuracy in factual statements or representations in connection with the IRS Ruling Letter or the opinion of counsel contemplated by the Merger Agreement (the "Tax Opinion") to the extent attributable to facts in existence prior to the Merger, but excluding facts relating to the Shipbuilding Group or El Paso. Newport News and El Paso will each be responsible for the accuracy of any factual statements or representations relating to them or their respective affiliates. Each of the Company, Newport News and El Paso will be responsible for any Transaction Tax to the extent such tax is attributable to action taken by that entity which is inconsistent with tax treatment contemplated in the IRS Ruling Letter received in the Transaction or the Tax Opinion. Certain Transaction Taxes (i.e., transfer taxes, and federal and state income taxes imposed on those Corporate Restructuring Transactions which are known to be taxable) are included in the determination of the Actual Energy Debt Amount and consequently may be economically borne by the Company (because the Company must pay to Tenneco in cash the amount, if any, by which the Actual Energy Debt Amount exceeds the Base Amount). If between the date of the Merger Agreement and the Merger Effective Time, there is a change in law (as defined in the Tax Sharing Agreement) and as a result of such change in law Tenneco is required to restore certain deferred gains to income, then any resulting tax will be shared equally between the Company and Tenneco. Transition Services Agreement. TBS currently provides certain administrative and other services to Tenneco, including mainframe computing services, backup, recovery and related operations, consulting services and payroll services. Under the Transition Services Agreement to be entered into among Tenneco, TBS and El Paso (the "Transition Services Agreement"), at the request of El Paso at least 45 days prior to the Merger Effective Time, TBS (which will, following the Distributions, be a subsidiary of the Company) will continue to provide the services specified in El Paso's request for a period of 12 months from the Merger Effective Time at a price to be negotiated among the parties and based on the market rate for comparable services. If elected, any or all of the services may be terminated by Tenneco on 45 days notice to TBS. TBS Services Agreement. TBS will enter into a series of separate services agreements (the "Service Agreements"), as described below, with Newport News and the Company (and its subsidiaries other than TBS), which together will constitute the "TBS Services Agreement" which is to be delivered as an "Ancillary Agreement" under the Distribution Agreement. One of the Service Agreements between TBS and Newport News will be for mainframe data processing services (the "NNS Processing Services Agreement"). Under the NNS Processing Services Agreement, TBS will supply, as a vendor, mainframe data processing services to Newport News for a period from the Merger 23 Effective Time through December 31, 1998, and thereafter only by mutual agreement. The rate of compensation to TBS for services will be $9.1 million in 1997 and $9.6 million in 1998, payable in monthly installments, subject to adjustment if Newport News requests a change in the scope of services. TBS will lease the space currently used by it at the Newport News headquarters in Newport News, Virginia for the period from the Merger Effective Time through December 31, 1998, with an option for TBS to extend for one month periods for up to 12 months, for continued use by TBS as its mainframe data processing facility. The rent under such lease will be approximately $1.2 million per year plus pass-throughs of certain occupancy-related costs. TBS has also entered into a Supplier Participation Agreement (the "NNS Supplier Participation Agreement") with Newport News to govern the procedures under which Newport News will continue to participate with the Company in vendor purchase agreements between TBS and various suppliers of goods and services. The NNS Supplier Participation Agreement will provide for continued participation of Newport News in various purchase programs, absent a termination for cause, for the full existing terms of the agreements with each such vendor. Under this Agreement, as is the case currently, purchases of goods and services will be made directly by Newport News at prices negotiated by TBS which are applicable to all participating purchasers. TBS will charge Newport News a fixed fee of $5,000 per month for TBS contract administration services including data collection, negotiations, progress reporting, benefits reporting, follow-up and consulting in connection with the vendor agreements. Additionally, as described above, a separate Service Agreement may also be entered into with Tenneco for transitional services to be supplied by TBS to Tenneco and its subsidiaries. The services covered and the compensation for such services would depend on the services elected by Tenneco, and negotiations among the parties pursuant to the Transition Services Agreement. Trademark Transition License Agreements. Upon consummation of the Corporate Restructuring Transactions, the Company will hold the rights to various trademarks, servicemarks, tradenames and similar intellectual property, including rights in the marks "Tenneco," "Ten" and "Tenn" (but not "Tennessee"), alone and in combination with other terms and/or symbols and variations thereof (collectively, the "Trademarks"), in the United States and elsewhere throughout the world. In connection with the Distributions, Trademark Transition License Agreements will be entered into as of the Distribution Date between both (i) the Company and Tenneco and (ii) the Company and Newport News. Pursuant to these agreements the Company will grant to each of Tenneco and Newport News a limited, non-exclusive, royalty-free license to use the Trademarks with respect to specified goods and services as follows: (a) Tenneco and Newport News will be permitted to use the Trademarks in their corporate names for 30 days after the date of the agreements (and, pursuant to the Distribution Agreement, each have agreed to remove the Trademarks from such corporate names within 30 days after the Distribution Date); (b) Tenneco and Newport News will be permitted to use their existing supplies and documents which have the Trademarks imprinted on them for six months after the date of the agreements; and (c) Tenneco and Newport News will be permitted to use the Trademarks on existing signs, displays or other identifications for a period (after the date of the agreements) of two years (in the case of Tenneco) and one year (in the case of Newport News). However, so long as Tenneco or Newport News continues to use the Trademarks, it must maintain certain quality standards prescribed by the Company in the conduct of business operations in which the Trademarks are used. In addition, under these agreements each of Tenneco and Newport News will agree to indemnify the Company from any claims that arise as a result of its use of the Trademarks or any breach of its agreement and neither Tenneco nor Newport News may adopt or use at any time a word or mark likely to be similar to or confused with the Trademarks. Each Trademark Transition License Agreement will be immediately terminable by the Company upon a material breach of the agreement by Tenneco or Newport News, as the case may be. Directors After the Distribution Date, the Company and Newport News will share one common director, Dana G. Mead, and the Company and El Paso (which will be the parent of Tenneco) will share one common director, Peter T. Flawn. The Company, Newport News and El Paso will adopt policies and procedures to be followed by 24 the Board of Directors of each company to limit the involvement of Mr. Mead and Dr. Flawn in situations that could give rise to potential conflicts of interest, including requesting them to abstain from voting as a director of either the Company or Newport News, with respect to Mr. Mead, or either the Company or El Paso, with respect to Dr. Flawn, on certain matters which present a conflict of interest between the Company and Newport News or El Paso, as the case might be. The Company believes that such conflict situations will be minimal. See "Management." Expenses In general, and except for certain environmental costs and expenses, Tenneco is responsible for all fees and expenses incurred by Tenneco in connection with the Transaction for periods prior to the Distribution Date. Any such fees and expenses which are unpaid as of the Merger Effective Time will be allocated to and remain the responsibility of Tenneco pursuant to the Debt Realignment, and El Paso has agreed to pay or cause to be paid all such amounts. However, because the aggregate amount of debt to be allocated upon consummation of the Merger to Tenneco is limited to $2.65 billion (subject to certain adjustments), the amount of unpaid Tenneco transaction fees and expenses as of the Merger Effective Time may impact the amount of debt allocated to the Company in connection with the Transaction. See "--Debt and Cash Realignment." Each party has agreed to bear its own respective fees and expenses incurred after consummation of the Transaction. Settlement of Intercompany Accounts Pursuant to the Merger Agreement and the Distribution Agreement, all intercompany receivables, payables and loans (unless specifically provided for in any Ancillary Agreement) among the Energy Business, the Industrial Business and the Shipbuilding Business will be settled, capitalized or converted into ordinary trade accounts as of the close of business on the Distribution Date. Further, all intercompany agreements among such businesses (other than those contemplated by the Transaction) will be terminated. REASONS FOR THE DISTRIBUTIONS The Distributions and the Merger are designed to separate three types of businesses, namely the Industrial Business, the Shipbuilding Business and the Energy Business, which have distinct financial, investment and operating characteristics, so that each can adopt strategies and pursue objectives appropriate to its specific needs. The Distributions will (i) enable the management of each company to concentrate its attention and financial resources on the core businesses of such company, (ii) permit investors to make more focused investment decisions based on the specific attributes of each of the three businesses, (iii) facilitate employee compensation programs custom- tailored to the operations of each business, including stock-based and other incentive programs, which will more directly reward employees of each business based on the success of that business and (iv) tailor the assets of Tenneco to facilitate the acquisition of the Energy Business by El Paso. Upon consummation of the Industrial Distribution, the Company will, primarily through its consolidated subsidiaries, own and operate Tenneco Automotive, Tenneco Packaging and TBS, and Newport News will, primarily through its consolidated subsidiaries (principally Newport News Shipbuilding and Dry Dock Company), own and operate the Shipbuilding Business. Immediately following consummation of the Distributions, a subsidiary of El Paso will be merged with and into Tenneco, and thereafter the Energy Business will be owned and operated by El Paso. CONDITIONS TO CONSUMMATION OF THE INDUSTRIAL DISTRIBUTION The Industrial Distribution is conditioned on, among other things, stockholder approval of the Distributions by the holders of Tenneco Stock (as defined) at a special meeting of the Tenneco stockholders and by holders of Tenneco Junior Preferred Stock, if issued prior to the effectiveness of the Charter Amendment, and formal declaration of the Distributions by the Tenneco Board. Other conditions to the Industrial Distribution include (i) execution and delivery of the Distribution Agreement and the Ancillary Agreements and consummation of the various pre-Distribution transactions (such as the Corporate Restructuring Transactions, the Debt Realignment and the Cash Realignment), (ii) receipt of the IRS Ruling Letter to the effect that for federal income tax purposes 25 the Distributions qualify as tax-free distributions to Tenneco and its stockholders under Section 355 of the Code (as defined herein) and that certain internal spin-off transactions involving Tenneco or its subsidiaries to be effected pursuant to the Corporate Restructuring Transactions will qualify as tax-free (see "--Certain Federal Income Tax Aspects of the Industrial Distribution"), (iii) approval for listing on the New York Stock Exchange of Company Common Stock and Newport News Common Stock to be distributed, (iv) registration of Company Common Stock and Newport News Common Stock under the Exchange Act, (v) receipt of all material consents to the Corporate Restructuring Transactions, the Distributions and transactions contemplated in the Distribution Agreement, (vi) performance of the various covenants required to be performed prior to the Distribution Date (see "--Corporate Restructuring Transactions," "--Debt and Cash Realignment" and "--Relationships Among Tenneco, the Company and Newport News After the Distributions") and (vii) lack of prohibition of the Distributions by any law or governmental authority. Even if all the conditions to the Distributions are satisfied, Tenneco has reserved the right, under certain circumstances, to amend or terminate the Distribution Agreement and to modify or abandon the transactions contemplated thereby. The Tenneco Board has not attempted to identify or establish objective criteria for evaluating the particular types of events or conditions that would cause the Tenneco Board to consider amending or terminating the Distributions. See "-- Amendment or Termination of the Distributions." Although the foregoing conditions (other than declaration of the Distributions) may be waived by Tenneco (to the extent permitted by law), the Tenneco Board presently has no intention to proceed with either of the Distributions unless each of these conditions is satisfied. See "Introduction." AMENDMENT OR TERMINATION OF THE DISTRIBUTIONS Prior to the Distributions, the Distribution Agreement may be terminated and the Distributions may be amended, modified or abandoned by Tenneco without the approval of the Company or Newport News or the stockholders of Tenneco, subject to the consent of El Paso as described below. Any amendment or modification prior to the termination of the Merger Agreement or consummation of the Merger which adversely affects the Energy Business (other than to a de minimis extent) or materially delays or prevents the consummation of the Merger can be effectuated only with the prior consent of El Paso. Termination of the Distribution Agreement prior to the termination of the Merger Agreement or consummation of the Merger can be effectuated only with the prior written consent of El Paso. After consummation of the Distributions, the Distribution Agreement may be amended or terminated only by a written agreement signed by Tenneco, the Company and Newport News. Certain amendments or terminations after the Distributions also require the consent of third-party beneficiaries to the extent that the Distribution Agreement has expressly granted them such rights. TRADING OF COMPANY COMMON STOCK See "Risk Factors--No Current Market for Company Common Stock" and "Risk Factors--Uncertainty Regarding Trading Prices of Stock Following the Transaction" for a discussion of certain considerations relating to the market for and trading prices of Company Common Stock following the Industrial Distribution. Shares of Company Common Stock received by shareholders of Tenneco pursuant to the Industrial Distribution will be freely transferable, except for shares received by persons who may be deemed to be "affiliates" of the Company under the Securities Act of 1933, as amended (the "Securities Act"). Persons who are affiliates of the Company will be permitted to sell their shares of Company Common Stock, only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act. There would not, however, be any 90-day waiting period before sales could be made by affiliates under Rule 144 of the Securities Act, as long as the other provisions of Rule 144 are met. CERTAIN FEDERAL INCOME TAX ASPECTS OF THE INDUSTRIAL DISTRIBUTION General The following is a summary description of the material federal income tax aspects of the Industrial Distribution. This summary is for general informational purposes only and is not intended as a complete 26 description of all of the tax consequences of the Industrial Distribution, the Shipbuilding Distribution, the Merger or the other transactions contemplated as part of the Transaction and does not discuss tax consequences under the laws of state or local governments or any other jurisdiction. Moreover, the tax treatment of a stockholder may vary depending upon his, her or its particular situation. In this regard, certain stockholders (including insurance companies, tax-exempt organizations, financial institutions or broker-dealers, persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships or foreign trusts or estates, as defined for United States federal income tax purposes, stockholders that hold shares as part of a position in a "straddle" or as part of a "hedging" or "conversion" transaction for United States federal income tax purposes and stockholders with a "functional currency" other than the United States dollar) may be subject to special rules not discussed below. In addition, this summary applies only to shares which are held as capital assets. The following discussion may not be applicable to a stockholder who acquired his or her shares pursuant to the exercise of stock options or otherwise as compensation. THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), EXISTING, PROPOSED AND TEMPORARY TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, WHICH MAY OR MAY NOT BE RETROACTIVE, AND ANY SUCH CHANGES COULD AFFECT THE VALIDITY OF THE FOLLOWING DISCUSSION. SEE "POSSIBLE FUTURE LEGISLATION" BELOW. EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION DESCRIBED HEREIN, INCLUDING, THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS. Tax Rulings Consummation of the Industrial Distribution is conditioned upon the receipt of the IRS Ruling Letter reasonably acceptable to Tenneco and El Paso, to the effect that: (i) the Industrial Distribution will be tax-free for federal income tax purposes to Tenneco under Section 355(c)(1) of the Code and to the stockholders of Tenneco under Section 355(a) of the Code; (ii) the Shipbuilding Distribution will be tax-free for federal income tax purposes to Tenneco under Section 355(c)(1) of the Code and to the stockholders of Tenneco under Section 355(a) of the Code; and (iii) the following distributions to be effected as part of the Corporate Restructuring Transactions will be tax-free for federal income tax purposes to the respective transferor corporations under Section 355(c)(1) or 361(a) of the Code and to the respective stockholders of the transferor corporations under Section 355(a) of the Code: (a) the distribution by Newport News of the capital stock of Tenneco Packaging Inc. to Tenneco Corporation; (b) the distribution by Tenneco Corporation of the capital stock of the Company and Newport News to Tennessee Gas Pipeline Company ("TGP"); and (c) the distribution by TGP of the capital stock of the Company and Newport News to Tenneco. A ruling from the IRS, while generally binding on the IRS, may under certain circumstances be retroactively revoked or modified by the IRS. The rulings obtained from the IRS will be based on certain facts and representations, some of which will have been made by El Paso. Generally, the IRS Ruling Letter would not be revoked or modified retroactively provided that (i) there has been no misstatement or omission of material facts, (ii) the facts at the time of the Transaction are not materially different from the facts upon which the IRS private letter ruling was based and (iii) there has been no change in the applicable law. The Distributions It is expected that the Distributions will qualify as tax-free distributions under Section 355 of the Code. Assuming that the Distributions so qualify, (i) the holders of Tenneco Common Stock will not recognize gain or 27 loss upon receipt of shares of Company Common Stock or shares of Newport News Common Stock, (ii) each holder of Tenneco Common Stock will allocate his, her or its aggregate tax basis in the Tenneco Common Stock immediately before the Distributions among Tenneco Common Stock, Company Common Stock and Newport News Common Stock in proportion to their respective fair market values, (iii) the holding period of each holder of Tenneco Common Stock for Company Common Stock and Newport News Common Stock will include the holding period for his, her or its Tenneco Common Stock, provided that Tenneco Common Stock is held as a capital asset at the time of the Distributions and (iv) Tenneco will not recognize any gain or loss on its distribution of Company Common Stock or Newport News Common Stock to its stockholders. No fractional shares of Company Common Stock or Newport News Common Stock will be distributed in the Distributions. A holder of Tenneco Common Stock who, pursuant to the Distributions, receives cash in lieu of fractional shares of Newport News Common Stock will be treated as having received such fractional shares of Newport News Common Stock pursuant to the Distributions and then as having received such cash in a sale of such fractional shares of Newport News Common Stock. Such holders will generally recognize capital gain or loss on such deemed sale equal to the difference between the amount of cash received and such holders' adjusted tax basis in the fractional share of Newport News Common Stock received. Such gain or loss will be capital (provided Tenneco Common Stock is held as a capital asset at the time of the Distributions) and will be treated as a long-term capital gain or loss if the holding period for the fractional shares of Newport News Common Stock deemed to be received and then sold is more than one year. If the Distributions were not to qualify as tax-free distributions under Section 355 of the Code, then in general a corporate level federal income tax would be payable by the consolidated group of which Tenneco is the common parent, which tax (assuming the internal spin-off transactions included in the Corporate Restructuring Transactions also failed to qualify under Code Section 355) would be based upon the gain (computed as the difference between the fair market value of the stock distributed and the distributing corporation's adjusted basis in such stock) realized by each of the distributing corporations upon its distribution of the stock of one or more controlled corporations to its stockholders in the Transaction. The corporate level federal income tax would be payable by Tenneco. Under the terms of the Tax Sharing Agreement, the Company will not be liable to indemnify Tenneco for any additional taxes incurred by reason of the Industrial Distribution being taxable, unless the Industrial Distribution fails to qualify for tax-free treatment under Section 355 of the Code as a result of the inaccuracy of certain factual statements or representations made by the Company in connection with the requests for the IRS private letter ruling or the Tax Opinion or the Company takes any action which is inconsistent with any factual statements or representations or the tax treatment of the Transaction as contemplated in the IRS private letter ruling request or the Tax Opinion. See the discussion of the Tax Sharing Agreement under "--Relationships Among Tenneco, the Company and Newport News After the Distributions." Furthermore, if the Distributions do not qualify as tax-free distributions under Section 355 of the Code, then each holder of Tenneco Common Stock who receives shares of Company Common Stock and Newport News Common Stock in the Distributions would be treated as if such stockholder received taxable distributions in an amount equal to the fair market value of Company Common Stock and Newport News Common Stock received, which would result in (i) a dividend to the extent paid out of Tenneco's current and accumulated earnings and profits; then (ii) a reduction in such stockholder's basis in Tenneco's Common Stock to the extent the amount received exceeds the amount referenced in clause (i); and then (iii) gain from the sale or exchange of Tenneco Common Stock to the extent the amount received exceeds the sum of the amounts referenced in clauses (i) and (ii). Each stockholder's basis in his, her or its Company Common Stock and Newport News Common Stock would be equal to the fair market value of such stock at the time of the Distributions. Possible Future Legislation The Administration's Budget Proposal issued March 19, 1996 contains several revenue proposals, including a proposal (the "Anti-Morris Trust Proposal") which would require a distributing corporation in a transaction otherwise qualifying as a tax-free distribution under Section 355 of the Code to recognize gain on the distribution of the stock of the controlled corporation unless the direct and indirect stockholders of the distributing corporation own more than 50% of the distributing corporation and controlled corporations at all times during 28 the four-year period commencing two years prior to the distribution. The Anti- Morris Trust Proposal would apply to any distributions occurring after March 19, 1996, unless such distribution was (i) pursuant to a binding contract on such date, (ii) described in a ruling request submitted to the IRS on or before such date or (iii) described in a public announcement or Commission filing on or before such date. On March 29, 1996, Senator William V. Roth, Chairman of the Senate Finance Committee and Congressman Bill Archer, Chairman of the House Ways and Means Committee, issued a joint statement (the "Roth-Archer Statement") to the effect that should certain of the revenue proposals included in the Administration's Budget Proposal, including the Anti-Morris Trust Proposal, be enacted, the effective date will be no earlier than the date of "appropriate Congressional action." As of the date of this Information Statement, no legislation has been introduced relating to the Anti-Morris Trust Proposal. On June 27, 1996, Tenneco submitted its request for rulings (including rulings on the tax-free treatment of the Distributions) to the IRS. Accordingly, in view of the Roth- Archer Statement, any future Anti-Morris Trust legislation should not apply to the Distributions assuming that the effective date of such legislation contains a grandfather clause for transactions for which a ruling request has been filed with the IRS prior to the date of "appropriate Congressional action." Nevertheless, there can be no assurances that Congress will not adopt Anti- Morris Trust legislation which would apply retroactively to the Distributions. In the event such legislation is announced or introduced prior to the consummation of the Transaction, under the terms of the Merger Agreement El Paso may elect not to proceed with the Merger if it reasonably determines that there exists a reasonable likelihood that the Distributions or the Merger would not be tax-free for federal income tax purposes. If El Paso elects to proceed with the Merger notwithstanding the announcement or introduction of Anti-Morris Trust legislation, the Distributions, if ultimately subject to such legislation, may result in significant taxable gain to the Tenneco consolidated group under Section 355(c) of the Code. Although Tenneco stockholders would not recognize taxable gain or loss on the receipt of the stock of the Company and Newport News under the current Anti-Morris Trust Proposal, the taxable gain required to be recognized by the Tenneco consolidated group under Code Section 355(c) would significantly reduce the value of the El Paso Common Stock and any Depositary Shares received by the Tenneco stockholders in the Merger. Back-up Withholding Requirements United States information reporting requirements and backup withholding at the rate of 31% may apply with respect to dividends paid on, and proceeds from the taxable sale, exchange or other disposition of Company Common Stock, unless the stockholder (i) is a corporation or comes within certain other exempt categories, and, when required, demonstrates these facts or (ii) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A stockholder who does not supply the Company with his, her or its correct taxpayer identification number may be subject to penalties imposed by the IRS. Any amount withheld under these rules will be creditable against the stockholder's federal income tax liability. Stockholders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption. If information reporting requirements apply to a stockholder, the amount of dividends paid with respect to such shares will be reported annually to the IRS and to such stockholder. These backup withholding tax and information reporting rules currently are under review by the United States Treasury Department and proposed Treasury Regulations issued on April 15, 1996 would modify certain of such rules generally with respect to payments made after December 31, 1997. Accordingly, the application of such rules could be changed. REASONS FOR FURNISHING THE INFORMATION STATEMENT This Information Statement is being furnished by Tenneco solely to provide information to Tenneco stockholders who will receive Company Common Stock in the Industrial Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of Tenneco or the Company. The information contained in this Information Statement is believed by Tenneco and the Company to be accurate as of the date set forth on its cover. Changes may occur after that date, and neither the Company nor Tenneco will update the information except in the normal course of their respective public disclosure practices. 29 RISK FACTORS Stockholders of Tenneco should be aware that the Industrial Distribution and ownership of Company Common Stock involves certain risk factors, including those described below and elsewhere in this Information Statement, which could adversely affect the value of their holdings. Neither the Company nor Tenneco makes, nor is any other person authorized to make, any representation as to the future market value of Company Common Stock. NO CURRENT PUBLIC MARKET FOR COMPANY COMMON STOCK Currently, there is no public market for Company Common Stock, although a "when issued" market is expected to develop prior to the Distribution Date. There can be no assurance as to the prices at which trading in Company Common Stock will occur after the Industrial Distribution. Until Company Common Stock is fully distributed and an orderly market develops, the prices at which trading in such stock occurs may fluctuate significantly. The Company has applied to the New York Stock Exchange to list Company Common Stock upon notice of issuance and the Company expects to receive approval of such listing prior to the Distributions. The Company is also applying to the Chicago, Pacific and London Stock Exchanges for approval of the listing of Company Common Stock upon notice of issuance. See "The Industrial Distribution--Trading of Company Common Stock." UNCERTAINTY REGARDING TRADING PRICES OF STOCK FOLLOWING THE TRANSACTION Upon consummation of the Transaction, the then-outstanding shares of Tenneco Common Stock will be cancelled and holders of Tenneco Common Stock will receive (i) in connection with the Merger, shares of El Paso Common Stock and, under certain circumstances, El Paso Preferred Depositary Shares and (ii) in connection with the Distributions, Company Common Stock and Newport News Common Stock. Tenneco Common Stock is currently listed and traded and, following the Distributions, Company Common Stock will be listed and traded on the New York, Chicago, Pacific and London Stock Exchanges. El Paso Common Stock, El Paso Preferred Depositary Shares, if any, and Newport News Common Stock will be listed and traded on the New York Stock Exchange. There can be no assurance that the combined market value/trading prices of El Paso Common Stock and any Depositary Shares, Company Common Stock and Newport News Common Stock held by stockholders after the Transaction will be equal to or greater than the market value/trading prices of Tenneco Common Stock prior to the Transaction. See "The Industrial Distribution--Trading of Company Common Stock." UNCERTAINTY REGARDING FUTURE DIVIDENDS The Company's dividend policy will be established by the Company Board from time to time based on the results of operations and financial condition of the Company and such other business considerations as the Company Board considers relevant. There can be no assurances that the combined annual dividends on El Paso Common Stock and any El Paso Preferred Depositary Shares, Company Common Stock and Newport News Common Stock after the transaction will be equal to the annual dividends on Tenneco Common Stock prior to the Transaction (and it is unlikely that the dividends would be greater than the annual dividends on Tenneco Common Stock prior to the Transaction). POTENTIAL FEDERAL INCOME TAX LIABILITIES The Industrial Distribution is conditioned upon the receipt of a favorable ruling from the IRS to the effect, among other things, that the Industrial Distribution will qualify as a tax-free distribution under Section 355 of the Code. See "The Industrial Distribution--Certain Federal Income Tax Aspects of the Industrial Distribution." Such a ruling, while generally binding upon the IRS, is based upon certain factual representations and assumptions. If any of such factual representations and assumptions were incomplete or untrue in a material respect, or the facts upon which such ruling was based are materially different from the facts at the time of the 30 Distributions, the IRS could modify or revoke such ruling retroactively. Tenneco is not aware of any facts or circumstances which would cause any of such representations and assumptions to be incomplete or untrue. The Company, Tenneco, Newport News and El Paso have each agreed to certain covenants on its future actions to provide further assurances that the Industrial Distribution will be tax-free for federal income tax purposes. See "The Industrial Distribution--Relationships Among Tenneco, the Company and Newport News After the Distributions." If the Distributions were not to qualify as tax-free distributions under Section 355 of the Code, then in general a corporate level federal income tax would be payable by the consolidated group of which Tenneco is the common parent, which tax (assuming the internal spin-off transactions included in the Corporate Restructuring Transactions also failed to qualify under Code Section 355) would be based upon the gain (computed as the difference between the fair market value of the stock distributed and the distributing corporation's adjusted basis in such stock) realized by each of the distributing corporations upon its distribution of the stock of one or more controlled corporations to its stockholders in the Transaction. In this regard, the failure of the Merger to qualify as a reorganization within the meaning of Code Section 368(a)(1)(B) could cause the Industrial Distribution to be taxable to Tenneco and its stockholders. The corporate level federal income tax would be payable by Tenneco. Under certain limited circumstances, however, the Company has agreed to indemnify Tenneco for a defined portion of such tax liabilities. See "The Industrial Distribution--Relationships Among Tenneco, the Company and Newport News After the Distributions--Terms of the Ancillary Agreements--Tax Sharing Agreement." In addition, under IRS regulations, each member of the consolidated group (including the Company) is severally liable for such tax liability. Furthermore, if the Industrial Distribution were not to qualify as tax-free distributions under Section 355 of the Code, then each holder of Tenneco Common Stock who receives shares of Company Common Stock and Newport News Common Stock in the Distributions would be treated as if such stockholder received a taxable distribution in an amount equal to the fair market value of Company Common Stock and Newport News Common Stock received, which would result in: (i) a dividend to the extent paid out of Tenneco's current and accumulated earnings and profits; then (ii) a reduction in such stockholder's basis in Tenneco Common Stock to the extent the amount received exceeds the amount referenced in clause (i); and then (iii) gain from the sale or exchange of Tenneco Common Stock to the extent the amount received exceeds the sum of the amounts referenced in clauses (i) and (ii). See "The Industrial Distribution--Certain Federal Income Tax Aspects of the Industrial Distribution." CERTAIN ANTITAKEOVER FEATURES Upon consummation of the Industrial Distribution, certain provisions of the Company's Restated Certificate of Incorporation and its Amended and Restated By-laws, along with the Company's stockholder rights plan and Delaware statutory law, could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then current market value of Company Common Stock. Such provisions may also inhibit fluctuations in the market price of Company Common Stock that could result from takeover attempts. The provisions could also have the effect of making it more difficult for third parties to cause the immediate removal and replacement of the members of the then current Company Board or the then current management of the Company without the concurrence of the Company Board. See "Antitakeover Effects of Certain Provisions." POTENTIAL LIABILITIES DUE TO FRAUDULENT TRANSFER CONSIDERATIONS AND LEGAL DIVIDEND REQUIREMENTS The Corporate Restructuring Transactions, the Debt Realignment and the Distributions are subject to review under federal and state fraudulent conveyance laws. Under these laws, if a court in a lawsuit by an unpaid creditor or a representative of creditors (such as a trustee or debtor-in- possession in bankruptcy of Tenneco, the Company, Newport News or any of their subsidiaries) were to determine that Tenneco did not receive fair consideration or reasonably equivalent value for distributing Company Common Stock and Newport News 31 Common Stock or that Tenneco, the Company, Newport News or any of their subsidiaries did not receive fair consideration or reasonably equivalent value for incurring indebtedness or transferring assets in connection with the Debt Realignment and Corporate Restructuring Transactions and, at the time of such distribution, incurrence of indebtedness or transfer of assets, Tenneco, the Company, Newport News or any of their subsidiaries (i) was insolvent or would be rendered insolvent, (ii) had unreasonably small capital with which to carry on its business and all businesses in which it intended to engage, or (iii) intended to incur, or believed it would incur, debts beyond its ability to repay such debts as they would mature, then such court could order the holders of Company Common Stock and the Newport News Common Stock to return the value of the stock and any dividends paid thereon, bar future dividend and redemption payments on the stock, and invalidate, in whole or in part, the Corporate Restructuring Transactions, Debt Realignment or Distributions, as fraudulent conveyances. The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction's law is applied. Generally, however, an entity would be considered insolvent if the present fair saleable value of its assets is less than (i) the amount of its liabilities (including contingent liabilities) or (ii) the amount that will be required to pay its probable liabilities on its existing debts as they become absolute and mature. No assurance can be given as to what standard a court would apply in determining insolvency or that a court would not determine that Tenneco, the Company, Newport News or any of their subsidiaries was "insolvent" at the time of or after giving effect to the Corporate Restructuring Transactions, the Debt Realignment and the Distributions. In addition, the Distributions and the distributions pursuant to the Corporate Restructuring Transactions and Debt Realignment, are subject to review under state corporate distribution statutes. Under the General Corporation Law of the State of Delaware (the "DGCL"), a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although all distributions are intended to be made entirely from surplus, no assurance can be given that a court will not later determine that some or all of the distributions were unlawful. Prior to the Industrial Distribution the Tenneco Board expects to obtain an opinion regarding the solvency of the Company and Tenneco and the permissibility of the Industrial Distribution and the dividend which may be paid by the Company to Tenneco under Section 170 of the DGCL. The Tenneco Board and management believe that, in accordance with this opinion which is expected to be rendered in connection with the Industrial Distribution, (i) the Company and Tenneco each will be solvent (in accordance with the foregoing definitions) at the time of the Transaction (including after the payment of any dividend by the Company to Tenneco and after the consummation of the Industrial Distribution), will be able to repay its debts as they mature following the Transaction and will have sufficient capital to carry on its businesses and (ii) the Industrial Distribution and the distribution to Tenneco will be made entirely out of surplus in accordance with Section 170 of the DGCL. There is no certainty, however, that a court would find the solvency opinion rendered by Tenneco's financial advisor to be binding on creditors of the Company or Tenneco or that a court would reach the same conclusions set forth in such opinion in determining whether the Company or Tenneco was insolvent at the time of, or after giving effect to, the Transaction or whether lawful funds were available for the Industrial Distribution and the distribution to Tenneco. The Distribution Agreement, the Merger Agreement and certain of the Ancillary Agreements provide for the allocation, immediately prior to the Distributions, of the Tenneco Energy Consolidated Debt remaining following consummation of the Corporate Restructuring Transactions. Further, pursuant to the Distribution Agreement, from and after the Distribution Date, each of Tenneco, the Company and Newport News will be responsible for the debts, liabilities and other obligations related to the business or businesses which it owns and operates following the consummation of the Transaction. Although the Company does not expect to be liable for any such obligations not expressly assumed by it pursuant to the Distribution Agreement and the Debt Realignment, it is possible that a court would disregard the allocation agreed to among the parties, and require the Company to assume responsibility for obligations allocated to Tenneco or Newport News (for example, tax and/or environmental liabilities), particularly if one of such other parties were to refuse or were to be unable to pay or perform the subject allocated obligations. See "The Industrial Distribution--Relationships Among Tenneco, the Company and Newport News After the Distributions." 32 THE COMPANY INTRODUCTION The Company is a newly formed Delaware corporation which, upon completion of the Industrial Distribution, will be an independent, publicly held company (symbol "TEN"). The Company will own and operate, directly and through its direct and indirect subsidiaries, substantially all of the assets of, and will assume substantially all of the liabilities associated with, the principal industrial businesses of Tenneco: Tenneco Automotive and Tenneco Packaging. The Company will also own and operate the administrative services unit of Tenneco: TBS. Although the separation of the Industrial Business from the remainder of the businesses, operations and companies currently constituting the "Tenneco Group" has been structured as a "spin-off" of the Company pursuant to the Industrial Distribution for legal, tax and other reasons, the Company will succeed to certain important aspects of the existing Tenneco business, organization and affairs, namely: (i) the Company will be renamed "Tenneco Inc." upon the consummation of the Merger; (ii) the Company will be headquartered at Tenneco's current headquarters in Greenwich, Connecticut; (iii) the Company Board will consist of those persons currently constituting the Tenneco Board; (iv) the Company's executive management will consist substantially of the current Tenneco executive management; and (v) the Industrial Business to be conducted by the Company will consist largely of Tenneco Automotive and Tenneco Packaging. Tenneco Automotive is one of the world's leading manufacturers of automotive exhaust and ride control systems for both the original equipment market and the replacement market, or aftermarket. Tenneco Automotive is a global business that sells its products in over 100 countries. Tenneco Automotive manufactures and markets its automotive exhaust systems primarily under the Walker(R) brand name and its ride control systems primarily under the Monroe(R) brand name. Tenneco Packaging is among the world's leading and most diversified packaging companies, manufacturing packaging products for consumer, institutional and industrial markets. The paperboard business group manufactures corrugated containers, folding cartons and containerboard, has a joint venture in recycled paperboard, and offers high value-added products such as enhanced graphics packaging and displays and kraft honeycomb products. Its specialty products group produces disposable aluminum, foam and clear plastic food containers, molded fiber and pressed paperboard products, as well as polyethylene bags and industrial stretch wrap. Tenneco Packaging's consumer products include such recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R). TBS designs, implements and administers shared administrative service programs for the Tenneco businesses as well as, on an "as requested" basis, for former Tenneco business entities. BUSINESS STRATEGY The Company The Distributions and the Merger represent the most important step to date in accomplishing Tenneco's overall strategic objective of transforming itself from a highly diversified industrial corporation to a global manufacturing company focused on Tenneco Automotive and Tenneco Packaging. For the past several years, Tenneco's management team has redeployed resources from slower growth, more cyclical businesses to these higher growth businesses. The Distributions are expected to provide the Company with greater flexibility to pursue additional growth opportunities for Tenneco Automotive and Tenneco Packaging as a result of the increased management focus and additional financial flexibility at the Company. These additional growth opportunities are expected to include, among other things, strategic acquisitions, joint ventures, strategic alliances and further organic growth from additional product development and international expansion initiatives. Management Focus. As a result of the Distributions and the Merger, Tenneco's executive management team will be able to focus all of its efforts on exploring and implementing the most appropriate growth opportunities for Tenneco Automotive and Tenneco Packaging. 33 Implementation of Management Programs. Tenneco's strategy of focusing on the Industrial Business will allow the Company to further refine and implement certain management processes that have been developed over the past several years in order to improve operating performance. These programs include: (i) the Cost of Quality program through which the Company has successfully reduced the failure costs in its manufacturing and administrative processes; (ii) the working capital initiative through which the Company plans to further reduce its working capital requirements; and (iii) the shared services program, administered by TBS, through which the Company plans on further improving efficiency and reducing the cost of general and administrative support functions. The Company believes that Tenneco Automotive and Tenneco Packaging are particularly well-suited to benefit from these types of programs due to the fragmented, non-regulated nature of the industries in which they operate. Strategic Acquisitions. Strategic acquisitions have been, and will continue to be, an important element of the Company's overall growth strategy. Tenneco's current executive management team, which will continue to serve as the Company's executive management team following the Industrial Distribution, has a proven track record of identifying, structuring and integrating strategic acquisitions. As a result of management's experience in implementing strategic acquisitions, the Company has developed comprehensive plans to efficiently integrate new companies into its existing corporate infrastructure. The Company intends to continue to pursue appropriate acquisition opportunities in which management can substantially improve the profitability of strategically related businesses by, among other things, rationalizing similar product lines and eliminating certain lower margin product lines; reconfiguring and upgrading manufacturing facilities; moving production to the lowest cost facilities; reducing selling, distribution, purchasing and administrative costs; increasing market share within either a geographic or product market; and acquiring businesses that possess leading brand name products. Continued growth in revenues and earnings at the pace sought by the Company will require continued success in completing major acquisitions and similar expansion efforts, and then successfully integrating the acquired businesses and operations into the Company. The identity, timing, frequency, terms and other factors involved in the overall acquisition/expansion program, and those relating to any particular major acquisition, will impact, positively or negatively, the Company's success in achieving its financial and other goals. Although certain factors in this regard will be beyond the Company's control, its executive management team believes that the Company will have the requisite significant opportunities, and the expertise, resources and commitment to successfully act on an appropriate number of those opportunities, to achieve its goals. Employee Incentives. In addition, the Distributions and the Merger will allow Tenneco's executive management team to develop incentive compensation systems for employees that are more closely aligned with the operational success of Tenneco Automotive and Tenneco Packaging. Tenneco Automotive Tenneco Automotive's primary goal is to enhance its leadership position in the global automotive parts industry in which it is currently one of the world's leading manufacturers of exhaust and ride control systems. Tenneco Automotive intends to capitalize on certain significant existing and emerging trends in the automotive industry, including (i) the consolidation and globalization of the OEMs' supplier base, (ii) increased OEM outsourcing, particularly of more complex components, assemblies, modules and complete systems to sophisticated, independent suppliers and (iii) growth of emerging markets for both original equipment and replacement markets. Key components of Tenneco Automotive's strategy include: (a) capitalizing on brand-name strength; (b) retaining and enhancing market shares; (c) continuing development of high value-added products; (d) increasing ability to deliver full-system capabilities (rather than merely component parts); (e) continuing international expansion and strategic acquisitions; (f) maintaining operating cost leadership; and (g) continuing focus on the customer. Tenneco Packaging Tenneco Packaging's primary goal is to maintain and enhance its position as a leading specialty packaging company offering a broad line of products suited to provide customers with the best packaging solutions. 34 Tenneco Packaging intends to capitalize on certain significant existing and emerging trends in the packaging industry, including (i) increasing materials substitution, (ii) changing fiber availability and (iii) global demand growth. Key components of Tenneco Packaging's strategy include: (a) continued development and growth of multi-material uses, broad product lines and packaging offering customers enhanced functionality and value; (b) fiber flexibility (primarily in the mix of virgin and recycled fiber sources); (c) growth through domestic and international acquisitions and joint ventures; (d) internal growth in base businesses; (e) reduction of sensitivity to changes in economic cyclicality through the pursuit of specialty and other high value- added product growth; and (f) maintenance of market leadership positions in its primary business groups. 35 FINANCING The Company intends to enter into the Company Credit Facility in connection with the Transaction, under which it is expected that a syndicate of banks (the "Lenders") will commit to provide up to $1,750 million of financing to the Company on an unsecured basis. It is expected that Morgan Guaranty Trust Company of New York will arrange the Company Credit Facility and will act as Administrative Agent for the Lenders. It is expected that Bank of America Illinois will act as Documentation Agent. The Company Credit Facility is expected to be a revolving credit facility, which will terminate in November 2001, the proceeds of which will be used to effect the Debt Realignment and for other general corporate purposes. Initial borrowings under the Company Credit Facility are expected to occur on or shortly before the Merger Effective Time. See "Unaudited Pro Forma Combined Financial Information" for a description of the application of the proceeds of such borrowings. Borrowings under the Company Credit Facility are expected to bear interest at a rate per annum equal to, at the Company's option, either (i) a rate consisting of the higher of Morgan Guaranty Trust Company of New York's prime rate or the federal funds rate plus 50 basis points; (ii) a rate of LIBOR plus a margin determined pursuant to a pricing schedule; or (iii) a rate based on money market rates pursuant to competitive bids by the Lenders. It is expected that the Company Credit Facility will require that the Company's ratio of total indebtedness to total indebtedness plus net worth not exceed 70%. Failure to satisfy the foregoing minimum requirement will be a prepayment event under the Company Credit Facility that will enable the Lenders to refuse to loan funds to the Company and to require prepayment of the indebtedness thereunder after a 30 day cure period. It is also expected that the Company Credit Facility will impose prohibitions or limitations on liens (other than agreed permitted liens), subsidiary indebtedness and guarantee obligations, and dispositions of substantially all of its assets, among others. It is expected that the Company Credit Facility will contain certain default provisions, including, among other things, (i) nonpayment of any amount due to the Lenders under the Company Credit Facility, (ii) material breach of representations and warranties, (iii) default in the performance of covenants following a 30 day cure period, (iv) bankruptcy or insolvency, (v) cross- default with respect to indebtedness for borrowed money and related guaranty obligations in excess of $100 million in any one instance or $200 million of aggregate indebtedness (but only aggregating any single item of indebtedness of at least $20 million) and (vi) a judgment suffered by the Company in excess of $100 million not covered by insurance and which judgment shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days. Also in connection with the Debt Realignment, the Company will offer to exchange up to $1,950 million of aggregate principal amount of Company Public Debt for an equal amount of Tenneco Public Debt pursuant to the Debt Exchange Offers. The Company Public Debt will have similar maturities, but higher interest rates than the Tenneco Public Debt for which it is being exchanged. Upon consummation of the Debt Exchange Offers, Tenneco will purchase (and thereafter extinguish) the Tenneco Public Debt held by the Company, and the Company will then distribute such proceeds as a dividend to Tenneco. Assuming all of the Tenneco Public Debt subject to the Debt Exchange Offers is tendered and accepted for exchange, the Company will have $1,950 million aggregate principal amount of Company Public Debt outstanding bearing interest at a weighted average of approximately 8.38% and with a weighted average maturity of approximately 11 years. See "The Industrial Distribution--Debt and Cash Realignment" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 36 CAPITALIZATION The following table sets forth the unaudited historical capitalization of the Company as of June 30, 1996, and unaudited pro forma capitalization as of June 30, 1996, after giving effect to the transactions described in the "Unaudited Pro Forma Combined Financial Statements." The capitalization of the Company should be read in conjunction with the Combined Financial Statements, and notes thereto, the "Combined Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each contained elsewhere in this Information Statement.
JUNE 30, 1996 --------------------- HISTORICAL PRO FORMA ---------- --------- (IN MILLIONS) Short-term debt: Allocated from Tenneco........................... $ 523(a) $ -- Other............................................ 7 13 ------ ------ Total........................................... 530 13 ------ ------ Long-term debt: Allocated from Tenneco........................... 1,510(a) -- Company Public Debt.............................. -- 2,069(b) Other............................................ 63 63 ------ ------ 1,573 2,132 ------ ------ Minority interest................................. 301 301 ------ ------ Common stock...................................... -- 2 Paid-in capital................................... -- 2,986 Retained earnings................................. -- -- Combined equity................................... 2,168 -- ------ ------ Total equity.................................... 2,168 2,988 ------ ------ Total capitalization.............................. $4,572 $5,434 ====== ======
- -------- (a) Represents debt allocated to the Company from Tenneco based on the portion of Tenneco's investment in the Company which is deemed to be debt, generally based on the portion of the Company's net assets to Tenneco's consolidated net assets plus debt. Tenneco's historical practice has been generally to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Management believes that the historical allocation of corporate debt is reasonable; however, it is not necessarily indicative of the Company's debt upon completion of the Debt Realignment, nor debt that may be incurred by the Company as a separate public entity. (b) Represents the $1,950 million aggregate principal amount of Company Public Debt assumed to be exchanged pursuant to the Debt Exchange Offers which will be recorded based on the fair value of the Company Public Debt (estimated to be $2,069 million) upon consummation of the Debt Exchange Offers. At this time, the Company and Tenneco cannot determine the ultimate amount of Tenneco Public Debt which will be exchanged by Tenneco Public Debt holders into Company Public Debt pursuant to the Debt Exchange Offers, and such amount could vary significantly. For purposes of the pro forma capitalization, it is assumed that 100% of the Tenneco Public Debt is exchanged for Company Public Debt pursuant to the Debt Exchange Offers. 37 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following Unaudited Pro Forma Combined Balance Sheet of the Company as of June 30, 1996 and the Unaudited Pro Forma Combined Statements of Income for the six months ended June 30, 1996 and the year ended December 31, 1995 have been prepared to reflect: (i) the acquisition of Clevite in July 1996 and the acquisition of Amoco Foam Products in August 1996; (ii) the effect on the Company of the Cash Realignment and Debt Realignment; (iii) the effect on the Company of the Corporate Restructuring Transactions, and other transactions pursuant to the provisions of the Distribution Agreement and Merger Agreement; and (iv) the issuance of Company Common Stock as part of the Industrial Distribution. The "Combined Acquisitions" caption in the Unaudited Pro Forma Combined Statement of Income for the year ended December 31, 1995 also reflects the pro forma results of operations of Mobil Plastics prior to its acquisition in November 1995. The acquisitions of Clevite and Amoco Foam Products have been included in the accompanying Unaudited Pro Forma Combined Financial Statements for the respective periods under the caption "Combined Acquisitions." The Combined Acquisitions have been accounted for under the purchase method of accounting. As such, pro forma adjustments are reflected in the accompanying Unaudited Pro Forma Combined Financial Statements to reflect a preliminary allocation of the Company's purchase cost for the assets acquired and liabilities assumed as well as additional depreciation and amortization resulting from the Company's purchase cost. The historical Combined Financial Statements reflect the financial position and results of operations for the Industrial Business whose net assets will be transferred to the Company pursuant to the Corporate Restructuring Transactions, and other transactions pursuant to the provisions of the Distribution Agreement and Merger Agreement. The accounting for the transfer of assets and liabilities pursuant to the Corporate Restructuring Transactions represents a reorganization of companies under common control and, accordingly, all assets and liabilities are reflected at their historical cost in the Combined Financial Statements of the Company. The Unaudited Pro Forma Combined Balance Sheet has been prepared as if such transactions occurred on June 30, 1996; the Unaudited Pro Forma Combined Statements of Income have been prepared as if such transactions occurred as of January 1, 1995. The Unaudited Pro Forma Combined Financial Statements set forth on the following pages are unaudited and not necessarily indicative of the results that would have actually occurred if the transactions had been consummated as of June 30, 1996, or January 1, 1995, or results which may be attained in the future. The pro forma adjustments, as described in the Notes to the Unaudited Pro Forma Combined Financial Statements, are based upon available information and upon certain assumptions that management believes are reasonable. The Unaudited Pro Forma Combined Financial Statements should be read in conjunction with the Combined Financial Statements, and notes thereto, and the pre-acquisition Combined Financial Statements of Mobil Plastics, and notes thereto, included elsewhere in this Information Statement. The Clevite and Amoco Foam Products acquisitions do not meet the Commission's criteria for inclusion of separate historical financial statements. 38 UNAUDITED PRO FORMA COMBINED BALANCE SHEET JUNE 30, 1996 (MILLIONS)
COMBINED ACQUISITIONS ----------------------- POST- ACQUISITIONS TRANSACTION COMPANY PRO FORMA PRO FORMA PRO FORMA PRO FORMA HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED ---------- ----------- ----------- ------------ ----------- --------- ASSETS Current assets: Cash and temporary cash investments..... $ 129 $ 2 $ $ 131 $ 36 (e) $ 205 38 (f) Receivables........... 829 74 903 (113)(a) 1,044 182 (b) (48)(c) 120 (d) Inventories........... 820 46 6 (i) 872 872 Deferred income taxes. 28 28 28 Other current assets.. 196 8 204 (5)(c) 204 5 (e) ------ ---- ---------- ------ ------- ------ Total Current Assets. 2,002 130 6 2,138 215 2,353 ------ ---- ---------- ------ ------- ------ Goodwill and intangibles............ 965 384 (i) 1,349 1,349 Other Assets............ 808 9 817 9 (c) 836 10 (g) Plant, property and equipment, net......... 2,748 148 144 (i) 3,040 39 (c) 3,079 ------ ---- ---------- ------ ------- ------ Total Assets......... $6,523 $287 $ 534 $7,344 $ 273 $7,617 ====== ==== ========== ====== ======= ====== LIABILITIES AND EQUITY Current liabilities: Short-term debt....... $ 530 $ $ 638 (i) $1,168 $(1,155)(g) $ 13 Payables.............. 622 28 650 (23)(a) 629 2 (b) Other current liabilities.......... 558 76 634 17 (c) 651 ------ ---- ---------- ------ ------- ------ Total Current Liabilities......... 1,710 104 638 2,452 (1,159) 1,293 ------ ---- ---------- ------ ------- ------ Long-term debt.......... 1,573 1 1,574 558 (g) 2,132 Deferred income taxes... 451 (5)(i) 446 13 (b) 459 Deferred credits and other liabilities...... 320 53 30 (i) 403 41 (e) 444 Minority interest....... 301 301 301 ------ ---- ---------- ------ ------- ------ Total Liabilities..... 4,355 158 663 5,176 (547) 4,629 ------ ---- ---------- ------ ------- ------ Equity: Combined equity....... 2,168 129 (129)(i) 2,168 (90)(a) -- 167 (b) (22)(c) 120 (d) 38 (f) 607 (g) (2,988)(h) Common Stock.......... -- -- -- 2 (h) 2 Paid-in Capital....... -- -- -- 2,986 (h) 2,986 Retained Earnings..... -- -- -- -- (h) -- ------ ---- ---------- ------ ------- ------ Total Liabilities and Equity......... $6,523 $287 $ 534 $7,344 $ 273 $7,617 ====== ==== ========== ====== ======= ======
- -------- * Certain amounts have been reclassified to conform to the Company's classification. See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 39 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 (MILLIONS EXCEPT PER SHARE AMOUNTS)
COMBINED ACQUISITIONS ----------------------- POST- ACQUISITIONS TRANSACTION COMPANY PRO FORMA PRO FORMA PRO FORMA PRO FORMA HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED ---------- ----------- ----------- ------------ ----------- ----------- Net Sales and Operating Revenues............... $ 3,233 $272 $ $3,505 $ $3,505 Other Income, Net....... 71 -- 71 71 Costs and Expenses...... 2,890 232 9 (j) 3,131 3,131 ------- ---- ------- ------ ------- ----------- Income Before Interest Expense, Income Taxes and Minor- ity Interest............... 414 40 (9) 445 445 Interest Expense........ 100 12 7 (j) 119 (36)(k) 83 Income Tax Expense...... 126 8 (1)(j) 133 14 (k) 147 Minority Interest....... 10 10 10 ------- ---- ------- ------ ------- ----------- Income from continuing operations ............ $ 178 $ 20 $ (15) $ 183 $ 22 $ 205 ======= ==== ======= ====== ======= =========== Average number of common shares outstanding..... 170,351,740 =========== Income from continuing operations per share... $ 1.20 =========== EBITDA(1)............... $ 551 $ 603 ======= ===========
- -------- * Certain amounts have been reclassified to conform to the Company's classification. See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 40 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (MILLIONS EXCEPT PER SHARE AMOUNTS)
COMBINED ACQUISITIONS ----------------------- POST- ACQUISITIONS TRANSACTION COMPANY PRO FORMA PRO FORMA PRO FORMA PRO FORMA HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED ---------- ----------- ----------- ------------ ----------- ----------- Net Sales and Operating Revenues............... $5,221 $2,035 $ $7,256 $ $7,256 Other Income, Net....... 39 6 45 45 Costs and Expenses...... 4,588 1,888 17 (j) 6,493 6,493 ------ ------ ---- ------ -------- ----------- Income Before Interest Expense, Income Taxes and Minor- ity Interest........... 672 153 (17) 808 808 Interest Expense........ 160 126 5 (j) 291 (125)(k) 166 Income Tax Expense...... 231 19 (9)(j) 241 50 (k) 291 Minority Interest....... 23 -- 23 23 ------ ------ ---- ------ -------- ----------- Income from continuing operations ............ $ 258 $ 8 $(13) $ 253 $ 75 $ 328 ====== ====== ==== ====== ======== =========== Average number of common shares outstanding..... 173,995,941 =========== Income from continuing operations per share... $ 1.89 =========== EBITDA(1)............... $ 845 $ 1,023 ====== ===========
- -------- * Certain amounts have been reclassified to conform to the Company's classification. See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 41 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (a) To reflect the settlement or capitalization of intercompany accounts receivable and payable with Tenneco affiliates pursuant to the Corporate Restructuring Transactions. (b) To reflect the acquisition by the Company of certain receivables from Tenneco Credit Corporation, a Tenneco affiliate, in connection with the Merger. (c) To reflect the allocation between the Company, Newport News and Tenneco of certain corporate assets and liabilities in connection with the Corporate Restructuring Transactions, the Distributions and the Merger. (d) To reflect a $120 million receivable from El Paso pursuant to the Merger Agreement and Distribution Agreement for certain tax benefits to be realized as a result of the Debt Realignment. (e) To reflect the transfer to the Company of insurance liabilities and the related portfolio of short-term cash investments and other assets previously held by Eastern Insurance Company Limited, a Tenneco affiliate, in connection with the Corporate Restructuring Transactions and the Merger. (f) To reflect the cash contribution from Tenneco to the Company pursuant to the Cash Realignment provisions of the Distribution Agreement and Merger Agreement. The contribution of cash between Tenneco and the Company as part of the Cash Realignment may be adjusted by the sale of Energy Business receivables prior to the Merger Effective Time. (g) To reflect adjustments to the Company's indebtedness for the pre- Distribution restructuring and refinancing of debt pursuant to the Debt Realignment. If the Debt Realignment had been consummated on June 30, 1996, on a pro forma basis, the Company would have had total long-term debt of $2,132 million, and short-term debt of $13 million. The total pro forma long-term debt includes $2,069 million of Company Public Debt ($1,950 million aggregate principal amount) assumed to be exchanged in the Debt Exchange Offers, which will be recorded based on the fair values of the Company Public Debt, and $63 million of long-term debt of Company subsidiaries. At this time, the Company and Tenneco cannot determine the ultimate amount of Tenneco Public Debt which will be exchanged by the applicable Tenneco Public Debt holders into Company Public Debt pursuant to the Debt Exchange Offers and such amount could vary significantly. For purposes of these pro forma adjustments, it is assumed that 100% of the Tenneco Public Debt is exchanged for Company Public Debt pursuant to the Debt Exchange Offers. (h) To reflect the distribution of Company Common Stock to the holders of Tenneco Common Stock at an exchange ratio of one share of Company Common Stock for each share of Tenneco Common Stock. (i) To reflect short-term debt issued to complete the Combined Acquisitions and the preliminary allocation of purchase price to the assets acquired and liabilities assumed related to the Combined Acquisitions. These purchase accounting adjustments for Clevite and Amoco Foam Products are based on preliminary estimates of fair values and will be adjusted when more complete evaluations of fair values are received. The preliminary allocations have been made solely for purposes of developing these Unaudited Pro Forma Combined Financial Statements. (j) To reflect additional depreciation and amortization related to the Combined Acquisitions resulting from the Company's purchase accounting adjustments, interest expense at an assumed rate of 5.90% on the debt issued to complete the acquisitions, and the related tax effects at an assumed effective tax rate of 40%. The excess of the Company's purchase cost over the fair value of assets acquired and liabilities assumed is amortized over 40 years for Clevite and 30 years for Amoco Foam Products. (k) To reflect the adjustment to interest expense, and related tax effects at an assumed effective tax rate of 40%, from the changes in the debt of the Company pursuant to the Debt Realignment as discussed in (g) above. For purposes of this pro forma adjustment, the Company Public Debt are assumed to bear interest at a weighted average annual effective interest rate of 7.5%. In addition, the pro forma adjustment to interest expense includes commitment fees on the unused borrowing capacity of the Company Credit Facility and amortization of deferred debt financing costs incurred in connection with the Debt Exchange Offers and the Company Credit Facility. A 1/8% change in the assumed interest rates would change annual pro forma interest expense by approximately $2.7 million, before the effect of income taxes. 42 (l) EBITDA represents income from continuing operations before interest expense, income taxes and depreciation, depletion and amortization. EBITDA is not a calculation based upon GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in the combined historical or pro forma Statements of Income. In addition, EBITDA should not be considered as an alternative to net income or operating income, as an indicator of the operating performance of the Company or as an alternative to operating cash flows as a measure of liquidity. 43 COMBINED SELECTED FINANCIAL DATA The following combined selected financial data as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993 were derived from the audited Combined Financial Statements of the Company. The combined selected financial data as of December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991 are unaudited and were derived from the accounting records of Tenneco. The combined selected financial data as of and for each of the six-month periods ended June 30, 1996 and 1995 were derived from the unaudited Combined Financial Statements of the Company. In the opinion of the Company's management, the combined selected financial data of the Company as of December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991, and as of and for the six months ended June 30, 1996 and 1995 include all adjusting entries (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The results of operations for the six months ended June 30, 1996 should not be regarded as indicative of the results that may be expected for the full year. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Combined Financial Statements, and notes thereto, included elsewhere in this Information Statement.
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ---------------- ----------------------------------------------- 1996(A) 1995(A) 1995(A) 1994(A) 1993(A) 1992 1991 (MILLIONS) ------- ------- ------- ------- ------- ------ ------ STATEMENTS OF INCOME DATA(B): Net sales and operating revenues from continuing operations-- Automotive............ $1,463 $1,263 $ 2,479 $1,989 $1,785 $1,763 $1,668 Packaging............. 1,775 1,318 2,752 2,184 2,042 2,078 1,934 Intergroup sales and other................ (5) (4) (10) (7) (7) (5) (5) ------ ------ ------- ------ ------ ------ ------ Total................ $3,233 $2,577 $ 5,221 $4,166 $3,820 $3,836 $3,597 ====== ====== ======= ====== ====== ====== ====== Income from continuing operations before in- terest expense, income taxes and minority inter- est-- Automotive............ $ 163 $ 134 $ 240 $ 223 $ 222 $ 237 $ 188 Packaging............. 256 244 430 209 139 221 139(c) Other................. (5) -- 2 24 20 7 3 ------ ------ ------- ------ ------ ------ ------ Total................ 414 378 672 456 381 465 330 Interest expense (net of interest capitalized).......... 100 74 160 104 101 102 111 Income tax expense..... 126 124 231 114 115 154 80 Minority interest...... 10 12 23 -- -- -- -- ------ ------ ------- ------ ------ ------ ------ Income from continuing operations............ 178 168 258 238 165 209 139 Loss from discontinued operations, net of income tax............ -- -- -- (31) (7) (7) (12) Cumulative effect of changes in accounting principles, net of income tax..... -- -- -- (7)(d) -- (99)(d) -- ------ ------ ------- ------ ------ ------ ------ Net income............. $ 178 $ 168 $ 258 $ 200 $ 158 $ 103 $ 127 ====== ====== ======= ====== ====== ====== ====== BALANCE SHEET DATA(B): Total assets........... $6,523 $4,430 $ 6,117 $3,940 $3,029 $2,812 $2,792 Short-term debt(e) .... 530 205 384 108 94 182 758 Long-term debt(e) ..... 1,573 1,246 1,648 1,039 1,178 1,675 1,555 Minority interest...... 301 297 301 301 1 1 2 Combined equity........ 2,168 1,163 1,852 987 533 (87) (553) STATEMENT OF CASH FLOWS DATA(B): Net cash provided (used) by operating activities............ $ 199 $ (9) $ 489 $ 571 $ 324 $ 121 $ 503 Net cash provided (used) by investing activities............ (340) (206) (2,041) (303) (152) (78) (237) Net cash provided (used) by financing activities............ 169 (52) 1,297 50 (165) (41) (251) Capital expenditures for continuing operations............ 263 179 562 280 217 159 202 OTHER DATA: EBITDA(f).............. $ 551 $ 458 $ 845 $ 598 $ 518 $ 595 $ 463
- ------- (a)For a discussion of the significant items affecting comparability of the financial information for 1995, 1994 and 1993 and for the six months ended June 30, 1996 and 1995, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Information Statement. (b) During 1995 and 1994, Tenneco Automotive and Tenneco Packaging each completed several acquisitions, the most significant of which was Tenneco Packaging's acquisition of Mobil Plastics for $1.3 billion in late 1995. See Note 4 to the Combined Financial Statements, included elsewhere in this Information Statement, for further information on the Company's acquisitions. (c) Includes a gain of $42 million recorded by Tenneco Packaging related to the sale of three short-line railroads. (d) In 1994, the Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits". In 1992, the Company adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and FAS No. 109, "Accounting for Income Taxes." (e) Historical amounts include debt allocated to the Company from Tenneco based on the portion of Tenneco's investment in the Company which is deemed to be debt, generally based upon the ratio of the Company's net assets to Tenneco consolidated net assets plus debt. Tenneco's historical practice has been to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Management believes that the historical allocation of corporate debt and interest expense is reasonable; however, it is not necessarily indicative of the Company's debt upon completion of the Debt Realignment, nor debt and interest that may be incurred by the Company as a separate public entity. See the Combined Financial Statements, and notes thereto, included elsewhere in this Information Statement. (f) EBITDA represents income from continuing operations before interest expense, income taxes and depreciation, depletion and amortization. EBITDA is not a calculation based upon GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in the Statements of Income. In addition, EBITDA should not be considered as an alternative to net income or operating income, as an indicator of the operating performance of the Company or as an alternative to operating cash flows as a measure of liquidity. 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of the Company's financial condition and results of operations should be read in conjunction with the Combined Financial Statements of the Company, and notes thereto, presented on pages F-3 to F-27. Reference is made to the "Basis of Presentation" section of Note 1 to such Combined Financial Statements for the definition of the "Company" as utilized herein. PROPOSED MERGER WITH EL PASO In the first quarter of 1996, Tenneco announced its intention to focus Tenneco on its automotive parts and packaging businesses. This strategic action included the spin-off of the Shipbuilding Business to the holders of Tenneco Common Stock and the development of options to separate the Energy Business from the Industrial Business. On June 19, 1996, Tenneco announced that it signed a definitive agreement to merge a subsidiary of El Paso into Tenneco. Prior to the Merger, Tenneco will effect the Industrial Distribution and the Shipbuilding Distribution. The Merger represents a total value for Tenneco stockholders of approximately $4 billion which includes: . New shares of El Paso equity valued at approximately $750 million (subject to the effect of a collar on the market price of El Paso Common Stock issuable in connection with the Merger). . Assumption by El Paso of $2.65 billion (subject to certain adjustments) of Tenneco Energy Consolidated Debt and Tenneco Junior Preferred Stock. . Other payments and certain liability retentions by El Paso which El Paso estimated at an aggregate of approximately $600 million. Consequently, after the Transaction is consummated, current holders of Tenneco Common Stock will hold shares of Newport News, the Company (to be renamed Tenneco Inc.) and El Paso. The Company would then consist of two industrial manufacturing businesses, Tenneco Packaging and Tenneco Automotive, both of which reported record earnings and revenues in 1995, and TBS, the Company's administrative services unit. . Tenneco Automotive is one of the world's leading manufacturers of automotive exhaust and ride control systems for both the original equipment market and the replacement market, or aftermarket. Tenneco Automotive is a global business that sells its products in over 100 countries. Tenneco Automotive manufactures and markets its automotive exhaust systems primarily under the Walker(R) brand name and its ride control systems primarily under the Monroe(R) brand name. . Tenneco Packaging is among the world's leading and most diversified packaging companies, manufacturing packaging products for consumer, institutional and industrial markets. The paperboard business group manufactures corrugated containers, folding cartons and containerboard, has a joint venture in recycled paperboard, and offers high value-added products such as enhanced graphics packaging and displays and kraft honeycomb products. Its specialty products group produces disposable aluminum, foam and clear plastic food containers, molded fiber and pressed paperboard products, as well as polyethylene bags and industrial stretch wrap. Tenneco Packaging's consumer products include such recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R). . TBS designs, implements and administers shared administrative service programs for the Tenneco businesses as well as, on an "as requested" basis, for former Tenneco business entities. The consummation of the Transaction is conditioned upon approval thereof by Tenneco stockholders and receipt of a favorable ruling by the IRS that the spin-offs of Newport News and New Tenneco will be tax-free for federal income tax purposes to Tenneco and its stockholders. The consummation of the Transaction is also subject to the satisfaction or waiver of a number of other conditions as described under "The Industrial Distribution--Conditions to Consummation of the Industrial Distribution." 45 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 1996 STRATEGIC ACTIONS In the second quarter of 1996, the Company continued its strategy to redeploy capital to faster-growing, more profitable and less cyclical business operations. In June, Tenneco Packaging and Caraustar Industries ("Caraustar") entered into an agreement to jointly operate clay-coated recycled paperboard mills in Rittman, Ohio and Tama, Iowa and a recovered fiber recycling and brokerage business with operations in Rittman and Cleveland, Ohio. Tenneco Packaging sold these assets to the joint venture for cash and an equity ownership position in the new venture. This strategic action resulted in a pre- tax gain of $50 million. In addition, the Company initiated several other strategic actions: . In early 1996, Tenneco Automotive acquired two ride control companies, National Springs, the largest manufacturer of automotive coil and leaf springs in Australia and New Zealand, and ATESO s.a., one of the largest automotive equipment manufacturing groups in the Czech Republic, for an aggregate of $31 million. . In July 1996, Tenneco Automotive acquired Clevite for approximately $330 million. Clevite is a leading North American original equipment manufacturer of automotive vibration control components, including bushings and engine mounts for the auto, light truck and heavy truck markets. Clevite will be integrated into Monroe to form an operation with the ability to design, manufacture, test and sell a complete automotive suspension system. . In June 1996, Tenneco Packaging announced that it had reached an agreement to acquire the stock of Amoco Foam Products for $310 million. Amoco Foam Products manufactures expanded polystyrene tableware, including cups, plates and carrying trays; hinged-lid food containers; packaging trays, primarily for meat and poultry and industrial products for residential and commercial construction applications. The transaction closed in August 1996. . In August 1996, Tenneco Automotive acquired Luis Minuzzi e Hijos ("Minuzzi"), an Argentinian exhaust system manufacturer. The acquisition will establish Walker's presence in the rapidly growing Argentinean and South American automobile markets. RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1996 AND 1995 The Company's income from continuing operations for the 1996 first half of $178 million improved by six percent compared with $168 million in the first half of 1995 due to improved results from both Tenneco Packaging (which included the $50 million pre-tax gain on the sale of two recycled paperboard mills and a recovered fiber recycling and brokerage business to a joint venture) and Tenneco Automotive, all of which are discussed below. NET SALES AND OPERATING REVENUES
SIX MONTHS ENDED JUNE 30, -------------- 1996 1995 ------ ------ (MILLIONS) Tenneco Automotive........................................ $1,463 $1,263 Tenneco Packaging......................................... 1,775 1,318 Intergroup sales and other................................ (5) (4) ------ ------ $3,233 $2,577 ====== ======
The Company's revenues for the first six months of 1996 increased $656 million or 25 percent, and benefited from higher sales volumes in the automotive business along with revenues from recent acquisitions. The results of each business group are discussed in detail below. 46 INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING INCOME)
SIX MONTHS ENDED JUNE 30, -------------- 1996 1995 ------ ------ (MILLIONS) Tenneco Automotive......................................... $ 163 $ 134 Tenneco Packaging.......................................... 256 244 Other...................................................... (5) -- ------ ------ $ 414 $ 378 ====== ======
The Company's operating income for the first half of 1996 increased by $36 million compared with the 1995 period. Tenneco Automotive benefited from improved results in both the exhaust and ride control operations. Also, Tenneco Packaging recognized a gain from the sale of the recycled paperboard mills to a joint venture of $50 million in the Company's 1996 second quarter. The results of each segment are discussed in detail below. TENNECO AUTOMOTIVE
SIX MONTHS ENDED JUNE 30, ------------- 1996 1995 ------ ------ (MILLIONS) Revenues.................................................... $1,463 $1,263 Operating income............................................ 163 134
Tenneco Automotive's revenues increased in both the exhaust and ride control operations. Revenues for exhaust increased 16 percent to $847 million. North American and European original equipment volumes were up, contributing $84 million in additional revenues driven by a record number of new product launches and new vehicle production. Exhaust aftermarket volumes also increased primarily due to the third quarter 1995 acquisition of Manufacturas Fonos, S.L. ("Fonos"). Fonos added $22 million in revenue in the first half of 1996. Ride control reported an increase in revenues of $83 million or 16 percent. Ride control's North American aftermarket revenues increased 13 percent as a result of new customers and consumer response to aggressive marketing programs. The European original equipment revenues improved $25 million driven by new vehicle production. Revenues in Australia increased $10 million as a result of the 1996 acquisition of National Springs. Exhaust's operating income for the 1996 first half improved 30 percent to $74 million primarily due to increased volumes, which contributed $10 million, and improved manufacturing efficiencies. Ride control's operating income increase of $12 million was due primarily to higher sales volumes and product mix. OUTLOOK Tenneco Automotive's aggressive acquisition and business initiative strategy is helping it to maintain its market leadership positions around the world. The Company has committed substantial resources to improve and expand production capacity, expand existing businesses and enter new markets in order to serve its customers throughout the world. During the first half of 1996, Tenneco Automotive announced an exhaust system joint venture in China and the acquisition of Clevite. The Clevite acquisition is expected to produce positive results immediately, impacting the second half of 1996. In addition, Tenneco Automotive continues to develop business opportunities in emerging markets such as China, India, Eastern Europe, and Latin America. Tenneco Automotive expects the North American aftermarket to remain at 1995 activity levels for the remainder of 1996. Original equipment volumes are expected to increase as a result of the high level of new product launches undertaken in 1995 and early 1996 and continued interest by original equipment customers in hydroforming technology. The Company believes it is well positioned to respond to the many changes currently underway in the original equipment market. 47 TENNECO PACKAGING
SIX MONTHS ENDED JUNE 30, ------------- 1996 1995 ------ ------ (MILLIONS) Revenues.................................................... $1,775 $1,318 Operating income............................................ 256 244
Tenneco Packaging's operating income was $256 million in the first half of 1996 compared with $244 million in the prior year period. The results for the 1996 first half included a $50 million pre-tax gain on the sale of two recycled paperboard mills and a recovered fiber recycling and brokerage business to a new joint venture between Tenneco Packaging and Caraustar. The results were also driven by a strong performance from its plastics business. The recently acquired plastics business contributed $73 million in operating income on revenues of $516 million for the first half of 1996. In Tenneco Packaging's paperboard business, revenues were down $75 million to $903 million compared with the 1995 first half. Operating income in the paperboard business declined $107 million to $98 million compared with the 1995 first half, excluding the 1996 second quarter $50 million pre-tax gain on the sale of assets to the joint venture with Caraustar. 1995 acquisitions contributed $88 million to revenues and $5 million to operating income in 1996. Excluding acquisitions, lower volume and price realization resulted in $157 million in lower revenues and $100 million in lower operating income for the paperboard business. The 1996 operating income was also reduced by a $14 million cost related to downtime at mills taken to match inventories to market demand. In addition, the first half of 1995 included a $14 million gain on the sale of a mill in North Carolina. Revenues in Tenneco Packaging's specialty packaging business increased $532 million to $872 million compared with the 1995 first half, primarily as a result of the recently acquired plastics business which provided $516 million of this improvement. The specialty packaging business earned $108 million in operating income for the 1996 first half, an $83 million increase compared with the 1995 first half results. Operating income from the plastics business acquired in November 1995 contributed $73 million of this increase. The plastics, aluminum and molded fiber units also continued to improve due to lower raw material cost of aluminum and lower operating cost as a result of productivity improvements. Plastics volumes improved 5 percent for the first half of 1996 and demand continued to be strong. OUTLOOK Tenneco Packaging anticipates strong revenue growth in the second half of 1996 in the specialty packaging unit. Tenneco Packaging will continue to make strong progress in lessening the effects on it of cyclicality in the paperboard industry as shown in the first half of 1996. The Amoco Foam Products acquisition, which was finalized in the third quarter, will be beneficial to building the specialty packaging product lines. In addition, Tenneco Packaging continues to achieve productivity improvements, to streamline manufacturing, and to obtain benefits from the recent restructuring in the molded fiber and aluminum product operations. OTHER The Company's other operations reported an operating loss of $5 million during the first half of 1996 compared with breakeven in the 1995 first half. This decrease in operating income resulted from decreased interest income resulting from lower cash investments. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) Tenneco's historical practice has been to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Consequently, corporate debt of Tenneco and its related interest expense has been 48 allocated to the Company based on the portion of Tenneco's investment in the Company which is deemed to be debt, generally based upon the ratio of the Company's net assets to Tenneco consolidated net assets plus debt. Interest expense was allocated at a rate equivalent to the weighted-average cost of all corporate debt, which was 7.7 percent, 8.3 percent and 7.4 percent for 1995, 1994 and 1993, respectively. Although interest expense, and the related tax effects, have been allocated to the Company for financial reporting on a historical basis, the Company has not been billed for these amounts. The changes in allocated corporate debt and the after-tax allocated interest have been included as a component of the Company's combined equity. Although management believes that the historical allocation of corporate debt and interest is reasonable, it is not necessarily indicative of the Company's debt upon completion of the Debt Realignment nor debt and interest that may be incurred by the Company as a separate public company. For additional information, see "The Industrial Distribution--Debt and Cash Realignment." Interest expense increased from $74 million in the 1995 first half to $100 million in the 1996 first half. The increase was primarily attributable to higher levels of allocated corporate debt. Interest capitalized was $5 million for the 1996 first half compared with $1 million for the prior year period. INCOME TAXES Income tax expense for the first half of 1996 was $126 million compared with $124 million for the 1995 first half. The effective tax rate for the first half of 1996 was 40 percent compared with 41 percent in the prior year first half. In connection with the Industrial Distribution, the current tax sharing agreement will be cancelled and the Company will enter into a tax sharing agreement with Tenneco, Newport News and El Paso. The tax sharing agreement will provide, among other things, for the allocation of taxes among the parties of tax liabilities arising prior to, as a result of, and subsequent to the Distributions. Generally, the Company will be liable for taxes imposed on the Company and its affiliates engaged in the automotive and packaging businesses. In the case of federal income taxes imposed on the combined activities of the consolidated group, the Company and Newport News will be liable to Tenneco for federal income taxes attributable to their activities, and each will be allocated an agreed-upon share of estimated tax payments made by the Tenneco consolidated group. CHANGE IN ACCOUNTING PRINCIPLES The Company adopted FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of 1996. FAS No. 121 establishes new accounting standards for measuring the impairment of long-lived assets. The adoption of the new standard did not have a material effect on the Company's financial position or results of operations. In June 1996, the Financial Accounting Standards Board issued FAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes new accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. The statement is effective for transactions occurring after December 31, 1996. The impact of the new standard has not been determined. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW
SIX MONTHS ENDED JUNE 30, ------------------ CASH PROVIDED (USED) BY: 1996 1995 ------------------------ -------- -------- (MILLIONS) Operating activities................................ $ 199 $ (9) Investing activities................................ (340) (206) Financing activities................................ 169 (52)
49 The Company's operating results, combined with proceeds from sales of assets and businesses, contributions from Tenneco and short-term borrowings, have provided funds for acquisitions and capital investments in existing businesses. Operating Activities Operating cash flow for the first six months of 1996 increased due to higher income from operations and improvements in working capital. Working capital improved $147 million compared with the 1995 first half primarily due to lower inventories and the Company's working capital initiatives. Inventories dropped as a result of downtime taken at the mills to keep inventories in line and higher exhaust and ride control revenues driven by new vehicle production. Investing Activities The Company invested $263 million in capital expenditures in its existing businesses during the first half of 1996. Capital expenditures during the first six months of 1996 included $84 million for Tenneco Automotive, $155 million for Tenneco Packaging and $24 million related to the Company's other operations. For Tenneco Packaging, these expenditures related to the paper machine upgrade at the Counce, Tennessee mill and the expansion of specialty packaging facilities. Capital expenditures were $179 million for continuing operations during the first half of 1995. Financing Activities Cash provided by financing activities was $169 million during the first six months of 1996, compared with cash used by financing activities of $52 million for the same period in the previous year. The Company had a net decrease in short-term debt of $23 million in the first six months of 1996 compared to $2 million for the same period in 1995. The Company also received $200 million in cash contributions from Tenneco in the first six months of 1996 compared to a $39 million cash contribution to Tenneco in the first six months of 1995. See "Liquidity" below for further discussion of cash contributions to and from Tenneco. CAPITALIZATION
JUNE 30, DECEMBER 31, 1996 1995 -------- ------------ (MILLIONS) Short-term debt and current maturities.................... $ 530 $ 384 Long-term debt............................................ 1,573 1,648 Minority interest......................................... 301 301 Combined equity........................................... 2,168 1,852 ------ ------ Total capitalization...................................... $4,572 $4,185 ====== ======
Debt increased $71 million at June 30, 1996 compared with December 31, 1995 primarily due to higher levels of allocated debt. For additional information on corporate debt allocation, see "Interest Expense (net of interest capitalized)" above. OTHER The increase in the Company's plant, property and equipment and receivables balances at June 30, 1996 when compared to December 31, 1995 is the result of the acquisitions of ATESO and National Springs by Tenneco Automotive and capital expenditures in the first half of 1996, as well as an increase in receivables due to higher sales revenues from those acquisitions in the first half of 1996. LIQUIDITY Historically, the Company's excess net cash flows from operating and investing activities have been used by its parent, Tenneco, to meet consolidated debt and other obligations. Conversely, when the Company's cash 50 requirements have been in excess of cash flows from operations, Tenneco has utilized its consolidated credit facilities to fund the Company's obligations. Also, depending on market and other conditions, the Company has utilized external sources of capital to meet specific funding requirements. Management of the Company believes that cash flows from operations will generally be sufficient to meet future capital requirements. However, during 1995, the Company received on a net basis $1.3 billion from Tenneco primarily to fund its strategic acquisitions discussed below. Prior to the Transaction as discussed under the caption "Proposed Merger with El Paso," Tenneco intends to initiate a realignment of its existing indebtedness. As part of the Debt Realignment, certain Company Public Debt will be offered in exchange for certain issues of Tenneco Public Debt. Tenneco will initiate tender offers for other Tenneco Public Debt, and certain debt issues may be defeased. These tender offers and defeasances will be financed by a combination of new lines of credit of Tenneco, the Company (which may declare and pay a dividend to Tenneco, as discussed below) and Newport News (which will declare and pay a dividend of approximately $600 million to Tenneco). Upon completion of the Debt Realignment, Tenneco will have responsibility for $2.65 billion of debt and preferred stock, subject to certain adjustments, Newport News will have responsibility for the borrowings under its credit lines and the Company will have responsibility for any remaining Tenneco Energy Consolidated Debt. The Company will enter into the Company Credit Facility, a portion of which may be borrowed by the Company and distributed to Tenneco as a dividend for use by Tenneco in retiring certain of the Tenneco Energy Consolidated Debt. The remainder of the Company Credit Facility, along with cash flows from operations, will be available by the Company to fund its future financing needs including working capital and possible acquisitions. For additional information, see "The Industrial Distribution--Debt and Cash Realignment" and "Financing." ENVIRONMENTAL MATTERS The Company and certain of its subsidiaries and affiliates are parties to environmental proceedings. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments indicate that remedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology, and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors. All available evidence is considered, including prior experience in remediation of contaminated sites, other companies' cleanup experience and data released by the United States Environmental Protection Agency ("EPA") or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances. These liabilities are included in the balance sheet at their undiscounted amounts. Recoveries are evaluated separately from the liability and, when recovery is assured, are recorded and reported separately from the associated liability in the financial statements. At July 1, 1996, the Company had been designated as a potentially responsible party in 12 "Superfund" sites. With respect to its pro rata share of the remediation costs of certain of these sites, the Company is fully indemnified by third parties. With respect to certain other of these sites, the Company has sought to resolve its liability through settlements which provide for payments of the Company's allocable share of the remediation costs. For the remaining sites, the Company has estimated its share of the remediation costs to be between $3 million and $23 million or .003 percent to .020 percent of the total remediation costs for those sites and has provided reserves it believes are adequate for such costs. Because the clean-up costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, the Company's estimate of its share of remediation costs could change. Moreover, liability under the Comprehensive Environmental Response, Compensation and Liability Act is joint and several, meaning that the Company could 51 be required to pay in excess of its pro rata share of remediation costs. The Company's understanding of the financial strength of other potentially responsible parties has been considered, where appropriate, in the Company's determination of its estimated liability. The Company believes that the costs associated with its current status as a potentially responsible party in the Superfund or other waste disposal sites referenced above will not be material to its financial position or results of operations. RESULTS OF OPERATIONS FOR THE YEARS 1995, 1994 AND 1993 1995 STRATEGIC ACTIONS The Company acquired or announced intentions to acquire several new businesses during 1995, as part of its strategy to redeploy capital to less cyclical, higher-growth businesses, including: . On November 17, 1995 Tenneco Packaging acquired Mobil Plastics, which is one of the largest North American producers of polyethylene and polystyrene packaging, for $1.3 billion. Its consumer products are marketed under the Hefty(R), Kordite(R), Baggies(R) and Hefty OneZip(TM) brand names. The acquired plastics business is also a leader in polystyrene foam packaging, thermoformed polystyrene packaging and polyethylene film products for food service and industrial consumers. In addition to this acquisition, during 1995 Tenneco Packaging acquired two plastics packaging operations in the United Kingdom for an aggregate of $25 million, making Tenneco Packaging a leading supplier of single-use, thermoformed plastic packaging in that market. . During 1995 Tenneco Packaging also completed eight acquisitions in the paperboard packaging business for an aggregate of $171 million in cash, notes and Tenneco Common Stock. Four of these acquisitions are in enhanced graphics which helps reduce sensitivity to raw material prices and offers greater opportunities to add value. Tenneco Packaging also acquired Hexacomb Corporation ("Hexacomb"), one of the world's largest suppliers of paper honeycomb products, for $58 million. These acquisitions present many opportunities for internal and external synergies. . During 1995 Tenneco Automotive acquired an exhaust company in Spain and a catalytic converter company in the United States for an aggregate of $40 million and entered into two ride control joint ventures in India and China for an aggregate of $14 million. RESULTS OF OPERATIONS--YEARS 1995 AND 1994 The Company's income from continuing operations in 1995 of $258 million increased by 8 percent compared with $238 million in 1994 due to improved results from both Tenneco Packaging and Tenneco Automotive, as discussed below. In 1994, the Company recorded a loss of $31 million from the discontinued operations of Tenneco Automotive's brakes operations. Also, 1994 results included a charge of $7 million for the adoption of a new accounting principle, FAS No. 112, "Employers' Accounting for Postemployment Benefits." No similar costs were incurred in 1995. NET SALES AND OPERATING REVENUES
1995 1994 ------ ------ (MILLIONS) Tenneco Automotive........................................ $2,479 $1,989 Tenneco Packaging......................................... 2,752 2,184 Intergroup sales and other................................ (10) (7) ------ ------ $5,221 $4,166 ====== ======
52 The Company's 1995 revenues increased $1,055 million, or 25 percent and benefited from strong market conditions in its automotive and packaging businesses along with revenues from acquisitions made in late 1994 and 1995. The results of each segment are discussed in detail below. INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING INCOME)
1995 1994 ----- ----- (MILLIONS) Tenneco Automotive............................................ $ 240 $ 223 Tenneco Packaging............................................. 430 209 Other......................................................... 2 24 ----- ----- $672 $ 456 ===== =====
The Company's 1995 operating income increased by $216 million, or 47 percent compared with 1994. Tenneco Packaging benefited from favorable market conditions in the packaging industry and Tenneco Automotive improved as European original equipment and aftermarkets both performed well. The results of each segment are discussed in detail below. Significant transactions affecting the comparability of operating income between 1995 and 1994 are: . Pre-tax gains on sales of assets and businesses of $15 million in 1995 (primarily a mill in North Carolina) compared with gains of $5 million in 1994. . Reserves established in 1995 of $30 million for restructuring at Tenneco Packaging's molded fiber and aluminum foil packaging operations. . Charges in 1994 of $22 million at Tenneco Automotive for a plant closing in Ohio and consolidations in Europe associated with the acquisition of Heinrich Gillet GmbH & Company ("Gillet"), the German exhaust manufacturer. TENNECO AUTOMOTIVE
1995 1994 ------ ------ (MILLIONS) Revenues....................................................... $2,479 $1,989 Operating income............................................... $ 240 $ 223
Revenues from Tenneco Automotive's exhaust operations increased during 1995 by $392 million to $1,466 million. Eighty-eight percent, or $346 million of this increase resulted from revenues at Gillet. European original equipment volumes were up significantly in 1995 where Gillet is the leading original equipment manufacturer of exhaust components. European exhaust business revenues were also stronger in the aftermarket. Of the 23% increase in European aftermarket revenues, $14 million resulted from volume increases and $10 million from the acquisition of Fonos while positive foreign exchange rate movements contributed $28 million. North American exhaust revenues declined slightly in 1995. The 7 percent decrease in the North American aftermarket was caused by an unusually mild winter in the northeast and midwest which slowed automotive parts replacement rates. In addition, the U.S. automakers' continued migration toward stainless steel exhaust systems has negatively impacted North American aftermarket revenues. The aftermarket decrease was partially offset by increased original equipment unit volumes, resulting in a $15 million increase in revenues, due to increased demand for light truck and sport-utility vehicle exhaust systems. Operating income for the exhaust operations increased during 1995 by $14 million to $114 million. The 1994 operating income included a $5 million charge recorded for a plant closing and a $17 million charge related to plant consolidations as part of the Gillet acquisition. The Gillet operations contributed $16 million to operating income in 1995. The remainder of the operating income change in 1995 is due primarily to a high level of costs related to new product launches. Tenneco Automotive's exhaust business launched 50 products for 1996 model year vehicles in 1995, more than twice the normal levels which adversely affected 1995 earnings. In connection with the new product launches, Tenneco Automotive incurred additional costs of $10 million in 1995 including 53 those related to a new process, hydroforming. Hydroforming is a liquid, high- pressure process for bending and shaping metal parts in ways not feasible using traditional manufacturing technology. Revenues from Tenneco Automotive's ride control operations increased during 1995 by $98 million to $1,013 million. Fifty-seven percent or $56 million of this increase resulted from increased original equipment volumes in North America and Europe. Original equipment volumes increased due to higher demand for light truck and sport-utility vehicles in North America and improved economic conditions in Europe. An increase in aftermarket revenues in Europe more than offset the decrease in North American aftermarket revenues which declined due to the overall decline in the North American aftermarket. Operating income for the ride control operations increased in 1995 by $3 million to $126 million. The increased revenues in 1995 did not result in higher operating income primarily due to increased costs associated with the large number of new product launches for 1996 model year vehicles. These 18 launches, a significant increase over 1994 launches, adversely affected 1995 earnings. Tenneco Automotive's margins decreased to 9.7 percent from 11.2 percent in 1994. North American margins decreased to 10.2 percent in 1995 compared with 12.1 percent in 1994 due to higher costs related to new product launches and lower North American aftermarket sales volumes. European operations margins improved to 8.1 percent from 7.8 percent as a result of improved economic conditions in Europe and higher earnings associated with the Gillet acquisition. TENNECO PACKAGING
1995 1994 ------ ------ (MILLIONS) Revenues....................................................... $2,752 $2,184 Operating income............................................... $ 430 $ 209
Tenneco Packaging's paperboard operations experienced excellent results during 1995. Revenues were up $399 million to $1,928 million in 1995, primarily as a result of strong pricing improvements in linerboard prices during 1995 that began in late 1994 and continued to drive the paperboard business until the end of 1995. As a result of the move into higher margin graphics and specialty corrugated segments, Tenneco Packaging realized higher revenues on comparable volumes. In addition, strong industry demand for linerboard and corrugated products served to substantially increase prices for those products in 1995 and contributed to record revenues. Operating income in the paperboard operations improved by $260 million to $399 million in 1995. This improvement includes the 1995 pre-tax gain of $14 million on the sale of a recycled medium mill in North Carolina. Effective mix management allowed Tenneco Packaging to absorb rapidly rising raw material prices for corrugated products while posting increased margins. Additionally, Tenneco Packaging continued to post new productivity gains, especially in the operation of its containerboard mills, resulting in record operating margins in 1995. Revenues in Tenneco Packaging's specialty packaging operations increased by $169 million to $824 million during 1995. Revenues of $106 million from the recently acquired plastics business (November 1995) are included in the results of the specialty packaging business. The remainder of the revenue increase over 1994 resulted from price realizations in the aluminum product line. The specialty packaging business earned $31 million in operating income in 1995, a $39 million decrease compared with 1994 results. Specialty packaging recorded a restructuring charge of $30 million in 1995 for its molded fiber and aluminum foil packaging operations and recognized income from the recently acquired plastics business of $15 million. Excluding these two items, the decline in operating income for specialty packaging resulted from 20 percent raw material cost increases that more than offset the positive effects of the pricing increases initiated during the year. The major contributors to the raw material cost increases were higher prices for polystyrene, aluminum and old newspaper. However, these prices declined during the second half of the year. 54 OTHER The Company's other operations reported operating income of $2 million during 1995. During 1994, other operations reported operating income of $24 million. This decrease in operating income resulted from lower interest income on temporary cash investments. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) The Company's interest expense in 1995 was $160 million compared with $104 million in 1994. The higher interest expense in 1995 compared to 1994 is principally due to higher levels of allocated corporate debt. Interest capitalized was $5 million in 1995 compared with $2 million in 1994 due to higher levels of capital spending in 1995. For a discussion of the historical allocation of indebtedness of Tenneco and its subsidiaries, see "Results of Operations--Six Months Ended June 30, 1996 and 1995--Interest Expense (Net of Interest Capitalized)." MINORITY INTEREST Minority interest of $23 million in 1995 related to dividends on preferred stock of a U.S. subsidiary which was issued in December 1994. INCOME TAXES Income tax expense for 1995 was $231 million compared with $114 million in 1994. The Company's effective tax rate was 45 percent in 1995, compared with 32 percent in 1994. The increased tax expense in 1995 was primarily from higher pre-tax income and higher foreign tax expense. In 1994, the Company recorded tax benefits from the realization of deferred tax assets resulting from consolidation of the Company's German operations. DISCONTINUED OPERATIONS Loss from discontinued operations in 1994 of $31 million, net of income tax benefit of $20 million, resulted from the sale of Tenneco Automotive's brakes business. The loss on the sale of the brakes business was $26 million, net of income tax benefit of $15 million. Net loss in 1994 from the brakes operations was $5 million, net of income tax benefit of $5 million. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE Effective January 1, 1994, the Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits," using the cumulative catch-up method. It requires employers to account for postemployment benefits for former or inactive employees after employment but before retirement on the accrual basis rather than the "pay-as-you-go" basis. As a result of adopting this statement, an after-tax charge of $7 million was recorded in 1994. In October 1995, the Financial Accounting Standards Board issued FAS No. 123, "Accounting for Stock-Based Compensation." This statement defines a fair value based method of accounting for stock issued to employees and others but also allows companies to choose to continue to measure compensation cost for such plans as it is measured currently. The Company has elected to continue to use the current method of accounting for stock issued to employees. Consequently, FAS No. 123 will have no impact on the Company's consolidated financial position or results of operations. 55 LIQUIDITY AND CAPITAL RESOURCES CASH FLOW
CASH PROVIDED (USED) BY: 1995 1994 ------------------------ ------ ---- (MILLIONS) Operating activities...................................... $ 489 $571 Investing activities...................................... (2,041) (303) Financing activities...................................... 1,297 50
The Company's operating results, combined with proceeds from sales of assets and businesses, and supplemented by contributions from Tenneco, have provided funds for acquisitions and capital investments in existing businesses. Operating Activities Operating cash flow for 1995 declined compared with 1994 primarily due to the build up of paperboard inventories at Tenneco Packaging as a result of a planned mill shut-down in Counce, Tennessee in early 1996 and a net increase in other working capital balances. Investing Activities Cash used for business acquisitions during 1995 totaled approximately $1.5 billion. The largest single transaction was the acquisition of Mobil Plastics by Tenneco Packaging for $1.3 billion, which was financed by a cash contribution from Tenneco. Also, Tenneco Packaging and Tenneco Automotive made other key acquisitions during the year. Further, the Company invested $562 million in capital expenditures in its existing businesses during the year. Capital expenditures during the year included $208 million for Tenneco Automotive, $316 million for Tenneco Packaging and $38 million related to the Company's other operations. For Tenneco Packaging, these expenditures included $60 million for a paper machine addition at the Counce, Tennessee mill as well as $33 million for a new container plant in Salt Lake City, Utah. Tenneco Automotive's capital spending included $22 million related to new product launches in plants related to Gillet, which Tenneco Automotive acquired in 1994 for $44 million, and $24 million for expanding a key exhaust plant and distribution center. Capital expenditures increased in 1995 compared with the prior year in all businesses. Net proceeds from sales of businesses and assets during 1995 were $56 million, which included the $30 million proceeds from the sale of a mill in North Carolina. Financing Activities Cash flows from financing activities was $1.3 billion in 1995 and primarily included a $1.3 billion cash contribution from Tenneco for the acquisition of Mobil Plastics in November 1995. Cash provided from financing activities during 1994 was $50 million. In December 1994 Tenneco sold a 25 percent preferred stock interest in a subsidiary which resulted in net cash proceeds of $293 million. This was included in the balance sheet as minority interest at December 31, 1994. Furthermore, in 1994 the Company had a net decrease in short- term debt of $94 million and retired $152 million of long-term debt. See "Results of Operations--Six Months Ended June 30, 1996 and 1995--Liquidity" for further discussion of cash contributions to and from Tenneco. CAPITALIZATION
1995 1994 ------ ------ (MILLIONS) Short-term debt and current maturities..................... $ 384 $ 108 Long-term debt............................................. 1,648 1,039 Minority interest.......................................... 301 301 Combined equity............................................ 1,852 987 ------ ------ Total capitalization....................................... $4,185 $2,435 ====== ======
56 For additional information on corporate debt allocation, see "Interest Expense (net of interest capitalized)" above. OTHER As a result of the acquisition of Mobil Plastics in November 1995 for $1.3 billion and other acquisitions made by the Company in 1995, the Company's plant, property and equipment, goodwill and intangibles, inventories and receivables increased at December 31, 1995 when compared to December 31, 1994. RESULTS OF OPERATIONS--YEARS 1994 AND 1993 NET SALES AND OPERATING REVENUES Revenues for 1994 were $4.17 billion, up from $3.82 billion in 1993. Tenneco Automotive revenues were $1,989 million, a $204 million, or an 11 percent increase, compared with 1993 primarily due to increased new vehicle production in North America and an improving European economy. Aftermarket revenues also benefited from the introduction of Monroe's new premium ride control product, Sensa-Trac(R). A major trade and consumer promotion in North America of the new Sensa-Trac(R) products helped lead to an 11 percent increase in revenues for the ride control replacement business worldwide. Packaging revenues increased $142 million, or seven percent, to $2.18 billion in 1994, as prices in the paperboard business recovered from the seven-year low reached in the third quarter of 1993. INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING INCOME) Operating income was $456 million for 1994. This was an improvement of $75 million compared with 1993's operating income of $381 million. Excluding gains from asset sales and other special items including plant consolidations, 1994 operating income increased $126 million, or 36 percent, compared with 1993 primarily due to improved pricing in Tenneco Packaging's containerboard business. Tenneco Automotive operating income for 1994 was $223 million, compared with $222 million in 1993. The 1994 operating income included a $17 million charge for plant consolidations in Europe associated with acquiring Gillet and a $5 million charge taken in the second quarter for closing a plant in Ohio. Excluding special items, operating income increased $23 million, or 10 percent, compared with 1993. This increase is a result of higher volumes in North America and Europe and was partially offset by higher costs for new product development and new facility start-up. Tenneco Automotive's margins were 11.2 percent in 1994 compared with 12.4 percent in 1993. North American margins decreased to 12.1 percent in 1994 compared with 13.6 percent in 1993 due to higher costs related to new product development and new facility start-up. European operations margins decreased to 7.8 percent from 9.5 percent as a result of costs for plant consolidations associated with the Gillet acquisition. In November 1994, Tenneco Automotive acquired Gillet for $44 million in cash and $69 million in assumed debt. Gillet is the leading manufacturer of original equipment exhaust systems and components for European automakers. Tenneco Packaging's operating income for 1994 was $209 million, compared with $139 million in 1993. The 1993 operating income included $29 million from gains related to asset realignment. Excluding these gains, operating income increased $99 million, or 90 percent, compared with 1993 primarily because of improved paperboard pricing. The paperboard business earned $139 million, up $104 million compared with 1993, excluding the 1993 asset realignment gains. Prices rose from depressed levels in 1993 and contributed $125 million, excluding the recycling business, of increased operating income. This was partially offset by higher raw material costs of $32 million, but improved productivity helped counter rising raw material costs. Paperboard productivity rose 1.6 57 percent, with mill operating rates exceeding rated capacity for the full year. The specialty business operating income for 1994 declined $5 million to $70 million, excluding the asset realignment gains in 1993. Both the aluminum and plastic packaging businesses reported improved operating income. Plastic packaging volumes grew seven percent in 1994 and demand continued to be strong. Operating income for plastics rose 40 percent in 1994, reflecting increased volumes and higher pricing. The increase in operating income provided by the aluminum and plastic businesses was more than offset by weak performance in the molded fiber business, where higher raw material costs had a negative effect on operating income. Prices for recycled newspaper, a major raw material for molded fiber, rose to over $100 per ton, compared with $26 per ton in 1993. The Company's other operations reported operating income of $24 million in 1994, compared with operating income of $20 million for 1993. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) The Company's interest expense in 1994 was $104 million compared with $101 million in 1993. Interest capitalized increased to $2 million in 1994 from $1 million in 1993 due to higher levels of major capital spending. For a discussion of the historical allocation of indebtedness of Tenneco and its subsidiaries, see "Results of Operations--Six Months Ended June 30, 1996 and 1995--Interest Expense (Net of Interest Capitalized)." INCOME TAXES Income tax expense was $114 million for 1994 compared with $115 million for 1993. The Company's effective tax rate was 32 percent in 1994, compared with 41 percent in 1993. The lower effective tax rate in 1994 was the result of tax benefits from the realization of deferred tax assets resulting from consolidation of the Company's German operations. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE Effective January 1, 1994, the Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits." As a result, an after-tax charge of $7 million was recorded in 1994. DISCONTINUED OPERATIONS Loss from discontinued operations in 1994 of $31 million, net of income tax benefit of $20 million resulted from the Company's brakes business. Loss from discontinued operations in 1993 of $7 million, net of income tax benefit of $4 million, was also attributable to the Company's brakes business. CASH FLOW Operating Activities Net cash provided by operating activities was $571 million for the year 1994, compared with $324 million for 1993, an increase of $247 million. This increase was due to higher income from operations and improved receivable collections. Investing Activities Net cash used by investing activities in 1994 was $303 million, compared with $152 million in 1993. Net proceeds from the sale of businesses in 1993 of $83 million resulted from the sales of various international aluminum ventures. Expenditures for plant, property and equipment from continuing operations for 1994 were $280 million, compared with $217 million for 1993. Increased expenditures were reported for Tenneco Automotive ($20 million), Tenneco Packaging ($42 million) and the Company's other operations ($1 million). 58 Financing Activities Cash flows used by financing activities in 1993 was $165 million compared with cash flows provided by financing activities of $50 million in 1994. Cash flows used by financing activities in 1993 included a net decrease of short- term debt of $29 million, the retirement of $21 million of long-term debt, and a cash contribution to Tenneco of $115 million. Cash flows from financing activities in 1994 primarily included net cash proceeds of $293 million from the sale of a 25 percent preferred stock interest in a subsidiary, offset by a net decrease in short-term debt of $94 million and the retirement of $152 million of long-term debt. See "Results of Operations--Six Months Ended June 30, 1996 and 1995--Liquidity" for further discussion of cash contributions to and from Tenneco. 59 BUSINESS AND PROPERTIES TENNECO AUTOMOTIVE Tenneco Automotive is one of the world's leading manufacturers of automotive exhaust and ride control systems for the original equipment market and aftermarket. Tenneco Automotive is a global business that sells its products in over 100 countries, manufacturing and marketing its automotive exhaust systems primarily under the Walker(R) brand name and its ride control equipment primarily under the Monroe(R) brand name. Overview of Automotive Parts Industry The global market for automotive parts was approximately $435.3 billion in 1995, comprised of $352 billion in original equipment ("OE") sales and $83.3 billion in aftermarket sales. This market is expected to grow by 7.6% to $468.4 billion in 1996 and by approximately 7.2% per year through 2000 resulting in a total market size of approximately $617.6 billion in that year. As the North American and Western European automotive markets are relatively mature (expected to grow at an estimated rate of 7.0% and 6.0%, respectively through 2000), original equipment manufacturers ("OEMs") and automotive parts suppliers are increasingly focusing on emerging markets for additional growth opportunities, particularly China, Eastern Europe, India and Latin America. Automotive parts are generally segmented into two categories: (i) OE sales in which parts are sold in large quantities directly to the vehicle manufacturers and (ii) aftermarket sales in which parts are sold in varying quantities to a wide range of wholesalers, retailers and repair shops as replacement parts in the aftermarket. Demand for automotive parts in the OE market is driven by the number of new vehicle sales which in turn are determined by prevailing economic conditions. Factors affecting demand in the aftermarket include the number of vehicles on the road, the average useful life of parts, the average age of such vehicles and number of miles driven. Industry Trends Currently, there are significant existing and emerging trends that are dramatically reshaping the automotive industry. As the dynamics of the automotive industry change, so do the roles, responsibilities and relationships of its participants. Key trends affecting automotive parts suppliers include: Consolidation of Parts Suppliers. The automotive parts industry, particularly with respect to OE suppliers, has been rapidly consolidating for the last several years. The number of Tier I suppliers has decreased from 3,000 to 1,500 since 1990. By the year 2000, the number of suppliers is expected to decrease by nearly 75%, leaving approximately 400 Tier I suppliers. The primary reasons for this consolidation include: (i) an increasing desire by OEMs to work with fewer, larger suppliers that can provide fully-integrated systems and (ii) the inability of smaller suppliers to compete on price with the larger companies who benefit from purchasing and distribution economies of scale. Full-System Integration by Parts Suppliers. OEMs are moving towards outsourcing entire automotive parts systems in order to take advantage of the lower cost structure of the automotive parts suppliers. Development of advanced electronics has enabled formerly independent components to become "interactive," leading to a shift in demand from individual parts to fully- integrated systems. OEMs seem to have accepted the need to work more closely with suppliers, whose roles are now being transformed from "parts suppliers" to "developers of modules and systems." This shift has created the role of the systems integrator, who will increasingly have the ability to execute a number of activities, such as design, product development, engineering, testing of component systems, and purchasing from Tier II suppliers. It is estimated that there will be approximately 60 systems integrators by the year 2005. This emerging structure should allow the vehicle manufacturers to concentrate on the activities which are core to their success such as product planning and marketing, thus limiting their involvement to setting the "look and feel" and cost parameters for new vehicle platforms. OEMs are also stimulating further manufacturing cost improvements by implementing strategies that would provide parts suppliers with greater 60 input and allow them to share in the benefits of cost savings and productivity enhancements, thus strengthening the role and potential margins of the surviving Tier I suppliers. Globalization of the Automotive Industry. As a result of several factors, OEMs are increasingly requiring "global" parts suppliers with global management expertise. As the customer base of OEMs changes, and emerging markets become more important to achieving growth, suppliers must be prepared to provide products any place in the world. This requires a worldwide approach to engineering, sales and distribution. . Location of Production Closer to End Markets. OEMs have relocated production globally on an "on-site" basis that is closer to end markets. This international expansion allows suppliers to pursue sales in developing markets, to take advantage of relatively lower labor costs and, to some extent, to offset the counter-cyclicality of the European and North American markets. . Growing Importance of Emerging Markets. As the North American and Western European automotive markets are relatively mature, OEMs are increasingly focusing on emerging markets for growth opportunities, particularly China, Eastern Europe, India and Latin America. The increased focus on the OE markets has in turn increased the growth opportunities in the aftermarket. . Increasing Requirement of Government for Local Parts Content. Many governments are beginning to require certain percentages of local content. Standardization of OEM Vehicle Platforms. OEMs are increasingly designing "world cars" with standard bases and localized features, while also developing niche market products such as multipurpose vehicles, four-wheel drive and sports cars for mature markets. OEMs have learned that they can realize significant economies of scale by limiting variations across items such as steering columns, brake systems, transmissions, axles, exhaust systems, support structures, fasteners, and power window and door lock mechanisms. This shift towards standardization will have a large impact on components manufacturers, who should experience a reduction in production costs if the OEMs reduce components variations. This should result in not only higher production volumes per unit and greater economies of scale, but also lower investment costs for molds and dies, reduced development and prototype costs and more efficient die changes and retooling. Aftermarket. There are several factors that are positively affecting the North American demand for automotive parts in the aftermarket, including: . The average age of vehicles on the road is at an industry record-high of 8.4 years. . The aggregate number of annual miles driven by all vehicles has increased by 38% from 1,925 billion miles in 1988 to 2,360 billion miles in 1995. . The size of the vehicle fleet has increased from approximately 157 million registrations in 1988 to approximately 188 million registrations in 1995. On the other hand, a factor negatively affecting the demand for aftermarket parts is the increasing average useful life of most OEM automotive parts as a result of technological advancements. Emphasis on Clean Air and Efficiency. The enactment of strict environmental regulations regarding both pollution and recycling content has led suppliers and OEMs to design products and develop materials to comply with increasingly stringent requirements. The Clean Air Act Amendments of 1990 require substantial reductions in automobile tailpipe emissions, longer warranties on certain parts of an automobile's pollution-control equipment and additional equipment to control fuel-vapor emissions. Manufacturers have responded by focusing their efforts towards technological development, thus lowering costs while minimizing industrial waste and pollution. Automakers are designing vehicles that will be easier to dismantle and recycle at the end of their useful lives and nearly all component manufacturers now deliver parts and components in reusable shipping containers to reduce the amount of waste produced at an assembly plant. 61 Overview of Tenneco Automotive Tenneco Automotive is one of the world's leading manufacturers of automotive exhaust and ride control systems for the OE market and the aftermarket. Tenneco Automotive is a global business that sells its products in over 100 markets worldwide. Tenneco Automotive manufactures and markets its automotive exhaust systems primarily under the Walker(R) brand name, and its ride control equipment is primarily manufactured under the Monroe(R) brand name. The following table sets forth information relating to the net sales of both of Tenneco Automotive's primary product groups:
NET SALES ($ IN MILLIONS) ---------------------------------- SIX MONTHS YEAR ENDED DECEMBER ENDED 31, JUNE 30, 1996 1995 1994 1993 ------------- ------ ------ ------ EXHAUST SYSTEMS PRODUCTS GROUP Aftermarket............................... $ 348 $ 637 $ 609 $ 562 OE Market................................. 499 829 465 385 ------ ------ ------ ------ $ 847 $1,466 $1,074 $ 947 ------ ------ ------ ------ RIDE CONTROL PRODUCTS GROUP Aftermarket............................... $ 406 $ 687 $ 644 $ 580 OE Market................................. 210 326 271 258 ------ ------ ------ ------ $ 616 $1,013 $ 915 $ 838 ------ ------ ------ ------ Total Tenneco Automotive................ $1,463 $2,479 $1,989 $1,785 ====== ====== ====== ======
Brands. Tenneco Automotive has established leading brand-name products. Monroe(R) and Walker(R) are two of the most recognized brand names in the automotive parts industry. As Tenneco Automotive acquires related product lines, it is envisioned that they will be incorporated within these existing product families. Customers. Tenneco Automotive has developed long-standing business relationships with many of its customers around the world, working with its customers in all stages of production, including design, development, component sourcing, quality assurance, manufacturing and delivery. Tenneco Automotive has a strong and established reputation with its customers for providing high quality products at competitive prices as well as for timely delivery and customer service. Attention to these customer priorities has been recognized by numerous customers who have awarded Tenneco Automotive supplier quality awards. 62 Tenneco Automotive serves both the OE market and the aftermarket since the investment and technology required to produce products for the OEMs can be profitably parlayed into the higher margin aftermarket. Tenneco Automotive serves over 25 different OEM customers on a global basis, including the following: NORTH AMERICA EUROPE JAPAN CAMI BMW Mazda Chrysler DAF Nissan Ford Daihatsu Suzuki General Motors Fiat Toyota Honda Ford Mazda Jaguar AUSTRALIA Mitsubishi Lada Ford Nissan Leyland General Motors NUMMI Mercedes-Benz Mitsubishi Toyota Mitsubishi Toyota Nissan SOUTH AMERICA Opel Fiat Peugeot/Citroen Ford Porsche General Motors Renault/Matra Volkswagen Rover/Land Rover Saab/Scania Toyota Volkswagen/Audi/SEAT/Skoda Volvo Tenneco Automotive's aftermarket customers include such wholesalers and retailers as National Auto Parts Association (NAPA), Big A Stores, Midas International Corp. ("Midas"), Speedy Muffler King and Western Auto in North America and Midas, Pit Stop and Kwik-Fit in Europe. Exhaust Systems Tenneco Automotive designs, manufactures and distributes exhaust systems primarily under the Walker(R) brand name. These products include a variety of automotive exhaust systems and emission control products, including mufflers, catalytic converters, tubular exhaust manifolds, pipe, exhaust accessories and electronic noise cancellation products. Founded in 1888 and a division of Tenneco Automotive since 1967, Walker is the replacement market leader for exhaust systems in North America, Europe and Australia. Walker is a leading supplier in the OE market in the U.S. as well, supplying exhaust systems used in 7 of the 10 top-selling 1996 new car models sold in the U.S. Walker has long been the European market leader in the replacement market for exhaust systems, and with the acquisition of Gillet in 1994, Walker became Europe's leading OE supplier. Exhaust systems play a critical role in safely conveying noxious gases away from the passenger compartment, reducing the level of pollutants and reducing engine exhaust noise to an acceptable level. Precise engineering of the manifold, pipe, catalytic converter and muffler leads to a pleasant, tuned engine sound, minimal pollutants and optimized engine performance. Manufacturing and Engineering. With plants in North America, Europe, South America, South Africa, Asia and Australia, Walker locates its manufacturing facilities in close proximity to its OE customers to provide just-in-time delivery. In the U.S., Walker operates 10 manufacturing facilities and seven distribution centers, three of which are located at manufacturing facilities. Walker also has two research and development facilities in the U.S. In addition, Walker operates 26 manufacturing facilities located in Argentina, Australia, Canada, China, the Czech Republic, the United Kingdom, Mexico, Denmark, Germany, France, Spain, Portugal, South Africa and Sweden. Walker is in the process of establishing a production line in Brazil. It also has one engineering and 63 technical center at its facility in Germany and one at its facility in Australia. Its engineering facilities include full anechoic chambers in the U.S. and Europe. Strategic Acquisitions/Joint Ventures. As part of its international growth strategy, Walker acquired ownership of Gillet, a manufacturer of exhaust systems, in November 1994. The acquisition of Gillet, Europe's largest OE exhaust supplier, recast Tenneco Automotive as the market leader in exhaust systems for the OE market in Europe. The acquisition also brought many new OE customers and orders to the Walker business. Before Gillet, Walker had only Toyota as a European OE exhaust customer. As a result of the acquisition of Gillet, a variety of new customers have been added, including: Audi, Ford- Europe, Opel (General Motors), Mercedes Benz, Peugeot/Citroen, Renault, Seat, Skoda and Volkswagen. Significantly, following the Gillet acquisition, Ford selected Walker as a supplier for its 1997 "world" car. In 1995, Walker acquired ownership of Fonos, Spain's largest participant in the exhaust systems aftermarket, and Perfection Automotive Products, a U.S. catalytic converter producer, further expanding Walker's presence in the exhaust systems replacement market. In 1996, Walker established a joint venture in China (Dalian) to supply exhaust systems to the northern Chinese automotive market. The following table sets forth information relating to Tenneco Automotive's sales of exhaust systems:
PERCENTAGE OF SALES -------------------------------------- SIX MONTHS YEAR ENDED DECEMBER 31, ENDED --------------------------- JUNE 30, 1996 1995 1994 1993 ---------- ------- ------- ------- United States Sales Aftermarket.................... 42% 46% 48% 52% OE Market...................... 58 54 52 48 --- ------- ------- ------- 100% 100% 100% 100% === ======= ======= ======= Foreign Sales Aftermarket.................... 40% 42% 68% 70% OE Market...................... 60 58 32 30 --- ------- ------- ------- 100% 100% 100% 100% === ======= ======= ======= Total Sales by Geographic Area United States.................. 42% 42% 58% 60% European Union................. 44 45 24 23 Canada......................... 8 7 10 12 Other areas.................... 6 6 8 5 --- ------- ------- ------- 100% 100% 100% 100% === ======= ======= =======
Ride Control Products Tenneco Automotive designs, manufactures and distributes ride control equipment primarily under the Monroe(R) brand name. Tenneco Automotive's ride control equipment consists of hydraulic shock absorbers, air adjustable shock absorbers, spring assisted shock absorbers, gas charged shock absorbers and struts, replacement cartridges and electronically adjustable suspension systems. Tenneco Automotive manufactures and markets replacement shock absorbers for virtually all domestic and foreign makes of automobiles. In addition, Tenneco Automotive manufactures and markets shock absorbers and struts for use as original equipment on passenger cars and trucks, as well as for other uses. Founded in 1916, Monroe introduced the world's first shock absorber in 1926 and became part of Tenneco Automotive in 1977. Tenneco Automotive is the market leader for ride control equipment in the aftermarket in North America, Europe and Australia, as well as in the OE market in Australia. 64 Superior ride control is governed by a vehicle's suspension system, including its shocks and struts. Shocks and struts are components that help maintain vertical loads placed on a vehicle's tires to help keep the tires in contact with the road. A vehicle's ability to steer, brake and accelerate depends on the adhesion, or friction, between the vehicle's tires and the road. Adhesion is directly influenced by shock absorber and strut performance. Worn or low quality shocks and struts allow weight to transfer from side to side (roll), from front to rear (sway) and up and down (bounce). Monroe shocks maintain vertical loads placed on tires by providing resistance to vehicle bounce, sway and roll. Variations in tire to road contact affect a vehicle's handling and braking performance and the safe operation of a vehicle; thus, by enhancing the tire to road contact, Monroe's ride control products actually function as safety components of a vehicle rather than merely providing a comfortable ride. Manufacturing and Engineering. Monroe has ten manufacturing facilities in the United States and 14 foreign manufacturing operations in Australia, Belgium, Brazil, Canada, the Czech Republic, Mexico, the United Kingdom, Spain, Turkey and New Zealand. Monroe also has controlling interests in joint ventures that own manufacturing operations in China and India as described below. In designing its shock absorbers and struts, Monroe uses advanced engineering and test capabilities to provide product reliability, endurance and performance. Monroe's engineering capabilities feature state-of-the-art testing equipment, advanced computer aided design equipment, and the talents of over 100 engineers. Monroe's dedication to innovative solutions has led to such technological advances as adaptive dampening systems; manual, hydraulic and electronically adjustable suspensions; semi-active and active systems; and air and hydraulic leveling systems. Conventional shocks and struts were only able to provide either ride comfort or vehicle control. Monroe's innovative new grooven-tube, gas-charged shocks and struts enable both ride comfort and vehicle control, resulting in improved handling (less roll), reduced vibration, a wider range of vehicle control and a lessening of the reduction in performance as the struts become overheated (fade). This new technology, together with Monroe's Position Sensitive Dampening(R) valve can be found in Monroe's premium quality Sensa-Trac(R) shocks. Strategic Acquisitions/Joint Ventures. As a means of expanding its product lines and offering OEMs a complete modular ride control system, in July 1996, Tenneco Automotive acquired Clevite. Clevite is a leading OE manufacturer of elastomeric vibration control components, including bushings and engine mounts, for the auto, light truck and heavy truck markets. With this acquisition, Tenneco Automotive now has full capability to deliver complete suspension systems to the OEMs. The Clevite acquisition also complements Tenneco Automotive's interest in global growth opportunities, as both Clevite and Monroe have manufacturing operations in Mexico and Brazil. In addition to the operations mentioned in the preceding paragraph, Tenneco Automotive has a 51% interest in a joint venture that has three ride control manufacturing facilities in India and has a 51% interest in a joint venture that has one ride control manufacturing facility in China. It is anticipated that the joint venture in India will also manufacture exhaust systems. The following table sets forth information relating to Tenneco Automotive's sales of ride control equipment: 65
PERCENTAGE OF SALES -------------------------------------- SIX MONTHS YEAR ENDED DECEMBER 31, ENDED --------------------------- JUNE 30, 1996 1995 1994 1993 ---------- ------- ------- ------- United States Sales Aftermarket.................... 72% 70% 72% 72% OE Market...................... 28 30 28 28 --- ------- ------- ------- 100% 100% 100% 100% === ======= ======= ======= Foreign Sales Aftermarket.................... 61% 66% 69% 63% OE Market...................... 39 34 31 37 --- ------- ------- ------- 100% 100% 100% 100% === ======= ======= ======= Total Sales by Geographic Area United States.................. 45% 48% 49% 50% European Union................. 36 36 32 29 Canada......................... 4 3 5 7 Other areas.................... 15 13 14 14 --- ------- ------- ------- 100% 100% 100% 100% === ======= ======= =======
Sales and Marketing Both of the exhaust and ride control systems groups utilize similar sales and marketing systems to distribute Tenneco Automotive products. Both groups take advantage of a dedicated sales force and consumer brand marketing professionals together with extensive marketing support, including trade and consumer marketing, promotions and general advertising. Tenneco Automotive maintains a customer order fill rate consistently exceeding 95%, which it believes is among the highest in the industry. Tenneco Automotive sells its OEM products directly. With respect to the aftermarket, Tenneco Automotive employs three primary distribution techniques: (i) the traditional three-step distribution system: warehouse distributors, jobbers and installers; (ii) direct sales to retailers; and (iii) sales to buying groups. Strategy Tenneco Automotive's primary goal is to enhance its leadership position in the global automotive parts industry in which it is currently one of the leading manufacturers of exhaust and ride control systems. Tenneco Automotive intends to capitalize on certain significant existing and emerging trends in the automotive industry, including (i) the consolidation and globalization of the OEM supplier base, (ii) increased OEM outsourcing, particularly of more complex components, assemblies, modules and complete systems to sophisticated, independent suppliers and (iii) growth of emerging markets for both original equipment and replacement markets. Key components of Tenneco Automotive's strategy include: Branding. Tenneco Automotive, whose major strategic strength is the performance of its leading Monroe and Walker brand names and their market shares, intends to emphasize product differentiation to give consumers added reasons for specifying their brands. For example, Monroe introduced a premium grade shock and strut called Sensa-Trac(R) in 1994, which helped it regain its technological leadership in the ride control market, and Walker's Advantage(TM) and Dyno Max(TM) brands are the leading brands in their product categories. Tenneco Automotive also plans on capitalizing on its brand strength by incorporating newly acquired product lines within existing product families, as it did with Gillet. Maintain Focus on Core Business. Tenneco Automotive intends to retain market share in its core businesses with its primary customers while increasing market share with customers with whom it has not fully realized its potential market penetration. These objectives are designed to enable Tenneco Automotive to respond better to 66 the OEMs' evolving purchasing requirements, where in addition to manufacturing, the supplier is required to provide design, engineering and project management support for a complete package of integrated products. Continue to Develop High Value-Added Products. Tenneco Automotive intends to continue to manufacture high value-added products and to develop strategic alliances with Tier I and Tier II suppliers in order to facilitate development of these value-added products, including the development of highly engineered or complex assemblies or systems. Tenneco Automotive intends to expand its product lines by continuing to identify and fill new fast-growing niche markets, by developing new products for existing markets, by acquiring companies with product portfolios that complement the products currently applied by Tenneco Automotive and by establishing strategic alliances with other suppliers. Increase Ability to Provide Full-System Capabilities. The automotive parts industry is encountering a consolidation of parts suppliers as OEMs require suppliers to provide design assistance and innovation and full-system capabilities rather than just specific parts. In response to this trend, the Company plans to dedicate more resources towards strengthening technical capability and design expertise and pursue appropriate strategic acquisitions, joint ventures and strategic alliances in order to increase Tenneco Automotive's ability to deliver such full-system capability. For example, the recent acquisition of Clevite now gives Tenneco Automotive the ability to deliver complete suspension systems to OEMs. International Expansion. As Tenneco Automotive's OE customers expand their assembly operations globally and in response to the development of global aftermarkets, Tenneco Automotive plans to continue its international expansion through joint ventures, acquisitions and strategic alliances. For example, since August 1995, Tenneco Automotive has made eight acquisitions and entered into four international joint ventures. These strategic initiatives have given Tenneco Automotive an enhanced presence in Argentina, Brazil, China, Australia, the Czech Republic, Spain, India and most recently, Turkey, In September 1996, Tenneco Automotive acquired ownership of its Borusan Amortisor shock absorber joint venture in Turkey ("Borusan Amortisor"). Borusan Amortisor currently has approximately 23% of the OE market and 30% of the aftermarket in Turkey. Both markets are expected to grow significantly by the year 2000. The recent international acquisitions complement the November 1994 acquisitions of Gillet, Europe's largest supplier of automotive exhaust equipment for the OEM market, which has already been successfully integrated into Tenneco Automotive. Rather than segment the world, Tenneco Automotive plans to integrate its international operations through the standardization of products and processes, improvements in information technology and the global coordination of purchasing, costing and quoting procedures. Strategic Acquisitions. Strategic acquisitions have been, and management believes will continue to be, an important element of Tenneco Automotive's growth. Through such acquisitions, Tenneco Automotive can expand its product portfolio, gain access to new customers and achieve leadership positions within new geographic markets, while drawing on the strengths of existing distribution channels with OEM relationships. Tenneco Automotive has developed comprehensive integration plans to quickly integrate new companies into its infrastructure. Tenneco Automotive intends to continue to pursue acquisition opportunities in which management can substantially improve the profitability of strategically related businesses by, among other things, rationalizing similar product lines and eliminating certain lower margin product lines; reconfiguring and upgrading manufacturing facilities; moving production to the lowest cost facilities; and reducing selling, distribution, purchasing and administrative costs. Operating Cost Leadership. Tenneco Automotive will continue to seek cost reductions as it standardizes it product and processes throughout its international operations, improves its information technology, increases employee training, invests in more efficient machinery and enhances the global coordination of purchasing, costing and quoting procedures. 67 Other As of July 1, 1996, Tenneco Automotive had approximately 21,000 employees. Tenneco Automotive believes that its relations with its employees are good. The principal raw material utilized by Tenneco Automotive is steel. Tenneco Automotive believes that an adequate supply of steel can presently be obtained from a number of different domestic and foreign suppliers. Tenneco Automotive holds a number of domestic and foreign patents and trademarks relating to its products and businesses. It manufactures and distributes its products primarily under the names Walker(R) and Monroe(R), which are well recognized in the marketplace. The patents, trademarks and other intellectual property owned by Tenneco Automotive are important in the manufacturing and distribution of its products. The operations of Tenneco Automotive face competition from other manufacturers of automotive equipment, including affiliates of certain of its customers, in both the OE market and the aftermarket. Tenneco Automotive is headquartered in Deerfield, Illinois. TENNECO PACKAGING Tenneco Packaging is among the world's leading and most diversified packaging companies, manufacturing packaging products for consumer, institutional and industrial markets. The paperboard business group manufactures corrugated containers, folding cartons and containerboard, has a joint venture in recycled paperboard, and offers high value-added products such as enhanced graphics packaging and displays and kraft honeycomb products. Its specialty products group produces disposable aluminum, foam and clear plastic food containers, molded fiber and pressed paperboard products, as well as polyethylene bags and industrial stretch wrap. Tenneco Packaging's consumer products include such recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R). Overview of Packaging Industry The global packaging market is estimated at nearly $360 billion with about one quarter in North America, slightly less in Europe and the balance spread throughout the rest of the world. Tenneco Packaging now ranks as the fourth largest packaging manufacturer in North America by sales and the tenth largest in the world. Packaging remains one of the most fragmented major industries, with the top five companies comprising only a 10% worldwide market share. Within packaging material categories, Tenneco Packaging participates in the three growing segments of paper, plastic and aluminum, with substantial or leading market shares in virtually all of its product segments. Business Strategy Tenneco Packaging has embarked upon an aggressive growth plan to be the leading specialty packaging company offering a broad line of packaging products to provide customers with the best packaging solutions. In the past two years, Tenneco Packaging has doubled its size to nearly $4 billion in annualized revenues through internal growth in its base businesses, productivity gains and 12 acquisitions that have been completed since early 1995. As a result of these redeployment activities, Tenneco Packaging has significantly reduced its sensitivity to changes in economic cyclicality: . Tenneco Packaging's business is now over half specialty (including the full year impact of the Mobil Plastic acquisition and the recently announced Amoco Foam Products purchase), which reduces exposure to business cycles. . On the paperboard side, four acquisitions in specialty graphics and the purchase of Hexacomb, the world's largest supplier of kraft paper honeycomb products used for protective packaging, have reduced 68 its sensitivity to raw material prices and offer greater opportunities to add value. Currently, over 20% of Tenneco Packaging's paperboard business is in higher margin, enhanced graphics including folding cartons, point- of-purchase displays and point-of-sale packaging, as well as protective packaging products. In the future, Tenneco Packaging will continue to pursue value-added, non- cyclical growth opportunities, maintain market leadership positions in its primary business groups and leverage its new product development expertise. As with any manufacturing company whose product demand is sensitive to general economic conditions, Tenneco Packaging's business results may be adversely impacted by several uncertainties including raw material cost fluctuations and pricing variability related to industry supply/demand dynamics. In addition, potential packaging legislation or regulatory changes, material substitution, new packaging technologies and changes in consumer preferences or distribution channels could have an adverse impact on the Company. However, Tenneco Packaging has positioned itself to deal strategically with these challenges through its: . Multi-material focus, broad product line and concentration of growth in packaging that offers customers greater functionality and value; . Fiber flexibility, which enables Tenneco Packaging's paperboard business to manage its mix of virgin and recycled fiber sources to take advantage of changing market conditions; . Raw material purchasing leverage in both fiber and plastic resin; . Technology and new product development expertise, offering innovative packaging design and materials applications; and . Global expansion strategy of growing its international business through value-added acquisitions, joint ventures, and multi-national customer partnerships. Tenneco Packaging believes that factors critical to its success include a focused strategic direction, operating cost leadership, management expertise, a committed and skilled workforce and a systems infrastructure to meet stringent customer quality requirements and service needs. Tenneco Packaging will spend approximately $110 million by the end of 1998 to provide state-of-the-art customer linked manufacturing systems, shop floor scheduling and real-time data for marketing and production management. Overview of Tenneco Packaging Tenneco Packaging is an industry leader in the manufacture and sale of packaging products, offering a wide range of fiber-based materials and packaging for consumer, institutional and industrial applications, as well as aluminum and plastic-based specialty packaging for consumer, retail, food service and food processing applications. The following tables set forth information relating to the net sales of both of Tenneco Packaging's primary business groups, in dollars and by percentages:
NET SALES (MILLIONS) ---------------------------------- YEAR ENDED DECEMBER SIX MONTHS 31, ENDED -------------------- JUNE 30, 1996 1995 1994 1993 ------------- ------ ------ ------ PAPERBOARD PRODUCTS GROUP Corrugated shipping containers and containerboard products........... $751 $1,589 $1,214 $1,086 Folding cartons and recycled paper- board mill products............... 92 204 196 196 Paper Stock and other.............. 60 135 119 100 ---- ------ ------ ------ 903 1,928 1,529 1,382 ---- ------ ------ ------ SPECIALTY PRODUCTS GROUP Disposable plastic and aluminum packaging products................ 756 593 434 442 Molded fiber products.............. 100 191 186 183
69
NET SALES (MILLIONS) ------------------------------------ YEAR ENDED DECEMBER SIX MONTHS 31, ENDED ---------------------- JUNE 30, 1996 1995 1994 1993 ------------- ------ ------ ------ Other........................... 16 40 35 35 ------ ------ ------ ------ 872 824 655 660 ------ ------ ------ ------ Total Tenneco Packaging....... $1,775 $2,752 $2,184 $2,042 ====== ====== ====== ====== PERCENTAGE OF NET SALES ------------------------------------ YEAR ENDED DECEMBER SIX MONTHS 31, ENDED ---------------------- JUNE 30, 1996 1995 1994 1993 ------------- ------ ------ ------ PAPERBOARD PRODUCTS GROUP Corrugated shipping containers and containerboard products.... 42% 58% 56% 53% Folding cartons and recycled paperboard mill products....... 5 7 9 10 Paper Stock and other........... 4 5 5 5 ------ ------ ------ ------ 51 70 70 68 ------ ------ ------ ------ SPECIALTY PRODUCTS GROUP Disposable plastic and aluminum packaging products............. 43% 22% 20% 22% Molded fiber products........... 5 7 9 9 Other........................... 1 1 1 1 ------ ------ ------ ------ 49 30 30 32 ------ ------ ------ ------ Total Tenneco Packaging....... 100% 100% 100% 100% ====== ====== ====== ====== SALES BY GEOGRAPHIC AREA(A) United States................... 92% 91% 90% 88% European Union.................. 5 5 6 8 Canada.......................... 1 1 1 2 Other areas..................... 2 3 3 2 ------ ------ ------ ------ 100% 100% 100% 100% ====== ====== ====== ======
- -------- (a) Restated 1995, 1994 and 1993 to reflect countries included in European Union as of December 31, 1995: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain and Sweden. Paperboard Products The paperboard business group manufactures and sells corrugated containers, folding cartons, containerboard, lumber and building products, and has a joint venture in recycled paperboard. The group's product line includes high value- added products such as enhanced graphics packaging and displays and kraft honeycomb products. It produces over 2 million tons of containerboard that is converted by its corrugated container plants and sold to both domestic and export customers. Over 80% of the containerboard used by the corrugated converting operations is either produced by Tenneco Packaging's own mills or supplied through trade partnerships for other grades in exchange for product produced at Tenneco Packaging's mills, which helps assure a secure supply of product in a wide variety of grades to meet the requirements of its customers. It also produces high quality, innovative folding carton products utilizing the latest in printing and cutting technology for the sheet-fed offset, narrow-web flexo and rotogravure processes. Finally, Tenneco Packaging participates in the wood products business and has access to over 1.0 million acres of timberland in the United States through both owned and leased properties. 70 Sales and Marketing. Tenneco Packaging maintains a sales and marketing organization of over 400 sales personnel. Tenneco Packaging also has four graphics design centers with two more planned which help it meet its customers' design and functional requirements. New Product Development and Design. Tenneco Packaging's paperboard group is establishing a nationwide network of new product development and creative packaging design centers to develop and manufacture product packaging and product display solutions to meet more sophisticated, complex customer needs. This network includes four regional design centers, 22 primary and mid-range graphics facilities and almost 100 sales personnel, new product development engineers, and product graphics and design specialists. These centers offer state-of-the-art computer and design equipment for 24-hour turnaround and reduced product delivery times. Manufacturing and Engineering. Tenneco Packaging has two kraft linerboard mills and two medium mills, located in Tennessee, Georgia, Michigan and Wisconsin, which together account for 7% of annual U.S. production, or 2.1 million tons. As of June 30, 1996, Tenneco Packaging had invested $75 million at the Counce, Tennessee mill, which added 120,000 tons annually of capacity and enabled the mill to meet a growing demand for lighter weight board. Each of the mills has a strong focus on quality and is ISO 9002 certified. Two paperstock recycling facilities provide some of the mills' recycled fiber requirements. Domestically, Tenneco Packaging's corrugated container network includes 64 geographically dispersed plants that manufacture approximately 7% of the total annual U.S. corrugated shipments based on revenue, as well as seven kraft paper honeycomb product plants, making it one of the top six integrated producers. Tenneco Packaging also operates six folding carton plants located primarily in the Midwest. Tenneco Packaging has access to 1.0 million acres of timberland in the United States through both owned and leased properties. To maximize the value of the timber harvested, Tenneco Packaging operates four wood products operations which produce hardwood dimensional lumber and utility poles. Further, Tenneco Packaging is a party to a joint venture in a chip mill, as well as a wood drying facility. Tenneco Packaging's paperboard group operates a manufacturing and technical support center located in Skokie, Illinois which provides engineering, manufacturing and technical support to its corrugated operations. In addition, it currently has a network of four design centers and a design organization which includes more than 60 structural, graphic and package engineering specialists for its corrugated and folding carton converting operations. Strategic Acquisitions/Joint Ventures. As part of Tenneco Packaging's value- added growth strategy, eight acquisitions were made during 1995 in the Paperboard Products Group. Tenneco Packaging expanded its graphics and printing capabilities to that of a full service supplier of point-of-purchase displays and point-of-sale packaging by acquiring four facilities with expertise in high impact graphics and design. The addition of Lux Packaging, in Waco, Texas; the United Group in Los Angeles, California; Menasha Corporation's South Brunswick, New Jersey plant; and DeLine Box in Windsor, Colorado have broadened Tenneco Packaging's offering of products and services to include permanent point-of- purchase displays, rotogravure preprint, litho-lamination and advanced graphics design. Tenneco Packaging added to its network of specialty sheet plants through the acquisition of Mid-Michigan Container in Michigan; Sun King Container in El Paso, Texas; and Domtar Packaging's Watertown, New York facility. It also increased its protective packaging capabilities through the purchase of Hexacomb, the world's largest supplier of honeycomb corrugated products used for protective packaging, materials handling and specialized structural applications. In June 1996, Tenneco Packaging and Caraustar entered a joint venture pursuant to which Tenneco Packaging contributed its two recycled paperboard mills (Rittman, Ohio and Tama, Iowa) and a recovered paper stock and brokerage operation for cash and a 20% equity position in the business. The mills will continue to supply recycled paperboard to Tenneco Packaging's six folding carton plants. 71 Specialty Products Tenneco Packaging's Specialty Products Group produces disposable aluminum, foam and clear plastic products for the food processing, food preparation and food service industries. It also manufactures molded fiber and pressed paperboard products, as well as polyethylene bags and industrial stretch film. Consumer products are sold under such recognized brand names of Hefty(R), Baggies(R), Hefty OneZip(TM) and E-Z Foil(R). Tenneco Packaging's lightweight, durable plastic packaging for in-store deli, produce, bakery and catering applications maintain quality and enhance presentation. Plastic food storage and trash bags, foam and molded fiber dinnerware, disposable aluminum baking pans and related products are sold through a variety of retail outlets. Tenneco Packaging also manufactures molded fiber for produce and egg packaging, food service items and institutional tableware. Sales and Marketing. Specialty packaging products are marketed to five primary market segments: food service, supermarkets, institutional, packer processor and industrial users. The sales organization is specialized by user segment and its teams work in alliance with strategic customers to build sales. Approximately 85% of specialty packaging products are sold to its distributors, while the remainder are sold directly to retailers. Consumer products are marketed primarily through three classes of retailers or channels of trade: grocery (supermarkets and convenience stores), non-food (mass merchandisers, drug stores, hardware stores, home centers), and warehouse clubs with sales distributed 66%, 30%, and 4%, respectively, based on 1994 net revenues. Consumer products' internal sales management personnel are augmented by a national network of grocery brokers and manufacturing representatives to provide headquarter and in-store sales coverage for the grocery channel. Consumer products covers warehouse clubs and selected non-food retailers on a direct basis. The overall sales breakdown is approximately 19% direct and 81% broker/representative. Manufacturing and Engineering. In North America, Tenneco Packaging operates 30 specialty products facilities. With the acquisitions of the Mobil Plastics division and Amoco Foam Products, Tenneco Packaging now has polystyrene production in 18 locations in 13 states. It produces polyethylene products in six locations including a Canadian facility. Aluminum roll stock is converted at five locations, including three locations shared with polystyrene production. Molded fiber packaging is produced in six locations. Finally, pressed paperboard products are manufactured at one facility in Columbus, Ohio. Research and development centers for packaging and process development are located in Macedon, New York and Northbrook, Illinois. Within the Specialty Products Group there are two major types of plastic manufacturing plants, offering excellent process technology and high quality equipment in polystyrene extrusion/thermoforming/automation, consumer waste bags and stretch films. Tenneco Packaging's polyethylene plants produce liners, food bags, grocery sacks and stretch film, as well as retail waste and food bags for consumer applications. Most of the Specialty Products Group's polyethylene processes are in-line. Polystyrene plants make foam products including consumer tableware, foodservice disposables, meat trays and clear containers. With multiple production lines, each plant is generally capable of making several product types. Polystyrene pellets are marketed and extruded and subsequently thermoformed and converted into finished products. Strategic Acquisitions. Tenneco Packaging acquired Mobil Plastics in late 1995 which more than doubled the size of its Specialty Products Group and added new technologies and product development capabilities. It provides strong consumer branded products such as Hefty(R) trash bags, Baggies(R) food bags, and Hefty OneZip(TM) food storage bags. In addition, it manufactures clear and foam polystyrene food service containers; plates and meat trays; and, polyethylene film products including can liners, produce and retail bags, and medical and industrial disposable packaging. In August 1996, Tenneco Packaging purchased Amoco Foam Products. Amoco Foam Products, with 1995 sales of $288 million, manufactures foam polystyrene tableware including cups, plates, carrying trays; hinged-lid food containers; packaging trays, primarily for meat and poultry; and industrial products for residential and commercial construction applications. 72 International Tenneco Packaging has a growing international presence with a revenue base of nearly $200 million and an additional $100 million in export sales to approximately 38 countries, manufacturing products that serve a wide range of packaging needs. It expects to significantly enlarge its international operations by growing its base businesses, strengthening its export capabilities for both fiber-based and plastic products, and by growing selectively in new markets, geographies or channels that represent high- potential opportunities. Manufacturing and Engineering. Tenneco Packaging currently operates or has an ownership interest in 12 international manufacturing locations. Omni-Pac is Europe's leading manufacturer of molded fiber packaging with facilities in Elsfleth, Germany and Great Yarmouth, England. Tenneco Packaging's Alupak operation in Belp, Switzerland is a major producer of smoothwall aluminum portion packs. In plastic, Tenneco Packaging has the leading share of single- use thermoformed plastic food containers in the United Kingdom, with four manufacturing operations in England, Scotland and Wales. Tenneco Packaging also operates a folding carton plant in Budapest, Hungary and is building a wood products operation in Romania. It participates in several international joint ventures, including folding carton plants in Donngguan, China and Bucharest, Romania and a corrugated converting facility in Zhejiang, China. Acquisitions/Business Development. In 1995, Tenneco Packaging purchased Penlea and Delyn, two plastic thermoforming operations in the United Kingdom. In 1996, it entered the European wood products business with the startup of a venture in Buchin, Romania. In addition to harvesting rights in excess of 1.8 million cubic meters of timber, Tenneco Packaging is constructing a wood processing plant for value-added furniture components, to be supported by a full sawmill operation. Other As of June 30, 1996, Tenneco Packaging had approximately 19,000 employees. Tenneco Packaging believes that its relations with its employees are good. Tenneco Packaging holds a number of domestic and foreign patents and trademarks relating to its products and businesses. The patents, trademarks and other intellectual property owned by Tenneco Packaging are important in the manufacturing, marketing and distribution of its products. The principal raw materials used by Tenneco Packaging in its manufacturing operations are virgin pulp, recycled fiber, plastic resin and aluminum roll stock. Tenneco Packaging obtains its virgin pulp from timberland owned or controlled by it as well as from outside purchases. Recycled fiber is supplied from both outside contractual sources as well as internally from its two recycling centers and its own containerboard clippings and trim. Tenneco Packaging obtains plastic resin and aluminum roll stock from various suppliers. As of June 30, 1996, Tenneco Packaging owned approximately 188,000 acres of timberland in Alabama, Michigan, Mississippi and Tennessee and leased, managed or had cutting rights on an additional 808,000 acres of timberland in Alabama, Mississippi, Tennessee, Florida, Wisconsin and Georgia. In 1995, 1994, and 1993, approximately 30%, 28% and 28%, respectively, of the virgin fiber used by Tenneco Packaging in its mill operations was obtained from Tenneco Packaging- controlled timberlands. The operations of Tenneco Packaging face competition from other manufacturers of packaging products, including manufacturers of alternative products, in each of its geographic and product markets. Tenneco Packaging is headquartered in Evanston, Illinois. TENNECO BUSINESS SERVICES TBS designs, implements and administers shared administrative service programs for the various Tenneco businesses as well as, on an "as requested" basis, for former Tenneco business entities. 73 Primary service areas of TBS include (i) Financial Accounting Services, including asset management, general accounting, purchasing and payables, travel and entertainment, tax compliance and reporting and other applications; (ii) Supplier Development and Administration, including vendor negotiations and contract administration; (iii) Employee Benefits Administration for all major salaried and hourly benefit plans; (iv) Technology Services, including main frame computing services, telecommunication services and distributed processing services; (v) Human Resources and Payroll Services, including payroll processing, relocation services, government compliance services and expatriate relocation and repatriation services; and (vi) Environmental Health and Safety Services, including remediation consultation, operations risk analysis and compliance audits. TBS has to date only serviced other Tenneco businesses and, on an as requested basis, former Tenneco businesses such as Case Corporation. However, TBS is in the process of investigating opportunities to provide similar services to outside businesses. It is anticipated that after the Distributions, TBS will continue to provide services to Newport News and Tenneco pursuant to the terms of the TBS Services Agreement. See "The Industrial Distributions-- Relationships Among Tenneco, the Company and Newport News After the Distributions--Terms of the Ancillary Agreements--TBS Services Agreement." In connection with its operations, TBS holds numerous software licenses, owns and operates computer equipment and has agreements with numerous vendors for supplies and services. As of June 30, 1996, TBS had approximately 300 employees. TBS believes that its relations with its employees are good. Although to date TBS has provided its administrative programs exclusively to current and former Tenneco businesses, once TBS attempts to begin providing similar services to outside businesses it will face intense competition from other providers of administrative services, many of whom are larger and have more experience providing administrative services in a competitive environment. TBS is headquartered in The Woodlands, Texas. PROPERTIES Corporate Headquarters The Company's corporate offices are located in Greenwich, Connecticut. Tenneco Automotive In the United States, Walker operates 10 manufacturing facilities and seven distribution centers, three of which are located at manufacturing facilities, and also has two research and development facilities. In addition, Walker operates 25 manufacturing facilities located in Australia, Canada, China, the Czech Republic, the United Kingdom, Mexico, Denmark, Germany, France, Spain, Portugal, South Africa and Sweden, and also has one engineering and technical center in Germany. Monroe has seven manufacturing facilities and one research and development facility and three distribution centers. In addition, Monroe has 14 foreign manufacturing operations in Australia, Belgium, Brazil, Canada, China, the Czech Republic, India, Mexico, the United Kingdom, Spain, Turkey and New Zealand. Overall, Tenneco Automotive now operates 65 facilities in 21 countries in North America, Europe, South America, Australia and the Asia-Pacific region. Tenneco Packaging In North America, Tenneco Packaging operates or has an ownership interest in a total of 122 facilities. The paperboard business group has 71 corrugated products plants, six folding carton plants and nine containerboard 74 machines at four mills. Two of the mills (located in Georgia and Wisconsin), including substantially all of the equipment associated with both mills, are leased from third parties. Additionally, the paperboard business group operates a wood products group including two hardwood facilities, one dimensional lumber plant, one utility pole facility, one air drying facility for wood, and a joint venture in a chip mill. Two recycled paperstock facilities provide furnish for the mills. Tenneco Packaging also has a minority equity position in two recycled paperboard mills and one recycling center and brokerage operation. In July 1996, Tenneco Packaging exercised its early termination and purchase options under the leases of the two mills located in Georgia and Wisconsin discussed above, pursuant to which Tenneco Packaging has the right to purchase the mills at an agreed cost of approximately $750 million in January 1997. Tenneco Packaging has reached an agreement in principle pursuant to which another lessor will acquire the mills directly from Tenneco's original lessor and thereafter enter into a new lease with Tenneco Packaging. This agreement is subject to the completion of definitive documentation and the consent of the original lessor to allow the assignment of Tenneco Packaging's rights under the purchase option. In the event this new lease transaction is not consummated, Tenneco Packaging would be required to complete the purchase of both mills. Tenneco Packaging's Specialty Products Group operates six molded fiber plants, one pressed paperboard plant and 23 disposable plastic and aluminum packaging products plants in North America. Internationally, Tenneco Packaging operates or has an ownership position in 15 locations. These include three folding carton operations, one corrugated container plant and a wood products operation. Additionally, it also manufactures plastics products at four locations, aluminum portion packs at one facility, molded fiber products at two locations and protective packaging at two locations. TBS TBS operates out of its headquarters in The Woodlands, Texas, as well as offices in Evanston, Illinois, Newport News, Virginia and Houston, Texas. The Company believes that substantially all of its plants and equipment are, in general, well maintained and in good operating condition. They are considered adequate for present needs and as supplemented by planned construction are expected to remain adequate for the near future. The Company is of the opinion that it and its subsidiaries have generally satisfactory title to the properties owned and used in their respective businesses, subject to liens for current taxes and easements, restrictions and other liens which do not materially detract from the value of such property or the interests therein or the use of such properties in their businesses. ENVIRONMENTAL MATTERS The Company estimates that its subsidiaries will make capital expenditures for environmental matters of approximately $15 million in 1996 and that capital expenditures for environmental matters will be approximately $71 million in the aggregate for the years 1996 through 2006. For information regarding environmental matters, see "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 14, "Commitments and Contingencies," to the Combined Financial Statements of the Company. 75 LEGAL PROCEEDINGS On August 2, 1993, the U.S. Department of Justice filed suit against Tenneco Packaging Inc. in the Federal District Court for the Northern District of Indiana, alleging that wastewater from Tenneco Packaging's molded fiber products plant in Griffith, Indiana, interfered with or damaged the Town of Griffith's municipal sewage pumping station on two occasions in 1991 and 1993, resulting in discharges by the Town of Griffith of untreated wastewater into a river. Tenneco Packaging and the Department of Justice have executed a consent decree which has been lodged with the court and published for public notice and comment. The Company believes that the resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries. In 1993 and 1995, the EPA issued notices of violation for particulate and opacity violations at the three coal-fired boilers of the Rittman, Ohio paperboard mill (owned by Tenneco Packaging until June 1996). Tenneco Packaging filed responses disputing the alleged violations. Stack testing has demonstrated Tenneco Packaging's compliance. In July 1996, Tenneco Packaging received an EPA administrative complaint seeking a $126,997 penalty for alleged emissions violations. Tenneco Packaging has filed its answer to the complaint. The Company believes that the resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries. At July 1, 1996, the Company had been designated as a potentially responsible party in 12 "Superfund" sites. With respect to its pro rata share of the remediation costs of certain sites, the Company is fully indemnified by third parties. With respect to certain other of these sites, the Company has sought to resolve its liability through settlements which provide for payments of the Company's allocable share of remediation costs. For the remaining sites, the Company has estimated its share of the remediation costs to be between $3 million and $23 million or .003% to .020% of the total remediation costs for those sites and has provided reserves that it believes are adequate for such costs. Because the clean-up costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, the Company's estimate of its share of remediation costs could change. Moreover, liability under the Comprehensive Environmental Response, Compensation and Liability Act is joint and several, meaning that the Company could be required to pay in excess of its pro rata share of remediation costs. The Company's understanding of the financial strength of other potentially responsible parties has been considered, where appropriate, in the Company's determination of its estimated liability. The Company believes that the costs associated with its current status as a potentially responsible party in the Superfund or other waste sites referenced above will not be material to its consolidated financial position or results of operations. For additional information concerning environmental matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business and Properties" and the caption "Environmental Matters" under Note 14, in the Combined Financial Statements of the Company. The Company and its subsidiaries are parties to numerous other legal proceedings arising from their operations. The Company believes that the outcome of these other proceedings, individually and in the aggregate, will have no material effect on the Company's combined financial condition or results of operations. 76 MANAGEMENT BOARD OF DIRECTORS Upon consummation of the Industrial Distribution, the Company Board will consist of eleven members. Each director will serve for a term expiring at the annual meeting of stockholders in the year indicated below and until his or her successor shall have been elected and qualified. Pursuant to the Certificate (as defined herein), the Company Board is divided into three classes. Information concerning the individuals who will serve as directors of the Company as of the Distribution Date is set forth below. Term Expiring at the 1997 Annual Meeting of Stockholders (Class I) MARK ANDREWS has been Chairman of Andrews Associates, Inc., a government consulting firm, since February 1987. From 1963 to 1980, he served in the U.S. House of Representatives, and from 1980 to 1986 he served in the U.S. Senate. He is also a director of Union Storage Co. and Case Corporation. Mr. Andrews is 70 years old and has been a director of Tenneco since 1987. He has served as a member of the Compensation and Benefits Committee and the Nominating and Management Development Committee of Tenneco, and will serve as a member of the Compensation and Benefits Committee and the Nominating and Management Development Committee of the Company. W. MICHAEL BLUMENTHAL has been a consultant to Lazard Freres & Co. L.L.C., an investment banking firm, since January 1995 and was a limited partner of that firm from April 1990 through December 1994. Prior to that time he was Chairman of Unisys Corporation, a manufacturer of business information systems, and had been an executive officer of that company for more than five years. He is also a director of Daimler-Benz InterServices (Debis) AG. Mr. Blumenthal is 70 years old and has been a director of Tenneco since 1985. He has served as a member and the Chairman of the Nomination and Management Development Committee of Tenneco, and will serve as a member and the Chairman of the Nomination and Management Development Committee of the Company. BELTON K. JOHNSON is engaged in farming, ranching and investments and has pursued such interest for more than five years. He is also a director of AT&T Corp. Mr. Johnson is 66 years old and has been a director of Tenneco since 1979. He has served as a member of the Executive Committee and the Compensation and Benefits Committee of Tenneco, and will serve as a member of the Executive Committee and the Compensation and Benefits Committee of the Company. WILLIAM L. WEISS has been Chairman Emeritus of Ameritech Corporation, a telecommunications and information services company, since 1994, formerly serving as Chairman and Chief Executive Officer of that company for more than five years. Mr. Weiss is a director of Abbott Laboratories, Inc., Merrill Lynch & Co., Inc. and the Quaker Oats Company. Mr. Weiss is 67 years old and has been a director of Tenneco since January 1994. He has served as a member of the Audit Committee of Tenneco and will serve as a member of the Audit Committee of the Company. Term Expiring at the 1998 Annual Meeting of Stockholders (Class II) M. KATHRYN EICKHOFF has been President of Eickhoff Economics, Inc., a consulting firm, since 1987. From 1985 to 1987 she was Associate Director for Economic Policy for the U.S. Office of Management and Budget, and prior to 1985 was Executive Vice President and Treasurer of Townsend-Greenspan & Co., Inc., an economic consulting firm. She is also a director of AT&T Corp., Pharmacia & Upjohn, Inc. and Fleet N.A. Ms. Eickhoff is 57 years old and has been a director of Tenneco since 1987. She has served as a member of the Executive Committee, Audit Committee and Nominating and Management Development Committee of Tenneco, and will serve as a member of the Executive Committee, Audit Committee and Nominating and Management Development Committee of the Company. She previously served as a member of the Tenneco Board from 1982 until her resignation to join the Office of Management and Budget in 1985. 77 PETER T. FLAWN is a former President of The University of Texas at Austin, having served in such capacity for more than five years preceding his retirement in 1985. He is also a director of National Instruments Corp., Harte- Hanks Communications, Inc., Global Marine Inc. and Input/Output, Inc. Dr. Flawn is 70 years old and has been a director of Tenneco since 1980. He has served as a member of the Executive Committee and is a member and the Chairman of the Audit Committee of Tenneco, and will serve as a member of the Executive Committee and as a member and Chairman of the Audit Committee of the Company. JOHN B. MCCOY is Chairman and Chief Executive Officer of Banc One Corporation, a bank holding company, and has served in that position since 1987, prior to which he was President of that company from 1983. He is a director of Cardinal Health, Inc., the Federal Home Loan Mortgage Corporation, and Ameritech Corporation. He also serves on the advisory council of the American Bankers Association. Mr. McCoy is 53 years old and has been a director of Tenneco since 1992. He has served as a member of the Compensation and Benefits Committee of Tenneco, and will serve as a member of the Compensation and Benefits Committee of the Company. DANA G. MEAD is Chairman and Chief Executive Officer of the Company and has served as an executive officer of Tenneco since April 1992, when he joined Tenneco as Chief Operating Officer. Prior to joining Tenneco, Mr. Mead served as an Executive Vice President of International Paper Company, a manufacturer of paper, pulp and wood products, from 1988, and served as Senior Vice President of that company from 1981. He is also a director of Alco Standard Corporation, Baker Hughes Incorporated, Case Corporation and Textron Inc. Mr. Mead is 60 years old and has been a director of Tenneco since April 1992. He has served as a member and Chairman of the Executive Committee and an ex officio member of the Audit, and Nominating and Management Development Committees of Tenneco, and will serve as a member and Chairman of the Executive Committee and as an ex officio member of the Audit and Nominating and Management Development Committees of the Company. Term Expiring at the 1999 Annual Meeting of Stockholders (Class III) HENRY U. HARRIS, JR., since 1992, has been Vice Chairman Emeritus of Smith Barney Inc., an investment banking firm, and for more than five years prior to which he served as an executive officer of that firm. Mr. Harris is 69 years old and has been a director of Tenneco since 1968. He has served as a member of the Executive Committee, Audit Committee and the Nominating and Management Development Committee of Tenneco, and will serve as a member of the Executive Committee, Audit Committee and the Nominating and Management Development Committee of the Company. CLIFTON R. WHARTON, JR., served as Chairman and Chief Executive Officer of Teachers Insurance and Annuity Association and the College Retirement Equities Fund from 1987 to 1993 and as Deputy Secretary of State, U.S. Department of State, from January to November of 1993. From 1978 to 1987 he served as Chancellor of the State University of New York System. From 1970 to 1978 Mr. Wharton served as President of Michigan State University. Prior to 1970 he spent 22 years working in foreign economic and agricultural development in Latin America and Southeast Asia for the Rockefeller family philanthropic interests. He is also a director of the TIAA Board of Overseers, Ford Motor Company, the New York Stock Exchange, Inc. and Harcourt General, Inc. Mr. Wharton is 69 years old and has been a director of Tenneco since June 1994. He has served as a member and Chairman of the Compensation and Benefits Committee of Tenneco, and will serve as a member and Chairman of the Compensation and Benefits Committee of the Company. SIR DAVID PLASTOW is Chairman of the Medical Research Council, which promotes and supports research and post-graduate training in the biomedical and other sciences. He served as Chairman of Inchcape plc from June 1992 to December 1995 and Chairman and Chief Executive Officer of Vickers plc, an engineering and manufacturing company headquartered in London, from January 1987 to May 1992. He is also a director of Lloyds TSB Group plc. Sir David Plastow is 64 years old and has been a director of Tenneco since May 14, 1996. He previously served as a member of the Tenneco Board from 1985 until his resignation in 1992. He has served as a member of the Compensation and Benefits Committee and Nominating and Management Development Committee of Tenneco, and will serve as a member of the Compensation and Benefits Committee and Nominating and Management Development Committee of the Company. 78 EXECUTIVE OFFICERS The following table sets forth certain information concerning the persons who have served as executive officers of Tenneco and, upon consummation of the Industrial Distribution, will serve as executive officers of the Company after the Industrial Distribution. Each such person will be elected to the indicated office with the Company in anticipation of the Industrial Distribution and will serve at the discretion of the Company Board. Those persons who have been officers and/or employees of Tenneco and/or Newport News will relinquish such positions in connection with the Industrial Distribution.
EFFECTIVE DATE OF TERM NAME (AND AGE AT JULY AS EXECUTIVE OFFICER 31, 1996) OFFICES HELD* OF TENNECO - --------------------- ------------- ---------------------- Dana G. Mead (60)....... Chairman May 1994 Chief Executive Officer February 1994 Director April 1992 Chairman of the Executive Committee February 1994 Member of the Executive Committee May 1992 Theodore R. Tetzlaff General Counsel July 1992 (51)................... Robert T. Blakely (54).. Executive Vice President May 1996 Chief Financial Officer July 1981 Stacy S. Dick (39)...... Executive Vice President January 1996 John J. Castellani (45). Senior Vice President--Government March 1995 Relations Arthur H. House (54).... Senior Vice President--Corporate Affairs March 1995 Barry R. Schuman (55)... Senior Vice President--Human Resources March 1993 Kenneth D. Allen (57)... Vice President March 1987 David T. Ellis (43)..... Vice President--Environment, Health and July 1995 Safety Ilene S. Gordon (43).... Vice President--Operations May 1994 Jack Lascar (42)........ Vice President--Investor Relations July 1994 Mark A. McCollum (37)... Vice President and Controller May 1995 Robert S. McKinney (54). Vice President and Chief Information Officer May 1996 Thomas G. Oakley (43)... Vice President May 1996 Karen R. Osar (47)...... Vice President and Treasurer January 1994 Robert G. Simpson (44).. Vice President--Tax May 1990 Stephen J. Smith (51)... Vice President--Human Resources July 1994 Karl A. Stewart (53).... Vice President May 1991 Secretary May 1986 R. A. Snell (54)........ President and Chief Executive Officer-- September 1993 Tenneco Automotive Paul T. Stecko (51)..... President and Chief Executive Officer-- December 1993 Tenneco Packaging
- -------- *Unless otherwise indicated, all offices held are with Tenneco. Each of the executive officers of Tenneco has been continuously engaged in the business of Tenneco, its subsidiaries, affiliates or predecessor companies during the past five years except that: (i) from 1986 to 1992, Dana G. Mead was employed by International Paper Co., last serving in the capacity of Executive Vice President; (ii) Theodore R. Tetzlaff has been a partner in the law firm of Jenner & Block, Chicago, for more than five years; (iii) from 1985 to 1992, Stacy S. Dick was employed by The First Boston Corporation, last serving in the capacity of Managing Director and from August 1992 to January 1996 he served as Senior Vice President--Strategy of Tenneco; (iv) from 1980 to 1992, John J. Castellani was employed by TRW Inc., last serving in the capacity of Vice President of Government Relations and from August 1992 to March 1995 he served as Vice President--Government Relations of Tenneco; (v) from 1988 until his employment by Tenneco in 1992, Barry 79 R. Schuman was employed by Union Pacific Railroad Company, last serving in the capacity of Vice President of Human Resources; (vi) from 1990 until 1992, Arthur H. House served as Vice President, Corporate Communications of Aetna Life & Casualty Company; from June 1992 until March 1995, he served as Vice President--Corporate Affairs of Tenneco; (vii) from 1990 to May 1996, Robert S. McKinney was chief information officer and a member of the board of directors of Paine Webber; (viii) from 1975 to 1994, Karen R. Osar was employed by J.P. Morgan & Co., Inc., last serving in the capacity of Managing Director-- Corporate Finance Group; (ix) from 1980 to 1994, Mark A. McCollum was employed by Arthur Andersen LLP, last serving as an Audit Partner and from January 1995 to May 1995 he served as Vice President--Financial Analysis and Planning of Tenneco; and (x) from 1977 to 1993, Paul T. Stecko was employed by International Paper Co., last serving as Vice President and General Manager of Publications Papers, Bristols and Converting Papers. STOCK OWNERSHIP OF MANAGEMENT Set forth below is the ownership as of July 31, 1996 (without giving effect to the Transaction) of the number of shares and percentage of Tenneco Common Stock beneficially owned by (i) each director of the Company, (ii) each of the executive officers of the Company whose names are set forth on the Summary Compensation Table and (iii) all executive officers and directors of the Company.
PERCENT OF SHARES OF TENNECO COMMON TENNECO COMMON DIRECTORS STOCK OWNED(A)(B) STOCK OUTSTANDING --------- ------------------------ ----------------- Mark Andrews.................. 5,398 (c) W. Michael Blumenthal......... 3,536 (c) M. Kathryn Eickhoff........... 3,680 (c) Peter T. Flawn................ 3,850 (c) Henry U. Harris, Jr........... 15,255 (c) Belton K. Johnson............. 6,111 (c) John B. McCoy................. 2,850 (c) Dana G. Mead.................. 199,284 (c) Sir David Plastow............. 2,100 (c) William L. Weiss.............. 4,850 (c) Clifton R. Wharton, Jr........ 2,350 (c) EXECUTIVE OFFICERS ------------------ Theodore R. Tetzlaff.......... 33,637 (c) Robert T. Blakely............. 55,185 (c) Stacy S. Dick................. 19,292 (c) Paul T. Stecko................ 28,137 (c) All executive officers and di- rectors as a group........... 684,162(d) (c)
- -------- (a) Each director and executive officer has sole voting and investment power over the shares beneficially owned (or has the right to acquire shares as set forth in note (b) below) as set forth in this column, except for (i) shares that are held in trust for each director and executive officer under Tenneco's restricted stock plans and (ii) shares that executive officers of the Company have the right to acquire pursuant to Tenneco's stock option plans. It is anticipated that all restricted stock held by employees (including executive officers) will be vested prior to the consummation of the Distributions except that a small number of TBS employees will be given cash in lieu of vesting of their restricted stock. It is also anticipated that restricted stock held by directors will be vested prior to the consummation of the Distributions, and the directors will be paid an amount in cash to defray taxes incurred on such vesting. As described in footnote (f) to the Option Grant Table, it is anticipated that Tenneco options held by Company employees will be replaced by options to acquire Company Common Stock upon consummation of the Industrial Distribution. 80 (b) Includes shares that are: (i) held in trust under Tenneco's restricted stock plans; at July 31, 1996, Messrs. Mead, Tetzlaff, Blakely, Dick, and Stecko held 24,500; 15,000; 7,775; 7,000; and 5,000 restricted shares, respectively; and (ii) subject to options, which were granted under Tenneco's stock option plans, and are exercisable at July 31, 1996 or within 60 days of said date, for Messrs. Mead, Tetzlaff, Blakely, Dick, and Stecko to purchase 133,335; 16,667; 16,259; 12,667; and 18,667 shares, respectively. (c) Less than one percent. (d) Includes 278,015 shares of Tenneco Common Stock that are subject to options that are exercisable by all executive officers of the Company as a group, and includes 217,020 shares that are held in trust under the Tenneco restricted stock plans, for all executive officers and directors of the Company as a group. COMMITTEES OF THE BOARD OF DIRECTORS The Company Board will establish four standing committees as permitted by the By-laws, which will have the following described responsibilities and authority: The Audit Committee will have the responsibility, among other things, to (i) recommend the selection of the Company's independent public accountants, (ii) review and approve the scope of the independent public accountants' audit activity and extent of non-audit services, (iii) review with management and such independent public accountants the adequacy of the Company's basic accounting system and the effectiveness of the Company's internal audit plan and activities, (iv) review with management and the independent public accountants the Company's certified financial statements and exercise general oversight of the Company's financial reporting process and (v) review with the Company litigation and other legal matters that may affect the Company's financial condition and monitor compliance with the Company's business ethics and other policies. The Compensation and Benefits Committee will have the responsibility, among other things, to (i) establish the salary rate of officers and employees of the Company and its subsidiaries, (ii) examine periodically the compensation structure of the Company and (iii) supervise the welfare and pension plans and compensation plans of the Company. The Nominating and Management Development Committee will have the responsibility, among other things, to (i) review possible candidates for election to the Company Board and recommend a slate of nominees for election as directors at the Company's annual stockholders' meeting, (ii) review the function and composition of the other committees of the Company Board and recommend membership on such committees and (iii) review the qualifications and recommend candidates for election as officers of the Company. Other than matters assigned to the Compensation and Benefits Committee, the Executive Committee will have, during the interval between the meetings of the Company Board, the authority to exercise all the powers of the Company Board that may be delegated legally to it by the Company Board in the management and direction of the business and affairs of the Company. EXECUTIVE COMPENSATION Prior to the Industrial Distribution, the Industrial Business was owned and operated by Tenneco through its direct and indirect subsidiaries and as such, the management of the Company has been employed by Tenneco and its direct and indirect subsidiaries. The following table sets forth the remuneration paid by Tenneco and/or its direct and indirect subsidiaries (i) to the Chairman of the Board and Chief Executive Officer of the Company and (ii) to each of the four key executive officers expected to be the most highly compensated executive officers of the Company, other than the Chief Executive Officer, whose salary and bonus exceeded $100,000, for the years indicated in connection with his position with Tenneco: 81 SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION --------------------------------------- ------------------ RESTRICTED NAME AND OTHER ANNUAL STOCK ALL OTHER PRINCIPAL POSITION YEAR SALARY(A) BONUS COMPENSATION(B) AWARDS(C) OPTIONS COMPENSATION(D) - ------------------ ---- --------- -------- --------------- ---------- ------- --------------- --- Dana G. Mead 1995 $957,375 $800,000 $143,970 -- 100,000(e) $149,972(f) Chairman and Chief 1994 $878,177 $900,000 $149,110 $647,256 100,000 $142,966 Executive Officer 1993 $664,839 $700,000 $ 60,007 $582,813 50,000 $ 93,979 Theodore R. Tetzlaff 1995 $400,000 $350,000 $ 14,400 -- 18,000(e) -- (f) General Counsel 1994 $400,000 $300,000 $ 307 $539,380 16,000 -- 1993 $350,000 $250,000 -- $243,440 -- -- Robert T. Blakely 1995 $422,760 $230,000 $ 33,684 -- 16,000 $ 44,570 Executive Vice President 1994 $407,640 $230,000 $ 10,704 $230,585 15,675 $ 44,144 and Chief Financial 1993 $393,846 $200,000 $ 11,288 $163,188 -- $ 49,616 Officer Stacy S. Dick 1995 $377,736 $280,000 $ 31,317 -- 14,000 $ 31,432 Executive Vice President 1994 $343,560 $235,000 $ 582 $215,752 12,000 $ 24,926 1993 $325,214 $200,000 $ 95,392 $139,875 -- $ 23,744 Paul T. Stecko 1995 $381,545 $300,000 $ 21,027 -- 24,000 $ 31,974 President and Chief 1994 $320,004 $200,000 $200,724 $269,690 16,000 $ 30,605 Executive Officer 1993 $ 23,188 $500,000 -- -- -- -- Tenneco Packaging
- -------- (a) Includes base salary plus amounts paid in lieu of Tenneco matching contributions to the Tenneco Thrift Plan. (b) Includes amounts attributable to (i) the value of personal benefits provided by Tenneco to its executive officers, which have an aggregate value in excess of $50,000, such as the personal use of Tenneco owned property, membership dues, and assistance provided to such person with regard to financial, tax and estate planning, (ii) reimbursement for taxes and (iii) amounts paid as dividend equivalents on performance share equivalent units ("Dividend Equivalents"). The amount of each such personal benefit that exceeds 25% of the estimated value of the total personal benefits provided by Tenneco, reimbursement for taxes and amounts paid as Dividend Equivalents to the individuals named in the table was as follows: During 1995: $38,984 for use of Tenneco owned property, $29,750 for financial planning services, $28,706 for reimbursement for taxes, and $40,000 in Dividend Equivalents paid to Mr. Mead; $4,437, $16,917 and $1,827 for reimbursement for taxes and $14,400, $14,400 and $19,200 in Dividend Equivalents for Messrs. Blakely, Dick, and Stecko, respectively; and $14,400 in Dividend Equivalents paid to Mr. Tetzlaff; During 1994: $57,540 for use of Tenneco owned property and $50,606 for reimbursement for taxes for Mr. Mead; $100,794 in relocation expenses and $59,954 in reimbursement for taxes for Mr. Stecko; and $307, $582, and $582 for reimbursement for taxes for Messrs. Tetzlaff, Blakely, and Dick, respectively; During 1993: $34,832 for use of Tenneco owned property, $19,950 for financial planning services and $824 for reimbursement for taxes for Mr. Mead; $823 for reimbursement for taxes for Mr. Blakely; and $50,000 in relocation expenses and $35,266 for reimbursement for taxes for Mr. Dick. (c) Includes the dollar value of grants of restricted stock made pursuant to Tenneco's restricted stock plans based on the price of Tenneco Common Stock on the date of grant. At December 31, 1995, Messrs. Mead, Tetzlaff, Blakely, Dick and Stecko held 49,500; 24,000; 20,280; 31,000; and 17,000 restricted shares and/or performance share equivalent units, respectively, under such plans. The value at December 31, 1995 (based on a per share price of $49.625 on that date) of all restricted shares and/or performance share equivalent units held was $2,456,438 for Mr. Mead; $1,191,000 for Mr. Tetzlaff; $1,006,395 for Mr. Blakely; 82 $1,538,375 for Mr. Dick; and $843,625 for Mr. Stecko. Dividends/Dividend Equivalents will be paid on the restricted shares and performance share equivalent units held by each individual. (d) Includes amounts attributable during 1995 to benefit plans of Tenneco as follows: (i) The amounts contributed pursuant to the Tenneco Thrift Plan for the accounts of Messrs. Mead, Blakely, Dick, and Stecko were $4,625; $9,240; $4,626; and $6,000, respectively. (ii) The amounts accrued under the Tenneco Inc. Deferred Compensation Plan, together with adjustments based upon changes in the Consumer Price Index for All Urban Households, as computed by the Bureau of Labor Statistics, for Messrs. Mead, Blakely, Dick, and Stecko were $108,405; $32,167; $23,764; and $23,132, respectively. (iii) Amounts imputed as income for federal income tax purposes under Tenneco's group life insurance plan for Messrs. Mead, Blakely, Dick, and Stecko were $36,942; $3,163; $3,041; and $2,842, respectively. (e) In addition to the options granted by Tenneco in 1995, Messrs. Mead and Tetzlaff, each in his capacity as a director of Case Corporation (an affiliate of Tenneco during 1995) ("Case"), was granted an option by Case to acquire 1,000 shares of Case common stock. Information on terms of Tenneco options and the Case options is set forth in "Option Grants in 1995." (f) As directors of Case, Messrs. Mead and Tetzlaff each received a director's fee of $20,000 and meeting attendance fees of $4,000. In addition, Mr. Tetzlaff received from Case an additional $3,000 for attendance at the Case Compensation Committee meetings. Messrs. Mead and Tetzlaff elected to receive their director fees in common stock of Case. The amounts in the above table do not include the payments from Case. OPTION GRANTS IN 1995 The following table sets forth the number of options to acquire Tenneco Common Stock that were granted by Tenneco during 1995 to the persons named in the Summary Compensation Table.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(D) --------------------------------------------------------- --------------------- % OF TOTAL EXERCISE OPTIONS OR BASE OPTIONS GRANTED GRANTED TO PRICE (NO. OF EMPLOYEES PER NAME SHARES)(A)(B)(F) IN FISCAL YEAR SHARE(C) EXPIRATION DATE 5% 10% - ---- ---------------- -------------- -------- ---------------- ---------- ---------- Dana G. Mead............ 100,000(e) 6.7% $42.875 January 10, 2005 $2,696,000 $6,833,000 Theodore R. Tetzlaff.... 18,500(e) 1.2% $42.875 January 10, 2005 $ 485,280 $1,229,940 Robert T. Blakely....... 16,000 1.1% $42.875 January 10, 2005 $ 431,360 $1,093,280 Stacy S. Dick........... 14,000 .9% $42.875 January 10, 2005 $ 377,440 $ 956,620 Paul T. Stecko.......... 24,000 1.6% $42.875 January 10, 2005 $ 647,040 $1,639,920
- -------- (a) The options reported in this column and in the Summary Compensation Table consist of non-qualified options. The options become exercisable at the rate of one-third per year on January 10 of 1996, 1997 and 1998, respectively. As described in footnote (f) below, it is anticipated that Tenneco options held by Company employees will be replaced by options to acquire Company Common Stock upon consummation of the Industrial Distribution. (b) These options provide that a grantee who delivers shares of Tenneco Common Stock to pay the option exercise price will be granted, upon such delivery and without further action by Tenneco, an additional option to purchase the number of shares so delivered. These "reload" options are granted at 100% of the fair market value (as defined in the plan) on the date they are granted, become exercisable six months from that date and expire coincident with the options they replace. Grantees are limited to 10 reload options and the automatic grant of such reload options is limited to twice during any one calendar year. 83 (c) All options were granted at 100% of the fair market value on the date of grant. (d) The dollar amounts under these columns are the result of calculations for the period from the date of grant to the expiration of the option at the 5% and 10% annual appreciation rates set by the Commission and, therefore, are not intended to forecast possible future appreciation, if any, in the price of Tenneco Common Stock. No gain to the optionee is possible without an increase in price of the underlying stock. In order to realize the potential values set forth in the 5% and 10% columns of this table, the per share price of Tenneco Common Stock would be $69.84 and $111.21, respectively, or 63% and 160%, respectively, above the exercise or base price. As described in footnote (f) below, however, it is anticipated that options to acquire Tenneco Common Stock held by Company employees will be replaced by options to acquire Company Common Stock upon consummation of the Industrial Distribution. (e) In addition, Messrs. Mead and Tetzlaff, each in his capacity as a director of Case, were granted an option to purchase 1,000 shares of Case common stock at a purchase of $21.125 per share. These options, which are each less than 1% of the total options granted by Case to employees in 1995, become exercisable on January 1, 1998 and expire January 1, 2005. The potential realizable value, calculated for the period from the date of grant to the expiration of the respective option, at 5% and 10% assumed annual rates of stock price appreciation for the term of the options would be $13,285 and $33,665, respectively. In order to realize these potential values, the per share price of the Case common stock would be $34.41 and $54.79, respectively, or 63% and 160%, respectively, above the exercise or base price. The 5% and 10% annual appreciation rates are not intended to forecast possible future appreciation, if any, in the price of Case common stock. No gain to the optionee is possible without an increase in the price of the Case common stock. (f) All Tenneco stock options held by employees of the Company will be cancelled as of the Industrial Distribution. The Company has adopted a plan (the "Company Stock Ownership Plan") which is substantially similar to the 1994 Tenneco Inc. Stock Ownership Plan. Prior to the Industrial Distribution, Tenneco will have approved the Company Stock Ownership Plan as the sole shareholder of the Company. Options will be granted under the Company Stock Ownership Plan as of the Distribution Date to all employees of the Company who formerly held Tenneco options. Each such employee will receive options of the Company under which the excess of the fair market value of the shares subject to the options immediately after the grant over the aggregate option price is not more than the excess of the aggregate fair market value of all Tenneco shares subject to his or her Tenneco stock options immediately before such cancellation over the aggregate option price under such Tenneco options. The terms of the Company options will be the same as if the Tenneco options had remained outstanding except to the extent that the Company Stock Ownership Plan reflects legal changes adopted after the Tenneco options were granted. These options provide that a grantee who delivers shares of Company Common Stock to pay the option exercise price will be granted, upon such delivery and without further action by the Company, an additional option to purchase the number of shares so delivered. These "reload" options are granted at 100% of the fair market value (as defined in the Company Stock Ownership Plan) on the date they are granted, become exercisable six months from that date and expire at the same time as the options they replace. Grantees are limited to 10 reload options and automatic grant of such reload options is limited to twice during any one calendar year. OPTIONS EXERCISED IN 1995 AND 1995 YEAR-END VALUES The following table sets forth the number of options to acquire Tenneco Common Stock held, as of December 31, 1995, by the persons named in the Summary Compensation Table. No options to acquire shares of Tenneco Common Stock were exercised during 1995. 84
TOTAL NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD AT DECEMBER 31, 1995(A) AT DECEMBER 31, 1995(A) ------------------------- ------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Dana G. Mead................ 66,667 183,333 $31,233 $690,617 Theodore R. Tetzlaff........ 5,334 28,666 -- $121,500 Robert T. Blakely........... 5,700 26,450 $ 4,038 $108,000 Stacy S. Dick............... 4,000 22,000 -- $ 94,500 Paul T. Stecko.............. 5,344 34,666 -- $162,000
- -------- (a) As described in footnote (f) to the Option Grant Table, the options to acquire Tenneco Common Stock will be replaced by options to acquire Company Common Stock. LONG-TERM INCENTIVE PLANS PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN LAST FISCAL YEAR The following table sets forth information concerning performance based awards made to the persons named in the Summary Compensation Table during 1995 by Tenneco.
PERFORMANCE OR OTHER ESTIMATED FUTURE PAYOUTS UNDER NUMBER OF PERIOD NON-STOCK PRICE BASED PLANS(A) SHARES, UNTIL --------------------------------- UNITS OR MATURATION OTHER OR NAME RIGHTS(B) PAYOUT(C) THRESHOLD(D) TARGET(D) MAXIMUM(D) - ---- --------- ----------- ------------ --------- ---------- Dana G. Mead............ 25,000 4 years -- 12,500 25,000 Theodore R. Tetzlaff.... 9,000 4 years -- 4,500 9,000 Robert T. Blakely....... 9,000 4 years -- 4,500 9,000 Stacy S. Dick........... 9,000 4 years -- 4,500 9,000 Paul T. Stecko.......... 12,000 4 years -- 6,000 12,000
- -------- (a) Estimated Future Payouts are based on earnings per share ("EPS") from continuing operations as shown in the record of progress included in the published financial statements of Tenneco. Earnings per share for 1995 were $4.16 and represent achievement of 25% of the performance goal applicable to this award. Messrs. Mead, Tetzlaff, Blakely, Dick, and Stecko each were provisionally credited with 100% of their performance goal for 1995 and 6,250; 2,250; 2,250; 2,250; and 3,000 shares were credited to their respective Plan accounts, subject to adjustment, for payout at the end of the performance cycle. (b) Each performance share equivalent unit represents one share of Tenneco's Common Stock that may be earned under this award and the number of performance share equivalent units listed in this column represents the maximum number of performance share equivalent units that may be earned under this award. (c) Performance share equivalent units are earned at the rate of 25% per year based on achievement of annual EPS goals. However, it is anticipated that prior to the consummation of the Industrial Distribution the conditions to issuance of all shares of Tenneco Common Stock underlying the performance share unit equivalent awards will be waived and the maximum number of shares of Tenneco Common Stock subject thereto will be issued. (d) Represents maximum performance share equivalent units earned where the goals were consistently within the indicated performance range on an individual year and accumulated four year basis. The following table sets forth the aggregate estimated annual benefits payable upon normal retirement pursuant to the Tenneco Retirement Plan, the Tenneco Inc. Benefit Equalization Plan (the "Tenneco Benefit Equalization Plan"), and the Tenneco Inc. Supplemental Executive Retirement Plan (the "Tenneco Supplemental Executive Retirement Plan") to persons in specified remuneration and years of credited participation classifications, each of which plans were assumed by the Company pursuant to the Benefits 85 Agreement. Under the Distribution Agreement and the Benefits Agreement, the Company will continue to sponsor those plans, but all other entities will cease to sponsor them, and the benefits that the employees of such entities have accrued under those plans will be frozen. PENSION PLAN TABLE
YEARS OF CREDITED PARTICIPATION ---------------------------------------------------------------- REMUNERATION 15 20 25 30 35 - ------------ -------- -------- -------- ---------- ---------- $ 350,000 $ 82,500 $110,000 $137,500 $ 165,000 $ 192,500 400,000 94,300 125,700 157,100 188,600 220,000 450,000 106,100 141,400 176,800 212,100 247,500 500,000 117,900 157,100 196,400 235,700 275,000 550,000 129,600 172,900 216,100 259,300 302,500 600,000 141,400 188,600 235,700 282,900 330,000 650,000 153,200 204,300 255,400 306,400 357,000 700,000 165,000 220,000 275,000 330,000 365,000 750,000 176,800 235,700 294,600 353,600 412,500 800,000 188,600 251,400 314,300 377,100 440,000 850,000 200,400 267,100 333,900 400,700 467,500 900,000 212,100 282,900 353,600 424,300 495,000 950,000 223,900 298,600 373,200 447,900 522,500 1,000,000 235,700 314,300 392,900 471,400 550,000 1,100,000 259,300 345,700 432,100 518,600 605,000 1,200,000 282,900 377,100 471,400 565,700 660,000 1,300,000 306,400 408,600 510,700 612,900 715,000 1,400,000 330,000 440,000 550,000 660,000 770,000 1,500,000 353,600 471,400 589,300 707,100 825,000 1,600,000 377,100 502,900 628,600 754,300 880,000 1,700,000 400,700 534,300 667,900 801,400 935,000 1,800,000 424,300 565,700 707,100 848,600 990,000 1,900,000 447,900 597,100 746,400 895,700 1,045,000 2,000,000 471,400 628,600 785,700 942,900 1,100,000 2,100,000 495,000 660,000 825,000 990,000 1,155,000 2,200,000 518,600 691,400 864,300 1,037,100 1,210,000
The benefits set forth above are computed as a straight life annuity and are based on years of credited participation in the Tenneco Retirement Plan and the employee's average base salary during the final five years of credited participation in the Tenneco Retirement Plan; such benefits are not subject to any deduction for Social Security or other offset amounts. The years of credited participation under the Tenneco Retirement Plan (or any supplemental plan) For Messrs. Mead, Blakely, Dick and Stecko are 3, 14, 3 and 2, respectively. (See the paragraph below for additional information relating to Messrs. Mead, Dick and Stecko; and the "Summary Compensation Table" for salary and bonus information for Messrs. Mead, Blakely, Dick and Stecko). Pursuant to employment agreements with Messrs. Mead, Dick and Stecko described under the heading "Employment Contracts and Termination of Employment and Change-in-Control Arrangement" the Company has agreed to pay Messrs. Mead, Dick and Stecko such supplemental payments (in addition to any benefits payable under the Company's qualified and non-qualified pension plans) as may be necessary to make each person's total payments equal to the amount each would have received had he continued to be covered under pension plans maintained by his former employer (based on his credited service with the Company plus 14.6, 15 and 17 years, respectively, of credited service with each person's former employer, and on the compensation received from the Company as salary and bonuses). 86 The Company provides Mr. Tetzlaff with an individual pension benefit. The benefit is based on Mr. Tetzlaff's salary and bonus and also provides for guaranteed graduated minimum annual benefits of $100,000 beginning in 1998, $200,000 per year beginning in 2003 and $300,000 per year beginning in 2008 (See "Summary Compensation Table" for salary and bonus information on Mr. Tetzlaff). COMPENSATION OF DIRECTORS Following the Industrial Distribution, all directors who are not also officers of the Company or its subsidiaries will each be paid a director's fee of $32,000 per annum and receive 300 restricted shares of Company Common Stock (discussed below) and each will be paid an attendance fee of $1,500 plus expenses for each meeting of the Company Board attended. Each director who serves as a Chairman of the Audit, Compensation and Benefits, or Nominating and Management Development Committees of the Company Board will be paid an additional fee of $7,000 per Chairmanship, and directors who serve as members of such committees will be paid an additional fee of $4,000 per committee membership. Members of the Executive Committee will receive an additional $1,500 attendance fee plus expenses for each meeting of that committee attended. Payment of all or a portion of such fees, together with interest and an adjustment based upon changes in the Consumer Price Index For All Urban Households as computed by the Bureau of Labor Statistics, may be deferred at the election of the director until the earliest of (i) the year next following the date upon which he or she ceases to be a director of the Company or (ii) the year selected by the director for commencement of payment of the deferred amount. The foregoing compensation structures and amounts are the same as currently apply to the Tenneco Board. During 1995, Tenneco had a retirement plan for directors who are not also officers of the Company which provided retirement payments based on years of service and the aggregate amount of director and committee fees being received at the time of retirement. Prior to the Industrial Distribution, Tenneco eliminated this retirement plan, and increased the amount of restricted stock each director will receive each year in conjunction with their annual directors' fees. Messrs. Flawn, Harris and Johnson are vested under this prior retirement plan and, therefore, have the option to continue under such plan and to receive monthly payments upon retirement. This plan will be assumed by the Company. Directors who are not also officers of the Company will receive annually 300 restricted shares of Company Common Stock. Such restricted shares may not be sold, transferred, assigned, pledged or otherwise encumbered and are subject to forfeiture should the director cease to serve on the Company Board prior to the expiration of the restricted period that ends upon such director's normal retirement from the Company Board, unless such director is disabled, dies, or the Compensation and Benefits Committee of the Company Board, at its discretion, determines otherwise. During such restricted period, holders of restricted shares are entitled to vote the shares and receive dividends. It is anticipated that restricted shares of Tenneco Common Stock held by directors will be vested prior to the consummation of the Distributions, and the directors will be paid an amount in cash to defray taxes incurred on such vesting. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Tenneco has an employment agreement and a supplemental pension agreement with Mr. Mead which will be continued by the Company providing for the payment to Mr. Mead of a salary of not less than $575,000 per year (with such increases as determined by the Compensation and Benefits Committee of the Company Board) and the supplemental pension payments described above. Also, the Company has agreed that in the event Mr. Mead's employment is terminated for any reason other than for cause, death or permanent disability, the Company will pay to Mr. Mead an amount equal to three times his annual salary plus $300,000. Tenneco also has an employment agreement with Mr. Dick which will also be continued by the Company providing for the payment to Mr. Dick of a salary of not less than $325,000 per year (with such increases as 87 determined by the Compensation and Benefits Committee of the Company Board). Also, the Company has agreed that in the event Mr. Dick's employment is terminated for any reason other than for cause, death or permanent disability, the Company will pay to Mr. Dick an amount equal to his annual salary. The Company has an employment agreement with Mr. Stecko which will also be continued by the Company providing for the payment to Mr. Stecko of a salary of not less than $320,000 per year (with such increases as determined by the Compensation and Benefits Committee of the Company Board). Mr. Stecko is entitled to reimbursement for the cost of financial and estate planning up to $20,000 per year and to be provided a country club membership related to his performance as President and CEO of Tenneco Packaging. The Company has also agreed that, in the event Mr. Stecko's employment is terminated for any reason other than for cause, death or permanent disability, the Company will pay to Mr. Stecko an amount equal to three times his base salary and will purchase his home in accordance with the Company's home purchase program. Additionally, in the event Mr. Stecko's employment is terminated within 3 years of the date of a change in control of Tenneco Packaging, the Company will pay Mr. Stecko an amount equal to three times his base salary. The Transaction is not deemed to constitute a change in control of Tenneco Packaging under Mr. Stecko's employment agreement. The Company will succeed to sponsorship of the Tenneco Benefits Protection Program (the "Tenneco Benefits Protection Program") established by Tenneco to enable the Company to continue to attract, retain and motivate highly qualified employees by eliminating (to the maximum practicable extent) any concern on the part of such employees that their job security or benefit entitlements will be jeopardized by a "Change-in-Control" of the Company (as such term is defined in the Tenneco Benefits Protection Program). The Tenneco Benefits Protection Program is designed to achieve this purpose through (i) the establishment of a severance plan for the benefit of certain employees and officers whose position is terminated under certain circumstances following such Change-in-Control and (ii) the establishment of a trust fund designed to ensure the payment of benefits accrued under certain plans. Under the Tenneco Benefits Protection Program, Messrs. Mead, Tetzlaff, Blakely, Dick and Stecko would have become entitled to receive payments from the Company in the amount of $5,175,000; $2,151,000; $1,860,000; $1,839,000; and $1,980,000, respectively, had their position been terminated on December 31, 1995, and, in addition, restricted shares held in the name of such individuals under Tenneco's restricted stock plans would have automatically reverted to Tenneco, and Tenneco would have been obliged to pay such individuals the fair market value thereof all as provided by such plans. The performance share equivalent units would also have been fully vested and paid. The Transaction is not deemed to constitute a "Change in Control" for purposes of the Tenneco Benefits Protection Program. TRANSACTIONS WITH MANAGEMENT AND OTHERS During 1995 Tenneco and its subsidiaries paid the law firm of Jenner & Block, of which Theodore R. Tetzlaff, General Counsel of Tenneco, is a partner, approximately $9.4 million for legal services (pursuant to an agreement with Tenneco, Mr. Tetzlaff has agreed to devote whatever time is necessary to attend to the responsibilities of General Counsel of Tenneco, and will not receive from Jenner & Block any part of the fees paid by Tenneco to that firm during such period he serves as General Counsel); and paid the firm Eickhoff Economics, Inc., of which Ms. Eickhoff is the sole owner, approximately $31,000 for financial consulting services. All such transactions discussed above were in the ordinary course of business. Tenneco and certain of its subsidiaries held, as of December 31, 1995, approximately 21% of the outstanding common stock of Case, of which Mr. Mead is a director. During 1995, Tenneco received payments from Case of approximately $8.6 million in fixed charges for administrative and other services provided to Case by Tenneco and its subsidiaries. Additionally, a subsidiary of Tenneco paid Case approximately $11.8 million for retail receivable services. The fee for such services is based on the amount of outstanding receivables. Tenneco and Case have an agreement which provides for the allocation of obligations for income and franchise taxes with respect to Case and its subsidiaries for years preceding the 1994 reorganization and public offering of Case common stock. 88 Certain executive officers of Tenneco are indebted to Tenneco and, upon consummation of the Industrial Distribution, will be indebted to the Company. Such indebtedness was incurred in connection with relocation of such persons and all amounts outstanding are secured by a subordinated mortgage note which accrues interest at the rate of 3% per year on the unpaid balance and matures at the earlier of the individual's termination of employment or the year 2026. Principal is payable in full at maturity and the payment of interest has been deferred for 1996. The following sets forth the approximate aggregate amount outstanding as of September 30, 1996 (and is the largest aggregate amount outstanding during 1996); Robert T. Blakely, $404,000; Stacy S. Dick, $405,000; Barry R. Schuman, $404,000; Jack Lascar, $403,000; Mark A. McCollum, $405,000; Karen R. Osar, $404,000; Stephen J. Smith, $407,000; and Karl A. Stewart, $410,000. Transactions involving Mr. McCoy are set out below under the caption "Compensation Committee Interlocks and Insider Participation." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Andrews, Johnson, McCoy and Wharton are members of the Compensation and Benefits Committee of the Tenneco Board and each will serve as members of the Compensation and Benefits Committee of the Company Board. During 1995, an investment fund, of which a subsidiary of Tenneco owns 50%, paid approximately $558,000 to a subsidiary of Banc One Corporation, of which Mr. McCoy is a director and an executive officer, under a line of credit in an amount of approximately $10 million under which approximately $9.4 million is outstanding. Such line of credit is guaranteed 80% by a subsidiary of Tenneco and is due to mature in 1997. All such transactions involving Banc One Corporation were in the ordinary course of business. BENEFIT PLANS FOLLOWING THE INDUSTRIAL DISTRIBUTION As described above, the Company will succeed to sponsorship of two plans qualified under Section 401(a) of the Code: the Tenneco Retirement Plan and the Tenneco Thrift Plan. The Tenneco Retirement Plan is a defined benefit pension plan. The Tenneco Thrift Plan is a 401(k) plan with an employer matching contribution. The Company will also succeed to sponsorship of the Tenneco Supplemental Executive Retirement Plan and Tenneco Benefit Equalization Plan, both of which are non-qualified plans designed to provide covered individuals with benefits which they would receive under the Tenneco Retirement Plan absent legal limitations. The Company will also succeed to sponsorship of the Tenneco Benefits Protection Program as well as the Tenneco Inc. Deferred Compensation Plan and 1993 Deferred Compensation Plan, both of which are non-qualified deferred compensation plans. Prior to the consummation of the Industrial Distribution, the Company will adopt the Company Stock Ownership Plan, which will be approved by Tenneco as the sole stockholder of the Company. The Company Stock Ownership Plan will be substantially similar to the Tenneco Inc. 1994 Stock Ownership Plan and will provide for the grant of stock options, restricted stock, performance shares and other forms of awards. The Company will adopt, and Tenneco will approve as its sole stockholder, an employee stock purchase plan which will be substantially similar to the Tenneco employee stock purchase plan. 89 DESCRIPTION OF CAPITAL STOCK AUTHORIZED CAPITAL STOCK Prior to the Distribution Date, the Company Board and Tenneco, as sole stockholder of the Company, will approve and adopt the Company's Restated Certificate of Incorporation (the "Certificate"), and Tenneco, as sole stockholder of the Company, will approve and adopt the Amended and Restated By- laws of the Company (the "By-laws"). Under the Certificate, the Company's authorized capital stock will consist of 350,000,000 shares of Company Common Stock and 50,000,000 shares of Preferred Stock, par value $.01 per share ("Company Preferred Stock"). In addition, it is anticipated that the Company Board will adopt resolutions pursuant to the Certificate designating 3,500,000 shares of Company Preferred Stock as Series A Participating Junior Preferred Stock, par value $.01 per share, of the Company ("Company Junior Preferred Stock") and reserving 3,500,000 shares of Company Junior Preferred Stock for issuance in connection with the Rights to be issued in connection with the Industrial Distribution. No Company Preferred Stock will be issued in the Industrial Distribution. Based on the number of shares of Tenneco outstanding on July 31, 1996, up to approximately 170,644,461 shares of Company Common Stock will be issued in the Industrial Distribution. COMPANY COMMON STOCK The holders of Company Common Stock will be entitled to one vote for each share on all matters on which stockholders generally are entitled to vote, and except as otherwise required by law or provided in any resolution adopted by the Company Board with respect to any series of Company Preferred Stock, the holders of Company Common Stock will possess 100% of the voting power. The Certificate does not provide for cumulative voting. Subject to the preferential rights of any outstanding Company Preferred Stock which may be created by the Company Board under the Certificate, the holders of Company Common Stock will be entitled to such dividends as may be declared from time to time by the Company Board and paid from funds legally available therefor, and the holders of Company Common Stock will be entitled to receive pro rata all assets of the Company available for distribution upon liquidation. All shares of Company Common Stock received in the Industrial Distribution will be fully paid and nonassessable, and the holders thereof will not have any preemptive rights. There is no established public trading market for Company Common Stock, although a "when issued" market is expected to develop prior to the Distribution Date. The Company has applied to the New York Stock Exchange for the listing of the Company Common Stock upon notice of issuance and the Company expects to receive approval of such listing prior to the Distribution. The Company is also applying to the Chicago, Pacific and London Stock Exchanges for approval of the listing of Company Common Stock upon notice of issuance. The declaration of dividends on Company Common Stock will be at the discretion of the Company Board. The Company Board has not adopted a dividend policy as such. Subject to legal and contractual restrictions, its decisions regarding dividends will be based on all considerations that in its business judgment are relevant at the time, including past and projected earnings, cash flows, economic, business and securities market conditions and anticipated developments concerning the Company's business and operations. For additional information concerning the payment of dividends by the Company, see "Risk Factors--Dividends" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's cash flow and the consequent ability of the Company to pay any dividends on Company Common Stock will be substantially dependent upon the Company's earnings and cash flow available after its debt service and the availability of such earnings to the Company by way of dividends, distributions, loans and other advances. Under the DGCL, dividends may be paid by the Company out of "surplus" (as defined under Section 154 of the DGCL) or, if there is no surplus, out of net profits for the fiscal year in which the dividends are declared and/or the preceding fiscal year. On a pro forma basis, at June 30, 1996, the Company had surplus of 90 approximately $3,051 million (on a book value basis) for the payment of dividends, and the Company will also be able to pay dividends out of any net profits for the current and/or prior fiscal year, if any. COMPANY PREFERRED STOCK Under the Certificate, the Company Board is authorized to issue Company Preferred Stock, in one or more series, and to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. See "Antitakeover Effects of Certain Provisions." ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS The Certificate, the By-laws, the Rights and Delaware statutory law contain certain provisions, which are substantially the same as those provisions which are currently applicable to Tenneco, that could make the acquisition of the Company by means of a tender offer, a proxy contest or otherwise more difficult. The description set forth below is intended as a summary only and is qualified in its entirety by reference to the Certificate, the By-laws and the Rights Agreement which are attached as exhibits to the Company's Registration Statement on Form 10 under the Exchange Act relating to Company Common Stock. CLASSIFIED BOARD OF DIRECTORS The Certificate provides that the Company Board will be divided into three classes of directors, with the classes to be as nearly equal in number as possible. The Company Board consists of the persons referred to in "Management--Board of Directors" above. The Certificate provides that, of the initial directors of the Company, approximately one-third will continue to serve until the first succeeding annual meeting of the Company's stockholders, approximately one-third will continue to serve until the second succeeding annual meeting of the Company's stockholders and approximately one-third will continue to serve until the third succeeding annual meeting of the Company's stockholders. Of the initial directors, Messrs. Andrews, Blumenthal, Johnson and Weiss will serve until the first succeeding annual meeting of the Company's stockholders, Ms. Eickhoff and Messrs. Flawn, McCoy and Mead will serve until the second succeeding annual meeting of the Company's stockholders and Messrs. Harris, Wharton and Plastow will serve until the third succeeding annual meeting of the Company's stockholders. At each annual meeting of the Company's stockholders, one class of directors will be elected for a term expiring at the third succeeding annual meeting of stockholders. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of the Company Board. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the members of the Company Board. Such a delay may help ensure that the Company's directors, if confronted by a stockholder attempting to force a proxy contest, a tender or exchange offer, or an extraordinary corporate transaction, would have sufficient time to review the proposal as well as any available alternatives to the proposal and to act in what they believe to be the best interest of the stockholders. The classification provisions will apply to every election of directors, however, regardless of whether a change in the composition of the Company Board would be beneficial to the Company and its stockholders and whether or not a majority of the Company's stockholders believe that such a change would be desirable. The classification provisions could also have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. The classification of the Company Board could thus increase the likelihood that incumbent directors will retain their positions. In addition, because the classification provisions may discourage accumulations of large blocks of the Company's stock by purchasers whose objective is to take control of the Company and remove a majority of the members of the Company Board, 91 the classification of the Company Board could tend to reduce the likelihood of fluctuations in the market price of Company Common Stock that might result from accumulations of large blocks for such a purpose. Accordingly, stockholders could be deprived of certain opportunities to sell their shares of Company Common Stock at a higher market price than might otherwise be the case. Notwithstanding the foregoing, the Certificate provides that whenever the holders of any one or more series of Company Preferred Stock have the right, voting separately as a class or series, to elect directors, such directors will not be classified, unless expressly provided by the terms of such series of Company Preferred Stock. NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES The Certificate provides that the business and affairs of the Company will be managed by or under the direction of a Board of Directors, consisting of not less than eight nor more than sixteen directors, the exact number thereof to be determined from time to time by affirmative vote of a majority of the entire Board of Directors. In addition, the Certificate provides that any vacancy on the Company Board that results from an increase in the number of directors may be filled by a majority of the Company Board then in office, provided that a quorum is present, and any other vacancy occurring in the Company Board may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Under the DGCL, unless otherwise provided in the Certificate, directors serving on a classified board may only be removed by the stockholders for cause. The Certificate does not provide that directors may be removed without cause. Notwithstanding the foregoing, the Certificate provides that whenever the holders of any one or more series of Company Preferred Stock have the right, voting separately as a class or series, to elect directors, the election, removal, term of office, filling of vacancies and other features of such directorships will be governed by the terms of the Certificate applicable thereto. SPECIAL MEETINGS The By-laws provide that special meetings of stockholders will be called by the Company Board. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the purposes specified in the notice of meeting given by the Company. ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS The By-laws establish an advance notice procedure for stockholders to make nominations of candidates for election of directors, or to bring other business before an annual meeting of stockholders of the Company (the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that only persons who are nominated by, or at the direction of, the Company Board, or by a stockholder who has given timely written notice to the Secretary of the Company prior to the meeting at which directors are to be elected, will be eligible for election as directors of the Company. The Stockholder Notice Procedure provides that at an annual meeting only such business may be conducted as has been brought before the meeting by, or at the direction of, the Company Board or by a stockholder who has given timely written notice to the Secretary of the Company of such stockholder's intention to bring such business before such meeting. Under the Stockholder Notice Procedure, for stockholder notice in respect of the annual meeting of the Company's stockholders to be timely, such notice must be delivered to the Secretary of the Company not less than 50 days nor more than 75 days prior to the annual meeting; provided, however, that in the event that less than 65 days' notice or prior public announcement of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public announcement was made, whichever first occurs. 92 Under the Stockholder Notice Procedure, a stockholder's notice to the Company proposing to nominate a person for election as a director must contain certain information, including, without limitation, the identity and address of the nominating stockholder, the class and number of shares of stock of the Company which are beneficially owned by such stockholder, and as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Company which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14A under the Exchange Act. Under the Stockholder Notice Procedure, a stockholder's notice relating to the conduct of business other than the nomination of directors must contain certain information about such business and about the proposing stockholder, including, without limitation, a brief description of the business the stockholder proposes to bring before the meeting, the reasons for conducting such business at such meeting, the name and address of such stockholder, the class and number of shares of stock of the Company beneficially owned by such stockholder, and any material interest of such stockholder in the business so proposed. If the Chairman of the meeting determines that a person was not nominated, or other business was not brought before the meeting, in accordance with the Stockholder Notice Procedure, such person will not be eligible for election as a director, or such business will not be conducted at any such meeting, as the case may be. By requiring advance notice of nominations by stockholders, the Stockholder Notice Procedure will afford the Company Board an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Company Board, to inform stockholders about such qualifications. By requiring advance notice of other proposed business, the Stockholder Notice Procedure will also provide a more orderly procedure for conducting annual meetings of stockholders and, to the extent deemed necessary or desirable by the Company Board, will provide the Company Board with an opportunity to inform stockholders, prior to such meetings, of any business proposed to be conducted at such meetings, together with any recommendations as to the Company Board's position regarding action to be taken with respect to such business, so that stockholders can better decide whether to attend such a meeting or to grant a proxy regarding the disposition of any such business. Although the By-laws do not give the Company Board any power to approve or disapprove stockholder nominations for the election of directors or proper stockholder proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to the Company and its stockholders. RECORD DATE PROCEDURE FOR STOCKHOLDER ACTION BY WRITTEN CONSENT The By-laws establish a procedure for the fixing of a record date in respect of action proposed to be taken by the Company's stockholders by written consent in lieu of a meeting. The By-laws provide that any person seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice addressed to the Secretary and delivered to the Company, request that a record date be fixed for such purpose. The By-laws state that the Company Board may fix a record date for such purpose which shall be no more than 10 days after the date upon which the resolution fixing the record date is adopted by the Company Board and shall not precede the date such resolution is adopted. If the Company Board fails within 10 days after the Company receives such notice to fix a record date for such purpose, the By-laws provide that the record date shall be the day on which the first written consent is delivered to the Company unless prior action by the Company Board is required under the DGCL, in which event the record date shall be at the close of business on the day on which the Company Board adopts the resolution taking such prior action. The By-laws also provide that the Secretary of the Company or, under certain circumstances, two inspectors designated by the Secretary shall promptly conduct such ministerial review of the sufficiency of any written consents of stockholders duly delivered to the Company and of the validity of the action to be taken by stockholder consent as he deems necessary or appropriate, including, without limitation, whether the holders of a number of shares having the requisite voting power to authorize or take the action specified in the written consents have given consent. 93 STOCKHOLDER MEETINGS The By-laws provide that the Company Board and the chairman of a meeting may adopt rules for the conduct of stockholder meetings and specify the types of rules that may be adopted (including the establishment of an agenda, rules relating to presence at the meeting of persons other than stockholders, restrictions on entry at the meeting after commencement thereof and the imposition of time limitations for questions by participants at the meeting). COMPANY PREFERRED STOCK The Certificate authorizes the Company Board to provide for series of Company Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. Tenneco and the Company believe that the ability of the Company Board to issue one or more series of Company Preferred Stock will provide the Company with flexibility in structuring possible future financings and acquisitions, and in meeting other corporate needs which might arise. The authorized shares of the Company Preferred Stock, as well as shares of Company Common Stock, will be available for issuance without further action by the Company's stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which the Company's securities may be listed or traded. The NYSE currently requires stockholder approval as a prerequisite to listing shares in several instances, including where the present or potential issuance of shares could result in a 20% increase in the number of shares of common stock outstanding or in the amount of voting securities outstanding. If the approval of the Company's stockholders is not required for the issuance of shares of Company Preferred Stock or Company Common Stock, the Company Board may determine not to seek stockholder approval. Although the Company Board has no intention at the present time of doing so, it could issue a series of Company Preferred Stock that could, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt. The Company Board will make any determination to issue such shares based on its judgment as to the best interests of the Company and its stockholders. The Company Board, in so acting, could issue Company Preferred Stock having terms that could discourage an acquisition attempt through which an acquiror may be able to change the composition of the Company Board, including a tender offer or other transaction that some, or a majority, of the Company's stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then current market price of such stock. BUSINESS COMBINATIONS The Certificate prohibits "Business Combinations" (as defined in the Certificate) with "Interested Stockholders" (as defined in the Certificate) without the approval of the holders of at least 66 2/3% in voting power of the outstanding shares of stock entitled to vote in the election of directors ("Voting Stock") not owned by an Interested Stockholder unless (i) approved by a majority of the "Continuing Directors" (as defined in the Certificate) or (ii) certain detailed requirements as to, among other things, the value and type of consideration to be paid to the Company's stockholders, the maintenance of the Company's dividend policy, the public disclosure of the Business Combination and the absence of any major change in the Company's business or equity capital structure without the approval of a majority of the Continuing Directors, have been satisfied. The Certificate generally defines an "Interested Stockholder" as any person (other than the Company or any subsidiary, any employee benefit plan of the Company or any subsidiary or any trustee or fiduciary with respect to any such plan or holding Voting Stock for the purpose of funding any such plan or funding other employee benefits for employees of the Company or any subsidiary when acting in such capacity) who (a) is or has announced or publicly disclosed a plan or intention to become the beneficial owner of Voting Stock representing five percent or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock or (b) is an affiliate or associate of the Company and at any time within the two-year period immediately prior to the date in 94 question was the beneficial owner of Voting Stock representing five percent or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock. The Certificate defines a "Continuing Director" as any member of the Company Board, while such person is a member of the Company Board, who is not an affiliate or associate or representative of the Interested Stockholder and was a member of the Company Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor thereto who is not an affiliate or associate or representative of the Interested Stockholder and is recommended or elected to succeed the Continuing Director by a majority of Continuing Directors. AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS Under the DGCL, the stockholders of a corporation have the right to adopt, amend or repeal the by-laws and, with the approval of the board of directors, the certificate of incorporation of a corporation. In addition, if the certificate of incorporation so provides, the by-laws may be adopted, amended or repealed by the board of directors. The Certificate provides that the By- laws may be amended by the Company Board or by the stockholders. The Certificate also provides that, in addition to approval by the Company Board and notwithstanding that a lesser percentage or separate class vote may be specified by law, the Certificate or the By-laws, any proposal to amend or repeal, or adopt any provision inconsistent with, the provisions of the Certificate regarding Business Combinations proposed by or on behalf of an Interested Stockholder or affiliate thereof requires the affirmative vote of the holders of 66 2/3% in voting power of the outstanding shares of Voting Stock, excluding Voting Stock beneficially owned by any Interested Stockholder, unless the amendment or repeal of, or the adoption of any provision inconsistent with, the provisions regarding Business Combinations is unanimously recommended by the members of the Company Board and each of the members of the Company Board qualifies as a Continuing Director. Approval by the Company Board, together with the affirmative vote of the holders of a majority in voting power of the outstanding shares of Voting Stock, is required to amend all other provisions of the Certificate. The Business Combination supermajority voting requirement could have the effect of making more difficult any amendment by stockholders of the Business Combination provisions of the Certificate described above, even if a majority of the Company's stockholders believe that such amendment would be in their best interest. RIGHTS The Company Board will adopt a stockholder rights plan and cause to be issued, with each share of Company Common Stock to be distributed in the Industrial Distribution, one preferred share purchase right (a "Right"). Each Right will entitle the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Company Junior Preferred Stock, at a price of $130 per Unit (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement"), between the Company and First Chicago Trust Company of New York, as Rights Agent (the "Rights Agent"). Initially, the Rights will be represented by Company Common Stock certificates, and no separate certificates representing the Rights ("Rights Certificates") will be distributed. The Rights will separate from the Company Common Stock and a distribution date (a "Rights Distribution Date") will occur upon the earlier of (i) 10 business days following the first date of public announcement (the "Stock Acquisition Date") that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Company Common Stock, (ii) 10 business days (or such later date as may be determined by the Company Board) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Company Common Stock or (iii) 10 business days after the Company Board determines that any person, alone or together with its affiliates and associates, has become the Beneficial Owner of an amount of Company Common Stock which the Company Board determines to be substantial (which amount shall in no event be less than 10% of the shares of Company Common Stock outstanding) and at least a majority of the Company Board who are not officers of the Company, after reasonable inquiry and investigation, including 95 consultation with such persons as such directors shall deem appropriate, shall determine that (a) such beneficial ownership by such person is intended to cause the Company to repurchase the Company Common Stock beneficially owned by such person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such person with short-term financial gain under circumstances where the Company Board determines that the best long-term interests of the Company and its stockholders would not be served by taking such action or entering into such transactions or series of transactions at that time or (b) such beneficial ownership is causing or is reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company (any such person being referred to herein and in the Rights Agreement as an "Adverse Person"). Until the Rights Distribution Date, (i) the Rights will be evidenced by Company Common Stock certificates and will be transferred with and only with such Company Common Stock certificates, (ii) Company Common Stock certificates will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Company Common Stock outstanding will also constitute the transfer of the Rights associated with Company Common Stock represented by such certificate. The Rights will not be exercisable until the Rights Distribution Date and will expire at the close of business on June 10, 1998 (the "Final Expiration Date"), unless (i) earlier redeemed by the Company as described below or (ii) the Rights Agreement is extended (with stockholder approval) as discussed below. The Final Expiration Date is the same date on which the stockholder rights issued under the current Tenneco's stockholder's rights plan would have terminated, but for the Merger. As soon as practicable after the Rights Distribution Date, Rights Certificates will be mailed to holders of record of the Company Common Stock as of the close of business on the Rights Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Company Board, only shares of Company Common Stock issued prior to the Rights Distribution Date will be issued with Rights. In the event that (i) any person becomes an Acquiring Person (except pursuant to an offer for all outstanding shares of Company Common Stock that the independent directors determine to be fair to and otherwise in the best interests of the Company and its stockholders) or (ii) the Company Board determines that a person is an Adverse Person, each holder of a Right will thereafter have the right to receive, upon exercise, Company Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Upon the occurrence of either of the events set forth in the preceding sentence, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by the Acquiring Person or Adverse Person (or certain related parties) will be null and void. Rights will not be exercisable following the occurrence of either of such events until such time as the Rights are no longer redeemable by the Company as set forth below. For example, at an exercise price of $130 per Right, each Right not owned by an Acquiring Person or by an Adverse Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $260 worth of Company Common Stock (or other consideration, as noted above) for $130. Assuming that Company Common Stock had a per share value of $50 at such time, the holder of each valid Right would be entitled to purchase 5.2 shares of Company Common Stock for $130. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction (other than a merger meeting prescribed terms and conditions that follows an offer described in the second preceding paragraph) or (ii) more than 50% of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights that previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of Units of Company Junior Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution 96 (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, Company Junior Preferred Stock, (ii) if holders of Company Junior Preferred Stock are granted certain rights or warrants to subscribe for Company Junior Preferred Stock or convertible securities at less than the current market price of Company Junior Preferred Stock or (iii) upon the distribution to holders of the Company Junior Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of Company Junior Preferred Stock on the last trading date prior to the date of exercise. In general, at any time until 10 business days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.02 per Right. The Company may not redeem the Rights if the Company Board has previously declared a person to be an Adverse Person. Immediately upon the action of the Company Board ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.02 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights became exercisable for Company Common Stock (or other consideration) of the Company or for common stock of the acquiring company as set forth above. Other than those provisions relating to the duration of the Rights Agreement and the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Company Board prior to the Rights Distribution Date. After the Rights Distribution Date, the provisions of the Rights Agreement may be amended by the Company Board in order to cure any ambiguity, to make changes that do not adversely affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. Notwithstanding the foregoing, unless approved by a vote of the stockholders of the Company, the Rights Agreement may not be supplemented or amended to alter the redemption price, the Final Expiration Date, the Purchase Price or the number of Units for which a Right is exercisable. The Rights Agreement is designed to protect the stockholders of the Company in the event of unsolicited offers to acquire the Company and other coercive takeover tactics which, in the opinion of the Company Board, could impair its ability to represent stockholder interests. The provisions of the Rights Agreement may render an unsolicited takeover of the Company more difficult or less likely to occur, even though such takeover may offer the Company's stockholders the opportunity to sell their stock at a price above the prevailing market rate and may be favored by a majority of the Company's stockholders. THE FOREGOING SUMMARY OF THE TERMS OF THE RIGHTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE COMPANY'S REGISTRATION STATEMENT ON FORM 10 UNDER THE EXCHANGE ACT RELATING TO COMPANY COMMON STOCK. THE RIGHTS ARE BEING REGISTERED UNDER THE EXCHANGE ACT, TOGETHER WITH COMPANY COMMON STOCK, PURSUANT TO SUCH REGISTRATION STATEMENT. IN THE EVENT THAT THE RIGHTS BECOME EXERCISABLE, THE COMPANY WILL REGISTER THE SHARES OF COMPANY JUNIOR PREFERRED STOCK FOR WHICH THE RIGHTS MAY BE EXERCISED, IN ACCORDANCE WITH APPLICABLE LAW. ANTITAKEOVER LEGISLATION Section 203 of the DGCL provides that, subject to certain exceptions specified therein, a corporation shall not engage in any "business combination" with any "interested stockholder" for a three-year period following the time that such stockholder becomes an interested stockholder unless (i) prior to such time, the board of 97 directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares) or (iii) on or subsequent to such time, the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 of the DGCL generally defines an "interested stockholder" to include (x) any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date and (y) the affiliates and associates of any such person. Section 203 of the DGCL generally defines a "business combination" to include (1) mergers and sales or other dispositions of 10% or more of the assets of the corporation with or to an interested stockholder, (2) certain transactions resulting in the issuance or transfer to the interested stockholder of any stock of the corporation or its subsidiaries, (3) certain transactions which would result in increasing the proportionate share of the stock of the corporation or its subsidiaries owned by the interested stockholder and (4) receipt by the interested stockholder of the benefit (except proportionately as a stockholder) of any loans, advances, guarantees, pledges, or other financial benefits. Under certain circumstances, Section 203 of the DGCL makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the certificate of incorporation or stockholder-adopted by-laws may exclude a corporation from the restrictions imposed thereunder. Neither the Certificate nor the By-laws exclude the Company from the restrictions imposed under Section 203 of the DGCL. It is anticipated that the provisions of Section 203 of the DGCL may encourage companies interested in acquiring the Company to negotiate in advance with the Company Board since the stockholder approval requirement would be avoided if the Company Board approves, prior to the time the stockholder becomes an interested stockholder, either the business combination or the transaction which results in the stockholder becoming an interested stockholder. COMPARISON WITH RIGHTS OF HOLDERS OF TENNECO COMMON STOCK Except as otherwise described herein, the provisions of the Certificate and the By-laws (including the provisions thereof relating to the classification of directors, the calling of special meetings of stockholders, the advance notice requirements for stockholder nominations and proposals, the approval of Business Combinations, the supermajority voting requirement for amendment of the Business Combinations provisions and the setting of record dates for actions by written consent of stockholders in lieu of a meeting) are substantially the same as the provisions of the Tenneco Certificate of Incorporation (the "Tenneco Certificate") and the Tenneco By-laws (the "Tenneco By-laws"). Capitalization Tenneco's authorized capital stock consists of 350,000,000 shares of Tenneco Common Stock, 15,000,000 shares of Preferred Stock, without par value ("Tenneco Preferred Stock"), and 50,000,000 shares of Junior Preferred Stock, without par value ("Tenneco Junior Preferred Stock"). The Company's authorized capital stock consists of 350,000,000 shares of Company Common Stock, 50,000,000 shares of Company Preferred Stock, 3,500,000 shares of which have been designated Company Junior Preferred Stock. The Tenneco Board is generally authorized to issue Tenneco Preferred Stock and Tenneco Junior Preferred Stock in series and to fix the terms of such series, but such authority is subject to numerous requirements and/or limitations relating to, among other things, the voting rights of such series and the ability of Tenneco to pay dividends and acquire its capital stock. The Company Board is authorized to issue Company Preferred Stock in series and to fix the terms of such series, without limitation (other than as provided in the DGCL). All series of Tenneco Preferred Stock (but not Tenneco Junior Preferred Stock) must rank on a parity with respect to the payment of dividends. Any of the terms of a series of Company Preferred Stock may differ from those of any other series. 98 Class Voting Under the Tenneco Certificate, approval of 66 2/3% of the outstanding shares of Tenneco Preferred Stock or Tenneco Junior Preferred Stock, or of a series thereof, is required for any charter amendment which adversely affects the rights, powers or preferences of the Tenneco Preferred Stock or Tenneco Junior Preferred Stock, or of a series thereof, as the case may be. Under the Certificate, there is no such two-thirds approval requirement; however, the DGCL generally requires any charter amendment that so adversely affects a particular class or series of stock be approved by a majority of the outstanding shares of such class or series, as the case may be. The Tenneco Certificate requires separate class votes of Tenneco Preferred Stock and of Tenneco Junior Preferred Stock (i) to create a class of stock ranking senior thereto, (ii) to sell, lease, transfer or convey all or substantially all of Tenneco's assets or (iii) to merge with another corporation (unless Tenneco survives). No such class votes are required under the Certificate. Stockholder Meetings The By-laws provide that the Company Board and the chairman of a meeting may adopt rules for the conduct of stockholder meetings and specify the types of rules that may be adopted (including the establishment of an agenda, rules relating to presence at the meeting of persons other than stockholders, restrictions on entry at the meeting after commencement thereof and the imposition of time limitations for questions by participants at the meeting). Such issues are not expressly addressed by the Tenneco By-laws. Stockholder Rights Plans Tenneco adopted a stockholder rights plan on May 24, 1988, which was amended and restated on October 1, 1989 (the "Tenneco Rights Plan"). Pursuant to and in accordance with such plan, one preferred share purchase right (a "Tenneco Right") is attached to each share of Tenneco Common Stock. Each Tenneco Right entitles the registered holder thereof to, among other things, purchase, under certain circumstances, from Tenneco a unit consisting of one one-hundredth of a share of Tenneco Series A Junior Preferred Stock. Tenneco has amended the Tenneco Rights Plan to exempt El Paso and El Paso Merger Company from becoming an "acquiring person" thereunder, or otherwise triggering the Tenneco Rights, solely by reason of the execution of the Merger Agreement and consummation of the transactions contemplated thereby, and to cause the Tenneco Rights to expire at the Merger Effective Time. The Company will adopt the Rights Agreement. The Rights Agreement is, in all material respects, the same as the Tenneco Rights Plan except that the Redemption Price (as defined therein), the Final Expiration Date, the Purchase Price and the number of one one-hundredths of a share of Company Junior Preferred Stock for which a Right is exercisable (which under the Tenneco Rights Plan may not be supplemented or amended) may be supplemented or amended with stockholder approval. Indemnification The Tenneco By-laws provide for mandatory indemnification for directors and officers of Tenneco and for directors and officers of Tenneco serving as directors and officers of other entities at the request of Tenneco to the fullest extent permitted by the DGCL. The By-laws provide similar mandatory indemnification except (i) such indemnification includes directors and officers of the Company serving as directors, officers, employees or agents of another entity at the request of the Company and (ii) suits (or parts thereof) instituted by any such indemnitee without Company Board approval are excluded from such mandatory indemnification. The By-laws also provide for mandatory advancement of expenses in defending any proceeding for which mandatory indemnification may be available. The Tenneco By-laws do not provide for such mandatory advancement of expenses. Under the By-laws, persons claiming indemnification or advancement may file suit in respect thereof if the Company does not pay such a claim within 30 days after receipt of a written claim therefor and, if successful in 99 whole or in part, are entitled to be paid the expense of prosecuting such claim. The By-laws provide that in any such action, the Company has the burden of proving that the indemnitee is not entitled to the requested indemnification or advancement. Such issues are not expressly addressed by the Tenneco By-laws. Director Exculpation Pursuant to Section 102(b)(7) of the DGCL, the Tenneco Certificate provides that a director thereof shall not be liable to Tenneco or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to Tenneco or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. The Certificate provides that a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may thereafter be amended. The Certificate, therefore, affords directors of the Company the benefit of any subsequent broadening of director exculpation permitted by the DGCL without the need for a further charter amendment. Ratification The Tenneco Certificate provides that a director of Tenneco shall not be disqualified by his office from dealing or contracting with Tenneco either as a vendor, purchaser or otherwise, nor shall any transaction or contract of Tenneco be void or voidable by reason of the fact that any director or any firm of which any director is a member, or any corporation of which any director is a shareholder, officer or director, is in any way interested in such transaction or contract, provided that such transaction or contract is or shall be authorized, ratified or approved either (i) by a vote of a majority of a quorum of the Tenneco Board or of the Executive Committee of Tenneco, without counting in such majority or quorum any director so interested or a member of a firm so interested, or a shareholder, officer or director of a corporation so interested or (ii) by the written consent, or by the vote at any stockholders' meeting, of the holders of record of a majority of all the outstanding shares of stock of Tenneco entitled to vote, nor shall any director be liable to account to Tenneco for any profits realized by or from or through any such transaction or contract of Tenneco authorized, ratified or approved as aforesaid by reason of the fact that he, or any firm of which he is a member or any corporation of which he is a shareholder, officer or director was interested in such transaction or contract. The Tenneco By-laws provide that any transaction questioned in any stockholders derivative suit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, nondisclosure, miscomputation, or the application of improper principles or practices of accounting may be ratified before or after judgment, by the Tenneco Board or by Tenneco's stockholders. The Tenneco By-laws also provide that, if so ratified, the transaction shall have the same force and effect as if it had been originally duly authorized, and said ratification shall be binding upon Tenneco and shall continue as a bar to any claim or execution of any judgment in respect of such questioned transaction. Such issues are not expressly addressed by either the Certificate or the By- laws. However, Section 144 of the DGCL provides, in relevant part, that no contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts 100 as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee or the stockholders. Contracts The By-laws provide that, except as otherwise required by law, the Certificate or the By-laws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the Company by such officer or officers of the Company as the Company Board may from time to time direct. The By-laws state that such authority may be general or confined to specific instances as the Company Board may determine. The By-laws also provide that (i) the Chairman of the Board, the President or any Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the Company and (ii) subject to any restrictions imposed by the Company Board, the Chairman of the Board, the President or any Vice President of the Company may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power. Such issues are not expressly addressed by the Tenneco By-laws. Proxies The By-laws provide that unless otherwise provided by resolution adopted by the Company Board, the Chairman of the Board, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Company, in the name and on behalf of the Company, to cast the votes which the Company may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or other securities may be held by the Company, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the Company as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Company and under its corporate seal or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. Such issues are not expressly addressed by the Tenneco By-laws. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS ELIMINATION OF LIABILITY OF DIRECTORS The Certificate provides that a director of the Company will not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may thereafter be amended. Based on the DGCL as presently in effect, a director of the Company will not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of dividends, stock purchases or redemptions or (iv) for any transactions from which the director derived an improper personal benefit. While the Certificate provides directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate such duty. Accordingly, the Certificate will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. The provisions of the Certificate described above apply to an officer of the Company only if he or she is a director of the Company and is acting in his or her capacity as director, and do not apply to officers of the Company who are not directors. 101 INDEMNIFICATION OF DIRECTORS AND OFFICERS The By-laws provide that the Company will indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may thereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Company or, while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, employee or agent of another Company or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. The By-laws also provide that, notwithstanding the foregoing, but except as described in the second following paragraph, the Company will be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Company Board. The By-laws further provide that the Company will pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition; provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding will be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under the relevant section of the By-laws or otherwise. Pursuant to the By-laws, if a claim for indemnification or payment of expenses thereunder is not paid in full within 30 days after a written claim therefor by the Indemnitee has been received by the Company, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, will be entitled to be paid the expense of prosecuting such claim. The By-laws provide that, in any such action, the Company will have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law. The By-laws also provide (i) that the rights conferred on any Indemnitee thereby are not exclusive of any other rights which such Indemnitee may have or thereafter acquire under any statute, provision of the Certificate, the By- laws, agreement, vote of stockholders or disinterested directors or otherwise, (ii) that the Company's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another Company, partnership, joint venture, trust, enterprise or nonprofit entity will be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other Company, partnership, joint venture, trust, enterprise or nonprofit enterprise and (iii) that any repeal or modification of the relevant provisions of the By- laws will not adversely affect any right or protection thereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. The By-laws also expressly state that the provisions thereof will not limit the right of the Company, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action. 102 INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
PAGE ---- THE BUSINESSES OF NEW TENNECO Report of Independent Public Accountants................................ F-2 Combined Statements of Income for each of the three years in the period ended December 31, 1995 and for the six months ended June 30, 1996 and 1995................................................................... F-3 Combined Balance Sheets--December 31, 1995 and 1994 and June 30, 1996... F-4 Combined Statements of Cash Flows for each of three years in the period ended December 31, 1995 and for the six months ended June 30, 1996 and 1995................................................................... F-5 Statements of Changes in Combined Equity for each of the three years in the period ended December 31, 1995 and the six months ended June 30, 1996............... F-6 Notes to Combined Financial Statements.................................. F-7 THE MOBIL PLASTICS DIVISION OF MOBIL CORPORATION Report of Independent Auditors.......................................... F-28 Combined Statements of Net Assets--December 28, 1994 and November 17, 1995................................................................... F-29 Combined Statements of Operations Before Income Taxes--Year ended December 28, 1994 and period ended November 17, 1995................... F-30 Combined Statements of Changes in Net Assets--Year Ended December 28, 1994 and period ended November 17, 1995................................ F-31 Combined Statements of Cash Flows--Year ended December 28, 1994 and period ended November 17, 1995...................................................... F-32 Notes to Combined Financial Statements.................................. F-33 FINANCIAL STATEMENT SCHEDULE Valuation and Qualifying Accounts--The Businesses of New Tenneco ....... S-1
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Tenneco Inc.: We have audited the accompanying combined balance sheets of the businesses of New Tenneco (see Note 1) as of December 31, 1995 and 1994, and the related combined statements of income, cash flows and changes in combined equity for each of the three years in the period ended December 31, 1995. These combined financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the businesses of New Tenneco as of December 31, 1995 and 1994, and the results of its combined operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 3 to the combined financial statements, effective January 1, 1994, the businesses of New Tenneco changed its method of accounting for postemployment benefits. Our audits were made for the purpose of forming an opinion on the basic combined financial statements taken as a whole. The supplemental schedule listed in the index to the combined financial statements and schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic combined financial statements. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic combined financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic combined financial statements of the businesses of New Tenneco taken as a whole. ARTHUR ANDERSEN LLP Houston, Texas August 19, 1996 F-2 THE BUSINESSES OF NEW TENNECO COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER SIX MONTHS ENDED 31, JUNE 30, ---------------------- ------------------ (MILLIONS) 1995 1994 1993 1996 1995 - ---------- ------ ------ ------ -------- -------- (UNAUDITED) REVENUES Net sales and operating revenues-- Automotive....................... $2,479 $1,989 $1,785 $ 1,463 $ 1,263 Packaging........................ 2,752 2,184 2,042 1,775 1,318 Intergroup sales and other....... (10) (7) (7) (5) (4) ------ ------ ------ -------- -------- 5,221 4,166 3,820 3,233 2,577 Other income, net.................. 39 (2) 42 71 30 ------ ------ ------ -------- -------- 5,260 4,164 3,862 3,304 2,607 ------ ------ ------ -------- -------- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......... 3,737 3,050 2,854 2,303 1,828 Engineering, research and development expenses.............. 67 43 39 44 33 Selling, general and administrative.................... 588 473 451 396 276 Depreciation, depletion and amortization...................... 196 142 137 147 92 ------ ------ ------ -------- -------- 4,588 3,708 3,481 2,890 2,229 ------ ------ ------ -------- -------- Income before interest expense, income taxes and minority interest.......................... 672 456 381 414 378 Interest expense (net of interest capitalized)...................... 160 104 101 100 74 ------ ------ ------ -------- -------- Income before income taxes and minority interest................. 512 352 280 314 304 Income tax expense................. 231 114 115 126 124 ------ ------ ------ -------- -------- Income before minority interest.... 281 238 165 188 180 Minority interest.................. 23 -- -- 10 12 ------ ------ ------ -------- -------- Income from continuing operations.. 258 238 165 178 168 Loss from discontinued operations, net of income tax................. -- (31) (7) -- -- ------ ------ ------ -------- -------- Income before cumulative effect of change in accounting principle......................... 258 207 158 178 168 Cumulative effect of change in accounting principle, net of income tax........................ -- (7) -- -- -- ------ ------ ------ -------- -------- Net income......................... $ 258 $ 200 $ 158 $ 178 $ 168 ====== ====== ====== ======== ========
The accompanying notes to combined financial statements are an integral part of these combined statements of income. F-3 THE BUSINESSES OF NEW TENNECO COMBINED BALANCE SHEETS
DECEMBER 31, ------------- JUNE 30, (MILLIONS) 1995 1994 1996 - ---------- ------ ------ ----------- (UNAUDITED) ASSETS Current assets: Cash and temporary cash investments............ $ 103 $ 350 $ 129 Receivables-- Customer notes and accounts (net)............ 351 284 477 Affiliated companies......................... 117 53 114 Income taxes................................. 41 2 52 Other........................................ 54 45 186 Inventories.................................... 838 557 820 Deferred income taxes.......................... 23 24 28 Prepayments and other.......................... 168 152 196 ------ ------ ------ 1,695 1,467 2,002 ------ ------ ------ Investments and other assets: Long-term notes receivables.................... 16 11 16 Goodwill and intangibles, net.................. 1,024 320 965 Deferred income taxes.......................... 52 49 61 Pension assets................................. 433 389 444 Other.......................................... 239 113 287 ------ ------ ------ 1,764 882 1,773 ------ ------ ------ Plant, property and equipment, at cost........... 4,138 3,065 4,332 Less--Reserves for depreciation, depletion and amortization.................................. 1,480 1,474 1,584 ------ ------ ------ 2,658 1,591 2,748 ------ ------ ------ $6,117 $3,940 $6,523 ====== ====== ====== LIABILITIES AND COMBINED EQUITY Current liabilities: Short-term debt (including current maturities on long-term debt)............................ $ 384 $ 108 $ 530 Payables Trade........................................ 589 465 599 Affiliated companies......................... 47 68 23 Taxes accrued.................................. 45 -- 74 Accrued liabilities............................ 237 129 242 Other.......................................... 257 282 242 ------ ------ ------ 1,559 1,052 1,710 ------ ------ ------ Long-term debt................................... 1,648 1,039 1,573 Deferred income taxes............................ 435 342 451 Postretirement benefits.......................... 156 122 161 Deferred credits and other liabilities........... 166 97 159 Commitments and contingencies Minority interest................................ 301 301 301 Combined equity.................................. 1,852 987 2,168 ------ ------ ------ $6,117 $3,940 $6,523 ====== ====== ======
The accompanying notes to combined financial statements are an integral part of these combined balance sheets. F-4 THE BUSINESSES OF NEW TENNECO COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS YEARS ENDED ENDED DECEMBER 31, JUNE 30, ------------------ ------------ (MILLIONS) 1995 1994 1993 1996 1995 - ---------- ------ ---- ---- ----- ----- (UNAUDITED) OPERATING ACTIVITIES Income from continuing operations........... $ 258 $238 $165 $ 178 $ 168 Adjustments to reconcile income from contin- uing operations to cash provided (used) by continuing operations-- Depreciation, depletion and amortization.. 196 142 137 147 92 Deferred income taxes..................... 75 19 1 37 15 Gain on sale of businesses and assets, net...................................... (15) (5) (29) (49) (14) Allocated interest, net of tax............ 99 61 59 63 44 Changes in components of working capital (Increase) decrease in receivables....... 30 87 55 (110) (79) (Increase) decrease in inventories....... (102) (57) (1) 18 (99) (Increase) decrease in prepayments and other current assets.................... (39) 8 (38) (19) (10) Increase (decrease) in payables.......... 7 69 34 (13) (59) Increase (decrease) in taxes accrued..... 23 (17) (47) 23 (18) Increase (decrease) in other current lia- bilities................................ (15) (3) 79 (43) (26) Other..................................... (28) 20 (85) (33) (23) ------ ---- ---- ----- ----- Cash provided (used) by continuing opera- tions................................... 489 562 330 199 (9) Cash provided (used) by discontinued op- erations................................ -- 9 (6) -- -- ------ ---- ---- ----- ----- Net cash provided (used) by operating activ- ities...................................... 489 571 324 199 (9) ------ ---- ---- ----- ----- INVESTING ACTIVITIES Net proceeds (expenditures) related to the sale of discontinued operations............ -- 5 (4) -- -- Net proceeds from sale of businesses and as- sets....................................... 56 16 83 10 34 Expenditures for plant, property and equip- ment....................................... (562) (280) (217) (263) (179) Acquisitions of businesses.................. (1,461) (51) (14) (23) (55) Investments and other....................... (74) 7 -- (64) (6) ------ ---- ---- ----- ----- Net cash used by investing activities....... (2,041) (303) (152) (340) (206) ------ ---- ---- ----- ----- FINANCING ACTIVITIES Issuance of equity securities by a combined subsidiary................................. -- 293 -- -- -- Retirement of long-term debt................ (15) (152) (21) (8) (11) Net increase (decrease) in short-term debt excluding current maturities on long-term debt....................................... 8 (94) (29) (23) (2) Cash contributions from (distributions to) Tenneco.................................... 1,304 3 (115) 200 (39) ------ ---- ---- ----- ----- Net cash provided (used) by financing activ- ities...................................... 1,297 50 (165) 169 (52) ------ ---- ---- ----- ----- Effect of foreign exchange rate changes on cash and temporary cash investments........ 8 4 (2) (2) 4 ------ ---- ---- ----- ----- Increase (decrease) in cash and temporary cash investments........................... (247) 322 5 26 (263) Cash and temporary cash investments, January 1.......................................... 350 28 23 103 350 ------ ---- ---- ----- ----- Cash and temporary cash investments, Decem- ber 31 (Note).............................. $ 103 $350 $ 28 $ 129 $ 87 ====== ==== ==== ===== ===== Cash paid during the year for interest...... $ 6 $ 14 $ 15 $ 2 $ 6 Cash paid during the year for income taxes (net of refunds)........................... $ 180 $137 $178 $ 97 $ 137
Note: Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. The accompanying notes to combined financial statements are an integral part of these combined statements of cash flows. F-5 THE BUSINESSES OF NEW TENNECO STATEMENTS OF CHANGES IN COMBINED EQUITY (MILLIONS) Balance, December 31, 1992............................................. $ (87) Net income........................................................... 158 Translation adjustment............................................... (75) Allocated interest, net of tax....................................... 59 Change in allocated corporate debt................................... 519 Cash distributions to Tenneco........................................ (115) Noncash contributions from Tenneco................................... 74 ------ Balance, December 31, 1993............................................. $ 533 Net income........................................................... 200 Translation adjustment............................................... 56 Allocated interest, net of tax....................................... 61 Change in allocated corporate debt................................... (5) Cash contributions from Tenneco...................................... 3 Noncash contributions from Tenneco................................... 139 ------ Balance, December 31, 1994............................................. $ 987 Net income........................................................... 258 Translation adjustment............................................... 49 Allocated interest, net of tax....................................... 99 Change in allocated corporate debt................................... (887) Cash contributions from Tenneco...................................... 1,304 Noncash contributions from Tenneco................................... 42 ------ Balance, December 31, 1995............................................. $1,852 Net income........................................................... 178 Translation adjustment............................................... (25) Allocated interest, net of tax....................................... 63 Change in allocated corporate debt................................... (94) Cash contributions from Tenneco...................................... 200 Noncash distributions to Tenneco..................................... (6) ------ Balance, June 30, 1996 (unaudited)..................................... $2,168 ======
The accompanying notes to combined financial statements are an integral part of these statements of changes in combined equity. F-6 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying combined financial statements represent the financial position, results of operations and cash flows for all automotive (collectively referred to as "Tenneco Automotive") and packaging (collectively referred to as "Tenneco Packaging") operations owned directly or indirectly by Tenneco Inc. ("Tenneco") and its subsidiaries (see "Control" below). Unless the context otherwise requires, as used herein the term "Company" refers: (i) for periods prior to the Industrial Distribution, as defined below, to Tenneco Automotive, Tenneco Packaging and certain administrative service operations of Tenneco (collectively, "New Tenneco") which New Tenneco Inc. will own and operate after the Industrial Distribution, and (ii) for periods after the Industrial Distribution, to New Tenneco Inc. and its consolidated subsidiaries. Reference is made to Note 13, "Segment and Geographic Area Information" for a description of the businesses of the Company. 2. THE INDUSTRIAL DISTRIBUTION On June 19, 1996, Tenneco and El Paso Natural Gas Company ("El Paso") entered into a merger agreement pursuant to which a subsidiary of El Paso will be merged into Tenneco (the "Merger"). The Merger is part of a larger Tenneco reorganization (the "Transaction") which includes the distribution of the common stock of the Company (the "Industrial Distribution") and Newport News Shipbuilding Inc. ("Newport News"), a subsidiary of Tenneco which will hold all of the assets, liabilities and operations of Tenneco's current shipbuilding business (the "Shipbuilding Distribution") (collectively, the "Distributions") to the holders of Tenneco common stock. Upon completion of the Transaction, holders of Tenneco common stock will receive equity securities of the Company, Newport News and El Paso. Prior to the Transaction, Tenneco intends to initiate a realignment of its existing indebtedness. As part of the debt realignment, certain Company debt will be offered in exchange for certain issues of Tenneco debt. Tenneco will initiate tender offers for other Tenneco debt, and certain debt issues may be defeased. These tender offers and defeasances will be financed by a combination of new lines of credit of Tenneco, the Company (which may declare and pay a dividend to Tenneco) and Newport News (which will declare and pay a dividend of approximately $600 million to Tenneco). Upon completion of the debt realignment, Tenneco will have responsibility for $2.65 billion of debt, subject to certain adjustments, Newport News will have responsibility for the borrowings under its credit lines and the Company will have responsibility for the remaining debt. The Transaction is subject to certain conditions, including receipt of a favorable ruling from the Internal Revenue Service to the effect that the Distributions and certain internal spin-off transactions will be tax-free for federal income tax purposes and approval by Tenneco stockholders. In order to assist in the orderly transition of the Company into a separate, publicly held company, Tenneco intends to modify, amend or enter into certain contractual agreements with the Company. Such agreements include a tax sharing agreement between Tenneco and its subsidiaries (see "Income taxes" in Note 3), an employee benefits agreement, an insurance agreement, an administrative services agreement and other ancillary agreements. These agreements will provide, among other things, that (i) the Company will become the sole sponsor of the Tenneco Inc. Retirement Plan, the Tenneco Inc. Thrift Plan, and various Tenneco Inc. welfare plans; (ii) the Company will retain specific insurance policies which relate to its businesses and will retain continuing rights and obligations for certain parent-company insurance policies of Tenneco; and (iii) the Company will provide certain corporate services, such as mainframe data processing and product purchasing services, to Tenneco and Newport News for a specified period of time. F-7 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 3. SUMMARY OF ACCOUNTING POLICIES Control All of the outstanding common stock of the Company is owned directly or indirectly by Tenneco. Thus, the companies which comprise Tenneco Automotive, Tenneco Packaging and certain administrative service operations are under the control of Tenneco. Unaudited Interim Information The unaudited interim combined financial statements as of June 30, 1996 and for each of the six month periods ended June 30, 1996 and 1995, included herein, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim combined financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The interim financial results are not indicative of operating results for an entire year. Research and Development Research and development costs are expensed as incurred. The amounts charged to "Engineering, research and development expenses" were $42 million, $27 million, and $38 million for 1995, 1994 and 1993, respectively. Risk Management Activities The Company is currently a party to financial instruments to hedge its exposure to changes in foreign currency exchange rates. These financial instruments are accounted for on the accrual basis with gains and losses being recognized based on the type of contract and exposure being hedged. After-tax net gains or losses on foreign currency contracts designated as hedges of the Company's net investments in foreign subsidiaries are recognized in the balance sheet caption "Combined equity." Net gains and losses of foreign currency contracts designated as hedges of firm commitments or other specific transactions are deferred and recognized when the offsetting gains or losses are recognized on the hedged items. In the Combined Statements of Cash Flows, cash receipts or payments related to the financial instruments are classified consistent with the cash flows from the transactions being hedged. Income Taxes The Company utilizes the liability method of accounting for income taxes whereby it recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the combined financial statements. Deferred tax assets are reduced by a valuation allowance when, based upon management's estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. The estimates utilized in the recognition of deferred tax assets are subject to revision in future periods based on new facts or circumstances. The Company and Tenneco, together with certain of their respective subsidiaries which are owned 80% or more, have entered into an agreement to file a consolidated U.S. federal income tax return. Such agreement provides, among other things, that (1) each company in a taxable income position will be currently charged with an amount equivalent to its federal income tax computed on a separate return basis and (2) each company in a tax loss position will be reimbursed currently to the extent its deductions, including general business credits, are utilized in the consolidated return. The income tax amounts reflected in the combined financial statements of the F-8 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Company under the provisions of the tax sharing arrangement are not materially different from the income taxes which would have been provided had the Company filed a separate tax return. Under the tax sharing agreement, Tenneco pays all federal taxes directly and bills or refunds, as applicable, its subsidiaries for the applicable portion of the total tax payments. Cash taxes paid in the Combined Statement of Cash Flows include payments to Tenneco for U.S. federal income taxes. The Company does not provide for U.S. income taxes on unremitted earnings of foreign subsidiaries as it is the present intention of management to reinvest the unremitted earnings in its foreign operations. Unremitted earnings of foreign subsidiaries are approximately $505 million at December 31, 1995. It is not practicable to determine the amount of U.S. income taxes that would be payable upon remittance of the assets that represent those earnings. In connection with the Distributions the current tax sharing agreement will be cancelled and the Company will enter into a tax sharing agreement with Tenneco, Newport News and El Paso. The tax sharing agreement will provide, among other things, for the allocation of taxes among the parties of tax liabilities arising prior to, as a result of, and subsequent to the Distributions. Generally, the Company will be liable for taxes imposed on the Company and its affiliates engaged in the automotive and packaging businesses. In the case of federal income taxes imposed on the combined activities of the consolidated group, the Company and Newport News will be liable to Tenneco for federal income taxes attributable to their activities, and each will be allocated an agreed-upon share of estimated tax payments made by the Tenneco consolidated group. Changes in Accounting Principles In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("FAS") No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" which establishes new accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. The statement is effective for transactions occurring after December 31, 1996. The impact of the adoption of the new standard has not been determined. The Company adopted FAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of 1996. FAS No. 121 establishes new accounting standards for measuring the impairment of long-lived assets. The adoption of this new standard did not have a significant effect on the Company's combined financial position or results of operations. Effective January 1, 1994, the Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits." This new accounting rule requires employers to account for postemployment benefits for former or inactive employees after employment but before retirement on the accrual basis rather than the "pay-as-you-go" basis. The Company recorded an after-tax charge of $7 million which was reported as a cumulative effect of change in accounting principle. Inventories At December 31, 1995 and 1994, inventory by major classification was as follows:
(MILLIONS) 1995 1994 ---------- ---- ---- Finished goods.................................................. $396 $267 Work in process................................................. 102 81 Raw materials................................................... 253 137 Materials and supplies.......................................... 87 72 ---- ---- $838 $557 ==== ====
F-9 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Inventories are stated at the lower of cost or market. A portion of inventories are valued using the "last-in, first-out" method (47% and 27% at December 31, 1995 and 1994, respectively). All other inventories are valued on the "first-in, first-out" ("FIFO") or "average" methods. If the FIFO or average method of inventory accounting had been used by the Company for all inventories, inventories would have been $48 million, $46 million and $40 million higher at December 31, 1995, 1994 and 1993, respectively. Goodwill and Intangibles At December 31, 1995 and 1994, goodwill and intangibles by major category was as follows:
(MILLIONS) 1995 1994 ---------- ------ ---- Goodwill...................................................... $ 632 $299 Trademarks.................................................... 194 1 Patents....................................................... 160 -- Other......................................................... 38 20 ------ ---- $1,024 $320 ====== ====
Goodwill is being amortized on a straight-line basis over periods ranging from 15 years to 40 years. Such amortization amounted to $10 million, $8 million and $8 million for 1995, 1994 and 1993, respectively, and is included in the Combined Statements of Income caption, "Depreciation, depletion and amortization." The Company has capitalized certain intangible assets, primarily trademarks and patents, based on their estimated fair value at date of acquisition. Amortization is provided on these intangible assets on a straight-line basis over periods ranging from 5 to 40 years and was not significant during any of the periods presented in the accompanying combined financial statements. The majority of goodwill and intangibles at December 31, 1995, resulted from the acquisition of the plastics division of Mobil Corporation in November 1995. See Note 4, "Acquisitions," for further information on the acquisitions. Plant, Property and Equipment, at Cost At December 31, 1995 and 1994, plant, property and equipment, at cost, by major category was as follows:
(MILLIONS) 1995 1994 ---------- ------ ------ Land, buildings and improvements........................... $1,125 $ 978 Machinery and equipment.................................... 2,446 1,722 Other, including construction in progress.................. 567 365 ------ ------ $4,138 $3,065 ====== ======
Depreciation of the Company's properties is provided on a straight-line basis over the estimated useful lives of the related assets. Useful lives range from 10 to 40 years for buildings and improvements and from 3 to 25 years for machinery and equipment. Depletion of timber and timberlands is provided on a unit-of-production basis. Notes Receivable and Allowance for Doubtful Accounts Short-term notes receivable of $53 million and $31 million were outstanding at December 31, 1995 and 1994, respectively. F-10 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1995 and 1994, the allowance for doubtful accounts and notes receivable was $24 million and $15 million, respectively. Environmental Liabilities Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors. All available evidence is considered including prior experience in remediation of contaminated sites, other companies' clean-up experience and data released by the United States Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances. These liabilities are included in the combined balance sheet at their undiscounted amounts. Recoveries are evaluated separately from the liability and, when recovery is assured, are recorded and reported separately from the associated liability in the combined financial statements. For further information on this subject, reference is made to Note 14, "Commitments and Contingencies--Environmental Matters." Foreign Currency Translation Financial statements of international operations are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted average exchange rate for each applicable period for revenues, expenses and gains and losses. Translation adjustments are reflected in the balance sheet caption "Combined equity." Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining the reported amounts of the Company's assets, liabilities, revenues and expenses. Reference is made to the "Income Taxes" section of this footnote and Notes 11, 12 and 14 for additional information on significant estimates included in the Company's combined financial statements. 4. ACQUISITIONS In June 1996, the Company entered into agreements to acquire The Pullman Company and its Clevite products division ("Clevite") for $328 million and Amoco Foam Products Company, a unit of Amoco Chemical Company ("Amoco Foam Products"), for $310 million. Clevite makes suspension bushings and other elastomeric parts for cars and trucks. Upon completion of the Clevite acquisition in July 1996, Clevite's operations became part of Tenneco Automotive. Amoco Foam Products manufactures expanded polystyrene tableware, hinged-lid food containers, packaging trays and industrial products for residential and commercial construction applications. The Company anticipates closing the acquisition of Amoco Foam Products by the end of August 1996 and Amoco Foam Products will become part of Tenneco Packaging. In November 1995, Tenneco Packaging acquired the plastics division of Mobil Corporation for $1.3 billion. The plastics business is one of the largest North American producers of polyethylene and polystyrene consumer and food service packaging. F-11 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Tenneco Packaging's acquisition of the plastics business was accounted for as a purchase; accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based on preliminary estimates of their fair values. Final purchase price allocations will be based on more complete evaluations and may differ from the original allocation. The excess of the purchase price over the fair value of the net assets acquired is included in the balance sheet caption, "Goodwill and intangibles" and is being amortized on a straight-line basis over 40 years. The purchase was financed with a cash contribution from Tenneco. The following unaudited pro forma information of the Company illustrates the effect of the plastics business acquisition as if it had occurred at the beginning of 1994, after giving effect to certain pro forma adjustments including amortization of the excess purchase price, depreciation and other adjustments based on the preliminary purchase price allocation related to the acquisition, together with estimates of the related income tax effects.
(UNAUDITED) YEARS ENDED DECEMBER 31, ------------- (MILLIONS) 1995 1994 ---------- ------ ------ Net sales and operating revenues........................... $6,217 $5,203 Income from continuing operations.......................... $ 268 $ 181
The summarized pro forma information has been prepared for comparative purposes only. It is not intended to be indicative of the actual operating results that would have occurred had the acquisition been consummated at the beginning of 1994, or the results which may be attained in the future. Also during 1995, Tenneco Packaging completed the acquisitions of eight paperboard packaging businesses and two specialty packaging businesses for a total consideration of approximately $196 million. In addition, Tenneco Automotive completed four acquisitions for approximately $54 million. Each of the acquisitions was accounted for as a purchase. If these assets and investments had been acquired January 1, 1995, net income would not have been significantly different from the reported amount. In 1994, Tenneco Automotive acquired Heinrich Gillet GmbH & Co. KG for $44 million in cash and $69 million in assumed debt. 5. TRANSACTIONS WITH TENNECO Combined Equity The "Combined equity" caption in the accompanying combined financial statements represents Tenneco's cumulative investment in the combined businesses of the Company. Changes in the "Combined equity" caption represent the net income of the Company, net cash and non-cash contributions from (distributions to) Tenneco, cumulative translation adjustments, changes in allocated corporate debt, and allocated interest, net of tax. Reference is made to the Statements of Changes in Combined Equity for an analysis of the activity in the "Combined equity" caption for the three years ended December 31, 1995 and six months ended June 30, 1996. General and Administrative Expenses General and administrative expenses of $229 million, $154 million and $149 million in 1995, 1994 and 1993, respectively, are included in the "Selling, general and administrative" caption in the Combined Statements of Income. Of the total general and administrative expenses for 1995, 1994 and 1993, $61 million, $27 million and $21 million, respectively, represent the Company's share of Tenneco's corporate general and administrative costs for legal, financial, communication and other administrative services. Tenneco's corporate general and F-12 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) administrative expenses are allocated based on the estimated level of effort devoted to Tenneco's various operations and their relative size based on revenues, gross property and payroll. Tenneco's corporate general and administrative expenses not budgeted for allocation are absorbed by the Company. The Company's management believes the method for allocating corporate general and administrative expenses is reasonable. Total general and administrative expenses reflected in the accompanying combined financial statements are representative of the total general and administrative costs the Company would have incurred as a separate entity. Corporate Debt and Interest Allocation Tenneco's historical practice has been to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Consequently, corporate debt of Tenneco and its related interest expense have been allocated to the Company based on the portion of Tenneco's investment in the Company which is deemed to be debt, generally based upon the ratio of the Company's net assets to Tenneco consolidated net assets plus debt. Interest expense was allocated at a rate equivalent to the weighted-average cost of all corporate debt, which was 7.7%, 8.3% and 7.4% for 1995, 1994, and 1993, respectively. Total pre-tax interest expense allocated to the Company in 1995, 1994 and 1993 was $152 million, $94 million and $90 million, respectively. The Company has also been allocated tax benefits approximating 35% of the allocated pre-tax interest expense. Although interest expense, and the related tax effects, have been allocated to the Company for financial reporting on a historical basis, the Company has not been billed for these amounts. The changes in allocated corporate debt and the after-tax allocated interest have been included as a component of the Company's Combined equity. Although management believes that the historical allocation of corporate debt and interest is reasonable, it is not necessarily indicative of the Company's debt upon completion of the Debt Realignment nor debt and interest that will be incurred by the Company as a separate public entity. Notes and Advances Receivable with Tenneco "Cash contributions from (distributions to) Tenneco" in the Statements of Changes in Combined Equity consist of net cash changes in notes and advances receivable with Tenneco which have been included in combined equity. Historically, Tenneco has utilized notes and advances to centrally manage cash funding requirements for its consolidated group. At December 31, 1995 and 1994, the Company had an interest bearing note receivable from Tenneco totaling $494 million and $310 million, respectively, which is payable on demand and is included as a component of the Company's combined equity. Accounts Receivable and Accounts Payable--Affiliated Companies The "Receivables--Affiliated companies" balance primarily includes billings for general and administrative costs incurred by the Company and charged to Newport News and Tenneco Energy. The "Payables--Affiliated companies" balance primarily relates to billings for U.S. income taxes incurred by Tenneco and charged to the Company. Affiliated accounts receivable and accounts payable between Tenneco, the Company and Newport News will be settled, capitalized or converted into ordinary trade accounts, as applicable, as part of the Distributions. Employee Benefits Certain employees of the Company participate in the Tenneco employee stock option and employee stock purchase plans. The Tenneco employee stock option plan provides for the grant of Tenneco common stock options and other stock awards at a price not greater than market value at the date of grant. The Tenneco employee stock purchase plan allows employees to purchase Tenneco common stock at a 15% discount subject F-13 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) to certain thresholds. The Company expects to establish similar plans for its employees after the Industrial Distribution. In connection with the Industrial Distribution, outstanding options on Tenneco common stock held by Company employees will be converted into options of the Company so as to preserve the aggregate value of the options held prior to the Industrial Distribution. Employees of the Company also participate in certain Tenneco postretirement and pension plans. Reference is made to Notes 11 and 12 for a further discussion of these plans. Sales of Receivables At December 31, 1995 and 1994, the Company sold $513 million and $384 million, respectively, of trade receivables to Tenneco Credit Corporation ("TCC"), a wholly-owned subsidiary of Tenneco Inc. TCC sells these trade receivables to a third party in the ordinary course of its business. 6. DISCONTINUED OPERATIONS AND DISPOSITION OF ASSETS Discontinued Operations In 1994, the Company sold its brakes operation. Net proceeds from the sale of the brakes operation was approximately $18 million. Net assets and results from discontinued operations as of and for the years ended December 31, 1994 and 1993, are as follows:
1994 1993 (MILLIONS) ---- ---- Net assets at December 31..................................... $ -- $61 ==== === Net sales and operating revenues.............................. $ 62 $54 ==== === Loss before income taxes and interest allocation.............. $ (8) $(8) Income tax benefit............................................ 5 4 ---- --- Loss before interest allocation............................... (3) (4) Allocation of interest expense, net of income tax (a)......... (2) (3) ---- --- Net loss...................................................... (5) (7) ---- --- Loss on disposition........................................... (41) -- Income tax benefit from loss on disposition................... 15 -- ---- --- Net loss on disposition....................................... (26) -- ---- --- Net loss from discontinued operations......................... $(31) $(7) ==== ===
- -------- (a) The allocation of interest expense to discontinued operations is based on the ratio of net assets of discontinued operations to Tenneco consolidated net assets plus debt. Disposition of Assets In the second quarter of 1996, Tenneco Packaging entered into an agreement to form a joint venture with Caraustar Industries whereby Tenneco Packaging sold its two recycled paperboard mills and recycling operation to the joint venture in return for cash and an equity interest in the joint venture. The Company recognized a $50 million pre-tax gain from the sale in the second quarter of 1996. In 1995, the Company sold certain facilities and assets, principally at its Tenneco Packaging segment. Proceeds from these dispositions were $56 million resulting in a pre-tax net gain of $15 million. F-14 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) During 1994, the Company disposed of several assets and investments including a facility, machinery and equipment at Tenneco Packaging. Proceeds from these dispositions were $16 million resulting in a pre-tax gain of $5 million. During 1993, the Company disposed several Tenneco Packaging operations. The proceeds from dispositions were $83 million and the pre-tax gain was $29 million. 7. LONG-TERM DEBT, SHORT-TERM DEBT AND FINANCING ARRANGEMENTS Long-Term Debt A summary of long-term debt outstanding and allocated corporate debt obligations at December 31, 1995 and 1994, is set forth in the following table (Note):
(MILLIONS) 1995 1994 - ---------- ------ ------ Notes due 1996 through 2014, average effective interest rate 10.9% in 1995 and 7.9% in 1994 (net of $32 million in 1995 and $33 million in 1994 of unamortized discount)............. $ 41 $ 52 Other obligations due 1996 through 2007, average effective interest rate 8.8% in 1995 and 8.4 % in 1994................................................ 26 20 Current maturities............................................ (6) (5) ------ ------ 61 67 ------ ------ Allocated corporate debt obligations, average effective interest rate 7.7% in 1995 and 8.3% in 1994.................. 1,587 972 ------ ------ $1,648 $1,039 ====== ======
Note: Reference is made to Note 5 for a discussion of allocated corporate debt obligations. At December 31, 1995 and 1994, approximately $72 million and $154 million, respectively, of gross plant, property and equipment was pledged as collateral to secure $30 million and $31 million, respectively, principal amounts of long-term debt. The aggregate maturities applicable to non-allocated issues outstanding at December 31, 1995, are $6 million, $7 million, $6 million, $5 million and $6 million for 1996, 1997, 1998, 1999 and 2000, respectively. Short-Term Debt The Company uses lines of credit and overnight borrowings to finance its short-term capital requirements. Information regarding short-term credit agreements for the years ended December 31, 1995 and 1994 follows:
(DOLLARS IN MILLIONS) 1995 1994 - --------------------- ---- ---- Outstanding borrowings at end of year............................... $16 $ 22 Weighted average interest rate on outstanding borrowings at end of year............................................................... 6.8% 8.1% Approximate maximum month-end outstanding borrowings during year.... $18 $163 Approximate average month-end outstanding borrowings during year.... $11 $ 53
Note: Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements. The Company had other short-term borrowings outstanding of $17 million at December 31, 1995, and $8 million at December 31, 1994 and was allocated short-term corporate debt obligations of $345 million at December 31, 1995 and $73 million at December 31, 1994. F-15 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Financing Arrangements As of December 31, 1995, the Company had arranged committed credit facilities of $43 million of which approximately $12 million had been utilized. The credit facilities have various terms and the Company is generally required to pay commitment fees on the unused portion of the total commitment and facility fees on the total commitment. 8. FINANCIAL INSTRUMENTS The carrying and estimated fair values of the Company's financial instruments by class at December 31, 1995 and 1994, were as follows:
(MILLIONS) 1995 1994 - ---------- -------------- -------------- CARRYING FAIR CARRYING FAIR ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE - -------------------- -------- ----- -------- ----- Asset and Liability Instruments Cash and temporary cash investments.......... $ 103 $ 103 $ 350 $ 350 Receivables (customer, affiliated and long- term)....................................... 484 484 348 348 Accounts payable (trade and affiliated)...... (636) (636) (533) (533) Short-term debt (excluding current maturities) (Note).......................... (33) (33) (30) (30) Long-term debt (including current maturities) (Note)...................................... (67) (52) (72) (74) Instruments With Off-Balance-Sheet Risk Derivative Foreign currency contracts................. 5 4 17 18 Non-derivative Financial guarantees....................... -- (15) -- (20)
Note: The carrying amounts and estimated fair values of short-term and long- term debt are before allocation of corporate debt to the Company from Tenneco. See Note 5. Asset and Liability Instruments The fair value of cash and temporary cash investments, receivables, accounts payable, and short-term debt in the above table was considered to be the same as or was not determined to be materially different from the carrying amount. At December 31, 1995 and 1994, respectively, the Company's aggregate customer and long-term receivable balance was concentrated by industry segment as follows: Tenneco Automotive, 77% and 76%, respectively, and Tenneco Packaging, 23% and 24%, respectively. Long-term debt--The fair value of fixed-rate long-term debt was based on the market value of debt with similar maturities and interest rates. Instruments With Off-Balance-Sheet Risk Derivative The Company utilizes foreign exchange forward contracts to hedge certain translation effects of the Company's investment in net assets in certain foreign affiliated companies. Pursuant to these arrangements, the Company recognized aggregate after-tax translation gains (losses) of $3 million, $(2) million and $5 million for 1995, 1994 and 1993, respectively, which have been included in the balance sheet caption "Combined equity." The Company routinely enters into various foreign currency forward purchase and sale contracts to hedge the transaction effect of exchange rate movements on receivables and payables denominated in foreign currencies. These foreign currency contracts generally mature in one year or less. F-16 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) In managing its foreign currency exposures, the Company identifies naturally occurring offsetting positions and then hedges residual exposures. The following table summarizes by major currency the contractual amounts of foreign currency contracts utilized by the Company:
NOTIONAL AMOUNT ----------------------------- DECEMBER 31, DECEMBER 31, 1995 1994 ------------- --------------- (MILLIONS) PURCHASE SELL PURCHASE SELL ---------- -------- ---- -------- ------ Foreign currency contracts (in US$): Australian Dollars....................... $ 1 $202 $ 94 $ 26 British Pounds........................... 81 125 277 964 Canadian Dollars......................... 23 50 81 74 French Francs............................ 44 16 94 15 U.S. Dollars............................. 240 81 244 377 Other.................................... 127 83 274 123 ---- ---- ------ ------ $516 $557 $1,064 $1,579 ==== ==== ====== ======
Based on exchange rates at December 31, 1995 and 1994, the cost of replacing these contracts in the event of non-performance by the counterparties would not have been material. Non-derivative Guarantees--At December 31, 1995 and 1994, the Company had guaranteed payment and performance of approximately $15 million and $20 million, respectively, primarily with respect to letters of credit and other guarantees supporting various financing and operating activities. 9. INCOME TAXES The domestic and foreign components of income from continuing operations before income taxes are as follows:
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993 ---------------------------------- ---- ---- ---- U.S. income before income taxes........................... $361 $242 $169 Foreign income before income taxes........................ 151 110 111 ---- ---- ---- Income before income taxes................................ $512 $352 $280 ==== ==== ====
Following is a comparative analysis of the components of combined income tax expense applicable to continuing operations:
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993 ---------------------------------- ---- ---- ---- Current-- U.S.................................................... $ 54 $ 42 $ 58 State and local........................................ 38 23 21 Foreign................................................ 64 30 35 ---- ---- ---- 156 95 114 ---- ---- ---- Deferred-- U.S.................................................... 61 31 (9) Foreign................................................ 14 (12) 10 ---- ---- ---- 75 19 1 ---- ---- ---- Income tax expense....................................... $231 $114 $115 ==== ==== ====
Current U.S. income tax expense for the years ended December 31, 1995, 1994 and 1993, include tax benefits of $53 million, $33 million and $32 million, respectively, related to the allocation of corporate interest expense to the Company from Tenneco. See Note 5. F-17 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Following is a reconciliation of income taxes computed at the statutory U.S. federal income tax rate (35% for all years presented) to the income tax expense reflected in the Combined Statements of Income:
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993 - ---------------------------------- ---- ---- ---- Tax expense computed at the statutory U.S. federal income tax rate......................................................... $179 $123 $ 98 Increases (reductions) in income tax expense resulting from: Foreign income taxed at different rates and foreign losses with no tax benefit........................................ 17 (12) 7 State and local taxes on income, net of U.S. federal income tax benefit................................................ 25 16 13 U.S. federal income tax rate change......................... -- -- 2 Realization of unrecognized deferred tax assets............. -- (12) -- Other....................................................... 10 (1) (5) ---- ---- ---- Income tax expense............................................ $231 $114 $115 ==== ==== ====
The components of the Company's net deferred tax liability at December 31, 1995 and 1994, were as follows:
(MILLIONS) 1995 1994 ---------- ---- ---- Deferred tax assets-- Tax loss carryforwards...................................... $ 83 $ 76 Postretirement benefits other than pensions................. 41 39 Other....................................................... 31 54 Valuation allowance......................................... (83) (72) ---- ---- Net deferred tax asset...................................... 72 97 ---- ---- Deferred tax liabilities-- Tax over book depreciation.................................. 204 163 Pension..................................................... 158 146 Book versus tax gains and losses on asset disposals......... 63 49 Other....................................................... 7 8 ---- ---- Total deferred tax liability................................ 432 366 ---- ---- Net deferred tax liability.................................... $360 $269 ==== ====
As reflected by the valuation allowance in the table above, the Company had potential tax benefits of $83 million and $72 million at December 31, 1995 and 1994, respectively, which were not recognized in the Combined Statements of Income when generated. These benefits resulted primarily from foreign tax loss carryforwards which are available to reduce future foreign tax liabilities. At December 31, 1995, the Company had tax benefits of $83 million from foreign net operating loss carryforwards which will carry forward indefinitely. 10. MINORITY INTEREST At both December 31, 1995 and 1994, the Company reported minority interest in the balance sheet of $301 million. At December 31, 1995, $293 million of minority interest resulted from the December 1994 sale of a 25% preferred stock interest in Tenneco International Holding Corp. ("TIHC") to a financial investor. TIHC holds certain assets including the capital stock of Tenneco Canada Inc., Monroe Europe N.V., Monroe Australia Proprietary Limited, Walker France S.A. and other subsidiaries included in the Tenneco Automotive segment. For financial reporting purposes, the assets, liabilities and earnings of TIHC and its subsidiaries are combined in the Company's financial statements, and the investor's preferred stock interest has been recorded as "Minority interest" in the Combined Balance Sheets. F-18 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Dividends on the TIHC preferred stock are based on the issue price ($300 million) times a rate per annum equal to 1.12% over LIBOR and are payable quarterly in arrears on the last business day of each quarter commencing on March 31, 1995. For 1995, the weighted average rate paid on TIHC preferred stock was 7.30%. Additionally, beginning in 1996, the holder of the 12,000,000 shares of preferred stock will be entitled to receive, when and if declared by the Board of Directors of TIHC, participating dividends based on the operating income growth rate of TIHC. For financial reporting purposes, dividends paid by TIHC to its financial investors have been recorded in the Company's Combined Statements of Income as "Minority interest." 11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Postretirement Benefits The Company's employees participate in Tenneco's postretirement health care and life insurance plans which cover the Company's employees who meet certain eligibility requirements. For salaried employees, the plans cover employees retiring from the Company on or after attaining age 55 who have had at least 10 years service with the Company after attaining age 45. For hourly employees, the postretirement benefit plans generally cover employees who retire pursuant to one of the Company's hourly employee retirement plans. All of these benefits may be subject to deductibles, co-payment provisions and other limitations, and Tenneco or the Company, as applicable, has reserved the right to change these benefits. Tenneco's postretirement benefit plans are not funded. Generally, the Company will retain liabilities with respect to welfare benefits of its current and former employees and their dependents in connection with the Distributions. The funded status of the postretirement benefit plans reconciles with amounts recognized in the balance sheet at December 31, 1995 and 1994, as follows:
(MILLIONS) 1995 1994 - ---------- ----- ----- Actuarial present value of accumulated postretirement benefit obligation at September 30: Retirees....................................................... $ 82 $ 76 Fully eligible active plan participants........................ 19 20 Other active plan participants................................. 33 27 ----- ----- Total accumulated postretirement benefit obligation.............. 134 123 Plan assets at fair value at September 30........................ -- -- ----- ----- Accumulated postretirement benefit obligation in excess of plan assets at September 30.......................................... (134) (123) Claims paid during the fourth quarter............................ 2 2 Unrecognized reduction of prior service obligations resulting from plan amendments............................................ (12) (13) Unrecognized net loss resulting from plan experience and changes in actuarial assumptions........................................ 30 22 ----- ----- Accrued postretirement benefit cost at December 31............... $(114) $(112) ===== =====
Note: The accrued postretirement benefit cost has been recorded based upon certain actuarial estimates as described below. Those estimates are subject to revision in future periods given new facts or circumstances. F-19 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The net periodic postretirement benefit cost from continuing operations for the years 1995, 1994 and 1993 consist of the following components:
(MILLIONS) 1995 1994 1993 - ---------- ---- ---- ---- Service cost for benefits earned during the year................. $ 3 $ 4 $ 3 Interest cost on accumulated postretirement benefit obligation... 10 10 9 Net amortization of unrecognized amounts......................... (1) (1) -- --- --- --- Net periodic postretirement benefit cost......................... $12 $13 $12 === === ===
The initial weighted average assumed health care cost trend rate used in determining the 1995, 1994 and 1993 accumulated postretirement benefit obligation was 7%, 8% and 9%, respectively, declining to 5% in 1997 and remaining at that level thereafter. Increasing the assumed health care cost trend rate by one percentage-point in each year would increase the 1995, 1994 and 1993 accumulated postretirement benefit obligations by approximately $12 million, $10 million and $12 million, respectively, and would increase the aggregate of the service cost and interest cost components of the net postretirement benefit cost for 1995, 1994 and 1993 by approximately $1 million, $1 million and $2 million, respectively. The discount rates (which are based on long-term market rates) used in determining the 1995, 1994 and 1993 accumulated postretirement benefit obligations were 7.75%, 8.25% and 7.50%, respectively. Postemployment Benefits The Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits," in the first quarter of 1994. This new accounting rule requires employers to account for postemployment benefits for former or inactive employees after employment but before retirement on the accrual basis rather than the "pay-as-you-go" basis. Implementation of this new rule reduced 1994 net income by $7 million, net of income tax benefits of $5 million, which was reported as the cumulative effect of a change in accounting principle. 12. PENSION PLANS The Company has various defined benefit plans which cover substantially all of its employees. Benefits are based on years of service and, for most salaried employees, on final average compensation. The Company's funding policies are to contribute to the plans amounts necessary to satisfy the funding requirements of federal laws and regulations. Plan assets consist of listed equity and fixed income securities. Certain employees of the Company participate in the Tenneco Inc. Retirement Plan (the "TRP"). Also, included in the table below are pension obligations and assets related to certain former employees of Tenneco which the Company will retain after the Distributions. The Company will become the sole sponsor of the TRP after the Distributions. The benefits accrued by Tenneco and Newport News employees in the TRP will be frozen as of the last day of the calendar month including the Distributions and the Company will amend the TRP to provide that all benefits accrued through that day by Tenneco and Newport News employees are fully vested and non-forfeitable. F-20 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The funded status of the plans reconcile with amounts on the Combined Balance Sheets at December 31, 1995 and 1994, as follows:
PLANS IN WHICH ASSETS PLANS IN WHICH EXCEED ACCUMULATED ACCUMULATED BENEFITS EXCEED ALL PLANS BENEFITS ASSETS (NOTE) -------------- ---------------- -------------- (MILLIONS) 1995 1994 1995 1994 1995 1994 - ---------- ------ ------ ------- ------- ------ ------ Actuarial present value of benefits based on service to date and present pay levels at September 30: Vested benefit obligation........... $1,793 $1,672 $ 35 $ 24 $1,828 $1,696 Non-vested benefit obligation........... 38 31 4 2 42 33 ------ ------ ------- ------- ------ ------ Accumulated benefit obligation........... $1,831 $1,703 $ 39 $ 26 $1,870 $1,729 Additional amounts related to projected salary increases....... 72 63 3 4 75 67 ------ ------ ------- ------- ------ ------ Total projected benefit obligation at September 30..................... $1,903 $1,766 $ 42 $ 30 $1,945 $1,796 Plan assets at fair value at September 30.. 2,233 1,968 8 9 2,241 1,977 ------ ------ ------- ------- ------ ------ Plan assets in excess of (less than) total projected benefit obligation at September 30..................... $ 330 $ 202 $ (34) $ (21) $ 296 $ 181 Contributions during the fourth quarter......... 4 14 -- -- 4 14 Unrecognized net loss resulting from plan experience and changes in actuarial assumptions............ 142 234 2 3 144 237 Unrecognized prior service obligations resulting from plan amendments............. 75 81 1 1 76 82 Remaining unrecognized net obligation (asset) at initial application. (80) (96) 1 1 (79) (95) Adjustment recorded to recognize minimum liability.............. -- -- (2) (2) (2) (2) ------ ------ ------- ------- ------ ------ Prepaid (accrued) pension cost at December 31............ $ 471 $ 435 $ (32) $ (18) $ 439 $ 417 ====== ====== ======= ======= ====== ======
Note: Assets of one plan may not be utilized to pay benefits of other plans. Additionally, the prepaid (accrued) pension cost has been recorded based upon certain actuarial estimates as described below. Those estimates are subject to revision in future periods given new facts or circumstances. Net periodic pension costs (income) from continuing operations for the years 1995, 1994 and 1993 consist of the following components:
(MILLIONS) 1995 1994 1993 - ---------- ----------- ----------- ----------- Service cost--benefits earned during the year................................... $ 23 $ 29 $ 20 Interest accrued on prior years projected benefit obligation........... 144 110 60 Expected return on plan assets-- Actual (return) loss.................. (387) 16 (151) Unrecognized excess (deficiency) of actual return over expected return... 188 (175) 53 ---- ---- ---- (199) (159) (98) Net amortization of unrecognized amounts................................ (3) 1 (7) ----- ----- ----- Net pension income...................... $ (35) $ (19) $ (25) ===== ===== =====
The weighted average discount rates (which are based on long-term market rates) used in determining the 1995, 1994 and 1993 actuarial present value of the benefit obligations were 7.8%, 8.3% and 7.5%, respectively. F-21 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The rate of increase in future compensation was 5.1%, 5.1% and 4.9% for 1995, 1994 and 1993, respectively. The weighted average expected long-term rate of return on plan assets was 10% for 1995, 1994 and 1993. 13. SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company is a global manufacturer with the following business segments: Tenneco Automotive Manufacture and sale of exhaust and ride control systems, for both the original equipment and replacement markets. Tenneco Packaging Manufacture and sale of packaging materials, cartons, containers and specialty packaging products for consumer and commercial markets. F-22 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The following tables summarize certain segment and geographic information of the Company's businesses (Note):
SEGMENT -------------------------- RECLASS. AND (MILLIONS) AUTOMOTIVE PACKAGING OTHER ELIMINATION COMBINED - ---------- ---------- --------- ----- ----------- -------- AT DECEMBER 31, 1995, AND FOR THE YEAR THEN ENDED Net sales and operating revenues..................... $2,479 $2,752 $ -- $(10) $5,221 ====== ====== ===== ==== ====== Operating profit.............. 248 440 44 -- 732 Equity in net income of affiliated companies......... 1 -- -- -- 1 General corporate expenses.... (9) (10) (42) -- (61) ------ ------ ----- ---- ------ Income before interest expense, income taxes and minority interest............ 240 430 2 -- 672 ====== ====== ===== ==== ====== Identifiable assets........... 1,874 3,405 925 (94) 6,110 Investment in affiliated companies.................... 3 4 -- -- 7 ------ ------ ----- ---- ------ Total assets................ 1,877 3,409 925 (94) 6,117 ====== ====== ===== ==== ====== Depreciation, depletion and amortization................. 84 110 2 -- 196 ====== ====== ===== ==== ====== Capital expenditures for continuing operations......... 208 316 38 -- 562 ====== ====== ===== ==== ====== AT DECEMBER 31, 1994, AND FOR THE YEAR THEN ENDED Net sales and operating revenues..................... $1,989 $2,184 $ -- $ (7) $4,166 ====== ====== ===== ==== ====== Operating profit.............. 231 217 35 -- 483 Equity in net income of affiliated companies......... -- -- -- -- -- General corporate expenses.... (8) (8) (11) -- (27) ------ ------ ----- ---- ------ Income before interest expense, income taxes and minority interest............ 223 209 24 -- 456 ====== ====== ===== ==== ====== Identifiable assets........... 1,472 1,537 1,082 (156) 3,935 Investment in affiliated companies.................... 2 3 -- -- 5 ------ ------ ----- ---- ------ Total assets................ 1,474 1,540 1,082 (156) 3,940 ====== ====== ===== ==== ====== Depreciation, depletion and amortization................. 51 89 2 -- 142 ====== ====== ===== ==== ====== Capital expenditures for continuing operations......... 113 166 1 -- 280 ====== ====== ===== ==== ====== AT DECEMBER 31, 1993, AND FOR THE YEAR THEN ENDED Net sales and operating revenues..................... $1,785 $2,042 $ -- $ (7) $3,820 ====== ====== ===== ==== ====== Operating profit.............. 230 146 24 -- 400 Equity in net income of affiliated companies......... -- 2 -- -- 2 General corporate expenses.... (8) (9) (4) -- (21) ------ ------ ----- ---- ------ Income before interest expense, income taxes and minority interest............ 222 139 20 -- 381 ====== ====== ===== ==== ====== Identifiable assets........... 987 1,433 576 (46) 2,950 Investment in affiliated companies.................... 4 6 -- -- 10 Identifiable assets related to discontinued operations...... 70 -- -- (1) 69 ------ ------ ----- ---- ------ Total assets................ 1,061 1,439 576 (47) 3,029 ====== ====== ===== ==== ====== Depreciation, depletion and amortization................. 52 83 2 -- 137 ====== ====== ===== ==== ====== Capital expenditures for continuing operations......... 93 124 -- -- 217 ====== ====== ===== ==== ======
Note: Included in "other" above is the operations of Tenneco Business Services ("TBS"). TBS designs, implements and administers shared administrative service programs for the Company as well as other Tenneco business entities. F-23 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHIC AREA(B) ------------------------------- RECLASS. UNITED EUROPEAN OTHER AND (MILLIONS) STATES CANADA UNION FOREIGN ELIMINATION COMBINED - ---------- ------ ------ -------- ------- ----------- -------- AT DECEMBER 31, 1995, AND FOR THE YEAR THEN ENDED Net sales and operating revenues: Sales to unaffiliated customers.............. $3,683 $149 $1,140 $249 $ -- $5,221 Transfers among geographic areas(a).... 75 43 27 21 (166) -- ------ ---- ------ ---- ---- ------ Total................. 3,758 192 1,167 270 (166) 5,221 ====== ==== ====== ==== ==== ====== Operating profit.......... 585 20 102 25 -- 732 Equity in net income (loss) of affiliated companies................ 1 -- 1 (1) -- 1 General corporate expenses................. (61) -- -- -- -- (61) ------ ---- ------ ---- ---- ------ Income before interest expense, income taxes and minority interest........ 525 20 103 24 -- 672 ====== ==== ====== ==== ==== ====== Identifiable assets....... 4,664 207 1,077 241 (79) 6,110 Investment in affiliated companies................ 3 -- 2 2 -- 7 ------ ---- ------ ---- ---- ------ Total assets.......... 4,667 207 1,079 243 (79) 6,117 ====== ==== ====== ==== ==== ====== AT DECEMBER 31, 1994, AND FOR THE YEAR THEN ENDED Net sales and operating revenues: Sales to unaffiliated customers.............. $3,143 $165 $ 624 $234 $ -- $4,166 Transfers among geographic areas(a).... 72 36 39 30 (177) -- ------ ---- ------ ---- ---- ------ Total................. 3,215 201 663 264 (177) 4,166 ====== ==== ====== ==== ==== ====== Operating profit.......... 376 31 47 29 -- 483 Equity in net income (loss) of affiliated companies................ 1 -- -- (1) -- -- General corporate expenses................. (27) -- -- -- -- (27) ------ ---- ------ ---- ---- ------ Income before interest expense, income taxes and minority interest........ 350 31 47 28 -- 456 ====== ==== ====== ==== ==== ====== Identifiable assets....... 2,729 141 1,149 17 (101) 3,935 Investment in affiliated companies................ 4 -- -- 1 -- 5 ------ ---- ------ ---- ---- ------ Total assets............ 2,733 141 1,149 18 (101) 3,940 ====== ==== ====== ==== ==== ======
See Notes on following page. F-24 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHIC AREA(B) ------------------------------- RECLASS. UNITED EUROPEAN OTHER AND (MILLIONS) STATES CANADA UNION FOREIGN ELIMINATION COMBINED - ---------- ------ ------ -------- ------- ----------- -------- AT DECEMBER 31, 1993, AND FOR THE YEAR THEN ENDED Net sales and operating revenues: Sales to unaffiliated customers.............. $2,875 $176 $569 $200 $ -- $3,820 Transfers among geo- graphic areas(a)....... 67 32 35 19 (153) -- ------ ---- ---- ---- ---- ------ Total................. 2,942 208 604 219 (153) 3,820 ====== ==== ==== ==== ==== ====== Operating profit.......... 293 28 56 23 -- 400 Equity in net income of affiliated companies..... 1 -- 1 -- -- 2 General corporate ex- penses................... (21) -- -- -- -- (21) ------ ---- ---- ---- ---- ------ Income before interest ex- pense, income taxes and minority interest........ 273 28 57 23 -- 381 ====== ==== ==== ==== ==== ====== Identifiable assets....... 2,154 111 583 139 (37) 2,950 Investment in affiliated companies................ 5 -- 2 3 -- 10 Identifiable assets re- lated to discontinued op- erations................. 54 15 1 -- (1) 69 ------ ---- ---- ---- ---- ------ Total assets.......... 2,213 126 586 142 (38) 3,029 ====== ==== ==== ==== ==== ======
Notes: (a) Products are transferred between geographic areas on a basis intended to reflect as nearly as possible the "market value" of the products. (b) As reflected above, the Company's segments principally market their products and services in the United States, with significant sales in the European Union and other foreign countries. The Company is engaged in the sale of products for export from the United States. Such sales are reflected in the table below:
(MILLIONS) GEOGRAPHIC AREA PRINCIPAL PRODUCTS 1995 1994 1993 --------------- ------------------------------------------ ---- ---- ---- Canada Paperboard products, molded and pressed $ 72 $ 75 $ 80 pulp goods, corrugated boxes, aluminum and plastics European Union Molded and pressed pulp goods, paperboard 23 21 22 products, corrugated boxes, aluminum and plastics Other Foreign Ride control systems, molded and pressed 69 49 45 pulp goods, paperboard products, corrugated boxes, aluminum and plastics ---- ---- ---- Total Export Sales $164 $145 $147 ==== ==== ====
14. COMMITMENTS AND CONTINGENCIES Capital Commitments The Company estimates that expenditures aggregating approximately $567 million will be required after December 31, 1995, to complete facilities and projects authorized at such date, and substantial commitments have been made in connection therewith. F-25 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Lease Commitments The Company holds certain of its facilities and equipment under long-term leases. The minimum rental commitments under non-cancelable operating leases with lease terms in excess of one year are $134 million, $126 million, $124 million, $113 million and $117 million for the years 1996, 1997, 1998, 1999 and 2000, respectively, and $866 million for subsequent years. Of these amounts, $81 million for 1996, $84 million for 1997, $93 million for 1998, $86 million for 1999, $92 million for 2000 and $689 million for subsequent years are lease payment commitments to GECC, John Hancock, Metropolitan Life and others (collectively, the "Lessors") for assets purchased by these companies from Georgia-Pacific in January 1991 and leased to Tenneco Packaging. The Company has the right to purchase from the Lessors the various leased assets under certain conditions as specified in the agreements. In the event the purchase options are not exercised, and that no event of default, as defined, exists at the renewal dates, the Company also has the right to extend the various lease terms on a basis set forth in the agreements. Throughout the lease terms, the Company is required to maintain the leased properties which includes reforestation of the timberlands harvested. Commitments under capital leases were not significant to the accompanying combined financial statements. Total rental expense for continuing operations for the years 1995, 1994 and 1993, was $171 million, $161 million and $131 million, respectively, including minimum rentals under non-cancelable operating leases of $148 million, $143 million and $138 million for the corresponding periods. Tenneco Packaging's various lease agreements require that it comply with certain covenants and restrictions, including financial ratios that, among other things, place limitations on incurring additional "funded debt" as defined by the agreements. Under the provisions of the lease agreements, in order to incur funded debt, Tenneco Packaging must maintain a pretax cash flow coverage ratio, as defined, on a cumulative four quarter basis of a minimum of 2.0, subsequently modified to 1.25 through December 31, 1995. Tenneco Packaging was in compliance with all of its covenants at December 31, 1995. Litigation The legal entities which comprise the Company are parties to various legal proceedings arising from their operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will have no material effect on the financial position or results of operations of the Company. Environmental Matters The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The potential costs related to the Company for various environmental matters are uncertain due to such factors as the unknown magnitude of possible cleanup costs, the complexity and evolving nature of governmental laws and regulations and their interpretations, and the timing, varying costs and effectiveness of alternative cleanup technologies. Liabilities recorded by the Company for environmental contingencies are estimates of probable costs based upon available information and assumptions. Because of these uncertainties, however, the Company's estimates may change. The Company believes that any additional costs identified as further information becomes available would not have a material effect on the financial position or results of operations of the Company. F-26 THE BUSINESSES OF NEW TENNECO NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
CUMULATIVE INCOME BEFORE EFFECT OF INTEREST LOSS FROM CHANGE IN NET SALES EXPENSE, INCOME DISCONTINUED ACCOUNTING AND INCOME TAXES FROM OPERATIONS PRINCIPLE, QUARTER OPERATING AND MINORITY CONTINUING NET OF NET OF NET (MILLIONS) REVENUES INTEREST OPERATIONS INCOME TAX INCOMETAX INCOME - ---------- --------- ------------- ---------- ------------ ---------- ------ 1996 1st................ $1,539 $161 $ 60 $ -- $-- $ 60 2nd................... 1,694 253 118 -- -- 118 ------ ---- ---- ---- --- ---- $3,233 $414 $178 $ -- $-- $178 ====== ==== ==== ==== === ==== 1995 1st................ $1,237 $177 $ 76 $ -- $-- $ 76 2nd................... 1,340 201 92 -- -- 92 3rd................... 1,263 173 73 -- -- 73 4th................... 1,381 121 17 -- -- 17 ------ ---- ---- ---- --- ---- $5,221 $672 $258 $ -- $-- $258 ====== ==== ==== ==== === ==== 1994 1st................ $ 954 $ 78 $ 51 $ (2) $(7) $ 42 2nd................... 1,071 125 45 (23) -- 22 3rd................... 1,071 149 117 -- -- 117 4th................... 1,070 104 25 (6) -- 19 ------ ---- ---- ---- --- ---- $4,166 $456 $238 $(31) $(7) $200 ====== ==== ==== ==== === ====
Notes: Reference is made to Notes 3, 4 and 6 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for items affecting quarterly results. The preceding notes are an integral part of the foregoing financial statements. F-27 REPORT OF INDEPENDENT AUDITORS Board of Directors Mobil Oil Corporation We have audited the accompanying combined statement of net assets of the Mobil Plastics Division of Mobil Oil Corporation (the "Division") as of November 17, 1995 and December 28, 1994 and the related combined statements of operations before income taxes, changes in net assets and cash flows for the period December 29, 1994 to November 17, 1995 and the year ended December 28, 1994. These financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, the accompanying financial statements were prepared to present the net assets and operations before income taxes of the Division, which does not have a separate legal status or existence, and are not intended to be a complete presentation of the assets and liabilities or the results of operations of Mobil Oil Corporation. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined net assets of the Division at November 17, 1995 and December 28, 1994 and the combined results of its operations before income taxes and its cash flows before income taxes for the period December 29, 1994 to November 17, 1995 and the year ended December 28, 1994 in conformity with generally accepted accounting principles. Ernst & Young LLP Buffalo, New York August 9, 1996 F-28 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION COMBINED STATEMENT OF NET ASSETS (IN THOUSANDS)
NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ Current assets: Accounts receivable--net............................ $114,219 $102,930 Inventories......................................... 92,492 73,785 Prepaid expenses and other current assets........... 1,232 552 -------- -------- Total current assets.................................. 207,943 177,267 Properties, plants and equipment--net................. 330,269 306,078 Assets held for sale.................................. 4,263 9,160 -------- -------- Total assets.......................................... 542,475 492,505 Current liabilities: Accounts payable.................................... 53,788 53,503 Accrued restructuring charges....................... 5,575 28,837 Accrued expenses--other............................. 57,860 81,571 -------- -------- Total current liabilities............................. 117,223 163,911 -------- -------- Net assets............................................ $425,252 $328,594 ======== ========
See notes to combined financial statements. F-29 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION COMBINED STATEMENT OF OPERATIONS BEFORE INCOME TAXES (IN THOUSANDS)
FOR THE PERIOD FOR THE DECEMBER 29, 1994 YEAR ENDED TO DECEMBER 28, NOVEMBER 17, 1995 1994 ----------------- ------------ Net sales....................................... $994,686 $1,035,884 Other operating revenue......................... 1,028 1,050 -------- ---------- 995,714 1,036,934 Operating expenses: Cost of goods sold............................ 625,330 665,150 Selling, distribution, general and administrative............................... 259,323 281,544 Research and development...................... 7,879 8,612 Restructuring and other charges............... 9,267 77,716 -------- ---------- 901,799 1,033,022 -------- ---------- Operating income................................ 93,915 3,912 Other income.................................... 6,000 695 -------- ---------- Income before income taxes...................... $ 99,915 $ 4,607 ======== ==========
See notes to combined financial statements. F-30 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION COMBINED STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS) Excess of combined assets over liabilities at December 29, 1993...... $ 432,150 Income before income taxes........................................... 4,607 Net change in foreign currency translation adjustment................ (239) Net change in parent company advances................................ (107,924) --------- Excess of combined assets over liabilities at December 28, 1994...... 328,594 Income before income taxes........................................... 99,915 Net change in foreign currency transaction adjustment................ (179) Net change in parent company advances................................ (3,078) --------- Excess of combined assets over liabilities at November 17, 1995...... $ 425,252 =========
See notes to combined financial statements. F-31 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION COMBINED STATEMENT OF CASH FLOWS (IN THOUSANDS)
PERIOD ENDED YEAR ENDED NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ OPERATING ACTIVITIES Income before income taxes........................... $99,915 $ 4,607 Adjustments to reconcile income before income taxes to net cash flows provided by operating activities: Depreciation....................................... 34,538 42,184 Write down of properties, plants, equipment and inventory as a result of restructuring program.... 4,842 34,386 Gain (loss) on disposal of machinery and equipment. (20) 3,005 Changes in operating assets and liabilities: Accounts receivable--net......................... (11,289) (11,605) Inventories...................................... (18,707) 52,431 Prepaid expenses and other current assets........ (680) 5,056 Accounts payable and accrued expenses............ (23,426) 9,749 Accrued restructuring charges.................... (23,262) 28,837 Other............................................ 197 462 ------- -------- Cash provided by operating activities................ 62,108 169,112 INVESTING ACTIVITIES Capital expenditures................................. (63,858) (63,031) Proceeds from sale of machinery and equipment........ 4,828 1,843 ------- -------- Cash used in investing activities.................... (59,030) (61,188) FINANCING ACTIVITIES Change in parent company investment.................. (3,078) (107,924) ------- -------- Cash used in financing activities.................... (3,078) (107,924) ------- -------- Net change in cash and cash equivalents.............. -- -- Cash and cash equivalents: Beginning of period................................ -- -- ------- -------- End of period...................................... $ -- $ -- ======= ========
See notes to combined financial statements. F-32 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying combined financial statements present, on a historical cost basis, the combined assets, liabilities, revenue and expense related to the Mobil Plastics Division of Mobil Oil Corporation ("The Division" or the "Plastics Division") as of November 17, 1995 and December 28, 1994. These statements are presented as if the Division had existed as a separate entity during the periods presented. Transactions between the businesses included in these statements have been eliminated. On November 17, 1995, substantially all of the assets and liabilities of the Division were purchased by Tenneco Inc. pursuant to the Asset Purchase Agreement dated October 1, 1995 among Mobil Oil Corporation, Mobil Chemical Canada, Ltd. and Tenneco Inc. (the "agreement"). In accordance with the agreement, certain assets and liabilities of the Division were retained by Mobil Oil Corporation; however, with the exception of income taxes, these assets and liabilites are included in the accompanying combined financial statements. The combined financial statements include the financial position and results of operations of the Plastics Packaging and Consumer Products business groups, which, prior to the sale to Tenneco Inc., were 100% owned by Mobil Corporation ("Mobil") through the legal entity, Mobil Oil Corporation ("Mobil Oil"). These business groups have been organized as part of a division of Mobil Chemical Company ("Mobil Chemical"), which is an operating entity of Mobil Oil. The Division incurs certain common costs which relate to both the Division and other Mobil Chemical operations, and management has made allocations of these costs to the Division. Also, in order to prepare these combined financial statements, management has made certain allocations of liabilities to the Division. Management of Mobil Chemical believes such allocations are reasonable; however, the amounts could differ from amounts that would be determined if the Division were operated on a stand-alone basis. Net assets reflect Mobil's historical cost basis investment in the Division, accumulated earnings and losses of the Division, cumulative exchange translation adjustments and intercompany activity with Mobil and other affiliates which are not settled on a current basis. Income taxes have been excluded from the accompanying combined financial statements as the responsibility for such taxes is being retained by Mobil Oil. 2. SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents All cash and cash equivalents are transferred to Mobil Oil Corporation through the intercompany account on a current basis and, with the exception of petty cash, are excluded from assets on the accompanying combined statements of net assets. The Division is part of a centralized cash management system of Mobil Oil, whereby all cash disbursements of the Division are funded by, and all cash receipts are transferred to, Mobil Oil. Inventories Inventories are stated at cost, but not in excess of market. The cost of substantially all product inventories is determined by the last-in, first-out (LIFO) method. The cost of maintenance and supplies inventories is determined by the first-in, first-out method. Properties, Plants and Equipment Properties, plants and equipment are stated at cost. Depreciation is computed principally using the straight-line and various accelerated methods over the estimated useful lives of the assets which range from 3 years to 11 F-33 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) years for machinery and equipment, and 25 years to 32 years for land improvements and buildings. Expenditures for renewals and improvements that extend the useful life of an asset are capitalized. Expenditures for routine repairs and maintenance are charged to operations when incurred. Property items retired or otherwise disposed of are removed from the property and related accumulated depreciation accounts. Any profit or loss is included in operations. Foreign Currency Translation Financial statements for the Canadian operations are translated into U.S. dollars at period-end exchange rates as to assets and liabilities and weighted average exchange rates as to revenues and expenses. The resulting translation adjustments are recorded as part of net assets. Use of Estimates The financial statements, which are prepared in conformity with generally accepted accounting principles, include amounts that are based, in part, on management's best estimates and judgments. Revenue Recognition The Division recognizes revenue at the point of passage of title, which is at the time of shipment to the customer. Promotional Programs The Division accrues for the costs of promotional programs, including cents- off coupons and other trade related programs, at the time the program is made available to customers. Any adjustments between the original estimate and ultimate costs are recorded as a change in estimate in the period known. This change in estimate in 1995 resulted in a reduction of expense of approximately $9 million. Environmental Liabilities The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and the amount of remediation costs can be reasonably estimated. These amounts are the undiscounted future estimated costs under existing regulatory requirements and using existing technology. Allocation of Expenses The Division shares certain services with other related business groups at the Divisional level. Services are also performed by Mobil Chemical, Mobil Oil and Mobil Corporation. These services are allocated to the Plastics Division primarily on the basis of estimated usage of services. A summary of the services and the amounts allocated to the Division are described in Note 10. 3. OPERATING ACTIVITIES The Division is comprised of two primary business groups, Plastics Packaging and Consumer Products. Plastics Packaging serves food service, supermarkets and industrial segments while Consumer Products serves the packaged goods segment of the retail industry. The Division's products include waste bags, tableware, food bags, food service disposables, meat trays, clear containers, grocery sacks and stretch film. The Division operates ten manufacturing facilities in the United States and one in Canada. These facilities consist of six polyethylene and five polystyrene fabricating plants. The Division primarily markets its products to customers in North America. There are no further geographic concentrations of customers, and, generally, collateral is not required. F-34 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 4. ACCOUNTS RECEIVABLE Accounts receivable consists of the following:
NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ (THOUSANDS) Accounts receivable--trade............................ $112,239 $101,911 Other receivables..................................... 3,067 2,108 Less: Allowance for doubtful accounts................. (1,087) (1,089) -------- -------- $114,219 $102,930 ======== ========
5. INVENTORIES Major classes of inventories are as follows:
NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ (THOUSANDS) Raw material.......................................... $ 25,068 $24,443 In-process............................................ 12,740 10,637 Finished product...................................... 84,752 63,866 -------- ------- Product inventory at current cost..................... 122,560 98,946 Less: LIFO and other product inventory reserves....... (43,895) (44,893) -------- ------- 78,665 54,053 Other material and supplies........................... 6,427 6,274 Maintenance........................................... 7,400 13,458 -------- ------- $ 92,492 $73,785 ======== =======
As a result of the decrease in the level of inventories in 1994, a LIFO layer liquidation occurred. The impact of the liquidation was approximately a $7,340 thousand decrease to cost of goods sold for the year ended December 28, 1994. The reduction to cost of goods sold consists of a decrease of $8,640 thousand for the Consumer Products business group which is offset by an increase of $1,300 thousand for the Plastics Packaging business group. 6. PROPERTIES, PLANTS AND EQUIPMENT Major classes of properties, plants and equipment are as follows:
NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ (THOUSANDS) Land and land improvements............................ $ 17,185 $ 17,092 Buildings............................................. 112,218 111,262 Machinery, equipment, furniture and fixtures.......... 591,343 561,596 Construction in progress.............................. 50,642 31,580 --------- --------- Properties, plants and equipment--gross............... 771,388 721,530 Less accumulated depreciation......................... (441,119) (415,452) --------- --------- Properties, plants and equipment--net................. $ 330,269 $ 306,078 ========= =========
F-35 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 7. ASSETS HELD FOR SALE As part of the Division's reengineering program, as described in Note 15, the Division closed two manufacturing plants and eliminated unprofitable product lines which resulted in either the sale or disposal of the related machinery and equipment. The restructuring charge recorded in 1995 and 1994 includes $4,713 thousand and $28,581 thousand to write-down the two plants, machinery and equipment to their estimated realizable value. These items had an original cost of approximately $108,700 thousand and accumulated depreciation of approximately $66,000 thousand prior to the restructuring charge. The Washington, New Jersey plant was closed in September 1994, and the Woodland, California plant was closed in March 1995. The items that have not been sold or disposed of are included as assets held for sale in the accompanying combined statement of net assets at management's estimate of the realizable value. 8. ACCRUED EXPENSES--OTHER Accrued expenses--other consists of the following:
NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ (THOUSANDS) Promotional programs.................................. $28,861 $42,139 Vacation.............................................. 6,752 7,993 Quantity discounts.................................... 5,791 7,150 Freight............................................... 4,847 6,965 Sales force and other bonuses......................... 2,624 2,331 Benefits.............................................. 2,310 3,442 Commissions........................................... 1,421 1,671 Relocation costs...................................... 1,152 873 Sales and use tax..................................... 1,042 674 Workers compensation insurance........................ 965 2,230 Insurance programs.................................... 769 773 Advertising........................................... 446 1,219 Property taxes........................................ 221 904 Salaries.............................................. -- 2,067 Other accrued expenses................................ 659 1,140 ------- ------- $57,860 $81,571 ======= =======
9 FOREIGN CURRENCY TRANSLATION The cumulative currency translation adjustment included in net assets consists of the following unrealized gain (loss):
(THOUSANDS) ----------- Balance at December 29, 1993........................................ $ (770) Exchange adjustments.............................................. (239) ------- Balance at December 28, 1994........................................ (1,009) Exchange adjustments.............................................. (179) ------- Balance at November 17, 1995........................................ $(1,188) =======
F-36 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 10. RELATED PARTY TRANSACTIONS Mobil Chemical Company, Mobil Oil Corporation, and Mobil Corporation have provided the Plastics Division with various administrative and financial services. Mobil Chemical Company services include computer systems, accounting, legal and purchasing functions. Mobil Oil Corporation and Mobil Corporation services include computer mainframe and networking charges, payroll and employee benefits administration, health, safety and environmental compliance programs, and plastics industry trade dues. It is Mobil's policy to allocate centrally incurred costs primarily on the basis of usage or on estimated time spent. Management believes these allocations and charges have been made on a reasonable basis; however, they are not necessarily indicative of the level of expenses which might have been incurred had the Division been operating as a stand-alone entity. Charges allocated to the Division from the above-mentioned sources amounted to approximately $21,110 thousand and $24,980 thousand for the period December 29, 1994 to November 17, 1995 and the year ended December 28, 1994, respectively. In addition to the above charges, the Division is allocated a surcharge based on payroll for various employee benefits, including those mandated by statute. For U.S. operations these charges amounted to $36,606 thousand and $46,591 thousand, and for Canadian operations these charges amounted to $502 thousand and $610 thousand for the periods ended November 17, 1995 and December 28, 1994, respectively. In addition, workers' compensation costs were allocated to the Division from Mobil Oil based on payroll, state mandated rates, and experience ratings. Workers' compensation costs allocated to the Division for the periods ended November 17, 1995 and December 28, 1994, amounted to approximately $4,811 thousand and $7,300 thousand, respectively. The Division obtains general liability and fire and extended property insurance coverage from a wholly-owned subsidiary of Mobil Corporation. The Division is self-insured up to deductible limits; these limits for fire and extended property insurance were increased effective January 1, 1995. Insurance premiums charged to the Division were approximately $382 thousand and $801 thousand for the periods ended November 17, 1995 and December 28, 1994, respectively. The Division purchased approximately 7% and 10% of its polyethylene resin raw material from Mobil affiliates during the period ended November 17, 1995 and the year ended December 28, 1994, respectively. These purchases, which were made at market rates, amounted to approximately $12,240 thousand and $16,600 thousand for the periods ended November 17, 1995 and December 28, 1994, respectively. 11. DEFINED BENEFIT RETIREMENT PLANS The majority of the Division's U.S. employees are covered by funded noncontributory pension plans sponsored by Mobil Oil. These plans are primarily final average pay plans. Funding for these plans, at the Corporate level, is based on the projected unit credit actuarial cost method. The assets of these plans consist primarily of equity and fixed income securities. The Division receives an intercompany allocation of pension costs from Mobil or its subsidiaries. The net pension obligation is maintained on Mobil's books and no amount has been included in the accompanying combined statement of net assets for the Division's share of the obligation. Net pension costs allocated by Mobil Oil to the Plastics Division approximated a credit of $983 thousand for the period December 29, 1994 to November 17, 1995 and a charge of $4,619 thousand for the year ended December 28, 1994. Amounts allocated are principally determined based on payroll. These credits and charges are included in the payroll surcharge amount disclosed in Note 10. F-37 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 11. DEFINED BENEFIT RETIREMENT PLANS--(CONTINUED) The Division also provides retirement benefits for its Canadian employees under pension plans sponsored by a Canadian subsidiary of Mobil Corporation. Net pension costs allocated to the Plastics Division amounted to approximately $99 thousand and $170 thousand for the periods ended November 17, 1995 and December 28, 1994, respectively. These charges are included in the payroll surcharge amount disclosed in Note 10. In accordance with certain reporting requirements, actuarial valuations for the defined benefit retirement plans are performed on an annual basis. Mobil Oil performed actuarial valuations as of December 31, 1995 and 1994. The primary assumptions used for the U.S. and Canadian plans actuarial valuations are as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 28, 1995 1994 ------------ ------------ Percent Discount rate......................................... 7.0--7.3 7.5--8.5 Rate of salary increase............................... 4.0--5.3 4.0--5.6 Expected return on plan assets........................ 8.7--9.0 8.2--8.5
12. OTHER POSTRETIREMENT BENEFITS The Division, through Mobil Oil, provides certain health care and life insurance benefits for U.S. retired employees who meet eligibility requirements. The cost of these benefits is allocated to the Division by Mobil Oil. The net obligation for these benefits is maintained by Mobil Oil and no amount has been recorded in the accompanying combined statement of net assets for the Division's share of the obligation. Premium costs are shared on a plan-by-plan basis between Mobil Oil and the participants. Postretirement health care benefits are provided both before and after eligibility for Medicare. The life insurance plans provide for a single lump-sum payment to a designated beneficiary. Charges for postretirement health care and life insurance plans allocated to the Division by Mobil Oil were $951 thousand and $3,460 thousand for the period December 28, 1994 to November 17, 1995 and the year ended December 28, 1994, respectively. Amounts allocated are principally determined based on the Division's payroll and the number of employees. These charges are included in the payroll surcharge amount disclosed in Note 10. In accordance with certain reporting requirements, actuarial valuations for postretirement health care and life insurance plans are performed on an annual basis. Mobil Oil performed actuarial valuations as of December 31, 1995 and 1994. The accumulated postretirement benefit obligation is based on a weighted- average assumed discount rate of 7% and 8.5% as of December 31, 1995 and 1994, respectively. At December 31, 1995, the health care cost trend used to calculate the accumulated postretirement benefit obligation is 9.7% for 1996, and is assumed to decrease generally over 9 years to 5.5%. At December 31, 1994, the health care cost trend rate was assumed to be 10.3% for 1995, declining to 5.5% after 10 years. The effect of a one percentage point increase in the assumed health care cost trend rate for each year would increase the Division's postretirement benefit charge by approximately 15%. Mobil Corporation's policy is to make contributions to funded plans and provide book reserves for unfunded plans. The Division does not provide postretirement benefits for its Canadian employees because they are covered primarily by local government programs. F-38 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 13. EMPLOYEE SAVINGS PLAN The Division, through Mobil Oil, sponsors an Employee Savings Plan, which covers most U.S. employees. The Plan includes a savings plan, which consists primarily of an employee stock ownership plan (ESOP) and a 401(k) plan. The ESOP consists of contributions made by Mobil Oil of 4% of eligible employees' annual base salary. The 401(k) plan consists of Mobil Oil's contribution of 2% of eligible employees' annual base salary and employee contributions of 1% to 10% of their base salary subject to IRS limitations. Mobil Oil contributions to the ESOP are invested in Mobil ESOP Convertible Preferred Stock. Employee contributions to the savings plan are invested at the employees' discretion in Mobil Corporation common stock or a variety of mutual funds. The Division was charged approximately $4,348 thousand and $6,506 thousand for the period December 29, 1994 to November 17, 1995 and the year ended December 28, 1994, respectively, for their allocated costs of these plans. These charges are included in the payroll surcharge amount disclosed in Note 10. The Division also sponsors, through a Canadian subsidiary of Mobil Corporation, an Employee Savings Plan for its Canadian employees. For salaried employees the plan consists of a 3-5% contribution by Mobil (depending on years of service). This contribution is made only if an employee also contributes a minimum of 5%. An employee may contribute up to 25% of their salary. For non-salaried workers the employee has a choice of 2% of additional wages, or a 2% contribution to the Savings Plan. All contributions are invested at the employees' discretion in Mobil Corporation common stock or a variety of mutual funds. Employee Savings Plan contributions allocated to the Division amounted to approximately $65 thousand and $73 thousand for the periods ended November 17, 1995 and December 28, 1994, respectively. These charges are included in the payroll surcharge amount disclosed in Note 10. 14. LEASE COMMITMENTS AND RENTALS The Division rents certain property and equipment under various operating leases. Total rental expense for the period December 29, 1994 to November 17, 1995 and the year ended December 28, 1994, amounted to approximately $3,518 thousand and $8,169 thousand, respectively. Future minimum lease payments under all non-cancelable operating leases having a remaining term in excess of one year are as follows for the next five calendar years:
(THOUSANDS) ----------- 1996................................................................ $2,098 1997................................................................ 1,415 1998................................................................ 930 1999................................................................ -- 2000................................................................ --
15. RESTRUCTURING CHARGE During 1994, the Division implemented a major reengineering program intent on reducing the Division's cost structure through a comprehensive redesign of operating practices and major business processes. The program included the closing of two manufacturing plants, equipment consolidation, elimination of unprofitable product lines, closure of outside warehouses, and manpower reductions made possible by improved processes and consolidating accounting and other administrative functions. As a result of the reengineering program, the Division's headcount was reduced by approximately 25% or 1,200 positions. Included in operating results is a charge of $7,267 and $74,809 thousand relating to the cost of this program for the period December 29, 1994 to November 17, 1995 and for the year ended December 28, 1994, respectively. F-39 MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 15. RESTRUCTURING CHARGE--(CONTINUED) The restructuring charge consists of the following:
NOVEMBER 17, DECEMBER 28, 1995 1994 ------------ ------------ (THOUSANDS) Employee severance packages......................... $1,102 $37,375 Write-down of equipment and inventory and related costs of discontinued product lines................ 3,896 27,190 Charges to record closed manufacturing facilities at estimated realizable value and related closure and selling costs...................................... 946 9,113 Other............................................... 1,323 1,131 ------ ------- $7,267 $74,809 ====== =======
The Division's combined statements of net assets includes accruals for restructuring of $5,575 thousand and $28,837 thousand at November 17, 1995 and December 28, 1994, respectively. These accruals consist primarily of employee severance packages which are paid on an ongoing basis; it is anticipated that payments relating to this program will be completed in 1996. The Division also incurred consulting charges relating to the restructuring program of $2,000 thousand and $2,907 thousand for the period December 29, 1994 to November 17, 1995 and the year ended December 28, 1994, respectively. 16. CONTINGENCIES Environmental Matters The Division is subject to loss contingencies pursuant to various federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical or other substances by the Division or by other parties. The Division is not aware of any significant environmental obligations and accordingly has not made any provisions for such obligations related to its current operating facilities. The Division may, in the future, be involved in environmental assessments or clean-ups. While the ultimate requirement for any such remediation, and its cost, is presently not known, the management of the Division does not expect these costs, based upon currently known information and existing requirements, to have a material adverse effect on its net assets and future operating results. 17. PATENT INFRINGEMENT SETTLEMENT In March 1995 the Division received a $6,000 thousand settlement relating to a patent infringement suit. This amount is recorded as other income during the period ended November 17, 1995. F-40 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. New Tenneco Inc. /s/ Dana G. Mead By:__________________________________ Dana G. Mead Chairman Dated October 30, 1996 SCHEDULE II THE BUSINESSES OF NEW TENNECO SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (MILLIONS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------ ADDITIONS --------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR - ------------------------------------------------------------------------------ Allowance for Doubtful Accounts Deducted from Assets to Which it Applies: Year Ended December 31, 1995.................. $15 $20 $-- $11 $24 === === === === === Year Ended December 31, 1994.................. $15 $ 5 $-- $ 5 $15 === === === === === Year Ended December 31, 1993.................. $17 $10 $-- $12 $15 === === === === ===
S-1 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 Form of Distribution Agreement by and among Tenneco Inc., New Tenneco Inc., and Newport News Shipbuilding Inc. 3.1 Certificate of Incorporation of New Tenneco Inc. as currently in effect. 3.2 Form of Restated Certificate of Incorporation to be adopted prior to the Distribution Date. 3.3 By-laws of New Tenneco Inc. as currently in effect. 3.4 Form of Amended and Restated By-laws to be adopted prior to the Distribution Date. 4.1 Form of Specimen Stock Certificate of Company Common Stock. 4.2 Form of Rights Agreement by and between New Tenneco Inc. and First Chicago Trust Company of New York, as Rights Agent. 4.3 Form of Indenture between New Tenneco Inc. and The Chase Manhattan Bank, as trustee. 10.1 Form of Debt and Cash Allocation Agreement by and among Tenneco Inc., New Tenneco Inc., and Newport News Shipbuilding Inc. 10.2 Form of Benefits Agreement by and among Tenneco Inc., New Tenneco Inc., and Newport News Shipbuilding Inc. 10.3 Form of Insurance Agreement by and among Tenneco Inc., New Tenneco Inc., and Newport News Shipbuilding Inc. 10.4 Form of Tax Sharing Agreement by and among Tenneco Inc., Newport News Shipbuilding Inc., New Tenneco Inc., and El Paso Natural Gas Company. 10.6 Form of Shipbuilding Trademark Transition License Agreement by and between Newport News Shipbuilding Inc. and New Tenneco Inc. 10.7 Form of Tenneco Trademark Transition License Agreement by and between New Tenneco Inc. and Tenneco Inc. 10.8 Form of Amended and Restated Tenneco Inc. Board of Directors Deferred Compensation Plan, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.9 Form of Amended and Restated Tenneco Inc. Executive Incentive Compensation Plan, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.10 Form of Tenneco Inc. Deferred Compensation Plan, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.11 Form of Tenneco Inc. 1996 Deferred Compensation Plan, to be assumed by New Tenneco, Inc. as of the Distribution Date. 10.12 Form of Amended and Restated Tenneco Inc. Supplemental Executive Retirement Plan, to be assumed by New Tenneco, Inc. as of the Distribution Date. 10.13 Form of Amended and Restated Tenneco Inc. Benefit Equalization Plan, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.14 Form of Amended and Restated Tenneco Inc. Outside Directors Retirement Plan, to be assumed by New Tenneco Inc. as of the Distribution Date.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.15 Form of Amended and Restated Supplemental Pension Agreement, between Dana G. Mead and Tenneco Inc., to be assumed by New Tenneco Inc. as of the Distribution Date. 10.16 Form of Amended and Restated Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.17 Form of Amended and Restated Tenneco Benefits Protection Trust, to be assumed by New Tenneco as of the Distribution Date. 10.18 Form of Employment Agreement between Stacy S. Dick and New Tenneco Inc. 10.19 Form of Employment Agreement between Dana G. Mead and New Tenneco Inc. 10.20 Form of Employment Agreement between Paul T. Stecko and Tenneco Packaging Inc. 10.21 Form of Agreement between Theodore R. Tetzlaff and New Tenneco Inc. 10.22 Form of Tenneco Inc. Directors Restricted Stock Program, effective as of the Distribution Date, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.23 Form of Tenneco Inc. Directors Restricted Stock and Restricted Unit Program, effective as of the Distribution Date, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.24 Form of 1996 Tenneco Inc. Stock Ownership Plan, to be assumed by New Tenneco Inc. as of the Distribution Date. 10.25 Lease Agreement, Tomahawk, dated as of January 30, 1991, between The Connecticut National Bank, as Owner Trustee, and Packaging Corporation of America. 10.26 Lease Agreement, Valdosta, dated as of January 30, 1991 between The Connecticut National Bank, Philip G. Kane, Jr., Frank McDonald, Jr., and William R. Monroe, as Owner Trustee, and Packaging Corporation of America. 10.27 Timberland Lease, dated January 31, 1991, by and between Four States Timber Venture and Packaging Corporation of America. 12 Statement re computation of ratio of earnings to fixed charges. 21 Subsidiaries of New Tenneco Inc. 27(a) Financial data schedule--As of December 31, 1995 27(b) Financial data schedule--As of June 30, 1996
Each exhibit identified on this Exhibit List is filed as part of this Registration Statement. EX-2 2 FORM OF DISTRIBUTION AGREEMENT EXHIBIT 2 DISTRIBUTION AGREEMENT AMONG TENNECO INC., NEW TENNECO INC. AND NEWPORT NEWS SHIPBUILDING INC. (FORMERLY KNOWN AS TENNECO INTERAMERICA INC.) DATED AS OF , 1996 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS.................................................. 1 SECTION 1.01. General........................................ 1 SECTION 1.02. References..................................... 12 ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS............. 13 SECTION 2.01. Corporate Restructuring Transactions........... 13 SECTION 2.02. Pre-Distribution Stock Dividends to Tenneco.... 13 SECTION 2.03. Charters and Bylaws............................ 13 SECTION 2.04. Election of Directors of Industrial Company and Shipbuilding Company............................. 13 SECTION 2.05. Transfer and Assignment of Certain Licenses and Permits.......................................... 14 SECTION 2.06. Transfer and Assignment of Certain Agreements.. 14 SECTION 2.07. Consents....................................... 15 SECTION 2.08. Other Transactions............................. 15 SECTION 2.09. Election of Officers........................... 15 SECTION 2.10. Registration Statements........................ 16 SECTION 2.11. State Securities Laws.......................... 16 SECTION 2.12. Listing Application............................ 16 SECTION 2.13. Certain Financial and Other Arrangements....... 16 SECTION 2.14. Director, Officer and Employee Resignations.... 17 SECTION 2.15. Transfers Not Effected Prior to the Distributions; Transfers Deemed Effective as of the Distribution Date............................ 17 SECTION 2.16. Ancillary Agreements........................... 18 ARTICLE III THE DISTRIBUTIONS............................................ 18 SECTION 3.01. Tenneco Action Prior to the Distributions...... 18 SECTION 3.02. The Distributions.............................. 19 SECTION 3.03. Fractional Shares.............................. 19 ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS.............................. 20 SECTION 4.01. Conditions Precedent to the Distributions...... 20 SECTION 4.02. No Constraint.................................. 21 SECTION 4.03. Deferral of Distribution Date.................. 21 SECTION 4.04. Public Notice of Deferred Distribution Date.... 21 ARTICLE V COVENANTS.................................................... 22 SECTION 5.01. Further Assurances............................. 22 SECTION 5.02. Tenneco Name................................... 22 SECTION 5.03. Supplies and Documents......................... 22 SECTION 5.04. Assumption and Satisfaction of Liabilities..... 23 SECTION 5.05. No Representations or Warranties; Consents..... 23 SECTION 5.06. Removal of Certain Guarantees.................. 24 SECTION 5.07. Public Announcements........................... 24 SECTION 5.08. Intercompany Agreements........................ 25 SECTION 5.09. Tax Matters.................................... 25 ARTICLE VI ACCESS TO INFORMATION........................................ 25 SECTION 6.01. Provision, Transfer and Delivery of Applicable Corporate Records........................................... 25 SECTION 6.02. Access to Information.......................... 26 SECTION 6.03. Reimbursement; Other Matters................... 26 SECTION 6.04. Confidentiality................................ 26 SECTION 6.05. Witness Services............................... 27 SECTION 6.06. Retention of Records........................... 27 SECTION 6.07. Privileged Matters............................. 27
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PAGE ---- ARTICLE VII INDEMNIFICATION............................................ 28 SECTION 7.01. Indemnification by Tenneco................... 28 SECTION 7.02. Indemnification by Industrial Company........ 28 SECTION 7.03. Indemnification by Shipbuilding Company...... 28 SECTION 7.04. Limitations on Indemnification Obligations... 29 SECTION 7.05. Procedures for Indemnification............... 30 SECTION 7.06. Indemnification Payments..................... 31 SECTION 7.07. Other Adjustments............................ 31 SECTION 7.08. Obligations Absolute......................... 32 SECTION 7.09. Survival of Indemnities...................... 32 SECTION 7.10. Remedies Cumulative.......................... 32 SECTION 7.11. Cooperation of the Parties With Respect to Actions and Third Party Claims................. 32 SECTION 7.12. Contribution................................. 33 ARTICLE VIII MISCELLANEOUS.............................................. 33 SECTION 8.01. Complete Agreement; Construction............. 33 SECTION 8.02. Ancillary Agreements......................... 33 SECTION 8.03. Counterparts................................. 33 SECTION 8.04. Survival of Agreements....................... 33 SECTION 8.05. Responsibility for Expenses.................. 34 SECTION 8.06. Notices...................................... 34 SECTION 8.07. Waivers...................................... 34 SECTION 8.08. Amendments................................... 34 SECTION 8.09. Assignment................................... 35 SECTION 8.10. Successors and Assigns....................... 35 SECTION 8.11. Termination.................................. 35 SECTION 8.12. Third Party Beneficiaries.................... 35 SECTION 8.13. Attorney Fees................................ 35 SECTION 8.14. Title and Headings........................... 35 SECTION 8.15. Exhibits and Schedules....................... 35 SECTION 8.16. Specific Performance......................... 35 SECTION 8.17. Governing Law................................ 35 SECTION 8.18. Severability................................. 36 SECTION 8.19. Subsidiaries................................. 36
ii EXHIBITS EXHIBIT ABenefits Agreement EXHIBIT BCorporate Restructuring Transactions EXHIBIT CDebt and Cash Allocation Agreement EXHIBIT DEnergy Business Pro Forma Balance Sheet EXHIBIT EEnergy Subsidiaries EXHIBIT FIndustrial Business Pro Forma Balance Sheet EXHIBIT GIndustrial Subsidiaries EXHIBIT HInsurance Agreement EXHIBIT IShipbuilding Business Pro Forma Balance Sheet EXHIBIT JShipbuilding Subsidiaries EXHIBIT KTax Sharing Agreement EXHIBIT LTBS Services Agreement EXHIBIT MTransition Services Agreement EXHIBIT NForm of Restated Certificate of Incorporation EXHIBIT OForm of Bylaws EXHIBIT PTenneco Transition Trademark License EXHIBIT QShipbuilding Transition Trademark License iii DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT is made and entered into as of this day of , 1996 by and among TENNECO INC., a Delaware corporation ("TENNECO"), NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"), and NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation ("SHIPBUILDING COMPANY"). R E C I T A L S WHEREAS, Tenneco, El Paso Natural Gas Company, a Delaware corporation ("ACQUIROR"), and El Paso Merger Company, a Delaware corporation and an indirect wholly owned subsidiary of Acquiror ("ACQUIROR SUBSIDIARY"), have entered into an Amended and Restated Agreement and Plan of Merger, dated as of October , 1996, but effective as of June 19, 1996, (as amended from time to time, the "MERGER AGREEMENT"), providing for the merger of Acquiror Subsidiary with and into Tenneco (the "MERGER"), with Tenneco continuing as the surviving corporation of the Merger (the "SURVIVING CORPORATION"), upon the terms and subject to the conditions set forth in the Merger Agreement; WHEREAS, the Board of Directors of Tenneco has deemed it appropriate and advisable, prior to the Merger and as contemplated by the Merger Agreement, to: (a) separate and divide the existing businesses of Tenneco so that (i) the automotive, packaging and business services businesses shall be owned directly and indirectly by Industrial Company, and (ii) the shipbuilding business shall be owned directly and indirectly by Shipbuilding Company; and (b) distribute, following such separation and division and immediately prior to the Merger, as a dividend to the holders of shares of Common Stock, par value $5.00 per share, of Tenneco (the "TENNECO COMMON STOCK") all of the outstanding shares of common stock, $.01 par value, of Industrial Company (the "INDUSTRIAL COMMON STOCK") and all of the outstanding shares of common stock, $.01 par value, of Shipbuilding Company (the "SHIPBUILDING COMMON STOCK"); WHEREAS, following such separation, division and distributions, the remaining businesses, operations, assets and liabilities of Tenneco and its remaining direct and indirect subsidiaries shall be acquired by Acquiror pursuant to the Merger; and WHEREAS, each of Tenneco, Industrial Company and Shipbuilding Company has determined that it is necessary and desirable to set forth the principal corporate transactions required to effect such separation, division and distributions and to set forth other agreements that will govern certain other matters prior to and following such separation, division and distributions. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. GENERAL. Unless otherwise defined herein or unless the context otherwise requires, the following terms will have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). "ACTION" means any action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any arbitration tribunal. "ACQUIROR SUBSIDIARY" has the meaning ascribed to such term in the recitals to this Agreement. "AFFILIATE" means, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. "AGENT" means First Chicago Trust Company of New York, or such other trust company or bank designated by Tenneco, who shall act as agent for the holders of Tenneco Common Stock in connection with the Distributions. "AGREEMENT" means this Distribution Agreement by and among Tenneco, Industrial Company and Shipbuilding Company, including any amendments hereto and each Schedule and Exhibit attached hereto. "ANCILLARY AGREEMENTS" means all of the written agreements, instruments, understandings, assignments or other arrangements (other than this Agreement or the Merger Agreement) entered into by the parties hereto or any other member of their respective Group in connection with the Corporate Restructuring Transactions, the Distributions and the other transactions contemplated hereby or thereby, including, without limitation, the following: (i) the Debt and Cash Allocation Agreement; (ii) the Insurance Agreement; (iii) the Conveyancing and Assumption Instruments; (iv) the Benefits Agreement; (v) the Tax Sharing Agreement; (vi) the Transition Services Agreement; (vii) the TBS Services Agreement; and (viii) the Transition Trademark License. "BENEFITS AGREEMENT" means the Benefits Agreement by and among Tenneco, Industrial Company and Shipbuilding Company, which agreement shall be entered into on or prior to the Distribution Date in the form attached hereto as EXHIBIT A, except for such changes or modifications thereto that do not, individually or in the aggregate, adversely affect the Energy Business other than to a de minimis extent. "BOOKS AND RECORDS" means all books, records, manuals, agreements and other materials (in any form or medium), including without limitation, all mortgages, licenses, indentures, contracts, financial data, customer lists, marketing materials and studies, advertising materials, price lists, correspondence, distribution lists, supplier lists, production data, sales and promotional materials and records, purchasing materials and records, personnel records, manufacturing and quality control records and procedures, blue prints, research and development files, records, data and laboratory books, accounts records, sales order files, litigation files, computer files, microfiche, tape recordings and photographs. "CODE" means the Internal Revenue Code of 1986, as amended, or any successor law. "COMMISSION" means the United States Securities and Exchange Commission. "CONSENTS" has the meaning ascribed to such term in SECTION 2.07 hereof. "CONVEYANCING AND ASSUMPTION INSTRUMENTS" means, collectively, the various written agreements, instruments and other documents to be entered into to effect the Corporate Restructuring Transactions or to otherwise effect the transfer of assets and the assumption of Liabilities in the manner contemplated by this Agreement, the Ancillary Agreements and the Corporate Restructuring Transactions. "CORPORATE RESTRUCTURING TRANSACTIONS" means, collectively, (a) each of the distributions, transfers, conveyances, contributions, assignments and other transactions described and set forth on EXHIBIT B attached hereto, and (b) such other distributions, transfers, conveyances, contributions, assignments and other transactions (so long as such other distributions, transfers, conveyances, contributions, assignments and other transactions do not, individually or in the aggregate, adversely affect the Energy Business (other than to a de minimis extent) or materially delay or prevent the consummation of the Merger) that may be required to be accomplished, effected or consummated by any of Tenneco, Industrial Company, 2 1Shipbuilding Company or any of their respective Subsidiaries and Affiliates in order to separate and divide, in a series of transactions that, to the extent intended to qualify for tax-free transactions under the Code, shall qualify for tax-free treatment under the Code, the existing businesses of Tenneco so that, except as otherwise expressly set forth on EXHIBIT B hereto: (i) the Industrial Assets, Industrial Liabilities and Industrial Business shall be owned, directly and indirectly, by Industrial Company; (ii) the Shipbuilding Assets, Shipbuilding Liabilities and Shipbuilding Business shall be owned, directly and indirectly, by Shipbuilding Company; and (iii) the businesses, assets and liabilities of Tenneco that remain after the separations and divisions described in clauses (i) and (ii) above, including, without limitation, the Energy Assets, Energy Liabilities and Energy Business, are, after giving effect to the Distributions, owned, directly and indirectly, by Tenneco. "DEBT AND CASH ALLOCATION AGREEMENT" means the Debt and Cash Allocation Agreement by and among Tenneco, Industrial Company and Shipbuilding Company, which agreement shall be entered into on or prior to the Distribution Date in the form attached hereto as EXHIBIT C, except for such changes or modifications thereto that do not, individually or in the aggregate, adversely affect the Energy Business (other than to a de minimis extent) or materially delay or prevent the consummation of the Merger. "DEBT REALIGNMENT" has the meaning ascribed to such term in the Merger Agreement. "DEBT REALIGNMENT DOCUMENTS" means all documents furnished by Tenneco or Industrial Company to any holders of indebtedness or debt securities of Tenneco or any of its Subsidiaries or filed by Tenneco or Industrial Company in connection therewith with any Governmental Authority or securities exchange in connection with the Debt Realignment. "DISTRIBUTIONS" means the Industrial Distribution and the Shipbuilding Distribution. "DISTRIBUTION DATE" means such date as may hereafter be determined by Tenneco's Board of Directors as the date on which the Distributions shall be effected. "DISTRIBUTION RECORD DATE" means the close of business on the date determined by the Board of Directors of Tenneco for the purpose of determining the holders of record of Tenneco Common Stock entitled to participate in the Distributions. "DGCL" means the Delaware General Corporation Law, as amended. "ENERGY ASSETS" means, collectively, all the rights and assets owned by Tenneco or any of its Subsidiaries as of the close of business on the Distribution Date other than the Industrial Assets, the Shipbuilding Assets and the capital stock of Industrial Company and Shipbuilding Company, including without limitation: (i) the capital stock of the Energy Subsidiaries; (ii) all of the assets included on the Energy Business Pro Forma Balance Sheet which are owned by Tenneco and its Subsidiaries as of the close of business on the Distribution Date and any other asset acquired by Tenneco or any of its Subsidiaries from the date of the Energy Business Pro Forma Balance Sheet to the close of business on the Distribution Date that is owned by Tenneco and its Subsidiaries as of the close of business on the Distribution Date and that is of a type or nature that would have resulted in such asset being included as an asset on the Energy Business Pro Forma Balance Sheet had it been acquired on or prior to the date of the Energy Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of assets included on the Energy Business Pro Forma Balance Sheet; and (iii) all of the assets and rights expressly allocated to Tenneco or any of the Energy Subsidiaries under this Agreement, any of the Ancillary Agreements or the Merger Agreement. "ENERGY BUSINESS" means the businesses (other than the Industrial Business and the Shipbuilding Business) that, after giving effect to the Corporate Restructuring Transactions, are or were conducted by: (i) Tenneco, the Energy Subsidiaries or any of the other members of the Energy Group; (ii) any other division, Subsidiary or investment of Tenneco, or any Energy Subsidiary or any of the other members of the Energy Group managed or operated or in existence as of the date of this Agreement or any prior time, unless such other division, Subsidiary or investment is expressly included 3 in either the Industrial Group or the Shipbuilding Group immediately after giving effect to the Corporate Restructuring Transactions; and (iii) any business entity acquired or established by or for Tenneco or any of the Energy Subsidiaries between the date of this Agreement and the close of business on the Distribution Date that is engaged in, or intends to engage in, any business that is of a type or nature that would have resulted in such business being included either as a Subsidiary or an asset of Tenneco on the Energy Business Pro Forma Balance Sheet had it been acquired or established on or prior to the date of the Energy Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of the Subsidiaries and assets included on the Energy Business Pro Forma Balance Sheet. "ENERGY BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma Consolidated Balance Sheet for Tenneco and the Energy Subsidiaries as of June 30, 1996 attached hereto as EXHIBIT D. "ENERGY GROUP" means Tenneco, the Energy Subsidiaries and the corporations, partnerships, joint ventures, investments and other entities that represent equity investments of Tenneco or any of the Energy Subsidiaries following consummation of the Corporate Restructuring Transactions and the Distributions. "ENERGY INDEMNITEES" means: (i) Tenneco, the Energy Subsidiaries and each Affiliate thereof after giving effect to the Corporate Restructuring Transactions and the Distributions; and (ii) each of the respective past, present and future directors, officers, employees and agents of any of the entities described in the immediately preceding clause (i) and each of the heirs, executors, successors and assigns of such directors, officers, employees and agents. "ENERGY LIABILITIES" means, collectively, all of the Liabilities of Tenneco and the Energy Subsidiaries and each of the other members of the Energy Group remaining after giving effect to the Corporate Restructuring Transactions, the Distributions and the transactions contemplated under the Debt and Cash Allocation Agreement, including without limitation: (i) all of the Liabilities included on the Energy Business Pro Forma Balance Sheet which remain outstanding as of the close of business on the Distribution Date; (ii) all Liabilities which are incurred or which otherwise accrue or are accrued at any time on, prior to or after the date of the Energy Business Pro Forma Balance Sheet and which arise or arose out of, or in connection with, the Energy Assets or the Energy Business, determined on a basis consistent with the determination of Liabilities of Tenneco included on the Energy Business Pro Forma Balance Sheet; (iii) all of the Liabilities of Tenneco, the Energy Subsidiaries or any of the other members of the Energy Group under, or to be retained or assumed by Tenneco, any Energy Subsidiary or any of the other members of the Energy Group pursuant to the Corporate Restructuring Transactions, this Agreement, any of the Ancillary Agreements or the Merger Agreement; (iv) all of the Liabilities of the parties hereto or their respective Subsidiaries (whenever arising whether prior to, on or following the Distribution Date) arising out of or in connection with or otherwise relating to the management or conduct before or after the Distribution Date of the Energy Business; (v) all Securities Liabilities relating to or arising out of the information and data (financial or otherwise and including pro forma financial data) provided by or on behalf of Acquiror for inclusion in the Registration Statement on Form S-4 of Industrial Company registering certain debt securities of New Tenneco to be exchanged for certain existing debt securities of Tenneco and certain of its Subsidiaries in connection with the Debt Realignment, including, without limitation, information, disclosures and data relating to or concerning Acquiror, Acquiror Subsidiary, the business, operations and management of the Energy Business and/or Energy Group following the Merger and any refinancing or other transactions which Acquiror, Acquiror Subsidiary and/or any member of the Energy Group anticipates consummating following the Merger (collectively "ENERGY EXCHANGE LIABILITIES"); and 4 (vi) all other Liabilities of Tenneco, the Energy Subsidiaries or any of the other members of the Energy Group (which do not constitute Industrial Liabilities or Shipbuilding Liabilities), which other Liabilities of Tenneco, the Energy Subsidiaries or any of the other members of the Energy Group shall include, without limitation, any and all Liabilities arising out of or relating to any Action or Third Party Claim by any Governmental Authority or any other Person that is based on (A) any violations or alleged violations by Tenneco, its Subsidiaries (prior to giving effect to the Distributions) and/or any of their respective directors, officers, employees, agents or representatives of any of the provisions of the Exchange Act, Securities Act, or the rules and regulations of the Commission promulgated thereunder or any other securities or similar Law (other than Liabilities (collectively "INFORMATION STATEMENT LIABILITIES") for violations or alleged violations that arise out of, or in connection with, the Industrial Information Statement, the Shipbuilding Information Statement or information or data in the Joint Proxy Statement or the Debt Realignment Documents concerning the Shipbuilding Business or the Industrial Business), (B) any alleged breach of fiduciary duty by the Board of Directors of Tenneco or any member thereof, or (C) any stockholder derivative suit or other similar Actions. "ENERGY RECORDS" has the meaning ascribed to such term in SECTION 6.01(C) hereof. "ENERGY SUBSIDIARIES" means the Subsidiaries of Tenneco set forth on EXHIBIT E hereto and all other Subsidiaries of Tenneco other than Shipbuilding Company, Industrial Company, the Shipbuilding Subsidiaries and the Industrial Subsidiaries. "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions (including without limitation the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq.), whether now or hereafter in existence, relating to the environment, natural resources or human health and safety or endangered or threatened species of fish, wildlife and plants or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE FILE MATERIAL" means the Registration Statements, as amended at the times they were declared effective under the Exchange Act, the related Information Statements or any amendment or supplement thereto, the related letter of transmittal, any related stockholder communication, any other exhibits to any of the foregoing and any amendment or supplement thereto, in each case including all information incorporated by reference therein. "GAAP" means United States generally accepted accounting principles and practices, as in effect on the date of this Agreement, as promulgated by the Financial Accounting Standards Board and its predecessors. "GOVERNMENTAL AUTHORITY" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "GROUP" means (i) with respect to Tenneco, the Energy Group, (ii) with respect to Industrial Company, the Industrial Group, and (iii) with respect to Shipbuilding Company, the Shipbuilding Group. "INDEMNIFIABLE LOSSES" means, with respect to any Person, any and all losses, liabilities, penalties, claims, damages, demands, costs and expenses (including, without limitation, reasonable attorneys' fees, investigation expenses and any and all other out-of-pocket expenses, but excluding any punitive or consequential damages) or other Liabilities whatsoever that are assessed, imposed, awarded against, incurred or accrued by such Person either (a) in investigating, preparing for, defending against or otherwise arising out of or in connection with any Actions, any potential or threatened Actions or any Third Party 5 Claims for which such Person would be entitled to indemnification under ARTICLE VII hereof, or (b) in respect of any other event, occurrence or matter for which such Person would be entitled to indemnification under ARTICLE VII hereof, in each case whether accrued or incurred on, before or after the date of this Agreement. "INDEMNIFYING PARTY" has the meaning ascribed to such term in SECTION 7.04(A) hereof. "INDEMNITEE" has the meaning ascribed to such term in SECTION 7.04(A) hereof. "INDUSTRIAL ASSETS" means, collectively, all of the following rights and assets that are owned by Tenneco or any of its Subsidiaries as of the close of business on the Distribution Date: (i) the capital stock of the Industrial Subsidiaries; (ii) all of the assets included on the Industrial Business Pro Forma Balance Sheet that are owned by Tenneco or any of its Subsidiaries as of the close of business on the Distribution Date; (iii) all of the assets and rights expressly allocated to Industrial Company or any of the Industrial Subsidiaries under this Agreement or any of the Ancillary Agreements; and (iv) any other asset acquired by Tenneco or any of its Subsidiaries from the date of the Industrial Business Pro Forma Balance Sheet to the close of business on the Distribution Date that is owned by Tenneco or any of its Subsidiaries as of the close of business on the Distribution Date and that is of a type or nature that would have resulted in such asset being included as an asset on the Industrial Business Pro Forma Balance Sheet had it been acquired on or prior to the date of the Industrial Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of the assets included on the Industrial Business Pro Forma Balance Sheet. "INDUSTRIAL BUSINESS" means the businesses that, after giving effect to the Corporate Restructuring Transactions, are conducted by: (i) the Industrial Company, the Industrial Subsidiaries or any of the other members of the Industrial Group; and (ii) any business entity acquired or established by or for Tenneco, Industrial Company or any of the Industrial Subsidiaries between the date of this Agreement and the close of business on the Distribution Date that is engaged in, or intends to engage in, any business that is of a type or nature that would have resulted in such business being included either as a Subsidiary or an asset of Industrial Company on the Industrial Business Pro Forma Balance Sheet had it been acquired or established on or prior to the date of the Industrial Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of the Subsidiaries and assets included on the Industrial Business Pro Forma Balance Sheet. "INDUSTRIAL BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma Consolidated Balance Sheet for Industrial Company and the Industrial Subsidiaries as of June 30, 1996 attached hereto as EXHIBIT F. "INDUSTRIAL COMMON SHARES" means the shares of Industrial Common Stock owned by Tenneco after giving effect to the stock dividend provided for in SECTION 2.02(A) hereof. "INDUSTRIAL COMMON STOCK" has the meaning ascribed to such term in the recitals to this Agreement. "INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation. "INDUSTRIAL DISTRIBUTION" means the distribution on the Distribution Date as a dividend to holders of record of shares of Tenneco Common Stock as of the Distribution Record Date of all of the outstanding Industrial Common Shares owned by Tenneco on the basis provided in SECTION 3.02 hereof. "INDUSTRIAL GROUP" means Industrial Company, the Industrial Subsidiaries and the corporations, partnerships, joint ventures, investments and other entities that represent equity investments of any of Industrial Company or any of the Industrial Subsidiaries following the consummation of the Corporate Restructuring Transactions and the Distributions. "INDUSTRIAL INDEMNITEES" means: (i) Industrial Company and each Affiliate thereof after giving effect to the Corporate Restructuring Transactions and the Distributions; and 6 (ii) each of the respective past, present and future directors, officers, employees and agents of any of the entities described in the immediately preceding clause (i) and each of the heirs, executors, successors and assigns of any of such directors, officers, employees and agents. "INDUSTRIAL INFORMATION STATEMENT" means the information statement or registration statement relating to Industrial Company and the transactions contemplated hereby to be distributed to holders of Tenneco Common Stock pursuant to the terms of this Agreement. "INDUSTRIAL LIABILITIES" means, collectively, all of the Liabilities of Industrial Company, the Industrial Subsidiaries and each of the other members of the Industrial Group after giving effect to the Corporate Restructuring Transactions, the Distributions and the transactions contemplated under the Debt and Cash Allocation Agreement, including, without limitation: (i) all of the Liabilities included on the Industrial Business Pro Forma Balance Sheet which remain outstanding as of the close of business on the Distribution Date; (ii) all Liabilities (other than Energy Exchange Liabilities) which are incurred or which otherwise accrue or are accrued at any time on, prior to or after the date of the Industrial Business Pro Forma Balance Sheet and which arise or arose out of, or in connection with (A) the Industrial Assets, the Industrial Business or the Prior Industrial Businesses, determined on a basis consistent with the determination of Liabilities of Industrial Company on the Industrial Business Pro Forma Balance Sheet, including Information Statement Liabilities which arise or arose out of or in connection with, the Industrial Information Statement or which arise or arose out of or in connection with information or data in the Joint Proxy Statement or the Debt Realignment Documents concerning the Industrial Business (except to the extent such Liabilities constitute Shipbuilding Securities Liabilities or are otherwise based on any of (i) the actions or inactions of Shipbuilding Company, any other member of the Shipbuilding Group, or any director, officer or employee of the Shipbuilding Company or any other member of the Shipbuilding Group or any underwriter or investment banking firm of any member of the Shipbuilding Group (or any of their directors, officers, employees, advisors or representatives) (collectively, the "SHIPBUILDING PARTIES," or individually, a "SHIPBUILDING PARTY"), or (ii) the information or data provided in writing by any Shipbuilding Party expressly for inclusion in the Industrial Information Statement), or (B) the Shipbuilding Information Statement to the extent such Information Statement Liabilities are based on information or data concerning directly and solely the Industrial Company or the Industrial Business that is provided in writing by Industrial Company (or any other member of its Group or any Affiliate thereof after giving effect to the Distributions) expressly for inclusion in the Shipbuilding Information Statement; (iii) all of the Liabilities of Industrial Company, the Industrial Subsidiaries or any of the other members of the Industrial Group under, or to be retained or assumed by Industrial Company, any Industrial Subsidiary or any of the other members of the Industrial Group pursuant to this Agreement or any of the Ancillary Agreements; and (iv) all of the Liabilities of the parties hereto or their respective Subsidiaries (whenever arising whether prior to, at or following the Distribution Date) arising out of or in connection with or otherwise relating to the management or conduct before or after the Distribution Date of the Industrial Business. "INDUSTRIAL RECORDS" has the meaning ascribed to such term in SECTION 6.01(A) hereof. "INDUSTRIAL REGISTRATION STATEMENT" means the Registration Statement on Form 10 to be filed with the Commission pursuant to the requirements of Section 12 of the Exchange Act and the rules and regulations thereunder in order to register the Industrial Common Stock under Section 12(b) of the Exchange Act. "INFORMATION STATEMENT LIABILITIES" has the meaning ascribed to such term in CLAUSE (V) of the definitions herein of Energy Liabilities. "INFORMATION STATEMENTS" means the Industrial Information Statement and the Shipbuilding Information Statement. "INDUSTRIAL SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT G hereto. 7 "INSURANCE AGREEMENT" means the Insurance Agreement by and among Tenneco, Industrial Company and Shipbuilding Company, which agreement shall be entered, into on or prior to the Distribution Date in the form attached hereto as EXHIBIT H except for such changes or modifications thereto that do not, individually or in the aggregate, adversely affect the Energy Business other than to a de minimis extent. "INSURANCE PROCEEDS" means, with respect to any insured party, those monies, net of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, or cost of reserve paid or held by or for the benefit of such insured, which are either: (i) received by an insured from an insurance carrier; or (ii) paid by an insurance carrier on behalf of an insured. "JOINT PROXY STATEMENT" has the meaning ascribed to such term in the Merger Agreement. "LAW" means all laws, statutes and ordinances and all regulations, rules and other pronouncements of Governmental Authorities having the effect of law of the United States, any foreign country, or any domestic or foreign state, province, commonwealth, city, country, municipality, territory, protectorate, possession or similar instrumentality, or any Governmental Authority thereof. "LIABILITIES" means any and all debts, liabilities, obligations, responsibilities, response actions, losses, damages (whether compensatory, punitive or treble), fines, penalties and sanctions, absolute or contingent, matured or unmatured, liquidated or unliquidated, foreseen or unforeseen, joint, several or individual, asserted or unasserted, accrued or unaccrued, known or unknown, whenever arising, including, without limitation, those arising under or in connection with any Law (including any Environmental Law), Action, threatened Action, order or consent decree of any Governmental Authority or any award of any arbitration tribunal, and those arising under any contract, guarantee, commitment or undertaking, whether sought to be imposed by a Governmental Authority, private party, or party to this Agreement, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, or otherwise, and including any costs, expenses, interest, attorneys' fees, disbursements and expense of counsel, expert and consulting fees and costs related thereto or to the investigation or defense thereof. "MERGER" has the meaning ascribed to such term in the recitals to this Agreement. "MERGER AGREEMENT" has the meaning ascribed to such term in the recitals to this Agreement. "NYSE" means the New York Stock Exchange. "PERSON" means any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company or other entity, or any government, or any agency or political subdivision thereof. "PRIOR INDUSTRIAL BUSINESSES" means, collectively, all divisions, Subsidiaries, other business entities or investments of Tenneco (or one of its Subsidiaries) that, at any time prior to the date of the Industrial Business Pro Forma Balance Sheet, were included in the "automotive parts" or "packaging" segments for purposes of segment reporting in any of Tenneco's Annual Reports on Form 10-K, and were sold, transferred, otherwise disposed of or discontinued prior to such date. "PRIOR SHIPBUILDING BUSINESSES" means, collectively, all divisions, Subsidiaries, other business entities or investments of Tenneco (or one of its Subsidiaries) that, at any time prior to the date of the Shipbuilding Business Pro Forma Balance Sheet, were included in the "shipbuilding" segment for purposes of segment reporting in any of Tenneco's Annual Reports on Form 10-K, and were sold, transferred, otherwise disposed of or discontinued prior to such date. "PRIVILEGE" has the meaning ascribed to such term in SECTION 6.07(A) hereof. "PRIVILEGED INFORMATION" has the meaning ascribed to such term in SECTION 6.07(A) hereof. 8 "REGISTRATION STATEMENTS" means the Industrial Registration Statement and the Shipbuilding Registration Statement. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES LIABILITIES" means any and all losses, liabilities, penalties, claims, damages, demands, costs or expenses or other Liabilities whatsoever that are assessed, imposed, awarded against, incurred or accrued by a Person arising out of or relating in whole or in part to any Action, any potential or threatened Action or any Third Party Claim (or potential or threatened Third Party Claim) by any Governmental Authority or any other Person that is based on any violations or alleged violations of the Securities Act, Exchange Act, any of the rules or regulations of the Commission promulgated under the Securities Act or Exchange Act, or any other securities or other similar Law. "SHIPBUILDING ASSETS" means, collectively, all of the following rights and assets that are owned by Tenneco and or any of its Subsidiaries as of the close of business on the Distribution Date: (i) the capital stock of the Shipbuilding Subsidiaries; (ii) all of the assets included on the Shipbuilding Business Pro Forma Balance Sheet that are owned by Tenneco or any of its Subsidiaries as of the close of business on the Distribution Date; (iii) all of the assets and rights expressly allocated to Shipbuilding Company or any of the Shipbuilding Subsidiaries under this Agreement or any of the Ancillary Agreements; and (iv) any other asset acquired by Tenneco or any of its Subsidiaries from the date of the Shipbuilding Business Pro Forma Balance Sheet to the close of business on the Distribution Date that is owned by Tenneco or any of its Subsidiaries as of the close of business on the Distribution Date and that is of a nature or type that would have resulted in such asset being included as an asset on the Shipbuilding Business Pro Forma Balance Sheet had it been acquired on or prior to the date of the Shipbuilding Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of the assets included on the Shipbuilding Business Pro Forma Balance Sheet. "SHIPBUILDING BUSINESS" means the businesses that, after giving effect to the Corporate Restructuring Transactions, are conducted by: (i) the Shipbuilding Company, the Shipbuilding Subsidiaries or any of the other members of the Shipbuilding Group; and (ii) any business entity acquired or established by or for Tenneco, Shipbuilding Company or any of the Shipbuilding Subsidiaries between the date of this Agreement and the close of business on the Distribution Date that is engaged in, or intends to engage in, any business that is of a type or nature that would have resulted in such business being included either as a Subsidiary or an asset of Shipbuilding Company on the Shipbuilding Business Pro Forma Balance Sheet had it been acquired or established on or prior to the date of the Shipbuilding Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of the Subsidiaries and assets included on the Shipbuilding Business Pro Forma Balance Sheet. "SHIPBUILDING BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma Consolidated Balance Sheet for Shipbuilding Company and the Shipbuilding Subsidiaries (prepared in accordance with GAAP) as of June 30, 1996 attached hereto as EXHIBIT I. "SHIPBUILDING COMMON SHARES" means the Shares of Shipbuilding Common Stock owned by Tenneco after giving effect to the stock dividend provided for in SECTION 2.02(B) hereof. 9 "SHIPBUILDING COMMON STOCK" has the meaning ascribed to such term in the recitals to this Agreement. "SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation. "SHIPBUILDING DISTRIBUTION" means the distribution on the Distribution Date as a dividend to holders of record of shares of Tenneco Common Stock as of the Distribution Record Date, of all of the outstanding Shipbuilding Common Shares owned by Tenneco on the basis provided in SECTION 3.02 hereof. "SHIPBUILDING FINANCING MATERIALS" means any registration statement, private placement memorandum, offering circular, prospectus, information memorandum and/or any other document or filing (with the Commission or any Governmental Authority or the NYSE or other stock exchange) prepared by or on behalf of Shipbuilding Company (or its Affiliates) and distributed to prospective lenders or prospective purchasers of any debt or equity securities of the Shipbuilding Company (or any other member of the Shipbuilding Group) in connection with any of the transactions contemplated under this Agreement, the Merger Agreement or any of the Ancillary Agreements, including, without limitation, the Confidential Information Memorandum dated September 1996 relating to the Senior Credit Facility (as defined in the Shipbuilding Information Statement), the 144A Offering Memorandum relating to the Senior Subordinated Notes and Senior Notes (as such terms are defined in the Shipbuilding Information Statement), and the registration statement on Form S-1 to be filed by Shipbuilding Company after the Distribution Date to register the Senior Subordinated Notes and Senior Notes under the Securities Act and all related documents. "SHIPBUILDING GROUP" means Shipbuilding Company, the Shipbuilding Subsidiaries and the corporations, partnerships, joint ventures, investments and other entities that represent equity investments of Shipbuilding Company or any of the Shipbuilding Subsidiaries following the consummation of the Corporate Restructuring Transactions and the Distributions. "SHIPBUILDING INDEMNITEES" means: (i) Shipbuilding Company and each Affiliate thereof after giving effect to the Corporate Restructuring Transactions and the Distributions; and (ii) each of the respective past, present and future directors, officers, employees and agents of any of the entities described in the immediately preceding clause (i) and each of the heirs, executors, successors and assigns of any of such directors, officers, employees and agents. "SHIPBUILDING INFORMATION STATEMENT" means the information statement or registration statement relating to Shipbuilding Company and the transactions contemplated hereby to be distributed to holders of Tenneco Common Stock pursuant to the terms of this Agreement. "SHIPBUILDING LIABILITIES" means, collectively, all of the Liabilities of Shipbuilding Company, the Shipbuilding Subsidiaries and each of the other members of the Shipbuilding Group after giving effect to the Corporate Restructuring Transactions, the Distributions and the transactions contemplated by the Debt and Cash Allocation Agreement, including, without limitation: (i) all of the Liabilities included on the Shipbuilding Business Pro Forma Balance Sheet that remain outstanding as of the close of business on the Distribution Date; (ii) all other Liabilities that are incurred or which accrue or are accrued at any time on, prior to or after the date of the Shipbuilding Business Pro Forma Balance Sheet and that arise or arose out of, or in connection with, the Shipbuilding Assets, the Shipbuilding Business or the Prior Shipbuilding Businesses, determined on a basis consistent with the determination of Liabilities of Shipbuilding Company on the Shipbuilding Business Pro Forma Balance Sheet, including, without limitation, 10 Shipbuilding Securities Liabilities and Information Statement Liabilities to the extent such Information Statement Liabilities (A) arise or arose out of or in connection with the Shipbuilding Information Statement or information or data in the Joint Proxy statement or the Debt Realignment Documents concerning the Shipbuilding Business or (B) are based on information or data provided in writing by Shipbuilding Company (or any member of its Group or any Affiliate (after giving effect to the Distributions) thereof) expressly for inclusion in the Industrial Information Statement; (iii) all of the Liabilities of Shipbuilding Company, the Shipbuilding Subsidiaries or any of the other members of the Shipbuilding Group under, or to be retained or assumed by Shipbuilding Company, any Shipbuilding Subsidiary or any of the other members of the Shipbuilding Group pursuant to, this Agreement or any of the Ancillary Agreements; and (iv) all the Liabilities of the parties hereto or their respective Subsidiaries (whenever arising whether prior to, on or following the Distribution Date) arising out of or in connection with or otherwise relating to the management or conduct before or after the Distribution Date of the Shipbuilding Business. "SHIPBUILDING RECORDS" has the meaning ascribed to such term in SECTION 6.01(B) hereof. "SHIPBUILDING REGISTRATION STATEMENT" means the Registration Statement on Form 10 to be filed with the Commission pursuant to the requirements of Section 12 of the Exchange Act and the rules and regulations promulgated thereunder in order to register the Shipbuilding Common Stock under Section 12(b) of the Exchange Act. "SHIPBUILDING SECURITIES LIABILITIES" means any and all Securities Liabilities arising out of, or in connection with, or relating in whole or in part to any of the following: (i) the Shipbuilding Registration Statement; (ii) the Shipbuilding Information Statement (whether in the form as an Appendix to the Joint Proxy Statement or as the Information Statement included in the Shipbuilding Registration Statement); (iii) the Shipbuilding Financing Materials; (iv) any of the information, data (financial or otherwise) or disclosures in (or any alleged failure to set forth certain information, data or disclosures in) the Shipbuilding Registration Statement, Shipbuilding Information Statement (whether in the form as an Appendix to the Joint Proxy Statement or as the Information Statement included in the Shipbuilding Registration Statement) or Shipbuilding Financing Materials, irrespective of (A) who authored, prepared or provided such information, data or disclosures (or, as the case may be, the section or discussion in which certain information, data or disclosure is alleged to have been omitted), or (B) the form in which, or medium through which (e.g., verbally, in writing, etc.), such information, data, disclosures, discussion or section were provided; or (v) any of the information, data (financial or otherwise) or disclosures in (or any alleged failure to set forth certain information, data or disclosures in) the Joint Proxy Statement or the Debt Realignment Documents concerning any matter relating to the business, operations, management, financial results or potential risks of (or pending or threatened claims or investigations relating to) the Shipbuilding Business, Prior Shipbuilding Businesses, Shipbuilding Assets or Shipbuilding Liabilities, irrespective of (A) who authored, prepared or provided such information data or disclosures (or, as the case may be, the section or discussion in which certain information, data or disclosure is alleged to have been omitted), or (B) the form in which, or medium through which (e.g., verbally, in writing, etc.), such information, data, disclosure, section or discussion were provided. "SHIPBUILDING SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT J hereto. "SUBSIDIARY" means, with respect to any Person: (i) any corporation of which at least a majority in interest of the outstanding voting stock (having by the terms thereof voting power under ordinary circumstances to elect a majority of the directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of a contingency) is at 11 the time, directly or indirectly, owned or controlled by such Person or by such Person and one or more of its Subsidiaries; or (ii) any non-corporate entity in which such Person or such Person and one or more Subsidiaries of such Person either (a) directly or indirectly, at the date of determination thereof, has at least majority ownership interest, or (b) at the date of determination is a general partner or an entity performing similar functions (e.g., manager of a Limited Liability Company or a trustee of a trust). "SURVIVING CORPORATION" has the meaning ascribed to such term in the recitals to this Agreement. "TAX" or "TAXES" means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, occupation, services, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing. "TAX SHARING AGREEMENT" means the Tax Sharing Agreement by and among Tenneco, Shipbuilding Company, Industrial Company and Acquiror, which agreement shall be entered into on or prior to the Distribution Date in the form attached hereto as EXHIBIT K, except for such changes or modifications thereto that do not, individually or in the aggregate, adversely affect the Energy Business other than to a de minimis extent. "TENNECO" means Tenneco Inc., a Delaware corporation. "TENNECO COMMON STOCK" has the meaning ascribed to such term in the recitals to this Agreement. "TENNECO CORPORATE RECORDS" has the meaning ascribed to such term in SECTION 6.01(A) hereof. "TENNECO HOLDERS" means the holders of record of Tenneco Common Stock as of the Distribution Record Date. "TENNECO TRADEMARKS AND TRADENAMES" means all trademarks, service marks, and tradenames containing "TENNECO", "TEN", or "TENN" or variations thereof, along with their respective applications and registrations wherever used or registered; provided, however, that the term shall not include the word "Tennessee" to the extent such word is used in the business and operations of Tennessee Gas Pipeline Company or otherwise in the Energy Business. "TERMINATION DATE" means the date on which this Agreement is terminated pursuant to and in accordance with the provisions of SECTION 8.11 of this Agreement. "THIRD PARTY CLAIM" has the meaning as defined in SECTION 7.05(A) hereof. "TBS SERVICES AGREEMENT" means the Services Agreement by and among Industrial Company, Shipbuilding Company and Tenneco Business Services Inc., which agreement shall be entered into on or prior to the Distribution Date in substantially the form attached hereto as EXHIBIT L and which agreement Tenneco and the Energy Business will not become a party to and not be bound by without the consent of Acquiror, which Acquiror may withhold in its sole discretion. "TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement by and between Tenneco and Tenneco Business Services Inc., which agreement shall be entered into on or prior to the Distribution Date in the form attached hereto as EXHIBIT M. "TRANSITION TRADEMARK LICENSE" has the meaning ascribed to such term in SECTION 5.02 hereof. SECTION 1.02. REFERENCES. References to an "EXHIBIT" or to a "SCHEDULE" are, unless otherwise specified, to one of the Exhibits or Schedules attached to this Agreement, and references to a "SECTION" are, unless otherwise specified, to one of the Sections of this Agreement. 12 ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS SECTION 2.01. CORPORATE RESTRUCTURING TRANSACTIONS. On or prior to the Distribution Date (but in all events prior to the Distributions) and otherwise in accordance with the terms and provisions set forth in EXHIBIT B hereto, each of Tenneco, Industrial Company and Shipbuilding Company shall, and shall cause each of their respective Subsidiaries to, as applicable, take such action or actions as is necessary to cause, effect and consummate the Corporate Restructuring Transactions. Each of Tenneco, Shipbuilding Company and Industrial Company hereby agrees that any one or more of the Corporate Restructuring Transactions may be modified, supplemented or eliminated; provided such modification, supplement or elimination (a) is determined to be necessary or appropriate (i) to divide the existing businesses of Tenneco so that the automotive, packaging and business services businesses shall be owned, directly and indirectly, by Industrial Company and the shipbuilding business shall be owned, directly and indirectly, by Shipbuilding Company, or (ii) to obtain a ruling from the Internal Revenue Service as described in Section 7.1(g) of the Merger Agreement, and (b) does not, individually or in the aggregate, adversely affect the Energy Business (other than to a de minimis extent) or materially delay or prevent the consummation of the Merger. SECTION 2.02. PRE-DISTRIBUTION STOCK DIVIDENDS TO TENNECO. On or prior to the Distribution Date (but in all events prior to the Distributions): (a) INDUSTRIAL COMPANY STOCK DIVIDEND. Industrial Company shall issue to Tenneco, as a stock dividend, the number of shares of Industrial Common Stock as is required to effect the Industrial Distribution, as certified by the Agent. In connection therewith, Tenneco shall deliver to Industrial Company for cancellation the share certificate (or certificates) currently held by it representing all Industrial Common Stock, and Industrial Company shall issue a new certificate (or certificates) to Tenneco representing the total number of Industrial Common Shares to be owned by Tenneco after giving effect to such stock dividend. (b) SHIPBUILDING COMPANY STOCK DIVIDEND. Shipbuilding Company shall issue to Tenneco, as a stock dividend, the number of shares of Shipbuilding Common Stock as is required to effect the Shipbuilding Distribution, as certified by the Agent. In connection therewith, Tenneco shall deliver to Shipbuilding Company for cancellation the share certificate (or certificates) currently held by it representing all Shipbuilding Common Stock, and Shipbuilding Company shall issue a new certificate (or certificates) representing the total number of Shipbuilding Common Shares to be owned by Tenneco after giving effect to such stock dividend. SECTION 2.03. CHARTERS AND BYLAWS. (a) CERTIFICATE OF INCORPORATION AND BYLAWS OF INDUSTRIAL COMPANY. On or prior to the Distribution Date (but in all events prior to the Distributions), Tenneco and Industrial Company shall each take all necessary actions so that, as of the Distribution Date, the Restated Certificate of Incorporation and Bylaws of Industrial Company will be substantially in the forms set forth in EXHIBITS N and O, respectively. (b) CERTIFICATE OF INCORPORATION AND BYLAWS OF SHIPBUILDING COMPANY. On or prior to the Distribution Date (but in all events prior to the Distributions), Tenneco and Shipbuilding Company shall each take all necessary actions so that, as of the Distribution Date, the Restated Certificate of Incorporation and Bylaws of Shipbuilding Company will be substantially in the forms set forth in EXHIBITS N and O, respectively. SECTION 2.04. ELECTION OF DIRECTORS OF INDUSTRIAL COMPANY AND SHIPBUILDING COMPANY. On or prior to the Distribution Date, Tenneco, as the sole stockholder of each of Industrial Company and Shipbuilding Company, shall take all necessary action so that as of the Distribution Date the directors of Industrial Company and of Shipbuilding Company will be as set forth in the Industrial Information Statement and the Shipbuilding Information Statement, respectively. 13 SECTION 2.05. TRANSFER AND ASSIGNMENT OF CERTAIN LICENSES AND PERMITS. (a) LICENSES AND PERMITS RELATING TO THE INDUSTRIAL BUSINESS. On or prior to the Distribution Date, or as soon as reasonably practicable thereafter, each of Tenneco and Shipbuilding Company shall (and, if applicable, shall cause any other Person over which it has legal or effective direct or indirect control to), severally but not jointly, duly and validly transfer or cause to be duly and validly transferred to the appropriate member of the Industrial Group (as directed by Industrial Company) all transferrable licenses, permits and authorizations issued by any Governmental Authority that relate to the Industrial Business but which are held in the name of any member of the Energy Group or the Shipbuilding Group, or any of their respective employees, officers, directors, stockholders or agents. (b) LICENSES AND PERMITS RELATING TO THE SHIPBUILDING BUSINESS. On or prior to the Distribution Date, or as soon as reasonably practicable thereafter, each of Tenneco and Industrial Company shall (and, if applicable, shall cause any other Person over which it has legal or effective direct or indirect control to), severally but not jointly, duly and validly transfer or cause to be duly and validly transferred to the appropriate member of the Shipbuilding Group (as directed by Shipbuilding Company) all transferrable licenses, permits and authorizations issued by any Governmental Authority that relate to the Shipbuilding Business but which are held in the name of any member of the Energy Group or the Industrial Group, or any of their respective employees, officers, directors, stockholders or agents. (c) LICENSES AND PERMITS RELATING TO THE ENERGY BUSINESS. On or prior to the Distribution Date, or as soon as reasonably practicable thereafter, each of Industrial Company and Shipbuilding Company shall (and, if applicable, shall cause any other Person over which it has legal or effective direct or indirect control to), severally but not jointly, duly and validly transfer or cause to be duly and validly transferred to the appropriate member of the Energy Group (as directed by Tenneco) all transferrable licenses, permits and authorizations issued by any Governmental Authority that relate to the Energy Business but which are held in the name of any member of the Industrial Group or the Shipbuilding Group, or any of their respective employees, officers, directors, stockholders or agents. SECTION 2.06. TRANSFER AND ASSIGNMENT OF CERTAIN AGREEMENTS. (a) TRANSFER AND ASSIGNMENT OF ENERGY BUSINESS AGREEMENTS. On or prior to the Distribution Date, or as soon as reasonably practicable thereafter, and subject to the limitations set forth in this SECTION 2.06, each of Industrial Company and Shipbuilding Company shall (and, if applicable, shall cause any of the other members of its Group over which it has legal or effective direct or indirect control to), severally but not jointly, assign, transfer and convey to Tenneco (or such other member of the Energy Group as Tenneco shall direct) all of its (or such other member of its Group's) right, title and interest in and to any and all agreements that relate exclusively to the Energy Business or any member of the Energy Group. (b) TRANSFER AND ASSIGNMENT OF INDUSTRIAL BUSINESS AGREEMENTS. On or prior to the Distribution Date, or as soon as reasonably practicable thereafter, and subject to the limitations set forth in this SECTION 2.06, each of Tenneco and Shipbuilding Company shall (and, if applicable, shall cause any of the other members of its Group over which it has legal or effective direct or indirect control to), severally but not jointly, assign, transfer and convey to Industrial Company (or such other member of the Industrial Group as Industrial Company shall direct) all of its (or such other member of its Group's) right, title and interest in and to any and all agreements that relate exclusively to the Industrial Business or any member of the Industrial Group. (c) TRANSFER AND ASSIGNMENT OF SHIPBUILDING BUSINESS AGREEMENTS. On or prior to the Distribution Date, or as soon as reasonably practicable thereafter, and subject to the limitations set forth in this SECTION 2.06, each of Tenneco and Industrial Company shall (and, if applicable, shall cause any of the other members of its Group over which it has legal or effective direct or indirect control to), severally but not jointly, assign, transfer and convey to Shipbuilding Company (or such other member of the Shipbuilding Group as Shipbuilding Company shall direct) all of its (or such other member of its Group's) right, title and interest in and to any and all agreements that relate exclusively to the Shipbuilding Business or any member of the Shipbuilding Group. 14 (d) JOINT AGREEMENTS. Subject to the provisions of SECTION 2.06(F) below, any agreement to which any party hereto (or any other member of such party's Group) is a party that inures to the benefit of more than one of the Energy Business, the Industrial Business and the Shipbuilding Business shall be assigned in part, at the expense and risk of the assignee, on or prior to the Distribution Date or as soon as reasonably practicable thereafter, so that each party (or such other member of such party's Group) shall be entitled to the rights and benefits inuring to its business under such agreement. (e) OBLIGATIONS OF ASSIGNEES. The assignee of any agreement assigned, in whole or in part, hereunder (an "ASSIGNEE") shall, as a condition to such assignment, assume and agree to pay, perform, and fully discharge all obligations of the assignor under such agreement (whether such obligations arose or were incurred prior to, on or subsequent to the Distribution Date and irrespective of whether such obligations have been asserted as of the Distribution Date) or, in the case of a partial assignment under SECTION 2.06(D) above, such Assignee's related portion of such obligations as determined in accordance with the terms of the relevant agreement, where determinable on the face thereof, and otherwise as determined in accordance with the practice of the parties prior to the Distributions. Furthermore, the Assignee shall use its commercially reasonable efforts to cause the assignor of such agreement to be released from its obligations under the assigned agreements. (f) NO ASSIGNMENT OF CERTAIN AGREEMENTS. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign any agreement, in whole or in part, or any rights thereunder if the agreement to assign or attempt to assign, without the consent of a third party, would constitute a breach thereof or in any way adversely affect the rights of the Assignee thereof until such consent is obtained. If an attempted assignment thereof would be ineffective or would adversely affect the rights of any party hereto so that the Assignee would not, in fact, receive all such rights, the parties hereto will cooperate with each other to effect any arrangement designed reasonably to provide for the Assignee the benefits of, and to permit the Assignee to assume liabilities under, any such agreement, subject to the remaining sentences of this SECTION 2.06(F). There are certain software license agreements held in the name of a member of the Industrial Group that presently inure to the benefit of the Energy Business, the Industrial Business and the Shipbuilding Business. Notwithstanding any other provision of this Agreement, each such license agreement shall continue to be held by that member of the Industrial Group without any obligation of any party to cause the assignment or inurement to the benefit of such license agreement, or to effect any arrangement to provide such benefit, to the Energy Business or the Shipbuilding Business, except where the license agreement expressly permits the benefits and obligations to be divided among the Businesses or as may be negotiated with the licensor by that member of the Industrial Group and such other parties and the Industrial Business shall use commercially reasonable efforts to do so. SECTION 2.07. CONSENTS. The parties hereto shall use their best efforts to obtain any third-party consents or approvals that are required to consummate the Corporate Restructuring Transactions, the Distributions and the other transactions contemplated herein (the "CONSENTS"). SECTION 2.08. OTHER TRANSACTIONS. On or prior to the Distribution Date (but in all events prior to the Distributions), each of Tenneco, Industrial Company and Shipbuilding Company shall have consummated those other transactions in connection with the Corporate Restructuring Transactions and the Distributions that are contemplated by the Information Statements and the ruling request submission by Tenneco to the Internal Revenue Service dated June 27, 1996 (as subsequently supplemented), and not specifically referred to in SECTIONS 2.01 through 2.07 above, subject, however, to the limitations set forth in SUBPARAGRAPH (B) of SECTION 2.01 above. SECTION 2.09. ELECTION OF OFFICERS. On or prior to the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall, as applicable, take all actions necessary and desirable so that as of the Distribution Date the officers of each of Industrial Company and Shipbuilding Company will be as set forth in the Industrial Information Statement and the Shipbuilding Information Statement, respectively. 15 SECTION 2.10. REGISTRATION STATEMENTS. Each of Tenneco, Industrial Company and Shipbuilding Company shall prepare, and shall file with the Commission, the Registration Statements in accordance with the terms of this SECTION 2.10. (a) PREPARATION AND FILING OF INDUSTRIAL REGISTRATION STATEMENT. Tenneco, Industrial Company and Shipbuilding Company shall prepare or cause to be prepared, and Industrial Company shall file or cause to be filed with the Commission, the Industrial Registration Statement. The Industrial Registration Statement shall include or incorporate by reference the Industrial Information Statement setting forth appropriate disclosure concerning Tenneco, Industrial Company, Shipbuilding Company, the Distributions and such other matters as may be required to be disclosed therein by the provisions of the Exchange Act and the rules and regulations promulgated thereunder. Tenneco and Industrial Company shall take all such actions as may be reasonably necessary or appropriate in order to cause the Industrial Registration Statement to become effective by order of the Commission pursuant to the Exchange Act. (b) PREPARATION AND FILING OF SHIPBUILDING REGISTRATION STATEMENT. Tenneco, Industrial Company and Shipbuilding Company shall prepare or cause to be prepared, and Shipbuilding Company shall file or cause to be filed with the Commission, the Shipbuilding Registration Statement. The Shipbuilding Registration Statement shall include or incorporate by reference the Shipbuilding Information Statement setting forth appropriate disclosure concerning Tenneco, Shipbuilding Company, Industrial Company, the Distributions and such other matters as may be required to be disclosed therein by the provisions of the Exchange Act and the rules and regulations promulgated thereunder. Tenneco and Shipbuilding Company shall take all such actions as may be reasonably necessary or appropriate in order to cause the Shipbuilding Registration Statement to become effective by order of the Commission pursuant to the Exchange Act. SECTION 2.11. STATE SECURITIES LAWS. Prior to the Distribution Date, Tenneco, Industrial Company and Shipbuilding Company shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in order to effect the Distributions. SECTION 2.12. LISTING APPLICATION. Prior to the Distribution Date, Tenneco, Industrial Company and Shipbuilding Company shall prepare and file with the NYSE listing applications and related documents and shall take all such other actions with respect thereto as shall be necessary or desirable in order to cause the NYSE to list on or prior to the Distribution Date, subject to official notice of issuance, the Industrial Common Shares and the Shipbuilding Common Shares. SECTION 2.13. CERTAIN FINANCIAL AND OTHER ARRANGEMENTS. (a) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND ENERGY GROUP. All intercompany receivables, payables and loans (other than receivables, payables and loans otherwise specifically provided for in any of the Ancillary Agreements or hereunder), including, without limitation, in respect of any cash balances, any cash balances representing deposited checks or drafts for which only a provisional credit has been allowed or any cash held in any centralized cash management system, between any member of the Industrial Group, on the one hand, and any member of the Energy Group, on the other hand, shall, as of the close of business on the Distribution Date, be settled, capitalized or converted into ordinary trade accounts, in each case as may be agreed in writing prior to the Distribution Date by duly authorized representatives of Tenneco, Industrial Company and the Acquiror. (b) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN SHIPBUILDING GROUP AND ENERGY GROUP. All intercompany receivables, payables and loans (other than receivables, payables and loans otherwise specifically provided for in any of the Ancillary Agreements or hereunder), including, without limitation, in respect of any cash balances, any cash balances representing deposited checks or drafts for which only a provisional credit has been allowed or any cash held in any centralized cash management system, between any member of the Shipbuilding Group, on the one hand, and any member of the Energy Group, on the other hand, shall, as of the close of business on the Distribution Date, be settled, capitalized or converted into ordinary trade accounts, in each case as may be agreed in writing prior to the Distribution Date by duly authorized representatives of Tenneco, Shipbuilding Company and the Acquiror. 16 (c) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND SHIPBUILDING GROUP. All intercompany receivables, payables and loans (other than receivables, payables and loans otherwise specifically provided for in any of the Ancillary Agreements or hereunder), including, without limitation, in respect of any cash balances, any cash balances representing deposited checks or drafts for which only a provisional credit has been allowed or any cash held in any centralized cash management system, between any member of the Industrial Group, on the one hand, and any member of the Shipbuilding Group, on the other hand, shall, as of the close of business on the Distribution Date, be settled, capitalized or converted into ordinary trade accounts, in each case as may be agreed in writing prior to the Distribution Date by duly authorized representatives of Industrial Company and Shipbuilding Company. (d) OPERATIONS IN ORDINARY COURSE. Except as otherwise provided in this Agreement, the Merger Agreement or any Ancillary Agreement, during the period from the date of this Agreement through the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall, and shall cause any entity that is a Subsidiary of such party at any time during such period to, conduct its business in a manner substantially consistent with current and past operating practices and in the ordinary course, including, without limitation, with respect to the payment and administration of accounts payable and the collection and administration of accounts receivable, the purchase of capital assets and equipment and the management of inventories. SECTION 2.14. DIRECTOR, OFFICER AND EMPLOYEE RESIGNATIONS. Subject to the provisions of SECTION 2.04 and SECTION 2.09 above: (a) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE ENERGY GROUP. Tenneco shall cause all of its directors and all employees of the Energy Group to resign, effective as of the close of business on the Distribution Date, from all boards of directors or similar governing bodies of each member of the Industrial Group or the Shipbuilding Group on which they serve, and from all positions as officers or employees of any member of the Industrial Group or the Shipbuilding Group, except as otherwise set forth in the Information Statements or mutually agreed to in writing on or prior to the Distribution Date by Tenneco, on the one hand, and, as applicable, Industrial Company and/or Shipbuilding Company, on the other hand. (b) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE INDUSTRIAL GROUP. Industrial Company shall cause all of its directors and all employees of the Industrial Group to resign, effective as of the close of business on the Distribution Date, from all boards of directors or similar governing bodies of each member of the Energy Group or the Shipbuilding Group on which they serve, and from all positions as officers or employees of any member of the Energy Group or the Shipbuilding Group, except as otherwise set forth in the Information Statements or mutually agreed to in writing on or prior to the Distribution Date by Industrial Company, on the one hand, and, as applicable, Tenneco and/or Shipbuilding Company, on the other hand. (c) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE SHIPBUILDING GROUP. Shipbuilding Company shall cause all of its directors and all employees of the Shipbuilding Group to resign, effective as of the close of business on the Distribution Date, from all boards of directors or similar governing bodies of each member of the Energy Group or the Industrial Group on which they serve, and from all positions as officers or employees of any member of the Energy Group or the Industrial Group, except as otherwise set forth in the Information Statements or mutually agreed to in writing on or prior to the Distribution Date by Shipbuilding Company, on the one hand, and, as applicable, Industrial Company and/or Tenneco, on the other hand. SECTION 2.15. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTIONS; TRANSFERS DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers contemplated by this ARTICLE II shall not have been consummated on or prior to the Distribution Date, the parties hereto shall cooperate (and shall cause each of their respective Affiliates and each member of their respective Groups over which they have legal or effective direct or indirect control to cooperate) to effect such transfers as promptly following the Distribution Date as shall be practicable. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any Liabilities which by their terms or operation of Law cannot be transferred or assumed; provided, however, that the parties hereto shall cooperate (and shall cause each of their respective Affiliates and each member of their respective Groups over which they have legal or effective direct or indirect control to cooperate) to seek to 17 obtain any necessary consents or approvals for the transfer of all assets and Liabilities contemplated to be transferred pursuant to this ARTICLE II. In the event that any such transfer of assets or Liabilities has not been consummated, from and after the Distribution Date the party retaining such asset or Liability (or, as applicable, such other member or members of such party's Group) shall hold such asset in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto) or retain such Liability for the account of the party by whom such Liability is to be assumed pursuant hereto, as the case may be, and take such other action as may be reasonably requested by the party to whom such asset is to be transferred, or by whom such Liability is to be assumed, as the case may be, in order to place such party, insofar as is reasonably possible, in the same position as would have existed had such asset or Liability been transferred or assumed as contemplated hereby. As and when any such asset or Liability becomes transferable or assumable, such transfer shall be effected forthwith. As of the Distribution Date, each party hereto (or, if applicable, such other members of such party's Group) shall be deemed to have acquired (or, as applicable, retained) complete and sole beneficial ownership over all of the assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such party (or any other member of such party's Group) is entitled to acquire or required to assume pursuant to the terms of this Agreement. SECTION 2.16. ANCILLARY AGREEMENTS. Prior to the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall enter into, and/or where applicable shall cause such other members of their respective Groups to enter into, (a) the Ancillary Agreements and (b) any other agreements in respect of the Corporate Restructuring Transactions and the Distributions as are reasonably necessary or appropriate in connection with the transactions contemplated hereby and thereby so long as such agreements do not materially delay or prevent consummation of the Merger or adversely affect the Energy Business other than to a de minimis extent. ARTICLE III THE DISTRIBUTIONS SECTION 3.01. TENNECO ACTION PRIOR TO THE DISTRIBUTIONS. Subject to the terms and conditions set forth herein, Tenneco shall take, or cause to be taken, the following acts or actions in connection with, and to otherwise effect in accordance with the terms of this Agreement, the Distributions. (a) DECLARATION OF DISTRIBUTIONS AND ESTABLISHMENT OF DISTRIBUTION DATE. The Board of Directors of Tenneco shall, in its sole discretion and subject to and in accordance with the applicable rules of the NYSE and provisions of the DGCL, declare the Distributions and establish the Distribution Record Date, the Distribution Date, the date on which Industrial Common Shares, Shipbuilding Common Shares and any cash in lieu of fractional shares shall be mailed to the Tenneco Holders and all appropriate procedures in connection with the Distributions to the extent not provided for herein; provided, however, that no such action shall create any obligation on the part of Tenneco to effect the Distributions or in any way limit Tenneco's power of termination as set forth in SECTION 8.11 hereof or alter the consequences of any such termination from those specified in such Section. (b) NOTICE TO NYSE. Tenneco shall, to the extent possible, give the NYSE not less than ten days advance notice of the Distribution Record Date in compliance with Rule 10b-17 under the Exchange Act. (c) MAILING OF INDUSTRIAL INFORMATION STATEMENT. Tenneco shall, as soon as practicable after the Industrial Registration Statement shall have been declared effective under the Exchange Act, cause the Industrial Information Statement to be mailed to the Tenneco Holders. (d) MAILING OF SHIPBUILDING INFORMATION STATEMENT. Tenneco shall, as soon as practicable after the Shipbuilding Registration Statement shall have been declared effective under the Exchange Act, cause the Shipbuilding Information Statement to be mailed to the Tenneco Holders. 18 SECTION 3.02. THE DISTRIBUTIONS. (a) DUTIES AND OBLIGATIONS OF TENNECO. Subject to the conditions contained herein, on the Distribution Date Tenneco shall: (i) deliver to the Agent the share certificates representing the Industrial Common Shares and Shipbuilding Common Shares issued to Tenneco by Industrial Company and Shipbuilding Company, respectively, pursuant to SECTION 2.02 hereof, endorsed by Tenneco in blank, for the benefit of the Tenneco Holders; and (ii) instruct the Agent to distribute, as soon as practicable following consummation of the Distributions, to the Tenneco Holders the following: (A) one share of Industrial Common Stock for every one share of Tenneco Common Stock; (B) one share of Shipbuilding Common Stock for every five shares of Tenneco Common Stock; and (C) cash, if applicable, in lieu of fractional shares obtained in the manner provided in SECTION 3.03 hereof. (b) DUTIES AND RESPONSIBILITIES OF INDUSTRIAL COMPANY AND SHIPBUILDING COMPANY. Industrial Subsidiary and Shipbuilding Subsidiary shall provide, or cause to be provided, to the Agent sufficient certificates representing Industrial Common Stock and Shipbuilding Common Stock, respectively, in such denominations as the Agent may request in order to effect the Distributions. All shares of Industrial Common Stock issued pursuant to the Industrial Distribution will be validly issued, fully paid and nonassessable and free of any preemptive (or similar) rights. All shares of Shipbuilding Common Stock issued pursuant to the Shipbuilding Distribution will be validly issued, fully paid and nonassessable and free of any preemptive (or similar) rights. SECTION 3.03. FRACTIONAL SHARES. (a) NO FRACTIONAL SHARES. Notwithstanding anything herein to the contrary, no certificate or scrip evidencing a fractional share of Industrial Common Stock or Shipbuilding Common Stock shall be issued in connection with the Distributions, and any such fractional share interests to which a Tenneco Holder would otherwise be entitled will not entitle such Tenneco Holder to vote or to any rights of a stockholder of Industrial Company or Shipbuilding Company, as the case may be. In lieu of any such fractional shares, each Tenneco Holder who, but for the provisions of this SECTION 3.03, would be entitled to receive a fractional share interest of Industrial Common Stock or Shipbuilding Common Stock pursuant to the Distributions shall be paid cash, without any interest thereon, as hereinafter provided. Tenneco shall instruct the Agent to determine the number of whole shares and fractional shares of Industrial Common Stock and Shipbuilding Common Stock allocable to each Tenneco Holder, to aggregate all such fractional shares into whole shares, to sell the whole shares obtained thereby in the open market at the then prevailing prices on behalf of Tenneco Holders who otherwise would be entitled to receive fractional share interests and to distribute to each such Tenneco Holder his, her or its ratable share of the total proceeds of such sale, after making appropriate deductions of the amount required for federal income tax withholding purposes and after deducting any applicable transfer taxes. All brokers' fees and commissions incurred in connection with such sales shall be paid by Tenneco. (b) UNCLAIMED STOCK OR CASH. Any Industrial Common Stock, Shipbuilding Common Stock or cash in lieu of fractional shares and dividends or distributions with respect to Industrial Common Stock or Shipbuilding Common Stock that remain unclaimed by any Tenneco Holder 180 days after the Distribution Date shall be returned to Tenneco and any such Tenneco Holders shall look only to Tenneco for the Industrial Common Stock, Shipbuilding Common Stock, cash, if any, in lieu of fractional share interests and any such dividends or distributions to which they are entitled, subject in each case to applicable escheat or other abandoned property laws. 19 (c) BENEFICIAL OWNERS. Solely for purposes of computing fractional share interests pursuant to SECTION 3.03(A), the beneficial owner of shares of Tenneco Common Stock held of record in the name of a nominee will be treated as the holder of record of such shares. ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS SECTION 4.01. CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of Tenneco to cause the Distributions to be consummated shall be subject, at the option of Tenneco, to the fulfillment or waiver, on or prior to the Termination Date, of each of the following conditions. (a) TAX SHARING AGREEMENT. Tenneco, Industrial Company, Shipbuilding Company and Acquiror shall have executed and delivered the Tax Sharing Agreement and such agreement shall be in full force and effect. (b) BENEFITS AGREEMENT. Tenneco, Industrial Company and Shipbuilding Company shall have executed and delivered the Benefits Agreement and such agreement shall be in full force and effect. (c) TRANSITION SERVICES AGREEMENT. Tenneco and Tenneco Business Services Inc. shall have executed and delivered the Transition Services Agreement and such agreement shall be in full force and effect. (d) INSURANCE AGREEMENT. Tenneco, Industrial Company and Shipbuilding Company shall have executed and delivered the Insurance Agreement and such agreement shall be in full force and effect. (e) DEBT AND CASH ALLOCATION AGREEMENT. Tenneco, Industrial Company and Shipbuilding Company shall have executed and delivered the Debt and Cash Allocation Agreement and such agreement shall be in full force and effect. (f) EFFECTIVE DATE OF REGISTRATION STATEMENT. Each of the Registration Statements shall have been declared effective by order of the Commission and no stop order shall have been entered, and no proceeding for that purpose shall have been initiated or threatened by the Commission with respect thereto. (g) NYSE LISTING. The Industrial Common Shares and the Shipbuilding Common Shares shall have been approved for listing on the NYSE, subject to official notice of issuance. (i) TAX RULING. Tenneco shall have received rulings from the Internal Revenue Service reasonably acceptable to Tenneco and Acquiror, which rulings shall be in full force and effect as of the Distribution Date, to the effect that: (i) The Industrial Distribution as contemplated hereunder will be tax-free for federal income tax purposes to Tenneco under Section 355(c)(1) of the Code and to the stockholders of Tenneco under Section 355(a) of the Code; (ii) The Shipbuilding Distribution as contemplated hereunder will be tax-free for federal income tax purposes to Tenneco under Section 355(c)(1) of the Code and to the stockholders of Tenneco under Section 355(a) of the Code; and (iii) The following distributions will be tax free to the respective transferor corporations under Section 355(c)(1) of the Code and to the respective stockholders of the transferor corporations under Section 355(a) of the Code: (A) the distribution by the Shipbuilding Company of the capital stock of Tenneco Packaging Inc. to Tenneco Corporation contemplated under the Corporate Restructuring Transactions; (B) the distribution by Tenneco Corporation of the capital stock of the Shipbuilding Company and the Industrial Company to Tennessee Gas Pipeline Company as contemplated under the Corporate Restructuring Transactions; and (C) the distribution by Tennessee Gas Pipeline Company of the capital stock of the Shipbuilding Company and the Industrial Company to Tenneco Inc. as contemplated under the Corporate Restructuring Transactions. 20 (i) PRE-DISTRIBUTION TRANSACTIONS. Each of the transactions and other matters contemplated by ARTICLE II and SECTION 3.01 hereof (including, without limitation, each of the distributions, transfers, conveyances, contributions, assignments or other transactions included in, or otherwise necessary to consummate, the Corporate Restructuring Transactions) shall have been fully effected, consummated and accomplished. (j) COVENANTS. The covenants contained in ARTICLE V of this Agreement that are required to be performed on or before the Distribution Date shall have been fully performed. (k) NO PROHIBITIONS. Consummation of the transactions contemplated hereby shall not be prohibited by Law and no Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which materially restricts, prevents or prohibits consummation of the Distributions, the Merger or any transaction contemplated by this Agreement or the Merger Agreement, it being understood that the parties hereto hereby agree to use their reasonable best efforts to cause any such decree, judgment, injunction or other order to be vacated or lifted as promptly as possible. (l) CONSENTS. Tenneco, Industrial Company, Shipbuilding Company and the other members of their respective Groups shall have obtained all Consents the failure of which to obtain would, in the determination of the Board of Directors of Tenneco, have a material adverse effect on the Energy Group, the Industrial Group or the Shipbuilding Group, each taken as a whole, and such Consents shall be in full force and effect. (m) STOCKHOLDER APPROVAL. The Distributions shall have been approved by the requisite vote of the holders of the outstanding Tenneco Common Stock and the holders of the outstanding $7.40 Cumulative Preferred Stock of Tenneco, voting together as a class, by the requisite vote of the holders of the outstanding $4.50 Cumulative Preferred Stock of Tenneco and the holders of the outstanding $7.40 Cumulative Preferred Stock of Tenneco, voting together as a class, and by any requisite vote of the holders of the outstanding New Preferred Stock (as defined in the Merger Agreement), voting separately as a class, in accordance with the DGCL and the provisions of Tenneco's Certificate of Incorporation. (n) HSR ACT. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to the transactions contemplated under the Merger Agreement shall have expired or been terminated. (o) DEBT REALIGNMENT. Each of the transactions and other matters contemplated under the Debt Realignment (as defined under the Merger Agreement) shall have been fully effected, consummated and accomplished. SECTION 4.02. NO CONSTRAINT. Notwithstanding the provisions of SECTION 4.01 above (but subject to Tenneco's obligations under the Merger Agreement), the fulfillment or waiver of any or all of the conditions precedent to the Distributions set forth therein shall not: (i) create any obligation on the part of Tenneco or any other party hereto to effect the Distributions; (ii) in any way limit Tenneco's right and power under SECTION 8.11 hereof to terminate this Agreement and the process leading to the Distributions and to abandon the Distributions; or (iii) alter the consequences of any such termination under SECTION 8.11 hereof from those specified in such Section. SECTION 4.03. DEFERRAL OF DISTRIBUTION DATE. If the Distribution Date shall have been established by the Board of Directors of Tenneco but all the conditions precedent to the Distributions set forth in this Agreement have not theretofore been fulfilled or waived, or Tenneco does not reasonably anticipate that they will be fulfilled or waived, on or prior to the date established as the Distribution Date, Tenneco may, by resolution of its Board of Directors (or a committee thereof, so authorized), defer the Distribution Date to a later date. SECTION 4.04. PUBLIC NOTICE OF DEFERRED DISTRIBUTION DATE. If the Board of Directors (or a committee thereof, so authorized) of Tenneco shall defer the Distribution Date in accordance with SECTION 4.03 above and public announcement of the prior Distribution Date has theretofore been made, Tenneco shall promptly thereafter 21 issue, in accordance with the advice of legal counsel, a public announcement with respect to such deferment and shall, with the advice of legal counsel, take such other actions as may be deemed necessary or desirable with respect to the dissemination of such information. ARTICLE V COVENANTS SECTION 5.01. FURTHER ASSURANCES. Each of Tenneco, Industrial Company and Shipbuilding Company shall use all reasonable efforts to: (a) take or cause to be taken all actions, and to do or cause to be done all things reasonably necessary, proper or advisable under applicable Law and agreements or otherwise to consummate and make effective the transactions contemplated hereby, including without limitation using commercially reasonable efforts to obtain any consents and approvals from, enter into any amendatory agreements with and make any applications, registrations or filings with, any third Person or any Governmental Authority necessary or desirable in order to consummate the transactions contemplated hereby or to carry out the purposes of this Agreement; and (b) execute and deliver such further instruments and documents and take such other actions as the other party may reasonably request in order to consummate the transactions contemplated hereby and effectuate the purposes of this Agreement. SECTION 5.02. TENNECO NAME. Industrial Company shall grant to each of Tenneco and Shipbuilding Company transition licenses, in the forms of EXHIBIT P and Q, respectively (the "Transition Trademark License"), to use the Tenneco Trademarks and Tradenames for the limited use as more fully described below in this SECTION 5.02 and in SECTION 5.03. Each of Tenneco and Shipbuilding Company shall, and shall cause each of the other members of its Group over which it has legal or effective direct or indirect control to, at its own expense: (a) Within 30 days following the Distribution Date, change, if necessary, its corporate name to delete therefrom the word "Tenneco" or any other word that is confusingly similar to the word "Tenneco" (except the word "Tennessee"); and (b) With respect to Tenneco, within two years following the Distribution Date, and, with respect to Shipbuilding Company, within one year following the Distribution Date, remove any and all references to the Tenneco Trademark and Tradenames from any and all signs, displays or other identification or advertising material (excluding any such material that is the subject of SECTION 5.03 below). After the conclusion of such period, each of Tenneco, Shipbuilding Company, and each other member of its respective Group or over which it has legal or effective direct or indirect control shall not use or display any of the Tenneco Trademarks and Tradenames without the prior written consent of Industrial Company, which consent may be withheld for any reason or no reason whatsoever. After the Distribution Date, no party hereto shall represent or permit to be represented to any third Person that it or any member of its Group has a business affiliation with any other party hereto or any member of such other party's Group, except as expressly permitted by any of the Ancillary Agreements. SECTION 5.03. SUPPLIES AND DOCUMENTS. Notwithstanding the provisions of SECTION 5.02 above, for a period of six (6) months following the Distribution Date, the Transition Trademark License shall license (on a nonexclusive basis) to each of the members of the Energy Group and the Shipbuilding Group the right to use existing supplies and documents which have imprinted thereon any of the Tenneco Trademarks and Tradenames to the extent that such supplies and documents were existing in the inventory of such member of the Energy Group or Shipbuilding Group, as applicable, as of the Distribution Date. 22 SECTION 5.04. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as otherwise specifically set forth in any Ancillary Agreement, from and after the Distribution Date: (a) Tenneco shall, and shall cause each of the other members of the Energy Group over which it has legal or effective direct or indirect control to, assume, pay, perform and discharge all Energy Liabilities in accordance with their terms, when determinable, and otherwise as determined in accordance with the practice of the parties prior to the Distributions; (b) Industrial Company shall, and shall cause each of the other members of the Industrial Group over which it has legal or effective direct or indirect control to, assume, pay, perform and discharge all Industrial Liabilities in accordance with their terms, when determinable, and otherwise as determined in accordance with the practice of the parties prior to the Distributions; and (c) Shipbuilding Subsidiary shall, and shall cause each of the other members of the Shipbuilding Group over which it has legal or effective direct or indirect control to, assume, pay, perform and discharge all Shipbuilding Liabilities in accordance with their terms, when determinable, and otherwise as determined in accordance with the practice of the parties prior to the Distributions. SECTION 5.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. (a) General. Each of the parties hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement (including the Ancillary Agreements) or otherwise, making any representation or warranty whatsoever, including without limitation, any representation or warranty: (i) as to the value or freedom from encumbrance of, or any other matter concerning, any assets of such party; or (ii) as to the legal sufficiency to convey title to any asset as of the execution, delivery and filing of this Agreement or any Ancillary Agreement, including, without limitation, any Conveyancing and Assumption Instrument. (b) DISCLAIMER OF MERCHANTABILITY OR FITNESS OF ASSETS. Each party hereto further understands and agrees that there are no warranties, express or implied, as to the merchantability or fitness of any of the assets either transferred to or retained by the Energy Group, the Industrial Group or the Shipbuilding Group, as the case may be, pursuant to Corporate Restructuring Transactions and the other terms and provisions of this Agreement, any Conveyancing and Assumption Agreement or any Ancillary Agreement, and all such assets which are so transferred will be transferred on an "AS IS, WHERE IS" basis, and the party to which any such assets are transferred hereunder, or which retains assets hereunder, shall bear the economic and legal risk that any conveyances of such assets shall prove to be insufficient or that the title of such party or any other member of its respective Group to any such assets shall be other than good and marketable and free from encumbrances. (c) ACKNOWLEDGEMENT OF DISCLOSURE AND WAIVER. Each of Industrial Company and Shipbuilding Company acknowledges, for itself and on behalf of each other member of its respective Group, that: (i) Tenneco and the other members of the Energy Group have disclosed, and Industrial Company and Shipbuilding Company have knowledge of, all matters pertaining to the assets and properties to be conveyed to Industrial Company, Shipbuilding Company or any member of their respective Group pursuant to the Corporate Restructuring Transactions or otherwise pursuant to the other terms of this Agreement to the same extent that Tenneco and the other members of the Energy Group have knowledge of such matters; and (ii) such knowledge constitutes notice and disclosure of such matters. Each of Industrial Company and Shipbuilding Company waives, to the fullest extent permitted by law, for itself and for each other member of its respective Group, any and all claims or causes of action which any of them may have arising out of such matters or the failure of any Conveyancing and Assumption Instrument to describe or refer to, or provide notice of, any such matters. 23 (d) NO REPRESENTATIONS OR WARRANTIES REGARDING CONSENTS. Each of the parties hereto understands and agrees that no party hereto is, in this Agreement or any Ancillary Agreement or in any other agreement or document contemplated by this Agreement or any Ancillary Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any amendatory agreements and the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any or all applicable Law. Each of the parties hereto further agrees and understands that the party to which any assets are transferred as contemplated by the Corporate Restructuring Transactions or the other provisions of this Agreement shall bear the economic and legal risk that any necessary consents or approvals are not obtained, that any necessary amendatory agreements are not executed and delivered or that any requirements of Laws are not complied with. (e) COVENANT TO USE REASONABLE EFFORTS TO OBTAIN CONSENTS. Notwithstanding the provisions of SECTION 5.05(D) above, each of the parties hereto shall (and shall cause each other member of its respective Group over which it has direct or indirect legal or effective control to) use commercially reasonable efforts to obtain all consents and approvals, to enter into all amendatory agreements and to make all filings and applications which may be reasonably required for the consummation of the transactions contemplated by this Agreement and shall take all such further reasonable actions as shall be reasonably necessary to preserve for each of the Energy Group, the Industrial Group and the Shipbuilding Group, to the greatest extent feasible, the economic and operational benefits of the allocation of assets and Liabilities contemplated by this Agreement. In case at any time after the Distribution Date any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall take all such necessary or desirable action. SECTION 5.06. REMOVAL OF CERTAIN GUARANTEES. (a) REMOVAL OF ENERGY GROUP AS GUARANTOR OF INDUSTRIAL AND SHIPBUILDING LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring Transactions or otherwise specified in any Ancillary Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall use its commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, Tenneco and any other member of the Energy Group removed as a guarantor of, or obligor under or for, any Industrial Liability or Shipbuilding Liability. (b) REMOVAL OF INDUSTRIAL GROUP AS GUARANTOR OF ENERGY AND SHIPBUILDING LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring Transactions or otherwise specified in any Ancillary Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall use its commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, Industrial Company and any other member of the Industrial Group removed as a guarantor of, or obligor under or for, any Energy Liability or Shipbuilding Liability. (c) REMOVAL OF SHIPBUILDING GROUP AS GUARANTOR OF ENERGY AND INDUSTRIAL LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring Transactions or otherwise specified in any Ancillary Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall use their commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, Shipbuilding Company and any other member of the Shipbuilding Group removed as a guarantor of, or obligor under or for, any Energy Liability or Industrial Liability. SECTION 5.07. PUBLIC ANNOUNCEMENTS. Each party hereto shall consult with each other before issuing any press release or otherwise issuing any other similar written public statement with respect to this Agreement or the Distributions and shall not issue any such press release or make any such public statement without the prior consent of each other party, which shall not be unreasonably withheld; provided, however, that a party may, without the prior consent of any other party, issue such press release or other similar written public statement as may be required by law or any listing agreement with a national securities exchange to which any party hereto (or any member of such party's Group) is a party if it has used all reasonable efforts to consult with such other party and to obtain such party's consent but has been unable to do so in a timely manner. 24 SECTION 5.08. INTERCOMPANY AGREEMENTS. Effective as of the consummation of the Distributions, each of Industrial Company, Shipbuilding Company and Tenneco shall (and shall cause each other member of its respective Group over which it has legal or effective direct or indirect control) to terminate each and every agreement between it and any member of any of the other Groups other than this Agreement, any of the Ancillary Agreements and any of the license agreements referred to in SECTION 2.06(F) above; provided, however, that such termination shall not have any effect whatsoever on any of its rights and/or obligations that accrued or were incurred prior to the Distribution Date (subject to the terms of SECTION 2.13 above). SECTION 5.09. TAX MATTERS. Each of Tenneco, the Industrial Company and the Shipbuilding Company intend the Distributions to be treated as tax-free distributions under Code Section 355 and each such party shall use its reasonable best efforts to cause the Distributions to so qualify. Neither Tenneco, on the one hand, nor the Industrial Company and Shipbuilding Company, on the other hand, shall take any action (other than the Merger) which might cause: (i) the Distributions to fail to qualify as tax-free distributions under Code Section 355; (ii) any other transfer described in the Corporate Restructuring Transactions that is intended (as described in Tenneco's request for rulings from the Internal Revenue Service) to qualify as a tax free transfer under Code Sections 332, 351, 355 or 368 to fail to so qualify; or (iii) Tenneco or any Energy Subsidiary to recognize any gains relating to deferred intercompany transactions or excess loss accounts between or among any member of affiliated group of corporations of which Tenneco is the common parent, other than those defined intercompany gains listed on EXHIBIT H to the Merger Agreement. ARTICLE VI ACCESS TO INFORMATION SECTION 6.01. PROVISION, TRANSFER AND DELIVERY OF APPLICABLE CORPORATE RECORDS. (a) PROVISION, TRANSFER AND DELIVERY OF INDUSTRIAL RECORDS. Each of Tenneco and Shipbuilding Company shall (and shall cause each other member of its respective Group over which it has legal or effective direct or indirect control to) arrange as soon as practicable following the Distribution Date for the transportation (at Industrial Company's cost) to Industrial Company of the Books and Records in its possession (i) that relate primarily to the Industrial Business or are necessary to operate the Industrial Business (collectively, the "INDUSTRIAL RECORDS"), and (ii) that consist of the corporate minutes of the Board of Directors (or committees thereof) of Tenneco or otherwise relate to the business, administrative and management operations of Tenneco as the parent holding company of the Energy Business, Industrial Business and Shipbuilding Business (collectively, the "TENNECO CORPORATE RECORDS") except to the extent such items are already in the possession of any member of the Industrial Group. The Industrial Records and the Tenneco Corporate Records shall be the property of Industrial Company, but shall be available to each of Tenneco and Shipbuilding Company for review and duplication, at their cost, pursuant to the terms of this Agreement. (b) PROVISION, TRANSFER AND DELIVERY OF SHIPBUILDING RECORDS. Each of Tenneco and Industrial Company shall (and shall cause each other member of its respective Group over which it has legal or effective direct or indirect control to) arrange as soon as practicable following the Distribution Date for the transportation (at Shipbuilding Company's cost) to Shipbuilding Company of the Books and Records in its possession that relate primarily to the Shipbuilding Business or are necessary to operate the Shipbuilding Business (collectively, the "SHIPBUILDING RECORDS"), except to the extent such items are already in the possession of any member of the Shipbuilding Group. The Shipbuilding Records shall be the property of Shipbuilding Company, but shall be available to each of Tenneco and Industrial Company for review and duplication , at their cost, pursuant to the terms of this Agreement. (c) PROVISION, TRANSFER AND DELIVERY OF ENERGY RECORDS. Each of Industrial Company and Shipbuilding Company shall (and shall cause each other member of its respective Group over which it has legal or effective direct or indirect control to) arrange as soon as practicable following the Distribution Date for the transportation (at Tenneco's cost) to Tenneco of the Books and Records in its possession that relate primarily to the Energy 25 Business or are necessary to operate the Energy Business (collectively, the "ENERGY RECORDS"), except to the extent such items are already in the possession of any member of the Energy Group. The Energy Records shall be the property of Tenneco, but shall be available to each of Industrial Company and Shipbuilding Company for review and duplication, at their cost, pursuant to the terms of this Agreement. SECTION 6.02. ACCESS TO INFORMATION. (a) ACCESS TO BOOKS AND RECORDS. Unless otherwise contemplated by SECTION 6.06 hereof, from and after the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause each of the other members of its respective Group over which it has legal or effective direct or indirect control to) afford to each other party and its authorized accountants, counsel and other designated representatives reasonable access and duplicating rights (all such duplicating costs to be borne by the requesting party) during normal business hours, subject to appropriate restrictions for classified, privileged or confidential information, to the personnel, properties, Books and Records and other data and information of such party and each other member of such party's Group relating to operations prior to the Distributions insofar as such access is reasonably required by the other requesting party for the conduct of the requesting party's business (but not for competitive purposes). (b) PROVISION OF POST-DISTRIBUTION COMMISSION FILINGS. For a period of five years following the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause each of the other members of its respective Group over which it has legal or effective direct or indirect control to) provide to the other, promptly following such time at which such documents are filed with the Commission, all documents (other than documents or portions thereof for which confidential treatment has been granted or a request for confidential treatment is pending) filed by it and by each other member of such party's Group with the Commission pursuant to the Securities Act or the periodic and interim reporting requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. SECTION 6.03. REIMBURSEMENT: OTHER MATTERS. Except to the extent otherwise contemplated hereby or by any Ancillary Agreement, a party providing Books and Records or access to information to any other party (or such party's representatives) under this ARTICLE VI shall be entitled to receive from such other party, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Books and Records or access to information. SECTION 6.04. CONFIDENTIALITY. (a) GENERAL RESTRICTION ON DISCLOSURE. Each of Tenneco, Industrial Company and Shipbuilding Company shall not (and shall not permit any other member of its respective Group over which it has legal or effective direct or indirect control to) use or permit the use of (without the prior written consent of the other) and shall hold, and shall cause its consultants, advisors and other representatives and any other member of its respective Group (over which it has legal or effective direct or indirect control) to hold, in strict confidence, all information concerning each other party hereto and the other members of such other party's Group in its possession, custody or control to the extent such information either (i)relates to the period up to the Distribution Date, (ii)relates to any Ancillary Agreement, or (iii)is obtained in the course of performing services for the other party pursuant to any Ancillary Agreement, and each party hereto shall not (and shall cause each other member of its respective Group over which it has legal or effective direct or indirect control not to) otherwise release or disclose such information to any other Person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors, without the prior written consent of the other affected party or parties, unless compelled to disclose such information by judicial or administrative process or unless such disclosure is required by Law and such party has used commercially reasonable efforts to consult with the other affected party or parties prior to such disclosure. 26 (b) COMPELLED DISCLOSURE. To the extent that a party hereto is compelled by judicial or administrative process to disclose such information under circumstances in which any evidentiary privilege would be available, such party agrees to assert such privilege in good faith prior to making such disclosure. Each of the parties shall consult with each relevant other party in connection with any such judicial or administrative process, including, without limitation, in determining whether any privilege is available, and shall not object to each such relevant party and its counsel participating in any hearing or other proceeding (including, without limitation, any appeal of an initial order to disclose) in respect of such disclosure and assertion of privilege. (c) EXCEPTIONS TO CONFIDENTIAL TREATMENT. Anything herein to the contrary notwithstanding, no party hereto shall be prohibited from using or permitting the use of, or required to hold in confidence, any information to the extent that (i) such information has been or is in the public domain through no fault of such party, (ii) such information is, after the Distribution Date, lawfully acquired from other sources by such party, or (iii) this Agreement, any Ancillary Agreement or any other agreement entered into pursuant hereto permits the use or disclosure of such information by such party. SECTION 6.05. WITNESS SERVICES. At all times from and after the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall use its reasonable efforts to make available to each other party hereto, upon reasonable written request, the officers, directors, employees and agents of each member of its respective Group for fact finding, consultation or interviews and as witnesses to the extent that: (a) such persons may reasonably be required in connection with the prosecution or defense of any Action in which the requesting party or any member of its respective Group may from time to time be involved; and (b) there is no conflict in the Action between the requesting party or any member of its respective Group and the party to which a request is made pursuant to this SECTION 6.05 or any member of such party's Group. Except as otherwise agreed by the parties, a party providing witness services to any other party under this Section shall be entitled to receive from the recipient of such services, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses (but not salary expenses) and direct and indirect costs of employees who participate in fact finding, consultation or interviews or are witnesses, as are actually and reasonably incurred in providing such fact finding, consulting, interviews or witness services by the party providing such services. SECTION 6.06. RETENTION OF RECORDS. Except when a longer period is required by Law or is specifically provided for herein or in any Ancillary Agreement, each party hereto shall cause the members of its Group over which it has legal or effective direct or indirect control, to retain, for a period of at least seven years following the Distribution Date, all material information (including without limitation all material Books and Records) relating to such Group and its operations prior to the Distribution Date. Notwithstanding the foregoing, any party hereto may offer in writing to deliver to the other parties all or a portion of such information as it relates to members of the offering party's Group and, if such offer is accepted in writing within 90 days after receipt thereof, the offering party shall promptly arrange for the delivery of such information (or copies thereof) to each accepting party (at the expense of such accepting party). If such offer is not so accepted, the offered information may be destroyed or otherwise disposed of by the offering party at any time thereafter. SECTION 6.07. PRIVILEGED MATTERS. (a) PRIVILEGED INFORMATION. Each of the parties hereto shall, and shall cause the members of its Group over which it has legal or effective direct or indirect control to, use its reasonable efforts to maintain, preserve, protect and assert all privileges including, without limitation, all privileges arising under or relating to the attorney-client relationship (including without limitation the attorney-client and attorney work product privileges) that relate directly or indirectly to any member of any other Group for any period prior to the Distribution Date ("PRIVILEGE" or "PRIVILEGES"). Each of the parties hereto shall use its reasonable efforts not to waive, or permit any member of its Group over which it has legal or effective direct or indirect control to waive, any such Privilege that could be asserted under applicable Law without the prior written consent of the other parties. With respect to each party, the rights and obligations created by this SECTION 6.07 shall apply to all information as to which a member of any Group did assert or, but for the 27 Distributions, would have been entitled to assert the protection of a Privilege ("PRIVILEGED INFORMATION") including, but not limited to, any and all information that either: (i) was generated or received prior to the Distribution Date but which, after the Distributions, is in the possession of a member of another Group; or (ii) is generated or received after the Distribution Date but refers to or relates to Privileged Information that was generated or received prior to the Distribution Date. (b) PRODUCTION OF PRIVILEGED INFORMATION. Upon receipt by a party or any member of its Group of any subpoena, discovery or other request that arguably calls for the production or disclosure of Privileged Information, or if a party or any member of its Group obtains knowledge that any current or former employee of such party or any member of its Group has received any subpoena, discovery or other request which arguably calls for the production or disclosure of Privileged Information, such party shall promptly notify the other parties of the existence of the request and shall provide the other parties a reasonable opportunity to review the information and to assert any rights it may have under this SECTION 6.07 or otherwise to prevent the production or disclosure of Privileged Information. No party will, or will permit any member of its Group over which it has direct or indirect legal or effective control to, produce or disclose any information arguably covered by a Privilege under this SECTION 6.07 unless: (i) each other party has provided its express written consent to such production or disclosure; or (ii) a court of competent jurisdiction has entered an order which is not then appealable or a final, nonappealable order finding that the information is not entitled to protection under any applicable privilege. (c) NO WAIVER. The parties hereto understand and agree that the transfer of any Books and Records or other information between any members of the Energy Group, the Industrial Group, or the Shipbuilding Group shall be made in reliance on the agreements of Tenneco, Industrial Company and Shipbuilding Company, as set forth in SECTION 6.04 and SECTION 6.07 hereof, to maintain the confidentiality of Privileged Information and to assert and maintain all applicable Privileges. The Books and Records being transferred pursuant to SECTION 6.01 hereof, the access to information being granted pursuant to SECTION 6.02 hereof, the agreement to provide witnesses and individuals pursuant to SECTION 6.05 hereof and the transfer of Privileged Information to either party pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Section or otherwise. ARTICLE VII INDEMNIFICATION SECTION 7.01. INDEMNIFICATION BY TENNECO. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, Tenneco shall, to the fullest extent permitted by law, indemnify, defend and hold harmless the Industrial Indemnitees and the Shipbuilding Indemnitees from and against any and all Indemnifiable Losses of the Industrial Indemnitees and the Shipbuilding Indemnitees, respectively, arising out of, by reason of or otherwise in connection with either (i) the Energy Liabilities, or (ii) the breach by Tenneco of any provision of this Agreement or any Ancillary Agreement. SECTION 7.02. INDEMNIFICATION BY INDUSTRIAL COMPANY. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, Industrial Company shall, to the fullest extent permitted by law, indemnify, defend and hold harmless the Energy Indemnitees and the Shipbuilding Indemnitees from and against any and all Indemnifiable Losses of the Energy Indemnitees and the Shipbuilding Indemnitees, respectively, arising out of, by reason of or otherwise in connection with either (i) the Industrial Liabilities, or (ii) the breach by Industrial Company of any provision of this Agreement or any Ancillary Agreement. SECTION 7.03. INDEMNIFICATION BY SHIPBUILDING COMPANY. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, Shipbuilding Company shall, to the fullest 28 entent permitted by law, indemnify, defend and hold harmless the Energy Indemnitees and the Industrial Indemnitees from and against any and all Indemnifiable Losses of the Energy Indemnitees and the Industrial Indemnitees, respectively, arising out of, by reason of or otherwise in connection with either (i) the Shipbuilding Liabilities, or (ii) the breach by Shipbuilding Company of any provision of this Agreement or any Ancillary Agreement. In addition, and without limiting the generality of the foregoing indemnification provisions of this SECTION 7.03, Shipbuilding Company shall, to the fullest extent permitted by law, indemnify, defend and hold harmless the Industrial Indemnitees and the Energy Indemnitees from and against any and all Indemnifiable Losses of the Industrial Indemnitees and the Energy Indemnitees, respectively, arising out of, by reason of or otherwise in connection with any matter, of whatever kind or nature, relating in any way to the commercial ships commonly known as the "Double Eagle" product tankers, including without limitation, (i) the design, engineering or construction of any of the Double Eagle product tankers, (ii) the sale or other disposition of any of the Double Eagle product tankers (or the sale or other disposition of any direct or indirect equity interest in any of the Double Eagle product tankers), (iii) the direct or indirect financing of the construction of any of the Double Eagle product tankers or any other financing relating to any of the Double Eagle product tankers, (iv) the direct or indirect equity investments in any of the Double Eagle product tankers, (v) the purchase of raw materials and other materials and services in connection with the design, construction or engineering of any of the Double Eagle product tankers, (vi) the negotiation of any contract for the construction of or financing for the construction of, any of the Double Eagle product tankers, or (vii) the operation by any Person whatsoever of any of the Double Eagle product tankers. SECTION 7.04. LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. (a) REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that any party (an "INDEMNIFYING PARTY") is or may be required to pay to any other Person (an "INDEMNITEE") pursuant to SECTION 7.01, SECTION 7.02 or SECTION 7.03 above, as applicable, shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered from third parties by or on behalf of such Indemnitee in respect of the related Indemnifiable Losses (except that nothing herein shall be construed as requiring any Indemnitee in respect of any Shipbuilding Securities Liability to file any claim for insurance). The existence of a claim by an Indemnitee for insurance or against a third party in respect of any Indemnifiable Loss shall not, however, delay any payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owing by an Indemnifying Party. Rather the Indemnifying Party shall make payment in full of such amount so determined to be due and owing by it against an assignment by the Indemnitee to the Indemnifying Party of the entire claim of the Indemnitee for such insurance or against such third party. Notwithstanding any other provisions of this Agreement, it is the intention of the parties hereto that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions or (ii) relieved of the responsibility to pay any claims for which it is obligated. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Losses and shall subsequently actually receive Insurance Proceeds or other amounts in respect of such Indemnifiable Losses, then such Indemnitee shall hold such Insurance Proceeds in trust for the benefit of such Indemnifying Party and shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received, up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnifiable Losses. (b) FOREIGN CURRENCY ADJUSTMENTS. In the event that any indemnification payment required to be made hereunder or under any Ancillary Agreement shall be denominated in a currency other than U.S. Dollars, the amount of such payment shall be translated into U.S. Dollars using the foreign exchange rate for such currency determined in accordance with the following rules: (i) with respect to any Indemnifiable Losses arising from the payment by a financial institution under a guarantee, comfort letter, letter of credit, foreign exchange contract or similar instrument, the foreign exchange rate for such currency shall be determined as of the date on which such financial institution shall have been reimbursed; (ii) with respect to any Indemnifiable Losses covered by insurance, the foreign exchange rate for such currency shall be the foreign exchange rate employed by the insurance company providing such insurance in settling such Indemnifiable Losses with the Indemnifying Party; and 29 (iii) with respect to any Indemnifiable Losses not covered by either clause (i) or (ii) above, the foreign exchange rate for such currency shall be determined as of the date that notice of the claim with respect to such Indemnifiable Losses shall be given to the Indemnitee. SECTION 7.05. PROCEDURES FOR INDEMNIFICATION. Except as otherwise specifically provided in any Ancillary Agreement, including, without limitation, the Tax Sharing Agreement and the Benefits Agreement: (a) NOTICE OF THIRD PARTY CLAIMS. If a claim or demand is made against an Indemnitee by any Person who is not a member of the Energy Group, Industrial Group or Shipbuilding Group (a "THIRD PARTY CLAIM") as to which such Indemnitee is entitled to indemnification pursuant to this Agreement, such Indemnitee shall notify the Indemnifying Party in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within 15 business days) after receipt by such Indemnitee of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the Indemnitee's right to indemnification hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure (except that the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnitee failed to give such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly (and in any event within 15 business days) after the Indemnitee's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim. (b) LEGAL DEFENSE OF THIRD PARTY CLAIMS. If a Third Party Claim is made against an Indemnitee, the Indemnifying Party shall be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the Indemnifying Party, which counsel shall be reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so elect to assume the defense of a Third Party Claim, the Indemnifying Party shall not be liable to the Indemnitee for legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof. If the Indemnifying Party assumes such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall control such defense. The Indemnifying Party shall be liable for the reasonable fees and expenses of counsel employed by the Indemnitee for any period during which the Indemnifying Party has failed to assume the defense of the Third Party Claim (other than during the period prior to the time the Indemnitee shall have given notice of the Third Party Claim as provided above). If the Indemnifying Party so elects to assume the defense of any Third Party Claim, all of the Indemnitees shall cooperate with the Indemnifying Party in the defense or prosecution thereof. Notwithstanding the foregoing: (i) the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable to the Indemnitee for the reasonable fees and expenses of counsel incurred by the Indemnitee in defending such Third Party Claim) if the Third Party Claim either (A) seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnitee which the Indemnitee reasonably determines, after conferring with its counsel, cannot be separated from any related claim for money damages; provided, however, that if such equitable relief or other relief portion of the Third Party Claim can be so separated from that for money damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to money damages; or (B) relates to or arises out of any Shipbuilding Securities Liability. (ii) an Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the reasonable fees and expenses of counsel incurred by the Indemnitee in defending such Third Party Claim) if, in the Indemnitee's reasonable judgment, a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such Third Party Claim; and (iii) if at any time after assuming the defense of a Third Party Claim an Indemnifying Party shall fail to prosecute or withdraw from the defense of such Third Party Claim, the Indemnitee shall be entitled to resume the defense thereof and the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel incurred by the Indemnitee in such defense. 30 (c) SETTLEMENT OF THIRD PARTY CLAIMS. Except as otherwise provided below in this SECTION 7.05(C), or as otherwise specifically provided in any Ancillary Agreement, including without limitation, the Tax Sharing Agreement and the Benefits Agreement, if the Indemnifying Party has assumed the defense of any Third Party Claim, then (i) in no event will the Indemnitee admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the Indemnifying Party's prior written consent; provided, however, that the Indemnitee shall have the right to settle, compromise or discharge such Third Party Claim without the consent of the Indemnifying Party if the Indemnitee releases the Indemnifying Party from its indemnification obligation hereunder with respect to such Third Party Claim and such settlement, compromise or discharge would not otherwise adversely affect the Indemnifying Party, and (ii) the Indemnitee will agree to any settlement, compromise or discharge of a Third Party Claim that the Indemnifying Party may recommend and that by its terms obligates the Indemnifying Party to pay the full amount of the liability in connection with such Third Party Claim and releases the Indemnitee completely in connection with such Third Party Claim and that would not otherwise adversely affect the Indemnitee. provided, however, that the Indemnitee may refuse to agree to any such settlement, compromise or discharge if the Indemnitee agrees that the Indemnifying Party's indemnification obligation with respect to such Third Party Claim shall not exceed the amount that would be required to be paid by or on behalf of the Indemnifying Party in connection with such settlement, compromise or discharge. If the Indemnifying Party has not assumed the defense of a Third Party Claim then in no event shall the Indemnitee settle, compromise or discharge such Third Party Claim without providing prior written notice to the Indemnifying Party, which shall have the option within 15 business days following receipt of such notice to (i) approve and agree to pay the settlement, (ii) approve the amount of the settlement, reserving the right to contest the Indemnitee's right to indemnity pursuant to this Agreement, (iii) disapprove the settlement and assume in writing all past and future responsibility for such Third Party Claim (including all of Indemnitee's prior expenditures in connection therewith), or (iv) disapprove the settlement and continue to refrain from participation in the defense of such Third Party Claim, in which event the Indemnifying Party shall have no further right to contest the amount or reasonableness of the settlement if the Indemnitee elects to proceed therewith. In the event the Indemnifying Party does not respond to such written notice from the Indemnitee within such 15 business-day period, the Indemnifying Party shall be deemed to have elected option (i). (d) OTHER CLAIMS. Any claim on account of an Indemnifiable Loss which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall have a period of 15 business days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 15 business-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 15 business-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party under applicable Law or under this Agreement. SECTION 7.06. INDEMNIFICATION PAYMENTS. Indemnification required by this ARTICLE VII shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or loss, liability, claim, damage or expense is incurred. SECTION 7.07. OTHER ADJUSTMENTS. (a) ADJUSTMENTS FOR TAXES. The amount of any Indemnifiable Loss shall be: (i) increased to take into account any net Tax cost actually incurred by the Indemnitee arising from any payments received from the Indemnifying Party (grossed up for such increase); and 31 (ii) reduced to take account of any net Tax benefit actually realized by the Indemnitee arising from the incurrence or payment of any such Indemnifiable Loss. In computing the amount of such Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any payment with respect to an Indemnifiable Loss or the incurrence or payment of any Indemnifiable Loss. (b) REDUCTIONS FOR SUBSEQUENT RECOVERIES OR OTHER EVENTS. In addition to any adjustments required pursuant to SECTION 7.04 hereof or SECTION 7.07(A) above, if the amount of any Indemnifiable Losses shall, at any time subsequent to any indemnification payment made by the Indemnifying Party pursuant to this ARTICLE VII, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the Indemnifying Party, up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnifiable Losses. SECTION 7.08. OBLIGATIONS ABSOLUTE. The foregoing contractual obligations of indemnification set forth in this ARTICLE VII shall: (i) also apply to any and all Third Party Claims that allege that any Indemnitee is independently, directly, vicariously or jointly and severally liable to such third party; (ii) to the extent permitted by applicable law, apply even if the Indemnitee is partially negligent or otherwise partially culpable or at fault, whether or not such liability arises under any doctrine of strict liability; and (iii) be in addition to any liability or obligation that an Indemnifying Party may have other than pursuant to this Agreement. SECTION 7.09. SURVIVAL OF INDEMNITIES. The obligations of Tenneco, Industrial Company and Shipbuilding Company under this ARTICLE VII shall survive the sale or other transfer by any of them of any assets or businesses or the assignment by any of them of any Liabilities, with respect to any Indemnifiable Loss of any Indemnitee related to such assets, businesses or Liabilities. SECTION 7.10. REMEDIES CUMULATIVE. The remedies provided in this ARTICLE VII shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. SECTION 7.11. COOPERATION OF THE PARTIES WITH RESPECT TO ACTIONS AND THIRD PARTY CLAIMS. (a) IDENTIFICATION OF PARTY IN INTEREST. Any party to this Agreement that has responsibility for an Action or Third Party Claim shall identify itself as the true party in interest with respect to such Action or Third Party Claim and shall use its commercially reasonable efforts to obtain the dismissal of any other party to this Agreement from such Action or Third Party Claim. (b) DISPUTES REGARDING RESPONSIBILITY FOR ACTIONS AND THIRD PARTY CLAIMS. If there is uncertainty or disagreement concerning which party to this Agreement has responsibility for any Action or Third Party Claim, the following procedure shall be followed in an effort to reach agreement concerning responsibility for such Action or Third Party Claim: (i) The parties in disagreement over the responsibility for an Action or Third Party Claim shall exchange brief written statements setting forth their position concerning which party has responsibility for the Action or Third Party Claim in accordance with the provisions of this ARTICLE VII. These statements shall be exchanged within 5 days of a party putting another party on written notice that the other party is or may be responsible for the Action or Third Party Claim. 32 (ii) If within 5 days of the exchange of the written statement of each party's position agreement is not reached on responsibility for the Action or Third Party Claim, the General Counsel for each of the parties in disagreement over responsibility for the Action or Third Party Claim shall speak either by telephone or in person to attempt to reach agreement on responsibility for the Action or Third Party Claim. (c) EFFECT OF FAILURE TO FOLLOW PROCEDURE. Failure to follow the procedure set forth in clause (b) above shall not affect the rights and responsibilities of the parties as established by the other provisions of this ARTICLE VII. (d) EXCHANGE OF INFORMATION. In connection with the handling of current or future Actions or Third Party Claims, the parties may determine that it is in their mutual interest to exchange privileged or confidential information. If so, the parties agree to discuss whether it is in their mutual interest to enter into a joint defense agreement or information exchange agreement to maintain the confidentiality of their communications and to permit them to maintain the confidentiality of proprietary information or information that is otherwise confidential or subject to an applicable privilege, including but not limited to the attorney-client, work product, executive, deliberative process, or self-evaluation privileges. SECTION 7.12. CONTRIBUTION. To the extent that any indemnification provided for under SECTION 7.01, SECTION 7.02 or SECTION 7.03 is unavailable to an Indemnified Party or is insufficient in respect of any the Indemnifiable Lossess of such Indemnified Party then the Indemnifying Party under such Section, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Indemnifiable Losses (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other hand from the transaction or other matter which resulted in the Indemnifiable Losses or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other hand in connection with the action, inaction, statements or omissions that resulted in such Indemnifiable Losses as well as any other relevant equitable considerations. ARTICLE VIII MISCELLANEOUS SECTION 8.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the Exhibits and Schedules hereto, and the Ancillary Agreements shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule or Exhibit hereto, the Schedule or Exhibit, as the case may be, shall prevail. Notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any Ancillary Agreement, such Ancillary Agreement shall control. SECTION 8.02. ANCILLARY AGREEMENTS. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements. SECTION 8.03. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. SECTION 8.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided herein, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. 33 SECTION 8.05. RESPONSIBILITY FOR EXPENSES. (a) EXPENSES INCURRED ON OR PRIOR TO DISTRIBUTION DATE. Subject to the provisions of SECTION 8.05(C) below and except as otherwise set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred on or prior to the Distribution Date (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery and implementation of this Agreement and any Ancillary Agreement, the Information Statements and the Distribution, and the consummation of the transactions contemplated hereby and thereby shall be charged to and paid by Tenneco; provided, however, that (i) such amounts shall be included in the calculation of the Actual Energy Debt Amount to the extent expressly provided in the Debt and Cash Allocation Agreement, and (ii) each of Industrial Company and Shipbuilding Company shall be solely responsible and liable for any expenses, fees, or other costs that it separately and directly incurs in connection with any of the transactions contemplated under this Agreement or any of the Ancillary Agreements. (b) EXPENSES INCURRED OR ACCRUED AFTER DISTRIBUTION DATE. Subject to the provisions of SECTION 8.05(C) below and except as otherwise set forth in this Agreement or any Ancillary Agreement, each party shall bear its own costs and expenses first incurred or accrued after the Distribution Date. (c) ENVIRONMENTAL EXPENSES. Notwithstanding the provisions of SECTION 8.05(A) and SECTION 8.05(B) above, expenses and other costs incurred in connection with compliance with any Environmental Laws applicable to the transactions contemplated hereby shall be paid by the party that after the Distribution Date will, or that this Agreement contemplates will, own the assets or operate the business subject to such Environmental Laws. SECTION 8.06. NOTICES. All notices and other communications to a party hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to such party (and will be deemed given on the date on which the notice is received by such party) at the address for such party set forth below (or at such other address for the party as the party shall, from time to time, specify by like notice to the other parties): If to Tenneco, at:1010 Milam Street Houston, Texas 77002 Telecopier: Attention: Corporate Secretary If to Industrial Company, at:1275 King Street Greenwich, CT 06831 Telecopier: Attention: Corporate Secretary If to Shipbuilding Company, at:4101 Washington Avenue Newport News, Virginia 23607 Telecopier: Attention: Corporate Secretary SECTION 8.07. WAIVERS. The failure of any party hereto to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. SECTION 8.08. AMENDMENTS. Subject to the terms of SECTION 8.11 hereof, this Agreement may not be modified or amended except by an agreement in writing signed by the parties hereto; provided, however, any such amendments or modifications prior to the termination of the Merger Agreement or consummation of the Merger may only be made with the prior consent of Acquiror unless such modifications or amendments do not, individually or in the aggregate, adversely affect the Energy Business (other than to a de minimis extent) or materially delay or prevent the consummation of the Merger. 34 SECTION 8.09. ASSIGNMENT. This Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a party hereto so long as the resulting, surviving or transferee entity assumes all the obligations of the relevant party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other parties to this Agreement. Otherwise this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the others, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. SECTION 8.10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective permitted successors and permitted assigns. SECTION 8.11. TERMINATION. This Agreement may be terminated and the Distributions may be amended, modified or abandoned at any time prior to the Distributions by and in the sole discretion of Tenneco without the approval of Industrial Company or Shipbuilding Company or the stockholders of Tenneco; provided, however, any such termination, abandonment, amendments or modifications prior to the termination of the Merger Agreement or consummation of the Merger may only be made with the prior written consent of Acquiror unless, in the case of a modification or amendment only, such modification or amendment does not, individually or in the aggregate, adversely affect the Energy Business (other than to a de minimis extent) or materially delay or prevent the consummation of the Merger. In the event of such termination, no party shall have any liability of any kind to any other party or any other person. After the Distributions, this Agreement may not be terminated except by an agreement in writing signed by all of the parties hereto; provided, however, that ARTICLE VIII shall not be terminated or amended after the Distributions in respect of the third party beneficiaries thereto without the consent of such persons. Nothing in this SECTION 8.11 shall relieve Tenneco of its obligations, under Section 6.13 of the Merger Agreement. SECTION 8.12. THIRD PARTY BENEFICIARIES. Except as provided in ARTICLE VII hereof (relating to Indemnitees), this Agreement is solely for the benefit of the parties hereto, the members of their respective Groups and Affiliates and the Acquiror, after giving effect to the Distributions, and should not be deemed to confer upon third parties any remedy, claim, liability, right of reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 8.13. ATTORNEY FEES. A party in breach of this Agreement shall, on demand, indemnify and hold harmless the other parties hereto for and against all out-of-pocket expenses, including, without limitation, reasonable legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement. The payment of such expenses is in addition to any other relief to which such other party may be entitled hereunder or otherwise. SECTION 8.14. TITLE AND HEADINGS. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 8.15. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 8.16. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges that there is no adequate remedy at law for the failure by such parties to comply with the provisions of this Agreement and that such failure would cause immediate harm that would not be adequately compensable in damages. Accordingly, each of the parties hereto agrees that their agreements contained herein may be specifically enforced without the requirement of posting a bond or other security, in addition to all other remedies available to the parties hereto under this Agreement. SECTION 8.17. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW 35 OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE. SECTION 8.18. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 8.19. SUBSIDIARIES. Each of the parties hereto shall cause to be performed, and hereby guarantee the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TENNECO INC. By __________________________________ Name: Title: NEW TENNECO INC. By __________________________________ Name: Title: NEWPORT NEWS SHIPBUILDING INC. By __________________________________ Name: Title: 36 EX-3.1 3 CERTIFICATE OF INCORPORATION OF NEW TENNECO INC. EXHIBIT 3.1 ----------- CERTIFICATE OF INCORPORATION OF NEW TENNECO INC. I, the undersigned, for the purposes of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, do execute this Certificate of Incorporation and do hereby certify as follows: FIRST. The name of the corporation is New Tenneco Inc. SECOND. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. The total number of shares of stock which the corporation shall have authority to issue is 3,000. All such shares are to be Common Stock, par value of $.01 per share, and are to be of one class. FIFTH. The incorporator of the corporation is Dana G. Mead, whose mailing address is c/o Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831. SIXTH. Unless and except to the extent that the by-laws of the corporation shall so require, the election of directors of the corporation need not be by written ballot. SEVENTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the corporation is expressly authorized to make, alter and repeal the by-laws of the corporation, subject to the power of the stockholders of the corporation to alter or repeal any by-law whether adopted by them or otherwise. EIGHTH. A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modifica tion or repeal. NINTH. The corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockhold ers, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article. TENTH. The powers of the incorporator are to terminate upon the filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware. The name and mailing address of the persons who are to serve as the initial directors of the corporation until the first annual meeting of stockholders of the corporation, or until their successors are elected and qualified, are : Name Address ---- ------- Mark Andrews c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 W. Michael Blumenthal c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 M. Kathryn Eickhoff c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 Peter T. Flawn c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 Henry U. Harris, Jr. c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 Belton K. Johnson c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 John B. McCoy c/o Tenneco Inc. 1275 King Street -2- Greenwich, CT 06831 Dana G. Mead c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 Sir David Plastow c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 William L. Weiss c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 Clifton R. Wharton, Jr. c/o Tenneco Inc. 1275 King Street Greenwich, CT 06831 The undersigned incorporator hereby acknowledges that the foregoing certificate of incorporation is his act and deed on this the ___ of August, 1996. ____________________________________ Dana G. Mead Incorporator -3- EX-3.2 4 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.2 ----------- RESTATED CERTIFICATE OF INCORPORATION OF NEW TENNECO INC. * * * * * The present name of the corporation is New Tenneco Inc. The corporation was incorporated under that name by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on August 26, 1996. This Restated Certificate of Incorporation of the corporation, which both restates and further amends the provisions of the corporation's Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and by the written consent of its sole stockholder in accordance with Section 228 of the General Corporation Law of the State of Delaware. The Certificate of Incorporation of the corporation is hereby amended and restated to read in its entirety as follows: FIRST: The name of the corporation is New Tenneco Inc. SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: A. The total number of shares of all classes of stock which the corporation shall be authorized to issue is 400,000,000 shares, divided into 350,000,000 shares of Common Stock, par value $.01 per share (herein called "Common Stock"), and 50,000,000 shares of Preferred Stock, par value $.01 per share (herein called "Preferred Stock"). B. The Board of Directors of the corporation (the "Board of Directors") is hereby expressly authorized, by resolution or resolutions thereof, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. C. Except as may otherwise be provided in this Restated Certificate of Incorporation (including any certificate filed with the Secretary of State of the State of Delaware establishing the terms of a series of Preferred Stock in accordance with Section B of this Article FOURTH) or by applicable law, each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote, and no holder of any series of Preferred Stock, as such, shall be entitled to any voting powers in respect thereof. D. Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board of Directors in its discretion shall determine. E. Upon the dissolution, liquidation or winding up of the corporation, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of the Common Stock shall be entitled to receive the assets of the corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them. F. The corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the corporation shall have notice thereof, except as expressly provided by applicable law. FIFTH: A. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors consisting of not less than eight nor more than sixteen directors, with the exact number of directors constituting the entire Board of Directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors. For purposes of this Restated Certificate of Incorporation, "the entire Board of Directors" shall mean the number of directors that would be in office if there were no vacancies nor any unfilled newly created directorships. The Board of Directors shall be divided into three classes, Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the number of directors constituting the entire Board of Directors. Class I directors shall be initially elected for a term expiring at the first succeeding annual meeting of stockholders, Class II directors shall be initially elected for a term expiring at the second succeeding annual meeting of stockholders, and Class III directors shall be initially elected for a term expiring at the third succeeding annual meeting of stockholders. At each annual meeting of the stockholders following 1996, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the third succeeding annual meeting of stockholders. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a newly created directorship resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Directors chosen to fill any such vacancy shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, removal, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article FIFTH unless expressly provided by such terms. B. The Board of Directors shall be authorized to adopt, make, amend, alter, change, add to or repeal the By-Laws of the corporation, subject to the power of the stockholders to amend, alter, change, add to or repeal the By-Laws made by the Board of Directors. C. Unless and except to the extent that the By-Laws of the corporation shall so require, the election of directors of the corporation need not be by written ballot. SIXTH: A. In addition to any affirmative vote required by law or this Restated Certificate of Incorporation or the By-Laws of the corporation, and except as otherwise expressly provided in Section B of this Article SIXTH, a Business Combination (as hereinafter defined) with, or proposed by or on behalf of, any Interested Stockholder (as hereinafter defined) or any Affiliate or Associate (as hereinafter defined) of any Interested Stockholder or any person who thereafter would be an Affiliate or Associate of such Interested Stockholder shall, except as otherwise prohibited by applicable law, require the affirmative vote of not less than 66_% of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (as hereinafter defined), voting together as a single class, excluding Voting Stock beneficially owned by any Interested Stockholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. B. The provisions of Section A of this Article SIXTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or by any other provision of this Restated Certificate of Incorporation or the By-Laws of the corporation, or any agreement with any national securities exchange, if all of the conditions specified in either of the following Paragraphs 1 or 2 are met or, in the case of a Business Combination not involving the payment of consideration to the holders of the corporation's outstanding Capital Stock (as hereinafter defined), if the condition specified in the following Paragraph 1 is met: 1. The Business Combination shall have been approved, either specifically or as a transaction which is within an approved category of transactions, by a majority (whether such approval is made prior to or subsequent to the acquisition of, or announcement or public disclosure of the intention to acquire, beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder) of the Continuing Directors (as hereinafter defined). 2. All of the following conditions shall have been met: a. the aggregate amount of cash and the Fair Market Value (as hereinafter defined), as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest amount determined under clauses (i) and (ii) below: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; and (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock. b. The aggregate amount of cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock, other than Common Stock, shall be at least equal to the highest amount determined under clauses (i), (ii), (iii) and (iv) below: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock (x) within the two-year period immediately prior to the Announcement Date, or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; (ii) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; (iii) (if applicable) the price per share equal to the Fair Market Value per share of such class or series of Capital Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock within the two-year period immediately prior to the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock to (y) the Fair Market Value per share of such class or series of Capital Stock on the first day in such two-year period on which the Interested Stockholder acquired beneficial ownership of any share of such class or series of Capital Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; and (iv) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation regardless of whether the Business Combination to be consummated constitutes such an event. The provisions of this Paragraph 2 shall be required to be met with respect to every class or series of outstanding Capital Stock, whether or not the Interested Stockholder has previously acquired beneficial ownership of any shares of a particular class or series of Capital Stock. c. The consideration to be received by holders of a particular class or series of outstanding Capital Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Stockholder. d. After the Determination Date and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock; (ii) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock), except as approved by a majority of the Continuing Directors; (iii) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (iv) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage beneficial ownership of any class or series of Capital Stock. e. A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (the "Act") (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Directors as to the fairness (or not) of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Stockholder and its Affiliates or Associates (as hereinafter defined), such investment banking firm to be paid a reasonable fee for its services by the corporation. f. Such Interested Stockholder shall not have made any major change in the corporation's business or equity capital structure without the approval of a majority of the Continuing Directors. C. The following definitions shall apply with respect to this Article SIXTH: 1. The term "Business Combination" shall mean: a. any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii) any other company (whether or not itself an Interested Stockholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or b. any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities or commitments of the corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder which (except for any arrangement, whether as employee, consultant or otherwise, other than as a director, pursuant to which any Interested Stockholder or any Affiliate or Associate thereof shall, directly or indirectly, have any control over or responsibility for the management of any aspect of the business or affairs of the corporation, with respect to which arrangements the value tests set forth below shall not apply), together with all other such arrangements (including all contemplated future events), has an aggregate Fair Market Value and/or involves aggregate commitments of $25,000,000 or more or constitutes more than five percent of the book value of the total assets (in the case of transactions involving assets or commitments other than capital stock) or five percent of the stockholders' equity (in the case of transactions in capital stock) of the entity in question (the "Substantial Part"), as reflected in the most recent fiscal year-end consolidated balance sheet of such entity existing at the time the stockholders of the corporation would be required to approve or authorize the Business Combination involving the assets, securities and/or commitments constituting any Substantial Part; or c. the adoption of any plan or proposal for the liquidation or dissolution of the corporation or for any amendment to the corporation's By-Laws; or d. any reclassification of securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder, or e. any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) to (d). 2. The term "Capital Stock" shall mean all capital stock of the corporation authorized to be issued from time to time under Article FOURTH of this Restated Certificate of Incorporation, and the term "Voting Stock" shall mean all Capital Stock which by its terms may be voted on all matters submitted to stockholders of the corporation generally. 3. The term "person" shall mean any individual, firm, company or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. 4. The term "Interested Stockholder" shall mean any person (other than (i) the corporation or any Subsidiary, any profit-sharing, employee stock ownership or other employee benefit plan of the corporation or any Subsidiary or any trustee or fiduciary with respect to any such plan or holding Voting Stock for the purpose of funding any such plan or funding other employee benefits for employees of the corporation or any Subsidiary when acting in such capacity, and (ii) until immediately following the Industrial Distribution (as defined in the Distribution Agreement, dated as of ____________ ___, 1996, among the corporation, Newport News Shipbuilding Inc., a Delaware corporation, and the corporation known as of the date thereof as Tenneco Inc., a Delaware corporation ("Old Tenneco")), Old Tenneco or any subsidiary of Old Tenneco) who (a) is or has announced or publicly disclosed a plan or intention to become the beneficial owner of Voting Stock representing five percent or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock representing five percent or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock. 5. A person shall be a "beneficial owner" of any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For the purposes of determining whether a person is an Interested Stockholder pursuant to Paragraph 4 of this Section C, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of this Paragraph 5 of Section C, but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. Notwithstanding the foregoing, for purposes of this Article SIXTH, a person shall not be deemed a "beneficial owner" of any Capital Stock which such person has the right to acquire upon exercise of the Rights issued pursuant to the Rights Agreement, dated as of ________________ ___, 1996, between the corporation and First Chicago Trust Company of New York (including any successor rights plan thereto, the "Rights Agreement"), if such person would not be deemed the beneficial owner of such Capital Stock under the terms of such Rights Agreement. 6. The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on ___________ __, 1996 (the term "registrant" in said Rule 12b-2 meaning in this case the corporation). 7. The term "Subsidiary" means any company of which a majority of any class of equity securities are beneficially owned by the corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 4 of this Section C, the term "Subsidiary" shall mean only a company of which a majority of each class of equity security is beneficially owned by the corporation. 8. The term "Continuing Director" means any member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director while such successor is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and is recommended or elected to succeed the Continuing Director by a majority of Continuing Directors. 9. The term "Fair Market Value" means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange- Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on The Nasdaq Stock Market or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors. 10. In the event of any Business Combination in which the corporation survives, the phrase "consideration other than cash to be received" as used in Paragraphs 2.a and 2.b of Section B of this Article SIXTH shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holders of such shares. D. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article SIXTH, on the basis of information known to them after reasonable inquiry, all questions arising under this Article SIXTH, including, without limitation, (a) whether a person is an Interested Stockholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, (d) whether a Proposed Action is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, (e) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $25,000,000 or more, and (f) whether the assets or securities that are the subject of any Business Combination constitute a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties. E. Nothing contained in this Article SIXTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. The fact that any Business Combination complies with the provisions of Section B of this Article SIXTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. G. For the purposes of this Article SIXTH, a Business Combination or any proposal to amend or repeal, or to adopt any provision of this Restated Certificate of Incorporation inconsistent with, this Article SIXTH (collectively, "Proposed Action"), is presumed to have been proposed by or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (1) after the Interested Stockholder became such, the Proposed Action is proposed following the election of any director of the corporation who with respect to such Interested Stockholder would not qualify to serve as a Continuing Director or (2) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person a majority of the Continuing Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonable inquiry. H. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the By-Laws of the corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Restated Certificate of Incorporation or the By-Laws of the corporation), any proposal to amend or repeal, or to adopt any provision of this Restated Certificate of Incorporation inconsistent with, this Article SIXTH which is proposed by or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder shall require the affirmative vote of the holders of not less than 66_% of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, voting together as a single class, excluding Voting Stock beneficially owned by any Interested Stockholder, provided, however, that this Section H shall not apply to, and such 66_% vote shall not be required for, any amendment or repeal of, or the adoption of any provision inconsistent with, this Article SIXTH unanimously recommended by the Board of Directors if all of such directors are persons who would be eligible to serve as Continuing Directors within the meaning of Paragraph 8 of Section C of this Article SIXTH. SEVENTH: A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. EIGHTH: Subject to the provisions of this Restated Certificate of Incorporation and applicable law, the corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, and any other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article EIGHTH. IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate of Incorporation this ________ day of ______________, 1996. NEW TENNECO INC. By: Name: Office: EX-3.3 5 BY-LAWS OF THE COMPANY EXHIBIT 3.3 ----------- BY-LAWS OF NEW TENNECO INC. ____________________________________________________________ ARTICLE I Stockholders ------------ Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, but such special meetings may not be called by any other person or persons. Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given that shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these by-laws, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.5. Quorum. Except as otherwise provided by law, the certificate of incorporation or these by-laws, at each meeting of stockholders the presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.4 of these by-laws until a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation or any subsidiary of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 1.6. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7. Voting; Proxies. Except as otherwise provided by the certificate of incorporation, each stockholder entitled to vote at any meeting of stock holders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the corporation. Voting at meetings of stock holders need not be by written ballot. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law, the certificate of incorporation or these by-laws, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock which are present in person or by proxy and entitled to vote thereon. Section 1.8. Fixing Date for Determination of Stockholders of Record. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determin ation of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockhold ers entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockhold er, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of direc tors, they shall be ineligible for election to any office at such meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. Section 1.10. Action By Written Consent of Stockholders. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of minutes of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by law, be given to those stockholders who have not consented in writing. Section 1.11. Inspectors of Election. The corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election. Section 1.12. Conduct of Meetings. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors of the corporation may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE II Board of Directors ------------------ Section 2.1. Number; Qualifications. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. Section 2.2. Election; Resignation; Vacancies. The Board of Directors shall initially consist of the persons named as directors in the certificate of incor poration, and each director so elected shall hold office until the first annual meeting of stockholders or until his successor is elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one year or until his successor is elected and qualified. Any director may resign at any time upon written notice to the corporation. Any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced or until his successor is elected and qualified. Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting. Section 2.5. Telephonic Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by- law shall constitute presence in person at such meeting. Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation, these by-laws or applicable law otherwise provides, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. Action by Written Consent of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE III Committees ---------- Section 3.1. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each commit tee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these by-laws. ARTICLE IV Officers -------- Section 4.1. Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. Section 4.2. Powers and Duties of Executive Officers. The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or em ployee to give security for the faithful performance of his duties. ARTICLE V Stock ----- Section 5.1. Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the corporation certifying the number of shares owned by him in the corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Indemnification --------------- Section 6.1. Right to Indemnification. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board of Directors of the corporation. Section 6.2. Prepayment of Expenses. The corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Article VI or otherwise. Section 6.3. Claims. If a claim for indemnification or payment of expenses under this Article VI is not paid in full within sixty days after a written claim therefor by the Indemnitee has been received by the corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law. Section 6.4. Nonexclusivity of Rights. The rights conferred on any Indemnitee by this Article VI shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the certificate of incorporation, these by-laws, agreement, vote of stockholders or disinterested directors or otherwise. Section 6.5. Other Sources. The corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. Section 6.6. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. Section 6.7. Other Indemnification and Prepayment of Expenses. This Article VI shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action. ARTICLE VII Miscellaneous ------------- Section 7.1. Fiscal Year. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. Section 7.2. Seal. The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. Section 7.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 7.4. Interested Directors; Quorum. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relation ship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stock holders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 7.5. Form of Records. Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. Section 7.6. Amendment of By-Laws. These by-laws may be altered or repealed, and new by-laws made, by the Board of Directors, but the stockholders may make additional by-laws and may alter and repeal any by-laws whether adopted by them or otherwise. EX-3.4 6 AMENDED AND RESTATED BY-LAWS EXHIBIT 3.4 ----------- BY-LAWS OF NEW TENNECO INC. AMENDED AND RESTATED AS OF _____ __, 1996 ARTICLE I PLACE OF STOCKHOLDER MEETINGS Section 1. All meetings of the stockholders of the corporation shall be held at such place or places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors of the corporation (the "Board"), or as shall be specified or fixed in the respective notices or waivers of notice thereof. ANNUAL MEETING Section 2. The Annual Meeting of Stockholders shall be held on such date and at such time as may be fixed by the Board and stated in the notice thereof, for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these By- Laws. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before the Annual Meeting by a stockholder, the stockholder must have been given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be transacted at the Annual Meeting except in accordance with the procedures set forth in this Section, provided, however, that nothing in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the Annual Meeting. The Chairman of the Annual Meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SPECIAL MEETING Section 3. Subject to the rights of the holders of any series of preferred stock, par value $.01 per share, of the corporation (the "Preferred Stock") to elect additional directors under specified circumstances, special meetings of the stockholders shall be called by the Board. The business transacted at a special meeting shall be confined to the purposes specified in the notice thereof. Special meetings shall be held at such date and at such time as the Board may designate. NOTICE OF MEETING Section 4. Written notice of each meeting of stockholders, stating the place, date and hour of the meeting, and the purpose or purposes thereof, shall be mailed not less than ten nor more than sixty days before the date of such meeting to each stockholder entitled to vote thereat. QUORUM Section 5. Unless otherwise provided by statute, the holders of shares of stock entitled to cast a majority of votes at a meeting, present either in person or by proxy, shall constitute a quorum at such meeting. The Secretary of the corporation or in his absence as Assistant Secretary or an appointee of the presiding officer of the meeting, shall act as the Secretary of the meeting. VOTING Section 6. Except as otherwise provided by law or the Restated Certificate of Incorporation, each stockholder entitled to vote at any meeting shall be entitled to one vote, in person or by written proxy, for each share held of record on the record date fixed as provided in Section 4 of Article V of these By-Laws for determining the stockholders entitled to vote at such meeting. Except as otherwise provided by law, the Restated Certificate of Incorporation or these By-Laws, the vote of a majority of any quorum shall be sufficient to elect directors and to pass any resolution within the power of the holders of all the outstanding shares. Elections of directors need not be by written ballot; provided, however, that by resolution duly adopted, a vote by written ballot may be required. PROXIES Section 7. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the corporation. In order to be exercised at a meeting of stockholders, proxies shall be delivered to the Secretary of the corporation or his representative at or before the time of such meeting. INSPECTORS Section 8. At each meeting of the stockholders the polls shall be opened and closed; the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by three Inspectors, two of whom shall have power to make a decision. Such Inspectors shall be appointed by the Board before the meeting, or in default thereof by the presiding officer at the meeting, and shall be sworn to the faithful performance of their duties. If any of the Inspectors previously appointed shall fail to attend or refuse or be unable to serve, substitutes shall be appointed by the presiding officer. CONDUCT OF MEETINGS Section 9. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE II BOARD OF DIRECTORS NUMBER; METHOD OF ELECTION; TERMS OF OFFICE AND QUALIFICATION Section 1. The business and affairs of the corporation shall be managed under the direction of the Board. The number of directors which shall constitute the entire Board shall not be less than eight nor more than sixteen and shall be determined from time to time by resolution adopted by a majority of the entire Board. Nominations of persons for election to the Board of the corporation at the Annual Meeting of Stockholders may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article II. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14A under the Securities Exchange Act of 1934 as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation at the Annual Meeting of Stockholders unless nominated in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Any director may resign his office at any time by delivering his resignation in writing to the corporation, and the acceptance of such resignation unless required by the terms thereof shall not be necessary to make such resignation effective. No person who shall have attained the age of 72 shall be eligible for election or reelection, as the case may be, as a director of the corporation. MEETINGS Section 2. The Board may hold its meetings and have an office in such place or places within or without the State of Delaware as the Board by resolution from time to time may determine. The Board may in its discretion provide for regular or stated meetings of the Board. Notice of regular or stated meetings need not be given. Special meetings of the Board shall be held whenever called by direction of the Chief Executive Officer, the President or any two of the directors. Notice of any special meeting shall be given by the Secretary to each director either by mail or by telegram, facsimile, telephone or other electronic communication or transmission. If mailed, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least three days before such meeting. If by telegram, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph corporation at least twenty-four hours before such meeting. If by facsimile, telephone or other electronic communication or transmission, such notice shall be transmitted at least twenty-four hours before such meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Except as otherwise provided by applicable law, at any meeting at which every director shall be present, even though without notice, any business may be transacted. No notice of any adjourned meeting need be given. The Board shall meet immediately after election, following the Annual Meeting of Stockholders, for the purpose of organizing, for the election of corporate officers as hereinafter specified, and for the transaction of any other business which may come before it. No notice of such meeting shall be necessary. QUORUM Section 3. Except as otherwise expressly required by these By-Laws or by statute, a majority of the directors then in office (but not less than one-third of the total number of directors constituting the entire Board) shall be present at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of the directors present at any such meeting at which quorum is present shall be necessary for the passage of any resolution or for an act to be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn such meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. COMPENSATION OF BOARD OF DIRECTORS Section 4. Each director (other than a director who is a salaried officer of the corporation or of any subsidiary of the corporation), in consideration of his serving as such, shall be entitled to receive from the corporation such amount per annum and such fees for attendance at meetings of the Board or of any committee of the Board (a "Committee"), or both, as the Board shall from time to time determine. The Board may likewise provide that the corporation shall reimburse each director or member of a Committee for any expenses incurred by him on account of his attendance at any such meeting. Nothing contained in this Section shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE III COMMITTEES OF THE BOARD COMMITTEES Section 1. The Board shall elect from the directors an Executive Committee, an Audit Committee, a Compensation Committee and any other Committee which the Board may by resolution prescribe. Any such other Committee shall be comprised of such persons and shall possess such authority as shall be set forth in such resolution. PROCEDURE Section 2. (1) Each Committee shall fix its own rules of procedure and shall meet where and as provided by such rules. Unless otherwise stated in these By-Laws, a majority of a Committee shall constitute a quorum. (2) In the absence or disqualification of a member of any Committee, the members of such Committee present at any meeting, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Fees in connection with such appointments shall be established by the Board. REPORTS TO THE BOARD Section 3. All completed actions by the Executive, Audit and Compensation Committees shall be reported to the Board at the next succeeding Board meeting and shall be subject to revision or alteration by the Board, provided, that no acts or rights of third parties shall be affected by any such revision or alteration. EXECUTIVE COMMITTEE Section 4. The Board shall elect an Executive Committee comprised of the Chief Executive Officer and not less than four additional members of the Board. During the interval between the meetings of the Board, the Executive Committee shall possess and may exercise all the powers of the Board in the management and direction of all the business and affairs of the corporation (except the matters hereinafter assigned to the Compensation Committee) including, without limitation, the power and authority to declare dividends and to authorize the issuance of stock, in such manner as the Executive Committee shall deem best for the interests of the corporation in all cases in which specific directions shall not have been given by the Board. COMPENSATION COMMITTEE Section 5. The Board shall elect a Compensation Committee consisting of at least four members of the Board, none of whom shall be officers or employees of the corporation or of any subsidiary corporation. The Board shall appoint a chairman of such Committee who shall be one of its members. The Compensation Committee shall have such authority and duties as the Board by resolution shall prescribe. AUDIT COMMITTEE Section 6. The Board shall elect from among its members an Audit Committee consisting of at least three members. The Board shall appoint a chairman of said Committee who shall be one of its members. The Audit Committee shall have such authority and duties as the Board by resolution shall prescribe. In no event shall a director who is also an officer or employee of the corporation or any of its subsidiary companies serve as a member of such Committee. The Chief Executive Officer shall have the right to attend (but not vote at) each meeting of such Committee. NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE Section 7. The Board shall elect from among its members a Nominating and Management Development Committee consisting of at least three members. The Board shall appoint a chairman of said Committee who shall be one of its members. The Nominating and Management Development Committee shall have such authority and duties as the Board by resolution shall prescribe. In no event shall a director who is also an officer or employee of the corporation or any of its subsidiary companies serve as a member of such Committee. The Chief Executive Officer shall have the right to attend (but not vote at) each meeting of such Committee. ARTICLE IV OFFICERS GENERAL PROVISIONS Section 1. The corporate officers of the corporation shall consist of the following: a Chairman and/or a President, one of whom shall be designated Chief Executive Officer and each of whom shall be chosen from the Board; one or more Vice Chairman, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant Vice Presidents; a General Counsel, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller, and such other officers as the Board may from time to time designate. Insofar as permitted by statute, the same person may hold two or more offices. All officers chosen by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. The Chairman and/or President, each Vice Chairman, Executive Vice President, Senior Vice President and Vice President, the Secretary and the Treasurer shall be elected by the Board. Each such officer shall hold office until his successor is elected or appointed and qualified or until his earlier death, resignation or removal. Any officer may be removed, with or without cause, at any time by the Board. A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided in these By-Laws for election or appointment to such office. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER Section 2. The Chief Executive Officer shall have general charge and management of the affairs, property and business of the corporation, subject to the Board, the Executive Committee and the provisions of these By-Laws. The Chief Executive Officer or in his absence such other individual as the Board may select, shall preside at all meetings of the stockholders. He shall also preside at meetings of the Board and the Executive Committee, and in his absence the Board or the Executive Committee, as the case may be, shall appoint one of their number to preside. The Chief Executive Officer shall perform all duties assigned to him in these By-Laws and such other duties as may from time to time be assigned to him by the Board. He shall have the power to appoint and remove, with or without cause, such officers, other than those elected by the Board as provided for in these By-Laws, as in his judgment may be necessary or proper for the transaction of the business of the corporation, and shall determine their duties, all subject to ratification by the Board. POWERS AND DUTIES OF OTHER OFFICERS Section 3. The Chairman shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 4. Each Vice Chairman shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 5. The President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 6. Each Executive Vice President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 7. Each Senior Vice President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 8. Each Vice President and Assistant Vice President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee, the Chief Executive Officer or an Executive Vice President. Section 9. The General Counsel shall have general supervision and control of all of the corporation's legal business. He shall perform such other duties as may be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 10. The Secretary or an Assistant Secretary shall record the proceedings of all meetings of the Board, the Executive Committee of the Board and the stockholders, in books kept for that purpose. The Secretary shall be the custodian of the corporate seal, and he or an Assistant Secretary shall affix the same to and countersign papers requiring such acts; and he and the Assistant Secretaries shall perform such other duties as may be required by the Board, the Executive Committee or the Chief Executive Officer. Section 11. The Treasurer and Assistant Treasurers shall have care and custody of all funds of the corporation and disburse and administer the same under the direction of the Board, the Executive Committee or the Chief Executive Officer and shall perform such other duties as the Board, the Executive Committee or the Chief Executive Officer shall assign to them. Section 12. The Controller shall maintain adequate records of all assets, liabilities and transactions of the corporation and see that audits thereof are currently and regularly made; and he shall perform such other duties as may be required by the Board, the Executive Committee or the Chief Executive Officer. SALARIES AND APPOINTMENTS Section 13. The salaries of corporate officers shall be fixed by the Compensation Committee provided for in Section 5 of Article III hereof, except that the fixing of salaries below certain levels, determinable from time to time by the Compensation Committee, may in the discretion of the Committee be delegated to the Chief Executive Officer, subject to the approval of the Board. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 14. (1) The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise provided in paragraph (3) of this Section 14, the corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board. (2) The corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Section 14 or otherwise. (3) If a claim for indemnification or payment of expenses under this Section 14 is not paid in full within thirty days after a written claim therefor by the Indemnitee has been received by the corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law. (4) The rights conferred on any Indemnitee by this Section 14 shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. (5) The corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise. (6) Any repeal or modification of the foregoing provisions of this Section 14 shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. (7) This Section 14 shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action. ARTICLE V CAPITAL STOCK CERTIFICATES OF STOCK Section 1. Certificates of stock certifying the number of shares owned shall be issued to each stockholder in such form not inconsistent with the Restated Certificate of Incorporation as shall be approved by the Board. Such certificates of stock shall be numbered and registered in the order in which they are issued and shall be signed by the Chairman, the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any and all the signatures on the certificates may be a facsimile. TRANSFER OF SHARES Section 2. Transfers of shares shall be made only upon the books of the corporation by the holder, in person, or by power of attorney duly executed and filed with the Secretary of the corporation, and on the surrender of the certificate or certificates of such shares, properly assigned. The corporation may, if and whenever the Board shall so determine, maintain one or more offices or agencies, each in charge of an agent designated by the Board, where the shares of the capital stock of the corporation shall be transferred and/or registered. The Board may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. LOST, STOLEN OR DESTROYED CERTIFICATES Section 3. The corporation may issue a new certificate of capital stock of the corporation in place of any certificate theretofore issued by the corporation, alleged to have been lost, stolen or destroyed, and the corporation may, but shall not be obligated to, require the owner of the alleged lost, stolen or destroyed certificate, or his legal representatives, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate, as the officers of the corporation may, in their discretion, require. FIXING OF RECORD DATE Section 4. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed by the Board: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be determined in accordance with Article VI of these By-Laws; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VI CONSENTS TO CORPORATE ACTION RECORD DATE Section 1. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be as fixed by the Board or as otherwise established under this Section. Any person seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall by written notice addressed to the Secretary and delivered to the corporation, request that a record date be fixed for such purpose. The Board may fix a record date for such purpose which shall be no more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board and shall not precede the date such resolution is adopted. If the Board fails within 10 days after the corporation receives such notice to fix a record date for such purpose, the record date shall be the day on which the first written consent is delivered to the corporation in the manner described in Section 2 below unless prior action by the Board is required under the General Corporation Law of Delaware, in which event the record date shall be at the close of business on the day on which the Board adopts the resolution taking such prior action. PROCEDURES Section 2. Every written consent purporting to take or authorizing the taking of corporate action and/or related revocations (each such written consent and related revocation is referred to in this Article VI as a "Consent") shall bear the date of signature of each stockholder who signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated Consent delivered in the manner required by this Section 2, Consents signed by a sufficient number of stockholders to take such action are delivered to the corporation. A Consent shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery to the corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. In the event of the delivery to the corporation of a Consent, the Secretary of the corporation shall provide for the safe-keeping of such Consent and shall promptly conduct such ministerial review of the sufficiency of the Consents and of the validity of the action to be taken by shareholder consent as he deems necessary or appropriate, including, without limitation, whether the holders of a number of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent; provided, however, that if the corporate action to which the Consent relates is the removal or replacement of one or more members of the Board, the Secretary of the corporation shall promptly designate two persons, who shall not be members of the Board, to serve as Inspectors with respect to such Consent and such Inspectors shall discharge the functions of the Secretary of the corporation under this Section 2. If after such investigation the Secretary or the Inspectors (as the case may be) shall determine that the Consent is valid and that the action therein specified has been validly authorized, that fact shall forthwith be certified on the records of the corporation kept for the purpose of recording the proceedings of meetings of stockholders, and the Consent shall be filed in such records, at which time the Consent shall become effective as stockholder action. In conducting the investigation required by this Section 2, the Secretary or the Inspectors (as the case may be) may, at the expense of the corporation, retain special legal counsel and any other necessary or appropriate professional advisors, and such other personnel as they may deem necessary or appropriate to assist them, and shall be fully protected in relying in good faith upon the opinion of such counsel or advisors. ARTICLE VII MISCELLANEOUS DIVIDENDS AND RESERVES Section 1. Dividends upon the capital stock of the corporation may be declared as permitted by law by the Board or the Executive Committee at any regular or special meeting. Before payment of any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the corporation such sum or sums as the Board or the Executive Committee, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for such other purposes as the Board or Executive Committee shall think conducive to the interests of the corporation, and any reserve so established may be abolished and restored to the surplus account by like action of the Board or the Executive Committee. SEAL Section 2. The seal of the corporation shall bear the corporate name of the corporation, the year of its incorporation and the words "Corporate Seal, Delaware". WAIVER Section 3. Whenever any notice whatever is required to be given by statute or under the provisions of the Restated Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board, as the case may be, need be specified in any waiver of notice of such meeting. FISCAL YEAR Section 4. The fiscal year of the corporation shall begin with January first and end with December thirty-first. CONTRACTS Section 5. Except as otherwise required by law, the Restated Certificate of Incorporation or these By-Laws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the corporation by such officer or officers of the corporation as the Board may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. The Chairman of the Board, the President or any Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the corporation. Subject to any restrictions imposed by the Board, the Chairman of the Board, the President or any Vice President of the corporation may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power. PROXIES Section 6. Unless otherwise provided by resolution adopted by the Board, the Chairman of the Board, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the corporation, in the name and on behalf of the corporation, to cast the votes which the corporation may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or other securities may be held by the corporation, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the corporation as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. AMENDMENTS Section 7. The Board from time to time shall have the power to make, alter, amend or repeal any and all of these By-Laws, but any By-Laws so made, altered or repealed by the Board may be amended, altered or repealed by the stockholders. CERTIFICATION The undersigned hereby certifies that he is the duly elected and acting _______________ Secretary of New Tenneco Inc., a Delaware corporation, and the keeper of its corporate records and minutes. The undersigned further hereby certifies that the above and foregoing is a true and correct copy of the By-Laws of said corporation, as in force at the date hereof. WITNESS the hand of the undersigned and the seal of said corporation, this _____ day of ______________________, 19___. Secretary EX-4.1 7 FORM OF SPECIMENT STOCK CERTIFICATE Exhibit 4.1 CERTIFICATE OMITTED: THE FACE OF THE CERTIFICATE HAS A COLORED BORDER DESIGN APPROXIMATELY ONE INCH IN WIDTH ON THE LEFT AND RIGHT MARGINS. THE CERTIFICATE NUMBER AND THE NUMBER OF SHARES ALSO HAVE A BORDER DESIGN. TEMPORARY CERTIFICATE: EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN AVAILABLE FOR DELIVERY COMMON STOCK COMMON STOCK SEE REVERSE SIDE TENNECO INC. FOR RIGHTS LEGEND THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 88037E 10 1 NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS PAR VALUE $.01 PAR VALUE $.O1 INCORPORATED UNDER LAWS OF THE STATE OF DELAWARE This certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF TENNECO INC. transferable on the records of the corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation of the Corporation (copies which are on file with the Transfer Agent), to all of which the holder by acceptance hereof assents. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile corporate seal and the facsimile signatures of its duly authorized officers. /s/ Dana G. Mead DATED: Chairman of the Board COUNTERSIGNED AND REGISTERED: /s/ Karl A. Stewart Secretary TRANSFER AGENT AND REGISTER BY: ------------------------------------- AUTHORIZED SIGNATURE FIRST CHICAGO TRUST COMPANY OF NEW YORK (NEW YORK, N.Y.) TENNECO INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entirities JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -____________Custodian______________________ (Cust) (Minor) under Uniform Gifts to Minors Act_________________ (State) Additional abbreviations may also be used though not in the above list. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT. For value received,_____________________hereby sell, assign and transfer unto Please insert social security or other identifying number of Assignee ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE. ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________________ ________________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated, ____________________________________ NOTICE: THE SIGNATURES TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAMES AS WRITTEN UPON THE FACE OF THE . CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. -------------------------------------------- This Certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Tenneco Inc. (the "Company") and First Chicago Trust Company of New York (the "Rights Agent") dated as of (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person, an Adverse Person or any Affiliate or Associates thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null or void. EX-4.2 8 FORM OF RIGHTS AGREEMENT RIGHTS AGREEMENT ---------------- RIGHTS AGREEMENT, dated as of ______ __, 1996 (the "Agreement"), between New Tenneco Inc., a Delaware corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"). W I T N E S S E T H - - - - - - - - - - WHEREAS, on ______ __, 1996 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company authorized and declared a dividend distribution of one preferred share purchase right (a "Right") for each share of common stock, par value $.01 per share, of the Company outstanding immediately prior to the Industrial Distribution (as hereinafter defined) (the "Record Date"), and has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock (as hereinafter defined) of the Company issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date (as hereinafter defined), each Right initially representing the right to purchase one one-hundredth of a share of Series A Participating Junior Preferred Stock of the Company having the rights, powers and preferences set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or (ii) until immediately following the Industrial Distribution, the corporation known as of the date hereof as Tenneco Inc., a Delaware corporation ("Old Tenneco"), or any subsidiary of Old Tenneco. (b) "Act" shall mean the Securities Act of 1933. (c) "Adverse Person" shall mean any Person declared to be an Adverse Person by the Board of Directors upon a determination that the criteria set forth in Section 11(a)(ii)(B) apply to such Person. -1- (d) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on the dates of this Agreement (the "Exchange Act"). (e) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (e)) or disposing of any voting securities of the -2- Company; provided, however, that nothing in this paragraph (e) shall cause a person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. (f) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (g) "Close of business" on any given date shall mean 5:00 P.M., Greenwich, Connecticut time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Greenwich, Connecticut time, on the next succeeding Business Day. (h) "Common Stock" shall mean the common stock, par value $.01 per share, of the Company, except that "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. (i) "Common stock equivalents" shall have the meaning set forth in Section 11(a)(iii) hereof. (j) "Current market price" shall have the meaning set forth in Section 11(d)(i) hereof. (k) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. (l) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (m) "Exchange Act" shall have the meaning set forth in Section 1(d) hereof. (n) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (o) "Final Expiration Date" shall mean the close of business on June 10, 1998. (p) "Industrial Distribution" shall have the meaning set forth in the Distribution Agreement among Old Tenneco, the Company and Newport News Shipbuilding Inc., a Delaware corporation, dated as of ______ __, 1996. -3- (q) "Person" shall mean any individual, firm, corporation, partnership or other entity. (r) "Preferred Stock" shall mean shares of Series A Participating Junior Preferred Stock, par value $.01 per share, of the Company, and, to the extent that there are not a sufficient number of shares of Series A Participating Junior Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock, par value $.01 per share, of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Participating Junior Preferred Stock. (s) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (t) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof. (u) "Record Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (v) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (w) "Rights" shall have the meaning set forth in the WHEREAS clause at the beginning of the Agreement. (x) "Rights Agent" shall have the meaning set forth in the parties clause at the beginning of this Agreement. (y) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof. (z) "Rights Dividend Declaration Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (aa) "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii) (A) or (B) hereof. (bb) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. (cc) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof. -4- (dd) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof. (ee) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or any Acquiring Person that an Acquiring Person has become such. (ff) "Subsidiary" shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person. (gg) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (hh) "Summary of Rights" shall have the meaning set forth in Section 3(b) hereof. (ii) "Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof. (jj) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Rights Certificates. (a) Until the earlier of (i) the close of business on the tenth business day after the Stock Acquisition Date, (ii) the close of business on the tenth business day (or such later date as may be determined by the Board of Directors) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the -5- terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding; or (iii) the close of business on the tenth business day after the Board of Directors of the Company determines, pursuant to the criteria set forth in Section 11(a)(ii)(B) hereof, that a Person is an Adverse Person (the earliest of (i), (ii) or (iii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first- class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more right certificates, in substantially the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Rights for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Right Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) The Company will deliver a copy of the Summary of Rights, in substantially the form attached hereto as Exhibit C (the "Summary of Rights"), to the record holder of the Common Stock as of the Record Date. With respect to outstanding certificates for the Common Stock as of the Record Date, until the Distribution Date the Rights will be evidenced by such certificates together with the Summary of Rights, and, until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7 hereof), the transfer of any such certificate (with or without the Summary of Rights) shall also constitute the transfer of the Rights associated with the shares of Common Stock represented thereby. (c) Rights shall be issued in respect of all shares of Common Stock that are issued (whether originally issued or from the Company's treasury) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates issued for Common Stock (including, without limitation, upon transfer of outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date (including, without limitation, all such certificates -6- issued pursuant to the Industrial Distribution) shall also be deemed to be certificates for Rights, and shall bear the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Tenneco Inc. (the "Company") and First Chicago Trust Company of New York (the "Rights Agent") dated as of ______ __, 1996 as amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person, an Adverse Person or any Affiliate or Associates thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. With respect to such certificates bearing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Section 4. Form of Rights Certificates. (a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-hundredths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-hundredth of a share, the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. -7- (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or an Adverse Person or any Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee after such Acquiring Person or Adverse Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Adverse Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Adverse Person to holders of equity interests in such Acquiring Person or Adverse Person or to any Person with whom such Acquiring Person or Adverse Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend modified as applicable to apply to such Person: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an [Acquiring Person] [Adverse Person] or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement. Section 5. Countersignature and Registration. (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof, which shall be attested by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Company, either manually or by facsimile signature. The Rights Certificates shall be manually countersigned (or by facsimile if permitted by law) by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before counter- signature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be counter- signed by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. -8- (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights -9- Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a share (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) the close of business on June 10, 1998 (the "Final Expiration Date"), or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as the "Expiration Date"). (b) The Purchase Price for each one one-hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $130.00, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-hundredth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-hundredths of a share of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by check (certified bank check or money order) payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued. -10- (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person, an Adverse Person, or an Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person or Adverse Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Adverse Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Adverse Person to holders of equity interests in such Acquiring Person or Adverse Person or to any Person with whom the Acquiring Person or Adverse Person has any continuing agreement, arrangement of understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or an Adverse Person or any of their respective Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the -11- written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Capital Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement has been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all one one-hundredths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. -12- (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each person in whose name any certificate for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number -13- and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event: (A) any Person, alone or together with its Affiliates and Associates, shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price that is fair to stockholders (taking into account all factors that the members of the Board deem relevant including, without limitation, prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders, or (B) the Board of Directors of the Company shall declare any Person to be an Adverse Person, upon a determination that such Person, alone or together with its Affiliates and Associates, has, at any time after the Rights Dividend Declaration Date, become the Beneficial Owner of an amount of Common Stock that the Board of Directors determines to be substantial (which amount shall in no event be less than 10% of the shares of Common Stock then outstanding) and a determination by at least a majority of the members of the Board of Directors who are not officers of the Company, after reasonable inquiry and investigation, including consultation with such persons as the directors shall deem appropriate, that (a) such Beneficial Ownership by such Person is intended to cause the Company to repurchase the Common Stock beneficially owned by such Person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such Person with short-term financial gain under circumstances where the Board of Directors determines that the best long-term interests of the Company and its stockholders would not be -14- served by taking such action or entering into such transactions or series of transactions at that time or (b) such Beneficial Ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company, then, promptly following the first occurrence of any Section 11(a)(ii) Event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-hundredths of a share of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the date of such first occurrence (such number of shares, the "Adjustment Shares"). (iii) In the event that the number of shares of Common Stock that are authorized by the Company's certificate of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of the Preferred Stock that the Board of Directors of the Company has deemed to have the same value as shares of Common Stock (such shares of Preferred Stock, "common stock equivalents")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors -15- of the Company shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of the Common Stock on the Section 11(a)(ii) Trigger Date and the value of any "common stock equivalent" shall be deemed to have the same value as the Common Stock on such date. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("equivalent preferred stock")) or securities convertible into Preferred Stock or equivalent preferred stock at a price per share of Preferred Stock or per share of equivalent preferred stock (or having a conversion price per share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock that the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or equivalent preferred stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any -16- such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price that would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock and the denominator of which shall be such current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price that would have been in effect if such record date had not been fixed. (d)(i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided, however, that in the event that the current market price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day Period, as set forth above, after the ex-dividend date for such divided or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with -17- respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market ("NASDAQ") or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the "current market price" per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the current market price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the "current market price" per share of Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the Record Date) multiplied by the current market price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, "current market price" per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the "current market price" of one one-hundredth of a share of Preferred Stock shall be equal to the "current market price" of one share of Preferred Stock divided by 100. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried -18- forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten- thousandth of a share of Common Stock or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction that mandates such adjustment, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-hundredths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) -19- days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-hundredth of a share and the number of one one-hundredths of a share that were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the number of one one- hundredths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action that may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable such number of one one-hundredths of a share of Preferred Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the current market price, (iii) issuance wholly for cash of shares of Preferred Stock or securities that by their terms are convertible into or exchangeable for -20- shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Record Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. (q) The failure by Board of Directors to declare a Person to be an Adverse Person following such Person becoming the Beneficial Owner of 10% or more of the outstanding Common Stock shall not imply that such Person is not an Adverse Person or limit -21- the Board of Directors' right at any time in the future to declare such Person to be an Adverse Person. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof, then, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event multiplying the number of such one one- hundredths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" -22- for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock that have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will -23- (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and (ii) will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates that comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights that have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). (d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a tender or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Section 11(a)(ii)(A) hereof (or a wholly owned subsidiary of any such Person or Persons) (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender or exchange offer and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Date immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities -24- exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than, except as provided in Section 7(c) hereof, fractions that are integral multiples of one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates that evidence fractional shares of Preferred Stock (other than fractions that are integral multiples of one one-hundredth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-hundredth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-hundredth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-hundredth of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate -25- in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one- hundredths of a share of Preferred Stock or any other securities of the Company that may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to -26- stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. -27- Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its -28- prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of "current market price") be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation of warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. -29- (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as -30- the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the States of New York or Connecticut (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the States of New York or Connecticut), in good standing, having a principal office in the States of New York or Connecticut, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement outstanding, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a -31- significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. Redemption and Termination. (a) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the close of business on the tenth business day following the Stock Acquisition Date, or (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.02 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). Notwithstanding the foregoing, the Board of Directors may not redeem any Rights following its declaration that any Person is an Adverse Person. Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption hereunder has expired. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the "current market price", as defined in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. Notice of Certain Events. (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation -32- or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock whichever shall be the earlier. (b) In case any Section 11(a)(ii) Event hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities. Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: New Tenneco Inc. 1275 King Street Greenwich, Connecticut 06831 Attention: Corporate Secretary Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First Chicago Trust Company of New York P. O. Box 2500 Jersey City, New Jersey 07303-2500 -33- Attention: President Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first- class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. Supplements and Amendments. Prior to the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner that the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates; provided, this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company that states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, unless approved by a vote of the stockholders of the Company, no supplement or amendment shall be made that changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable. Section 27. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. Determinations and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company (or as set forth herein, certain specified members thereof) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of -34- this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board (with, where specifically provided for herein, the concurrence of the Continuing Directors) in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors. Section 31. Governing Law. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. -35- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: NEW TENNECO INC. By________________________ By________________________ Name: Name: Title: Title: Attest: FIRST CHICAGO TRUST COMPANY OF NEW YORK By________________________ By________________________ Name: Name: Title: Title: -36- Exhibit A --------- FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PARTICIPATING JUNIOR PREFERRED STOCK NEW TENNECO INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned, Chairman of the Board and Secretary of New Tenneco Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on ______ __, 1996, adopted the following resolution creating a series of 3,500,000 shares of Preferred Stock designated as Series A Participating Junior Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Participating Junior Preferred Stock" and the number of shares constituting such series shall be 3,500,000. Section 2. Dividends and Distributions. (A) The dividend rate on the shares of Series A Participating Junior Preferred Stock for each quarterly dividend period (hereinafter referred to as a "quarterly dividend period"), which quarterly dividend periods shall commence on January 1, April 1, July 1 and October 1 in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") (or in the case of original issuance, from the date of original issuance) and shall end on and include the day next preceding the first date of the next quarterly dividend period, shall be equal (rounded to the nearest cent) to the greater of (a) $5.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, -1- and 100 times the aggregate per share amount (payable in cash, based upon the fair market value at the time the non-cash dividend or other distribution is declared as determined in good faith by the Board of Directors) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared (but not withdrawn) on the common stock, par value $.01 per share, of this Corporation (the "Common Stock") during the immediately preceding quarterly dividend period, or, with respect to the first quarterly dividend period, since the first issuance of any share or fraction of a share of Series A Participating Junior Preferred Stock. In the event the Corporation shall at any time after ______ __, 1996 (the "Record Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in each of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share- by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 45 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Participating Junior Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Junior Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation and will vote together with the shares of Common Stock as one class on all such matters. In the event the Corporation shall at any time after the Record Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common -2- Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Participating Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) (i) If at any time dividends on any Series A Participating Junior Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the holders of the Series A Participating Junior Preferred Stock, voting as a separate series from all other series of Preferred Stock and classes of capital stock, shall be entitled to elect two members of the Board of Directors in addition to any Directors elected by any other series, class or classes of securities and the authorized number of Directors will automatically be increased by two. Promptly thereafter, the Board of Directors of this Corporation shall, as soon as may be practicable, call a special meeting of holders of Series A Participating Junior Preferred Stock for the purpose of electing such members of the Board of Directors. Said special meeting shall in any event be held within 45 days of the occurrence of such arrearage. (ii) During any period when the holders of Series A Participating Junior Preferred Stock, voting as a separate series, shall be entitled and shall have exercised their right to elect two Directors, then and during such time as such right continues (a) the then authorized number of Directors shall be increased by two, and the holders of Series A Participating Junior Preferred Stock, voting as a separate series, shall be entitled to elect the additional Directors so provided for, and (b) each such additional Director shall not be a member of Class I, Class II or Class III of the Board of Directors, but shall serve until the next annual meeting of stockholders for the election of Directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3B. (iii) A Director elected pursuant to the terms hereof may be removed without cause by the holders of Series A Participating Junior Preferred Stock entitled to vote in an election of such Director. (iv) If, during any interval between annual meetings of stockholders for the election of Directors and while the holders of Series A Participating Junior Preferred Stock shall be entitled to elect two Directors, there is no such Director in office by reason of resignation, death or removal, then, promptly thereafter, the Board of Directors shall cause a special meeting of the holders of Series A Participating Junior Preferred Stock for the purpose of filling such vacancy and such vacancy shall be filled at such special meeting. Such special meeting shall in any event be held within 45 days of the occurrence of such vacancy. (v) At such time as the arrearage is fully cured, and all dividends accumulated and unpaid on any shares of Series A Participating Junior Preferred Stock outstanding are paid, and, in addition thereto, at least one regular dividend has been paid subsequent to curing such arrearage, the term of office of any Director elected pursuant hereto, or his successor, shall automatically terminate, and the authorized number of Directors shall automatically decrease by -3- two, the rights of the holders of the shares of the Series A Participating Junior Preferred Stock to vote as provided in this Section 3(B) shall cease, subject to renewal from time to time upon the same terms and conditions, and the holders of shares of the Series A Participating Junior Preferred Stock shall have only the voting rights elsewhere herein set forth. Section 4. Reacquired Shares. Any shares of Series A Participating Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 5. Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series A Participating Junior Preferred Stock shall be entitled to receive the greater of (a) $100.00 per share, plus accrued dividends to the date of distribution, whether or not earned or declared, or (b) an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock. In the event the Corporation shall at any time after the Record Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Junior Preferred Stock were entitled immediately prior to such event pursuant to clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction of the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 6. Optional Redemption. (a) The Company shall have the option to redeem the whole or any part of the Series A Participating Junior Preferred Stock at any time at a redemption price equal to, subject to the provision for adjustment hereinafter set forth, 100 times the "current per share market price" of the Common Stock on the date of the mailing of the notice of redemption, together with unpaid accumulated dividends to the date of such redemption. In the event the Company shall at any time after the Record Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Junior Preferred Stock were otherwise entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. The "current per share market price" on any date shall be deemed to be the average of the closing price per share of such Common Stock for the 10 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the -4- closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted the average of the high bid and low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market ("NASDAQ") or such other system then in use or, if on any such date, the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on such date no such market maker is making a market in the Common Stock, the fair value of the Common Stock on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by law or executive order to close. (b) Notice of any such redemption shall be given by mailing to the holders of the Series A Participating Junior Preferred Stock a notice of such redemption, first class postage prepaid, not later than the thirtieth day and not earlier than the sixtieth day before the date fixed for redemption, at their last address as the same shall appear upon the books of the Company. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the shareholder received such notice, and failure duly to give such notice by mail, or any defect in such notice, to any holder of Series A Participating Junior Preferred Stock shall not affect the validity of the proceedings for the redemption of such Series A Participating Junior Preferred Stock. If less than all the outstanding shares of Series A Participating Junior Preferred Stock are to be redeemed, the redemption shall be made by lot as determined by the Board of Directors. (c) The notice of redemption to each holder of Series A Participating Junior Preferred Stock shall specify (a) the number of shares of Series A Participating Junior Preferred Stock of such holder to be redeemed, (b) the date fixed for redemption, (c) the redemption price and (d) the place of payment of the redemption price. (d) If any such notice of redemption shall have been duly given or if the Company shall have given to the bank or trust company hereinafter referred to irrevocable written authorization promptly to give or complete such notice, and if on or before the redemption date specified therein the funds necessary for such redemption shall have been deposited by the Company with the bank or trust company designated in such notice, doing business in Greenwich, Connecticut, and having a capital, surplus and undivided profits aggregating at least $25,000,000 according to its last published statement of condition, in trust for the benefit of the holders of Series A Participating Junior Preferred Stock called for -5- redemption, then, notwithstanding that any certificate for such shares so called for redemption shall not have been surrendered for cancellation, from and after the time of such deposit all such shares called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall no longer be deemed outstanding and shall forthwith cease and terminate, except the right of the holders thereof to receive from such bank or trust company at any time after the time of such deposit the funds so deposited, without interest, and the right to exercise, up to the close of business on the fifth day before the date fixed for redemption. In case less than all the shares represented by any surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. Any interest accrued on such funds shall be paid to the Company from time to time. Any funds so deposited and unclaimed at the end of six years from such redemption date shall be repaid to the Company, after which the holders of shares of Series A Participating Junior Preferred Stock called for redemption shall look only to the Company for payment thereof. Section 7. Fractional Shares. Series A Participating Junior Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Junior Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury as of the ____ day of ______, 1996. NEW TENNECO INC. _______________________ [Name] Chairman of the Board Attest: ___________________ [Name] Secretary -6- Exhibit B --------- [Form of Rights Certificate] Certificate No. R-___________ Rights NOT EXERCISABLE AFTER JUNE 10, 1998 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.02 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN [ACQUIRING] [ADVERSE] PERSON OR AN AFFILIATE OR ASSOCIATE OF AN [ACQUIRING] [ADVERSE] PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]/*/ Rights Certificate TENNECO INC. This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of ______ __, 1996, as amended from time to time (the "Rights Agreement"), between Tenneco Inc., a Delaware corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"), to purchase - ----------------- /*/The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. -1- from the Company at any time prior to 5:00 P.M. (Greenwich, Connecticut time) on June 10, 1998 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, non-assessable share of Series A Participating Junior Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of $130.00 per one one- hundredth of a share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares that may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of ______ __, 1996, based on the Preferred Stock as constituted at such date. The Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that a number of Rights be exercised so that only whole shares of Preferred Stock will be issued. Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Adverse Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, an Adverse Person, or an Affiliate or Associate of any such Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities that may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Company. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-hundredths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be -2- exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may (unless the Board of Directors shall have made a determination that a Person is an Adverse Person) be redeemed by the Company at its option at a redemption price of $.02 per Right at any time prior to the earlier of the close of business on (i) the tenth business day following the Stock Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), and (ii) June 10, 1998. No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions that are integral multiples of one one-hundredth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of __________ __, 19__ ATTEST: TENNECO INC. ____________________________ By____________________________ Secretary Title: -3- Countersigned: FIRST CHICAGO TRUST COMPANY OF NEW YORK By___________________________ Authorized Signature -4- [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED ____________________________________________ hereby sells, assigns and transfers unto _____________________________________________________ (Please print name and address of transferee) _________________________________________________________ this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _____________________, 19__ ______________________________________________ Signature Signature Guaranteed: -1- Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person. Dated: _______________, 19__ ___________________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. -1- FORM OF ELECTION TO PURCHASE ---------------------------- (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: TENNECO INC.: The undersigned hereby irrevocably elects to exercise ____________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ ________________________________________________________________________________ Dated: ______________, 19__ ________________________________________________ Signature Signature Guaranteed: -1- Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person. Dated: _______________, 19__ __________________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. -1- Exhibit C --------- SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On ______ __, 1996, the Board of Directors of New Tenneco Inc. (the "Company") declared a dividend distribution of one Right for each outstanding share of Tenneco Common Stock to stockholders of record at the close of business on ______ __, 1996. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Participating Junior Preferred Stock, par value $.01 per share (the "Preferred Stock"), at a Purchase Price of $130.00 per Unit, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement, as amended from time to time (the "Rights Agreement"), between the Company and First Chicago Trust Company of New York, as Rights Agent. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), (ii) 10 business days (or such later date as may be determined by the Board of Directors) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Common Stock or (iii) 10 business days after the Board of Directors of the Company determines any person, alone or together with its affiliates and associates, has become the Beneficial Owner of an amount of Common Stock which the Board of Directors determines to be substantial (which amount shall in no event be less than 10% of the shares of Common Stock outstanding) and at least a majority of the Board of Directors who are not officers of the Company, after reasonable inquiry and investigation, including consultation with such persons as such directors shall deem appropriate, shall determine that (a) such beneficial ownership by such person is intended to cause the Company to repurchase the Common Stock beneficially owned by such person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such person with short-term financial gain under circumstances where the Board of Directors determines that the best long-term interests of the Company and its stockholders would not be served by taking such action or entering into such transactions or series of transactions at that time or (b) such beneficial ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company (any such person being referred to herein and in the Rights Agreement as an "Adverse Person"). -2- Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after ______ __, 1996 will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on June 10, 1998, unless earlier redeemed by the Company as described below. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event (a "Flip-In Event") that (i) a Person becomes the beneficial owner of 20% or more of the then outstanding shares of Common Stock (except pursuant to an offer for all outstanding shares of Common Stock that the independent directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), or (ii) the Board of Directors determines that a person is an Adverse Person, each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of a Flip-In Event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person or Adverse Person will be null and void. However, Rights are not exercisable following the occurrence of a Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below. For example, at an exercise price of $130.00 per Right, each Right not owned by an Acquiring Person or by an Adverse Person (or by certain related parties) following a Flip-In Event would entitle its holder to purchase $260.00 worth of Common Stock (or other consideration, as noted above) for $130.00. Assuming that the Common Stock had a per share value of $50.00 at such time, the holder of each valid Right would be entitled to purchase 5.2 shares of Common Stock for $130.00. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction (other than a merger that follows an offer described in the second preceding paragraph), or (ii) more than 50% of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights that previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. -3- The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise. In general, at any time until ten business days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.02 per Right. The Company may not redeem the Rights if the Board of Directors has previously declared a person to be an Adverse Person. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.02 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights became exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company as set forth above. Other than those provisions relating to the duration of the Rights Agreement and the principal economic terms of the Rights (which may be amended only with stockholder approval), any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement (other than those described in the preceding sentence) may be amended by the Board in order to cure any ambiguity, to make changes that do not adversely affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. A copy of the Rights Agreement is being filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 10. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference. -4- EX-4.3 9 FORM OF INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. and THE CHASE MANHATTAN BANK, Trustee -------------- INDENTURE Dated as of , 1996 -------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS REFERENCE SHEET/1/ -------------- BETWEEN Provisions of Trust Indenture Act of 1939 and the Indenture to be dated as of 1, 1996 between NEW TENNECO INC. and THE CHASE MANHATTAN BANK , Trustee.
SECTION OF THE ACT SECTION OF INDENTURE - ------------------ -------------------- 310(a)(1) and (2).................................. 6.9 310(a)(3) and (4).................................. Inapplicable 310(b)............................................. 6.8 and 6.10(a), (b) and (d) 310(c)............................................. Inapplicable 311(a)............................................. 6.13 311(b)............................................. 6.13 311(c)............................................. Inapplicable 312(a)............................................. 4.1 and 4.2 312(b)............................................. 4.2 312(c)............................................. 4.2 313(a)............................................. 4.4 313(b)(1).......................................... Inapplicable 313(b)(2).......................................... Inapplicable 313(c)............................................. 4.4 313(d)............................................. 4.4 314(a)............................................. 4.3 314(b)............................................. Inapplicable 314(c)(1) and (2).................................. 11.5 314(c)(3).......................................... Inapplicable 314(d)............................................. Inapplicable 314(e)............................................. 11.5 314(f)............................................. Inapplicable 315(a), (c) and (d)................................ 6.1 315(b)............................................. 5.11 315(e)............................................. 5.12 316(a)(1).......................................... 5.9 316(a)(2).......................................... Not required 316(a) (last sentence)............................. 7.4 316(b)............................................. 5.7 316(c)............................................. 7.2 317(a)............................................. 5.2 317(b)............................................. 3.4(a) and (b) 318(a)............................................. 11.7
- --------- /1/ This Cross Reference Sheet is not part of the Indenture. TABLE OF CONTENTS ---------------------
PAGE Parties................................................................... 1 Recitals Authorization of Indenture............................................. 1 Compliance with Legal Requirements..................................... 1 Purpose of and Consideration for Indenture............................. 1 ARTICLE ONE Definitions Section 1.1. Certain Terms Defined....................................... 1 Attributable Debt........................................... 2 Authenticating Agent........................................ 2 Authorized Newspaper........................................ 2 Board of Directors.......................................... 3 Board Resolution............................................ 3 Business Day................................................ 3 Commission.................................................. 3 Composite Rate.............................................. 3 Consolidated Net Tangible Assets............................ 3 Corporate Trust Office...................................... 4 Coupon...................................................... 4 covenant defeasance......................................... 4 Debt........................................................ 4 Depositary.................................................. 4 Dollar...................................................... 4 ECU......................................................... 4 Event of Default............................................ 4 Exempted Debt............................................... 5 Foreign Currency............................................ 5 Holder, Holder of Securities, Securityholder................ 5 Indenture................................................... 5 Interest.................................................... 5 Issuer...................................................... 5 Issuer Order................................................ 5 Judgment Currency........................................... 5 Mortgage.................................................... 5 Net Rental Payments......................................... 5 Officers' Certificate....................................... 6 Opinion of Counsel.......................................... 6 original issue date......................................... 6
PAGE Original Issue Discount Security.................................................. 6 Outstanding............................................... 6 Periodic Offering......................................... 7 Permitted Mortgage........................................ 7 Person.................................................... 7 principal................................................. 8 Principal Manufacturing Property.................................................. 8 record date............................................... 8 Registered Global Security.................................................. 8 Registered Security....................................... 8 Required Currency......................................... 8 Responsible Officer....................................... 8 Restricted Subsidiary..................................... 8 Security or Securities.................................... 9 Subsidiary................................................ 9 Trust Indenture Act of 1939...................................................... 9 Trustee................................................... 9 Unregistered Security..................................... 9 U.S. Government Obligations............................................... 9 Yield to Maturity......................................... 9 ARTICLE TWO Securities Section 2.1. Forms Generally........................................... 10 Form of Trustee's Certificate of Section 2.2. Authentication............................................ 10 Amount Unlimited; Section 2.3. Issuable in Series........................................ 11 Authentication and Section 2.4. Delivery of Securities.................................... 13 Section 2.5. Execution of Securities................................... 16 Certificate of Section 2.6. Authentication............................................ 17 Denomination and Date of Securities; Payments of Section 2.7. Interest.................................................. 17 Registration, Transfer Section 2.8. and Exchange.............................................. 18 Mutilated, Defaced, Destroyed, Lost and Section 2.9. Stolen Securities......................................... 22 Cancellation of Securities; Destruction Section 2.10. Thereof................................................... 24 Section 2.11. Temporary Securities...................................... 24 ARTICLE THREE Covenants of the Issuer Payment of Principal and Section 3.1. Interest.................................................. 25 Offices for Payments, Section 3.2. etc....................................................... 26 Appointment To Fill a Vacancy in Office of Section 3.3. Trustee................................................... 27
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PAGE Section 3.4. Paying Agents............................................. 27 Section 3.5. Written Statement to Trustee.............................. 28 Section 3.6. Negative Pledge; Limitation on Sale and Leaseback Transactions............................................ 29 Section 3.7. Luxembourg Publications................................... 32 ARTICLE FOUR Securityholders Lists and Reports by the Issuer and the Trustee Section 4.1. Issuer to Furnish Trustee Information as to Names and Addresses of Securityholders............................ 32 Section 4.2. Preservation and Disclosure of Securityholders Lists...... 33 Section 4.3. Reports by the Issuer..................................... 33 Section 4.4. Reports by the Trustee.................................... 33 ARTICLE FIVE Remedies of the Trustee and Securityholders on Event of Default Section 5.1. Event of Default Defined; Acceleration of Maturity; Waiver of Default.............................................. 33 Collection of Indebtedness by Trustee; Trustee May Prove Section 5.2. Debt...................................................... 36 Section 5.3. Application of Proceeds................................... 39 Section 5.4. Suits for Enforcement..................................... 40 Section 5.5. Restoration of Rights on Abandonment of Proceedings....... 40 Section 5.6. Limitations on Suits by Securityholders................... 40 Unconditional Right of Securityholders to Institute Section 5.7. Certain Suits............................................. 41 Section 5.8. Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default....................................... 41 Section 5.9. Control by Holders of Securities.......................... 42 Section 5.10. Waiver of Past Defaults................................... 42 Section 5.11. Trustee to Give Notice of Default, But May Withhold in Certain Circumstances................................... 43 Right of Court to Require Filing of Undertaking to Pay Section 5.12. Costs..................................................... 43 ARTICLE SIX Concerning the Trustee Section 6.1. Duties and Responsibilities of the Trustee; During Default; Prior to Default............................... 44 Section 6.2. Certain Rights of the Trustee............................. 45 Section 6.3. Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof........... 46
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PAGE Section 6.4. Trustee and Agents May Hold Securities or Coupons; Collections, etc. ...................................... 47 Section 6.5. Moneys Held by Trustee.................................... 47 Section 6.6. Compensation and Indemnification of Trustee and Its Prior Claim................................................... 47 Section 6.7. Right of Trustee to Rely on Officers' Certificate, etc.... 48 Section 6.8. Indentures Not Creating Potential Conflicting Interests for the Trustee......................................... 48 Section 6.9. Persons Eligible for Appointment as Trustee............... 48 Section 6.10. Resignation and Removal; Appointment of Successor Trustee. 49 Section 6.11. Acceptance of Appointment by Successor Trustee............ 50 Section 6.12. Merger, Conversion, Consolidation or Succession to Business of Trustee..................................... 51 Section 6.13. Preferential Collection of Claims Against the Issuer...... 52 Section 6.14. Appointment of Authenticating Agent....................... 52 ARTICLE SEVEN Concerning the Securityholders Section 7.1. Evidence of Action Taken by Securityholders............... 53 Proof of Execution of Instruments and of Holding of Section 7.2. Securities................................................ 54 Section 7.3. Holders To Be Treated as Owners........................... 55 Section 7.4. Securities Owned by Issuer Deemed Not Outstanding......... 56 Section 7.5. Right of Revocation of Action Taken....................... 56 ARTICLE EIGHT Supplemental Indentures Supplemental Indentures Without Consent of Section 8.1. Securityholders........................................... 57 Section 8.2. Supplemental Indentures With Consent of Securityholders... 58 Section 8.3. Effect of Supplemental Indenture.......................... 60 Section 8.4. Documents to Be Given to Trustee.......................... 60 Notation on Securities in Respect of Supplemental Section 8.5. Indentures................................................ 60 ARTICLE NINE Consolidation, Merger, Sale or Conveyance Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property Except Under Certain Conditions................ 61 Section 9.2. Successor Corporation Substituted......................... 61 Section 9.3. Opinion of Counsel Delivered to Trustee................... 62
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PAGE ARTICLE TEN Satisfaction and Discharge of Indenture; Unclaimed Moneys Section 10.1. Satisfaction and Discharge of Indenture.................. 62 Section 10.2. Application by Trustee of Funds Deposited for Payment of Securities............................................. 67 Section 10.3. Repayment of Moneys Held by Paying Agent................. 67 Section 10.4. Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years................................ 67 ARTICLE ELEVEN Miscellaneous Provisions Section 11.1. Incorporators, Shareholders, Officers and Directors of Issuer Exempt from Individual Liability................ 68 Section 11.2. Provisions of Indenture for the Sole Benefit of Parties and Holders of Securities and Coupons.................. 68 Section 11.3. Successors and Assigns of Issuer Bound by Indenture...... 69 Section 11.4. Notices and Demands on Issuer, Trustee and Holders of Securities and Coupons................................. 69 Section 11.5. Officer's Certificates and Opinions of Counsel; Statements to Be Contained Therein..................... 69 Section 11.6. Payments Due on Saturdays, Sundays and Holidays.......... 71 Section 11.7. Conflict of Any Provision of Indenture with Trust Indenture Act of 1939.................................. 71 Section 11.8. New York Law to Govern................................... 71 Section 11.9. Counterparts............................................. 71 Section 11.10. Effect of Headings....................................... 71 Section 11.11. Securities in a Foreign Currency or in ECU............... 71 Section 11.12. Judgment Currency........................................ 72 ARTICLE TWELVE Redemption of Securities and Sinking Funds Section 12.1. Applicability of Article................................. 73 Section 12.2. Notice of Redemption; Partial Redemptions................ 73 Section 12.3. Payment of Securities Called for Redemption.............. 75 Section 12.4. Exclusion of Certain Securities from Eligibility for Selection for Redemption............................... 76 Section 12.5. Mandatory and Optional Sinking Funds..................... 77 Testimonium.............................................................. 80 Signatures............................................................... 80
v THIS INDENTURE, dated as of , 1996 between New Tenneco Inc., a Delaware corporation (the "Issuer"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (the "Trustee"), WITNESSETH: Whereas, the Issuer has duly authorized the issue from time to time of its unsecured debentures, notes or other evidences of indebtedness to be issued in one or more series (the "Securities") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture; Whereas, the Issuer has duly authorized the execution and delivery of this Indenture to provide, among other things, for the authentication, delivery and administration of the Securities; and Whereas, all things necessary to make this Indenture a valid indenture and agreement according to its terms have been done; Now, Therefore: In consideration of the premises and the purchases of the Securities by the holders thereof, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Securities and of the coupons, if any, appertaining thereto as follows: ARTICLE ONE Definitions Section 1.1 Certain Terms Defined. The following terms (except as otherwise expressly provided herein, in any indenture supplemental hereto or, as to any Security, in such Security or unless the context otherwise clearly requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section. All other terms used in this Indenture that are defined in the Trust Indenture Act of 1939 or the definitions of which in the Securities Act of 1933 are referred to in the Trust Indenture Act of 1939, including terms defined therein by reference to the Securities Act of 1933 (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this In- denture. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted ac- counting principles, and the term "generally accepted accounting principles" means such accounting principles as are generally accepted in the United States at the time of any computation. The words "herein," "hereof," "hereto" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article include the plural as well as the singular. "Attributable Debt" means, as to any particular lease under which any Person is at the time liable, at any date as of which the amount thereof is to be de- termined, the total net amount of rent required to be paid by such Person un- der such lease during the remaining term thereof, discounted from the respec- tive due dates thereof to such date at the Composite Rate. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance and re- pairs, financing services, insurance, taxes, assessments, water or electrical rates, contingent rents (such as those based on sales) and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Authenticating Agent" shall have the meaning set forth in Section 6.14. "Authorized Newspaper" means a newspaper (which, in the case of The City of New York, will, if practicable, be The Wall Street Journal (Eastern Edition), in the case of the United Kingdom, will, if practicable, be the Financial Times (London Edition) and, in the case of Luxembourg, will, if practicable, be the Luxemburger Wort) published in an official language of the country of publication customarily published at least once a day for at least five days in each calendar week and of general circulation in The City of New York, the United Kingdom or in Luxembourg, as applicable. If it shall be impractical in the opinion of the Trustee to make any publication of any notice required hereby in an Authorized Newspaper, any publication or other notice in lieu thereof which is made or given with the approval of the Trustee shall consti- tute a sufficient publication of such notice. 2 "Board of Directors" means either the Board of Directors of the Issuer or any committee or other designees of such Board duly authorized to act on its be- half. "Board Resolution" means a copy of one or more resolutions, certified by the secretary or an assistant secretary of the Issuer to have been duly adopted or consented to by the Board of Directors and to be in full force and effect, and delivered to the Trustee. "Business Day" means, with respect to any Security, a day that in the city (or in any of the cities, if more than one) in which amounts are payable, as specified in the form of such Security, is not a day on which banking institu- tions are authorized or required by law or regulation to close. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if at any time after the execution and delivery of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust In- denture Act of 1939, then the body performing such duties on such date. "Composite Rate" means, at any time, the rate of interest, per annum, com- pounded semiannually, equal to the sum of the products obtained by multiplying the rate of interest borne by the Securities of each series (as specified on the face of the Securities of each series, provided, that, in the case of the Securities with variable rates of interest, the interest rate to be used in calculating the Composite Rate shall be the interest rate applicable to such Securities at the beginning of the year in which the Composite Rate is being determined and, provided, further, that, in the case of Original Issue Dis- count Securities, the interest rate to be used in calculating the Composite Rate shall be a rate equal to the yield to maturity on such Securities, calcu- lated at the time of issuance of such Securities) by the percentage of the ag- gregate principal amount of the Securities of all series Outstanding repre- sented by the Outstanding Securities of such series. For the purposes of this calculation, the aggregate principal amount of Outstanding Securities that are denominated in a foreign currency shall be calculated in the manner set forth in Section 11.11, and the aggregate principal amount of Original Issue Dis- count Securities shall be the aggregate amount then payable upon the declara- tion of acceleration of the maturity thereof pursuant to Section 5.1. "Consolidated Net Tangible Assets" shall mean, at any date, the total assets appearing on the consolidated balance sheet of the Issuer and its consolidated 3 Subsidiaries for the Issuer's most recently completed fiscal quarter, prepared in accordance with generally accepted accounting principles, less (a) all cur- rent liabilities shown on such balance sheet and (b) Intangible Assets. "In- tangible Assets" means the value (net of applicable reserves), as shown on or reflected in such balance sheet, of: (i) all trade names, trademarks, li- censes, patents, copyrights and goodwill; (ii) organizational or development costs; (iii) deferred charges (other than prepaid items such as insurance, taxes, interest, commissions, rents and similar items and tangible assets be- ing amortized); and (iv) unamortized debt discount and expense, less premium. "Corporate Trust Office" means the office of the Trustee at which the corpo- rate trust business of the Trustee shall, at any particular time, be princi- pally administered, which office is, at the date as of which this Indenture is dated, located in 450 West 33rd Street, 15th Floor, New York, New York, Atten- tion: Global Trust Services. "Coupon" means any interest coupon appertaining to a Security. "covenant defeasance" shall have the meaning set forth in Section 10.1(C). "Debt" of any Person shall mean any debt for money borrowed which is issued, assumed, incurred or guaranteed in any manner by such Person. "Depositary" means, with respect to the Securities of any series issuable or issued in the form of one or more Registered Global Securities, the Person designated as Depositary by the Issuer pursuant to Section 2.3 until a succes- sor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, "Depositary" as used with respect to the Securities of any such series shall mean the Depositary with respect to the Registered Global Securi- ties of that series. "Dollar" means the coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of European Communities. "Event of Default" means any event or condition specified as such in Section 5.1. 4 "Exempted Debt" shall mean the sum of (a) Debt of the Issuer and its Subsidi- aries incurred after the date as of which this Indenture is dated and secured by liens created, assumed or permitted to exist pursuant to Section 3.6(b) and (b) Attributable Debt of the Issuer and its Subsidiaries in respect of all sale and leaseback transactions entered into pursuant to Section 3.6(d). "Foreign Currency" means a currency issued by the government of a country other than the United States. "Holder," "Holder of Securities," "Securityholder" or other similar terms mean (a) in the case of any Registered Security, the person in whose name such Security is registered in the security register kept by the Issuer for that purpose in accordance with the terms hereof, and (b) in the case of any Unreg- istered Security, the bearer of such Security, or any Coupon appertaining thereto, as the case may be. "Indenture" means this instrument as originally executed and delivered or, if amended or supplemented as herein provided, as so amended or supplemented or both, and shall include the forms and terms of particular series of Securities established as contemplated hereunder. "Interest" means, when used with respect to non-interest bearing Securities, interest payable after maturity. "Issuer" means New Tenneco Inc., a Delaware corporation, and, subject to Ar- ticle Nine, its successors and assigns. "Issuer Order" means a written statement, request or order of the Issuer signed in its name by the chairman of the Board of Directors, the chief execu- tive officer, the president, any vice president, the chief financial officer, the treasurer, the controller or any other officer designated by the Board of Directors or any of the foregoing officers of the Issuer. "Judgment Currency" shall have the meaning set forth in Section 11.12. "Mortgage" shall have the meaning set forth in Section 3.6(a). "Net Rental Payments" under any lease for any period shall mean the sum of monies and other payments required to be paid by the lessee under such lease as rent thereunder, not including amounts payable by the lessee for mainte- nance and repairs, financing services, water or electrical rates, insurance, taxes, assessments, contingent rents (such as those based on sales) and simi- lar charges. 5 "Officer's Certificate" means a certificate signed by the chairman of the Board of Directors, the chief executive officer, the president, the chief fi- nancial officer, any vice president, the treasurer, the controller or any other officer designated by the Board of Directors or any of the foregoing of- ficers of the Issuer and delivered to the Trustee. Each such certificate shall comply with Section 314 of the Trust Indenture Act of 1939 and include the statements provided for in Section 11.5. "Opinion of Counsel" means an opinion in writing signed by the General Coun- sel of the Issuer or by such other legal counsel who may be an employee of or counsel to the Issuer and who shall be satisfactory to the Trustee. Each such opinion shall comply with Section 314 of the Trust Indenture Act of 1939 and include the statements provided for in Section 11.5. "original issue date" of any Security (or portion thereof) means the earlier of (a) the date of such Security or (b) the date of any Security (or portion thereof) for which such Security was issued (directly or indirectly) on regis- tration of transfer, exchange or substitution. "Original Issue Discount Security" means any Security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 5.1. "Outstanding," when used with reference to Securities, shall, subject to the provisions of Section 7.4, mean, as of any particular time, all Securities au- thenticated and delivered by the Trustee under this Indenture, except (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for the payment or redemption of which moneys or U.S. Government Obligations (as provided for in Section 10.1) in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Issuer) or shall have been set aside, segregated and held in trust by the Issuer for the Holders of such Securi- ties (if the Issuer shall act as its own paying agent), provided that if such Securities, or portions thereof, are to be redeemed prior to the matu- rity thereof, notice of such redemption shall have been given as herein pro- vided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Securities which shall have been paid or in substitution for which other Securities shall have been authenticated and delivered pursuant to the terms of Section 2.9 (except with respect to any such Security as to which proof satis- 6 factory to the Trustee is presented that such Security is held by a person in whose hands such Security is a legal, valid and binding obligation of the Issuer). In determining whether the Holders of the requisite principal amount of Out- standing Securities of any or all series have given any request, demand, au- thorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security that shall be deemed to be Out- standing for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declara- tion of acceleration of the maturity thereof pursuant to Section 5.1. "Periodic Offering" means an offering of Securities of a series from time to time, the specific terms of which Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity or maturi- ties thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Issuer or its agents upon the issuance of such Securi- ties. "Permitted Mortgage" means: (i) any governmental, mechanics', materialmen's, carriers' or similar lien created in the ordinary course of business which is not yet due or which is being contested in good faith by appropriate proceedings and any undeter- mined lien which is incidental to construction; (ii) any right reserved to, or vested in, any municipality or public au- thority 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 pur- chaser of, any property; (iii) any lien of taxes and assessments which is (A) for the current year, or (B) not at the time delinquent or (C) delinquent but the validity of which is being contested at the time by the Issuer or any Subsidiary in good faith; (iv) any lien arising from or in connection with a conveyance by the Issuer or any Subsidiary of any production payment with respect to oil, gas, natu- ral gas, carbon dioxide, sulphur, helium, coal, metals, minerals, steam, timber or other natural resources; (v) any lien to secure obligations imposed by statute or governmental regu- lations; or (vi) any lien of, or to secure performance of, leases (other than leases relating to a sale and leaseback transaction). "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorpo- rated organization or government or any agency or political subdivision there- of. 7 "principal," whenever used with reference to the Securities or any Security or any portion thereof, shall be deemed to include "and premium, if any." "Principal Manufacturing Property" shall mean any manufacturing plant or any testing or research and development facility of the Issuer or a Subsidiary lo- cated in the United States of America (other than its territories and posses- sions) unless, in the opinion of the Board of Directors, such plant or facil- ity is not of material importance to the total business conducted by the Is- suer and its consolidated Subsidiaries. Principal Manufacturing Property shall include, without limitation, additions, improvements, replacements, repairs, fixtures, appurtenances or component parts of any such plant or facility at- taching to or required to be attached to property or assets pursuant to the terms of any Mortgage (including, without limitation, pursuant to any "after- acquired property" clause or similar term thereof). "record date" shall have the meaning set forth in Section 2.7. "Registered Global Security" means a Security evidencing all or a part of a series of Registered Securities, issued to the Depositary for such series in accordance with Section 2.4, and bearing the legend prescribed in Section 2.4. "Registered Security" means any Security registered on the Security register of the Issuer. "Required Currency" shall have the meaning set forth in Section 11.12. "Responsible Officer," when used with respect to the Trustee means the chair- man of the board of directors, any vice chairman of the board of directors, the chairman of the trust committee, the chairman of the executive committee, any vice chairman of the executive committee, the president, any vice presi- dent (whether or not designated by numbers or words added before or after the title "vice president"), the cashier, the secretary, the treasurer, any trust officer, any assistant trust officer, any assistant vice president, any assis- tant cashier, any assistant secretary, any assistant treasurer, or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such offi- cers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" shall mean any Subsidiary that owns or is the lessee of any Principal Manufacturing Property; provided, however, that the term "Re- 8 stricted Subsidiary" does not include any Subsidiary acquired or organized for the purpose of acquiring the stock or business or assets of any Person other than the Issuer or any Restricted Subsidiary, whether by merger, consolida- tion, acquisition of stock or assets or similar transaction, so long as such Subsidiary does not acquire all or any substantial part of the business or as- sets of the Issuer or any other Restricted Subsidiary. "Security" or "Securities" has the meaning stated in the first recital of this Indenture, or, as the case may be, Securities that have been authenti- cated and delivered under this Indenture. "Subsidiary" means any corporation, partnership or other entity of which at the time of determination the Issuer owns or controls directly or indirectly more than 50% of the shares of voting stock or equivalent interest, provided that the term "Subsidiary" shall not include Tenneco Tanker Holding Corpora- tion, Hvide Partners, L.P., Hvide Van Ommeren Tankers I LLC, Hvide Van Ommeren Tankers II LLC, Hvide Van Ommeren III LLC, Hvide Van Ommeren Tankers IV LLC, Hvide Van Ommeren Tankers V LLC, and Hvide Van Ommeren Tankers Options LLC. "Trust Indenture Act of 1939" (except as otherwise required by applicable law or as provided in Sections 8.1 and 8.2) means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was originally executed. "Trustee" means the Person identified as "Trustee" in the first paragraph hereof and, subject to the provisions of Article Six, shall also include any successor trustee. "Trustee" shall also mean or include each Person who is then a trustee hereunder and if at any time there is more than one such Per- son, "Trustee" as used with respect to the Securities of any series shall mean the trustee with respect to the Securities of such series. "Unregistered Security" means any Security other than a Registered Security. "U.S. Government Obligations" shall have the meaning set forth in Section 10.1(A). "Yield to Maturity" means the yield to maturity on a series of Securities, calculated at the time of issuance of such series, or, if applicable, at the most recent redetermination of interest on such series, and calculated in ac- cordance with accepted financial practice. 9 ARTICLE TWO Securities Section 2.1 Forms Generally. The Securities of each series and the Coupons, if any, to be attached thereto shall be substantially in such form (not incon- sistent with this Indenture) as shall be established by or pursuant to one or more Board Resolutions (as set forth in a Board Resolution or, to the extent established pursuant to rather than set forth in a Board Resolution, an Offi- cer's Certificate detailing such establishment) or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Inden- ture and may have imprinted or otherwise reproduced thereon such legend or legends or endorsements, not inconsistent with the provisions of this Inden- ture, as may be required to comply with any law or with any rules or regula- tions pursuant thereto, or with any rules of any securities exchange or to conform to general usage, all as may be determined by the officers executing such Securities and Coupons, if any, as evidenced by their execution of such Securities and Coupons. The definitive Securities and Coupons, if any, shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities and Coupons, if any, as evidenced by their execution of such Securities and Coupons, if any. Section 2.2 Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication on all Securities shall be in substantially the following form: "This is one of the Securities referred to in the within-mentioned Inden- ture. __________________________________________ , as Trustee By _________________________________________ Authorized Officer" If at any time there shall be an Authenticating Agent appointed with respect to any series of Securities, then the Trustee's Certificate of Authentication to be borne by the Securities of each such series shall be substantially as follows: 10 "This is one of the Securities referred to in the within-mentioned Inden- ture. __________________________________________ , as Authenticating Agent By _________________________________________ Authorized Officer" Section 2.3 Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this In- denture is unlimited. The Securities may be issued in one or more series and each such series shall rank equally and pari passu with all other unsecured and unsubordinated debt of the Issuer. There shall be established in or pursuant to one or more Board Resolutions (and to the extent established pursuant to rather than set forth in a Board Resolution, in an Officer's Certificate detailing such establish- ment) or established in one or more indentures supplemental hereto, prior to the initial issuance of Securities of a series, (1) the designation of the Securities of the series, which shall distin- guish the Securities of the series from the Securities of all other series; (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 2.8, 2.9, 2.11, 8.5 or 12.3); (3) if other than Dollars, the coin or currency in which the Securities of that series are denominated (including, but not limited to, any Foreign Cur- rency or ECU); (4) the date or dates on which the principal of the Securities of the se- ries is payable; (5) the rate or rates at which the Securities of the series shall bear in- terest, if any, the date or dates from which such interest shall accrue, on which such interest shall be payable and (in the case of Registered Securi- ties) on which a record shall be taken for the determination of Holders to whom interest is payable and/or the method by which such rate or rates or date or dates shall be determined; (6) the place or places where the principal of and any interest on Securi- ties of the series shall be payable (if other than as provided in Section 3.2); 11 (7) the right, if any, of the Issuer to redeem Securities of the series, in whole or in part, at its option and the period or periods within which, the price or prices at which and any terms and conditions upon which Securities of the series may be so redeemed, pursuant to any sinking fund or otherwise; (8) the obligation, if any, of the Issuer to redeem, purchase or repay Se- curities of the series pursuant to any mandatory redemption, sinking fund or analogous provisions or at the option of a Holder thereof and the price or prices at which and the period or periods within which and any terms and conditions upon which Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation; (9) if other than denominations of $1,000 and any integral multiple thereof in the case of Registered Securities, or $1,000 and $5,000 in the case of Unregistered Securities, the denominations in which Securities of the series shall be issuable; (10) if other than the principal amount thereof, the portion of the princi- pal amount of Securities of the series which shall be payable upon declara- tion of acceleration of the maturity thereof; (11) if other than the coin or currency in which the Securities of that se- ries are denominated, the coin or currency in which payment of the principal of or interest on the Securities of such series shall be payable; (12) if the principal of or interest on the Securities of such series are to be payable, at the election of the Issuer or a Holder thereof, in a coin or currency other than that in which the Securities are denominated, the pe- riod or periods within which, and the terms and conditions upon which, such election may be made; (13) if the amount of payments of principal of and interest on the Securi- ties of the series may be determined with reference to an index based on a coin or currency other than that in which the Securities of the series are denominated, the manner in which such amounts shall be determined; (14) whether the Securities of the series will be issuable as Registered Securities (and if so, whether such Securities will be issuable as Regis- tered Global Securities) or Unregistered Securities (with or without Cou- pons), or any combination of the foregoing, any restrictions applicable to the offer, sale or delivery of Unregistered Securities or the payment of in- terest thereon and, if other than as provided in Section 2.8, the terms upon which Unregistered Securities of any series may be exchanged for Registered Securities of such series and vice versa; (15) whether and under what circumstances the Issuer will pay additional amounts on the Securities of the series held by a person who is not a U.S. person in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Issuer will have the option to redeem such Securities rather than pay such additional amounts; 12 (16) if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, the form and terms of such certificates, documents or conditions; (17) any trustees, depositaries, authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Securities of such series; (18) any other events of default or covenants with respect to the Securi- ties of such series; (19) whether the Securities of the series shall be issued in the form of one or more Registered Global Securities and, in such case, the Depositary for such Registered Global Security or Securities; and (20) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and Coupons, if any, appertaining thereto, shall be substantially identical, except in the case of Registered Securities, as to denomination and except as may otherwise be provided by or pursuant to the Board Resolution or Officer's Certificate referred to above or as set forth in any such indenture supplemental hereto. All Securities of any one se- ries need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to such Board Resolution, such Officer's Certificate or in any such indenture supplemental hereto. Section 2.4 Authentication and Delivery of Securities. The Issuer may deliver Securities of any series having attached thereto appropriate Coupons, if any, executed by the Issuer to the Trustee for authentication together with the ap- plicable documents referred to below in this Section, and the Trustee shall thereupon authenticate and deliver such Securities to or upon the order of the Issuer (contained in the Issuer Order referred to below in this Section) or pursuant to such procedures acceptable to the Trustee and to such recipients as may be specified from time to time by an Issuer Order. The maturity date, original issue date, interest rate and any other terms of the Securities of such series and Coupons, if any, appertaining thereto shall be determined by or pursuant to such Issuer Order and procedures. If provided for in such pro- cedures, such Issuer Order may authorize authentication and delivery pursuant to oral instructions from the Issuer or its duly authorized agent, which in- structions shall be promptly confirmed in writing. In authenticating such Se- curities and accepting the additional responsibilities under this Indenture in relation to such Securities, the 13 Trustee shall be entitled to receive (in the case of subparagraphs 2, 3 and 4 below only at or before the time of the first request of the Issuer to the Trustee to authenticate Securities of such series) and (subject to Section 6.1) shall be fully protected in relying upon, unless and until such documents have been superseded or revoked: (1) an Issuer Order requesting such authentication and setting forth deliv- ery instructions if the Securities and Coupons, if any, are not to be deliv- ered to the Issuer, provided that, with respect to Securities of a series subject to a Periodic Offering, (a) such Issuer Order may be delivered by the Issuer to the Trustee prior to the delivery to the Trustee of such Secu- rities for authentication and delivery, (b) the Trustee shall authenticate and deliver Securities of such series for original issue from time to time, in an aggregate principal amount not exceeding the aggregate principal amount established for such series, pursuant to an Issuer Order or pursuant to procedures acceptable to the Trustee as may be specified from time to time by an Issuer Order, (c) the maturity date or dates, original issue date or dates, interest rate or rates and any other terms of Securities of such series shall be determined by an Issuer Order or pursuant to such procedures and (d) if provided for in such procedures, such Issuer Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Issuer or its duly authorized agent or agents, which oral instructions shall be promptly confirmed in writing; (2) any Board Resolution, Officer's Certificate and/or executed supplemen- tal indenture referred to in Sections 2.1 and 2.3 by or pursuant to which the forms and terms of the Securities and Coupons, if any, were established; (3) an Officer's Certificate setting forth the form or forms and terms of the Securities and Coupons, if any, stating that the form or forms and terms of the Securities and Coupons, if any, have been established pursuant to Sections 2.1 and 2.3 and comply with this Indenture, and covering such other matters as the Trustee may reasonably request; and (4) At the option of the Issuer, either Opinions of Counsel, or letters ad- dressed to the Trustee permitting it to rely on Opinions of Counsel, sub- stantially to the effect that: (a) the forms of the Securities and Coupons, if any, have been duly au- thorized and established in conformity with the provisions of this Indenture; (b) in the case of an underwritten offering, the terms of the Securities have been duly authorized and established in conformity with the provi- sions of this Indenture, and, in the case of an offering that is not un- derwritten, certain terms of the Securities have been established pursuant to a Board Resolution, an Officer's Certificate or a supplemental inden- ture in accordance with this Indenture, and when such other terms as are to be estab- 14 lished pursuant to procedures set forth in an Issuer Order shall have been established, all such terms will have been duly authorized by the Issuer and will have been established in conformity with the provisions of this Indenture; (c) when the Securities and Coupons, if any, have been executed by the Issuer and authenticated by the Trustee in accordance with the provisions of this Indenture and delivered to and duly paid for by the purchasers thereof, they will have been duly issued under this Indenture and will be valid and legally binding obligations of the Issuer, enforceable in accor- dance with their respective terms, and will be entitled to the benefits of this Indenture; and (d) the execution and delivery by the Issuer of, and the performance by the Issuer of its obligations under, the Securities and Coupons, if any, will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Issuer or, to the best of such counsel's knowledge, any agreement or other instrument binding upon the Issuer or any of its Subsidiaries that is material to the Issuer and its Subsidiar- ies, considered as one enterprise, or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Issuer or any Subsidiary, and no consent, approval or authorization of any governmental body or agency is required for the performance by the Issuer of its obligations under the Securities and Coupons, if any, except such as are specified and have been obtained and such as may be required by the securities or blue sky laws of the various states in connection with the offer and sale of the Securities and Coupons, if any. In rendering such opinions, such counsel may qualify any opinions as to en- forceability by stating that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium, fraudulent conveyance and other similar laws affecting the rights and remedies of creditors and is sub- ject to general principles of equity (regardless of whether such enforceabil- ity is considered in a proceeding in equity or at law). Such counsel may rely upon opinions of other counsel (copies of which shall be delivered to the Trustee), who shall be counsel reasonably satisfactory to the Trustee, in which case the opinion shall state that such counsel believes such counsel and the Trustee are entitled so to rely. Such counsel may also state that, insofar as such opinion involves factual matters, such counsel has relied, to the ex- tent such counsel deems proper, upon certificates of officers of the Issuer and its Subsidiaries and certificates of public officials. 15 The Trustee shall have the right to decline to authenticate and deliver any Securities under this Section if the Trustee, being advised by counsel, deter- mines that such action may not lawfully be taken by the Issuer or if the Trustee in good faith by its board of directors or board of trustees, execu- tive committee, or a trust committee of directors or trustees or Responsible Officers shall determine that such action would expose the Trustee to personal liability to existing Holders or would affect the Trustee's own rights, duties or immunities under the Securities, this Indenture or otherwise. If the Issuer shall establish pursuant to Section 2.3 that the Securities of a series are to be issued in the form of one or more Registered Global Securi- ties, then the Issuer shall execute and the Trustee shall, in accordance with this Section and the Issuer Order with respect to such series, authenticate and deliver one or more Registered Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of all of the Securities of such series to be represented by such Registered Global Security or Securities, (ii) shall be registered in the name of the De- positary for such Registered Global Security or Securities or the nominee of such Depositary, (iii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions and (iv) shall bear a legend sub- stantially to the following effect: "Unless this certificate is presented by an authorized representative of a Depositary to the Issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of the nominee of such Depositary or such other name as requested by an authorized representative of such Depositary and any payment is made to the nominee of such Depositary, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the regis- tered owner hereof, the nominee, has an interest herein." Each Depositary designated pursuant to Section 2.3 must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Securities Exchange Act of 1934 and any other ap- plicable statute or regulation. Section 2.5 Execution of Securities. The Securities and, if applicable, each Coupon appertaining thereto shall be signed on behalf of the Issuer by any two of the chairman of its Board of Directors or its chief executive officer or its president or any vice president or its chief financial officer or its treasurer or its controller or any other officer designated by the Board of Directors, under its 16 corporate seal (except in the case of Coupons), which may, but need not, be attested. Such signatures may be the manual or facsimile signatures of the present or any future such officers. The seal of the Issuer may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security that has been duly authenti- cated and delivered by the Trustee. In case any officer of the Issuer who shall have signed any of the Securities or Coupons, if any, shall cease to be such officer before the Security or Cou- pon so signed (or the Security to which the Coupon so signed appertains) shall be authenticated and delivered by the Trustee or disposed of by the Issuer, such Security or Coupon nevertheless may be authenticated and delivered or disposed of as though the person who signed such Security or Coupon had not ceased to be such officer of the Issuer; and any Security or Coupon may be signed on behalf of the Issuer by such persons as, at the actual date of the execution of such Security or Coupon, shall be the proper officers of the Is- suer, although at the date of the execution and delivery of this Indenture any such person was not such an officer. Section 2.6 Certificate of Authentication. Only such Securities as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, executed by the Trustee by the manual signature of one of its autho- rized officers, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. No Coupon shall be entitled to the bene- fits of this Indenture or shall be valid and obligatory for any purpose until the certificate of authentication on the Security to which such Coupon apper- tains shall have been duly executed by the Trustee. The execution of such cer- tificate by the Trustee upon any Security executed by the Issuer shall be con- clusive evidence that the Security so authenticated has been duly authenti- cated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture. Section 2.7 Denomination and Date of Securities; Payments of Interest. The Securities of each series shall be issuable as Registered Securities or Unregistered Securities in denominations established as contemplated by Sec- tion 2.3 or, with respect to the Registered Securities of any series, if not so established, in denominations of $1,000 and any integral multiple thereof. If denominations of Unregistered Securities of any series are not so estab- lished, such Securities shall be issuable in denominations of $1,000 and $5,000. The Securities of each 17 series shall be numbered, lettered or otherwise distinguished in such manner or in accordance with such plan as the officers of the Issuer executing the same may determine with the approval of the Trustee, as evidenced by the exe- cution and authentication thereof. Each Registered Security shall be dated the date of its authentication. Each Unregistered Security shall be dated as provided in the resolution or resolu- tions of the Board of Directors of the Issuer referred to in Section 2.3. The Securities of each series shall bear interest, if any, from the date, and such interest shall be payable on the dates, established as contemplated by Section 2.3. Unless otherwise provided in the Registered Securities of any series, the person in whose name any Registered Security of any series is registered at the close of business on any record date applicable to a particular series with respect to any interest payment date for such series shall be entitled to receive the interest, if any, payable on such interest payment date notwith- standing any transfer or exchange of such Registered Security subsequent to the record date and prior to such interest payment date, except if and to the extent the Issuer shall default in the payment of the interest due on such in- terest payment date for such series, in which case such defaulted interest shall be paid to the persons in whose names Outstanding Registered Securities for such series are registered at the close of business on a subsequent record date (which shall be not less than five Business Days prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Issuer to the Holders of Registered Securities not less than 15 days preceding such subsequent record date. The term "record date" as used with respect to any interest payment date (except a date for payment of de- faulted interest) for the Securities of any series shall mean the date speci- fied as such in the terms of the Registered Securities of such series estab- lished as contemplated by Section 2.3, or, if no such date is so established, if such interest payment date is the first day of a calendar month, the fif- teenth day of the next preceding calendar month or, if such interest payment date is the fifteenth day of a calendar month, the first day of such calendar month, whether or not such record date is a Business Day. Section 2.8 Registration, Transfer and Exchange. The Issuer will keep at each office or agency to be maintained for the purpose as provided in Section 3.2 for each series of Securities a register or registers in which, subject to such reasonable regulations as it may prescribe, it will provide for the reg- istration of Registered Securities of such series and the registration of transfer of Registered 18 Securities of such series. Such register shall be in written form in the En- glish language or in any other form capable of being converted into such form within a reasonable time. At all reasonable times such register or registers shall be open for inspection by the Trustee. Upon due presentation for registration of transfer of any Registered Security of any series at any such office or agency to be maintained for the purpose as provided in Section 3.2, the Issuer shall execute and the Trustee shall au- thenticate and deliver in the name of the transferee or transferees a new Reg- istered Security or Registered Securities of the same series, maturity date, interest rate and original issue date in authorized denominations for a like aggregate principal amount. Unregistered Securities (except for any temporary global Unregistered Securi- ties) and Coupons (except for Coupons attached to any temporary global Unreg- istered Securities) shall be transferable by delivery. At the option of the Holder thereof, Registered Securities of any series (other than a Registered Global Security, except as set forth below) may be exchanged for a Registered Security or Registered Securities of such series having authorized denominations and an equal aggregate principal amount, upon surrender of such Registered Securities to be exchanged at the agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2 and upon payment, if the Issuer shall so require, of the charges hereinaf- ter provided. If the Securities of any series are issued in both registered and unregistered form, except as otherwise specified pursuant to Section 2.3, at the option of the Holder thereof, Unregistered Securities of any series may be exchanged for Registered Securities of such series having other authorized denominations and an equal aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2, with, in the case of Unregistered Securities that have Coupons attached, all unmatured Cou- pons and all matured Coupons in default thereto appertaining, and upon pay- ment, if the Issuer shall so require, of the charges hereinafter provided. At the option of the Holder thereof, if Unregistered Securities of any series, maturity date, interest rate and original issue date are issued in more than one authorized denomination, except as otherwise specified pursuant to Section 2.3, such Unregistered Securities may be exchanged for Unregistered Securities of such series having authorized denominations and an equal aggregate princi- pal amount, upon surrender of such Unregistered Securities 19 to be exchanged at the agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2 or as specified pursuant to Section 2.3, with, in the case of Unregistered Securities that have Coupons attached, all unmatured Coupons and all matured Coupons in default thereto appertaining, and upon payment, if the Issuer shall so require, of the charges hereinafter provided. Unless otherwise specified pursuant to Section 2.3, Registered Secu- rities of any series may not be exchanged for Unregistered Securities of such series. Whenever any Securities are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities and Coupons surrendered upon any exchange or transfer provided for in this In- denture shall be promptly cancelled and disposed of by the Trustee and the Trustee will deliver a certificate of disposition thereof to the Issuer. All Registered Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Issuer or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the Holder or his attorney duly authorized in writing. The Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities. No service charge shall be made for any such transaction. The Issuer shall not be required to exchange or register a transfer of (a) any Securities of any series for a period of 15 days next preceding the first mailing of notice of redemption of Securities of such series to be redeemed or (b) any Securities selected, called or being called for redemption, in whole or in part, except, in the case of any Security to be redeemed in part, the portion thereof not so to be redeemed. Notwithstanding any other provision of this Section 2.8, unless and until it is exchanged in whole or in part for Securities in definitive registered form, a Registered Global Security representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. 20 If at any time the Depositary for any Registered Securities of a series rep- resented by one or more Registered Global Securities notifies the Issuer that it is unwilling or unable to continue as Depositary for such Registered Secu- rities or if at any time the Depositary for such Registered Securities shall no longer be eligible under Section 2.4, the Issuer shall appoint a successor Depositary eligible under Section 2.4 with respect to such Registered Securi- ties. If a successor Depositary eligible under Section 2.4 for such Registered Securities is not appointed by the Issuer within 90 days after the Issuer re- ceives such notice or becomes aware of such ineligibility, the Issuer's elec- tion pursuant to Section 2.3 that such Registered Securities be represented by one or more Registered Global Securities shall no longer be effective and the Issuer will execute, and the Trustee, upon receipt of an Officer's Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive regis- tered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Registered Global Secu- rity or Securities representing such Registered Securities in exchange for such Registered Global Security or Securities. The Issuer may at any time and in its sole discretion determine that the Reg- istered Securities of any series issued in the form of one or more Registered Global Securities shall no longer be represented by a Registered Global Secu- rity or Securities. In such event the Issuer will execute, and the Trustee, upon receipt of an Officer's Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Secu- rities of such series in definitive registered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the prin- cipal amount of the Registered Global Security or Securities representing such Registered Securities, in exchange for such Registered Global Security or Se- curities. If specified by the Issuer pursuant to Section 2.3 with respect to Securities represented by a Registered Global Security, the Depositary for such Regis- tered Global Security may surrender such Registered Global Security in ex- change in whole or in part for Securities of the same series in definitive registered form on such terms as are acceptable to the Issuer and such Deposi- tary. Thereupon, the Issuer shall execute, and the Trustee shall authenticate and deliver, without service charge, (i) to the Person specified by such Depositary a new Registered Security or Securities of the same series, of any authorized denominations as requested by such Person, in an aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Registered Global Security; and 21 (ii) to such Depositary a new Registered Global Security in a denomination equal to the difference, if any, between the principal amount of the surren- dered Registered Global Security and the aggregate principal amount of Reg- istered Securities authenticated and delivered pursuant to clause (i) above. Upon the exchange of a Registered Global Security for Securities in defini- tive registered form without Coupons, in authorized denominations, such Regis- tered Global Security shall be cancelled by the Trustee or an agent of the Is- suer or the Trustee. Securities in definitive registered form without coupons issued in exchange for a Registered Global Security pursuant to this Section 2.8 shall be registered in such names and in such authorized denominations as the Depositary for such Registered Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or an agent of the Issuer or the Trustee. The Trustee or such agent shall deliver such Securities to or as directed by the Persons in whose names such Securities are so registered. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Notwithstanding anything herein or in the terms of any series of Securities to the contrary, none of the Issuer, the Trustee or any agent of the Issuer or the Trustee (any of which, other than the Issuer, shall rely on an Officer's Certificate and an Opinion of Counsel) shall be required to exchange any Un- registered Security for a Registered Security if such exchange would result in adverse Federal income tax consequences to the Issuer (such as, for example, the inability of the Issuer to deduct from its income, as computed for Federal income tax purposes, the interest payable on the Unregistered Securities) un- der then applicable United States Federal income tax laws. Section 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In case any temporary or definitive Security or any Coupon appertaining to any Security shall become mutilated, defaced or be destroyed, lost or stolen, the Issuer in its discretion may execute, and, upon the written request of any of- ficer of the Issuer, the Trustee shall authenticate and deliver, a new Secu- rity of the same series, maturity date, interest rate and original issue date, bearing a number or other distinguishing symbol not contemporaneously out- standing, in exchange and substitution for the mutilated or defaced Security, or in lieu of and in substitution for the Security so destroyed, lost or sto- len, with Coupons corresponding 22 to the Coupons appertaining to the Securities so mutilated, defaced, de- stroyed, lost or stolen, or in exchange or substitution for the Security to which such mutilated, defaced, destroyed, lost or stolen Coupon appertained, with Coupons appertaining thereto corresponding to the Coupons so mutilated, defaced, destroyed, lost or stolen. In every case the applicant for a substi- tute Security or Coupon shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the Trustee such security or indemnity as may be re- quired by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the destruction, loss or theft of such Security or Coupon and of the ownership thereof and in the case of mutilation or defacement shall surrender the Secu- rity and related Coupons to the Trustee or such agent. Upon the issuance of any substitute Security or Coupon, the Issuer may re- quire the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (includ- ing the fees and expenses of the Trustee) or its agent connected therewith. In case any Security or Coupon which has matured or is about to mature or has been called for redemption in full shall become mutilated or defaced or be de- stroyed, lost or stolen, the Issuer may instead of issuing a substitute Secu- rity, pay or authorize the payment of the same or the relevant Coupon (without surrender thereof except in the case of a mutilated or defaced Security or Coupon), if the applicant for such payment shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the Trustee such security or indem- nity as any of them may require to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Issuer and the Trustee and any agent of the Issuer or the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security or Cou- pon and of the ownership thereof. Every substitute Security or Coupon of any series issued pursuant to the pro- visions of this Section by virtue of the fact that any such Security or Coupon is destroyed, lost or stolen shall constitute an additional contractual obli- gation of the Issuer, whether or not the destroyed, lost or stolen Security or Coupon shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities or Coupons of such series duly authenticated and delivered hereun- der. All Securities and Coupons shall be held and owned upon the express con- dition that, to the extent permitted by law, the foregoing provisions are ex- clusive with respect to the replacement or 23 payment of mutilated, defaced or destroyed, lost or stolen Securities and Cou- pons and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.10 Cancellation of Securities; Destruction Thereof. All Securities and Coupons surrendered for payment, redemption, registration of transfer or exchange, or for credit against any payment in respect of a sinking or analo- gous fund, if surrendered to the Issuer or any agent of the Issuer or the Trustee or any agent of the Trustee, shall be delivered to the Trustee or its agent for cancellation or, if surrendered to the Trustee, shall be cancelled by it; and no Securities or Coupons shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee or its agent shall dispose of cancelled Securities and Coupons held by it and de- liver a certificate of disposition to the Issuer. If the Issuer or its agent shall acquire any of the Securities or Coupons, such acquisition shall not op- erate as a redemption or satisfaction of the indebtedness represented by such Securities or Coupons unless and until the same are delivered to the Trustee or its agent for cancellation. Section 2.11 Temporary Securities. Pending the preparation of definitive Se- curities for any series, the Issuer may execute and the Trustee shall authen- ticate and deliver temporary Securities for such series (printed, litho- graphed, typewritten or otherwise reproduced, in each case in form satisfac- tory to the Trustee). Temporary Securities of any series shall be issuable as Registered Securities without Coupons, or as Unregistered Securities with or without Coupons attached thereto, of any authorized denomination, and substan- tially in the form of the definitive Securities of such series but with such omissions, insertions and variations as may be appropriate for temporary Secu- rities, all as may be determined by the Issuer with the concurrence of the Trustee as evidenced by the execution and authentication thereof. Temporary Securities may contain such references to any provisions of this Indenture as may be appropriate. Every temporary Security shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substan- tially the same manner, and with like effect, as the definitive Securities. Without unreasonable delay the Issuer shall execute and shall furnish defini- tive Securities of such series and thereupon temporary Registered Securities of such series may be surrendered in exchange therefor without charge at each office or agency to be maintained by the Issuer for that purpose pursuant to Section 3.2 and, in the case of Unregistered Securities, at any agency 24 maintained by the Issuer for such purpose as specified pursuant to Section 2.3, and the Trustee shall authenticate and deliver in exchange for such tem- porary Securities of such series an equal aggregate principal amount of defin- itive Securities of the same series having authorized denominations and, in the case of Unregistered Securities, having attached thereto any appropriate Coupons. Until so exchanged, the temporary Securities of any series shall be entitled to the same benefits under this Indenture as definitive Securities of such series, unless otherwise established pursuant to Section 2.3. The provi- sions of this Section are subject to any restrictions or limitations on the issue and delivery of temporary Unregistered Securities of any series that may be established pursuant to Section 2.3 (including any provision that Unregis- tered Securities of such series initially be issued in the form of a single global Unregistered Security to be delivered to a depositary or agency located outside the United States and the procedures pursuant to which definitive or global Unregistered Securities of such series would be issued in exchange for such temporary global Unregistered Security). ARTICLE THREE Covenants of the Issuer Section 3.1 Payment of Principal and Interest. The Issuer covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of, and interest on, each of the Securities of such series (together with any additional amounts payable pursuant to the terms of such Securities) at the place or places, at the re- spective times and in the manner provided in such Securities and in the Cou- pons, if any, appertaining thereto and in this Indenture. The interest on Se- curities with Coupons attached (together with any additional amounts payable pursuant to the terms of such Securities) shall be payable only upon presenta- tion and surrender of the several Coupons for such interest installments as are evidenced thereby as they severally mature. If any temporary Unregistered Security provides that interest thereon may be paid while such Security is in temporary form, the interest on any such temporary Unregistered Security (to- gether with any additional amounts payable pursuant to the terms of such Secu- rity) shall be paid, as to the installments of interest evidenced by Coupons attached thereto, if any, only upon presentation and surrender thereof, and, as to the other installments of interest, if any, only upon presentation of such Securities for notation thereon of the payment of such interest, in each case subject to any restrictions that may be established pursuant to Section 2.3. The interest on Registered Securities (together with any additional 25 amounts payable pursuant to the terms of such Securities) shall be payable only to or upon the written order of the Holders thereof and, at the option of the Issuer, may be paid by wire transfer or by mailing checks for such inter- est payable to or upon the written order of such Holders at their last ad- dresses as they appear on the registry books of the Issuer, unless otherwise provided in such Securities. Section 3.2 Offices for Payments, etc. So long as any Registered Securities are authorized for issuance pursuant to this Indenture or are outstanding hereunder, the Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Registered Securities of each series may be presented for payment, where the Securities of each series may be pre- sented for exchange as is provided in this Indenture and, if applicable, pur- suant to Section 2.3 and where the Registered Securities of each series may be presented for registration of transfer as in this Indenture provided. The Issuer will maintain one or more offices or agencies in a city or cities located outside the United States (including any city in which such an agency is required to be maintained under the rules of any stock exchange on which the Securities of such series are listed) where the Unregistered Securities, if any, of each series and Coupons, if any, appertaining thereto may be pre- sented for payment. No payment on any Unregistered Security or Coupon will be made upon presentation of such Unregistered Security or Coupon at an agency of the Issuer within the United States nor will any payment be made by transfer to an account in, or by mail to an address in, the United States unless pursu- ant to applicable United States laws and regulations then in effect such pay- ment can be made without adverse tax consequences to the Issuer. Notwithstand- ing the foregoing, payments in Dollars of Unregistered Securities of any se- ries and Coupons appertaining thereto which are payable in Dollars may be made at an agency of the Issuer maintained in the Borough of Manhattan, The City of New York if such payment in Dollars at each agency maintained by the Issuer outside the United States for payment on such Unregistered Securities is ille- gal or effectively precluded by exchange controls or other similar restric- tions. The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where notices and demands to or upon the Issuer in respect of the Securities of any series, the Coupons appertaining thereto or this In- denture may be served. 26 The Issuer will give to the Trustee written notice of the location of each such office or agency and of any change of location thereof. In case the Is- suer shall fail to maintain any agency required by this Section to be located in the Borough of Manhattan, The City of New York, or shall fail to give such notice of the location or of any change in the location of any of the above agencies, presentations and demands may be made and notices may be served at the Corporate Trust Office of the Trustee. The Issuer may from time to time designate one or more additional offices or agencies where the Securities of a series and any Coupons appertaining thereto may be presented for payment, where the Securities of that series may be pre- sented for exchange as provided in this Indenture and pursuant to Section 2.3 and where the Registered Securities of that series may be presented for regis- tration of transfer as in this Indenture provided, and the Issuer may from time to time rescind any such designation, as the Issuer may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Issuer of its obligation to maintain the agencies pro- vided for in this Section. The Issuer will give to the Trustee prompt written notice of any such designation or rescission thereof. Section 3.3 Appointment to Fill a Vacancy in Office of Trustee. The Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee with respect to each series of Securities hereunder. Section 3.4 Paying Agents. Whenever the Issuer shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section, (a) that it will hold all sums received by it as such agent for the payment of the principal of or interest on the Securities of such series (whether such sums have been paid to it by the Issuer or by any other obligor on the Securities of such series) in trust for the benefit of the Holders of the Securities of such series, or Coupons appertaining thereto, if any, or of the Trustee, (b) that it will give the Trustee notice of any failure by the Issuer (or by any other obligor on the Securities of such series) to make any payment of the principal of or interest on the Securities of such series when the same shall be due and payable, and 27 (c) that it will pay any such sums so held in trust by it to the Trustee upon the Trustee's written request at any time during the continuance of the failure referred to in clause (b) above. The Issuer will, on or prior to each due date of the principal of or interest on the Securities of such series, deposit with the paying agent a sum suffi- cient to pay such principal or interest so becoming due, and (unless such pay- ing agent is the Trustee) the Issuer will promptly notify the Trustee of any failure to take such action. If the Issuer shall act as its own paying agent with respect to the Securi- ties of any series, it will, on or before each due date of the principal of or interest on the Securities of such series, set aside, segregate and hold in trust for the benefit of the Holders of the Securities of such series or the Coupons appertaining thereto a sum sufficient to pay such principal or inter- est so becoming due. The Issuer will promptly notify the Trustee of any fail- ure to take such action. Anything in this Section to the contrary notwithstanding, but subject to Sec- tion 10.1, the Issuer may at any time, for the purpose of obtaining a satis- faction and discharge with respect to one or more or all series of Securities hereunder, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust for any such series by the Issuer or any paying agent here- under, as required by this Section, such sums to be held by the Trustee upon the trusts herein contained. Anything in this Section to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section is subject to the provisions of Sections 10.3 and 10.4. Section 3.5 Written Statement to Trustee. The Issuer will furnish to the Trustee on or before April 30 in each year (beginning with April 30, 1997) a brief certificate (which need not comply with Section 11.5) from the principal executive, financial or accounting officer of the Issuer stating that in the course of the performance by the signer of his duties as an officer of the Is- suer he would normally have knowledge of any default or non-compliance by the Issuer in the performance of any covenants or conditions contained in this In- denture, stating whether or not he has knowledge of any such default or non- compliance and, if so, specifying each such default or non-compliance of which the signer has knowledge and the nature thereof. 28 Section 3.6 Negative Pledge; Limitation on Sale and Leaseback Transactions. (a) The Issuer will not issue, assume, incur or guarantee, and will not per- mit any Restricted Subsidiary to issue, assume, incur or guarantee, any Debt secured by any mortgage, pledge, lien or other encumbrance (any such mortgage, pledge, lien and other encumbrance being hereinafter called a "Mortgage") upon any Principal Manufacturing Property of the Issuer or any Restricted Subsidi- ary, or upon shares of capital stock or Debt of any Restricted Subsidiary (whether such Principal Manufacturing Property or shares of stock are now owned or hereafter acquired or such Debt is now existing or hereafter incurred or assumed), without in any such case effectively providing, concurrently with the issuance or assumption of such Debt, that the Securities (together with, if the Issuer shall so determine, any other Debt of the Issuer or such Re- stricted Subsidiary ranking equally with the Securities and then existing or thereafter created) shall be secured equally and ratably with such Debt; pro- vided, however, that the foregoing restrictions shall not apply to: (i) the creation of Mortgages on any Principal Manufacturing Property (in- cluding any improvements on an existing property, as to which the Mortgage may include such underlying real property as the Issuer may deem necessary for the improvement and unnecessary for the operation of any theretofore ex- isting Principal Manufacturing Property on the same or adjoining real prop- erty) hereafter acquired by the Issuer or a Restricted Subsidiary prior to, at the time of, or within 180 days after the latest of the acquisition, com- pletion of construction or commencement of commercial operation of such property, to secure or provide for the payment of financing of all or any part of the purchase price thereof or construction of fixed improvements thereon, or, in addition to assumptions in transactions contemplated by sub- paragraph (ii) below, the assumption of any Mortgage upon any Principal Man- ufacturing Property hereafter acquired existing at the time of such acquisi- tions, or the acquisition of any Principal Manufacturing Property subject to any Mortgage without the assumption thereof; provided that the aggregate principal amount of Debt secured by any such Mortgage so issued, assumed or existing shall not exceed 100% of the cost of such Principal Manufacturing Property to the corporation acquiring the same or of the fair value thereof (as determined by resolution adopted by the Board of Directors) at the time of such acquisition, whichever is less, and, provided further, that in the case of any such acquisition, construction or improvement the Mortgage shall not apply to any property theretofore owned by the Issuer or a Restricted Subsidiary, other than, in the case of any such construction or improvement, any theretofore unimproved real property on which the property so construct- ed, or the improvement, is located (which unimproved real property may at the option of the Issuer be segregated by 29 legal description from other real property of the Issuer appurtenant to such Principal Manufacturing Property and subjected to the Mortgage related to such construction or improvement); (ii) any Mortgages on any Principal Manufacturing Property of a corporation which is merged into or consolidated with the Issuer or a Restricted Subsid- iary or substantially all of the assets of which are acquired by the Issuer or a Restricted Subsidiary (whether or not the obligations secured by any such Mortgage are assumed by the Issuer or a Restricted Subsidiary); pro- vided that such Mortgages were not created in contemplation of such merger, consolidation or acquisition; (iii) Mortgages on any Principal Manufacturing Property of the Issuer or a Restricted Subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivi- sion of the United States of America or any State thereof, or in favor of any other country, or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Debt incurred or guaranteed for the purpose of financing all or any part of the cost of acquiring, constructing or improving the property subject to such Mortgages (including Mortgages incurred in connection with financings of the type contemplated by Section 103 of the Internal Revenue Code, maritime financings under Title XI of the United States Code or simi- lar financings); (iv) Mortgages on particular property (or any proceeds of the sale thereof) to secure all or any part of the cost of exploration, drilling, mining, de- velopment, operation or maintenance thereof (including, without limitation, construction of facilities for field processing) intended to obtain or in- crease the production and sale or other disposition of oil, gas, coal, natu- ral gas, carbon dioxide, sulphur, helium, metals, minerals, steam, timber or other natural resources, or any Debt created, issued, assumed or guaranteed to provide funds for any or all such purposes; (v) Mortgages securing Debt of a Restricted Subsidiary owing to the Issuer and/or another Restricted Subsidiary; (vi) Mortgages on any Principal Manufacturing Property of the Issuer or a Restricted Subsidiary which Mortgages were in existence on the date of this Indenture; provided, however, that each such Mortgage shall be limited to all or a part of the property which secured such Mortgage at such date (plus improvements and construction on such Property); (vii) any extension, renewal or replacement (or successive extensions, re- newals or replacements) in whole or in part, of any Mortgage referred to in the foregoing clauses (i) through (vi); provided, however, that the princi- pal amount of Debt so secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of 30 the property which secured the Mortgage so extended, renewed or replaced (plus improvements and construction on such property); and (viii) Permited Mortgages. (b) Notwithstanding the provisions of subsection (a) of this Section, the Is- suer or any one or more Restricted Subsidiaries may issue or assume Debt se- cured by a Mortgage on a Principal Manufacturing Property in addition to those permitted by subsection (a) of this Section and renew, extend or replace such Mortgages; provided that at the time of such creation, assumption, renewal, extension or replacement, and after giving effect thereto, Exempted Debt does not exceed 15% of Consolidated Net Tangible Assets. (c) The Issuer will not, nor will it permit any Restricted Subsidiary to, en- ter into any arrangement with any Person providing for the leasing by the Is- suer or any Restricted Subsidiary of any Principal Manufacturing Property, whether such Principal Manufacturing Property is now owned or hereafter ac- quired (except for temporary leases for a term, including renewals at the op- tion of the lessee, of not more than three years and except for leases between the Issuer and a Restricted Subsidiary or between Restricted Subsidiaries), which property has been or is to be sold or transferred by the Issuer or such Restricted Subsidiary to such Person with the intention of taking back a lease on such property (a "sale and leaseback transaction") unless the net proceeds of such sale or transfer shall be at least equal to the fair value of such property as determined by resolution adopted by the Board of Directors and ei- ther: (i) the Issuer or such Restricted Subsidiary would be entitled, pursuant to the provisions of subsection (a) of this Section, to issue or assume Debt secured by a Mortgage on such property at least equal in amount to the At- tributable Debt in respect of such sale and leaseback transaction without equally and ratable securing the Securities; or (ii) since the date hereof and within a period commencing twelve months prior to the consummation of such sale and leaseback transaction and ending twelve months after the consummation of such sale and leaseback transaction the Issuer or such Restricted Subsidiary, as the case may be, has expended or will expend, or a combination of both, for facilities comprising all or a part of a Principal Manufacturing Property an amount equal to (A) the net proceeds of such sale and leaseback transaction and the Issuer elects to designate such amount as a credit against such sale and leaseback transac- tion or (B) a part of the net proceeds of such sale and leaseback transac- tion and the Issuer elects to designate such amount as a credit against such sale and leaseback transaction and applies an amount equal to the remainder of the net proceeds as provided in clause (iii) hereof; or 31 (iii) such sale and leaseback transactions do not come within the excep- tions provided in clause (i) hereof and the Issuer does not make the elec- tion permitted by clause (ii) hereof or makes such election only as to part of such net proceeds, in either which event the Issuer will, within 180 days after such sale and leaseback transaction, apply an amount equal to the At- tributable Debt in respect of such sale and leaseback transaction (less an amount equal to the amount, if any, elected under clause (ii) hereof) to the retirement (other than any mandatory retirement or by way of payment at ma- turity) of Debt with a maturity of greater than one year of the Issuer or any Restricted Subsidiary (other than Debt of the Issuer to any Restricted Subsidiary or of any Restricted Subsidiary to the Issuer or another Re- stricted Subsidiary). (d) Notwithstanding the provisions of paragraph (c) of this Section, the Is- suer and any Restricted Subsidiary may enter into sale and leaseback transac- tions in addition to those permitted by paragraph (c) of this Section and without any obligation to make expenditures for facilities comprising a part or all of a Principal Manufacturing Property or to retire any Debt, provided that at the time of entering into such sale and leaseback transaction and af- ter giving effect thereto, Exempted Debt does not exceed 15% of Consolidated Net Tangible Assets. Section 3.7 Luxembourg Publications. In the event of the publication of any notice pursuant to Section 5.11, 6.10(a), 6.11, 8.2, 10.4, 12.2 or 12.5, the party making such publication in the Borough of Manhattan, The City of New York and London shall also, to the extent that notice is required to be given to Holders of Securities of any series by applicable Luxembourg law or stock exchange regulation, as evidenced by an Officer's Certificate delivered to such party, make a similar publication in Luxembourg. ARTICLE FOUR Securityholders Lists and Reports by the Issuer and the Trustee Section 4.1 Issuer to Furnish Trustee Information as to Names and Addresses of Securityholders. If and so long as the Trustee shall not be the Security registrar for the Securities of any series, the Issuer and any other obligor on the Securities will furnish or cause to be furnished to the Trustee a list in such form as the Trustee may reasonably require of the names and addresses of the Holders of the Registered Securities of such series pursuant to Section 312 of the Trust Indenture Act of 1939 (a) semi-annually not more than 15 days after each record date for the payment of interest on such Registered Securi- ties, as hereinabove specified, as of such record date and on dates to be de- termined 32 pursuant to Section 2.3 for non-interest bearing Registered Securities in each year, and (b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Issuer of any such request as of a date not more than 15 days prior to the time such information is furnished. Section 4.2 Preservation and Disclosure of Securityholders Lists. This Section intentionally left blank. Section 4.3 Reports by the Issuer. The Issuer covenants to file with the Trustee, within 30 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports that the Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 or pursuant to Section 314 of the Trust Indenture Act of 1939. Section 4.4 Reports by the Trustee. Any Trustee's report required under Sec- tion 313(a) of the Trust Indenture Act of 1939 shall be transmitted on or be- fore January 15 in each year beginning January 15, 1997, as provided in Sec- tion 313(c) of the Trust Indenture Act of 1939, so long as any Securities are Outstanding hereunder, and shall be dated as of a date convenient to the Trustee no more than 60 days prior thereto. ARTICLE FIVE Remedies of the Trustee and Securityholders on Event of Default Section 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default. "Event of Default," with respect to Securities of any series wherever used herein, means each one of the following events which shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any installment of interest upon any of the Securities of such series as and when the same shall become due and payable, and continuance of such default for a period of 30 days; or (b) default in the payment of all or any part of the principal of any of the Securities of such series as and when the same shall become due and pay- able either at maturity, upon any redemption, by declaration or otherwise; or 33 (c) failure on the part of the Issuer duly to observe or perform any other of the covenants or agreements on the part of the Issuer in the Securities of such series (other than a covenant or warranty in respect of the Securi- ties of such series a default in the performance or breach of which is else- where in this Section specifically dealt with) or in this Indenture con- tained for a period of 60 days after the date on which written notice speci- fying such failure, stating that such notice is a "Notice of Default" here- under and demanding that the Issuer remedy the same, shall have been given by registered or certified mail, return receipt requested, to the Issuer by the Trustee, or to the Issuer and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of all series affected thereby; or (d) a court having jurisdiction in the premises shall enter a decree or or- der for relief in respect of the Issuer in an involuntary case under any ap- plicable bankruptcy, insolvency or other similar law now or hereafter in ef- fect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or for any substantial part of its property or ordering the winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (e) the Issuer shall commence a voluntary case under any applicable bank- ruptcy, insolvency or other similar law now or hereafter in effect, or con- sent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or for any substantial part of its property, or make any gen- eral assignment for the benefit of creditors; or (f) any other Event of Default provided in the supplemental indenture under which such series of Securities is issued or in the form of Security for such series. If an Event of Default described in clauses (a), (b), (c) or (f) (if the Event of Default under clause (c) or (f), as the case may be, is with respect to less than all series of Securities then Outstanding) occurs and is continu- ing, then, and in each and every such case, except for any series of Securi- ties the principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of each such affected series then Outstanding hereunder (voting as a single class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of any such affected series are Original Issue Discount Securi- ties, such portion of the principal amount as may be specified in the terms of such series) of all Securities of all such affected series, and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an 34 Event of Default described in clause (c) or (f) (if the Event of Default under clause (c) or (f), as the case may be, is with respect to all series of Secu- rities then Outstanding), (d) or (e) occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Out- standing hereunder (treated as one class), by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire prin- cipal (or, if any Securities are Original Issue Discount Securities, such por- tion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding, and interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall be- come immediately due and payable. The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if the Securities are Original Issue Dis- count Securities, such portion of the principal as may be specified in the terms thereof) of the Securities of any series (or of all the Securities, as the case may be) shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Issuer shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Securities of such series (or of all the Securities, as the case may be) and the principal of any and all Securities of each such series (or of all the Securities, as the case may be) which shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue in- stallments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of each such series (or at the respective rates of interest or Yields to Maturity of all the Securities, as the case may be) to the date of such payment or deposit) and such amount as shall be sufficient to cover rea- sonable compensation to the Trustee and each predecessor Trustee, its agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a re- sult of negligence or bad faith, and if any and all Events of Default under the Indenture, other than the non-payment of the principal of Securities which shall have become due by acceleration, shall have been cured, waived or other- wise remedied as provided herein--then and in every such case the Holders of a majority in aggregate principal amount of all the Securities of each such se- ries, or of all the Securities, as the case may be, in each case voting as a single class, then Outstanding, by 35 written notice to the Issuer and to the Trustee, may waive all defaults with respect to each such series (or with respect to all the Securities, as the case may be) and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Securities shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration has been rescinded and annulled, the principal amount of such Original Issue Discount Securities shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such acceleration, and payment of such portion of the principal thereof as shall be due and payable as a result of such acceleration, together with interest, if any, thereon and all other amounts owing thereunder, shall constitute payment in full of such Original Issue Discount Securities. Section 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt. The Issuer covenants that (a) in case default shall be made in the pay- ment of any instalment of interest on any of the Securities of any series when such interest shall have become due and payable, and such default shall have continued for a period of 30 days or (b) in case default shall be made in the payment of all or any part of the principal of any of the Securities of any series when the same shall have become due and payable, whether upon maturity of the Securities of such series or upon any redemption or by declaration or otherwise--then upon demand of the Trustee, the Issuer will pay to the Trustee for the benefit of the Holders of the Securities of such series the whole amount that then shall have become due and payable on all Securities of such series, and such Coupons, for principal or interest, as the case may be (with interest to the date of such payment upon the overdue principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) speci- fied in the Securities of such series); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and any expenses and liabili- ties incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of its negligence or bad faith. 36 Until such demand is made by the Trustee, the Issuer may pay the principal of and interest on the Securities of any series to the Holders thereof, whether or not the Securities of such Series be overdue. In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be en- titled and empowered to institute any action or proceedings at law or in eq- uity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against the Issuer or other obligor upon the Se- curities and collect in the manner provided by law out of the property of the Issuer or other obligor upon the Securities, wherever situated the moneys ad- judged or decreed to be payable. In case there shall be pending proceedings relative to the Issuer or any other obligor upon the Securities under Title 11 of the United States Code or any other applicable Federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganiza- tion, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor, or in case of any other comparable judicial proceedings relative to the Issuer or other obligor upon the Securities, or to the creditors or property of the Issuer or such other obligor, the Trustee, irrespective of whether the princi- pal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise: (a) to file and prove a claim or claims for the whole amount of principal and interest (or, if the Securities of any series are Original Issue Dis- count Securities, such portion of the principal amount as may be specified in the terms of such series) owing and unpaid in respect of the Securities of any series, and to file such other papers or documents as may be neces- sary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trust- ee, and their respective agents, attorneys and counsel, and for reimburse- ment of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Securityholders allowed in any judicial proceedings relative to the Issuer or other obligor upon the Securities, or to the cred- itors or property of the Issuer or such other obligor, 37 (b) unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities of any series in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and (c) to collect and receive any moneys or other property payable or deliver- able on any such claims, and to distribute all amounts received with respect to the claims of the Securityholders and of the Trustee on their behalf; and any trustee, receiver, or liquidator, custodian or other similar official is hereby authorized by each of the Securityholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. Nothing herein contained shall be deemed to authorize the Trustee to autho- rize or consent to or vote for or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composi- tion affecting the Securities of any series or the rights of any Holder there- of, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar person. All rights of action and of asserting claims under this Indenture, or under any of the Securities of any series or Coupons appertaining to such Securi- ties, may be enforced by the Trustee without the possession of any of the Se- curities of such series or Coupons appertaining to such Securities or the pro- duction thereof on any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Securities or Coupons appertain- ing to such Securities in respect of which such action was taken. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Securities or Coupons appertaining to such Securities in respect to which such action was 38 taken, and it shall not be necessary to make any Holders of such Securities or Coupons appertaining to such Securities parties to any such proceedings. Section 5.3 Application of Proceeds. Any moneys collected by the Trustee pur- suant to this Article in respect of any series shall be applied in the follow- ing order at the date or dates fixed by the Trustee and, in case of the dis- tribution of such moneys on account of principal or interest, upon presenta- tion of the several Securities and Coupons appertaining to such Securities in respect of which monies have been collected and stamping (or otherwise noting) thereon the payment, or issuing Securities of such series in reduced principal amounts in exchange for the presented Securities of like series if only par- tially paid, or upon surrender thereof if fully paid: First: To the payment of costs and expenses applicable to such series in respect of which monies have been collected, including reasonable compensa- tion to the Trustee and each predecessor Trustee and their respective agents and attorneys and of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of neg- ligence or bad faith; Second: In case the principal of the Securities of such series in respect of which moneys have been collected shall not have become and be then due and payable, to the payment of interest on the Securities of such series in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Dis- count Securities) specified in such Securities, such payments to be made ratably to the persons entitled thereto, without discrimination or prefer- ence; Third: In case the principal of the Securities of such series in respect of which moneys have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for principal and interest, with interest upon the overdue principal, and (to the extent that such interest has been col- lected by the Trustee) upon overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment of such principal and interest or Yield to Maturity, without preference or pri- ority of principal over interest or Yield to Maturity, or of interest or Yield to Maturity over principal, or of any instalment of interest over any other instalment of interest, or of any Security of such series over any other Security of such series, ratably to the 39 aggregate of such principal and accrued and unpaid interest or Yield to Ma- turity; and Fourth: To the payment of the remainder, if any, to the Issuer or any other person lawfully entitled thereto. Section 5.4 Suits for Enforcement. In case an Event of Default has occurred, has not been waived and is continuing, the Trustee may in its discretion pro- ceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bank- ruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 5.5 Restoration of Rights on Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Issuer and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Is- suer, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. Section 5.6 Limitations on Suits by Securityholders. No Holder of any Secu- rity of any series or of any Coupon appertaining thereto shall have any right by virtue or by availing of any provision of this Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder, unless such Holder previously shall have given to the Trustee written notice of default and of the continuance thereof, as hereinbe- fore provided, and unless also the Holders of not less than 25% in aggregate principal amount of the Securities of each affected series then Outstanding (treated as a single class) shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may re- quire against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such 40 action or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 5.9; it being under- stood and intended, and being expressly covenanted by the taker and Holder of every Security or Coupon with every other taker and Holder and the Trustee, that no one or more Holders of Securities of any series or Coupons appertain- ing to such Securities shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture to affect, disturb or preju- dice the rights of any other such Holder of Securities or Coupons appertaining to such Securities, or to obtain or seek to obtain priority over or preference to any other such Holder or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all Holders of Securities of the applicable series and Coupons appertaining to such Securities. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 5.7 Unconditional Right of Securityholders to Institute Certain Suits. Notwithstanding any other provision in this Indenture and any provision of any Security, the right of any Holder of any Security or Coupon to receive payment of the principal of and interest on such Security or Coupon on or af- ter the respective due dates expressed in such Security or Coupon or any date fixed for redemption of such Security or Coupon, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. Except as provided in Section 5.6, no right or remedy herein con- ferred upon or reserved to the Trustee or to the Holders of Securities or Cou- pons is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addi- tion to every other right and remedy given hereunder or now or hereafter ex- isting at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent as- sertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder of Securities or Coupons to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to Section 5.6, every power and remedy given by this In- denture or by 41 law to the Trustee or to the Holders of Securities or Coupons may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Holders of Securities or Coupons. Section 5.9 Control by Holders of Securities. The Holders of a majority in aggregate principal amount of the Securities of each series affected (with all such series voting as a single class) at the time Outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power con- ferred on the Trustee with respect to the Securities of such series by this Indenture; provided that such direction shall not be otherwise than in accor- dance with law and the provisions of this Indenture and provided further that (subject to the provisions of Section 6.1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors, the executive committee, or a trust committee of directors or Responsible Officers of the Trustee shall determine that the action or proceedings so directed would in- volve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forebearances specified in or pursuant to such direction would be unduly prejudicial to the interests of Holders of the Securities of all series so affected not joining in the giving of said direc- tion, it being understood that (subject to Section 6.1) the Trustee shall have no duty to ascertain whether or not such actions or forebearances are unduly prejudicial to such Holders. Nothing in this Indenture shall impair the right of the Trustee in its dis- cretion to take any action deemed proper by the Trustee and which is not in- consistent with such direction or directions by Securityholders. Section 5.10 Waiver of Past Defaults. Prior to the acceleration of the matu- rity of any Securities as provided in Section 5.1, the Holders of a majority in aggregate principal amount of the Securities of all series at the time Out- standing with respect to which an Event of Default shall have occurred and be continuing (voting as a single class) may on behalf of the Holders of all such Securities waive any past default or Event of Default described in Section 5.1 and its consequences, except a default in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Security affected. In the case of any such waiver, the Issuer, the Trustee and the Holders of all such Securities shall be restored to their for- mer positions and 42 rights hereunder, respectively; but no such waiver shall extend to any subse- quent or other default or impair any right consequent thereon. Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising there- from shall be deemed to have been cured, and not to have occurred for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 5.11 Trustee to Give Notice of Default, But May Withhold in Certain Circumstances. The Trustee shall, within 90 days after the occurrence of a de- fault with respect to the Securities of any series, give notice of all de- faults with respect to that series known to the Trustee (i) if any Unregis- tered Securities of that series are then Outstanding, to the Holders thereof, by publication at least once in an Authorized Newspaper in the Borough of Man- hattan, The City of New York, and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized News- paper in Luxembourg) and (ii) to all Holders of Securities of such series in the manner and to the extent provided herein unless in each case such defaults shall have been cured before the mailing or publication of such notice (the term "defaults" for the purpose of this Section being hereby defined to mean any event or condition which is, or with notice or lapse of time or both would become, an Event of Default); provided that, except in the case of default in the payment of the principal of or interest on any of the Securities of such series, or in the payment of any sinking fund instalment on such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or trustees and/or Responsible Officers of the Trustee in good faith deter- mines that the withholding of such notice is in the interests of the Securityholders of such series. Section 5.12 Right of Court to Require Filing of Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Security or Coupon by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable at- torneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of 43 the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit in- stituted by any Securityholder or group of Securityholders of any series hold- ing in the aggregate more than 10% in aggregate principal amount of the Secu- rities of such series, or, in the case of any suit relating to or arising un- der clause (c) or (f) of Section 5.1 (if the suit relates to Securities of more than one but less than all series), 10% in aggregate principal amount of Securities then Outstanding and affected thereby, or in the case of any suit relating to or arising under clause (c) or (f) (if the suit under clause (c) or (f) relates to all the Securities then Outstanding), (d) or (e) of Section 5.1, 10% in aggregate principal amount of all Securities then Outstanding, or to any suit instituted by any Securityholder for the enforcement of the pay- ment of the principal of or interest on any Security on or after the due date expressed in such Security or any date fixed for redemption. ARTICLE SIX Concerning the Trustee Section 6.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default. With respect to the Holders of any series of Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Securities of a particular series and after the curing or waiv- ing of all Events of Default which may have occurred with respect to such se- ries, undertakes to perform such duties and only such duties as are specifi- cally set forth in this Indenture. In case an Event of Default with respect to the Securities of a series has occurred (which has not been cured or waived) the Trustee shall exercise with respect to such series of Securities such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that (a) prior to the occurrence of an Event of Default with respect to the Se- curities of any series and after the curing or waiving of all such Events of Default with respect to such series which may have occurred: (i) the duties and obligations of the Trustee with respect to the Securi- ties of any series shall be determined solely by the express provisions of this 44 Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this In- denture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correct- ness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statements, certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, un- less it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders pursuant to Section 5.9 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or ex- ercising any trust or power conferred upon the Trustee, under this Inden- ture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liabil- ity in the performance of any of its duties or in the exercise of any of its rights or powers if there shall be reasonable ground for believing that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to it. The provisions of this Section 6.1 are in furtherance of and subject to Sec- tion 315 of the Trust Indenture Act of 1939. Section 6.2 Certain Rights of the Trustee. In furtherance of and subject to the Trust Indenture Act of 1939, and subject to Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate or any other certifi- cate, statement, instrument, opinion, report, notice, request, consent, or- der, bond, debenture, note, coupon, security or other paper or document be- lieved by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Issuer mentioned herein shall be sufficiently evidenced by an Officer's Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any res- olution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant secretary of the Issuer; 45 (c) the Trustee may consult with counsel and any written advice or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it here- under in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable se- curity or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture; (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolu- tion, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, securi- ty, or other paper or document unless requested in writing so to do by the Holders of a majority in aggregate principal amount of the Securities of all series affected then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security af- forded to it by the terms of this Indenture, the Trustee may require reason- able indemnity against such expenses or liabilities as a condition to pro- ceeding; the reasonable expenses of every such investigation shall be paid by the Issuer or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Issuer upon demand; and (g) the Trustee may execute any of the trusts or powers hereunder or per- form any duties hereunder either directly or by or through agents or attor- neys not regularly in its employ and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. Section 6.3 Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibil- ity for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Securities or Coupons. The Trustee shall not be accountable for the use or application by the Issuer of any of the Securities or of the proceeds thereof. 46 Section 6.4 Trustee and Agents May Hold Securities or Coupons; Collections, etc. The Trustee or any agent of the Issuer or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities or Cou- pons with the same rights it would have if it were not the Trustee or such agent and may otherwise deal with the Issuer and receive, collect, hold and retain collections from the Issuer with the same rights it would have if it were not the Trustee or such agent. Section 6.5 Moneys Held by Trustee. Subject to the provisions of Section 10.4 hereof, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were re- ceived, but need not be segregated from other funds except to the extent re- quired by mandatory provisions of law. Neither the Trustee nor any agent of the Issuer or the Trustee shall be under any liability for interest on any moneys received by it hereunder. Section 6.6 Compensation and Indemnification of Trustee and Its Prior Claim. The Issuer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Issuer covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on be- half of it in accordance with any of the provisions of this Indenture (includ- ing the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) ex- cept any such expense, disbursement or advance as may arise from its negli- gence or bad faith. Any such payments and reimbursements not made in a timely fashion shall be made with interest at the Trustee's corporate base rate. The Issuer also covenants to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereun- der and its duties hereunder, including the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Issuer under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall con- stitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. Such additional indebtedness shall be a se- nior claim to 47 that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities or Coupons, and the Securities are hereby subordinated to such senior claim. Section 6.7 Right of Trustee to Rely on Officer's Certificate, etc. Subject to Sections 6.1 and 6.2, whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officer's Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. Section 6.8 Indentures Not Creating Potential Conflicting Interests for the Trustee. This Section intentionally left blank. Section 6.9 Persons Eligible for Appointment as Trustee. The Trustee for each series of Securities hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State or the District of Columbia having a combined capital and surplus of at least $5,000,000, and which is authorized under such laws to exercise corpo- rate trust powers and is subject to supervision or examination by Federal, State or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.10. The provisions of this Section 6.9 are in furtherance of and subject to Sec- tion 310(a) of the Trust Indenture Act of 1939. 48 Section 6.10 Resignation and Removal; Appointment of Successor Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign and be discharged of the trusts hereby created by giving written notice of resignation to the Issuer and (i) if any Unregistered Securities are then Outstanding, by giving notice of such resignation to the Holders thereof, by publication at least once in an Authorized Newspaper in the Borough of Man- hattan, The City of New York, and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized News- paper in Luxembourg), (ii) if any Unregistered Securities are then Outstand- ing, by mailing notice of such resignation to the Holders thereof who have filed their names and addresses with the Trustee at such addresses as were so furnished to the Trustee and (iii) by mailing notice of such resignation to the Holders of then Outstanding Registered Securities at their addresses as they shall appear on the registry books. Upon receiving such notice of resig- nation, the Issuer shall promptly appoint a successor trustee or trustees by written instrument in duplicate, executed by authority of the Board of Direc- tors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee or trustees. If no successor trustee shall have been so appointed and have accepted appointment within 30 days af- ter the mailing of such notice of resignation, the resigning trustee may peti- tion any court of competent jurisdiction for the appointment of a successor trustee, or any Securityholder who has been a bona fide Holder of a Security or Securities for at least six months may, subject to the provisions of Sec- tion 5.12, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, ap- point a successor trustee. (b) In case at any time any of the following shall occur: (i) the Trustee shall fail to comply with the provisions of Section 310(b) of the Trust Indenture Act of 1939 after written request therefor by the Is- suer or by any Securityholder who has been a bona fide Holder of a Security or Securities for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provi- sions of Section 6.9 and Section 310(a) of the Trust Indenture Act of 1939 and shall fail to resign after written request therefor by the Issuer or by any Securityholder; or 49 (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its property shall be appointed, or any public officer shall take charge or con- trol of the Trustee or of its property or affairs for the purpose of reha- bilitation, conservation or liquidation; then, in any such case, the Issuer may remove the Trustee and appoint a suc- cessor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Issuer, one copy of which instrument shall be deliv- ered to the Trustee so removed and one copy to the successor trustee, or, sub- ject to the provisions of Section 315(e) of the Trust Indenture Act of 1939, any Securityholder who has been a bona fide Holder of a Security or Securities for at least six months may on behalf of himself and all others similarly sit- uated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The Holders of a majority in aggregate principal amount of the Securities of all series at the time outstanding may at any time remove the Trustee and appoint a successor trustee by delivering to the Trustee so removed, to the successor trustee so appointed and to the Issuer the evidence provided for in Section 7.1 of the action in that regard taken by the Securityholders. (d) Any resignation or removal of the Trustee and any appointment of a suc- cessor trustee pursuant to any of the provisions of this Section 6.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.11. Section 6.11 Acceptance of Appointment by Successor Trustee. Any successor trustee appointed as provided in Section 6.10 shall execute and deliver to the Issuer and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee hereunder; but, nevertheless, on the written request of the Issuer or 50 of the successor trustee, upon payment of its charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4, pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and de- liver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 6.6. No successor trustee shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor trustee shall be qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible under the provisions of Section 6.9. Upon acceptance of appointment by any successor trustee as provided in this Section 6.11, the Issuer shall give notice thereof (a) if any Unregistered Se- curities are then Outstanding, to the Holders thereof, by publication of such notice at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized Newspaper in Luxembourg), (b) if any Unregistered Securities are then Outstanding, to the Holders thereof who have filed their names and addresses with the Trustee, by mailing such notice to such Holders at such addresses as were so furnished to the Trustee (and the Trustee shall make such information available to the Is- suer for such purpose) and (c) to the Holders of Registered Securities, by mailing such notice to such Holders at their addresses as they shall appear on the registry books. If the acceptance of appointment is substantially contem- poraneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 6.10. If the Issuer fails to give such notice within ten days after acceptance of appoint- ment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Issuer. Section 6.12 Merger, Conversion, Consolidation or Succession to Business of Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merg- er, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall 51 be the successor of the Trustee hereunder, provided that such corporation shall be qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible under the provisions of Section 6.9, without the execution or filing of any paper or any further act on the part of any of the parties hereto, any- thing herein to the contrary notwithstanding. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities of any series shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities of any series shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereun- der or in the name of the successor Trustee; and in all such cases such cer- tificate shall have the full force which it is anywhere in the Securities of such series or in this Indenture provided that the certificate of the Trustee shall have; provided, that the right to adopt the certificate of authentica- tion of any predecessor Trustee or to authenticate Securities of any series in the name of any predecessor Trustee shall apply only to its successor or suc- cessors by merger, conversion or consolidation. Section 6.13 Preferential Collection of Claims Against the Issuer. This Section intentionally left blank. Section 6.14 Appointment of Authenticating Agent. As long as any Securities of a series remain Outstanding, the Trustee may, by an instrument in writing, appoint with the approval of the Issuer an authenticating agent (the "Authen- ticating Agent") which shall be authorized to act on behalf of the Trustee to authenticate Securities, including Securities issued upon exchange, registra- tion of transfer, partial redemption or pursuant to Section 2.9. Securities of each such series authenticated by such Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee. Whenever reference is made in this Indenture to the authentication and delivery of Securities of any series by the Trustee or to the Trustee's Certificate of Authentication, such refer- ence shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent for such series and a Certificate of Au- thentication executed on behalf of the Trustee by such Authenticating Agent. Such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corpo- 52 rate trust powers, having a combined capital and surplus of at least $5,000,000 (determined as provided in Section 6.9 with respect to the Trustee) and subject to supervision or examination by Federal or State authority. Any corporation into which any Authenticating Agent may be merged or convert- ed, or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency busi- ness of any Authenticating Agent, shall continue to be the Authenticating Agent with respect to all series of Securities for which it served as Authen- ticating Agent without the execution or filing of any paper or any further act on the part of the Trustee or such Authenticating Agent. Any Authenticating Agent may at any time, and if it shall cease to be eligible shall, resign by giving written notice of resignation to the Trustee and to the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible in accor- dance with the provisions of this Section 6.14 with respect to one or more se- ries of Securities, the Trustee shall upon receipt of an Issuer Order appoint a successor Authenticating Agent and the Issuer shall provide notice of such appointment to all Holders of Securities of such series in the manner and to the extent provided in Section 11.4. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent. The Issuer agrees to pay to the Authenticating Agent for such series from time to time reasonable compensation. The Authenticating Agent for the Securities of any series shall have no responsibility or liability for any action taken by it as such at the direction of the Trustee. Sections 6.2, 6.3, 6.4, 6.6, 6.9 and 7.3 shall be applicable to any Authenti- cating Agent. ARTICLE SEVEN Concerning the Securityholders Section 7.1 Evidence of Action Taken by Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by a specified percentage in principal amount of the Securityholders of any or all series may be embodied in and 53 evidenced by one or more instruments of substantially similar tenor signed (either physically or by means of an electronic transmission) by such speci- fied percentage of Securityholders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered (either physically or by means of an electronic transmission) to the Trustee. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 6.1 and 6.2) conclusive in favor of the Trustee and the Issuer, if made in the manner provided in this Article. Section 7.2 Proof of Execution of Instruments and of Holding of Securities. Subject to Sections 6.1 and 6.2, the execution of any instrument by a Securityholder or his agent or proxy may be proved in the following manner: (a) The fact and date of the execution by any Holder of any instrument may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the person executing such instruments acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or other such officer. Where such execution is by or on be- half of any legal entity other than an individual, such certificate or affi- davit shall also constitute sufficient proof of the authority of the person executing the same. The fact of the holding by any Holder of an Unregistered Security of any series, and the identifying number of such Security and the date of his holding the same, may be proved by the production of such Secu- rity or by a certificate executed by any trust company, bank, banker or rec- ognized securities dealer wherever situated satisfactory to the Trustee, if such certificate shall be deemed by the Trustee to be satisfactory. Each such certificate shall be dated and shall state that on the date thereof a Security of such series bearing a specified identifying number was deposited with or exhibited to such trust company, bank, banker or recognized securi- ties dealer by the person named in such certificate. Any such certificate may be issued in respect of one or more Unregistered Securities of one or more series specified therein. The holding by the person named in any such certificate of any Unregistered Securities of any series specified therein shall be presumed to continue for a period of one year from the date of such certificate unless at the time of any determination of such holding (1) an- other certificate bearing a later date issued in respect of the same Securi- ties shall be produced, or (2) the Security of such series specified in such certificate shall be produced by some other person, or (3) the Security of such series specified in such certificate shall have ceased to be Outstand- ing. Subject to Sections 6.1 and 6.2, the fact and date of the execution of any such instrument and the amount and numbers of Securities of any series 54 held by the person so executing such instrument and the amount and numbers of any Security or Securities for such series may also be proven in accor- dance with such reasonable rules and regulations as may be prescribed by the Trustee for such series or in any other manner which the Trustee for such series may deem sufficient. (b) In the case of Registered Securities, the ownership of such Securities shall be proved by the Security register or by a certificate of the Security registrar. The Issuer may set a record date for purposes of determining the identity of Holders of Registered Securities of any series entitled to vote or consent to any action referred to in Section 7.1, which record date may be set at any time or from time to time by notice to the Trustee, for any date or dates (in the case of any adjournment or reconsideration) not more than 60 days nor less than five days prior to the proposed date of such vote or consent, and there- after, notwithstanding any other provisions hereof, with respect to Registered Securities of any series, only Holders of Registered Securities of such series of record on such record date shall be entitled to so vote or give such con- sent or revoke such vote or consent. Section 7.3 Holders to Be Treated as Owners. The Issuer, the Trustee and any agent of the Issuer or the Trustee may deem and treat the person in whose name any Security shall be registered upon the Security register for such series as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing there- on) for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest on such Security and for all other purposes; and neither the Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be affected by any notice to the con- trary. The Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Holder of any Unregistered Security and the Holder of any Coupon as the absolute owner of such Unregistered Security or Coupon (whether or not such Unregistered Security or Coupon shall be overdue) for the purpose of re- ceiving payment thereof or on account thereof and for all other purposes and neither the Issuer, the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any notice to the contrary. All such payments so made to any such person, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for mon- eys payable upon any such Security or Coupon. 55 Section 7.4 Securities Owned by Issuer Deemed Not Outstanding. In determining whether the Holders of the requisite aggregate principal amount of Outstanding Securities of any or all series have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Issuer or any other obligor on the Securities with respect to which such determination is being made or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other ob- ligor on the Securities with respect to which such determination is being made shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver only Securities which the Trustee knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Issuer or any other obligor upon the Securities or any person di- rectly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other obligor on the Securities. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Trustee in accordance with such advice. Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly an Officer's Certificate listing and identifying all Securities, if any, known by the Issuer to be owned or held by or for the account of any of the above- described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall be entitled to accept such Officer's Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. Section 7.5 Right of Revocation of Action Taken. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Securities of any or all series, as the case may be, specified in this Indenture in connection with such action, any Holder of a Security the serial number of which is shown by the evidence to be included among the se- rial numbers of the Securities the Holders of which have consented to such ac- tion may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article, revoke such action so far as concerns such Security. Except as aforesaid any such action taken by the Holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of 56 such Security and of any Securities issued in exchange or substitution there- for or on registration of transfer thereof, irrespective of whether or not any notation in regard thereto is made upon any such Security. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities of any or all series, as the case may be, specified in this Indenture in con- nection with such action shall be conclusively binding upon the Issuer, the Trustee and the Holders of all the Securities affected by such action. ARTICLE EIGHT Supplemental Indentures Section 8.1 Supplemental Indentures Without Consent of Securityholders. The Issuer, when authorized by a resolution of its Board of Directors (which reso- lution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order), and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to convey, transfer, assign, mortgage or pledge to the Trustee as secu- rity for the Securities of one or more series any property or assets; (b) to evidence the succession of another corporation to the Issuer, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Issuer pursuant to Article Nine; (c) to add to the covenants of the Issuer such further covenants, restric- tions, conditions or provisions as the Issuer and the Trustee shall consider to be for the protection of the Holders of Securities or Coupons, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, that in respect of any such additional covenant, restriction, condition or provision such sup- plemental indenture may provide for a particular period of grace after de- fault (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such an Event of Default or may limit the remedies available to the Trustee upon such an Event of Default or may limit the right of the Holders of a majority in aggregate principal amount of the Securities of such series to waive such an Event of Default; (d) to cure any ambiguity or to correct or supplement any provision con- tained herein or in any supplemental indenture which may be defective or in- consistent with any other provision contained herein or in any supplemental 57 indenture, or to make any other provisions as the Issuer may deem necessary or desirable, provided that no such action shall adversely affect the inter- ests of the Holders of the Securities or Coupons; (e) to establish the forms or terms of Securities of any series or of the Coupons appertaining to such Securities as permitted by Sections 2.1 and 2.3; and (f) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be nec- essary to provide for or facilitate the administration of the trusts hereun- der by more than one trustee, pursuant to the requirements of Section 6.11. The Trustee is hereby authorized to join with the Issuer in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Inden- ture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed without the consent of the Holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 8.2. Section 8.2 Supplemental Indentures With Consent of Securityholders. With the consent (evidenced as provided in Article Seven) of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of all series affected by such supplemental indenture (voting as one class), the Is- suer, when authorized by a resolution of its Board of Directors (which resolu- tion may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order), and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Securities of each such series or of the Coupons appertaining to such Securities; provided, that no such supplemental indenture shall (a) extend the final maturity of any Se- curity, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on re- demption thereof, or make the prin- 58 cipal thereof (including any amount in respect of original issue discount), or interest thereon, payable in any coin or currency other than that provided in the Securities and Coupons or in accordance with the terms thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 5.1 or the amount thereof provable in bankruptcy pursuant to Section 5.2, or alter the provisions of Section 11.11 or 11.12 or impair or affect the right of any Securityholder to institute suit for the payment thereof or, if the Securities provide therefor, any right of repayment or repurchase at the option of the Securityholder, in each case without the consent of the Holder of each Security so affected, or (b) reduce the aforesaid percentage of Secu- rities of any series, the consent of the Holders of which is required for any such supplemental indenture, without the consent of the Holders of each Secu- rity so affected. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of Holders of Securities of such series, or of Coupons appertaining to such Securities, with respect to such covenant or provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series or of the Coupons appertaining to such Securities. Upon the request of the Issuer, accompanied by a copy of a resolution of the Board of Directors (which resolution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order) certified by the secretary or an assistant secretary of the Issuer authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evi- dence of the consent of the Holders of the Securities as aforesaid and other documents, if any, required by Section 7.1, the Trustee shall join with the Issuer in the execution of such supplemental indenture unless such supplemen- tal indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance there- of. 59 Promptly after the execution by the Issuer and the Trustee of any supplemen- tal indenture pursuant to the provisions of this Section, the Trustee shall give notice thereof (i) to the Holders of then Outstanding Registered Securi- ties of each series affected thereby, by mailing a notice thereof by first- class mail to such Holders at their addresses as they shall appear on the Se- curity register, (ii) if any Unregistered Securities of a series affected thereby are then Outstanding, to the Holders thereof who have filed their names and addresses with the Trustee, by mailing a notice thereof by first- class mail to such Holders at such addresses as were so furnished to the Trustee and (iii) if any Unregistered Securities of a series affected thereby are then Outstanding, to all Holders thereof, by publication of a notice thereof at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized Newspaper in Luxembourg), and in each case such notice shall set forth in general terms the substance of such supplemental indenture. Any failure of the Issuer to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 8.3 Effect of Supplemental Indenture. Upon the execution of any sup- plemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the re- spective rights, limitations of rights, obligations, duties and immunities un- der this Indenture of the Trustee, the Issuer and the Holders of Securities of each series affected thereby shall thereafter be determined, exercised and en- forced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 8.4 Documents to Be Given to Trustee. The Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article Eight complies with the applicable provi- sions of this Indenture. Section 8.5 Notation on Securities in Respect of Supplemental Indentures. Se- curities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article may bear a notation in form approved by the Trustee for such series as to any matter pro- 60 vided for by such supplemental indenture or as to any action taken by Securityholders. If the Issuer or the Trustee shall so determine, new Securi- ties of any series so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Issuer, authenticated by the Trustee and delivered in exchange for the Securities of such series then Outstanding. ARTICLE NINE Consolidation, Merger, Sale or Conveyance Section 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property Ex- cept Under Certain Conditions. The Issuer covenants that it will not merge or consolidate with any other Person or sell, lease or convey all or substan- tially all of its assets to any other Person, unless (i) either the Issuer shall be the continuing corporation, or the successor corporation or the Per- son which acquires by sale, lease or conveyance substantially all the assets of the Issuer (if other than the Issuer) shall be a corporation organized un- der the laws of the United States of America or any State thereof or the Dis- trict of Columbia and shall expressly assume the due and punctual payment of the principal of and interest on all the Securities and Coupons, if any, ac- cording to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or ob- served by the Issuer, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (ii) the Issu- er, such Person or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale, lease or convey- ance, be in default in the performance of any such covenant or condition. Section 9.2 Successor Corporation Substituted. In case of any such consolida- tion, merger, sale, lease or conveyance, and following such an assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Issuer, with the same effect as if it had been named here- in. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Issuer prior to such succession any or all of the Securities issuable hereunder which together with any Coupons apper- taining thereto theretofore shall not have been signed by the Issuer and de- livered to the Trustee; and, upon the order of such successor corporation, in- stead of the Issuer, and subject to all the terms, conditions and limitations in this Indenture pre- 61 scribed, the Trustee shall authenticate and shall deliver any Securities to- gether with any Coupons appertaining thereto which previously shall have been signed and delivered by the officers of the Issuer to the Trustee for authen- tication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Securities so issued together with any Coupons appertaining thereto shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, lease or conveyance such changes in phrasing and form (but not in substance) may be made in the Securi- ties and Coupons thereafter to be issued as may be appropriate. In the event of any such sale or conveyance (other than a conveyance by way of lease) the Issuer or any successor corporation which shall theretofore have become such in the manner described in this Article shall be discharged from all obligations and covenants under this Indenture and the Securities and may be liquidated and dissolved. Section 9.3 Opinion of Counsel Delivered to Trustee. The Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, lease or con- veyance, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Indenture. ARTICLE TEN Satisfaction and Discharge of Indenture; Unclaimed Moneys Section 10.1 Satisfaction and Discharge of Indenture. (A) If at any time (a) the Issuer shall have paid or caused to be paid the principal of and interest on all the Securities of any series Outstanding hereunder and all unmatured Coupons appertaining thereto (other than Securities of such series and Coupons appertaining thereto which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.9) as and when the same shall have become due and payable, or (b) the Issuer shall have delivered to the Trustee for cancellation all Securities of any series theretofore authenti- cated and all unmatured Coupons appertaining thereto (other than any Securi- ties of such series and Coupons appertaining thereto which shall have been de- stroyed, lost or stolen 62 and which shall have been replaced or paid as provided in Section 2.9) or (c) in the case of any series of Securities where the exact amount (including the currency of payment) of principal of and interest due on which can be deter- mined at the time of making the deposit referred to in clause (ii) below, (i) all the Securities of such series and all unmatured Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (ii) the Issuer shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds the entire amount in cash (other than moneys repaid by the Trustee or any paying agent to the Issuer in accordance with Section 10.4) or, in the case of any series of Securities the payments on which may only be made in Dollars, obligations issued or guaranteed as to principal and interest by the United States or by a Person controlled or supervised by and acting as an instrumentality of the government of the United States pursuant to author- ity granted by the Congress of the United States ("U.S. Government Obliga- tions"), maturing as to principal and interest at such times and in such amounts as will insure the availability of cash, or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent pub- lic accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Securities of such se- ries and Coupons appertaining thereto on each date that such principal or in- terest is due and payable and (B) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series; and if, in any such case, the Issuer shall also pay or cause to be paid all other sums payable hereunder by the Issuer, then this Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange of Securities of such series and of Coupons appertaining thereto and the Issuer's right of op- tional redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons appertaining thereto to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor or on the speci- fied redemption dates therefor (but not upon acceleration), and remaining rights of the Holders to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, (v) the rights of the Holders of Securities of such series and Coupons appertain- ing thereto as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any 63 of them, and (vi) the obligations of the Issuer under Section 3.2) and the Trustee, on demand of the Issuer accompanied by an Officer's Certificate and an Opinion of Counsel and at the cost and expense of the Issuer, shall execute proper instruments acknowledging such satisfaction of and discharging this In- denture; provided, that the rights of Holders of the Securities and Coupons to receive amounts in respect of principal of and interest on the Securities and Coupons held by them shall not be delayed longer than required by then-appli- cable mandatory rules or policies of any securities exchange upon which the Securities are listed. (B) The following provisions shall apply to the Securities of each series un- less specifically otherwise provided in a Board Resolution, Officer's Certifi- cate or indenture supplemental hereto provided pursuant to Section 2.3. In ad- dition to discharge of the Indenture pursuant to the next preceding paragraph, in the case of any series of Securities the exact amounts (including the cur- rency of payment) of principal of and interest due on which can be determined at the time of making the deposit referred to in clause (a) below, the Issuer shall be deemed to have paid and discharged the entire indebtedness on all the Securities of such a series and the Coupons appertaining thereto on the 91st day after the date of the deposit referred to in subparagraph (a) below, and the provisions of this Indenture with respect to the Securities of such series and Coupons appertaining thereto shall no longer be in effect (except as to (i) rights of registration of transfer and exchange of Securities of such se- ries and of Coupons appertaining thereto and the Issuer's right of optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Securities or Coupons, (iii) rights of Holders of Securities and Coupons appertaining thereto to receive payments of principal thereof and in- terest thereon, upon the original stated due dates therefor or on the speci- fied redemption dates therefor (but not upon acceleration), and remaining rights of the Holders to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, (v) the rights of the Holders of Securities of such series and Coupons appertain- ing thereto as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, and (vi) the obligations of the Issuer under Section 3.2) and the Trustee, at the expense of the Issuer, shall at the Issuer's request, execute proper instruments acknowledging the same, if (a) with reference to this provision the Issuer has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of such series and Coupons apper- taining thereto (i) cash in an amount, or (ii) in the case of any series of Securities the payments 64 on which may only be made in Dollars, U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will in- sure the availability of cash, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accoun- tants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Securities of such series and Coupons appertaining thereto on each date that such principal or interest is due and payable and (B) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series; (b) the Issuer has delivered to the Trustee an Opinion of Counsel based on the fact that (x) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date hereof, there has been a change in the applicable Federal income tax law, in either case to the effect that, and such opinion shall confirm that, the Holders of the Securities of such series and Coupons appertaining thereto will not rec- ognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; and (c) the Issuer has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this provision have been complied with. (C) The Issuer shall be released from its obligations under Sections 3.6 and 9.1 with respect to the Securities of any Series, and any Coupons appertaining thereto, Outstanding on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such cove- nant defeasance means that, with respect to the Outstanding Securities of any Series, the Issuer may omit to comply with and shall have no liability in re- spect of any term, condition or limitation set forth in such Section, whether directly or indirectly by reason of any reference elsewhere herein to such Section or by reason of any reference in such Section to any other provision herein or in any other document and such omission to comply shall not consti- tute an Event of Default under Section 5.1, but the remainder of this Inden- ture and such Securities and Coupons shall be unaffected thereby. The follow- ing shall be the conditions to application of this subsection C of this Sec- tion 10.1: (a) The Issuer has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following pay- ments, specifically pledged as security for, and dedicated solely to, the benefit 65 of the holders of the Securities of such series and coupons appertaining thereto, (i) cash in an amount, or (ii) in the case of any series of Securi- ties the payments on which may only be made in Dollars, U.S. Government Ob- ligations maturing as to principal and interest at such times and in such amounts as will insure the availability of cash, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of inde- pendent public accountants expressed in a written certification thereof de- livered to the Trustee, to pay (A) the principal and interest on all Securi- ties of such series and Coupons appertaining thereto and (B) any mandatory sinking fund payments on the day on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such se- ries. (b) The Issuer shall have delivered to the Trustee an Officer's Certificate stating that all conditions precedent provided for relating to the covenant defeasance contemplated by this provision have been complied with. Section 10.2 Application by Trustee of Funds Deposited for Payment of Securities. Subject to Section 10.4, all moneys or U.S. Government Obligations deposited with the Trustee (or other trustee) pursuant to Section 10.1 (and all funds earned on such moneys or U.S. Government Obligations) shall be held in trust and applied by it to the payment, either directly or through any pay- ing agent (including the Issuer acting as its own paying agent), to the Hold- ers of the particular Securities of such series and of Coupons appertaining thereto for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. Subject to Section 10.1, the Trustee promptly shall pay to the Issuer upon request any excess moneys held by it at any time. Section 10.3 Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to Securities of any series, all moneys then held by any paying agent under the provisions of this Indenture with respect to such series of Securities shall, upon demand of the Issuer, be repaid to it or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. Section 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years. Any moneys deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest on any Security of any series or Coupons attached thereto and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall 66 have become due and payable, shall, upon the written request of the Issuer and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Issuer by the Trustee for such series or such paying agent, and the Holder of the Securities of such series and of any Coupons appertaining thereto shall, unless otherwise re- quired by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Issuer for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease; provided, how- ever, that the Trustee or such paying agent, before being required to make any such repayment with respect to moneys deposited with it for any payment (a) in respect of Registered Securities of any series, shall at the expense of the Issuer, mail by first-class mail to Holders of such Securities at their ad- dresses as they shall appear on the Security register, and (b) in respect of Unregistered Securities of any series, shall at the expense of the Issuer cause to be published once, in an Authorized Newspaper in the Borough of Man- hattan, The City of New York and once in an Authorized Newspaper in London (and if required by Section 3.7, once in an Authorized Newspaper in Luxem- bourg), notice, that such moneys remain and that, after a date specified therein, which shall not be less than thirty days from the date of such mail- ing or publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. ARTICLE ELEVEN Miscellaneous Provisions Section 11.1 Incorporators, Stockholders, Officers and Directors of Issuer Exempt from Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture, or in any Security, or be- cause of any indebtedness evidenced thereby, shall be had against any incorpo- rator, as such, or against any past, present or future stockholder, officer or director, as such, of the Issuer or of any successor, either directly or through the Issuer or any successor, under any rule of law, statute or consti- tutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Securities and the Coupons appertaining thereto by the Holders thereof and as part of the consideration for the issue of the Securities and the Coupons appertaining thereto. 67 Section 11.2 Provisions of Indenture for the Sole Benefit of Parties and Holders of Securities and Coupons. Nothing in this Indenture, in the Securi- ties or in the Coupons appertaining thereto, expressed or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and their successors and the Holders of the Securities or Cou- pons, if any, any legal or equitable right, remedy or claim under this Inden- ture or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and their suc- cessors and of the Holders of the Securities or Coupons, if any. Section 11.3 Successors and Assigns of Issuer Bound by Indenture. All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Issuer shall bind its successors and assigns, whether so expressed or not. Section 11.4 Notices and Demands on Issuer, Trustee and Holders of Securities and Coupons. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Holders of Securities or Coupons to or on the Issuer may be given or served by being deposited postage prepaid, first-class mail (except as otherwise specifically provided herein) addressed (until another address of the Issuer is filed by the Issuer with the Trustee) to New Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831, Attention: Chief Financial Officer. Any notice, direction, request or demand by the Issuer or any Holder of Securities or Coupons to or upon the Trustee shall be deemed to have been sufficiently given or served by being deposited postage prepaid, first-class mail (except as otherwise specif- ically provided herein) addressed (until another address of the Trustee is filed by the Trustee with the Issuer) to 450 West 33rd Street, 15th Floor, New York, New York 10001-2697, Attention: Global Trust Services. Where this Indenture provides for notice to Holders of Registered Securities, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder entitled thereto, at his last address as it appears in the Security register. In any case where notice to such Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall 68 be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice to the Issuer when such no- tice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Section 11.5 Officer's Certificates and Opinions of Counsel; Statements to Be Contained Therein. Upon any application or demand by the Issuer to the Trustee to take any action under any of the provisions of this Indenture, the Issuer shall furnish to the Trustee an Officer's Certificate stating that all condi- tions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition, (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based, (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an in- formed opinion as to whether or not such covenant or condition has been com- plied with and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certifi- cate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to factual matters, information with respect to which is in the pos- session of the Issuer, upon the certificate, 69 statement or opinion of or representations by an officer or officers of the Issuer, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exer- cise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Issuer or of coun- sel may be based, insofar as it relates to accounting matters, upon a certifi- cate or opinion of or representations by an accountant or firm of accountants in the employ of the Issuer, unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with and directed to the Trustee shall contain a statement that such firm is independent. Section 11.6 Payments Due on Saturdays, Sundays and Holidays. If the date of maturity of interest on or principal of the Securities of any series or any Coupons appertaining thereto or the date fixed for redemption or repayment of any such Security or Coupon shall not be a Business Day, then payment of in- terest or principal need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. Section 11.7 Conflict of Any Provision of Indenture with Trust Indenture Act of 1939. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, Sec- tions 310 to 318, inclusive, of the Trust Indenture Act of 1939, such imposed duties or incorporated provision shall control. Section 11.8 New York Law to Govern. This Indenture and each Security and Coupon shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of such State, except as may otherwise be required by mandatory provisions of law. Section 11.9 Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 70 Section 11.10 Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the con- struction hereof. Section 11.11 Securities in a Foreign Currency or in ECU. Unless otherwise specified in an Officer's Certificate delivered pursuant to Section 2.3 of this Indenture with respect to a particular series of Securities, whenever for purposes of this Indenture any action may be taken by the Holders of a speci- fied percentage in aggregate principal amount of Securities of all series or all series affected by a particular action at the time Outstanding and, at such time, there are Outstanding Securities of any series which are denomi- nated in a coin or currency other than Dollars (including ECUs), then the principal amount of Securities of such series which shall be deemed to be Out- standing for the purpose of taking such action shall be that amount of Dollars that could be obtained for such amount at the Market Exchange Rate. For pur- poses of this Section 11.11, Market Exchange Rate shall mean the noon Dollar buying rate in New York City for cable transfers of that currency as published by the Federal Reserve Bank of New York; provided, however, in the case of ECUs, Market Exchange Rate shall mean the rate of exchange determined by the Commission of the European Communities (or any successor thereto) as published in the Official Journal of the European Communities (such publication or any successor publication, the "Journal"). If such Market Exchange Rate is not available for any reason with respect to such currency, the Trustee shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York or, in the case of ECUs, the rate of ex- change as published in the Journal, as of the most recent available date, or quotations or, in the case of ECUs, rates of exchange from one or more major banks in The City of New York or in the country of issue of the currency in question, which for purposes of the ECU shall be Brussels, Belgium, or such other quotations or, in the case of ECU, rates of exchange as the Trustee shall deem appropriate. The provisions of this paragraph shall apply in deter- mining the equivalent principal amount in respect of Securities of a series denominated in a currency other than Dollars in connection with any action taken by Holders of Securities pursuant to the terms of this Indenture. All decisions and determinations of the Trustee regarding the Market Exchange Rate or any alternative determination provided for in the preceding paragraph shall be in its sole discretion and shall, in the absence of manifest error, be conclusive to the extent permitted by law for all purposes and irrevocably binding upon the Issuer and all Holders. 71 Section 11.12 Judgment Currency. The Issuer agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the pur- pose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of or interest on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the day on which final unappealable judgment is entered, unless such day is not a New York Banking Day, then, to the extent permitted by applicable law, the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Re- quired Currency with the Judgment Currency on the New York Banking Day preced- ing the day on which final unappealable judgment is entered and (b) its obli- gations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be af- fected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. ARTICLE TWELVE Redemption of Securities and Sinking Funds Section 12.1 Applicability of Article. The provisions of this Article shall be applicable to the Securities of any series which are redeemable before their maturity or to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 2.3 for Secu- rities of such series. 72 Section 12.2 Notice of Redemption; Partial Redemptions. Notice of redemption to the Holders of Registered Securities of any series to be redeemed as a whole or in part at the option of the Issuer shall be given by mailing notice of such redemption by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption to such Holders of Securities of such series at their last addresses as they shall appear upon the registry books. Notice of redemption to the Holders of Unregistered Secu- rities to be redeemed as a whole or in part, who have filed their names and addresses with the Trustee, shall be given by mailing notice of such redemp- tion, by first class mail, postage prepaid, at least 30 days and not more than 60 prior to the date fixed for redemption, to such Holders at such addresses as were so furnished to the Trustee (and, in the case of any such notice given by the Issuer, the Trustee shall make such information available to the Issuer for such purpose). Notice of redemption to all other Holders of Unregistered Securities shall be published in an Authorized Newspaper in the Borough of Manhattan, The City of New York and in an Authorized Newspaper in London (and, if required by Section 3.7, in an Authorized Newspaper in Luxembourg), in each case, once in each of three successive calendar weeks, the first publication to be not less than 30 nor more than 60 days prior to the date fixed for re- demption. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder re- ceives the notice. Failure to give notice by mail, or any defect in the notice to the Holder of any Security of a series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security of such series. The notice of redemption to each such Holder shall specify the principal amount of each Security of such series held by such Holder to be redeemed, the date fixed for redemption, the redemption price, the place or places of pay- ment, that payment will be made upon presentation and surrender of such Secu- rities and, in the case of Securities with Coupons attached thereto, of all Coupons appertaining thereto maturing after the date fixed for redemption, that such redemption is pursuant to the mandatory or optional sinking fund, or both, if such be the case, that interest accrued to the date fixed for redemp- tion will be paid as specified in such notice and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to ac- crue. In case any Security of a series is to be redeemed in part only the no- tice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Security, a new Security or Securities of such series in principal amount equal to the unredeemed portion thereof will be issued. 73 The notice of redemption of Securities of any series to be redeemed at the option of the Issuer shall be given by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer. On or before the redemption date specified in the notice of redemption given as provided in this Section, the Issuer will deposit with the Trustee or with one or more paying agents (or, if the Issuer is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 3.4) an amount of money sufficient to redeem on the redemption date all the Securities of such series so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. The Issuer will deliver to the Trustee at least 70 days prior to the date fixed for re- demption an Officer's Certificate stating the aggregate principal amount of Securities to be redeemed. In case of a redemption at the election of the Is- suer prior to the expiration of any restriction on such redemption, the Issuer shall deliver to the Trustee, prior to the giving of any notice of redemption to Holders pursuant to this Section, an Officer's Certificate stating that such restriction has been complied with. If less than all the Securities of a series are to be redeemed, the Trustee shall select, in such manner as it shall deem appropriate and fair, Securities of such Series to be redeemed in whole or in part. Securities may be redeemed in part in multiples equal to the minimum authorized denomination for Securi- ties of such series or any multiple thereof. The Trustee shall promptly notify the Issuer in writing of the Securities of such series selected for redemption and, in the case of any Securities of such series selected for partial redemp- tion, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities of any series shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the prin- cipal amount of such Security which has been or is to be redeemed. Section 12.3 Payment of Securities Called for Redemption. If notice of re- demption has been given as above provided, the Securities or portions of Secu- rities specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, to- gether with interest accrued to the date fixed for redemption, and on and af- ter said date (unless the Issuer shall default in the payment of such Securi- ties at the redemption price, together with interest accrued to said date) in- terest on the Securities or portions of Securities so called for redemption shall cease to accrue, and the 74 unmatured Coupons, if any, appertaining thereto shall be void, and, except as provided in Sections 6.5 and 10.4, such Securities shall cease from and after the date fixed for redemption to be entitled to any benefit or security under this Indenture, and the Holders thereof shall have no right in respect of such Securities except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption. On presentation and surrender of such Securities at a place of payment specified in said notice, together with all Coupons, if any, appertaining thereto maturing after the date fixed for redemption, said Securities or the specified portions thereof shall be paid and redeemed by the Issuer at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that pay- ment of interest becoming due on or prior to the date fixed for redemption shall be payable in the case of Securities with Coupons attached thereto, to the Holders of the Coupons for such interest upon surrender thereof, and in the case of Registered Securities, to the Holders of such Registered Securi- ties registered as such on the relevant record date subject to the terms and provisions of Sections 2.3 and 2.7 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate of interest or Yield to Maturity (in the case of an Original Issue Discount Security) borne by such Security. If any Security with Coupons attached thereto is surrendered for redemption and is not accompanied by all appurtenant Coupons maturing after the date fixed for redemption, the surrender of such missing Coupon or Coupons may be waived by the Issuer and the Trustee, if there be furnished to each of them such security or indemnity as they may require to save each of them harmless. Upon presentation of any Security redeemed in part only, the Issuer shall ex- ecute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Issuer, a new Security or Securities of such series, of authorized denominations, in principal amount equal to the un- redeemed portion of the Security so presented. Section 12.4 Exclusion of Certain Securities from Eligibility for Selection for Redemption. Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in an Officer's Certificate delivered to the Trustee at least 40 days prior to the last date 75 on which notice of redemption may be given as being owned of record and bene- ficially by, and not pledged or hypothecated by either (a) the Issuer or (b) an entity specifically identified in such written statement as directly or in- directly controlling or controlled by or under direct or indirect common con- trol with the Issuer. Section 12.5 Mandatory and Optional Sinking Funds. The minimum amount of any sinking fund payment provided for by the terms of the Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of the Securities of any series is herein referred to as an "optional sinking fund payment." The date on which a sinking fund payment is to be made is herein referred to as the "sinking fund payment date." In lieu of making all or any part of any mandatory sinking fund payment with respect to any series of Securities in cash, the Issuer may at its option (a) deliver to the Trustee Securities of such series theretofore purchased or oth- erwise acquired (except upon redemption pursuant to the mandatory sinking fund) by the Issuer or receive credit for Securities of such series (not pre- viously so credited) theretofore purchased or otherwise acquired (except as aforesaid) by the Issuer and delivered to the Trustee for cancellation pursu- ant to Section 2.10, (b) receive credit for optional sinking fund payments (not previously so credited) made pursuant to this Section, or (c) receive credit for Securities of such series (not previously so credited) redeemed by the Issuer through any optional redemption provision contained in the terms of such series. Securities so delivered or credited shall be received or credited by the Trustee at the sinking fund redemption price specified in such Securi- ties. On or before the 60th day next preceding each sinking fund payment date for any series, the Issuer will deliver to the Trustee an Officer's Certificate (which need not contain the statements required by Section 11.5) (a) specify- ing the portion of the mandatory sinking fund payment to be satisfied by pay- ment of cash and the portion to be satisfied by credit of Securities of such series and the basis for such credit, (b) stating that none of the Securities of such series has theretofore been so credited, (c) stating that no defaults in the payment of interest or Events of Default with respect to such series have occurred (which have not been waived or cured) and are continuing and (d) stating whether or not the Issuer intends to exercise its right to make an op- tional sinking fund payment with respect to such series and, if so, specifying the amount of such optional sinking 76 fund payment which the Issuer intends to pay on or before the next succeeding sinking fund payment date. Any Securities of such series to be credited and required to be delivered to the Trustee in order for the Issuer to be entitled to credit therefor as aforesaid which have not theretofore been delivered to the Trustee shall be delivered for cancellation pursuant to Section 2.10 to the Trustee with such Officer's Certificate (or reasonably promptly thereafter if acceptable to the Trustee). Such Officer's Certificate shall be irrevocable and upon its receipt by the Trustee the Issuer shall become unconditionally obligated to make all the cash payments or payments therein referred to, if any, on or before the next succeeding sinking fund payment date. Failure of the Issuer, on or before any such 60th day, to deliver such Officer's Certifi- cate and Securities specified in this paragraph, if any, shall not constitute a default but shall constitute, on and as of such date, the irrevocable elec- tion of the Issuer (i) that the mandatory sinking fund payment for such series due on the next succeeding sinking fund payment date shall be paid entirely in cash without the option to deliver or credit Securities of such series in re- spect thereof and (ii) that the Issuer will make no optional sinking fund pay- ment with respect to such series as provided in this Section. If the sinking fund payment or payments (mandatory or optional or both) to be made in cash on the next succeeding sinking fund payment date plus any unused balance of any preceding sinking fund payments made in cash shall exceed $50,000 (or the equivalent thereof in any Foreign Currency or ECU) or a lesser sum in Dollars (or the equivalent thereof in any Foreign Currency or ECU) if the Issuer shall so request with respect to the Securities of any particular series, such cash shall be applied on the next succeeding sinking fund payment date to the redemption of Securities of such series at the sinking fund re- demption price together with accrued interest to the date fixed for redemp- tion. If such amount shall be $50,000 (or the equivalent thereof in any For- eign Currency or ECU) or less and the Issuer makes no such request then it shall be carried over until a sum in excess of $50,000 (or the equivalent thereof in any Foreign Currency or ECU) is available. The Trustee shall se- lect, in the manner provided in Section 12.2, for redemption on such sinking fund payment date a sufficient principal amount of Securities of such series to absorb said cash, as nearly as may be, and shall (if requested in writing by the Issuer) inform the Issuer of the serial numbers of the Securities of such series (or portions thereof) so selected. Securities shall be excluded from eligibility for redemption under this Section if they are identified by registration and certificate number in an Officer's Certificate delivered to the Trustee at least 60 days prior to the sinking fund payment date as being owned of record and beneficially by, and not pledged or hypothecated by 77 either (a) the Issuer or (b) an entity specifically identified in such Offi- cer's Certificate as directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer. The Trustee, in the name and at the expense of the Issuer (or the Issuer, if it shall so request the Trustee in writing) shall cause notice of redemption of the Securities of such series to be given in substantially the manner provided in Section 12.2 (and with the effect provided in Section 12.3) for the redemption of Securi- ties of such series in part at the option of the Issuer. The amount of any sinking fund payments not so applied or allocated to the redemption of Securi- ties of such series shall be added to the next cash sinking fund payment for such series and, together with such payment, shall be applied in accordance with the provisions of this Section. Any and all sinking fund moneys held on the stated maturity date of the Securities of any particular series (or earli- er, if such maturity is accelerated), which are not held for the payment or redemption of particular Securities of such series shall be applied, together with other moneys, if necessary, sufficient for the purpose, to the payment of the principal of, and interest on, the Securities of such series at maturity. On or before each sinking fund payment date, the Issuer shall pay to the Trustee in cash or shall otherwise provide for the payment of all interest ac- crued to the date fixed for redemption on Securities to be redeemed on the next following sinking fund payment date. The Trustee shall not redeem or cause to be redeemed any Securities of a se- ries with sinking fund moneys or give any notice of redemption of Securities for such series by operation of the sinking fund during the continuance of a default in payment of interest on such Securities or of any Event of Default except that, where the giving of notice of redemption of any Securities shall theretofore have been made, the Trustee shall redeem or cause to be redeemed such Securities, provided that it shall have received from the Issuer a sum sufficient for such redemption. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur, and any moneys thereafter paid into the sinking fund, shall, dur- ing the continuance of such default or Event of Default, be deemed to have been collected under Article Five and held for the payment of all such Securi- ties. In case such Event of Default shall have been waived as provided in Sec- tion 5.10 or the default cured on or before the 60th day preceding the sinking fund payment date in any year, such moneys shall thereafter be applied on the next succeeding sinking fund payment date in accordance with this Section to the redemption of such Securities. 78 In Witness Whereof, the parties hereto have caused this Indenture to be duly executed all as of , 1996. New Tenneco Inc. By _________________________________________ Name: Title: Attest: ________________________________ Secretary The Chase Manhattan Bank, Trustee By _________________________________________ Name: Title: Attest: ________________________________ Assistant Secretary 79 EX-10.1 10 FORM OF DEBT AND CASH ALLOCATION AGREEMENT EXHIBIT 10.1 EXHIBIT C TO DISTRIBUTION AGREEMENT DEBT AND CASH ALLOCATION AGREEMENT THIS DEBT AND CASH ALLOCATION AGREEMENT (this "Agreement") is made and entered into as of this day of , 1996 by and among Tenneco Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation ("Shipbuilding Company"), and New Tenneco Inc., a Delaware corporation ("Industrial Company"). WHEREAS, pursuant to the terms of that certain Distribution Agreement by and among the parties hereto and dated as of , 1996 (the "Distribution Agreement"), the parties have entered into this Agreement regarding the allocation of the Cash and Cash Equivalents and Consolidated Debt of Tenneco and its consolidated subsidiaries as of the Effective Time. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement and the Distribution Agreement, each of the parties hereto, on behalf of itself and each of the other members of its Group over which it has direct or indirect legal or effective control, hereby agrees as follows: 1. Certain Definitions. Capitalized terms which are used herein but which are not defined below in this SECTION 1 or in any of the other provisions or Sections of this Agreement or in the Distribution Agreement, shall have the meaning ascribed to such terms in the Debt Realignment Plan attached as Exhibit C to the Merger Agreement. (a) "Actual Energy Debt Amount" means the aggregate amount, as of the Effective Time, of the following, without duplication: (i) the then outstanding amount of the Tenneco Revolving Debt plus accrued and accreted interest and fees and expenses in respect thereof (as reflected on the Energy Adjusted Closing Balance Sheet); plus (ii) the Consolidated Public Debt Value; plus (iii) the then outstanding principal amount of Consolidated Debt of Tenneco and the Energy Subsidiaries other than that which is described in clauses (i) and (ii) above (for this purpose undrawn letters of credit and guarantees shall not be treated as outstanding) plus accrued and accreted interest and fees and expenses in respect thereof as reflected on the Energy Adjusted Closing Balance Sheet; plus (iv) except as otherwise expressly provided in the Merger Agreement or the Distribution Agreement, the unpaid amount of all direct and out of pocket fees, costs and expenses (as reflected on the Energy Adjusted Closing Balance Sheet) incurred on or prior to the Effective Time by Tenneco and its subsidiaries in respect of the transactions contemplated under the Debt Realignment, with respect to the Merger Agreement, the NPS Issuance and with respect to the Distribution Agreement, including, without limitation, the Corporate Restructuring Transactions, the Distributions, the Merger and the other related transactions, including by way of example items specifically set forth on Schedule 1 to the extent incurred in respect of the aforesaid transactions (collectively, the "Tenneco Transaction Expenses"); (v) any sales and use, gross receipts or other transfer Taxes (including Gains Taxes and Transfer Taxes, as defined in the Merger Agreement) imposed as a result of the Corporate Restructuring Transactions or otherwise occurring pursuant to the Distribution Agreement or the Merger Agreement, excluding, however, any stamp duty imposed by the Stamp Act 1894 (Queensland) as a result of the Merger; plus (vi) Restructuring Taxes (as defined in the Tax Sharing Agreement), except (A) for Taxes resulting from the deferred intercompany items on Schedule 2, and (B) to the extent the IRS ruling provides the Transactions (as defined in the Tax Sharing Agreement) are tax-free; plus 1 (vii) the then outstanding amount of any off-balance sheet indebtedness incurred after June 19, 1996 and before the Effective Time to finance the acquisition of any additional interest in the Oasis Pipeline; (viii) dividends declared by Tenneco on its common stock, $4.50 Preferred Stock and $7.40 Preferred Stock which have not been paid prior to the Effective Time but as to which the record date is before the Effective Time; plus (ix) the total amount of dividends accrued on the shares of New Preferred Stock issued pursuant the NPS Issuance that remain unpaid as of the Effective Time. The parties hereto hereby acknowledge and agree that the Actual Energy Debt Amount shall not include any amounts that may be due and owing ASCC under or as a result of the factoring arrangement between ASCC and Tenneco (and/or any of its Subsidiaries) and that are included in the amount of Factored Proceeds. (b) "Actual Energy Expenditures Amount" means the actual amount of capital expenditures (determined on a basis consistent with the past accounting practices of the Energy Business and the 1996 capital budget provided to Acquiror) made and paid for by the Energy Business from and after January 1, 1996 to and including the Effective Time, including, without limitation any capital expenditures in respect of the 70 MW Dunaferr power project in Hungary; provided, however, that any amount paid for the acquisition of any additional interest in either Tenneco Energy Resources Inc. or the Oasis Pipeline shall not be capital expenditures for any purpose under this Agreement and shall not be included in the Actual Energy Expenditures Amount. (c) "Allocated Energy Debt" means the total amount of indebtedness (including accrued and accreted interest and fees and expenses) outstanding as of the Effective Time under each of the Tenneco Revolving Debt, the Consolidated Debt (other than the Tenneco Revolving Debt) of Tenneco and the Energy Subsidiaries and the Tenneco Transaction Expenses, and any and all such indebtedness outstanding or other obligations and liabilities incurred or accrued under any of the foregoing from time to time and at any time after the Effective Time. (d) "Allocated Industrial Debt" means the total amount of indebtedness (including accrued and accreted interest and fees and expenses) outstanding under the Industrial Debt Securities as of the Effective Time, any and all such indebtedness outstanding from time to time thereafter and all other obligations and liabilities incurred or accrued at any time under the Industrial Debt Securities. (e) "Allocated Shipbuilding Debt" means the total amount of indebtedness (including accrued and accreted interest and fees and expenses) outstanding under the Shipbuilding Credit Facility as of the Effective Time, any and all such indebtedness outstanding from time to time at any time thereafter and all other obligations and liabilities incurred or accrued at any time under the Shipbuilding Credit Facility. (f) "Auditors" has the meaning ascribed to such term in SECTION 6 below. (g) "Base Amount" means an amount equal to $2,650,000,000, (i) plus, without duplication, the sum of (A) with respect to Tenneco gas purchase contracts, the amount of all cash payments made by Tenneco and/or any of its Subsidiaries during the period commencing on the date of Merger Agreement and ending on the Closing Date (as defined in the Merger Agreement) as a result or in respect of any settlement, judgment or satisfaction of a bond in excess of the market price for gas received by Tenneco and/or any of its Subsidiaries reduced by the amount of any cash payments received from customers, insurers or other third parties with respect thereto (other than ones refunded prior to the Effective Time) or with respect to any gas supply realignment costs which are so recovered (and not refunded) on or prior to the Effective Time, (B) the purchase price paid by Tenneco and/or any of its subsidiaries to acquire any additional interest in the Oasis Pipeline, (C) the amount of all cash payments made by Tenneco and/or any of the Energy Subsidiaries during the period commencing on the date of the Merger Agreement and ending on the Closing Date in settlement of any significant claim, action, suit or proceeding to the extent such matter would be an Energy Liability and with the consent of Acquiror, which shall not be arbitrarily withheld (including, without limitation, cash payments in settlement of claims against Tenneco and/or any of its affiliates arising from the Stock Purchase Agreement dated as of July 31, 1986 by and between Tenneco Inc.) reduced by 2 the amount of any cash payments received by Tenneco or any of the Energy Subsidiaries during such period from customers, insurers or other third parties with respect thereto, and (D) the total amount of the specific additions or increases to the Base Amount set forth on SCHEDULE 4 attached hereto, (ii) less, without duplication, the sum of (A) the gross amount of cash proceeds actually received by Tenneco from the NPS Issuance (as defined in the Merger Agreement) less the amount of any expenses related thereto which are included in the Actual Energy Debt Amount), and (B) the total amount of the specific subtractions and reductions to the Base Amount set forth on SCHEDULE 4 attached hereto. (h) "Cash and Cash Equivalents" has the meaning ascribed to such term under United States generally accepted accounting principles. (i) "Consolidated Public Debt Value" means the value (including any accrued and unpaid interest thereon) of publicly-held Consolidated Debt of Tenneco and the Energy Subsidiaries outstanding as of the Effective Time (as reflected on the Energy Adjusted Closing Balance Sheet), calculated and determined by Tenneco and Acquiror or if, they are unable to agree, by a nationally recognized investment banking firm selected by mutual agreement between Tenneco and Acquiror, as of the close of business on the fifth (5th) business day preceding the Effective Time based on the applicable spreads to treasuries and the applicable benchmark treasury securities listed on Schedule 3. (j) "Closing Calendar Month" means the calendar month in which the Effective Time occurs. (k) "Debt Realignment" has the meaning ascribed to such term in the Merger Agreement. (l) "Dispute" has the meaning ascribed to such term in SECTION 6 below. (m) "Energy Adjusted Closing Balance Sheet" has the meaning ascribed to such term in SECTION 6 below. (n) "Energy Closing Balance Sheet" has the meaning ascribed to such term in SECTION 6 below. (o) "Energy Receivables" means any and all accounts receivable of the Energy Business (after giving effect to the Corporate Restructuring Transactions and the Distributions and, therefore, specifically excluding receivables relating to the business of Case Corporation and the Industrial Business). (p) "Factored Proceeds" means the total amount of outstanding cash proceeds received by Tenneco from ASCC, as of the last business day of the month preceding the Closing Calendar Month, through the factoring of Energy Receivables. (q) "Guaranteed Energy Cash Amount" has the meaning ascribed to such term in SECTION 5 below. (r) "Guaranteed Shipbuilding Cash Amount" has the meaning ascribed to such term in SECTION 5 below. (s) "Independent Auditors" has the meaning ascribed to such term in SECTION 6 below. (t) "Industrial Debt Securities" means, collectively, the notes, debentures and other debt securities issued by Industrial Company in exchange for certain issues of the Consolidated Debt pursuant to and in accordance with the debt exchange by Industrial Company contemplated under the Debt Realignment. (u) "Merger Closing Date" means the date on which the Merger is consummated. (v) "Required Energy Expenditures Amount" means an aggregate amount of capital expenditures (determined on a basis consistent with the past accounting practices of the Energy Business and the 1996 capital budget provided to Acquiror) by the Energy Business for 1996 equal to $333,200,000, plus an amount of capital expenditures by the Energy Business for 1997 equal to $27,750,000 per month for each month (or pro rata portion thereof) from January 1, 1997 to the Effective Time. 3 (w) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning ascribed to such term in SECTION 6 below. (x) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such term in SECTION 6 below. (y) "Shipbuilding Credit Facility" has the meaning ascribed to such term in SECTION 3 below. (z) "Tenneco Allocation Percentage" means a fraction, the numerator of which is the total number of business days remaining in the Closing Calendar Month from and after the Effective Time (including the day on which the Effective Time occurs), and the denominator of which is the total number of business days in the Closing Calendar Month; provided, however, that the day on which the Effective Time occurs shall be excluded from the numerator of such fraction if Tenneco and/or any of its Subsidiaries has paid as of the Effective Time the payables of Tenneco and its Subsidiaries for that day, as determined in accordance with Tenneco's past practices for the payment of such payables. (aa) "Tenneco Revolving Debt" has the meaning ascribed to such term in SECTION 2 below. 2. Tenneco Credit Facility and Tenneco Revolving Debt. Tenneco shall, at its expense, have the sole right and authority to, and will use its commercially reasonable efforts to, have in place prior to the Distribution Date a credit facility for itself (with such guarantees of its obligations thereunder by the Energy Subsidiaries as it deems necessary) in an aggregate principal amount sufficient (together with other available funds to Tenneco) to fund the tenders, redemptions, prepayments, defeasances and maturities contemplated under the Debt Realignment; to pay all the fees, costs and expenses incurred by Tenneco and its subsidiaries in preparing for, negotiating and effecting the Distributions, the Merger and the Debt Realignment and any financings in connection therewith; and for other general corporate purposes (including, without limitation, working capital, the repayment or refinancing of Consolidated Debt and the payments of dividends). This facility shall be in effect at, and shall have a remaining stated maturity of at least 180 days following, the closing of the Merger and the Distributions. The aggregate amount of debt (including accrued and accreted interest and fees and expenses) outstanding as of the Effective Time under this facility is hereinafter called the "Tenneco Revolving Debt". Notwithstanding anything contained herein, (a) contemporaneously with the Distributions, Tenneco and the Energy Subsidiaries shall be removed as obligor under (and released from liability with respect to) any indebtedness for borrowed money for which Tenneco or its subsidiaries are liable and which are assumed by the Industrial Company or the Shipbuilding Company pursuant to the terms hereof and the Distribution Agreement, (b) any Tenneco Revolving Debt shall be prepayable without penalty, subject to customary notice provisions, (c) in respect of publicly-traded Consolidated Debt, between the date of the Merger Agreement and the Effective Time there shall be no (i) extension of maturity or average life, (ii) increase in interest rates or (iii) adverse change in defeasance or redemption provisions with respect to any indebtedness for borrowed money for which Tenneco or the Energy Subsidiaries will be liable on or after the Effective Time and (d) except for the Tenneco Revolving Debt, no indebtedness for borrowed money of Tenneco or the Energy Subsidiaries at the Effective Time shall contain any affirmative or negative financial or operational covenants other than ones that are (x) mutually acceptable to Tenneco and Acquiror or (y) no more restrictive in the aggregate and substantially equivalent to those set forth in the Indenture dated as of January 1, 1992 of El Paso Natural Gas Company as in effect as of the date of the Merger Agreement (other than Section 10.05 of the Indenture). 3. Shipbuilding Credit Facility and Shipbuilding Revolving Debt. Prior to the Distributions (and at such time as Tenneco shall request), Shipbuilding Company shall, at its expense, obtain and have in place a credit facility (the "Shipbuilding Credit Facility") for itself (with such guarantees of its obligations thereunder by the Shipbuilding Subsidiaries as is necessary to obtain the Shipbuilding Credit Facility) in an aggregate principal amount of at least $600 million (the "Minimum Debt Amount") and shall borrow the Minimum Debt Amount thereunder and distribute the proceeds of such borrowing to Tenneco (or such subsidiary of Tenneco as Tenneco shall designate) at such time on or prior to the consummation of the Distributions as Tenneco shall request. 4 4. Allocation and Assumption of Debt. (a) Allocated Energy Debt. On the Distribution Date, Tenneco shall assume, and shall thereafter be solely liable and responsible for, the Allocated Energy Debt. Tenneco hereby acknowledges and agrees that the Allocated Energy Debt shall constitute an Energy Group Liability as defined in the Distribution Agreement. (b) Allocated Industrial Debt. On the Distribution Date, Industrial Company shall assume, and shall thereafter be solely liable and responsible for, the Allocated Industrial Debt. Industrial Company hereby acknowledges and agrees that the Allocated Industrial Debt shall constitute an Industrial Group Liability as defined in the Distribution Agreement. (c) Allocated Shipbuilding Debt. On the Distribution Date, Shipbuilding Company shall assume, and shall thereafter be solely liable and responsible for, the Allocated Shipbuilding Debt. Shipbuilding Company hereby acknowledges and agrees that the Allocated Shipbuilding Debt shall constitute a Shipbuilding Group Liability as defined in the Distribution Agreement. 5. Allocation of Cash and Cash Equivalents. Prior to or contemporaneously with the consummation of the Distributions, each of the parties hereto shall make such transfers of the Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries (prior to giving effect to the Distributions) so that to the extent possible, based on estimates of the aggregate amount of Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries then on hand, (a) Tenneco and the Energy Subsidiaries, on a consolidated basis, shall, as of the Effective Time, have an aggregate amount of Cash and Cash Equivalents equal to the sum of the following: (i) $25.0 million, (ii) the product of (A) the Tenneco Allocation Percentage, and (B) the lesser of (I) $100 million plus any interest due ASCC thereon for the Closing Calendar Month, and (II) the total amount of the Factored Proceeds plus any interest due ASCC thereon for the Closing Calendar Month, and (iii) should the Effective Time occur on December 27, 30 or 31, 1996, the lesser of (A) $100 million, and (B) the total amount of the Factored Proceeds. (the sum of the amounts described in the immediately preceding clause (i), (ii) and (iii) is hereinafter, referred to as the "Guaranteed Energy Cash Amount"), and (b) Shipbuilding Company and the Shipbuilding Subsidiaries, on a consolidated basis, shall, as of the close of business on the Merger Closing Date, have an aggregate of $5 million of Cash and Cash Equivalents (the "Guaranteed Shipbuilding Cash Amount"). All remaining Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries shall be allocated to Industrial Company and the Industrial Subsidiaries. 6. Post Distribution Audit. (a) Preparation of Closing Balance Sheets. As soon as practicable after the Merger Closing Date, but in any event within 60 days following the Merger Closing Date, Industrial Company shall cause Arthur Andersen LLP (the "Auditors") to: (i) conduct an audit of Tenneco and the Energy Subsidiaries to determine the aggregate amount, as of the Effective Time, of each of the Factored Proceeds, the Tenneco Revolving Debt, the Consolidated Debt (other than the Tenneco Revolving Debt) of Tenneco and the Energy Subsidiaries, the Tenneco Transaction Expenses, the Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries and the Actual Energy Expenditures Amount, and to prepare and deliver to each of Industrial Company and Tenneco a consolidated balance sheet for Tenneco and the Energy Subsidiaries as of the Effective Time reflecting (x) the amount of each of the foregoing (other than the aggregate amount of the Factored Proceeds (which shall be set forth in a footnote to such consolidated balance sheet) and the Consolidated Debt valued as part of the Consolidated Public Debt Value) and (y) the Consolidated Public Debt Value (the "Energy Closing Balance Sheet"); and 5 (ii) conduct an audit of Shipbuilding Company and the Shipbuilding Subsidiaries to determine the aggregate amount of the Cash and Cash Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as of the Effective Time, and to prepare and deliver to each of Industrial Company and Shipbuilding Company a consolidated balance sheet for Shipbuilding Company and the Shipbuilding Subsidiaries as of the Effective Time reflecting the aggregate amount of such Cash and Cash Equivalents (the "Shipbuilding Closing Balance Sheet"). The Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet shall each be prepared on the basis of an audit conducted by the Auditors in accordance with generally accepted auditing standards and prepared in accordance with generally accepted accounting principles consistently applied and without giving effect to any change in accounting principles required on account of the consummation of the Merger or the Distributions, except that, to the extent that any definition contained herein contemplates inclusion or exclusion of an item that would not be included or excluded under generally accepted accounting principles, the Auditors shall compute such item in accordance with such definition. During the course of the preparation of the Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet by the Auditors, and during any period in which there is a dispute regarding either the Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet, each of Tenneco, Industrial Company and Shipbuilding Company, as the case may be, shall cooperate with the Auditors and each other and shall have access to all work papers of the Auditors and all pertinent accounting and other records of Tenneco and the Energy Subsidiaries and Shipbuilding Company and the Shipbuilding Subsidiaries, as applicable. Tenneco shall pay the fees and expenses of the Auditors. Notwithstanding any provision of this Agreement or the Distribution Agreement, the Claims Deposit (as defined in Insurance Agreement) shall not be included as Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries. (b) Disputes Regarding Closing Balance Sheet. Unless (i) in the case of the Energy Closing Balance Sheet, Tenneco delivers written notice to Industrial Company on or prior to the 30th day after its receipt of the Energy Closing Balance Sheet that it disputes any of the amounts set forth on the Energy Closing Balance Sheet (hereinafter, an "Energy Dispute"), or (ii) in the case of the Shipbuilding Closing Balance Sheet, Shipbuilding Company delivers written notice to Industrial Company on or prior to the 30th day after its receipt of the Shipbuilding Closing Balance Sheet that it disputes the amount of Cash and Cash Equivalents set forth on the Shipbuilding Closing Balance Sheet (hereinafter, a "Shipbuilding Dispute") then, as applicable, Tenneco and/or Shipbuilding Company shall be deemed to have accepted and agreed to the Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet, as applicable, in the form in which it was delivered to it by the Auditors. If such a notice of an Energy Dispute is given by Tenneco or a notice of a Shipbuilding Dispute is given by Shipbuilding Company (in either case such party being hereinafter referred to as the "Disputing Party") within such 30- day period, then Industrial Company and the Disputing Party shall, within 15 days after the giving of any such notice, attempt to resolve such Energy Dispute or Shipbuilding Dispute, as the case may be, and agree in writing upon the final content of the Energy Closing Balance Sheet or Shipbuilding Closing Balance Sheet, as the case may be. In the event that the Disputing Party and Industrial Company are unable to resolve any Energy Dispute or Shipbuilding Dispute, as the case may be, within such 15-day period, then the certified public accounting firm of Ernst & Young or another mutually acceptable independent accounting firm (the "Independent Auditors") shall be employed as arbitrator hereunder to settle such Energy Dispute and/or Shipbuilding Dispute, as the case may be, as soon as practicable. The Independent Auditors shall have access to all documents and facilities necessary to perform its function as arbitrator. The determination of the Independent Auditors with respect to any Energy Dispute and/or Shipbuilding Dispute, as the case may be, shall be final and binding on the applicable parties hereto. Industrial Company and the Disputing Party shall each pay one-half ( 1/2) of the fees and expenses of the Independent Auditors for such services. Industrial Company and the Disputing Party each agree to execute, if requested by the Independent Auditors, a reasonable engagement letter. The term "Energy Adjusted Closing Balance Sheet," as used herein, shall mean the definitive Energy Closing Balance Sheet agreed to by Tenneco and Industrial Company or, as the case may be, the definitive Energy Closing Balance Sheet resulting from the determinations made by the Independent Auditors in accordance with this Section 6(b) (in addition to the matters theretofore agreed to by Tenneco and Industrial Company). The term 6 "Shipbuilding Closing Balance Sheet," as used herein, shall mean the definitive Shipbuilding Closing Balance Sheet agreed to by Shipbuilding Company and Industrial Company or, as the case may be, the definitive Shipbuilding Closing Balance Sheet resulting from the determinations made by the Independent Auditors in accordance with this SECTION 6(B) (in addition to the matters theretofore agreed to by Shipbuilding Company and Industrial Company). The date on which the Energy Adjusted Closing Balance Sheet is determined and provided to each of Industrial Company and Tenneco pursuant to this SECTION 6(B) is hereinafter referred to as the "Energy Determination Date". The date on which the Shipbuilding Adjusted Closing Balance Sheet is determined and provided to each of Industrial Company and Shipbuilding Company pursuant to this SECTION 6(B) is hereinafter referred to as the "Shipbuilding Determination Date". 7. Post Distribution Adjustments and Cash Payments. (a) Adjustments and Payments Relating to Consolidated Debt. If the Actual Energy Debt Amount exceeds the Base Amount, Industrial Company shall pay Tenneco the amount of such excess in cash within 10 days after the Energy Determination Date. If, on the other hand, the Actual Energy Debt Amount is less than the Base Amount, Tenneco shall pay Industrial Company the amount of such deficiency in cash within 10 days after the Energy Determination Date. (b) Adjustments and Payments Relating to Cash and Cash Equivalents. (i) Adjustments and Payments Relating to Shipbuilding Company. If the amount of Cash and Cash Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as reflected on the Shipbuilding Adjusted Closing Balance Sheet is less than the Guaranteed Shipbuilding Cash Amount, Industrial Company shall pay Shipbuilding Company the amount of such deficiency in cash within 10 days after the Shipbuilding Determination Date. If, on the other hand, the amount of Cash and Cash Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as reflected on the Shipbuilding Adjusted Closing Balance Sheet exceeds the Guaranteed Shipbuilding Cash Amount, Shipbuilding shall pay Industrial Company the amount of such excess in cash within 10 days after the Shipbuilding Determination Date. (ii) Adjustments and Payments Relating to Tenneco. (A) If the amount of Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries as reflected on the Energy Adjusted Closing Balance Sheet is less than the Guaranteed Energy Cash Amount, Industrial Company shall pay Tenneco the amount of such deficiency in cash within 10 days after the Energy Determination Date. If, on the other hand, the amount of Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries as reflected on the Energy Adjusted Closing Balance Sheet exceeds the Guaranteed Energy Cash Amount, Tenneco shall pay Industrial Company the amount of such excess in cash within 10 days after the Energy Determination Date. (B) If the Actual Energy Expenditures Amount as reflected on the Energy Adjusted Closing Balance Sheet is less than the Required Energy Expenditures Amount, Industrial Company shall pay Tenneco the amount of such deficiency in cash within 10 days after the Energy Determination Date. If, on the other hand, the Actual Energy Expenditures Amount as reflected on the Energy Adjusted Closing Balance Sheet is greater than the Required Energy Expenditures Amount, Tenneco shall pay to Industrial Company the amount of such excess in cash within 10 days after the Energy Determination Date. (C) Each of Tenneco and Industrial Company hereby agrees that the amount of any cash payment otherwise due it under any provision of this SECTION 7 may be offset against and reduced, on a dollar for dollar basis, in respect of any cash payment it may otherwise be required to make to the other pursuant to and in accordance with any other provision of this SECTION 7, and that the amount of such offset and reduction shall be treated as payment of its obligations under any provision of this SECTION 7 to the extent of such offset and reduction. 7 8. Miscellaneous Provisions. (a) Termination. This Agreement may not be terminated except upon the written agreement of each of the parties hereto. (b) Best Efforts. If at any time after the Merger Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall, on the written request of any of them, take (or cause the appropriate member of its Group over which it has direct or indirect legal or effective control to take) all such reasonably necessary or desirable action. (c) Cooperation. The parties hereto agree to use their reasonable best efforts to cooperate with respect to the various matters contemplated by this Agreement. (d) Successors and Assigns. Except as otherwise expressly provided herein, no party hereto may assign or delegate, whether by operation of law or otherwise, any of such party's rights or obligations under or in connection with this Agreement without the written consent of each other party hereto. No assignment will, however, release the assignor of any of its obligations under this Agreement or waive or release any right or remedy the other parties may have against such assignor hereunder. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will be binding upon and enforceable against the respective successors and assigns of such party and will be enforceable by and will inure to the benefit of the respective successors and permitted assigns of such party. (e) Modification; Waiver; Severability. This Agreement may not be amended or modified except in a writing executed by each of the parties hereto. The failure by any party to exercise or a delay in exercising any right provided for herein shall not be deemed a waiver of any right hereunder. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement. (g) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (h) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally or five business days after mailing by certified or registered mail, return receipt requested and postage prepaid, to the recipient at such recipient's address as indicated in the Distribution Agreement or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. (i) Survival. Each of the agreements of the parties herein shall survive the Merger Closing Date. (j) No Third Party Beneficiaries. This Agreement is made solely for the benefit of the parties hereto and the other members of their respective Groups, and shall not give rise to any rights of any kind to any other third parties. (k) Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TENNECO INC. By __________________________________ Name: Title: NEW TENNECO INC. By __________________________________ Name: Title: NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.) By __________________________________ Name: Title: 9 Schedule 1 to Debt and Cash Allocation Agreement Accounting fees and expenses Actuarial fees and expenses Appraisal fees and expenses Audit fees and expenses Broker/dealer fees and expenses Consulting fees and expenses Exchange/paying agent fees and expenses Exit consent fees Fees and expenses incurred in connection with arranging the Revolving Debt, including commitment fees, drawdown fees, agent's fees, facility fees and similar fees and expenses, and lender's costs and expenses payable by the borrower Filing fees, including SEC, NYSE, NASD, HSR and other similar fees Information agent fees and expenses Investment banking fees and expenses, dealer manager fees and expenses, and similar fees and expenses Fees and expenses with respect to legal matters pertaining to the transactions Mailing expenses Newspaper advertising costs Printing fees and expenses Proxy solicitation fees and expenses Soliciting dealer fees and expenses Rating Agency fees Underwriting, placement, registration and similar fees, commissions and discounts payable in connection with the NPS Preferred Stock 10 Schedule 2 to Debt and Cash Allocation Agreement The deferred intercompany items referred to in SECTION 1(A)(VI) of the Debt and Cash Allocation agreement are the following intercompany transactions
SELLER BUYER PROPERTY TRANSFERRED - ------ ----- -------------------- Tenneco Corporation Tenneco Inc. Stock of Kern County Land Co. Tenneco Corporation Tenneco Inc. Stock of Tenneco Credit Corp. Tenneco Corporation Tennessee Gas Pipeline Co. Stock of Tenneco International Inc. Channel Gas Marketing Channel Industries Gas DT Line Tenngasco Gas Supply Channel Industries Gas Transmission facilities Tennessee Gas Pipeline Co. Energy TRACS Software assignment agreement
11 TENNECO INC. Schedule 3
PRE-DETERMINED ------------------------------------------------ SECURITY DESCRIPTION BENCHMARK TREASURY SPREAD TO TREASURY(1) - ------------------------------------------------ ------------------------- ---------------------- INDENTURE FACE COUPON MATURITY COUPON MATURITY CASE A CASE B --------- ------ ------ -------- ---------------- -------- ---------- ---------- Inc. ................... $300.0 6.500% 12/15/05 5.875% 11/05 84 bp 76 bp Inc. ................... 300.0 7.250% 12/15/25 pricing 30yr UST 125 113 Inc. ................... 500.0 7.875% 10/01/02 6.375% 08/02 73 66 Inc. ................... 250.0 8.000% 11/15/99 7.750% 11/99 58 52 Inc. ................... 150.0 9.000% 11/15/12 pricing 30yr UST 95 86 Inc. ................... 200.0 9.875% 02/01/01 7.750% 02/01 66 59 Inc. ................... 250.0 10.000% 03/15/08 pricing 30yr UST 91 82 Inc. ................... 500.0 10.000% 08/01/98 5.875% 08/98 51 46 Inc. ................... 175.0 10.375% 11/15/00 5.625% 11/00 64 58 TGP..................... 400.0 6.000% 12/15/11 pricing 30yr UST 95 86 TGP..................... 75.0 8.000% 05/15/97 NA NA NA NA TGP..................... 250.0 9.000% 01/15/97 NA NA NA NA TCC..................... 7.5 8.500% 01/30/97 NA NA NA NA TCC..................... 0.5 8.500% 03/17/97 NA NA NA NA TCC..................... 3.0 8.500% 03/24/97 NA NA NA NA TCC..................... 5.0 8.520% 03/28/97 NA NA NA NA TCC..................... 6.6 8.570% 03/18/97 NA NA NA NA TCC..................... 150.0 9.250% 11/01/96 NA NA NA NA TCC..................... 12.0 9.470% 09/21/98 5.875% 08/98 48 43 TCC..................... 10.0 9.480% 01/28/02 7.500% 11/01 69 62 TCC..................... 250.0 9.625% 08/15/01 7.875% 08/01 68 61 TCC..................... 7.6 9.720% 09/15/01 7.875% 08/01 68 61 TCC..................... 10.0 9.720% 09/25/01 7.875% 08/01 69 62 TCC..................... 5.0 9.900% 12/02/96 7.500% 12/96 45 41 TCC..................... 3.0 9.900% 08/19/98 5.875% 08/98 48 43 TCC..................... 4.5 10.000% 08/19/98 5.875% 08/98 48 43 TCC..................... 5.0 10.000% 12/13/01 7.500% 11/01 70 63 TCC..................... 50.0 10.500% 08/17/98 5.875% 08/98 48 43 TCC..................... 150.0 10.125% 12/01/97 5.250% 12/97 48 43 Inc. ................... $2,625 TGP..................... 725 TCC..................... 680 ------ $4,030 ------
NOTE: (1) Case A represents the spread to treasury for each security in the event that the percentage of the aggregate principal amount of the bonds participating in any tender or exchange, measured as a group for all bonds tendered or exchanged for, equals or exceeds 80% of all such bonds eligible to participate. In the event that the percentage of bonds participating in any tender or exchange falls short of 80% (calculated as aforesaid), the market value of all bonds remaining outstanding will be determined by using the spread to treasury indicated in Case B. 12 SCHEDULE 4 TO DEBT AND CASH ALLOCATION AGREEMENT ADDITIONAL ADJUSTMENTS TO BASE AMOUNT 1. Indonesia (the South Sulawesi Project) (a) All expenditures made by Acquiror at any time from and after June 19, 1996 with respect to this project shall have no effect whatsoever on the Base Amount or the calculation thereof. (b) All expenditures made by any of Tenneco or its consolidated subsidiaries at any time between June 19, 1996 and the Effective Time (the "PRE-CLOSING PERIOD") shall be added to the Base Amount (but shall not be included as a capital expenditure for purposes of determining the Actual Energy Expenditures Amount); provided, however, the Base Amount will be reduced by the amount of any Net Cash Proceeds (as defined herein) received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) during the Pre-Closing Period from any monetization of this project during the Pre-Closing Period. As used in the Schedule 4, the term "Net Cash Proceeds" means the total amount of cash proceeds actually received by the party in question during the Pre-Closing Period from the consummation during the Pre-Closing Period of the transaction or transactions in question, less the sum of any and all costs, expenses and taxes related to the transaction or transactions in question which either are (i) actually incurred and paid by Tenneco or any of its consolidated subsidiaries prior to or at the Effective Time, or (ii) incurred but not paid prior to or at the Effective Time by any member of either the Industrial Group and/or Shipbuilding Group. 2. Orange Cogeneration Project (a) All expenditures made by Acquiror at any time from and after June 19, 1996 with respect to this project shall have no effect whatsoever on the Base Amount or the calculation thereof. (b) All expenditures made by any of Tenneco or its consolidated subsidiaries at any time during the Pre-Closing Period shall be added to the Base Amount (but shall not be included as a capital expenditure for purposes of determining the Actual Energy Expenditures Amount); provided, however, the Base Amount will be reduced by the amount of any Net Cash Proceeds received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) during the Pre-Closing Period from any monetization of this project during the Pre- Closing Period. 3. Australian Infrastructure Bonds (a) The Base Amount shall be reduced by any Net Cash Proceeds received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) during the Pre-Closing Period from any off-balance sheet financing in respect of this project. 4. Asset Sales (a) Microwave Licenses. The Base Amount shall be reduced by the aggregate amount of Microwave Net Cash Proceeds (as defined below) from any sale or assignment during the Pre-Closing Period of private operational-fixed microwave licenses issued by the Federal Communications Commission. As used herein, "Microwave Net Cash Proceeds" means the gross cash proceeds actually received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) less the sum of (i) the total amount of relocation costs and cost and expenses of rebuilding an acceptable replacement communication system that are actually incurred and paid by Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period (or incurred by any member of the Industrial Group or Shipbuilding Group and remain unpaid as of the Effective Time), and (ii) the amount of any taxes incurred in connection with any such sale or assignment which are either (A) actually incurred and paid by Tenneco or any of its consolidated subsidiaries prior to the Effective Time, or (B) incurred by any member of the Shipbuilding Group or Industrial Group and remain unpaid as of the Effective Time. 13 5. Land Sales (a) 960 Acre Parcel Located Along Galveston Bay at Ingleside, Texas. The Base Amount shall be reduced by the total amount of Net Cash Proceeds actually received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) at any time during the Pre-Closing Period, in connection with the sale of the above referenced property. (b) Westchase Development in West Houston (also known as Tract 6A). The Base Amount shall be reduced by the total amount of Net Cash Proceeds actually received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) at any time during the Pre-Closing Period in connection with the sale of the above referenced property. (c) 1625 West Loop (also known as Post Oak Ranch). The Base Amount shall be reduced by the total amount of Net Cash Proceeds actually received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) at any time during the Pre-Closing Period in connection with the sale of the above referenced property. 6. Sales of Gas Turbines The Base Amount shall be reduced by the total amount of Net Cash Proceeds actually received by Tenneco or any of its consolidated subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) from its sale of any gas turbines at any time during the Pre-Closing Period. 7. ICH Tax Indemnity Matter The Base Amount shall be increased by any cash payment (up to a maximum amount, however, of $19.0 million) made by Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period in respect of the settlement of the ICH tax indemnity matter. 8. Payments due on Settlement of Certain Lawsuits During the Pre-Closing Period All cash payments actually received by Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period in respect of any settlement of any of the lawsuits or other proceedings identified and referred to in paragraph 9 of, and Schedule G-2 to, Exhibit G to the Merger Agreement shall, to the extent provided for under the terms described under paragraph 9 of such Exhibit G, be for the account of Industrial Company and shall not be included in the Guaranteed Energy Cash Amount or have any effect on the Base Amount or the calculation thereof. 9. Hedging Transactions Any hedging transactions and all costs and expenses with respect thereto that are entered into in connection with or in anticipation of the Debt Realignment shall be for the benefit or detriment of Industrial Company and shall have no effect whatsoever on the Base Amount or the calculation thereof. 10. Rate Refunds Payable to Customers The Base Amount shall be reduced by the amount, calculated as of the Effective Time, of any rate refunds, including interest, which would be payable to customers pursuant to the rate settlement filed with the Federal Energy Regulatory Commission at Docket No. RP95-112 and have not been paid as of the Effective Time, whether such amounts are to be paid to customers or credited against gas supply realignment costs pursuant to a settlement with customers. 11. Sale of Tenneco Ventures The Base Amount shall be reduced by the aggregate amount of Net Cash Proceeds actually received by Tenneco or any of its subsidiaries (and credited to the account of Industrial Company under the Debt and Cash Allocation Agreement) from any sale of Tenneco Ventures during the Pre-Closing Period. 1.2 Bonuses for Energy Employees (a) The total amount of cash bonuses for Energy Employees for the calendar year 1996 (the "1996 Bonus Amount") shall be pro rated based on the date on which the Effective Time occurs and shall be shared between Tenneco and Industrial Company based on such pro ration as follows: 14 (i) Tenneco shall be responsible and liable for the payment of that portion (the "Tenneco Bonus Portion") of the 1996 Bonus Amount that equals the product of (A) the 1996 Bonus Amount, and (B) a fraction, the numerator of which is the number of days remaining in the 1996 calendar year following the day on which the Effective Time occurs (the "Effective Day"), and the denominator of which is 365. (ii) New Tenneco shall be responsible and liable for the payment of that portion of the 1996 Bonus Amount that equals the amount by which the 1996 Bonus Amount exceeds the Tenneco Bonus Portion. (b) Each of Tenneco's and New Tenneco's liability for its share of the 1996 Bonus Amount shall be accounted for in the Merger as follows: (i) If 100% of the 1996 Bonus Amount is paid on or before the Effective Time, the Base Amount shall be increased by the Tenneco Bonus Portion. (ii) If as of the Effective Time, the amount of the 1996 Bonus Amount that remains due and unpaid exceeds the Tenneco Bonus Portion, the Base Amount shall be reduced by the amount of such excess. (iii) If as of the Effective Time, the amount of the 1996 Bonus Amount that remains due and unpaid equals the Tenneco Bonus Portion, the Base Amount shall not be increased or decreased in respect of the 1996 Bonus Amount. 15 EX-10.2 11 FORM OF BENEFITS AGREEMENT EXHIBIT 10.2 EXHIBIT A TO DISTRIBUTION AGREEMENT BENEFITS AGREEMENT THIS BENEFITS AGREEMENT is made and entered into as of this day of , 1996, by and among TENNECO INC., a Delaware corporation ("TENNECO"), NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"), and NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation ("SHIPBUILDING COMPANY"). WHEREAS, pursuant to the terms of that certain Distribution Agreement by and among the parties hereto and dated as of , 1996 (the "Distribution Agreement") the parties have entered into this Agreement regarding certain labor, employment, compensation and benefit matters occasioned by the Distributions. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement and the Distribution Agreement, each of the parties hereto, on behalf of itself and each other member of its Group over which it has direct or indirect legal or effective control, hereby agrees as follows: SECTION 1. DEFINITIONS. The following terms, when capitalized herein, shall have the meanings set forth below in this Section 1. All other capitalized terms which are used but are not otherwise defined herein shall have the meanings ascribed to them in the Distribution Agreement. "ACTIVE EMPLOYEES" means, with respect to each Group, all employees regularly engaged in the performance of services to, for or on behalf of any member of such Group as of the close of business on the Distribution Date. "FORMER EMPLOYEES" means, with respect to each Group, all former employees of Tenneco and/or its Subsidiaries (including, but not limited to, such employees who, as of the close of business on the Distribution Date, are on leave of absence, long-term disability or layoff with recall rights and the dependents of those persons) who, if they were regularly engaged in the performance of services to, for or on behalf of Tenneco or any of its Subsidiaries at the close of business on the Distribution Date, would be an Active Employee of such Group, determined on a basis consistent with the determination of the Active Employees of such Group. "PENSION MATTERS" means, collectively, (a) Tenneco's 1986 pension plan asset valuation and its cost accounting treatment, as described in the DCAA Audit Report dated November 28, 1995, and (b) any claim which the DCAA may assert that (or based on any allegation that) the aggregate amount of assets of the TRP attributable to the Active Employees and Former Employees of the Shipbuilding Group exceeds the aggregate amount of the liabilities under the TRP attributable to Active and Former Employees of the Shipbuilding Group. "TENNECO SALARIED WELFARE PLANS" means, collectively, the Tenneco Inc. Health Care Plan, the Tenneco Inc. Group Life Insurance Plan, the Tenneco Inc. Long Term Disability Plan, the Tenneco Inc. Travel Accident Insurance Plan, the Tenneco Inc. Health Care Flexible Spending Account Program and the Tenneco Inc. Dependent Day Care Flexible Spending Account Plan. SECTION 2. GENERAL EMPLOYMENT MATTERS. 2.01. GENERAL OBLIGATIONS. From and after the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall, as applicable, cause each of the other members of its respective Group over which it has direct or indirect legal or effective control to) (a) continue the employment of all of the Active Employees of its respective Group, subject, however to the terms of SECTION 2.03 below and (b) except as otherwise specifically provided herein, pay, perform and discharge any and all labor, employment, compensation and benefit liabilities, whether arising prior to, on or after the Distribution Date, with respect to all such Active 1 Employees and all Former Employees of its respective Group. Except as specifically provided herein, each of Tenneco, Industrial Company and Shipbuilding Company shall be solely responsible for the Former Employees of its respective Group. 2.02. INITIAL COMPENSATION OF ACTIVE EMPLOYEES. The initial compensation (base salary or wage level) of each Active Employee of each Group shall be the same as the compensation (base salary or wage level) of such Active Employee immediately prior to the Distribution Date. 2.03. NO ADDITIONAL EMPLOYMENT RIGHTS CREATED. Nothing in this Agreement shall give any Active Employee of any Group any right to continued employment by any member of that Group or any other Group beyond the Distribution Date, which is in addition to or supplemental to any such right he or she may have arising under contract or otherwise. SECTION 3. COLLECTIVE BARGAINING. 3.01. CONTINUATION OF EXISTING COLLECTIVE BARGAINING AGREEMENTS. Each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause, as applicable, each other member of its Group over which it has direct or indirect legal or effective control to) continue to honor all collective bargaining agreements covering the Active Employees of its respective Group which are in effect as of the close of business on the Distribution Date, in accordance with and subject to the terms of each such collective bargaining agreement. Each of the parties hereto hereby agrees and acknowledges, however, that nothing herein, including its obligation to continue its applicable collective bargaining agreements, shall be construed to restrict any right it, or any other member of its respective Group, may have to terminate, renegotiate, reopen or otherwise seek changes in any of its collective bargaining agreements. 3.02. RECOGNITION OF INCUMBENT LABOR ORGANIZATIONS. Each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause, as applicable, each other member of its Group over which it has direct or indirect legal or effective control to) continue to recognize all incumbent labor organizations which, as of the close of business on the Distribution Date, have established collective bargaining relationships in respect of the Active Employees of its respective Group. 3.03. CONTINUED SPONSORSHIP OF HOURLY EMPLOYEE BENEFIT PLANS. Each of Tenneco, Industrial Company and Shipbuilding Company shall continue (and shall, as applicable, cause each other member of its respective Group over which it has direct or indirect legal or effective control to continue) to sponsor all hourly employee benefit plans which, as of the close of business on the Distribution Date, are in existence and relate to the Active Employees of its respective Group, subject to its rights under such plans to amend or terminate such plans. 3.04. PROVISION OF WAGES, RIGHTS AND OTHER EMPLOYMENT BENEFITS REQUIRED UNDER EXISTING COLLECTIVE BARGAINING AGREEMENTS. Without limiting the generality of the foregoing, each of Tenneco, Industrial Company and Shipbuilding Company shall provide those of its Active Employees whose employment is subject to collective bargaining agreements and/or established collective bargaining relationships with the wages, benefits, and terms and conditions of employment required by such agreements or relationships, except that (i) participation in the Tenneco Inc. Employee Stock Purchase Plan will cease as of September 30, 1996, and (ii) no additional amounts may be invested in any shares of the common stock, par value $5.00 per share, of Tenneco ("TENNECO COMMON STOCK") in any defined contribution plan from and after the Effective Time. SECTION 4. UNITED STATES SALARIED PENSION AND THRIFT BENEFITS. 4.01 TENNECO INC. RETIREMENT PLAN. Effective as of the Distribution Date, Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco Inc. Retirement Plan (the "TRP"), and Industrial Company shall become the sponsor of the TRP. The TRP shall retain liability for all pension benefits accrued by the Active and Former Employees of the Energy Group and Shipbuilding Group who are or were formerly participants in the TRP through the last day of the calendar month in which the Distribution Date occurs (the "Impact Date"). 2 4.02 AMENDMENT OF TRP. After Industrial Company has become the sponsor of the TRP, it shall amend the TRP to (a) "freeze" the benefit accruals of the Active Employees of the Energy Group and Shipbuilding Group as of the Impact Date, and (b) provide that all benefits accrued as of the Impact Date by the Active Employees of either the Energy Group or the Shipbuilding Group will be fully vested and non-forfeitable, and Industrial Company shall inform, in writing, each such Active Employee of his or her accrued benefits under the TRP as of the Distribution Date; provided, however, that if the Distribution Date occurs on the Impact Date, Industrial Company shall in any event (i) first become the sponsor of the TRP as provided under SECTION 4.01 above, and (ii) immediately thereafter amend the TRP as provided in this SECTION 4.02. 4.03 NO CREDIT FOR POST-DISTRIBUTION DATE SERVICE. Except as may be required by law, the TRP shall not be required to count service with any entity other than Industrial Company after the Distribution Date for any purpose. 4.04 NO LIABILITY TO ENERGY GROUP. Following the Distribution Date, the Energy Group will have no liability, contingent or otherwise, with respect to the TRP or any other defined benefit pension plan that is subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended, including any liability for benefits accrued prior to the Distribution Date (including early retirement benefits and related subsidies) for employees of the Energy Group, and Industrial Company shall assume or retain, as the case may be, all such liabilities. 4.05 SHIPBUILDING COMPANY LIABILITIES. (a) GENERAL INDEMNIFICATION OF INDUSTRIAL COMPANY. Except as specifically provided in this SECTION 4.05, Shipbuilding Company shall retain, and shall indemnify and hold the Industrial Company harmless from, any liability incurred or accrued at any time (whether before on or after the date hereof), which has been, or may in the future be, asserted by any of (i) the Defense Contract Audit Agency ("DCAA"), (ii) the United States Navy, or (iii) any and all other agencies of, within or affiliated with the United States Department of Defense (the "DOD"), that arise or arose out of, or in connection with either (A) the participation of Active Employees or Former Employees of the Shipbuilding Group in the TRP, (B) payments made by any agency of the DOD with respect to benefits accrued under the TRP, (C) any claim by any agency of the DOD relating to the assets of the TRP, and (D) any other related matters. (b) SHARING OF CERTAIN SHIPBUILDING COMPANY LIABILITIES. Notwithstanding the foregoing, Industrial Company and Shipbuilding Company have agreed to share the cost, if any, of certain specified liabilities described in SUBSECTION 4.05(A) above on the terms and conditions set forth in the remaining Subsections of this SECTION 4.05. The liabilities which Industrial Company and Shipbuilding Company have agreed to share are only those arising from a Pension Matter. (c) INDEMNIFICATION PERCENTAGES FOR PENSION MATTERS. Industrial Company shall indemnify Shipbuilding Company from 80%, and Shipbuilding Company shall retain and indemnify Industrial Company from 20%, of the following: (i) all amounts paid in satisfaction of a Government claim for Pension Matters; and (ii) all costs incurred, including attorneys' and actuaries' fees, in defending against the Government's claims in the Pension Matters, as described in SUBSECTION 4.05(F) below. (d) CONTROL OVER PENSION MATTERS. Industrial Company shall have total and exclusive control of and over all aspects of the defense by Industrial Company and Shipbuilding Company against the Government's claims in the Pension Matters. Without limiting the generality of the foregoing, Industrial Company shall have the exclusive right to: (i) engage and dismiss any and all law firms, actuarial firms and other service providers; (ii) settle, compromise or otherwise dispose of either Pension Matter; (iii) determine to not appeal any adverse determination with respect to either Pension Matter; and (iv) negotiate and determine the terms of a deferral agreement described in item (iv) of SUBSECTION 4.05(E) below. 3 (e) COOPERATION OF SHIPBUILDING COMPANY. Shipbuilding Company shall cooperate fully with Industrial Company and its attorneys, actuaries and other advisors and representatives in defending against the Government's claims in the Pension Matters. Without limiting the generality of the foregoing, Shipbuilding Company shall: (i) advise Industrial Company in writing of any and all claims made by the Government which may be included in the Pension Matters promptly after Shipbuilding Company receives notice or otherwise becomes aware of such claims; (ii) provide Industrial Company copies of any and all correspondence, pleadings or other papers it has or receives with respect to the Pension Matters promptly upon receipt; (iii) give Industrial Company at least 10 days written notice of and afford Industrial Company an opportunity to be present at any and all meetings, conferences or hearings relating to such issues; and (iv) diligently seek an agreement to defer collection of any Government claim for Pension Matters. (f) BILLING FOR PAYMENT TO GOVERNMENT. Whenever the Shipbuilding Company or Industrial Company makes a payment to the Government for a claim related to Pension Matters or incurs a cost in defending against the Government's claims in Pension Matters, it may bill the other party for that party's share of said claim or cost. A payment to the Government for a claim related to Pension Matters shall include (i) amounts paid directly to Government to satisfy the claim; (ii) progress payments withheld to satisfy the Government claim; and (iii) pension costs disallowed under Shipbuilding Company's new salaried pension plan to satisfy the Government claim. Costs incurred in defending against the Government's claims in the Pension Matters shall include outside attorneys' fees, accounting fees and actuary fees and all other out-of-pocket costs incurred in defending against the Government's claims. Neither Industrial Company nor Shipbuilding Company shall charge the other any amounts for the services of its employees. A bill for the other party's share of a claim or cost shall be accompanied by adequate documentation and shall be paid promptly upon receipt. However, any amounts so billed shall be subject to set- off for amounts owed by the presenter to recipient whether relating to matters covered by this SECTION 4.05 or otherwise. (g) ADVANCES BY INDUSTRIAL COMPANY. Any amounts which Industrial Company may advance to Shipbuilding Company to satisfy a Government Claim pending appeal (regardless of whether the Government claim is satisfied by (i) direct payment to the Government; (ii) progress payments withheld; or (iii) pension costs disallowed under the Shipbuilding Company's new salaried pension plan) shall be deducted from any amount due from Industrial Company to Shipbuilding Company upon the ultimate resolution of the appeal of the Government's claim. To the extent that the amounts advanced to Shipbuilding Company by Industrial Company exceed the amount due upon the ultimate resolution of the appeal, Shipbuilding Company shall, within 5 days after the date of such ultimate resolution, reimburse such excess to Industrial Company with interest charged from the date the amount was advanced at the interest rate established by the Secretary of the Treasury under Public Law 92-41. (h) PROHIBITION AGAINST CERTAIN ACTION OF SHIPBUILDING COMPANY. Shipbuilding Company shall not take any action or permit or suffer any act or omission within its control that is, or is likely to be, in any way detrimental to the defense against the Government's claims under the Pension Matters. Without limiting the generality of the preceding sentence, Shipbuilding Company will not, without the express written consent of Industrial Company, which consent may be withheld in Industrial Company's sole discretion, link either of the Pension Matters to any other matter which it now has or may in the future have pending with the Government in terms of settlement or otherwise. (i) ASSERTION OF AFFIRMATIVE CLAIMS. If Industrial Company determines to submit an affirmative claim against the Government in connection with the Pension Matters, Industrial Company and Shipbuilding Company shall share the cost of pursuing such claim and any recovery on such claim on a percentage basis of 80% for Industrial Company and 20% for Shipbuilding Company. (j) NO LIABILITY OF ENERGY BUSINESS. It is expressly acknowledged and agreed that any liabilities described in this SECTION 4.05 are solely liabilities of Shipbuilding Company and Industrial Company, in accordance with the terms of the other provisions of this SECTION 4.05, and the Energy Business has no obligation with respect to any of such liabilities. 4 4.06. TENNECO INC. THRIFT PLAN. The active participation in the Tenneco Inc. Thrift Plan (the "Tenneco DC Plan") by persons other than the Active Employees of the Industrial Group shall cease effective as of the Distribution Date. In addition, each of Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco DC Plan as of the Distribution Date and Industrial Company shall become the sponsor of the Tenneco DC Plan from and after the Distribution Date. 4.07. ESTABLISHMENT OF ENERGY AND SHIPBUILDING DC PLANS. (a) ENERGY DC PLAN. Tenneco shall establish or make available on or with effect from the Distribution Date a defined contribution plan for the benefit of the Active Employees of the Energy Group (the "Energy DC Plan"). (b) SHIPBUILDING DC PLAN. Shipbuilding Company shall establish on or with effect from the Distribution Date a defined contribution plan for the benefit of the Active Employees of the Shipbuilding Group (the "Shipbuilding DC Plan"). (c) TRANSFER OF ACCOUNT BALANCES TO ENERGY AND SHIPBUILDING DC PLANS. Industrial Company shall cause the Tenneco DC Plan to transfer: (i) to the Shipbuilding DC Plan, the account balances of each Active Employee of the Shipbuilding Group and each Former Employee of the Shipbuilding Group with respect to whom the Tenneco DC Plan maintains an account as of the close of business on the Distribution Date, and (ii) to the Energy DC Plan, the account balances of each Active Employee of the Energy Group and each Former Employee of the Energy Group with respect to whom the Tenneco DC Plan maintains an account as of the close of business on the Distribution Date. Such transfers shall be in cash, except that the Energy DC Plan and the Shipbuilding DC Plan will accept the following: (i) Tenneco Common Stock (or stock of the Acquiror, as defined in the Merger Agreement) for the Tenneco Common Stock fund portion of such account balances (together with any and all of the shares of the common stock of Industrial Company and/or Shipbuilding Company distributed in connection with the Distributions); and (ii) amounts credited to the Tenneco DC Plan which are held in mutual funds which are also investment media in the Energy DC Plan or the Shipbuilding DC Plan, as the case may be. 4.08. NO TENNECO COMMON STOCK. No Tenneco Common Stock shall be offered as an investment option with respect to contributions made after the Distribution Date by any of the Tenneco DC Plan, Energy DC Plan or Shipbuilding DC Plan. The sponsor of each of the foregoing plans shall cause the plan to afford each participant therein an election to sell the stock of any entity held in the Tenneco stock fund in the Tenneco DC Plan which does not employ him or her immediately following the Distribution Date. Shipbuilding Company shall administer each defined contribution plan which it maintains consistent with any and all representations which Tenneco made to the Internal Revenue Service at any time prior to the Distribution Date. No further contributions shall be made under the Tenneco Inc. Employee Stock Purchase Plan after September 30, 1996. SECTION 5. PENSION MATTERS OUTSIDE THE UNITED STATES. With respect to the business and operations of each Group in jurisdictions outside the United States, each of the parties hereto shall (and, as applicable, shall cause each other member of its Group over which it has direct or indirect legal or effective control to) retain any and all pension liabilities and attendant plans and their assets related to its Active Employees and Former Employees. SECTION 6. EXECUTIVE COMPENSATION. 6.01. TENNECO BENEFIT EQUALIZATION PLAN AND SUPPLEMENT EXECUTIVE RETIREMENT PLAN. None of the Active Employees of either the Shipbuilding Group or the Energy Group shall accrue any benefits under the Tenneco Benefit Equalization Plan (the "BEP") or the Supplement Executive Retirement Plan (the "SERP") from and after the Distribution Date. Industrial Company shall assume all liabilities under the BEP and the SERP and shall cause the BEP and the SERP to continue to cover the Active Employees and Former Employees of the Energy Group and Shipbuilding Group after the Distribution Date who have accrued benefits under either or both of such plans as of the close of business on the Distribution Date, and the accrued benefits of such Active Employees under such plans as of the close of business on the Distribution Date shall be fully vested and non-forfeitable. Each of Tenneco and Shipbuilding Company shall reimburse Industrial Company for any payments Industrial Company may make from time to time under the BEP or the SERP to Mr. Edward J. Casey, Jr. in the 5 case of the Energy Group and any Active Employee or Former Employee of the Shipbuilding Group, in the case of the Shipbuilding Group. Such charges shall be made by written notice thereof to, and shall be promptly paid by, the Energy Group and/or Shipbuilding Group, as the case may be. Tenneco shall retain and assume any and all supplemental pension obligations (and any related assets) which are in addition to benefits under the TRP, BEP and SERP under the contract with Mr. Edward J. Casey, Jr. 6.02. TENNECO INC. DEFERRED COMPENSATION PLAN. The participation of the Active Employees and Former Employees of the Energy Group and the Shipbuilding Group in the Tenneco Inc. Deferred Compensation Plan (the "DC Plan") and 1993 Deferred Compensation Plan (the "1993 Plan") shall cease as of the Distribution Date. As of the Distribution Date, Shipbuilding Company shall assume the liability for the accounts of its Active Employees and Former Employees in the DC Plan and the 1993 Plan, Tenneco shall assume the liability for the accounts of the Active Employees and Former Employees of the Energy Group in the DC Plan and the 1993 Plan, and Industrial Company shall succeed to sponsorship of the 1993 Plan and the DC Plan and shall assume the liability for the accounts of the Active Employees and Former Employees of the Industrial Group in the DC Plan and the 1993 Plan. The total of each such Active Employee's or Former Employee's account in the DC Plan and the 1993 Plan as of the Distribution Date shall become the opening balance of such Active Employee's or Former Employee's account in a Nonqualified Deferred Compensation Plan created, as of the Distribution Date by either, (i) Tenneco, in the case of Active Employees and Former Employees of the Energy Group, or (ii) Shipbuilding Company, in the case of Active Employees or Former Employees of the Shipbuilding Group. Such opening balances shall become fully vested as of the close of business on the Distribution Date. 6.03. TENNECO BENEFITS PROTECTION PROGRAM. Effective upon the Distribution Date, Shipbuilding Company and Tenneco shall each be released from any obligations which it may have under the Tenneco Benefits Protection Program. Neither Shipbuilding Company nor Tenneco shall be entitled to any portion of the Tenneco Inc. Benefit Protection Trust (the "Trust"), other than to the assets, if any, of the Trust allocable to the respective liabilities retained or assumed by them pursuant to this Agreement. Industrial Company shall continue to sponsor and maintain the Trust. SECTION 6.04. TENNECO OPTIONS AND RESTRICTED STOCK. Prior to the Distribution Date, Tenneco shall cause all outstanding restricted stock and performance share equivalent unit awards to become fully vested. Except as provided in the last sentence of this paragraph, the parties hereto shall cause all outstanding Tenneco stock options to be converted to options to acquire stock of Tenneco, Industrial Company or Shipbuilding Company in amounts and with exercise prices adjusted so that as to each grant the excess of the aggregate fair market value of the shares subject to the option immediately after the Distributions over the aggregate option price of such shares is not more than the excess of the aggregate fair market value of the shares subject to the option immediately before the Distributions over the aggregate option price of such shares. In all other respects, the options shall remain subject to the terms and conditions of the grants under which they were issued, conforming changes excepted. Except to the extent determined by the Compensation and Benefits Committee of Tenneco's Board of Directors, each grantee shall receive options with respect to the stock of the entity which employs him (or with which he is otherwise affiliated) immediately after the Distributions. If Tenneco has entered into a definitive agreement for a third-party to acquire Tenneco, the Tenneco stock options held by employees of the Energy Group shall not be treated as provided in the preceding portion of this SECTION 6.04; rather such options shall be made fully exercisable no less than 30 days prior to the closing date of such acquisition, and if such options are not exercised prior to the closing date, they will be cancelled effective as of the closing date. SECTION 6.05. EMPLOYMENT CONTRACTS. Tenneco shall retain and assume any and all contractual obligations to Messrs. Casey, Menikoff and Sinclair. Tenneco shall retain and assume any and all obligations to provide office space and secretarial help to Messrs. Ketelsen and Scott. Industrial Company shall assume and discharge all supplemental pension obligations to Mr. Ketelsen. SECTION 7. WELFARE BENEFITS. 7.01. TENNECO SALARIED WELFARE PLANS. Effective on the Distribution Date, Tenneco and Shipbuilding Company shall each cease to be a sponsor of the Tenneco Salaried Welfare Plans, and Industrial Company shall 6 serve as the sponsor of the Tenneco Salaried Welfare Plans from and after the Distribution Date. If the Energy Group or the Shipbuilding Group adopt one or more welfare plans which is (are) identical to the comparable Tenneco Salaried Welfare Plan, the Industrial Company shall use its best efforts to administer such plan on behalf of the Energy Group or the Shipbuilding Group, as the case may be, for a period ending not later thanDecember 31, 1997. Each of Shipbuilding Company and Tenneco hereby agrees to reimburse Industrial Company for all costs incurred by it with respect thereto. 7.02. ALLOCATION AND DISCHARGE OF WELFARE PLAN LIABILITIES. Shipbuilding Company shall retain and discharge all welfare plan liabilities with respect to Active Employees and Former Employees of the Shipbuilding Group and their dependents. Industrial Company shall retain and discharge all welfare plan liabilities with respect to Active Employees and Former Employees of the Industrial Group and their dependents. Tenneco shall retain and discharge all other welfare plan liabilities which remain after allocation of liabilities to Shipbuilding Company and Industrial Company under the two immediately preceding sentences, including, without limitation, all such liabilities relating to the Active Employees and Former Employees of the Energy Group and their dependents, and shall retain or have transferred to it all related assets allocable to such liabilities, including without limitation, the Tennessee Gas Pipeline Company Health Care Plan VEBA. SECTION 8. GENERAL. 8.01. POST-DISTRIBUTION ADMINISTRATION OF PLANS. The parties hereto agree to administer all plans consistently herewith, and to the extent necessary to amend plans accordingly. 8.02. COST AND EXPENSES. Each party shall bear all costs and expenses, including but not limited to legal and actuarial fees, incurred in the design, drafting and implementation of any and all plans and compensation structures which it enables or creates and the amendment of its existing plans or compensation structures. SECTION 9. MISCELLANEOUS. 9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Distribution Agreement, shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. Notwithstanding any other provisions in this Agreement or the Distribution Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement or any other Ancillary Agreement, this Agreement shall control. 9.02. OTHER ANCILLARY AGREEMENTS. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by any of the other Ancillary Agreements. 9.03. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. 9.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided herein, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. 9.05. NOTICES. All notices and other communications to a party hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to such party (and will be deemed given on the date on which the notice is received by such party) at the address for such party set forth below (or at such other address for the party as the party shall, from time to time, specify by like notice to the other parties): If to Tenneco, at:1010 Milam Street Houston, Texas 77002 Attention: Corporate Secretary 7 If to Industrial Company, at:1275 King Street Greenwich, CT 06831 Attention: Corporate Secretary If to Shipbuilding Company, at:4101 Washington Avenue Newport News, Virginia 23607 Attention: Corporate Secretary 9.06. WAIVERS. The failure of any party hereto to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. 9.07. AMENDMENTS. This Agreement may not be modified or amended except by an agreement in writing signed by the parties hereto. 9.08. ASSIGNMENT. This Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a party hereto so long as the resulting, surviving or transferee entity assumes all the obligations of the relevant party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other parties to this Agreement. Otherwise this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the others, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. 9.09. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective permitted successors and permitted assigns. 9.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties hereto and the members of their respective Groups and Affiliates, after giving effect to the Distributions, and should not be deemed to confer upon third parties any remedy, claim, liability, right of reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. 9.11. ATTORNEY FEES. A party in breach of this Agreement shall, on demand, indemnify and hold harmless the other parties hereto for and against all out- of-pocket expenses, including, without limitation, reasonable legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement. The payment of such expenses is in addition to any other relief to which such other party may be entitled hereunder or otherwise. 9.12. TITLE AND HEADINGS. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.13. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE. 8 9.14. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 9.15. SUBSIDIARIES. Each of the parties hereto shall cause to be performed, and hereby guarantee the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date. 9.16. RELEASE FROM POST EMPLOYMENT LIABILITY. Tenneco hereby agrees that in the event it intends to request of any Energy Employee at any time on or within 5 years subsequent to the Effective Time any release of liability and further obligation on the part of Tenneco that it will promptly notify New Tenneco in writing of such intent and, if so requested by New Tenneco, in connection with such request also request from such Energy Employee a release of liability and further obligation on the part of New Tenneco either, at New Tenneco's election, (a) in the form provided to Tenneco by New Tenneco prior to the Effective Time, with such changes thereto as may subsequently be reasonably requested from time to time by New Tenneco, or (b) in substantially the same form as the release obtained from such Energy Employee by Tenneco. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TENNECO INC. By: _________________________________ NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.) By: _________________________________ NEW TENNECO INC. By: _________________________________ 9 EX-10.3 12 FORM OF INSURANCE AGREEMENT EXHIBIT 10.3 EXHIBIT H TO DISTRIBUTION AGREEMENT INSURANCE AGREEMENT This Insurance Agreement (the "AGREEMENT") is made and entered into as of this day of , 1996, by and among Tenneco Inc., a Delaware corporation ("TENNECO"), New Tenneco Inc., a Delaware corporation ("INDUSTRIAL COMPANY") and Newport News Shipbuilding Inc., a Delaware corporation ("SHIPBUILDING COMPANY"). WHEREAS, Tenneco, Industrial Company and Shipbuilding Company have entered into that certain Distribution Agreement, dated as of , 1996 (the "DISTRIBUTION AGREEMENT"), pursuant to which (i) Tenneco and its Subsidiaries shall cause to be consummated the Corporate Restructuring Transactions in order to restructure, divide and separate their existing businesses and assets so that (a) the Industrial Assets and Industrial Business shall be owned, controlled and operated, directly or indirectly, by the Industrial Company, and (b) the Shipbuilding Assets and Shipbuilding Business shall be owned, controlled and operated, directly or indirectly, by the Shipbuilding Company, and (ii) Tenneco shall distribute on the Distribution Date all of the outstanding capital stock of Industrial Company and Shipbuilding Company as a dividend to the holders of shares of the common stock, par value $5.00 per share, of Tenneco upon the terms and subject to the conditions set forth in the Distribution Agreement; WHEREAS, Tenneco, its Subsidiaries and their respective predecessors have historically maintained various Policies for the benefit or protection of one or more of the Energy Covered Persons, Industrial Covered Persons and Shipbuilding Covered Persons; WHEREAS, in connection with the transactions contemplated by the Distribution Agreement, Tenneco, Industrial Company and Shipbuilding Company have determined that it is necessary and desirable to provide for the respective continuing rights and obligations in respect of said Policies from and after the Distribution Date; and WHEREAS, pursuant to the Distribution Agreement the parties hereto have agreed to enter into this Agreement. NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement and the Distribution Agreement, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 General. Unless otherwise defined herein or unless the context otherwise requires, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). "AGREEMENT" shall mean this Insurance Agreement, dated as of , 1996, by and among Tenneco, Industrial Company and Shipbuilding Company, including any amendments hereto and each Schedule attached hereto. "CLAIMS ADMINISTRATION" shall mean, with respect to any Policy, the processing of claims made under such Policy, including, without limitation, the reporting of losses or claims to insurance carriers and the management, defense and settlement of claims. 1 "CLAIMS DEPOSIT" shall mean the amount of funds, as of the Distribution Date, maintained by Tenneco on deposit for the benefit of the insurance carriers under the Retained Policies. "CLAIMS-MADE" shall mean, with respect to any Policy, coverage provided by such Policy for claims made during a period specified therein. "CLAIMS-MADE POLICIES" shall mean those current and past Policies which are Claims-Made in nature, including but not limited to those Policies identified on SCHEDULE A hereto, which show Tenneco or any of its predecessors as the named insured, but excluding (i) any directors' and officers' liability insurance policies which are or were maintained by or on behalf of Tenneco, (ii) the Exclusive Policies, and (iii) the Retained Policies. "COMMON POLICIES" shall mean the Claims-Made Policies, Occurrence-Based Policies, Eastern Policies and Retained Policies. "CONSENT" shall have the meaning set forth in Section 2.3 hereof. "CORPORATE RESTRUCTURING TRANSACTIONS" shall have the meaning set forth in the Distribution Agreement. "COVERED PERSONS" shall mean (i) with respect to Tenneco, the Energy Covered Persons, (ii) with respect to Industrial Company, the Industrial Covered Persons, and (iii) with respect to Shipbuilding Company, the Shipbuilding Covered Persons. "CURRENT CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies in effect as of the Distribution Date, which Policies are set forth on SCHEDULE A hereto. "CURRENT OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies in effect as of the Distribution Date, which Policies are set forth on SCHEDULE B hereto. "DISTRIBUTION AGREEMENT" shall mean that certain Distribution Agreement, dated as of , 1996, by and among Tenneco, Industrial Company and Shipbuilding Company, including any amendments, exhibits and schedules thereto. "DISTRIBUTION DATE" shall have the meaning set forth in the Distribution Agreement. "EASTERN POLICIES" shall mean the Policies identified on SCHEDULE C hereto, which Policies show a member of the Energy Group as the named insured, together with any predecessor policies thereto. "ENERGY" shall mean, when unqualified, the Energy Assets, Energy Liabilities and/or Energy Business. "ENERGY BUSINESS" shall have the meaning set forth in the Distribution Agreement. "ENERGY COVERED PERSON" shall mean each member of the Energy Group and any other Person, in each case to the extent any Policy addressed herein purports to provide insurance coverage in respect of any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred by such Person arising out of, in connection with or otherwise related to Energy. "ENERGY GROUP" shall have the meaning set forth in the Distribution Agreement. "ENERGY LIABILITIES" shall have the meaning set forth in the Distribution Agreement. "EXCLUSIVE POLICIES" shall mean the Tenneco Exclusive Policies, Industrial Exclusive Policies and Shipbuilding Exclusive Policies. "GROUP" shall have the meaning set forth in the Distribution Agreement. 2 "INDUSTRIAL" shall mean, when unqualified, the Industrial Assets, Industrial Liabilities, Prior Industrial Businesses and/or Industrial Business. "INDUSTRIAL ASSETS" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL BUSINESS" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL COVERED PERSON" shall mean each member of the Industrial Group and any other Person, in each case to the extent any Policy addressed herein purports to provide insurance coverage in respect of any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred by such Person arising out of, in connection with or otherwise related to Industrial. "INDUSTRIAL EXCLUSIVE POLICIES" shall mean all current and past Policies which show Industrial Company, any other member of the Industrial Group or any of their respective predecessors as the named insured and do not purport to relate to Energy or Shipbuilding or to cover any Energy Covered Person or Shipbuilding Covered Person, but excluding any Retained Policy. "INDUSTRIAL GROUP" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL LIABILITIES" shall have the meaning set forth in the Distribution Agreement. "INSURANCE ADMINISTRATION" shall mean, with respect to any Policy, the accounting for premiums, defense costs, indemnity payments, deductibles and retentions, as appropriate, under the terms and conditions of such Policy, and the distribution of Insurance Proceeds. "INSURANCE PROCEEDS" shall mean those monies, net of any applicable premium adjustment, deductible, retention or similar cost paid or held by or for the benefit of an insured party which are either (i) received by an insured from an insurance carrier, or (ii) paid by an insurance carrier on behalf of an insured. "LETTERS OF CREDIT" shall have the meaning set forth in Section 7.1 hereof. "MERGER AGREEMENT" shall have the meaning set forth in the Distribution Agreement. "OCCURRENCE-BASED" shall mean, with respect to any Policy, coverage provided by such Policy for acts, omissions, damages or injuries which occur or are alleged to have occurred during a period specified in such Policy. "OCCURRENCE-BASED POLICIES" shall mean those current and past Policies which are Occurrence-Based in nature, including but not limited to those policies identified on SCHEDULE B hereto, which show Tenneco or any of its predecessors as the named insured, but excluding (i) any directors' and officers' liability policies which are or were maintained by or on behalf of Tenneco, (ii) the Exclusive Policies, (iii) the Retained Policies, and (iv) the Eastern Policies. "OTHER CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies other than the Transferred Claims-Made Policies. "OTHER OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies other than the Transferred Occurrence-Based Policies. "PERSON" shall have the meaning set forth in the Distribution Agreement. "POLICIES" means insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including, without limitation, primary, excess and umbrella policies, commercial general liability policies, fiduciary liability, automobile, aircraft, property and casualty, workers' compensation and employee dishonesty insurance policies, bond and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder. 3 "PRIOR INDUSTRIAL BUSINESSES" shall have the meaning set forth in the Distribution Agreement. "PRIOR SHIPBUILDING BUSINESSES" shall have the meaning set forth in the Distribution Agreement. "RETAINED POLICIES" shall mean the Policies identified on SCHEDULE D hereto, together with all other current and past primary, workers' compensation, automobile liability and general liability (including products liability) Policies showing Tenneco, any other member of the Energy Group or any of their respective predecessors as the insured party and which are cost plus, fronting, high deductible or retrospective premium programs but excluding the Eastern Policies. "SHIPBUILDING" shall mean, when unqualified, the Shipbuilding Assets, Shipbuilding Liabilities, Prior Shipbuilding Businesses and/or Shipbuilding Business. "SHIPBUILDING ASSETS" shall have the meaning set forth in the Distribution Agreement. "SHIPBUILDING BUSINESS" shall have the meaning set forth in the Distribution Agreement. "SHIPBUILDING COVERED PERSON" shall mean each member of the Shipbuilding Group and any other Person, in each case to the extent any Policy addressed herein purports to provide insurance coverage in respect of any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred by such Person arising out of, in connection with or otherwise related to Shipbuilding. "SHIPBUILDING EXCLUSIVE POLICIES" shall mean all current and past Policies which show Shipbuilding Company, any other member of the Shipbuilding Group or any of their respective predecessors as the named insured and do not purport to relate to Energy or Industrial or to cover any Energy Covered Person or Industrial Covered Person, but excluding any Retained Policy. "SHIPBUILDING GROUP" shall have the meaning set forth in the Distribution Agreement. "SHIPBUILDING LIABILITIES" shall have the meaning set forth in the Distribution Agreement. "SUBSIDIARY" shall have the meaning set forth in the Distribution Agreement. "TENNECO EXCLUSIVE POLICIES" shall mean all current and past Policies, including but not limited to the current Policies set forth on SCHEDULE E hereto, which show Tenneco, any other member of the Energy Group or any of their respective predecessors as the named insured and do not purport to relate to Shipbuilding or Industrial or to cover any Shipbuilding Covered Person or Industrial Covered Person, excluding (i) any directors' and officers' liability policies which are or were maintained by or on behalf of Tenneco, and (ii) any Retained Policy. "TERMINATION TIME" shall mean 11:59 p.m., Houston, Texas time, on the Distribution Date. "TRANSFERRED CLAIMS-MADE POLICIES" shall have the meaning set forth in Section 2.2 hereof. "TRANSFERRED OCCURRENCE-BASED POLICIES" shall have the meaning set forth in Section 2.1 hereof. "TRANSFERRED POLICIES" shall have the meaning set forth in Section 2.3 hereof. 1.2 References. References herein to a "Schedule" are, unless otherwise specified, to one of the Schedules attached to this Agreement, and references to an "Article" or a "Section" are, unless otherwise specified, to one of the Articles or Sections, respectively, of this Agreement. 4 ARTICLE II SUBSTITUTION OF NAMED INSUREDS AND CANCELLATION OF POLICIES 2.1 Current Occurrence-Based Policies. On or prior to the Distribution Date, Tenneco shall take or cause to be taken all necessary or appropriate action (i) so that the Industrial Company is substituted as the named insured under those Current Occurrence-Based Policies identified on SCHEDULE 2.1-A hereto (the "TRANSFERRED OCCURRENCE-BASED POLICIES"), effective as of the Termination Time, and (ii) to cause the Current Occurrence-Based Policies identified on SCHEDULE 2.1-B hereto to be cancelled as of, and to afford no further coverage to the insureds thereunder except as otherwise contemplated by this Agreement from and after, the Termination Time. Industrial Company agrees to be substituted as a named insured under the Transferred Occurrence-Based Policies and to execute such further documents as Tenneco may reasonably request in connection therewith. 2.2 Current Claims-Made Policies. On or prior to the Distribution Date, Tenneco shall take or cause to be taken all necessary or appropriate action (i) so that the Industrial Company is substituted as the named insured under those Current Claims-Made Policies identified on SCHEDULE 2.2-A hereto (the "TRANSFERRED CLAIMS-MADE POLICIES"), effective as of the Termination Time, and (ii) to cause the Current Claims-Made Policies identified on SCHEDULE 2.2-B hereto to be cancelled as of, and to afford no further coverage to the insureds thereunder except as otherwise contemplated by this Agreement from and after, the Termination Time. Industrial Company agrees to be substituted as a named insured under the Transferred Claims-Made Policies and to execute such further documents as Tenneco may reasonably request in connection therewith. 2.3 Consent. Tenneco and Industrial Company shall each use its best efforts to obtain prior to the Distribution Date the consent of each insurance carrier under the Transferred Occurrence-Based Policies and the Transferred Claims- Made Policies (collectively, the "TRANSFERRED POLICIES") that is required to consummate the transactions contemplated by Sections 2.1 and 2.2 hereof (each, a "CONSENT"), it being understood that if Consent to such transactions is not received as contemplated by this Section 2.3 with respect to any Policy, such Policy shall nonetheless be considered and treated as a Transferred Claims- Made Policy or Transferred Occurrence-Based Policy, as the case may be, for purposes of this Agreement. 2.4 No Transfer of Certain Policies. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to substitute Industrial Company as the named insured under any Transferred Policy without Consent thereto if such substitution or attempt to substitute without such Consent would constitute a breach of such Transferred Policy. If Consent to such substitution is not obtained prior to the Distribution Date, Tenneco and Industrial Company agree to negotiate in good faith an arrangement which shall place the Industrial Company, insofar as reasonably possible, in the same position as would have existed had such Consent to substitution been obtained prior to the Distribution Date. ARTICLE III COVERAGE 3.1 Maintenance of Coverage Through Distribution Date. From the date hereof up to the Termination Time, the parties hereto agree to maintain (and to cause each member of their respective Groups over which they have legal or effective direct or indirect control to maintain) in full force and effect the Occurrence-Based Policies, Claims-Made Policies, Eastern Policies and Retained Policies for the benefit of any Energy Covered Person, Industrial Covered Person and Shipbuilding Covered Person to which such Policies by their terms relate. 3.2 Coverage Under Occurrence-Based Policies. (a) Termination of Coverage Under Transferred Occurrence-Based Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Transferred Occurrence-Based Policy, effective as of the Termination Time coverage under the Transferred Occurrence-Based Policies shall be terminated (it being understood that such Transferred 5 Occurrence-Based Policies shall nonetheless remain in full force and effect) so that none of the Transferred Occurrence-Based Policies shall afford any further coverage to any Energy Covered Person or Shipbuilding Covered Person for occurrences which take place or are alleged to have taken place after the Termination Time. From and after the Termination Time, coverage under any Transferred Occurrence-Based Policy may, at the option of Industrial Company, continue for any Industrial Covered Person upon the terms and conditions of such Transferred Occurrence-Based Policy. (b) Termination of Coverage Under Other Occurrence-Based Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Other Occurrence-Based Policy, effective as of the Termination Time coverage under the Other Occurrence-Based Policies shall be terminated so that none of the Other Occurrence-Based Policies shall afford any further coverage to any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person for occurrences which take place or are alleged to have taken place after the Termination Time. (c) Access to Policies Following Termination Time. Notwithstanding the provisions of Sections 3.2(a) and 3.2(b) hereof, from and after the Termination Time each Energy Covered Person, Industrial Covered Person and Shipbuilding Covered Person shall have the right to coverage and to make or pursue a claim for coverage under any Occurrence-Based Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses incurred or claimed to have been incurred prior to the Termination Time by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Energy, with respect to any Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case subject to the terms, conditions and limitations of such Occurrence-Based Policy, provided, however, that nothing in this Section 3.2(c) shall be deemed to constitute or reflect an assignment of any such Occurrence-Based Policy. (d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person entitled hereunder to make or pursue a claim for insurance coverage under an Occurrence-Based Policy may claim for such insurance as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under such Occurrence-Based Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and Shipbuilding Company shall, to the extent any of its respective Covered Persons shall have exhausted all or any portion of the limits of liability, if any, under any Occurrence-Based Policy, use its best efforts to either (i) obtain and comply in full with the conditions required to effect the reinstatement of the full limits of liability under such Occurrence-Based Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims) and be responsible for and pay all costs and expenses, including the amount of any resultant increase in the premium charged in respect of such Occurrence-Based Policy or any renewal thereof, in connection therewith, or (ii) obtain and maintain in full force and effect a Policy in replacement of the limits of liability exhausted under such Occurrence-Based Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims), and be responsible for and pay all costs and expenses in connection therewith, which Policy shall provide at least the same coverage, and contain terms and provisions which are no less favorable to the insured parties, as existed under the Occurrence-Based Policy in respect of which such replacement is obtained, provided, however, that no party hereto shall be required to expend more than an amount equal to 350% of the original premium paid with respect to the portion of the limits of liability under such Occurrence-Based Policy (determined on a pro rata basis) exhausted by such party's respective Covered Persons to obtain reinstatement or a replacement Policy as contemplated hereby, it being understood that each party hereto shall nonetheless be required to obtain the maximum amount of reinstatement or replacement coverage available for such 350% premium amount in accordance with the terms and provisions of clauses (i) or (ii) hereof, as applicable. If at any time a party (an "Impairing Party") hereto becomes aware (such party being deemed to be aware whenever any of the directors or executive officers of such party or any other member of its respective Group become aware) of a claim or potential claim against any of such Impairing Party's respective Covered Persons which claim is reasonably likely to exhaust (but has not yet exhausted) all or any portion of the aggregate limits of liability, if any, under any Occurrence- Based Policy (a "Potential Impairment"), such Impairing Party shall promptly provide notice of 6 such Potential Impairment to the other parties hereto. Such Impairing Party shall have five business days after providing such notice to elect to, at that time, either secure reinstatement of the limits of liability under such Occurrence-Based Policy (to the extent provided for therein) or purchase a Policy in replacement of such limits of liability (in each case in accordance with the terms and provisions of the second preceding sentence) in respect of such Potential Impairment (but shall not be required to so elect at such time). If such Impairing Party does not timely elect to secure reinstatement or replacement coverage, then either or both of the other parties hereto may elect to reinstate the limits of liability under such Occurrence-Based Policy (to the extent provided for therein) and pay all expenses incurred in connection therewith, provided, however, that if such Potential Impairment actually occurs, the Impairing Party shall reimburse the other parties for any fees and expenses incurred by such parties in connection with such reinstatement. 3.3 Coverage Under Claims-Made Policies. (a) Termination of Coverage Under Transferred Claims-Made Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Transferred Claims-Made Policy, effective as of the Termination Time coverage under the Transferred Claims-Made Policies shall be terminated (it being understood that such Transferred Claims-Made Policies shall nonetheless remain in full force and effect) so that none of the Transferred Claims-Made Policies shall afford any further coverage to any Energy Covered Person or Shipbuilding Covered Person for claims which have not been reported or made as provided by the terms of such Transferred Claims-Made Policy prior to the Termination Time. From and after the Termination Time, coverage under any Transferred Claims-Made Policy may, at the option of Industrial Company, continue for any Industrial Covered Person upon the terms and conditions of such Transferred Claims-Made Policy. (b) Termination of Coverage Under Other Claims-Made Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Other Claims-Made Policy, effective as of the Termination Time coverage under the Other Claims-Made Policies shall be terminated so that no Other Claims-Made Policy shall afford any further coverage to any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person for claims which have not been reported or made as provided by the terms of such Other Claims-Made Policy prior to the Termination Time. (c) Access to Policies Following Termination Time. Notwithstanding the provisions of Sections 3.3(a) and 3.3(b) hereof, from and after the Termination Time each Energy Covered Person, Industrial Covered Person and Shipbuilding Covered Person shall have the right to coverage and to make or pursue a claim for coverage under any Claims-Made Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses which are reported in accordance with the terms of such Claims-Made Policy prior to the Termination Time and which are incurred or claimed to be incurred by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Energy, with respect to any Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case subject to the terms, conditions and limitations of such Claims-Made Policy, provided, however, that nothing in this Section 3.3(c) shall be deemed to constitute or reflect an assignment of any such Claims-Made Policy. (d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person entitled hereunder to make or pursue a claim for insurance coverage under a Claims-Made Policy may claim for such insurance as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under such Claims-Made Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and Shipbuilding Company shall, to the extent any of its respective Covered Persons shall have exhausted all or any portion of the limits of liability, if any, under any Claims-Made Policy, use its best efforts to either (i) obtain and comply in full with the conditions required to effect the reinstatement of the full limits of liability under such Claims-Made Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims) and be responsible for and pay all costs and expenses, including the amount of any resultant increase in the premium charged in respect of such Claims-Made Policy or any renewal 7 thereof, in connection therewith, or (ii) obtain and maintain in full force and effect at its own cost a Policy in replacement of the limits of liability exhausted under such Claims-Made Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims), and be responsible for and pay all costs and expenses in connection therewith, which Policy shall provide at least the same coverage, and contain terms and provisions which are no less favorable to the insured parties, as existed under the Claims-Made Policy in respect of which such replacement is obtained, provided, however, that no party hereto shall be required to expend more than an amount equal to 350% of the original premium paid with respect to the portion of the limits of liability under such Claims-Made Policy (determined on a pro rata basis) exhausted by such party's respective Covered Persons to obtain reinstatement or a replacement Policy as contemplated hereby, it being understood that each party hereto shall nonetheless be required to obtain the maximum amount of reinstatement or replacement coverage available for such 350% premium amount in accordance with the terms and provisions of clauses (i) or (ii) hereof, as applicable. If at any time an Impairing Party becomes aware (such party being deemed to be aware whenever any of the directors or executive officers of such party or any other member of its respective Group become aware) of a claim or potential claim against any of such Impairing Party's respective Covered Persons which claim is reasonably likely to exhaust (but has not yet exhausted) all or any portion of the aggregate limits of liability, if any, under any Claims-Made Policy (a "Potential Impairment"), such Impairing Party shall promptly provide notice of such Potential Impairment to the other parties hereto. Such Impairing Party shall have five business days after providing such notice to elect to, at that time, either secure reinstatement of the limits of liability under such Claims-Made Policy (to the extent provided for therein) or purchase a Policy in replacement of such limits of liability (in each case in accordance with the terms and provisions of the second preceding sentence) in respect of such Potential Impairment (but shall not be required to so elect at such time). If such Impairing Party does not timely elect to secure reinstatement or replacement coverage, then either or both of the other parties hereto may elect to reinstate the limits of liability under such Claims-Made Policy (to the extent provided for therein) and pay all expenses incurred in connection therewith, provided, however, that if such Potential Impairment actually occurs, the Impairing Party shall reimburse the other parties for any fees and expenses incurred by such parties in connection with such reinstatement. 3.4 Coverage Under Retained Policies. (a) Termination of Coverage at Termination Time. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, except as otherwise contemplated by the terms of this Agreement and notwithstanding anything to the contrary contained in any Retained Policy, effective as of the Termination Time any and all coverage of any Industrial Covered Person or Shipbuilding Covered Person under the Retained Policies shall be terminated (it being understood that such Retained Policies shall nonetheless remain in full force and effect). From and after the Termination Time, coverage under any of the Retained Policies may, at the option of Tenneco, continue for any Energy Covered Person upon the terms and conditions of such Retained Policies. (b) Access to Policies and Policy Limits. Notwithstanding the provisions of Section 3.4(a) hereof, from and after the Termination Time each Industrial Covered Person and Shipbuilding Covered Person shall have the right to coverage and to make or pursue a claim for coverage under any Retained Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses incurred or claimed to have been incurred prior to the Termination Time by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Industrial, with respect to any Industrial Covered Person, or (ii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case subject to the terms, conditions and limitations of such Retained Policy, provided, however, that nothing in this Section 3.4(b) shall be deemed to constitute or reflect an assignment of any such Retained Policy. Any Industrial Covered Person or Shipbuilding Covered Person may claim insurance coverage under a Retained Policy as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under such Retained Policy. 3.5 Coverage Under Eastern Policies. (a) Termination of Coverage Under Eastern Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Eastern 8 Policies, effective as of the Termination Time coverage under the Eastern Policies shall be terminated (it being understood that such Eastern Policies in full force and effect as of the Termination Time shall nonetheless remain in full force and effect) so that the Eastern Policies do not afford any further coverage to any Industrial Covered Person or Shipbuilding Covered Person for occurrences which take place or are alleged to have taken place after the Termination Time. From and after the Termination Time, coverage under the Eastern Policies may, at the option of Tenneco, continue for any Energy Covered Person upon the terms and conditions of the Eastern Policies. (b) Access to Eastern Policies Following Termination Time. Notwithstanding the provisions of Sections 3.5(a) hereof, from and after the Termination Time each Energy Covered Person, Industrial Covered Person (to the extent (but only to that extent and subject to the last sentence of this Section 3.5(b) and Section 3.5(d)) payment under any Eastern Policy is a condition precedent to the provision of coverage by any insurer providing coverage in the same layer as, or a layer excess to that of, such Eastern Policy) and Shipbuilding Covered Person (to the extent (but only to the extent and subject to the last sentence of this Section 3.5(b)) necessary to access reinsurance policies) shall have the right to coverage and to make or pursue a claim for coverage under any Eastern Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses incurred or claimed to have been incurred prior to the Termination Time by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Energy, with respect to any Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case, subject to the terms, conditions and limitations of such Eastern Policy, provided, however, that nothing in this Section 3.5(b) shall be deemed to constitute or reflect an assignment of the Eastern Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate actions so that, from and after the Termination Time, no Industrial Covered Person or Shipbuilding Covered Person shall be entitled to coverage or to make or pursue a claim for coverage under the Eastern Policies except to the extent expressly provided for herein and in no event shall the Eastern Insurance Provider (as defined below) or any of its subsidiaries have any obligation or liability to any Shipbuilding Covered Person or Industrial Covered Person under any Eastern Policy which is not either as a conduit with respect to third party reinsurance or subject to reimbursement by Industrial Company pursuant to Section 3.5(d). (c) Policy Limits. Any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person entitled hereunder to make or pursue a claim for insurance coverage under the Eastern Policies may claim for such insurance as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under the Eastern Policies, subject to the provisions of Section 3.5(b). (d) Reimbursement Obligation of Industrial Company. Industrial Company agrees to reimburse to the insurer under each Eastern Policy (the "EASTERN INSURANCE PROVIDER") the full amount of any claim for insurance coverage for an Industrial Covered Person under such Eastern Policy made pursuant to the terms of Section 3.5(b) hereof which is actually paid by said Eastern Insurance Provider after the Termination Time. 3.6 Coverage Under Exclusive Policies. From and after the Termination Time, coverage under any Exclusive Policy may continue with respect to any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred or claimed to have been incurred prior to, on or after the Distribution Date, subject to the terms, conditions and limitations of such Exclusive Policy, provided, however, that (i) no member of the Energy Group shall have any liability or obligation with respect to any of the Industrial Exclusive Policies or Shipbuilding Exclusive Policies, (ii) no member of the Industrial Group shall have any liability or obligation with respect to any of the Tenneco Exclusive Policies or Shipbuilding Exclusive Policies, and (iii) no member of the Shipbuilding Group shall have any liability or obligation with respect to any of the Tenneco Exclusive Policies or Industrial Exclusive Policies. 3.7 Assistance in Obtaining Additional Coverage. Each of the parties hereto agrees to use its reasonable best efforts to assist the other parties in the transition to separate insurance coverage for the Energy Group, Industrial Group and Shipbuilding Group from and after the Distribution Date which assistance shall include, but shall not be limited to, the identification of potential insurance carriers. 9 3.8 Discovery Periods. Except with respect to any Industrial Covered Person and except as the parties hereto may otherwise agree, the parties hereto acknowledge and agree that when this Agreement calls for the termination of insurance coverage under a Claims-Made Policy such insurance coverage shall be terminated as of the time specified and that no discovery period of coverage in respect of such Policy shall be provided thereunder, notwithstanding anything to the contrary contained herein or in any such Policy. Notwithstanding the foregoing, if requested to do so by Tenneco, Industrial Company shall use its reasonable efforts to procure that the relevant insurers under the Claims-Made Policies offer to Tenneco a discovery period of coverage under said Claims-Made Policies for Energy Covered Persons with an aggregate limitation of liability separate from the limitation of liability under said Claims-Made Policies for coverage afforded Industrial Covered Persons. All premiums, costs and other charges with respect to any discovery period of coverage provided under any Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with respect to coverage for Energy Covered Persons, and (ii) Industrial Company, with respect to coverage for Industrial Covered Persons. Each party hereto shall not (and shall not permit any of its respective Covered Persons over which it has legal or effective direct or indirect control to) take any action contrary to the provisions of this Section 3.8. 3.9 Further Assurances. Each of Tenneco, Industrial Company and Shipbuilding Company agree to take (and to cause each of its respective Covered Persons over which it has direct or indirect legal or effective control to take) all such actions as are necessary or appropriate, including the provision of notice to all relevant insurance carriers and cooperation with respect to the obtaining of any reinstatement of limitations on liability as contemplated hereby, to effectuate the purposes of this Article III. ARTICLE IV PREMIUMS, DEDUCTIBLES AND RELATED MATTERS 4.1 Occurrence-Based and Claims-Made Policies. (a) Premiums in Respect of Occurrence-Based and Claims-Made Policies. From and after the Termination Time, all premiums, costs and other charges with respect to any Occurrence-Based Policy or Claims-Made Policy shall be paid by Industrial Company, provided, however, that (i) Tenneco shall promptly reimburse Industrial Company in full for any such premiums, costs or other charges in respect of the cover afforded under any such Occurrence-Based Policy or Claims-Made Policy to any Energy Covered Person, and (ii) Shipbuilding Company shall promptly reimburse Industrial Company in full for any such premiums, costs or other charges in respect of the cover afforded under any such Occurrence-Based Policy or Claims-Made Policy to any Shipbuilding Covered Person, in each case determined in accordance with Tenneco's historical practices with respect to the allocation of such premiums, costs and charges prior to the date hereof. All amounts refunded from and after the Termination Time by insurance carriers in respect of premiums previously paid under any Occurrence-Based Policy or Claims-Made Policy shall be the sole property of Industrial Company, provided, however, that Industrial Company shall promptly pay to Tenneco or the Shipbuilding Company, as applicable, upon receipt thereof from an insurance carrier, the Energy Group's or the Shipbuilding Group's respective share of any such amounts refunded (such respective share to be determined in accordance with Tenneco's historical practices with respect to the allocation of insurance premiums among its Subsidiaries and divisions prior to the date hereof). Each of Tenneco and Shipbuilding Company shall (and shall cause each member of its respective Group over which it has direct or indirect legal or effective control to) promptly pay to Industrial Company any such refunded amounts actually received by it to which Industrial Company is entitled pursuant hereto. (b) Deductibles, Retentions and Self-Insured Amounts. From and after the Termination Time, all deductibles, retentions and self-insured amounts with respect to coverage or a claim for coverage under any Occurrence-Based Policy or Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with respect to any coverage or claim for coverage in respect of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage in respect of any Shipbuilding Covered Person. 10 4.2 Retained Policies. (a) Premiums, Costs and Other Charges. From and after the Termination Time, all premiums, costs and other charges with respect to any Retained Policy, including claim payments and associated expenses under cost plus or fronting policies, shall be the sole responsibility of and be paid by Tenneco, provided, however, that (i) Industrial Company shall promptly reimburse Tenneco for all such premiums, costs and other charges paid by Tenneco (including amounts paid by Tenneco as reimbursement in respect of amounts drawn under letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in respect of coverage provided for any Industrial Covered Person to the extent such premiums, costs and other charges exceed the amount of the Claims Deposit, and (ii) Shipbuilding Company shall promptly reimburse Tenneco for all such premiums, costs and other charges paid by Tenneco (including amounts paid by Tenneco as reimbursement in respect of amounts drawn under letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in respect of coverage provided for any Shipbuilding Covered Person. All amounts refunded from and after the Termination Time by insurance carriers in respect of premiums previously paid under any Retained Policy shall be the sole property of Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial Company, all such refunded amounts in respect of coverage provided for any Industrial Covered Person under such Retained Policy, and (ii) Shipbuilding Company, all such refunded amounts in respect of coverage provided for any Shipbuilding Covered Person under such Retained Policy. (b) Deductibles, Retentions and Self-Insured Amounts. From and after the Termination Time, all deductibles, retentions and self-insured amounts with respect to coverage or a claim for coverage under any Retained Policy shall be the sole responsibility of (i) Tenneco, with respect to any coverage or claim for coverage in respect of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage in respect of any Shipbuilding Covered Person. 4.3 Eastern Policies. (a) Premiums in Respect of Eastern Policies. All amounts refunded from and after the Termination Time by insurance carriers in respect of premiums previously paid under any Eastern Policy shall be the sole property of Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial Company, upon receipt thereof from an insurance carrier, the Industrial Group's respective share of any such amounts refunded, and (ii) Shipbuilding Company, upon receipt thereof from an insurance carrier, the Shipbuilding Group's respective share of any such amounts refunded, in each case determined in accordance with Tenneco's historical practices with respect to the allocation of insurance premiums among its Subsidiaries and divisions prior to the date hereof. Each party shall (and shall cause each member of its respective Group over which it has direct or indirect legal or effective control to) promptly pay to any other party any such amounts actually received by it to which such other party is entitled pursuant to this Section 4.3(a). (b) Deductibles, Retentions and Self-Insured Amounts. From and after the Termination Time, all deductibles, retentions and self-insured amounts with respect to coverage or a claim for coverage under any Eastern Policy shall be the sole responsibility of (i) Tenneco, with respect to any coverage or claim for coverage in respect of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage in respect of any Shipbuilding Covered Person. (c) Amounts to be Refunded. Tenneco shall direct and instruct the Eastern Insurance Provider to pay to Industrial Company in cash promptly after the Termination Time, to the extent permitted by law, and to record a corresponding dollar-for-dollar reduction in all associated liabilities on its books and records for, (i) all amounts which appear as reserves on the books and records of the Eastern Insurance Provider as of the Termination Time in respect of claims relating to any Industrial Covered Person which have been reported prior to the Termination Time, (ii) the full amount of any "incurred but not reported" reserve and any portfolio loss transfer reserve appearing on the books and records of the Eastern Insurance Provider as of the Termination Time under the contingent liability programs of the Eastern Policies, and (iii) 50% of the amount of any "incurred but not reported" reserve appearing on the books and records of the Eastern Insurance Provider as of the Termination Time under the excess liability programs of the Eastern Policies with respect to Industrial and Energy. 11 4.4 Exclusive Policies. From and after the Termination Time, all deductibles, retentions, self-insured amounts, premiums and other costs with respect to any Exclusive Policy or claim for coverage thereunder shall be the sole responsibility of, and all refunded premiums with respect to any Exclusive Policy shall be the sole property of, (i) Tenneco, with respect to any Tenneco Exclusive Policy, (ii) Industrial Company, with respect to any Industrial Exclusive Policy, and (iii) Shipbuilding Company, with respect to any Shipbuilding Exclusive Policy. 4.5 Excess Costs and Settlements. Each Covered Person shall be responsible for any excess costs and expenses relating to its respective claims permitted hereunder (or those of any member of its respective Group) under the Common Policies, including defense costs to the extent such defense costs are not covered under such Common Policies, and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of such claims. 4.6 Effect on Other Agreements. Notwithstanding anything to the contrary contained herein, nothing in this Article IV shall be construed to alter or in any way limit any rights to indemnity provided in the Distribution Agreement or in any other Ancillary Agreement (as such term is defined in the Distribution Agreement). ARTICLE V ADMINISTRATION 5.1 Occurrence-Based and Claims-Made Policies. (a) Administration. From and after the Distribution Date, Claims Administration and Insurance Administration with respect to the Occurrence- Based Policies and Claims-Made Policies shall be the responsibility of (i) Tenneco, with respect to any coverage or claim for coverage of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage of any Shipbuilding Covered Person. Each of Shipbuilding Company and Tenneco shall (and shall cause each of its respective Covered Persons over which it has direct or indirect legal or effective control to) provide prompt notice to Industrial Company of all actions taken by it with respect to the Claims Administration and Insurance Administration for the Occurrence-Based Policies and Claims-Made Policies as contemplated by this Section 5.1. Each party hereto shall (and shall cause each other member of its Group over which it has direct or indirect legal or effective control to) take all necessary or appropriate action, if any, to delegate Claims Administration and Insurance Administration with respect to the Occurrence-Based Policies and Claims-Made Policies to any other party who is to assume such responsibilities pursuant hereto and, to the extent such delegation is not permitted by the terms of any such policy, shall engage in Claims Administration or Insurance Administration for any such policy only upon the express authorization and direction of such other party. Each party hereto shall be responsible for its own disbursements and out-of-pocket expenses and the direct and indirect costs of its employees or agents relating to Claims Administration and Insurance Administration contemplated by this Section 5.1. Notwithstanding anything to the contrary contained herein, Industrial Company shall have the right, at its option, to undertake at its own cost and expense Claims Administration and/or Insurance Administration with respect to any coverage or claim for coverage of any Energy Covered Person or Shipbuilding Covered Person. (b) Effect of Administrative Responsibilities. Each of Tenneco, Industrial Company and Shipbuilding Company acknowledges and agrees that each other party's responsibilities under this Section 5.1 for Claims Administration and Insurance Administration shall not relieve any party submitting an insured claim under any Occurrence-Based Policy or Claims-Made Policy of (a) the primary responsibility for reporting such insured claim accurately, completely and in a timely manner, or (b) any other right or responsibility which such party may have pursuant to the terms of any Occurrence-Based Policy or Claims- Made Policy. 5.2 Eastern and Retained Policies. From and after the Termination Time, Tenneco shall be solely responsible for Claims Administration and Insurance Administration with respect to the Retained Policies and Eastern Policies including, without limitation, the administration of all billings associated with the Retained 12 Policies by the insurance carriers thereunder. Notwithstanding the foregoing, each of Industrial Company and Shipbuilding Company shall retain the right to, at its option, direct the management, defense, reporting and settlement of claims involving its respective Covered Persons under the Retained Policies and Eastern Policies. ARTICLE VI PROCEEDS 6.1 Occurrence-Based and Claims-Made Policies. From and after the Distribution Date, Insurance Proceeds received with respect to claims, costs and expenses under the Occurrence-Based Policies and Claims-Made Policies shall be paid to the Covered Person to which such Insurance Proceeds are due pursuant to the terms of such Policies. 6.2 Eastern and Retained Policies. From and after the Distribution Date, Insurance Proceeds received with respect to claims, costs and expenses under the Retained Policies and Eastern Policies shall be paid, as appropriate, to the Covered Person to which such Insurance Proceeds are due pursuant to the terms of such Policies. 6.3 Return of Proceeds. Each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause each of its respective Covered Persons over which it has direct or indirect legal or effective control to) to promptly pay to each other party any Insurance Proceeds actually received by it to which any of such other party's Covered Persons are entitled pursuant hereto, which other party shall then distribute such Insurance Proceeds to the Covered Person to which they are due pursuant hereto. ARTICLE VII LETTERS OF CREDIT AND SURETY BONDS 7.1 Maintenance. (a) Letters of Credit. From and after the Distribution Date, to secure obligations under the Retained Policies relating to periods preceding the Termination Time, Tenneco shall, for such time as may be required by law or the terms of any Retained Policy, maintain in full force and effect the letters of credit identified on SCHEDULE 7.1-A hereto or, as necessary or appropriate, substitute therefor and maintain in full force and effect letters of credit acceptable to the insurance carriers and/or surety under the Retained Policies issued by comparably rated lenders containing substantially identical terms and conditions (collectively, the "LETTERS OF CREDIT"). The parties hereto shall use reasonable commercial efforts to obtain the necessary consents and approvals, and shall thereafter negotiate in good faith an agreement, to allocate the Letters of Credit among the parties hereto such that each party becomes responsible for the maintenance of letters of credit for such time as may be required by law or the terms of any Retained Policy to secure obligations under the Retained Policies relating to periods prior to the Termination Time in respect of coverage afforded thereunder to such party's respective Covered Persons, provided, however, that neither Industrial Company nor Shipbuilding Company shall be required to use such reasonable commercial efforts or negotiate any such agreement if such party determines that the allocation contemplated hereby cannot be accomplished without commercially unreasonable expense. (b) Surety Bonds. The parties hereto acknowledge that Tenneco is obligated to indemnify the sureties under certain performance bonds and other surety instruments that secure obligations of the Energy Business, Energy Group, Industrial Business, Prior Industrial Businesses, Industrial Group, Shipbuilding Business, Prior Shipbuilding Businesses and/or Shipbuilding Group including, but not limited to, the surety instruments identified on SCHEDULE 7.1-B hereto (the "TENNECO-PROVIDED BONDS"). From and after the Termination Time, Tenneco shall maintain such Tenneco-Provided Bonds in place for such time as may be required by law. To the extent possible on commercially reasonable terms, each of Industrial Company and Shipbuilding Company shall use reasonable commercial efforts to obtain a replacement for each Tenneco- Provided Bond that secures obligations of the Industrial Business, Prior Industrial Businesses or Industrial Group (in the case of Industrial Company) or the Shipbuilding Business, Prior Shipbuilding Businesses or Shipbuilding Group (in the case of Shipbuilding Company) and to thereafter arrange for the release of Tenneco from the Tenneco-Provided Bond 13 which has been so replaced. If the surety under any Tenneco-Provided Bond is required to and does in fact perform according to the terms of said Tenneco- Provided Bond and Tenneco is required to and does in fact indemnify such surety in respect thereof, (i) Industrial Company shall reimburse Tenneco for all amounts actually paid by Tenneco to such surety to the extent such amounts constitute Industrial Liabilities, and (ii) Shipbuilding Company shall reimburse Tenneco for all amounts actually paid by Tenneco to such surety to the extent such amounts constitute Shipbuilding Liabilities. 7.2 Reimbursement for Maintenance Fees. Each of Industrial Company and Shipbuilding Company hereby agrees to reimburse Tenneco annually commencing on , 1997 (to be a date as of the end of the thirteenth month following execution hereof) (such date and each anniversary thereof being referred to herein as a "DUE DATE") for the actual and reasonable administrative fees and expenses paid by Tenneco (the "LC MAINTENANCE FEES") in respect of the issuance and maintenance of the Letters of Credit during the twelve-month period ended 30 days prior to such year's Due Date (each, a "YEARLY PERIOD"), to the extent such Letters of Credit secure obligations relating to any Industrial Covered Person or Shipbuilding Covered Person, respectively, under the Retained Policies. The amount of the LC Maintenance Fees for each Yearly Period which shall be the responsibility of Industrial Company and Shipbuilding Company hereunder shall be based on the total outstanding reserves showing on the books and records of CIGNA, as of February 28 during such Yearly Period, for claims by all Industrial Covered Persons, Energy Covered Persons and Shipbuilding Covered Persons under the Retained Policies relating to periods prior to the Termination Time (the "YEARLY TOTAL RESERVES"). Industrial Company shall reimburse Tenneco hereunder for an amount equal to the LC Maintenance Fees for each Yearly Period multiplied by a fraction, (i) the numerator of which is equal to the outstanding reserves showing on the books and records of CIGNA, as of February 28 during such Yearly Period, for claims by all Industrial Covered Persons under the Retained Policies relating to periods prior to the Termination Time, and (ii) the denominator of which is equal to the Yearly Total Reserves for such Yearly Period. Shipbuilding Company shall reimburse Tenneco hereunder for an amount equal to the LC Maintenance Fees for each Yearly Period multiplied by a fraction, (i) the numerator of which is equal to the outstanding reserves showing on the books and records of CIGNA, as of February 28 during such Yearly Period, for claims by all Shipbuilding Covered Persons under the Retained Policies relating to periods prior to the Termination Time, and (ii) the denominator of which is equal to the Yearly Total Reserves for such Yearly Period. ARTICLE VIII MISCELLANEOUS 8.1 Termination. This Agreement may not be terminated except upon the written agreement of each of the parties hereto. 8.2 Further Assurances. If at any time after the Distribution Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall, on the written request of any of them, take (or cause the appropriate member of its Group over which it has direct or indirect legal or effective control to take) all such reasonably necessary or desirable action. If subsequent to the Distribution Date any Policy showing any member of the Energy Group, Industrial Group or Shipbuilding Group, or any of their respective predecessors, as named insured is discovered which was in effect for periods prior to the Termination Time and has not been addressed by the provisions of this Agreement or the Merger Agreement, the parties hereto agree to negotiate in good faith an arrangement with respect to such Policy which shall give, to the fullest extent possible, effect to the purposes of this Agreement and the transactions contemplated by the Distribution Agreement. 8.3 Cooperation. The parties hereto agree to use their reasonable best efforts to cooperate with respect to the various insurance matters contemplated by this Agreement. Each party hereto shall not (and shall not permit any of its respective Covered Persons over which it has legal or effective direct or indirect control to) take any action or permit any inaction that could reasonably be expected to jeopardize or otherwise interfere with the rights of any other party (or any of such other party's respective Covered Persons) hereunder or the ability of 14 any other party (or any of such other party's respective Covered Persons) to collect any proceeds which might be available under any of the Policies addressed herein in accordance with the terms of this Agreement. 8.4 No Representations and Warranties. The parties hereto understand and agree that no representation or warranty as to the existence, applicability or extent of insurance coverage for Energy, Industrial or Shipbuilding under any Policy is herein being made. 8.5 Limitation on Liability. Except as may be otherwise expressly provided for herein, no party hereto shall be liable hereunder to another party or any of such other party's Covered Persons for claims not reimbursed by insurers for any reason not within the control of such party including, without limitation, coinsurance provisions, deductibles, quota share deductibles, exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Policy limitations or restrictions, any coverage disputes, any failure to timely claim or any defect in such claim or its processing. 8.6 Successors and Assigns. Except as otherwise expressly provided herein, no party hereto may assign or delegate, whether by operation of law or otherwise, any of such party's rights or obligations under or in connection with this Agreement without the written consent of each other party hereto. No assignment will, however, release the assignor of any of its obligations under this Agreement or waive or release any right or remedy the other parties may have against such assignor hereunder. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will be binding upon and enforceable against the respective successors and assigns of such party and will be enforceable by and will inure to the benefit of the respective successors and permitted assigns of such party. 8.7 Modification; Waiver; Severability. This Agreement may not be amended or modified except in a writing executed by each of the parties hereto. The failure by any party to exercise or a delay in exercising any right provided for herein shall not be deemed a waiver of any right hereunder. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 8.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement. 8.9 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8.10 Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally or five business days after mailing by certified or registered mail, return receipt requested and postage prepaid, to the recipient at such recipient's address as indicated below: TENNECO INC.: 1010 Milam Street Houston, TX 77002 Attention: Corporate Secretary INDUSTRIAL COMPANY: 1275 King Street Greenwich, CT 06831 Attention: Corporate Secretary SHIPBUILDING COMPANY: 4101 Washington Avenue Newport News, VA 23607 Attention: Corporate Secretary or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. 15 8.11 Survival. Each of the agreements of the parties herein shall survive the Distribution Date. 8.12 No Third Party Beneficiaries. This Agreement is made solely for the benefit of the parties hereto and their respective Covered Persons, and shall not give rise to any rights of any kind to any other third parties. 8.13 Other. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. This Agreement, together with the Distribution Agreement and other Ancillary Agreements (as such term is defined in the Distribution Agreement), constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. 8.14 Sole Agent. In all matters relating to this Agreement, including the resolution of any disputes relating to this Agreement between any members of different Groups, (i) Tenneco shall be the sole agent for the members of the Energy Group, (ii) Industrial Company shall be the sole agent for the members of the Industrial Group, and (iii) Shipbuilding Company shall be the sole agent for members of the Shipbuilding Group. No member of any Group shall have any authority to represent itself in any such matter or to terminate such agency without the prior written consent of each party hereto. 8.15 No Double Recovery. No provision of this Agreement shall be construed to provide recovery to any Person for any costs, expenses or other amounts for which such Person has been fully compensated under any other provision of this Agreement, any other agreement or otherwise. IN WITNESS WHEREOF, the parties have made and entered into this Insurance Agreement as of the date first set forth above. TENNECO INC. By:__________________________________ Name:________________________________ Title:_______________________________ NEW TENNECO INC. By:__________________________________ Name:________________________________ Title:_______________________________ NEWPORT NEWS SHIPBUILDING INC. By:__________________________________ Name:________________________________ Title:_______________________________ 16 SCHEDULE A TO INSURANCE AGREEMENT CURRENT CLAIMS-MADE POLICIES See attached (to be updated and made current as of the signing of the Insurance Agreement). 17 SCHEDULE B TO INSURANCE AGREEMENT CURRENT OCCURRENCE-BASED POLICIES See attached (to be updated and made current as of the signing of the Insurance Agreement). To the extent a policy listed herein has expired, this schedule shall be deemed to refer to the successor policy thereto. 18 SCHEDULE C TO INSURANCE AGREEMENT EASTERN POLICIES (to be updated and made current as of the signing of the Insurance Agreement) Eastern Insurance Company Limited Policy Number 95ED2501 Eastern Insurance Company Limited Contingent Liability Policies (policy numbers not currently available) 19 SCHEDULE D TO INSURANCE AGREEMENT CURRENT RETAINED POLICIES See attached (to be updated and made current as of the signing of the Insurance Agreement). 20 SCHEDULE E TO INSURANCE AGREEMENT CURRENT TENNECO EXCLUSIVE POLICIES See attached (to be updated and made current as of the signing of the Insurance Agreement). To the extent a policy noted herein has expired, this schedule shall be deemed to refer to the successor policy thereto. 21 SCHEDULE 2.1-A TO INSURANCE AGREEMENT TRANSFERRED OCCURRENCE-BASED POLICIES To be determined by Tenneco prior to execution of Insurance Agreement. 22 SCHEDULE 2.1-B TO INSURANCE AGREEMENT CANCELLED OCCURRENCE-BASED POLICIES To be determined by Tenneco prior to execution of Insurance Agreement. 23 SCHEDULE 2.2-A TO INSURANCE AGREEMENT TRANSFERRED CLAIMS-MADE POLICIES To be determined by Tenneco prior to execution of Insurance Agreement. 24 SCHEDULE 2.2-B TO INSURANCE AGREEMENT CANCELLED CLAIMS-MADE POLICIES To be determined by Tenneco prior to execution of Insurance Agreement. 25 SCHEDULE 7.1-A TO INSURANCE AGREEMENT LETTERS OF CREDIT CURRENTLY IN PLACE Tenneco Inc. is presently maintaining letters of credit totalling approximately $45 million to secure its obligations under the Retained Policies. The letters of credit in effect as of the Distribution Date will be listed hereon. 26 SCHEDULE 7.1-B TO INSURANCE AGREEMENT SURETY BONDS CURRENTLY IN PLACE Tenneco Inc. is presently obligated to indemnify the surety under various performance bonds and other surety instruments which secure obligations relating to Energy, Industrial and/or Shipbuilding. Bidder has been provided a current list thereof. Such surety bonds in effect as of the Distribution Date will be listed hereon. 27 SCHEDULE A
TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES ---------------- ----------------- ------------ -------------------- ------------ ----------- Excess Liability XLUMB 00912 9/1/95-96 XL Insurance Company $100,000,000 xs Bermuda $100,000,000 Excess Liability UO5138609 9/1/95-96 OCIL Excess Liability TGT 5035/4 9/1/95-96 ACE Insurance $200,000,000 xs Company--Bermuda $300,000,000 Fiduciary Liability NIA 0120995-96 3/1/96-97 Reliance $50,000,000 $500,000 71FF 101007525BCM Aetna 8141-48-49-A Federal ERISA Bond (Crime) 445-71-61 9/1/95-96 National Union Fire $15,000,000 NIL (AIG)
28 SCHEDULE B
POLICY TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITERS LIMITS DEDUCTIBLES ---------------- ------------ ------------ ------------------------ ---------------------- ----------------- Excess Liability DL039795 9/1/95-96 Gerling-Konzern $10,000,000 xs $10,000,000 Excess Liability BE8180249RA 9/1/95-96 American International $25,000,000 xs (AIG) $20,000,000 Excess Liability 95ER2501 9/1/95-96 Eastern Insurance Co. $10,000,000 p/o (Front for AME Re) $55,000,000 xs $45,000,000 Excess Liability 8784725 9/1/95-96 Lexington $5,000,000 p/o $55,000,000 xs $45,000,000 Excess Liability CSR2839501 9/1/95-96 Fireman's Fund $20,000,000 p/o $55,000,000 xs $45,000,000 Excess Liability EU 08355330 9/1/95-96 Steadfast Zurich $20,000,000 p/o $55,000,000 xs $45,000,000 Automobile--Mexico HLN 00261 1/1/96-97 Serguros Commercial BI:$30,000/$60,000 America PD:$30,000 Aviation Hull & 87BVH-153922 7/1/94-97 Associated Aviation $100,000,000 Liability Underwriters Per Occurrence Ocean Cargo EIPH1006 7/1/94-96 ESIS International, Inc. $10,000,000 $10,000,000 One Conveyance Per Occurrence All Risk Property 213601-95 6/1/95-96 Protection Mutual $10,318,608,000 $5,000,000 Damage/Business Blanket Per Occurrence Per Occurrence Interruption (USA/Canada) All Risk Property TBD 6/1/95-96 Royal Insurance $1,771,781,531 $75,000 PD Damage/Business Blanket Per $150,000 BI Interruption Occurrence Per Occurrence (International) Comprehensive Boiler & BMI-SA- 11/1/95-96 Hartford Steam Boiler $100,000,000 $5,000,000 Machinery Property 9138264-20 Per Accident Any One Accident Damage/ Business Interruption Foreign Public & 62/99102/D 9/1/95-96 Gerling-Konzern $2,000,000 $5,000 Per Claim Products Liability Per Occurrence $50,000 Pollution Insurance (Primary Cover) Umbrella Excess W51010 9/1/95-96 Winterthur $8,000,000 Liability (Front for Eastern Any One Occurrence Insurance Company) xs $2,000,000
29 SCHEDULE D
POLICY TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES ---------------- ------------ ------------ --------------- ------------------ ----------- Workers' Compensation CCSC6162624 9/1/95-96 CIGNA $2,000,000 $2,000,000 Texas--Ded Workers' Compensation WLRC36163008 9/1/95-96 CIGNA $2,000,000 $2,000,000 NE--Ded Workers' Compensation WLRC36162600 9/1/95-96 CIGNA $2,000,000 $2,000,000 Other States--Ded Workers' Compensation CCSC36162624 9/1/95-96 CIGNA $2,000,000 $2,000,000 Retro Workers' Compensation 1810017884 9/1/95-96 Maine Employers $100,000/$500,000/ $5,000 Maine Mutual $100,000 General Liability HDOG13214001 9/1/95-96 CIGNA $2,000,000 $2,000,000 Automobile Liability ISA042952 9/1/95-96 CIGNA $2,000,000 $2,000,000 Environmental HDCG13214013 9/1/95-96 CIGNA $1,000,000 $1,000,000 Automobile--Canada CAC391021 9/1/95-96 CIGNA $2,000,000 $2,000,000 General Liability-- CGL23835 9/1/95-96 CIGNA $2,000,000 $2,000,000 Canada
30 SCHEDULE E
POLICY TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES ---------------- ----------- --------------- ----------------------- ----------------- ------------------ Tenneco Gas Production JHB 503266 6/19/95-96 Sphere Drake $1,000,000 $5,000 Land General Liability $10,000 Offshore Tenneco Gas Production JHB 000297 6/19/95-96 Commercial Underwriters $5,000,000 xs Excess Liability Ins. Co. $1,000,000 Tenneco Gas South 62/900194/D 7/24/95-1/24/97 Gerling Konzern $2,000,000 $10,000 Australia Construction Risk Liability Tenneco Gas Australia CXC 042840 7/24/95-1/24/97 CIGNA $8,000,000 xs Construction Risk $2,000,000 Liability Railroad Protective HDOG 8/1/95-96 CIGNA $2,000,000/ $2,000,000/ Bessemer & Lake Erie RR 13214025 $6,000,000 $6,000,000 Co. Railroad Protective ORPG 8/1/95-96 CIGNA $2,000,000/ $2,000,000/ Boston & Marine Corp. 13214037 $6,000,000 $6,000,000 Railroad Protective ORP 4/8/96-97 CIGNA $2,000,000/ $2,000,000/ National RR Passenger G18967923 $6,000,000 $6,000,000 Corp. (AMTRAK) Railroad Protective ORP 4/8/96-97 CIGNA $2,000,000/ $2,000,000/ Massachusetts Bay G18967881 $6,000,000 $6,000,000 Transp. Michigan Production BE 9320742 4/26/96-97 National Union $10,000,000 $500,000 Company Fire Ins. Co. (AIG) Owners & Contractors OCPG 10/10/95-96 CIGNA $500,000/ $500,000/ Protective Liability 14231298 $500,000 $500,000 Offshore Property/OEE MMA 95-126 7/27/95-96 SEC. IA SEC. IA SEC. IA Package UNI 25.0% -- Per Schedule -- $5,000,000 SEC. 1A & B--OFFSHORE Gjensidige 15.0% Assured's Int. AOO PROP. Vesta 15.0% SEC. IB SEC. II--OEE Protector 10.5% -- Per Schedule SEC. IB SEC. III--CHARTERER'S Commonwealth 3.0% -- $1,000,000 LIAB. Hull & Co. 5.0% SEC. II (100%) C.T. Bowring 26.5% OEE $50,000,000 AOO OCSLA $35,000,000 SEC. IB, II, & III CCC $5,000,000 SEC. II Gjensidige 17.5% -- $200,000 Vesta 15.0% SEC. III (100%) AOO Protector 16.0% -- $1,000,000 Commonwealth 20.0% OCSLA $200,000 Hull & Co. 5.0% (100%) Per Occ. C.T. Bowring 26.5% CCC $200,000 (100%) Per Occ. SEC. III -- $50,000 (100%) AOO Construction All Risk HG 015595 10/5/95-10/1/96 National Vulcan Aus. $209,032,000 Aus. $30,000 Cornhill Ins. All Perils SR International except: Royal Insurance Global Aus. $250,000 Generali Windstorm, Flood, SCOR and Earth Movement
31
POLICY TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES ---------------- ------------ ------------ ------------------------------------- ------------------ -------------------- Worker's Employer No. TBD TBD Compensation E 1344308 South Australia Employer Cost CPA 000134 7/31/95-96 CIGNA Maximum Weekly Control Benefit: $500 Insurance Professional 9517VK18625 7/28/95-96 HIH Casualty & General Insurance Ltd. TBD A $20,000 Indemnity each and every claim Motor Vehicle MV 452743 7/31/95-96 CIC Insurance Own Damage: $24,000 T/P Claim: $1,000 Each and Every Claim Personal Accident 5 011 9265 9/1/95-96 CIGNA PERSONAL ACCIDENT: Insurance GBP 2,500,000 Any One Claim or Series of Claims Arising Out of Single Incident GBP 900,000 Per Person Any One Claim MEDICAL EXPENSES: GBP 75,000 Per Event and Per Person Increased to GBP 500,000 Per Event and Per Person for Claims Arising in USA/Canada RESCUE Unlimited
32 EX-10.4 13 FORM OF TAX SHARING AGREEMENT EXHIBIT 10.4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT K TO DISTRIBUTION AGREEMENT TAX SHARING AGREEMENT AMONG TENNECO INC., NEW TENNECO INC., NEWPORT NEWS SHIPBUILDING INC., AND EL PASO NATURAL GAS COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- Section 1. Definition of Terms......................................... 1 Section 2. Allocation of Tax Liabilities............................... 6 Section 3. Proration of Taxes for Straddle Periods..................... 10 Section 4. Preparation and Filing of Tax Returns....................... 10 Section 5. Tax Payments and Intercompany Billings...................... 13 Section 6. Tax Benefits................................................ 16 Section 7. Assistance and Cooperation.................................. 17 Section 8. Tax Records................................................. 17 Section 9. Tax Contests................................................ 18 Effective Date; Termination of Prior Intercompany Tax Section 10. Allocation Agreements....................................... 19 Section 11. No Inconsistent Actions..................................... 19 Section 12. Survival of Obligations..................................... 19 Section 13. Employee Matters............................................ 20 Section 14. Treatment of Payments; Tax Gross Up......................... 20 Section 15. Disagreements............................................... 20 Section 16. Late Payments............................................... 20 Section 17. Expenses.................................................... 21 Section 18. Special Rules for Determining Members of Groups............. 21 Section 19. General Provisions.......................................... 21
TAX SHARING AGREEMENT This Agreement is entered into as of October 31, 1996 by and between Tenneco Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation ("Shipbuilding Company"), New Tenneco Inc., a Delaware corporation ("Industrial Company"), and El Paso Natural Gas Company, a Delaware corporation ("Acquiror"). Tenneco, Shipbuilding Company, and Industrial Company are sometimes collectively referred to herein as the "Companies." Capitalized terms used in this Agreement are defined in Section 1 below. Unless otherwise indicated, all "Section" references in this Agreement are to sections of this Agreement. RECITALS WHEREAS, as of the date hereof, Tenneco is the common parent of an affiliated group of corporations, including Shipbuilding Company and Industrial Company, which has elected to file consolidated Federal income tax returns; and WHEREAS, the Companies have entered into a Distribution Agreement setting forth the corporate transactions pursuant to which Tenneco will distribute all of the outstanding shares of common stock of Shipbuilding Company and all of the outstanding shares of common stock of Industrial Company to Tenneco shareholders in transactions intended to qualify as tax-free distributions under Section 355 of the Code (as defined below); and WHEREAS, as a result of the Distributions, Shipbuilding Company and Industrial Company, and their respective subsidiaries, will cease to be members of the affiliated group of which Tenneco is the common parent, effective as of the Distribution Date; and WHEREAS, the Companies desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the transactions contemplated by the Distribution Agreement, and to provide for and agree upon other matters relating to Taxes; NOW THEREFORE, in consideration of the mutual agreements contained herein, the Companies hereby agree as follows: Section 1. Definition of Terms. For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings: "ACCOUNTING CUTOFF DATE" means, with respect to each of Shipbuilding Company and Industrial Company, any date as of the end of which there is a closing of the financial accounting records for such entity. "ACCOUNTING FIRM" shall have the meaning provided in Section 15. "ACQUIROR" means El Paso Natural Gas Company, a Delaware corporation, and any successor. "ADJUSTMENT REQUEST" means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) any amended Tax return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, or (b) any claim for refund or credit of Taxes previously paid. "AFFILIATE" means any entity that directly or indirectly is "controlled" by the person or entity in question. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise. Except as otherwise provided herein, the term Affiliate shall refer to Affiliates of a person as determined immediately after the Distributions. "AGREEMENT" shall mean this Tax Sharing Agreement. 1 "ALLOCATED FEDERAL TAX LIABILITY" shall have the meaning provided in Section 5.01(b)(i). "BASE AMOUNT ADJUSTMENT ITEMS" means any Tax Items arising from the amounts described in clause (i) of the definition of Base Amount in the Debt and Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement (relating to gas supply realignment costs and recoveries of such costs) or in clause (iii) of such definition of Base Amount (relating to payments made in settlement of any significant Energy Liability (as defined in the Merger Agreement)), and any Tax Items related to such amounts (such as income accrued with respect to payments to be received after the Distribution Date from customers, insurers, or other third parties with respect to gas supply realignment costs or settlements of Energy Liabilities). "CARRYBACK" means any net operating loss, net capital loss, excess tax credit, or other similar Tax item which may or must be carried from one Tax Period to another Tax Period under the Code or other applicable Tax Law. "CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any successor law. "COMPANIES" means Tenneco, Shipbuilding Company, and Industrial Company, collectively, and "COMPANY" means any one of Tenneco, Shipbuilding Company, or Industrial Company. "CONSOLIDATED OR COMBINED INCOME TAX" means any Income Tax computed by reference to the assets and activities of members of more than one Group. "CONSOLIDATED OR COMBINED STATE INCOME TAX" means any State Income Tax computed by reference to the assets and activities of members of more than one Group. "CONSOLIDATED TAX LIABILITY" means, with respect to any Tenneco Federal Consolidated Return, the "tax liability of the group" as that term is used in Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest, additions to the tax, additional amounts, and penalties as provided in the Code), adjusted as follows: (i) such tax liability shall be treated as including any alternative minimum tax liability under Code Section 55; (ii) in the case of the Tax Period which includes the Distribution Date, the Consolidated Tax Liability shall be computed as if the Distribution Date were the last day of the Tax Period; and (iii) Base Amount Adjustment Items and Debt Discharge Items shall be disregarded. "CUMULATIVE FEDERAL TAX PAYMENT" shall have the meaning provided in Section 5.01(b)(ii). "DEBT DISCHARGE ITEMS" means any Tax Items arising from the Debt Realignment (as defined in the Merger Agreement). "DISTRIBUTION AGREEMENT" means the agreement, as amended from time to time, setting forth the corporate transactions required to effect the distribution to Tenneco shareholders of Shipbuilding Common Shares and Industrial Common Shares, and to which this Tax Sharing Agreement is attached as an exhibit. "DISTRIBUTION DATE" means the Distribution Date as that term is defined in the Distribution Agreement. "DISTRIBUTIONS" means the distributions to Tenneco shareholders on the Distribution Date of all of the outstanding stock of Industrial Company and Shipbuilding Company owned by Tenneco. "EFFECTIVE TIME" shall have the meaning provided in the Merger Agreement. "ENERGY INVESTMENTS GROUP" means the corporations, or divisions of corporations, identified on Schedule 3. "FEDERAL ALLOCATION METHOD" shall have the meaning provided in Section 2.02(a). 2 "FEDERAL INCOME TAX" means any Tax imposed by Subtitle A or F of the Code. "FEDERAL TAX ADJUSTMENT" shall have the meaning provided in Section 2.02(b). "FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulation Section 1.901-2. "GROUP" means the Tenneco Group, the Shipbuilding Group, and the Industrial Group, as the context requires. "GSR ITEMS" means, for any Tax Period: (a) the deductions or losses allowable in such Tax Period attributable to (i) the payment of gas supply realignment costs as described in clause (i) of the definition of Base Amount in the Debt and Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement, or (ii) the payment in any Post-Distribution Tax Period of gas supply realignment costs incurred pursuant to contracts entered into on or prior to the Distribution Date; and (b) any taxable income or gain recognized in such Tax Period attributable to the recovery of such costs from customers, insurers, or third parties or attributable to any reduction in any previously deducted payments. "INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign Income Tax. "INDUSTRIAL ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent Industrial Company would be exclusively liable for any resulting Tax under this Agreement and exclusively entitled to receive any resulting Tax Benefit under this Agreement. For purposes of this Agreement, any proposed adjustment relating to Tenneco Business Services Inc. (or the predecessor shared services project of Tenneco) shall be an Industrial Adjustment, and Industrial Company shall be liable for any Taxes (and shall be entitled to receive any Tax Benefit) arising from such adjustments. "INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation, and any successor. "INDUSTRIAL GROUP" means Industrial Company and its Affiliates as determined immediately after the Distributions, modified as provided in Section 18. "INDUSTRIAL GROUP PRIOR FEDERAL TAX LIABILITY" shall have the meaning provided in Section 2.02(b)(ii). "INDUSTRIAL GROUP PRIOR STATE TAX LIABILITY" shall have the meaning provided in Section 2.03(b)(ii)(B). "INDUSTRIAL GROUP RECOMPUTED FEDERAL TAX LIABILITY" shall have the meaning provided in Section 2.02(b)(i). "INDUSTRIAL GROUP RECOMPUTED STATE TAX LIABILITY" shall have the meaning provided in Section 2.03(b)(ii)(A). "JOINT ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest which is neither an Industrial Adjustment, a Shipbuilding Adjustment, nor a Tenneco Adjustment. "MERGER" means the merger of El Paso Merger Company with and into Tenneco as described in the Merger Agreement. "MERGER AGREEMENT" means the Agreement and Plan of Merger among Tenneco, Acquiror, and El Paso Merger Company dated as of June 19, 1996, as amended from time to time. "PAYMENT DATE" means (i) with respect to any Tenneco Federal Consolidated Return, the due date for any required installment of estimated taxes determined under Code Section 6655, the due date (determined without regard to extensions) for filing the return determined under Code Section 6072, and the date the return is filed, 3 and (ii) with respect to any Tax Return for any Consolidated or Combined State Income Tax, the corresponding dates determined under the applicable Tax Law. "POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Distribution Date. "PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Distribution Date. "PRIME RATE" means the base rate on corporate loans charged by Citibank, N.A., New York, New York from time to time, compounded daily on the basis of a year of 365 or 366 (as applicable) days and actual days elapsed. "PRIOR INTERCOMPANY TAX ALLOCATION AGREEMENTS" means any written or oral agreement or any other arrangements relating to allocation of Taxes existing between or among the Tenneco Group, the Shipbuilding Group, and the Industrial Group as of the Distribution Date (other than this Agreement and other than any such agreement or arrangement between or among persons who are members of a single Group). The following agreements, including any amendments thereto, shall not be considered a Prior Intercompany Tax Allocation Agreement: (i) the agreement by and between Tenneco and Case Equipment Corporation (now known as Case Corporation) dated June 23, 1994; (ii) the agreement by and among Tenneco, Tenneco United Kingdom Holdings Limited, and Albright and Wilson plc dated February 16, 1995; and (iii) the agreement by and between Tennessee Gas Pipeline Company, Tenneco Gas Marketing Company, and IGC Energy, Inc. dated November 1, 1995. "PROHIBITED ACTION" shall have the meaning provided in Section 11. "RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement. "RESTRUCTURING TAX" means the Taxes described in Sections 2.06(a)(ii) or 2.06(a)(iii) (relating to Tax resulting from any income or gain recognized as a result of the Transactions). "RULING REQUEST" means the letter filed by Tenneco with the Internal Revenue Service requesting a ruling from the Internal Revenue Service regarding certain tax consequences of the Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendment or supplement to such ruling request letter. "SEPARATE COMPANY TAX" means any Tax computed by reference to the assets and activities of a member or members of a single Group. "SHIPBUILDING ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent Shipbuilding Company would be exclusively liable for any resulting Tax under this Agreement and exclusively entitled to receive any resulting Tax Benefit under this Agreement. "SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation, and any successor. "SHIPBUILDING GROUP" means Shipbuilding Company and its Affiliates as determined immediately after the Distributions, modified as provided in Section 18. "STRADDLE PERIOD" means any Tax Period that begins on or before and ends after the Distribution Date. 4 "STATE INCOME TAX" means any Tax imposed by any State of the United States or by any political subdivision of any such State which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income. "TAX" or "TAXES" means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing. "TAX AUTHORITY" means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision. "TAX BENEFIT" means any refund, credit, or other reduction in otherwise required Tax payments (including any reduction in estimated tax payments). "TAX CONTEST" means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes of any of the Companies or their Affiliates (including any administrative or judicial review of any claim for refund) for any Tax Period ending on or before the Distribution Date or any Straddle Period. "TAX CONTEST COMMITTEE" shall have the meaning provided in Section 9.02(b). "TAX ITEM" means, with respect to any Income Tax, any item of income, gain, loss, deduction, and credit. "TAX LAW" means the law of any governmental entity or political subdivision thereof relating to any Tax. "TAX OPINION" means the opinion letter to be issued by Tenneco's tax counsel as required by the Merger Agreement, a form of which is attached as Exhibit K of the Merger Agreement. "TAX PERIOD" means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law. "TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests, and any other books of account or records required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority. "TAX RETURN" means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Code or other Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing. "TENNECO" means Tenneco Inc., a Delaware corporation, and any successor. "TENNECO ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent Tenneco would be exclusively liable for any resulting Tax under this Agreement and exclusively entitled to receive any resulting Tax Benefit under this Agreement. "TENNECO FEDERAL CONSOLIDATED RETURN" means any United States federal Tax Return for the affiliated group (as that term is defined in Code Section 1504) that includes Tenneco as the common parent and includes any member of the Shipbuilding Group or the Industrial Group. "TENNECO GROUP" means Tenneco and its Affiliates, excluding any entity that is a member of the Industrial Group or the Shipbuilding Group. 5 "TRANSACTIONS" means the transactions contemplated by the Distribution Agreement (including the Corporate Restructuring Steps and Distributions, as defined in such agreement) and by the Merger Agreement (including the Debt Realignment, as defined in such agreement). "TREASURY REGULATIONS" means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period. Section 2. Allocation of Tax Liabilities. The provisions of this Section 2 are intended to determine each Company's liability for Taxes with respect to Pre-Distribution Periods. Once the liability has been determined under this Section 2, Section 5 determines the time when payment of the liability is to be made, and whether the payment is to be made to the Tax Authority directly or to another Company. 2.01 General Rule (a) Tenneco Liability. Tenneco shall be liable for all Taxes not specifically allocated to either Industrial Company or Shipbuilding Company under this Section 2. Tenneco shall indemnify and hold harmless the Industrial Group and the Shipbuilding Group from and against any liability for Taxes which Tenneco is liable for under this Section 2.01(a). (b) Industrial Company Liability. Industrial Company shall be liable for, and shall indemnify and hold harmless the Tenneco Group and the Shipbuilding Group from and against any liability for, Taxes which are allocated to Industrial Company under this Section 2. (c) Shipbuilding Company Liability. Shipbuilding Company shall be liable for, and shall indemnify and hold harmless the Tenneco Group and the Industrial Group from and against any liability for, Taxes which are allocated to Shipbuilding Company under this Section 2. 2.02 Allocation of United States Federal Income Tax. Except as provided in Sections 2.06, 6.02, and 6.03: (a) Allocation of Tax Relating to Tenneco Federal Consolidated Returns Filed After the Distribution Date. With respect to any Tenneco Federal Consolidated Return filed after the Distribution Date, the Consolidated Tax Liability shall be allocated among the Groups in accordance with the method prescribed in Treasury Regulation Section 1.1552-1(a)(1) (as in effect on the date hereof) determined by treating each Group as a single member of the consolidated group and by disregarding Base Amount Adjustment Items and Debt Discharge Items in computing each Group's taxable income (the "Federal Allocation Method"). For purposes of such allocation, the excess, if any, of (i) Consolidated Tax Liability over (ii) Consolidated Tax Liability determined without regard to any alternative minimum tax liability under Code Section 55, shall be allocated among the Groups in accordance with their respective amounts of alternative minimum taxable income, and any corresponding alternative minimum tax credit shall be allocated in accordance with the allocation of such alternative minimum tax liability. Any amount so allocated to the Industrial Group shall be a liability of Industrial Company to Tenneco under this Section 2, and any amount so allocated to the Shipbuilding Group shall be a liability of Shipbuilding Company to Tenneco under this Section 2. Amounts described in Code Section 1561 (relating to limitations on certain multiple benefits) shall be divided equally among the Tenneco Group, the Industrial Group, and the Shipbuilding Group to the extent permitted by the Code. (b) Allocation of Tenneco Federal Consolidated Return Tax Adjustments. If there is any adjustment to the reported Tax liability with respect to any Tenneco Federal Consolidated Return, or to such Tax liability as previously adjusted, Industrial Company shall be liable to Tenneco for the excess (if any) of-- (i) the Consolidated Tax Liability of the Industrial Group computed as if all members of the Industrial Group included in the Tax Return had filed a consolidated Tax Return for such members based on the Tax Items of such members as so adjusted (the "Industrial Group Recomputed Federal Tax Liability"); over (ii) the Consolidated Tax Liability of the Industrial Group computed as if such members of the Industrial Group had filed a consolidated Tax Return for such members based on the Tax Items of such 6 members as reported (or, if applicable, as previously adjusted) (the "Industrial Group Prior Federal Tax Liability"). If the Industrial Group Prior Federal Tax Liability exceeds the Industrial Group Recomputed Federal Tax Liability, Tenneco shall be liable to Industrial Company for such excess. The Shipbuilding Group liability shall be recomputed in a like manner, and Shipbuilding Company shall be liable to Tenneco for any excess of the Shipbuilding Group Recomputed Federal Tax Liability over the Shipbuilding Group Prior Federal Tax Liability, and Tenneco shall be liable to Shipbuilding Company for any excess of the Shipbuilding Group Prior Federal Tax Liability over the Shipbuilding Group Recomputed Federal Tax Liability. For purposes of this Section 2.02(b), if the Industrial Group or the Shipbuilding Group has a net operating loss after taking into account the adjustments allocable to such group, the Recomputed Federal Tax Liability of the group shall be less than zero to the extent such net operating loss produces a Tax Benefit in consolidation for the applicable taxable year. (c) Special Allocation With Respect to Energy Investments Group. If the net operating loss of the Energy Investments Group as reported on the Tenneco Federal Consolidated Tax Return for the taxable year ended December 31, 1996 (but computed as if the Distribution Date were the last day of the Tax Period) is less than $185,000,000, Industrial Company shall be liable to Tenneco for an amount equal to 35% of the difference between $185,000,000 and the Energy Investments Group net operating loss or net taxable income. If such net operating loss of the Energy Investments Group is greater than $213,000,000, Tenneco shall be liable to Industrial Company for an amount equal to 35% of the difference between $213,000,000 and the amount of the Energy Investments Group net operating loss. If there is any subsequent adjustment to the Energy Investment Group's net operating loss or taxable income, the amount payable by or to Industrial Company under this Section 2.02(c) shall be adjusted accordingly based on the net operating loss or taxable income as adjusted. 2.03 Allocation of State Income Taxes. Except as provided in Sections 2.04, 2.05, 2.06, 6.02, and 6.03, State Income Taxes shall be allocated as follows: (a) Separate Company Taxes. In the case of any State Income Tax which is a Separate Company Tax, Industrial Company shall be liable for such Tax imposed on any members of the Industrial Group, and Shipbuilding Company shall be liable for such Tax imposed on any members of the Shipbuilding Group. (b) Consolidated or Combined State Income Taxes. In the case of any Consolidated or Combined State Income Tax, the liability of Industrial Company and Shipbuilding Company with respect to such Tax for any Tax Period shall be computed as follows: (i) Allocation of Tax Reported on Tax Returns Filed After the Distribution Date. In the case of any Consolidated or Combined State Income Tax reported on any Tax Return filed after the Distribution Date (excluding any amended return), Industrial Company shall be liable to Tenneco for the State Income Tax liability computed as if all members of the Industrial Group included in the computation of such Tax had filed a consolidated or combined Tax Return for such Industrial Group members based on the income, apportionment factors, and other items of such members, and Shipbuilding Company shall be liable to Tenneco for the State Income Tax liability computed as if all members of the Shipbuilding Group included in the computation of such Tax had filed a consolidated or combined Tax Return for such Shipbuilding Group members based on the income, apportionment factors, and other items of such members. (ii) Allocation of Combined or Consolidated State Income Tax Adjustments. If there is any adjustment to the amount of Consolidated or Combined State Income Tax reported on any Tax Return (or as previously adjusted), the liability of the Industrial Group and the Shipbuilding Group shall be recomputed as provided in this subparagraph. Industrial Company shall be liable to Tenneco for the excess (if any) of-- (A) the State Income Tax liability computed as if all members of the Industrial Group included in the Tax Return had filed a consolidated or combined Tax Return for such members 7 based on the income, apportionment factors, and other items of such members as so adjusted (the "Industrial Group Recomputed State Tax Liability"); over (B) the State Income Tax liability computed as if such members of the Industrial Group had filed a consolidated or combined Tax Return for such members based on the income, apportionment factors, and other items of such members as reported (or, if applicable, as previously adjusted) (the "Industrial Group Prior State Tax Liability"). If the Industrial Group Prior State Tax Liability exceeds the Industrial Group Recomputed State Tax Liability, Tenneco shall be liable to Industrial Company for such excess. The Shipbuilding Group liability shall be recomputed in a like manner, and Shipbuilding Company shall be liable to Tenneco for any excess of the Shipbuilding Group Recomputed State Tax Liability over the Shipbuilding Group Prior State Tax Liability, and Tenneco shall be liable to Shipbuilding Company for any excess of the Shipbuilding Group Prior State Tax Liability over the Shipbuilding Group Recomputed State Tax Liability. For purposes of this paragraph, the determination and payment of estimated Taxes (including the determination and payment of any Tax required to be paid with a request for an extension of time to file a Tax Return) shall not be treated as an adjustment to the related Consolidated or Combined State Income Tax. 2.04 Allocation of State Income Tax Effects of Federal Audit Adjustments. Tenneco shall be liable for any State Income Taxes resulting from the adjustments to Tenneco Federal Consolidated Returns for Tax Periods ending on or before December 31, 1989. In accordance with Section 6, any Tax Benefit realized by the Shipbuilding Group or by the Industrial Group as a result of Tenneco's payment of such State Income Taxes shall be for the account of Tenneco and shall be paid to Tenneco under Section 6. For example, if Tenneco pays a State Income Tax liability of $100x related to adjustments to the Tax Return of a member of the Shipbuilding Group, and if such payment is available as a deduction on the Shipbuilding Group's Tax Return for Federal Income Tax, Shipbuilding Company shall pay to Tenneco the Federal Income Tax benefit attributable to the deduction (i.e., $35x assuming a 35% maximum marginal tax rate under Code Section 11, and assuming the payment is treated as a nondeductible dividend under the Code in accordance with Section 14 of this Agreement). 2.05 Allocation of Other Taxes. Except as provided in Section 2.06, all Taxes other than those specifically allocated pursuant to Sections 2.03 through 2.04 shall be allocated based on the legal entity on which the legal incidence of the Tax is imposed. As between the parties to this Agreement, Industrial Company shall be liable for all Taxes imposed on any member of the Industrial Group (including Taxes imposed on the separate consolidated federal income tax return of Tenneco International Holding Corp.), and Shipbuilding Company shall be liable for all Taxes imposed on any member of the Shipbuilding Group. The Companies believe that there is no Tax not specifically allocated pursuant to Sections 2.03 through 2.04 which is legally imposed on more than one legal entity (e.g., joint and several liability); however, if there is any such Tax, it shall be allocated in accordance with past practices as reasonably determined by the affected Companies, or in the absence of such practices, in accordance with any allocation method agreed upon by the affected Companies. 2.06 Transaction and Other Taxes (a) Tenneco Liability. Except as otherwise provided in Sections 2.06 and 6.02, Tenneco shall be liable for, and shall indemnify and hold harmless Industrial Group and the Shipbuilding Group from and against any liability for, all Taxes resulting from the Transactions (other than Taxes allocated to the Acquiror under the Merger Agreement), including: (i) Any sales and use, gross receipts, or other transfer Taxes imposed on the transfers occurring pursuant to the Transactions; (ii) any Tax resulting from any income or gain recognized under Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any corresponding provisions of other applicable Tax Laws) as a result of the Transactions; and 8 (iii) any Tax resulting from any income or gain recognized as a result of any of the transactions contemplated by the Distribution Agreement failing to qualify for tax-free treatment under Code Sections 332, 351, 355, 361, or other provisions of the Code (as contemplated in the Ruling Request) or other applicable Tax Laws, or as a result of the Merger failing to qualify for tax-free treatment under Code Sections 354 and 361 or other provisions of the Code or other applicable Tax Laws (as contemplated in the Merger Agreement). If any Tax referred to in this Section 2.06(a) is included in the definition of Actual Energy Debt Amount, but cannot be calculated on the Energy Determination Date (as such terms are defined in the Debt and Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement), then Industrial Company shall pay to Tenneco the amount which would have been included in the Actual Energy Debt Amount. Such payments shall be made at the time such amounts are determinable. For the purposes of this Section 2.06(a) and the definition of Actual Energy Debt Amount (as defined in the Debt and Cash Allocation Agreement), the term "transfer Taxes" includes any Illinois franchise tax imposed under Ill. Rev. Stat. ch. 805, (S) 15.65(b) in connection with the transfer by Tenneco Corporation of net intercompany receivables in the approximate amount of $6.9 billion to a subsidiary of Midwestern Gas Transmission Company in connection with the Corporate Restructuring Transactions. (b) Indemnity for Inconsistent Acts. Industrial Company shall be liable for, and shall indemnify and hold harmless the Tenneco Group and the Shipbuilding Group from and against any liability for, any Restructuring Tax (described in subparagraphs (ii) and (iii) above) to the extent arising from any breach of Industrial Company's representations or covenants under Section 11. Shipbuilding Company shall be liable for, and shall indemnify and hold harmless the Tenneco Group and the Industrial Group from and against any liability for, any Restructuring Tax to the extent arising from any breach of Shipbuilding Company's representations or covenants under Section 11. Acquiror shall be liable for, and shall indemnify and hold harmless the Industrial Group and Shipbuilding Group from and against any liability for, any Restructuring Tax to the extent arising from any breach of Acquiror's representations or covenants under Section 11. (c) Indemnity for Representations. Industrial Company shall be liable for, and shall indemnify and hold harmless the Tenneco Group and the Shipbuilding Group from and against any liability for, any Restructuring Tax to the extent arising from the inaccuracy of any factual statements or representations in connection with the Ruling Request or the Tax Opinion, but in each case only to the extent such inaccuracy arises from facts in existence prior to the Effective Time, and excluding any inaccuracy with respect to any statements or representations relating to Acquiror, Shipbuilding Company, or their Affiliates or any plan or intention on the part of Acquiror, Shipbuilding Company, or their Affiliates as to actions to be taken at or subsequent to the Effective Time. Shipbuilding Company shall be liable for, and shall indemnify and hold harmless the Tenneco Group and the Industrial Group from and against any liability for, any Restructuring Tax to the extent arising from the inaccuracy of any factual statements or representations relating to the Shipbuilding Company or its Affiliates in connection with the Ruling Request or the Tax Opinion. Acquiror shall be liable for, and shall indemnify and hold harmless the Industrial Group and the Shipbuilding Group from and against any liability for, any Restructuring Tax to the extent arising from the inaccuracy of any factual statements or representations relating to Acquiror or its Affiliates (other than the Tenneco Group) in connection with the Ruling Request or the Tax Opinion. (d) Change in Law Relating to Deferred Gains. If between the date of the Merger Agreement and the Effective Time there is a change in law and as a result of such change in law Tenneco is required to restore to income as a result of the Merger the deferred gains identified on Schedule 2 to the Debt and Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement, then any resulting Tax shall be allocated equally between Industrial Company and Tenneco. For purposes of this Section 2.06(d), the term "change in law" shall mean any of the following occurring between the date of the Merger Agreement and the Effective Time: (i) an amendment to the Code; (ii) an amendment to the Treasury Regulations (including any issuance of proposed, temporary, or final Treasury Regulations); (iii) a decision of the Tax Court, any Federal District Court, the Court of Federal Claims, the Federal Circuit Court, or the United States Supreme Court; and (iv) any notice, announcement, or other administrative pronouncement published by the Internal 9 Revenue Service in the Internal Revenue Bulletin to the effect that the Treasury Department intends to issue Treasury Regulations after the Effective Time that will be effective with respect to the Transactions. (e) Taxes Relating to Settlement Receipts For Account of Industrial Company. To the extent the economic benefit of any amounts received by the Energy Business prior to the Effective Time from the settlement of pending litigation (as identified on Schedule G2 to Exhibit G of the Merger Agreement) is allocated to Industrial Company under the Debt and Cash Allocation Agreement, any corresponding tax liability with respect to such amounts shall be allocated to Industrial Company. Section 3. Proration of Taxes for Straddle Periods 3.01 General Method of Proration. In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Distribution Periods and Post- Distribution Periods in accordance with the principles of Treasury Regulation Section 1.1502-76(b) as reasonably interpreted and applied by the Companies. No election shall be made under Treasury Regulation Section 1.1502- 76(b)(2)(ii) (relating to ratable allocation of a year's items). If the Distribution Date is not an Accounting Cutoff Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items) for the month which includes the Distribution Date. 3.02 Transaction Treated as Extraordinary Item. In determining the apportionment of Tax Items between Pre-Distribution Periods and Post- Distribution Periods, any Tax Items relating to the Transactions shall be treated as an extraordinary item described in Treasury Regulation Section 1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and any Taxes related to such items shall be treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall be allocated to Pre-Distribution Periods. Section 4. Preparation and Filing of Tax Returns 4.01 General. Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed when due (including extensions) by the person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperate with one another in accordance with Section 7 with respect to the preparation and filing of Tax Returns, including providing information required to be provided in Section 7. As used in this Section 4, the terms "domestic" and "foreign" have the meanings ascribed to such terms in Code Section 7701. 4.02 Industrial Company's Responsibility. Industrial Company has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed: (a) Tenneco Federal Consolidated Returns for Tax Periods ending on or before December 31, 1996. (b) Tax Returns for State Income Taxes (including Tax Returns with respect to State Income Taxes that are Separate Company Taxes) which the Companies reasonably determine, in accordance with Tenneco's past practices, are required to be filed by the Companies or any of their Affiliates for Tax Periods ending on or before December 31, 1996, other than Tax Returns with respect to State Income Taxes that are Separate Company Taxes of the Shipbuilding Group for Tax Periods beginning on or after the Distribution Date. If Acquiror elects or is required to combine the income of any Company or its Affiliates with the income of the Acquiror or any of its Affiliates (other than any Company or its Affiliates) with respect to any Tax Return for State Income Taxes for any Tax Period ending on or before December 31, 1996, Industrial Company shall provide to Acquiror in accordance with a compliance schedule to be agreed to by Industrial Company and Acquiror information and documents reasonably required by Acquiror to prepare and file such Tax Return, and Acquiror shall have the exclusive obligation and right to prepare and file such Tax Return, or to cause such Tax Return to be prepared and filed. (c) Tax Returns that are required to be filed by the members of the Industrial Group (including the federal consolidated Tax Return required to be filed by Tenneco International Holding Corp.). 10 Nothing in this Section 4.02 shall impose on Industrial Company any liability for any failure to file any Tax Return, or for failure to file any Tax Return when due, with respect to any Pre-Distribution Period if the due date for such return (including extensions) was prior to the Distribution Date. 4.03 Shipbuilding Company's Responsibility. Shipbuilding Company has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed, Tax Returns required to be filed by members of the Shipbuilding Group other than those Tax Returns which Industrial Company is required to prepare and file under Section 4.02. 4.04 Tenneco Responsibility. Tenneco shall prepare and file, or shall cause to be prepared and filed, Tax Returns required to be filed by or with respect to members of the Tenneco Group other than those Tax Returns which Industrial Company is required to prepare and file under Section 4.02. The Tax Returns required to be prepared and filed by Tenneco under this Section 4.04 shall include (a) the Tenneco Federal Consolidated Return for Tax Periods ending after December 31, 1996, (b) Tax Returns for Consolidated or Combined State Income Taxes which the Companies reasonably determine, in accordance with Tenneco's past practices, are required to be filed by the Companies or any of their Affiliates for Tax Periods ending after December 31, 1996, and (c) Tax Returns for State Income Taxes for Tax Periods ending on or before December 31, 1996 if Acquiror elects or is required to combine the income of any Company or its Affiliates with the income of the Acquiror or any of its Affiliates (other than any Company or its Affiliates) with respect to such Tax Return. 4.05 Tax Accounting Practices (a) General Rule. Except as otherwise provided in this Section 4.05, any Tax Return for any Pre-Distribution Period or any Straddle Period, and any Tax Return for any Post-Distribution Period to the extent items reported on such Tax Return might reasonably affect items reported on any Tax Return for any Pre-Distribution Period or any Straddle Period, shall be prepared in accordance with past Tax accounting practices used with respect to the Tax Returns in question (unless such past practices are no longer permissible under the Code or other applicable Tax Law), and to the extent any items are not covered by past practices (or in the event such past practices are no longer permissible under the Code or other applicable Tax Law), in accordance with reasonable Tax accounting practices selected by the Responsible Company. The Companies agree to report their portion of the consolidated cumulative overall foreign loss based on the notional account balances determined on a legal entity basis in a manner consistent with past practices. (b) Reporting of Transaction Tax Items Other Than Debt Discharge Items and Base Amount Adjustment Items. The tax treatment reported on any Tax Return of Tax Items relating to the Transactions shall be consistent with the treatment of such item in the IRS Ruling Letter (as defined in the Merger Agreement) and the Tax Opinion (unless such treatment is not permissible under the Code). To the extent there is a Tax Item relating to the Transactions which is not covered by the IRS Ruling Letter or the Tax Opinion, the Companies shall agree on the tax treatment of any such Tax Item reported on any Tax Return. For this purpose, the tax treatment of such Tax Items on a Tax Return by the Responsible Company with respect to such Tax Return shall be agreed to by the other Company unless either (i) there is no reasonable basis for such tax treatment, or (ii) such tax treatment is inconsistent with the tax treatment contemplated in the Ruling Request or in the Tax Opinion. Such Tax Return shall be submitted for review pursuant to Section 4.07(a), and any dispute regarding such proper tax treatment shall be referred for resolution pursuant to Section 15, sufficiently in advance of the filing date of such Tax Return (including extensions) to permit timely filing of the return. (c) Debt Discharge Items. Industrial Company shall determine the tax treatment of any Debt Discharge Item on any Tax Return, subject only to the other Companies' rights of review under Section 4.07. (d) Base Amount Adjustment Items. Tenneco shall determine the tax treatment of any Base Amount Adjustment Item on any Tax Return, subject only to the other Companies' rights of review under Section 4.07. 11 4.06 Consolidated or Combined Returns. The Companies will elect and join, and will cause their respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns, to the extent each entity is eligible to join in such Tax Returns, if the Companies reasonably determine that the filing of such Tax Returns is consistent with past reporting practices, or in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns. 4.07 Right to Review Tax Returns (a) General. The Responsible Company with respect to any Tax Return shall make such Tax Return and related workpapers available for review by the other Companies, if requested, to the extent (i) such Tax Return relates to Taxes for which the requesting party may be liable, (ii) such Tax Return relates to Taxes for which the requesting party may be liable in whole or in part for any additional Taxes owing as a result of adjustments to the amount of Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the requesting party may have a claim for Tax Benefits under this Agreement, or (iv) the requesting party reasonably determines that it must inspect such Tax Return to confirm compliance with the terms of this Agreement. The Responsible Company shall use its reasonable best efforts to make such Tax Return available for review as required under this paragraph sufficiently in advance of the due date for filing such Tax Returns to provide the requesting party with a meaningful opportunity to analyze and comment on such Tax Returns and have such Tax Returns modified before filing, taking into account the person responsible for payment of the tax (if any) reported on such Tax Return and the materiality of the amount of Tax liability with respect to such Tax Return. The Companies shall attempt in good faith to resolve any issues arising out of the review of such Tax Returns. (b) Execution of Returns Prepared by Other Party. In the case of any Tax Return which is required to be prepared and filed by one Company under this Agreement and which is required by law to be signed by another Company (or by its authorized representative), the Company which is legally required to sign such Tax Return shall not be required to sign such Tax Return under this Agreement if there is no reasonable basis for the tax treatment of any material items reported on the Tax Return. 4.08 Claims for Refund, Carrybacks, and Self-Audit Adjustments ("Adjustment Requests") (a) Consent Required for Adjustment Requests Related to Consolidated or Combined Income Taxes. Except as provided in paragraphs (b), (c), and (d) below, each of the Companies hereby agrees that, unless each of the other Companies consents in writing, which consent shall not be unreasonably withheld, (i) no Adjustment Request with respect to any Consolidated or Combined Income Tax for a Pre-Distribution Period shall be filed, and (ii) any available elections to waive the right to claim in any Pre-Distribution Period with respect to any Consolidated or Combined Income Tax any Carryback arising in a Post-Distribution Period shall be made, and no affirmative election shall be made to claim any such Carryback. Any Adjustment Request which the Companies consent to make under this Section 4.08 shall be prepared and filed by the Responsible Company under Section 4.02 for the Tax Return to be adjusted. The Company requesting the Adjustment Request shall provide to the Responsible Company all information required for the preparation and filing of such Adjustment Request in such form and detail as reasonably requested by the Responsible Company. (b) Exception for Adjustment Requests Related to Debt Discharge Items. Industrial Company shall have the right, without the consent of any other party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed under the Code or other Tax Laws) to claim the benefit of any reduction of required estimated Federal Income Tax as a result of Debt Discharge Items, or (ii) IRS Form 1139 (Corporation Application for Tentative Refund) or IRS Form 1120X (Corporation Amended Return) (or any similar Adjustment Request allowed under the Code or other Tax Laws), and to make any elections necessary to file such forms, with respect to any net operating loss Carryback arising in any Tax Period in which there is any reduction of Taxes as a result of Debt Discharge Items if any portion of such Carryback is attributable to such Debt Discharge Items (determined in accordance with the principles of Section 6.04). If Industrial Company is not the Responsible 12 Company with respect to any such return, then the Responsible Company shall file such return upon request of the Industrial Company. (c) Exception for Adjustment Requests Related to Base Amount Adjustment Items. Tenneco shall have the right, without the consent of any other party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed under the Code or other Tax Laws) to claim the benefit of any reduction of required estimated Federal Income Tax as a result of Base Amount Adjustment Items, or (ii) IRS Form 1139 (Corporation Application for Tentative Refund) or IRS Form 1120X (Corporation Amended Return) (or any similar Adjustment Request allowed under the Code or other Tax Laws), and to make any elections necessary to file such forms, with respect to any net operating loss Carryback arising in Tax Period in which there is any reduction of Taxes as a result of Base Amount Adjustment Items if any portion of such Carryback is attributable to Base Amount Adjustment Items (determined in accordance with the principles of Section 6.04). If Tenneco is not the Responsible Company with respect to any such return, then the Responsible Company shall file such return upon request of the Industrial Company. (d) Exception for Adjustment Requests Related to Audit Adjustments. Each of the Companies shall be entitled, without the consent of any other Company, to require Industrial Company to file an Adjustment Request to take into account any net operating loss, net capital loss, deduction, credit, or other adjustment attributable to such Company or any member of its Group corresponding to any adjustment resulting from any audit by the Internal Revenue Service or other Tax Authority with respect to Consolidated or Combined Income Taxes for any Pre-Distribution Tax Period. For example, if the Internal Revenue Service requires a Company to capitalize an item deducted for the taxable year 1993, the Company shall be entitled, without the consent of any other Company, to require Industrial Company to file an Adjustment Request for the taxable year 1994 (and later years) to take into account any depreciation or amortization deductions in such years directly related to the item capitalized in 1993. (e) Other Adjustment Requests Permitted. Nothing in this Section 4.08 shall prevent any Company or its Affiliates from filing any Adjustment Request with respect to Income Taxes which are not Consolidated or Combined Income Taxes or with respect to any Taxes other than Income Taxes. Any refund or credit obtained as a result of any such Adjustment Request (or otherwise) shall be for the account of the person liable for the Tax under this Agreement. (f) Payment of Refunds. Any refunds or other Tax Benefits received by any Company (or any of its Affiliates) as a result of any Adjustment Request which are for the account of another Company (or member of such other Company's Group) shall be paid by the Company receiving (or whose Affiliate received) such refund or Tax Benefit to such other Company in accordance with Section 6. Section 5. Tax Payments and Intercompany Billings 5.01 Payment of Taxes With Respect to Tenneco Federal Consolidated Returns Filed After the Distribution Date. In the case of any Tenneco Federal Consolidated Return the due date for which (including extensions) is after the Distribution Date, (a) Computation and Payment of Tax Due. At least three business days prior to any Payment Date, the Responsible Company shall compute the amount of Tax required to be paid to the Internal Revenue Service (taking into account the requirements of Section 4.05 relating to consistent accounting practices) with respect to such Tax Return on such Payment Date and, if Tenneco is not the Responsible Company with respect to such Tax Return, shall notify Tenneco in writing of the amount of Tax required to be paid on such Payment Date. Tenneco will pay such amount to the Internal Revenue Service on or before such Payment Date. (b) Computation and Payment of Industrial Company Liability With Respect to Tax Due. Within 30 days following any Payment Date, Industrial Company will pay to Tenneco the excess (if any) of-- (i) the Consolidated Tax Liability determined as of such Payment Date with respect to the applicable Tax Period allocable to the members of the Industrial Group as determined by the 13 Responsible Company in a manner consistent with the provisions of Section 2.02(a) (relating to allocation of the Consolidated Tax Liability in accordance with the Federal Allocation Method) (the "Allocated Federal Tax Liability"), over (ii) the cumulative net payments with respect to such Tax Return prior to such Payment Date by the members of the Industrial Group (the "Cumulative Federal Tax Payment"). If the Industrial Group Cumulative Federal Tax Payment is greater than the Industrial Group Allocated Federal Tax Liability as of any Payment Date, then Tenneco shall pay such excess to Industrial Company within 30 days of Tenneco's receipt of the corresponding Tax Benefit (i.e., through either a reduction in Tenneco's otherwise required Tax payment, or a refund of prior tax payments). Any amount due under Section 2.02(c) with respect to the Energy Investments Group net operating loss or taxable income as reported on the Tenneco Federal Consolidated Tax Return for the taxable year ended December 31, 1996 shall be paid within 30 days following the Payment Date which is the date the return is filed, and any subsequent adjustment to the payment due under Section 2.02(c) shall be paid with interest as determined in a manner consistent with the provisions of Section 5.02. (c) Computation and Payment of Shipbuilding Company Liability With Respect to Tax Due. Within the time for any payment under paragraph (b) of this subsection, the Responsible Company shall also notify Tenneco, if necessary, and Shipbuilding Company in writing of the Shipbuilding Group Allocated Federal Tax Liability and the Shipbuilding Group Cumulative Federal Tax Payment (computed in manner consistent with paragraph (b) of this subsection). If the Shipbuilding Group Allocated Federal Tax Liability exceeds the Shipbuilding Group Cumulative Federal Tax Payment, then Shipbuilding Company shall pay such excess to Tenneco within three business days following receipt of such notice. If the Shipbuilding Group Cumulative Federal Tax Payment exceeds the Shipbuilding Group Allocated Federal Tax Liability, then Tenneco shall pay such excess to Shipbuilding Company within 30 days of Tenneco's receipt of the corresponding Tax Benefit (i.e., either a reduction in Tenneco's otherwise required Tax payment, or a refund of estimated tax payments). (d) Deemed Cumulative Federal Tax Payment for First Payment Date After the Distribution Date. For purposes of Sections 5.01(b)(ii) and 5.01(c) with respect to the Tenneco Federal Consolidated Tax Return for the taxable year ended December 31, 1996, the Industrial Group's Cumulative Federal Tax Payment shall be equal to $49,000,000, and the Shipbuilding Group's Cumulative Federal Tax Payment shall be equal to $40,000,000. (e) Interest on Intergroup Tax Allocation Payments. In the case of any payments to Tenneco required under paragraphs (b) or (c) of this subsection 5.01, the payor shall also pay to Tenneco an amount of interest computed at the Prime Rate on the amount of the payment required based on the number of days from the applicable Payment Date to the date of payment. In the case of any payments by Tenneco required under paragraphs (b) or (c) of this subsection 5.01, Tenneco shall also pay to the payee an amount of interest computed at the Prime Rate on the amount of the payment required based on the number of days from the date of receipt of the Tax Benefit to the date of payment of such amount to the payee. 5.02 Payment of Federal Income Tax Related to Adjustments (a) Adjustments Resulting in Underpayments. Tenneco shall pay to the Internal Revenue Service when due any additional Federal Income Tax required to be paid as a result of any adjustment to the Tax liability with respect to any Tenneco Federal Consolidated Return for any Pre-Distribution Period. The Responsible Company shall compute the amount attributable to Industrial Group and the Shipbuilding Group in accordance with Section 2.02(b) and Industrial Company and Shipbuilding Company shall pay to Tenneco any amount due Tenneco under Section 2.02(b) within 30 days from the later of (i) the date the additional Tax was paid by Tenneco or (ii) the date of receipt by Industrial Company or Shipbuilding Company (as applicable) of a written notice and demand from Tenneco for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. Any amount due to Industrial Company or Shipbuilding Company under Section 2.02(b) shall be paid within 30 days from the date the additional Tax was paid by Tenneco to the Internal 14 Revenue Service. Any payments required under this Section 5.02(a) shall include interest computed at the Prime Rate based on the number of days from the date the additional Tax was paid by Tenneco to the date of the payment under this Section 5.02(a). (b) Adjustments Resulting in Overpayments. Within 30 days of receipt by Tenneco of any Tax Benefit resulting from any adjustment to the Consolidated Tax Liability with respect to any Tenneco Federal Consolidated Return for any Pre-Distribution Period, Tenneco shall pay to Industrial Company and Shipbuilding Company, or Industrial Company and Shipbuilding Company shall pay to Tenneco (as the case may be), their respective amounts due from or to Tenneco as determined by the Responsible Company in accordance with Section 2.02(b). Any payments required under this Section 5.02(a) shall include interest computed at the Prime Rate based on the number of days from the date the Tax Benefit was received by Tenneco to the date of payment to Industrial Company or Shipbuilding Company under this Section 5.02(b). 5.03 Payment of State Income Tax With Respect to Returns Filed After the Distribution Date (a) Computation and Payment of Tax Due. At least three business days prior to any Payment Date for any Tax Return with respect to any State Income Tax, the Responsible Company shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 4.05 relating to consistent accounting practices) with respect to such Tax Return on such Payment Date and-- (i) If such Tax Return is with respect to a Consolidated or Combined State Income Tax, the Responsible Company shall, if Tenneco is not the Responsible Company with respect to such Tax Return, notify Tenneco in writing of the amount of Tax required to be paid on such Payment Date. Tenneco will pay such amount to such Tax Authority on or before such Payment Date. (ii) If such Tax Return is with respect to a Separate Company Tax, the Responsible Company shall, if it is not the Company liable for the Tax reported on such Tax Return, notify the Company liable for such Tax in writing of the amount of Tax required to be paid on such Payment Date. The Company liable for such Tax will pay such amount to such Tax Authority on or before such Payment Date. (b) Computation and Payment of Industrial Company Liability and Shipbuilding Company Liability With Respect to Tax Due. Within 120 days following the due date (including extensions) for filing any Tax Return for any Consolidated or Combined State Income Tax (excluding any Tax Return with respect to payment of estimated Taxes or Taxes due with a request for extension of time to file), (i) Industrial Company shall pay to Tenneco the tax liability allocable to the Industrial Group as determined by the Responsible Company under the provisions of Section 2.03(b)(i), plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the due date (including extensions) to the date of payment by Industrial Company to Tenneco, and (ii) the Responsible Company shall notify Tenneco (if Tenneco is not the Responsible Company with respect to such Tax Return) and Shipbuilding Company in writing of the tax liability allocable to the Shipbuilding Group as determined by the Responsible Company under the provisions of Section 2.03(b)(i). Within three business days following receipt of such notice, Shipbuilding Company shall pay to Tenneco the Shipbuilding Group's allocated tax liability as set forth in such notice, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the due date (including extensions) to the date of payment by Shipbuilding Company to Tenneco. 5.04 Payment of State Income Taxes Related to Adjustments (a) Adjustments Resulting in Underpayments. Tenneco shall pay to the applicable Tax Authority when due any additional State Income Tax required to be paid as a result of any adjustment to the tax liability with respect to any Tax Return for any Consolidated or Combined State Income Tax for any Pre-Distribution Period. Industrial Company and Shipbuilding Company shall pay to Tenneco their respective shares of any such additional Tax payment determined by the Responsible Company in accordance with Section 2.03(b)(ii) within 120 days from the later of (i) the date the additional Tax was paid by Tenneco or (ii) the date of receipt by Industrial Company or Shipbuilding Company (as applicable) of a written notice 15 and demand from Tenneco for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. Industrial Company and Shipbuilding Company shall also pay to Tenneco interest on their respective shares of such Tax computed at the Prime Rate based on the number of days from the date the additional Tax was paid by Tenneco to the date of their payment to Tenneco under this Section 5.04(a). (b) Adjustments Resulting in Overpayments. Within 120 days of receipt by Tenneco of any Tax Benefit resulting from any adjustment to the tax liability with respect to any Tax Return for any Consolidated or Combined State Income Tax for any Pre-Distribution Period, Tenneco shall pay to Industrial Company and Shipbuilding Company their respective shares of any such Tax Benefit determined by the Responsible Company in accordance with Section 2.03(b)(ii). Tenneco shall also pay to Industrial Company or Shipbuilding Company interest on their respective shares of such Tax Benefit computed at the Prime Rate based on the number of days from the date the Tax Benefit was received by Tenneco to the date of payment to Industrial Company or Shipbuilding Company under this Section 5.04(b). 5.05 Payment of Separate Company Taxes. Each Company shall pay, or shall cause to be paid, to the applicable Tax Authority when due all Separate Company Taxes owed by such Company or a member of such Company's Group. 5.06 Indemnification Payments. If any Company (the "payor") is required to pay to a Tax Authority a Tax that another Company (the "responsible party") is required to pay to such Taxing Authority under this Agreement, the responsible party shall reimburse the payor within 30 days of delivery by the payor to the responsible party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 5.06. Section 6. Tax Benefits 6.01 General Rule. If a member of one Group receives any Tax Benefit with respect to any Taxes for which a member of another Group is liable hereunder, the Company receiving such Tax Benefit shall make a payment to the Company who is liable for such Taxes hereunder within 30 days following receipt of the Tax Benefit in an amount equal to the Tax Benefit (including any Tax Benefit realized as a result of the payment), plus interest on such amount computed at the Prime Rate based on the number of days from the date of receipt of the Tax Benefit to the date of payment of such amount under this Section 6.01. 6.02 Debt Discharge Items (a) Any Tax Benefit attributable to Debt Discharge Items (determined in accordance with the principles of Section 6.04) shall be credited against any amount owed by Industrial Company to Tenneco under Sections 5.01(b) or 5.03(b), and any excess Tax Benefit shall be paid by Tenneco to Industrial Company as an amount owed by Tenneco to Industrial Company under Sections 5.01(b) or 5.03(b). If the Tax Benefit is subsequently adjusted (including any adjustment to the Tax Benefit received as a reduction in otherwise required estimated tax payments), Industrial Company shall pay to Tenneco an amount equal to any reduction in the Tax Benefit, and Tenneco shall pay to Industrial Company an amount equal to any increase in the Tax Benefit, in each case under Section 5.01(b) (in the case of adjustments to Tax payments), or Sections 5.02 or 5.04 (in the case of audit adjustments). (b) Any Tax liability attributable to Debt Discharge Items (determined in accordance with the principles of Section 6.04) shall be paid by Industrial Company to Tenneco as an additional amount owed by Industrial Company to Tenneco under Section 5.01(b) or 5.03(b). Any adjustment to such Tax liability shall be paid under Section 5.01(b) (in the case of adjustments to Tax payments), or Sections 5.02 or 5.04 (in the case of audit adjustments). 16 (c) Payments under this Section 6.02 shall include interest as provided under Sections 5.01, 5.02, 5.03, or 5.04, as applicable. 6.03 Base Amount Adjustment Items. Any Tax Benefit (or Tax liability) attributable to Base Amount Adjustment Items (determined in accordance with the principles of Section 6.04) shall be for the account of Tenneco, regardless of the legal entity reporting such Tax Benefit or Tax liability. Pursuant to this Section 6.03, to the extent any net operating loss of the Tenneco Group is attributable to Base Amount Adjustment Items (determined in accordance with the principles of Section 6.04), any Tax Benefit associated with the deduction of such net operating loss (either in the current year or as a carryback or carryover) shall be for the account of Tenneco. 6.04 Ordering of Tax Items. Tax Items for any Tax Period shall be taken into account for purposes of this Agreement in the following order of priority: (a) First, Tax Items other than Debt Discharge Items and Base Amount Adjustment Items. (b) Second, Debt Discharge Items and Base Amount Adjustment Items (other than GSR Items) in proportion to the relative net amounts of such items. (c) Third, GSR Items. Section 7. Assistance and Cooperation 7.01 General. After the Distribution Date, each of the Companies shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other's agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Companies and their Affiliates including (i) preparation and filing of Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making all information and documents in their possession relating to the other Companies and their Affiliates available to such other Companies as provided in Section 8. Each of the Companies shall also make available to each other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. Any information or documents provided under this Section 7 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. 7.02 Income Tax Return Information. Each Company will provide to each other Company information and documents relating to their respective Groups required by the other Companies to prepare Tax Returns. The Responsible Company shall determine a reasonable compliance schedule for such purpose in accordance with Tenneco's past practices. Any additional information or documents the Responsible Company requires to prepare such Tax Returns will be provided in accordance with past practices, if any, or as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns timely. Section 8. Tax Records 8.01 Retention of Tax Records. Except as provided in Section 8.02, each Company shall preserve and keep all Tax Records exclusively relating to the assets and activities of their respective Groups for Pre-Distribution Tax Periods, and Tenneco shall preserve and keep all other Tax Records relating to Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitation, and (ii) seven years after the Distribution Date. If, prior to the expiration of the applicable statute of limitation and such seven-year period, a Company reasonably determines that any Tax Records which it is required to preserve and keep under this Section 8 are no longer material in the administration 17 of any matter under the Code or other applicable Tax Law, such Company may dispose of such records upon 90 days prior notice to the other Companies. Such notice shall include a list of the records to be disposed of describing in reasonable detail each file, book, or other record accumulation being disposed. The notified Companies shall have the opportunity, at their cost and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records. 8.02 State Income Tax Returns. Tax Returns with respect to State Income Taxes and workpapers prepared in connection with preparing such Tax Returns shall be preserved and kept, in accordance with the guidelines of Section 8.01, by the Company responsible for preparing and filing the applicable Tax Return. 8.03 Access to Tax Records. The Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records in their possession to the extent reasonably required by the other Company in connection with the preparation of Tax Returns, audits, litigation, or the resolution of items under this Agreement. Section 9. Tax Contests 9.01 Notice. Each of the parties shall provide prompt notice to the other parties of any pending or threatened Tax audit, assessment or proceeding or other Tax Contest of which it becomes aware related to Taxes for Tax Periods for which it is indemnified by one or more other parties hereunder. Such notice shall contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If an indemnified party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such party fails to give the indemnifying party prompt notice of such asserted Tax liability, then (i) if the indemnifying party is precluded from contesting the asserted Tax liability in any forum as a result of the failure to give prompt notice, the indemnifying party shall have no obligation to indemnify the indemnified party for any Taxes arising out of such asserted Tax liability, and (ii) if the indemnifying party is not precluded from contesting the asserted Tax liability in any forum, but such failure to give prompt notice results in a monetary detriment to the indemnifying party, then any amount which the indemnifying party is otherwise required to pay the indemnified party pursuant to this Agreement shall be reduced by the amount of such detriment. 9.02 Control of Tax Contests (a) Separate Company Taxes. In the case of any Tax Contest with respect to any Separate Company Tax, the Company having liability for the Tax shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability. (b) Consolidated or Combined Income Taxes. In the case of any Tax Contest with respect to any Consolidated or Combined Income Tax, (i) Shipbuilding Company shall control the defense or prosecution of the portion of the Tax Contest directly and exclusively related to any Shipbuilding Adjustment, including settlement of any such Shipbuilding Adjustment, (ii) Tenneco shall control the defense or prosecution of the portion of the Tax Contest directly and exclusively related to any Tenneco Adjustment, including settlement of any such Tenneco Adjustment, and (iii) Industrial Company shall control the defense or prosecution of the portion of the Tax Contest directly and exclusively related to any Industrial Adjustment, including any settlement of any Industrial Adjustment, and (iv) the Tax Contest Committee shall control the defense or prosecution of Joint Adjustments and any and all administrative matters not directly and exclusively related to any Shipbuilding Adjustment, Tenneco Adjustment, or Industrial Adjustment. The Tax Contest Committee shall be comprised of two persons, one person selected by Industrial Company (as designated in writing to Tenneco) and one person selected by Tenneco (as designated in writing to Industrial Company). Each person serving on the Tax Contest Committee shall continue to serve unless and until he or she is replaced by the party designating such person. Any and all matters to be decided by the Tax Contest Committee shall require the unanimous approval of both persons serving on the committee. In the event the Tax Contest Committee shall be deadlocked on any matter, the provisions of Section 15 of this 18 Agreement shall apply. The Tax Contest Committee shall consult in good faith with Shipbuilding Company to the extent Shipbuilding Company might reasonably be expected to be materially affected by such matters. A Company shall not agree to any Tax liability for which another Company may be liable under this Agreement, or compromise any claim for any Tax Benefit which another Company may be entitled under this Agreement, without such other Company's written consent (which consent may be given or withheld at the sole discretion of the Company from which the consent would be required). Section 10. Effective Date; Termination of Prior Intercompany Tax Allocation Agreements. This Agreement shall be effective on the Distribution Date. Immediately prior to the close of business on the Distribution Date (i) all Prior Intercompany Tax Allocation Agreements shall be terminated, and (ii) amounts due under such agreements as of the Distribution Date shall be settled as of the Distribution Date (including capitalization or distribution of amounts due or receivable under such agreements). Upon such termination and settlement, no further payments by or to Tenneco, by or to the Shipbuilding Group, or by or to the Industrial Group, with respect to such agreements shall be made, and all other rights and obligations resulting from such agreements between the Companies and their Affiliates shall cease at such time. Any payments pursuant to such agreements shall be ignored for purposes of computing amounts due under this Agreement. Section 11. No Inconsistent Actions. Each of the Companies and the Acquiror covenants and agrees that it will not take any action, and it will cause its Affiliates to refrain from taking any action, which is inconsistent with the Tax treatment of the Transactions as contemplated in the Ruling Request or in the Tax Opinion (any such action is referred to in this Section 11 as a "Prohibited Action"), unless such Prohibited Action is required by law, or the person acting has obtained the prior written consent of each of the other parties (which consent shall not be unreasonably withheld). With respect to any Prohibited Action proposed by a Company or the Acquiror (the "Requesting Party"), each of the other parties (the "Requested Parties") shall grant its consent to such Prohibited Action if the Requesting Party obtains a ruling with respect to the Prohibited Action from the Internal Revenue Service or other applicable Tax Authority that is reasonably satisfactory to each of the Requested Parties (except that the Requesting Party shall not submit any such ruling request if a Requested Party determines in good faith that filing such request might have a materially adverse effect upon such Requested Party). Without limiting the foregoing: (a) No Inconsistent Plan or Intent (i) Each of Industrial Company and Shipbuilding Company represents and warrants that neither it nor any of its Affiliates has any plan or intent to take any action which is inconsistent with any factual statements or representations in the Ruling Request or in the Tax Opinion. Regardless of any change in circumstances, each of Industrial Company and Shipbuilding Company covenants and agrees that it will not take, and it will cause its Affiliates to refrain from taking, any such inconsistent action on or before the last day of the calendar year ending after the second anniversary of the Distribution Date other than as permitted in this Section 11. For purposes of applying this Section 11(a) to any such inconsistent action prior to the Effective Time, the members of the Tenneco Group shall be treated as Affiliates of Industrial Company. (ii) Acquiror represents and warrants that neither it nor any of its Affiliates has any plan or intent to take any action which is inconsistent with any factual statements or representations in the Ruling Request or in the Tax Opinion. Regardless of any change in circumstances, Acquiror covenants and agrees that it will not take, and it will cause Tenneco and the other Affiliates of Acquiror to refrain from taking, any such inconsistent action on or before the last day of the calendar year ending after the second anniversary of the Distribution Date other than as permitted in this Section 11. (b) Amended or Supplemental Rulings. Each of the Companies covenants and agrees that it will not file, and it will cause its Affiliates to refrain from filing, any amendment or supplement to the Ruling Request subsequent to the Distribution Date without the consent of the other Companies, which consent shall not be unreasonably withheld. Section 12. Survival of Obligations. The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time. 19 Section 13. Employee Matters. Each of the Companies agrees to utilize, or cause its Affiliates to utilize, the alternative procedure set forth in Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting. Section 14. Treatment of Payments; Tax Gross Up 14.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of any change in tax treatment under the Code or other applicable Tax Law, (a) any Tax indemnity payments made by a Company under Section 5 shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the distribution of the Industrial Common Shares and the Shipbuilding Common Shares to Tenneco shareholders on the Distribution Date, but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws), and (b) any Tax Benefit payments made by a Company under Section 6, shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the distribution of Industrial Common Shares and Shipbuilding Common Shares to Tenneco shareholders on the Distribution Date, but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws). 14.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity payments and Tax Benefit payments were reported, there is an adjustment to the Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive pursuant to this Agreement. 14.03 Interest Under This Agreement. Anything herein to the contrary notwithstanding, to the extent one Company ("indemnitor") makes a payment of interest to another Company ("indemnitee") under this Agreement with respect to the period from the date that the indemnitee made a payment of Tax to a Tax Authority to the date that the indemnitor reimbursed the indemnitee for such Tax payment, or with respect to the period from the date that the indemnitor received a Tax Benefit to the date indemnitor paid the Tax Benefit to the indemnitee, the interest payment shall be treated as interest expense to the indemnitor (deductible to the extent provided by law) and as interest income by the indemnitee (includible in income to the extent provided by law). The amount of the payment shall not be adjusted under Section 14.02 to take into account any associated Tax Benefit to the indemnitor or increase in Tax to the indemnitee. Section 15. Disagreements. If after good faith negotiations the parties cannot agree on the application of this Agreement to any matter, then the matter will be referred to a nationally recognized accounting firm acceptable to each of the parties (the "Accounting Firm"). The Accounting Firm shall furnish written notice to the parties of its resolution of any such disagreement as soon as practical, but in any event no later than 45 days after its acceptance of the matter for resolution. Any such resolution by the Accounting Firm will be conclusive and binding on all parties to this Agreement. In accordance with Section 17, each party shall pay its own fees and expenses (including the fees and expenses of its representatives) incurred in connection with the referral of the matter to the Accounting Firm. All fees and expenses of the Accounting Firm in connection with such referral shall be shared equally by the parties affected by the matter. Section 16. Late Payments. Any amount owed by one party to another party under this Agreement which is not paid when due shall bear interest at the Prime Rate plus two percent, compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Section 16 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at 20 the higher of the interest rate provided under this Section 16 or the interest rate provided under such other provision. Section 17. Expenses. Except as provided in Section 15, each party and its Affiliates shall bear their own expenses incurred in connection with preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement. Section 18. Special Rules for Determining Members of Groups. For purposes of this Agreement, the following special rules shall apply for determining the members of the Industrial Group and members of the Shipbuilding Group: 18.01 Tennessee Gas Pipeline Company. The assets and activities of Tennessee Gas Pipeline Company for Pre-Distribution Periods that comprise the Walker Manufacturing Company Division, the Tenneco Automotive Headquarters Division, and the Tenneco Brakes Division, as jointly determined by Industrial Company and Tenneco in accordance with past practices, shall be combined and treated as a separate corporate entity which is a member of the Industrial Group. 18.02 Former Affiliates of Shipbuilding Group or Industrial Group. The entities listed on Schedule 1 attached hereto shall be treated as members of the Shipbuilding Group, and the entities listed on Schedule 2 attached hereto shall be treated as members of the Industrial Group. Any entity substantially all of the assets and liabilities of which have been transferred to a member of the Shipbuilding Group (e.g., by a statutory merger) shall be treated as a member of the Shipbuilding Group, and any entity substantially all of the assets and liabilities of which have been transferred to a member of the Industrial Group shall be treated as a member of the Industrial Group. For example, Newport News Shipbuilding and Dry Dock Company, a Virginia corporation, shall, by virtue of its merger into Tenneco InterAmerica Inc., be treated as a member of the Shipbuilding Group. For purposes of this paragraph, Tenneco's Affiliates shall not be limited to persons who are Affiliates immediately after the Distributions. Section 19. General Provisions 19.01 Addresses and Notices. Any notice, demand, request or report required or permitted to be given or made to any party under this Agreement shall be in writing and shall be deemed given or made when delivered in party or when sent by first class mail or by other commercially reasonable means of written communication (including delivery by an internationally recognized courier service or by facsimile transmission) to the party at the party's address as follows: If to Shipbuilding Company: Director, Taxes Newport News Shipbuilding and Dry Dock Company 4101 Washington Avenue Newport News, VA 23607 If to Tenneco: Director, Taxes Tennessee Gas Pipeline Co. 1010 Milam Street Houston, Texas 77002 With a copy to: Director, Taxes El Paso Natural Gas Co. One Paul Kayser Center 100 North Stanton Street El Paso, Texas 79901 21 If to Industrial Company: Robert G. Simpson Vice President, Tax Tenneco Inc. 1275 King Street Greenwich, CT 06831 If to Acquiror: Director, Taxes El Paso Natural Gas Co. One Paul Kayser Center 100 North Stanton Street El Paso, Texas 79901 A party may change the address for receiving notices under this Agreement by providing written notice of the change of address to the other parties. 19.02 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. 19.03 Waiver. No failure by any party to insist upon the strict performance of any obligation under this Agreement or to exercise any right or remedy under this Agreement shall constitute waiver of any such obligation, right, or remedy or any other obligation, rights, or remedies under this Agreement. 19.04 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not be affected thereby. 19.05 Further Action. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Section 9. 19.06 Integration. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter of this Agreement and supersedes all prior agreements and understandings pertaining thereto. In the event of any inconsistency between this Agreement and the Distribution Agreement or any other agreements relating to the transactions contemplated by the Distribution Agreement, the provisions of this Agreement shall control. 19.07 Construction. The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any party. 19.08 No Double Recovery; Subrogation. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged party has been fully compensated under any other provision of this Agreement or under any other agreement or action at law or equity. Unless expressly required in this Agreement, a party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement. Subject to any limitations provided in this Agreement (for example, the limitation on filing claims for refund in Section 4.08), the indemnifying party shall be subrogated to all rights of the indemnified party for recovery from any third party. 19.09 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. 22 19.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and to be performed in that State. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by the respective officers as of the date set forth above. Tenneco Inc. By: _________________________________ Its: ________________________________ Newport News Shipbuilding Inc. By: _________________________________ Its: ________________________________ New Tenneco Inc. By: _________________________________ Robert G. Simpson Vice President, Taxes El Paso Natural Gas Company By: _________________________________ Its: ________________________________ 23 TAX SHARING AGREEMENT SCHEDULE 1 ADDITIONAL MEMBERS OF THE SHIPBUILDING GROUP For purposes of this Agreement, in addition to Shipbuilding Company and its Affiliates as determined immediately after the Distribution Date, the Shipbuilding Group shall be deemed to include any corporation which was (1) a member of the affiliated group (as defined in Code Section 1504(a), but treating all corporations as "includible corporations" for purposes of such Code Section) of which Tenneco is the common parent, (2) was included in the "shipbuilding" segment for purposes of segment reporting in Tenneco's Annual Reports on Form 10-K, and (3) sold, transferred, otherwise disposed of, or discontinued prior to the date hereof. Without limiting the foregoing, the Shipbuilding Group shall include: Sperry Marine Inc. Sperry Marine-Asia Inc. Sperry Marine (S) PTE Ltd. (Singapore) Sperry Marine S.p.A. (Italy) Sperry Marine S.A.R.L. (France) Sperry Marine Limited (United Kingdom) Sperry Marine GmbH (Germany) Sperry Marine A/S (Denmark) Sperry Marine A/S (Norway) Sperry Marine B.V. (Netherlands) 24 TAX SHARING AGREEMENT SCHEDULE 2 ADDITIONAL MEMBERS OF THE INDUSTRIAL GROUP For purposes of this Agreement, in addition to Industrial Company and its Affiliates as determined immediately after the Distribution Date, the Industrial Group shall be deemed to include any corporation which was (1) a member of the affiliated group (as defined in Code Section 1504(a), but treating all corporations as "includible corporations" for purposes of such Code Section) of which Tenneco is the common parent, (2) was included in the "automotive parts" or "packaging" segment for purposes of segment reporting in Tenneco's Annual Reports on Form 10-K, and (3) sold, transferred, otherwise disposed of, or discontinued prior to the date hereof. 25 TAX SHARING AGREEMENT SCHEDULE 3 ENERGY INVESTMENTS GROUP KERN COUNTY LAND COMPANY PETRO-TEX CHEMICAL CORPORATION TENFAC CORPORATION TENNCHASE, INC. TENNECO COAL COMPANY TENNECO CORPORATION TENNECO CREDIT CORPORATION TENNECO EQUIPMENT CORPORATION (f/k/a Case Corporation) TENNECO EQUIPMENT HOLDING IV CO. (f/k/a Case Finance Co.) TENNECO EQUIPMENT HOLDING V CO. (f/k/a Integrated Technical Systems, Inc.) TENNECO EQUIPMENT HOLDING VI CO. (f/k/a Viscosity Oil Co.) TENNECO INC. TENNECO INSURANCE VENTURES TENNECO INTERAMERICA, INC. TENNECO INTERNATIONAL, INC. TENNECO MINERALS COMPANY--CALIFORNIA TENNECO MINERALS COMPANY--NEVADA TENNECO OIL COMPANY TENNECO POLYMERS, INC. TENNECO SHALE OIL COMPANY TENNECO SNG, INC. TENNECO SYNFUELS COMPANY TENNECO WEST TENNESSEE GAS PIPELINE COMPANY--CORPORATE DIVISION 26 EX-10.5 14 FORM OF TRANSITION SERVICES AGREEMENT EXHIBIT 10.5 EXHIBIT M TO DISTRIBUTION AGREEMENT TRANSITION SERVICES AGREEMENT Transition Services Agreement (this "Agreement") dated as of June 19, 1996, between Tenneco Business Services, Inc. ("TBS"), Tenneco Inc. ("Tenneco") and El Paso Natural Gas Company ("EPG"). WHEREAS, TBS currently provides certain business services to Tenneco, including mainframe computing services, backup, recovery and related operations, consulting services and payroll services (collectively, the "Services"); and WHEREAS, Tenneco may desire to continue certain of the Services following the consummation of the merger (the "Merger") contemplated by the Agreement and Plan of Merger dated as of June 19, 1996 among EPG, El Paso Merger Company and Tenneco ("the Merger Agreement"); NOW, THEREFORE, the parties hereto agree as follows: 1. Notice. No later than 45 days prior to the Effective Time (as defined in the Merger Agreement) but only if and to the extent requested to do so by EPG, Tenneco shall notify TBS in writing of its election to continue Services following the Merger. This Agreement shall be of no further force or effect if such notice is not received prior to the time provided in the preceding sentence. 2. Services; Term. If Tenneco exercises the election set forth in paragraph 1 above, TBS shall provide the Services specified in the notice delivered by Tenneco for a period of twelve months from the date of the Merger; provided that any or all of the Services may be terminated by Tenneco at any time on not less than 45 days' prior written notice to TBS. The Services shall be performed in a manner consistent with the manner in which they have heretofore been performed by TBS. TBS will also assist Tenneco in transferring data from TBS' systems and establishing interconnection between TBS' and Tenneco's or EPG's mainframes and otherwise in transferring the operations performed by TBS on behalf of Tenneco to Tenneco's or EPG's systems. 3. Compensation. The price that Tenneco shall pay to TBS for the Services shall be a mutually agreed to market-based rate for comparable services. TBS shall invoice Tenneco monthly for the Services, providing a breakdown of the Services for such month and the charges for each category of Services. In the event of any dispute with respect to amounts payable under this Agreement, the parties shall work together in good faith to resolve such dispute and, if the parties are unable to resolve such dispute, it shall be referred to an independent accounting firm mutually agreed by TBS and Tenneco. 4. Consents of Third Parties. TBS shall use commercially reasonable efforts, at Tenneco's direction and expense, to obtain any consents or software licenses from third parties necessary to the continuation of the requested Services; provided that TBS shall have no obligation to provide Services for which such consent is required and shall not have been obtained. 5. Limitations. TBS shall not be liable for any consequential, incidental, special or punitive damages in connection with the Services. 1 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. TENNECO BUSINESS SERVICES, INC. By __________________________________ TENNECO INC. By __________________________________ EL PASO NATURAL GAS COMPANY By __________________________________ 2 EX-10.6 15 SHIPBUILDING TRADEMARK TRANSITION LICENSE AGRMNT EXHIBIT 10.5 EXHIBIT Q TO DISTRIBUTION AGREEMENT TRADEMARK TRANSITION LICENSE AGREEMENT Agreement made as of , ("Effective Date") by and between [Industrial Company], a corporation organized and existing under the laws of the State of Delaware, whose principal place of business is located at 1275 King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and [Newport News Shipbuilding and Drydock Company], a corporation organized under the laws of the State of Virginia, whose principal place of business is located at 4101 Washington Avenue, Newport News, Virginia 23607, hereinafter referred to as Licensee, Whereas, Licensor has adopted and is using the name and mark "Tenneco", alone and in combination with other terms and/or symbols and variations thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United States and elsewhere throughout the world and is the owner of the U.S. Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit A of this Agreement, from the United States Patent and Trademark Office, (hereinafter collectively referred to as the "Trademark"); and Whereas, Licensee is desirous of using said Trademark with respect to the goods and services listed on Exhibit B, to assist Licensee in its transition to a new identity and for the limited purposes more fully described below; Now, therefore, in consideration of the foregoing Recitals which are hereby incorporated into the operative terms hereof, the mutual promises contained in this Agreement and good and valuable consideration from the Licensee to the Licensor, the receipt and sufficiency of which is hereby acknowledged by said Licensor, the parties hereby agree as follows: 1. License. Licensor grants to Licensee and its subsidiary companies the limited, non-exclusive right to use the Trademark under the common law and under the auspices and privileges provided by any of the registrations covering the same during the term of this Agreement, and Licensee hereby undertakes to use the Trademark as follows: a. For a period of 30 days following the Effective Date of this Agreement, Licensee may use the Trademark in its corporate name. After 30 days following the Effective Date of this Agreement, Licensee shall change, if necessary, its corporate name to delete the Trademark or any other word that is confusingly similar to the Trademark (except the word "Tennessee"); b. For a period of six (6) months following the Effective Date of this Agreement, Licensee shall be entitled to use its existing supplies and documents which have imprinted thereon the Trademark to the extent that such supplies and documents were existing inventory prior to the Effective Date of this Agreement. Licensee shall not print any new supplies or documents bearing the Trademark as of the Effective Date of this Agreement. c. For a period of one year from the Effective Date of this Agreement, Licensee may use the Trademark on existing signs, displays or other identifications or advertising material (except as limited in b above). Licensee shall not prepare or install any new signs, displays or other identifications or advertising material bearing the Trademark. Licensee shall remove any and all references to the Trademark from any and all signs, displays or other identifications or advertising material by the end of the one year period. 2. Quality of Services. Licensee agrees to maintain such quality standards as shall be prescribed by Licensor in the conduct of the business operations with which the Trademark is used. Licensee shall use the Trademark only with goods and services listed in Exhibit B rendered by Licensee in accordance with the terms of this 1 agreement and with the guidance and directions furnished to the Licensee by the Licensor, or its authorized representatives or agents, from time to time, if any; but always the quality of the goods and services shall be satisfactory to the Licensor or as specified by it. 3. Inspection. Licensee will permit duly authorized representatives of the Licensor to inspect the premises of Licensee using the Trademarks at all reasonable times, for the purpose of ascertaining or determining compliance with Paragraphs 1 and 2 hereof. 4. Use of Trademark. When using the Trademark under this Agreement, Licensee undertakes to comply substantially with all laws pertaining to the Trademark. This provision includes compliance with marking requirements. Licensee represents and warrants that all goods and services to be sold under the Trademark and the marketing, sales, and distribution of them shall meet or exceed all federal, state, and local laws, ordinances, standards, regulations, and guidelines pertaining to such products or activities, including, but not limited to, those pertaining to product safety, quality, labeling and propriety. Licensee agrees that it will not package, market, sell, or distribute any goods or services or cause or permit any goods or services to be packaged, marketed, sold, or distributed in violation of any such federal, state, or local law, ordinance, standard, regulation, or guideline. 5. Extent of License. The license granted herein is for the sole purpose of assisting Licensee in its transition to a new identity and is not assignable or transferable in any manner whatsoever. Licensee has no right to grant any sublicenses or to use the Trademark for any other purpose. 6. Indemnity. Licensee acknowledges that it will have no claims against Licensor for any damage to property or injury to persons arising out of the operation of Licensee's business. Licensee agrees to indemnify, hold harmless, and defend Licensor and its subsidiaries and its authorized representatives with legal counsel acceptable to Licensor from and against any and all demands, claims, injuries, losses, damages, actions, suits, causes of action, proceedings, judgments, liabilities and expenses, including attorneys' fees, court costs and other legal expenses, arising out of or connected with: a. Licensee's use of the Trademark; or b. any breach by Licensee of any provision of this Agreement or of any warranty made by Licensee in this Agreement. No approval by Licensor of any action by Licensee shall affect any right of Licensor to indemnification hereunder. 7. Termination. Except as otherwise provided herein, this Agreement shall remain in full force and effect for the periods stated in Paragraph 1, above. However, Licensor retains the right to immediately terminate this Agreement in the event of a material breach of any term of this Agreement by Licensee, upon written notice to the Licensee. 8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive right, title and interest in and to the Trademark and will not at any time do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part or all of such right, title and interest. In connection with the use of the Trademark, Licensee shall not in any manner represent that it has any ownership in the Trademark or registrations thereof, and acknowledges that use of the Trademark shall enure to the benefit of the Licensor. On termination of this Agreement or any portion thereof in any manner provided herein, the Licensee will destroy all signs, displays or other identifications or advertising material, supplies and documents, and any other materials bearing the Trademark and will certify to Licensor in writing that it has done so. Furthermore, Licensee will not at any time adopt or use without the Licensor's prior written consent, any word or mark which is likely to be similar to or confusing with the Trademark (except the word "Tennessee"). 9. Infringement of Trademark. If Licensee learns of any actual or threatened infringement of the Trademark or of the existence, use, or promotion of any mark or design similar to the Trademark, Licensee shall promptly notify Licensor. Licensor has the right to decide at its sole discretion what legal proceedings or other action, if 2 any, shall be taken, by who, how such proceedings or other action shall be conducted, and in whose name such proceedings or other action shall be performed. Any legal proceedings instituted pursuant to this Section shall be for the sole benefit of Licensor and all sums recovered in such proceedings, whether by judgment, settlement, or otherwise, shall be retained solely and exclusively by Licensor. 10. Injunctive Relief. Licensee acknowledges that any breach or threatened breach of any of Licensee's covenants in this Agreement relating to the Trademark, including, without limitation, Licensee's failure to cease the manufacture, sale, marketing, or distribution of the goods bearing the Trademark at the termination or expiration of this Agreement will result in immediate and irreparable damage to Licensor and to the rights of any subsequent Licensee of them. Licensee acknowledges and admits that there is no adequate remedy at law for failure to cease such activities, and Licensee agrees that in the event of such breach or threatened breach, Licensor shall be entitled to temporary and permanent injunctive relief and such other relief as any court with jurisdiction may deem just and proper. 11. Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law or any competent government or other authority, the remaining provisions shall be severable and enforceable in accordance with their terms so as this Agreement without such terms or provisions does not fail of its essential purpose or purposes. The parties will negotiate in good faith to replace any such illegal or unenforceable provision or provisions with suitable substitute provisions which maintain the economic purposes and intentions of this Agreement. 12. Notice. Any notices required or permitted to be given under this Agreement shall be deemed sufficiently given if mailed by registered mail, postage prepaid, addressed to the party to be notified at its address shown above, (followed by facsimile) or at such other address as may be furnished in writing to the notifying party. 13. Miscellaneous. a. Captions. The captions for each Section have been inserted for the sake of convenience and shall not be deemed to be binding upon the parties for the purpose of interpretation of this Agreement. b. Interpretation. The parties agree that each party and its counsel has reviewed this Agreement and the normal rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. c. Waiver. The failure of Licensor to insist in any one or more instances upon the performance of any term, obligation, or condition of this Agreement by Licensee or to exercise any right or privilege herein conferred upon Licensor shall not be construed as thereafter waiving such term, obligation, or condition, or relinquishing such right or privilege, and the acknowledged waiver or relinquishment by Licensor of any default or right shall not constitute waiver of any other default or right. No waiver shall be deemed to have been made unless expressed in writing. d. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Agreement, and Licensee shall use its best efforts to transition all existing materials, including signs and displays, bearing the Trademark to a new name and mark. e. Rights Cumulative. Except as expressly provided in this Agreement, and to the extent permitted by law, any remedies described in this Agreement are cumulative and not alternative to any other remedies available at law or in equity. 3 f. Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. Attest: LICENSOR - ------------------------------- By: _________________________________ Attest: - ------------------------------- LICENSEE By: _________________________________ 4 EXHIBIT "A"
REGISTRATION EXPIRATION TRADEMARK NO. DATE --------- ------------ ----------- Tenneco 1050475 19OC1996 Tenneco 866995 25MR2009 Tenneco 823408 31JA2007 Tenneco 786614 16MR2005 Tenneco 783055 12JA2005 Tenneco 827435 18AP2007 Tenneco 1250178 06SE2003 Tenneco 1251601 20SE2003 Tenneco 1310943 25DE2004 Tenneco 1930571 31OC2005 Tenneco 1917869 12SE2005 Tennnet 1956845 13FE2006 Tennnet 1929997 24OC2005 Tenneco & Shield 831633 14JL2007 Tenneco & Shield 857262 24SE1998 Tenneco & Shield 823409 31JA2007 Tenneco & Shield 827436 18AP2007 Tenneco & Shield 786595 16MR2005 Tenneco & Shield 786984 23MR2005 Tenneco & Shield 1250177 06SE2003 Tenneco & Shield 1236187 03MY2003 Tenneco & Shield 1310944 25DE2004 Tenneco & Shield 1614779 25SE2000 Tenn-Speed 1542283 06JU2009 Tenn-Speed 2 1841694 28JU2004 Tenn-Speed 2 1855752 27SE2004 APPLICATION APPLICATION TRADEMARK NO. DATE --------- ------------ ----------- Tenneco 731906 13SE1995 Tenneco 521074 09MY1994 Tenneco & Horizon 731464 13SE1995
5 EXHIBIT B Ships Custom and naval shipbuilding, drydock and ship repair services. Naval architectural design. 6 EX-10.7 16 TENNECO TRADEMARK TRANSITION LICENSE AGREEMENT EXHIBIT P TO DISTRIBUTION AGREEMENT TRADEMARK TRANSITION LICENSE AGREEMENT Agreement made as of , ("Effective Date") by and between [Industrial Company], a corporation organized and existing under the laws of the State of Delaware, whose principal place of business is located at 1275 King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and Tenneco Inc., a corporation organized under the laws of the State of Delaware, whose principal place of business is located at 1010 Milam St., Houston, TX 77002, hereinafter referred to as Licensee, Whereas, Licensor has adopted and is using the name and mark "Tenneco", alone and in combination with other terms and/or symbols and variations thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United States and elsewhere throughout the world and is the owner of the U.S. Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit A of this Agreement, from the United States Patent and Trademark Office, (hereinafter collectively referred to as the "Trademark"); and Whereas, Licensee is desirous of using said Trademark with respect to the goods and services listed on Exhibit B, to assist Licensee in its transition to a new identity and for the limited purposes more fully described below; Now, therefore, in consideration of the foregoing Recitals which are hereby incorporated into the operative terms hereof, the mutual promises contained in this Agreement and good and valuable consideration from the Licensee to the Licensor, the receipt and sufficiency of which is hereby acknowledged by said Licensor, the parties hereby agree as follows: 1. License. Licensor grants to Licensee and its subsidiary companies the limited, non-exclusive right to use the Trademark under the common law and under the auspices and privileges provided by any of the registrations covering the same during the term of this Agreement, and Licensee hereby undertakes to use the Trademark as follows: a. For a period of 30 days following the Effective Date of this Agreement, Licensee may use the Trademark in its corporate name. After 30 days following the Effective Date of this Agreement, Licensee shall change, if necessary, its corporate name to delete the Trademark or any other word that is confusingly similar to the Trademark (except the word "Tennessee"); b. For a period of six (6) months following the Effective Date of this Agreement, Licensee shall be entitled to use its existing supplies and documents which have imprinted thereon the Trademark to the extent that such supplies and documents were existing inventory prior to the Effective Date of this Agreement. Licensee shall not print any new supplies or documents bearing the Trademark as of the Effective Date of this Agreement. c. For a period of two years from the Effective Date of this Agreement, Licensee may use the Trademark on existing signs, displays or other identifications or advertising material (except as limited in b above). Licensee shall not prepare or install any new signs, displays or other identifications or advertising material bearing the Trademark. Licensee shall remove any and all references to the Trademark from any and all signs, displays or other identifications or advertising material by the end of the two year period. 2. Quality of Services. Licensee agrees to maintain such quality standards as shall be prescribed by Licensor in the conduct of the business operations with which the Trademark is used. Licensee shall use the Trademark only with goods and services listed in Exhibit B rendered by Licensee in accordance with the terms of this agreement and with the guidance and directions furnished to the Licensee by the Licensor, or its authorized representatives or agents, from time to time, if any; but always the quality of the goods and services shall be satisfactory to the Licensor or as specified by it. 1 3. Inspection. Licensee will permit duly authorized representatives of the Licensor to inspect the premises of Licensee using the Trademarks at all reasonable times, for the purpose of ascertaining or determining compliance with Paragraphs 1 and 2 hereof. 4. Use of Trademark. When using the Trademark under this Agreement, Licensee undertakes to comply substantially with all laws pertaining to the Trademark. This provision includes compliance with marking requirements. Licensee represents and warrants that all goods and services to be sold under the Trademark and the marketing, sales, and distribution of them shall meet or exceed all federal, state, and local laws, ordinances, standards, regulations, and guidelines pertaining to such products or activities, including, but not limited to, those pertaining to product safety, quality, labeling and propriety. Licensee agrees that it will not package, market, sell, or distribute any goods or services or cause or permit any goods or services to be packaged, marketed, sold, or distributed in violation of any such federal, state, or local law, ordinance, standard, regulation, or guideline. 5. Extent of License. The license granted herein is for the sole purpose of assisting Licensee in its transition to a new identity and is not assignable or transferable in any manner whatsoever. Licensee has no right to grant any sublicenses or to use the Trademark for any other purpose. 6. Indemnity. Licensee acknowledges that it will have no claims against Licensor for any damage to property or injury to persons arising out of the operation of Licensee's business. Licensee agrees to indemnify, hold harmless, and defend Licensor and its subsidiaries and its authorized representatives with legal counsel acceptable to Licensor from and against any and all demands, claims, injuries, losses, damages, actions, suits, causes of action, proceedings, judgments, liabilities and expenses, including attorneys' fees, court costs and other legal expenses, arising out of or connected with: a. Licensee's use of the Trademark; or b. any breach by Licensee of any provision of this Agreement or of any warranty made by Licensee in this Agreement. No approval by Licensor of any action by Licensee shall affect any right of Licensor to indemnification hereunder. 7. Termination. Except as otherwise provided herein, this Agreement shall remain in full force and effect for the periods stated in Paragraph 1, above. However, Licensor retains the right to immediately terminate this Agreement in the event of a material breach of any term of this Agreement by Licensee, upon written notice to the Licensee. 8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive right, title and interest in and to the Trademark and will not at any time do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part or all of such right, title and interest. In connection with the use of the Trademark, Licensee shall not in any manner represent that it has any ownership in the Trademark or registrations thereof, and acknowledges that use of the Trademark shall enure to the benefit of the Licensor. On termination of this Agreement or any portion thereof in any manner provided herein, the Licensee will destroy all signs, displays or other identifications or advertising material, supplies and documents, and any other materials bearing the Trademark and will certify to Licensor in writing that it has done so. Furthermore, Licensee will not at any time adopt or use without the Licensor's prior written consent, any word or mark which is likely to be similar to or confusing with the Trademark (except the word "Tennessee"). 9. Infringement of Trademark. If Licensee learns of any actual or threatened infringement of the Trademark or of the existence, use, or promotion of any mark or design similar to the Trademark, Licensee shall promptly notify Licensor. Licensor has the right to decide at its sole discretion what legal proceedings or other action, if any, shall be taken, by who, how such proceedings or other action shall be conducted, and in whose name such proceedings or other action shall be performed. Any legal proceedings instituted pursuant to this Section shall be for the sole benefit of Licensor and all sums recovered in such proceedings, whether by judgment, settlement, or otherwise, shall be retained solely and exclusively by Licensor. 2 10. Injunctive Relief. Licensee acknowledges that any breach or threatened breach of any of Licensee's covenants in this Agreement relating to the Trademark, including, without limitation, Licensee's failure to cease the manufacture, sale, marketing, or distribution of the goods bearing the Trademark at the termination or expiration of this Agreement will result in immediate and irreparable damage to Licensor and to the rights of any subsequent Licensee of them. Licensee acknowledges and admits that there is no adequate remedy at law for failure to cease such activities, and Licensee agrees that in the event of such breach or threatened breach, Licensor shall be entitled to temporary and permanent injunctive relief and such other relief as any court with jurisdiction may deem just and proper. 11. Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law or any competent government or other authority, the remaining provisions shall be severable and enforceable in accordance with their terms so as this Agreement without such terms or provisions does not fail of its essential purpose or purposes. The parties will negotiate in good faith to replace any such illegal or unenforceable provision or provisions with suitable substitute provisions which maintain the economic purposes and intentions of this Agreement. 12. Notice. Any notices required or permitted to be given under this Agreement shall be deemed sufficiently given if mailed by registered mail, postage prepaid, addressed to the party to be notified at its address shown above, (followed by facsimile) or at such other address as may be furnished in writing to the notifying party. 13. Miscellaneous. a. Captions. The captions for each Section have been inserted for the sake of convenience and shall not be deemed to be binding upon the parties for the purpose of interpretation of this Agreement. b. Interpretation. The parties agree that each party and its counsel has reviewed this Agreement and the normal rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. c. Waiver. The failure of Licensor to insist in any one or more instances upon the performance of any term, obligation, or condition of this Agreement by Licensee or to exercise any right or privilege herein conferred upon Licensor shall not be construed as thereafter waiving such term, obligation, or condition, or relinquishing such right or privilege, and the acknowledged waiver or relinquishment by Licensor of any default or right shall not constitute waiver of any other default or right. No waiver shall be deemed to have been made unless expressed in writing. d. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Agreement, and Licensee shall use its best efforts to transition all existing materials, including signs and displays, bearing the Trademark to a new name and mark. e. Rights Cumulative. Except as expressly provided in this Agreement, and to the extent permitted by law, any remedies described in this Agreement are cumulative and not alternative to any other remedies available at law or in equity. Attest: LICENSOR - ------------------------------- By: _________________________________ Attest: - ------------------------------- LICENSOR By: _________________________________ 3 EXHIBIT "A"
REGISTRATION EXPIRATION TRADEMARK NO. DATE --------- ------------ ----------- Tenneco 1050475 19OC1996 Tenneco 866995 25MR2009 Tenneco 823408 31JA2007 Tenneco 786614 16MR2005 Tenneco 783055 12JA2005 Tenneco 827435 18AP2007 Tenneco 1250178 06SE2003 Tenneco 1251601 20SE2003 Tenneco 1310943 25DE2004 Tenneco 1930571 31OC2005 Tenneco 1917869 12SE2005 Tennnet 1956845 13FE2006 Tennnet 1929997 24OC2005 Tenneco & Shield 831633 14JL2007 Tenneco & Shield 857262 24SE1998 Tenneco & Shield 823409 31JA2007 Tenneco & Shield 827436 18AP2007 Tenneco & Shield 786595 16MR2005 Tenneco & Shield 786984 23MR2005 Tenneco & Shield 1250177 06SE2003 Tenneco & Shield 1236187 03MY2003 Tenneco & Shield 1310944 25DE2004 Tenneco & Shield 1614779 25SE2000 Tenn-Speed 1542283 06JU2009 Tenn-Speed 2 1841694 28JU2004 Tenn-Speed 2 1855752 27SE2004 APPLICATION APPLICATION TRADEMARK NO. DATE --------- ------------ ----------- --- Tenneco 731906 13SE1995 Tenneco 521074 09MY1994 Tenneco & Horizon 731464 13SE1995
4 EXHIBIT B Natural gas. Business management and planning services in the field of natural gas, liquefied natural gas, power generation and cogeneration projects; and economic analysis. Telephone calling card services. Computer programs for use as an interactive request system for the transportation and exchange of natural gas. Books, brochures, printed instructional materials and computer manuals in the field of computer programs which are used as an interactive request system for the transportation and exchange of natural gas. Management of construction. Telecommunications services. Transportation by pipeline and storage of natural gas, and transmission of oil or gas through pipelines. Educational services, namely conducting classes, conferences, and workshops, regarding the training of others in the operation, maintenance, and management of facilities relating to the natural gas industry, natural gas pipelines, natural gas and liquefied natural gas facilities, and cogeneration and power generation stations. Engineering and drafting services; technical consulting in the field of energy; and inspection and supervision of maintenance services provided by others. Ships Custom and naval shipbuilding, drydock and ship repair services. Naval architectural design. 5 EX-10.8 17 BOARD OF DIRECTORS DEFERRED COMPENSATION PLAN EXHIBIT 10.8 ------------ 9-16-96 TENNECO INC. BOARD OF DIRECTORS DEFERRED COMPENSATION PLAN (Tenneco Inc. 1988 Board of Directors Deferred Compensation Plan as amended and restated to new Tenneco plan) 1. Purpose. Each member of the Board of Directors of Tenneco Inc., (the "Board") who is not also an employee of Tenneco Inc. (the "Company") or any of its subsidiaries, is entitled to receive compensation ("Director's Compensation") from the Company for service on the Board and, if applicable, on one or more of the committees of the Board and/or on the Board of Managers of the Tenneco Foundation. Generally, Director's Compensation is paid on a current basis. It is the purpose of this plan to provide a method to defer the payment of Director's Compensation, with deferred compensation subject to adjustment for changes in the consumer price index and crediting of interest during the period of deferral, in order to enhance the ability of the Company to attract and retain individuals of experience, ability, industry, loyalty and inventiveness to serve on the Board. 2. Participation. Any director of the Company who is not also a salaried employee of the Company or any of its subsidiaries may become a Participant in this Plan by electing to defer all or any portion of Director's Compensation otherwise payable for a particular calendar year (the "Deferred Year"). Such election shall be made in writing and in such form as shall be approved for such purpose by the Senior Vice President - Human Resources of the Company, which form shall, among other things, specify: the Deferred Year; the amount of Director's Compensation to be deferred; the time at which distribution of the Participant's Account for the Deferred Year shall commence; and the form of distribution. To be effective, the completed election form must be filed with the Senior Vice President - Human Resources of the Company prior to the first day of the Deferred Year. The election shall be irrevocable upon being so filed. 3. Accounting. The Company shall establish a Director's deferred compensation ledger under which a Participant's Account for the Deferred Year shall be created in the name of each participant who elects to defer Director's Compensation for a particular Deferred Year. Each Participant's Account for a Deferred Year shall be maintained in accordance with the following rules: a. Crediting of Deferred Director's Compensation. Director's Compensation deferred pursuant to this Plan shall be credited to the Participant's Account for the Deferred Year as of the last day of the month within the Deferred Year during which the compensation would otherwise have been payable. b. Interest. As of the last day of a calendar year during which the Participant serves as a Director of the Company and which coincides with or follows the Deferred Year, interest for the calendar year shall be credited to the Participant's Account for the Deferred Year in an amount equal to the product obtained by multiplying the average monthly closing balance of the Account during the calendar year by the Prime Interest Rate announced by the Chase Manhattan Bank, N.A., as in effect on the last business day of the calendar year. c. CPI Adjustment. As soon as administratively feasible following the completion of a calendar year, during which the Participant serves as a Director of the Company and which coincides with or follows the Deferred Year, and following the announcement by the Bureau of Labor Statistics of the Consumer Price Index for All Urban Households (the "CPI") for the last day of the calendar year, a CPI Adjustment to the Participant's Account for the Deferred Year shall be calculated by multiplying (i) the percentage change in the CPI for the last day of the calendar year, from the CPI for the last day of the preceding calendar year, times (ii) the amount of Director's Compensation credited to the Account as of the last day of the Deferred Year. To the extent allowable, the CPI Adjustment shall be credited to (or if negative, debited from) the Participant's Account for the Deferred Year as of the first day of the succeeding calendar year. For purposes of the foregoing, no CPI Adjustment to a Participant's Account for the Deferred Year shall be allowable to the extent that such adjustment, when added to all previous CPI Adjustments to the Account, would exceed the amount of Director's Compensation credited to the Account as of the last day of the Deferred Year. d. Debiting of Distribution. Any distribution from a Participant's Account for a Deferred Year that is made during a month shall be debited prior to calculating the closing balance of the Account for the month. e. Statement. The Company shall furnish each Participant with an annual statement showing the closing balance for the respective calendar year of each Participant's Accounts. 4. Distribution From Account a. Form of Distribution. Distribution of a Participant's Account for a Deferred Year shall be made in whichever of the following payment forms was designated by the Participant in the election form which deferred Director's Compensation to the Account: 1. Single sum; 2. Two annual installments; 3. Three annual installments; 4. Four annual installments; or 5. Five annual installments. The amount of any installment shall be determined by dividing the net balance of the Participant's Account for the Deferred Year by the number of installments then unpaid. b. Payment Date. Distribution of a Participant's Account for a Deferred Year shall commence as soon as administratively feasible following the earliest of (i) the expiration of the month during which the Participant attains age seventy-four, (ii) the expiration of the calendar year during which the Participant ceases to be a director of the Company, or (iii) the date for commencement of payment designated in the election form which deferred Director's Compensation to the Account. If an installment type payment form has been designated, each subsequent installment shall be made as soon as administratively feasible in the calendar year in which such installment falls due. c. Designation of Beneficiary. A Participant may at any time designate the beneficiary or beneficiaries to whom any payment made from the Participant's Accounts shall be made after the Participant's death. Such designation shall be in writing and shall not become effective until filed with the Senior Vice President - Human Resources of the Company. If no designation is on file with the Senior Vice President - Human Resources of the Company or if the person so designated is not living or otherwise in existence at the time of the Participant's death, then the deceased Participant's estate shall be deemed to be the Participant's designated beneficiary. If the designated beneficiary survives the Participant's death but dies thereafter before all distributions from the Participant's Accounts have been made, any remaining distribution shall be made to the estate of the designated beneficiary. Distribution of a Participant's Account for a Deferred Year to the designated beneficiary or the estate of the designated beneficiary shall be made in such payment form and at such time as has been designated by the Participant in the election form which deferred Director's Compensation to the Account. 5. Nature and Source of Payments. Any amount credited by the Company to Participant's Accounts shall constitute a liability of the Company to the Participant or, after the Participant's death, to the designated beneficiary. Any payment with respect to a Participant's Accounts shall be made from the general funds of the Company. No special or separate fund shall be established or segregation of assets made to assure such payment and no Participant and/or designated beneficiary shall have any interest in any particular asset of the Company by virtue of the existence of a credit balance in the Participant's Accounts. 6. Administration. The Board has authorized the Senior Vice President - Human Resources of the Company to administer, construe and interpret this Plan and his construction and interpretation of any provision of this Plan shall be final, conclusive and binding upon the Company and any Participant and/or designated beneficiary. The Senior Vice President - Human Resources of the Company shall not be liable for any act done or determination made in good faith. 7. Non-Alienation of Benefits. No benefit under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt at such shall be void. Benefits under this Plan shall not in any way be subject to the debts, contracts, liabilities, engagements, or torts of the person who shall be entitled to the payment thereof, nor shall such benefits be subject to attachment, garnishment, or legal process for or against such person. 8. Plan Amendment or Termination. The Board may terminate this Plan at any time or may amend or modify this Plan at any time and from time to time; provided, however, that the amendment or termination of this Plan shall in no way affect the right of a Participant and/or, following the Participant's death, the designated beneficiary to the receipt of the then credit balances of the Participant's Accounts, plus subsequent interest crediting and CPI Adjustments. EX-10.9 18 EXECUTIVE INCENTIVE COMPENSATION PLAN EXHIBIT 10.9 ------------ TENNECO INC. ------------ EXECUTIVE INCENTIVE COMPENSATION PLAN ------------------------------------- PLAN DOCUMENT ------------- Adopted: April 1 , 1975 Amended: March 4, 1981 Amended: March 1, 1986 Amended: July 31, 1986 Amended: January 1, 1993 Amended: March 14, 1995 TENNECO INC. ------------ EXECUTIVE INCENTIVE COMPENSATION PLAN ------------------------------------- Section 1. Establishment and Purpose 1.1 Establishment of the Plan. Tenneco Inc. hereby establishes the "TENNECO INC. EXECUTIVE INCENTIVE COMPENSATION PLAN" (the "Plan"), set forth herein, effective January 1, 1975. 1.2 Purpose. The objectives of the Plan are to: (a) Reinforce a results-oriented management culture with executive pay that varies according to corporate, division, and individual performance against extraordinarily aggressive goals. (b) Provide incentives, in the form of substantial reward potential, for executives to remain employees of the Company. (c) Focus on business results that include financial measures such as net income, cash flow, and economic value added (EVA) with improvement in cost of quality, safety, environmental, risk management, effective leadership and equal employment opportunities performance. (d) De-emphasize fixed compensation in the form of base salary and place greater emphasis on variable performance-based compensation. (e) Provide key executives with competitive levels of total current compensation and incentive earning opportunities commensurate with the results achieved and individual performance. (f) Provide plans that are simple and easy to describe and understand. Section 2. Plan Definitions (a) Company means Tenneco Inc. and any successor employer which adopts the Plan and any subsidiary corporation designated by the Board as eligible to participate in the Plan; except that when used with reference to authority under this Plan, Company shall mean Tenneco Inc. exclusively. (b) Board means the Board of Directors of the Company. (c) Compensation and Benefits Committee means those members of the Compensation and Benefits Committee of the Board who are not employees of the Company. This Committee is charged with the overall responsibility for this Plan. (d) Corporate means the entity which is responsible for the overall management and staff support functions of the Company. (e) Division means each operating organizational entity which, through the conduct of its business, produces revenues for the Company. (f) Executive means a regular, full-time salaried employee of the Company who is in a position meeting the defined eligibility criteria for participation in the Plan. (g) Participant means an executive who has been approved for participation in the Plan. (h) Effective Date means January 1, 1975. (i) Plan Year means the calendar year. (j) Salary Grade means the position classification assigned to the Participant in accordance with the position evaluation system adopted by Tenneco Management for Plan purposes. (k) EICP Objectives means the "Target" (Budget) level of financial objectives (e.g., net income, cash flow, and economic value added (EVA)) or other operating measurements for the Plan Year, assigned annually by the Company to each Division. This represents the expected level of achievement for the Plan Year. The target goal (budget) for Corporate will be the Company's consolidated operating measurements. (l) Individual Incentive Target Award means the anticipated individual incentive award to be allocated to a Participant in the event EICP objectives are met and his/her individual performance is fully satisfactory. The schedule of individual incentive target awards applicable to the various salary grades shall be determined by the Company. Section 3. Eligibility and Participation 3.1 Eligibility and Participation. Eligibility for participation in the Plan will be limited to those key executives who, by the nature and scope of their positions, regularly and directly make or influence policy decisions which significantly impact the overall results or success of the Company. The Company will receive recommendations for participation from Division Chief Executive Officers and appropriate Corporate Staff Officers. Each such nominated executive shall become a Participant upon being approved by the Company. All such executives approved for participation shall be notified of their selection as soon as practical following approval. 3.2 Cessation of Participation. The Company may withdraw its approval of an existing position at any time during the Plan Year. Participants whose employment is terminated during the Plan Year for reasons other than disability, death, or retirement under a Company retirement plan shall forfeit participation in the Plan unless otherwise authorized by the Company. At the sole discretion of the Company, participation may be prorated for participants who become disabled, die, retire or are assigned to a non-eligible position during the Plan Year. Section 4. Fund Generation 4.1 Division/Corporate Incentive Amounts. Annually, the Company shall establish Division and Corporate EICP Objectives (Target/Budget) applicable to each participating Division. In addition, the Company shall determine for each participating Division a target incentive amount equal to the sum of individual incentive targets. The Company may adjust the target incentive amount during the Plan Year to accommodate the admission or elimination of Participants to the Plan and to incorporate adjustments to individual incentive targets of Participants whose salary grade changes during the Plan Year. Division and corporate incentive funds will be determined based on the budgeted financial objectives (e.g., net income, cash flow and EVA) with each weighted to reflect appropriate emphasis. The size of the incentive fund applicable to each division will be determined as follows: 1995 FINANCIAL OBJECTIVES A preliminary fund will be established based on performance against financial objectives from the Annual Operating Plan (AOP). These objectives will include but will not be limited to net income, cash flow and economic value added (EVA). - Performance on AOP for net income, cash flow and EVA will generate a fund equal to the sum of individual target awards. - Performance below AOP will not result in an incentive fund except as determined by Tenneco Management taking into consideration the reasons that AOP was not attained. - Performance above AOP may result in a higher than target level fund as determined by Tenneco Management taking into consideration the reasons that AOP was exceeded. 1995 NON-FINANCIAL OBJECTIVES Quantitative Adjustments Once the preliminary fund is established, the following quantitative adjustment factors will be applied to determine a final incentive fund: - Environmental Performance - Safety Performance - Cost of Quality Takeout, NOI Impact and Discovery - EEO Performance Each of these quantitative adjustment factors will be applied a maximum of 5% for a total increase/decrease to the fund of as much as 20%. Qualitative Adjustments The following qualitative adjustment factors will also be applied: - Global Market Development - Customer Satisfaction - Leadership of Change - Leadership Development (Recruiting/Staffing/Training) - Operational Considerations (division specific) These qualitative factors will be applied to increase the fund as much as an additional 10%. 4.2 Committee Authority. The Committee shall have the right at any time in its sole discretion to modify, eliminate or withdraw for such period or periods as it may determine, the incentive amounts, in part or in whole, to be made available under this Section 4 for payment of awards to any or all participating Corporate or Division entities or any Participant or Participants hereunder. Section 5. Determination of Individual Awards 5.1 Determination of Individual Incentive Target Awards. Annually, the Compensation and Benefits Committee shall determine the Salary Grade applicable to the Chairman and CEO of the Company and the Company shall determine the salary grade applicable to all other Participants. Each Participant's individual incentive target award will be determined by the Company. 5.2 Determination of Individual Incentive Awards. Actual individual awards to be paid to Participants will vary above or below the assigned individual incentive target awards dependent upon each individual's performance in accordance with guidelines prescribed by the Company. The actual award to a Participant must be approved by both the Company and the Compensation and Benefits Committee (or only the Committee for awards applicable to the Chairman and President of the Company) and shall not exceed 100% of the Participant's annual base salary. Section 6. Form of Timing of Awards Payment of Individual Awards. The actual awards to be paid to participants in accordance with Section 5.2 shall be paid in cash as soon as practical once final operating performance is available. Section 7. Administration This Plan shall be administered by the Company in accordance with rules that may be established from time to time by the Compensation and Benefits Committee. The determination of the Company as to any disputed question arising under this Plan, including any question of construction or interpretation, shall be final, binding, and conclusive upon all persons. Section 8. Amendment and Termination The Committee, in its absolute discretion and without notice, may at any time and from time to time modify or amend, in whole or in part, any or all of the provisions of this Plan, or suspend or terminate it entirely. Section 9. Applicable Laws This Plan shall be construed, administered and governed in all respects under and by the laws of the State of Texas. EX-10.10 19 TENNECO INC. DEFERRED COMPENSATION PLAN EXHIBIT 10.10 ------------- TENNECO INC. DEFERRED COMPENSATION PLAN DECEMBER 1967 AS AMENDED JANUARY 1, 1970, AMENDED AND RESTATED JANUARY 1, 1980, AMENDED AND RESTATED JANUARY 1, 1982, AMENDED AND RESTATED AUGUST 1, 1984, AMENDED AND RESTATED NOVEMBER 1, 1984, AMENDED AND RESTATED JANUARY 1, 1986, AMENDED AND RESTATED JANUARY 1, 1987, AMENDED AND RESTATED NOVEMBER 1, 1988, AND AMENDED AND RESTATED SEPTEMBER 12, 1995. 1. NAME AND PURPOSE. The name of this plan is the "Tenneco Inc. Deferred Compensation Plan" (the Plan). The purpose of this Plan is to provided reward and incentive to employees who contribute to the success of the Company's business by their ability, industry, loyalty, inventiveness, or exceptional service, through making such employees participants in that success. 2. DEFINITIONS. For purposes of this Plan, the following definitions shall be applicable: a. The term "Employee" shall mean any person who is regularly employed on a salaried basis by the Company or by a Qualified Subsidiary, including, but not limited to, any employee who is also an officer or director of the Company or of a Qualified Subsidiary. b. The term "Participant" shall mean an Employee who has been credited with any portion of an award pursuant to Section 4 hereof for any year during which this Plan is in effect and who (or whose beneficiary) has not received the total vested portion of the balance of the Participant's account. c. The term "Company" shall mean Tenneco Inc. d. The term "Qualified Subsidiary" shall mean a company 50 percent or more of whose voting stock is owned (directly or through another Qualified Subsidiary) by the Company. e. The term "Board of Directors" shall mean the Board of Directors of the Company. f. The term "Compensation and Benefits Committee" shall mean the Compensation and Benefits Committee established by the Board of Directors. g. The term "Normal Retirement Date" when applied to a Participant shall mean the Participant's Normal Retirement Date under the Tenneco Inc. Retirement Plan. h. The term "Early Retirement Benefit" shall mean an Early Retirement Benefit under the Tenneco Inc. Retirement Plan. i. The term "Disability" shall have the same meaning as that provided in the Tenneco Inc. Retirement Plan. j. The term "Accumulation Limit" shall mean $1.5 million or such other amount as the Compensation and Benefits Committee may, from time to time, designate as in effect. 3. ADMINISTRATION. The Board of Directors has designated the Compensation and Benefits Committee to administer, construe and interpret this Plan. The construction and interpretation by the Compensation and Benefits Committee of any provision of this Plan shall be final, conclusive and binding upon all parties, including the Company, its stockholders and its Employees. No member of the Compensation and Benefits Committee shall be liable for any act done or determination made in good faith. 4. ACCOUNTING. The Company shall create a Deferred Compensation Ledger under which an account shall be maintained in the name of each Employee who is selected by the Board of Directors to be a Participant. Each Participant's account shall be maintained in accordance with the following rules: a. CREDITING OF AWARD. The Participant's award for a particular calendar year, if any, shall be declared by the Board of Directors as of the commencement of the calendar year. As of the first day of each month of the calendar year, the Participant's account will be credited for 1/12 of the award, provided, that on such day the Participant is an employee. b. INTEREST. As of the last day of each month on which the Participant is an Employee, interest for the month shall be credited on the closing balance of the Participant's account as of the last day of the immediately preceding month at a rate (or rates) that is equal to the Prime Interest Rate (or Rates) announced by the Chase Manhattan Bank for such later month (or applicable portions thereof). c. CPI ADJUSTMENT. If the Participant is an Employee on the last day of a calendar year (the "current year"), then as soon as is administratively feasible following the completion of the current year, the percentage change in the Consumer Price Index For All Urban Households as prepared by the Bureau of Labor Statistics (the "CPI") as of the last day of the current year from the CPI as of the last day of the preceding calendar year shall be calculated. The -2- award credited to the Participant's account for the current year and the sum of each award credited to the Participant's account for each preceding calendar year plus the total allowable CPI adjustments that have previously been determined with respect thereto shall be separately multiplied by the percentage to determine the current year CPI adjustment to the award credited for the current year and to the award credited for each preceding calendar year. The total of the allowable current year CPI adjustments to the award credited for the current year and to the award credited for each of the preceding calendar years shall be credited to (or, if negative, debited from) the Participant's account as of the last day of the current year. In the event that a Participant ceases to be an Employee prior to the last day of the current year, the percentage change in the CPI as of the last day of the month coinciding with or immediately preceding the date upon which the Participant ceased to be an Employee from the CPI of the last day of the preceding calendar year shall be calculated. Such percentage shall be utilized to determine the total of the allowable current year CPI adjustments to the award credited for the partial current year and to the award credited for each of the preceding calendar years in the manner hereinbefore described and such total shall be credited to (or, if negative, debited from) the Participant's account as of the last day of the month coinciding with or immediately preceding the date upon which the Participant ceased to be an Employee. For purposes of the foregoing, no current year CPI adjustment to an award credited for any calendar year shall be allowable to the extent that such adjustment, when added to all previous CPI adjustments to such award, would exceed the original amount of the award credited for the calendar year. d. VESTING. A Participant will vest in any award credited to his or her account for a particular calendar year beginning on or after January 1, 1980, and in any CPI adjustments made to such award, based upon the consecutive calendar years, commencing with the particular calendar year, throughout which the Participant has been an Employee, in accordance with the following schedule: CALENDAR VESTING YEARS OF EMPLOYMENT PERCENTAGE 1 33 1/3% 2 66% 3 100% Notwithstanding the foregoing, a Participant will be fully vested in all awards credited to his or her account and in all CPI adjustments made to such awards (i) if the Participant continues to be an Employee until the earliest of attainment of his or her Normal Retirement Date, attainment of eligibility to elect to receive an Early Retirement Benefit or termination of employment -3- on account of disability or death; or (ii) if the Compensation and Benefits Committee determines that it would be in the best interests of the Company to fully vest the Participant upon termination of employment. A Participant will always be fully vested in any interest that has been credited to his or her account. 5. PAYMENT OF BENEFITS. Distributions under this Plan shall be made only in accordance with the following rules: a. RETIREMENT OR DISABILITY. In the case of a Participant who ceases to be an Employee after having attained his or her Normal Retirement Date or having attained eligibility to elect to receive an Early Retirement Benefit or on account of disability, the Participant shall be entitled to receive an amount equal to the balance of the Participant's account in a lump sum as soon as administratively feasible following the reporting of the CPI as of the last day of the month during which he or she ceased to be an Employee or in a number of post termination annual installments, not to exceed five, as the Participant shall elect. Interest and CPI adjustment will continue to be credited to a Participant's account when a post termination distribution is elected. b. OTHER TERMINATION OF EMPLOYMENT. In the case of a Participant who ceases to be an Employee, otherwise than on account of disability, after attainment of his or her Normal Retirement Date or after attainment of eligibility to elect to receive an Early Retirement Benefit, the Participant shall be entitled to receive an amount equal to the vested portion of the balance of the Participant's account in 60 equal monthly installments commencing as of the first day of the monthly immediately following the reporting of the CPI as of the last day of the month during which he or she ceased to be an Employee. However, in the event a Participant ceases to be an Employee on or after November 1, 1988, the Compensation and Benefits Committee, in its sole and absolute discretion, may direct that, in lieu of said installments, the Participant shall be paid an amount equal to the vested portion of the balance of the Participant's account in a lump sum as soon as administratively feasible following the reporting of the CPI as of the last day of the month during which he or she ceases to be an Employee. No interest or CPI adjustments will be credited following termination of employment for reasons other than disability, retirement, or death. c. DEATH DURING EMPLOYMENT. In the case of a Participant who dies while an Employee, the Participant's beneficiary shall be entitled to receive an amount equal to the balance of the Participant's account in a lump sum as soon as administratively feasible following the reporting of the CPI as of the last day of the month during which the Participant's death occurred or in a number of post termination annual installments, not to exceed five, as elected by the Administrator of the Participant's estate. Interest and CPI adjustments -4- will continue to be credited to the account when a post termination distribution election is made. d. ACCUMULATION LIMIT. In the event the balance of a Participant's account as of the last day of a calendar year equals or exceeds the Accumulation Limit then in effect, an amount equal to the Distribution Amount shall be distributed to the Participant in a lump sum as soon as administratively feasible following the expiration of the calendar year and the crediting of CPI adjustments for the calendar year to the Participant's account, provided, that if the Participant ceases to be an Employee prior to such distribution, distribution shall be suspended and, thereafter, shall be made in accordance with paragraphs a, b, or c, whichever applicable. For purposes of the foregoing, the Distribution Amount shall be equal to the sum of: (i) each award, credited to the Participant's account for a particular calendar year, in which the Participant is 100% vested and with respect to which net CPI adjustments have been credited to the Participant's account in an amount equal to the original amount of the award credited, determined as of the close of the calendar year; plus (ii) the net CPI adjustments credited to the Participant's account with respect to each award included in clause (i); plus (iii) the portion of interest credited to the Participant's account that is allocated to each award included in clause (i) and to the net CPI adjustments included in clause (ii), determined in accordance with such allocation methods as may be approved for such purpose by the Compensation Committee. e. DEATH FOLLOWING TERMINATION OF EMPLOYMENT. In the case of a Participant who dies after ceasing to be an Employee and before having received an amount equal to the entire vested portion of the balance of his or her account, the Participant's beneficiary shall be entitled to receive an amount equal to the remainder of the vested portion of the balance of the Participant's account in a continuation of such form of distribution as the Participant was receiving prior to death, or if distribution to the Participant had not commenced, in such form as to which the Participant was entitled under paragraphs a, b, or c. In the event that, upon written application of the recipient Participant or beneficiary, the Compensation and Benefits Committee determines that distribution in the form or commencing at the time specified above would impose a significant hardship on the recipient, the Compensation and Benefits -5- Committee may authorize distribution in a different form or commencing at a different time. Notwithstanding anything to the contrary contained in the foregoing provisions of this Section 5: (i) if distribution of a Participant's account is to commence on or after September 1, 1984 and at the time of such commencement the vested portion of the balance of the account does not exceed fifteen thousand dollars ($15,000.00), said portion shall be distributed in a lump sum, and shall not be distributed in installments. (ii) if, after distribution of a Participant's account in installments has commenced, the vested portion of the balance of the account at any time on or after September 1, 1984 does not exceed fifteen thousand dollars ($15,000.00), said portion shall promptly be distributed in a lump sum, and shall not continue to be distributed in installments. (iii) if a Participant ceased to be an Employee under circumstances described in paragraphs (a) or (c) and distribution of the Participant's account in installment form commenced prior to January 1, 1986, the remaining balance of the account shall continue to be distributed in such installment form. The amount of any distribution to a Participant or his or her beneficiary during a month shall be debited, as of the last day of the immediately preceding month, against the vested portion of the balance of the Participant's account. 6. DESIGNATION OF BENEFICIARY. Each Participant may at any time designate the beneficiary or beneficiaries to whom payments hereunder shall be made on account of the Participant's death. Any such designation shall be in writing and filed with the Compensation and Benefits Committee. If no such designation is on file with the Compensation and Benefits Committee or if no person so designated is living, or otherwise in existence, at the time of the Participant's death, then the deceased Participant's estate shall be deemed to be his or designated beneficiary. 7. NATURE AND SOURCE OF BENEFIT PAYMENTS. Portions of awards credited pursuant to Section 4 hereof are compensation for services, and the benefits provided herein with respect to such amounts shall constitute a liability of the Company to the Participants and/or the beneficiaries in accordance with the terms hereof. The payment of such benefits shall be made from the general funds of the Company. No special or separate fund shall be established or other segregation of assets made to assure the payment of such benefits and no Participants shall have any interest in any particular asset of the Company by virtue of the existence of a credit balance in such Participant's account. -6- 8. EXPENSES OF ADMINISTERING PLAN. All expenses of administering this Plan shall be borne by the Company and no part thereof shall be charged against any Participant's account. 9. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may: a. terminate this Plan at any time; and b. amend or modify this Plan, from time to time, in any respect; c. provided, that any amendment or termination of this Plan shall in no way affect the rights of any Participant or beneficiary to the receipt of benefits to the extent of the balance of the Participant's account at the time of such amendment or termination. 10. NON-ALIENATION OF BENEFITS. No benefit under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt at such shall be void, and any such benefit shall not in any way be subject to the debts, contracts, liabilities, engagements, or torts of the person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person. 11. CLAIMS PROCEDURE. The Compensation and Benefits Committee shall establish a claims procedure which satisfies the requirements of the Employee Retirement Income Security Act of 1974. APPROVED ON BEHALF OF THE BOARD OF DIRECTORS By /s/ Dana G. Mead ----------------------------- Pursuant to Section 11 of the Tenneco Inc. Deferred Compensation Plan (the "Plan"), the Compensation and Benefits Committee of the Board of Directors of Tenneco Inc. (the "Compensation and Benefits Committee") adopts the following procedure for use in the administration of the Plan: TENNECO INC. DEFERRED COMPENSATION PLAN CLAIMS PROCEDURE A. CLAIMS OF BENEFITS 1. As a prerequisite to payment of any benefit under the Plan, the Participant or the beneficiary of the deceased Participant shall make a claim in such -7- manner as the Compensation and Benefits Committee may reasonably require; 2. Promptly upon the receipt of such claim, the Compensation and Benefits Committee shall determine whether the claimant is entitled to the benefit and, if so, the amount thereof. B. DENIAL OF BENEFITS In the event that any claim for a benefit under this Plan is denied, in whole or in part, the Compensation and Benefits Committee shall furnish the claimant with a written notice setting forth in a manner calculated to be understood by the claimant: 1. The specific reasons for the denial; 2. Specific reference to any pertinent provisions of this Plan upon which the denial is based; 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and 4. Appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review. A claim shall be deemed denied if the Compensation and Benefits Committee does not approve the claim and fails to furnish the aforesaid notice of denial before the expiration of a period commencing with its receipt of the claim and consisting of 90 days, plus such extension of time for processing the claim, not to exceed 90 additional days, as special circumstances require, provided, that, prior to the expiration of the initial 90 days of the period, the claimant has been furnished with a written notice, which indicates the special circumstances requiring the extension and the date by which a decision regarding the claim is expected to be rendered. C. PROCEDURE FOR REVIEW OF DENIED CLAIMS A claimant whose claim for a benefit under the Plan is denied, either in whole or in part, shall have the right, to be exercised be written application filed with the Compensation and Benefits Committee not later than the 60th day after receipt of notice of such denial, to request a review of the claim. Such request for review may contain such issues and comments as the claimant may wish considered in the review and the Compensation and Benefits Committee shall permit the claimant to review pertinent documents in its possession, including copies of the Plan. The Compensation and Benefits Committee shall make a final determination with respect to the claim as soon as practicable. Notice of the final determination shall be furnished to the claimant in writing, in a manner reasonably calculated to be -8- understood by the claimant, and shall set forth the specific reasons for the determination and specific references to any pertinent provisions of the Plan upon which the determination is based. A claim shall be deemed denied on review if the Compensation and Benefits Committee fails to furnish the aforesaid notice of final determination before the expiration of a period commencing with its receipt of the request for review of the claim and consisting of 60 days, plus such extension of time for completing the review, not to exceed 60 additional days, as special circumstances require, provided, that prior to the expiration of the initial 60 days of the period, the claimant has been furnished with a written notice which indicates the special circumstances requiring the extension and the date by which a decision regarding the review of the claim is expected to be rendered. APPROVED ON BEHALF OF THE COMPENSATION AND BENEFITS COMMITTEE By /s/ Dana G. Mead ----------------------------- -9- EX-10.11 20 TENNECO INC. 1996 DEFERRED COMPENSATION PLAN EXHIBIT 10.11 ------------- TENNECO INC. 1996 DEFERRED COMPENSATION PLAN (TENNECO INC. 1993 DEFERRED COMPENSATION PLAN AS AMENDED AND RESTATED TO NEW TENNECO PLAN) 1. PURPOSE The purpose of the Tenneco Inc. 1996 Deferred Compensation Plan (the "Plan") is to provide to a select group of management or highly compensated employees of Tenneco Inc. and its subsidiaries and affiliates (hereinafter collectively referred to as "Tenneco") an opportunity to defer compensation received by them from Tenneco in accordance with the terms and conditions set forth herein. 2. ADOPTION AND ADMINISTRATION The Plan shall be adopted by the Board of Directors of Tenneco Inc. and administered by the Compensation and Benefits Committee of the Tenneco Inc. Board of Directors (the "Committee"). The Committee shall have sole and complete authority and discretion to interpret the terms and provisions of the Plan and to adopt, alter and repeal such administrative rules, regulations and practices governing the operation of the Plan, and to determine facts under the Plan as it shall from time to time deem advisable. 3. ELIGIBILITY U.S. paid participants in the Tenneco Inc. Executive Incentive Compensation Plan shall be eligible to participate in the Plan. Such persons shall be collectively referred to as the "Participant" or "Participants" as the case may be. 4. ELECTION TO DEFER (a) A Participant may elect in writing to defer receipt of all or a specified portion of his or her bonuses or incentive compensation to be received during a calendar year; provided, however, that any election, occurring after August 15, 1996 by a Participant who is subject to the reporting and short swing profits liability provisions of Section 16 of the Securities Exchange Act of 1934, as amended, to defer income into a "Tenneco stock index account" pursuant to Section 6 of the Plan shall not be effective until such election and the transactions contemplated thereby shall have been specifically approved by the Committee. Amounts deferred under this Section 4(a) shall be referred to as the "Deferred Amounts". Once received by the Committee, an election cannot be revoked. (b) Except as provided in this Section 4(b) or in Section 14, the election must be made prior to September 30 of the calendar year in which the bonus or incentive compensation will be awarded. A Participant must make a separate election with respect to each calendar year of participation in the Plan. A new Participant in the Plan shall have 30 days following his or her notification by the Committee of his or her eligibility to participate in the Plan to make an election with respect to bonus or incentive compensation to be awarded within the calendar year. (c) As specified by the Participant in the election to defer, the period of deferral shall be until the Participant dies, terminates employment with Tenneco, or until a specific date selected by the Participant in the election to defer. 5. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNT At the time of the Participant's initial election to defer pursuant to Section 4 or 13, the Tenneco company which employed the Participant shall establish a memorandum account (a "Deferred Compensation Account") for such Participant on its books. The Deferred Amount shall be credited to the Participant's Deferred Compensation Account as of the day on which the Participant would otherwise be entitled to receive the bonus or incentive compensation. Any required withholding for taxes (e.g. Social Security taxes) on the Deferred Amount shall be made from other compensation of the Participant. Adjustments as provided in Section 6 below, shall be made to the Participant's Deferred Compensation Account. 6. ADJUSTMENTS TO DEFERRED AMOUNTS The Committee shall credit the balance of the Participant's Deferred Compensation Account with an earnings factor. The earnings factor will equal the amount the Participant's Deferred Compensation Account would have earned if it had been invested in the investment options listed below. The Participant is permitted to select the investment option used to determine the earnings factor and may change the selection at any time. The Participant may choose more than one investment option in increments of at least one (1) percent. The company reserves the right to change or amend any of the investment options at any time. The investment options used to determine the earnings factor are: (a) The prime rate of interest as reported by The Chase Manhattan Bank at the first day of each calendar month. 2 (b) Tenneco stock index account -- amount of deferral will be invested in Tenneco stock equivalent unit account. Any investment in this account will be measured solely by the performance of the company's common stock (including dividends that will be reinvested). (c) The return for selected Mutual Funds currently offered in the Tenneco Inc. Thrift Plan: (1) Fidelity Growth Company Fund (2) BZW Barklays U.S. Debt Index Fund (Bond) (3) BZW Barklays Daily Equity Index Fund Tenneco is under no obligation to acquire or provide any of the investments designated by a Participant, and any investments actually made by Tenneco will be made solely in the name of Tenneco and will remain the property of Tenneco. The crediting of an earnings factor shall occur so long as there is a balance in the Participant's Deferred Compensation Account regardless of whether the Participant has terminated employment with Tenneco. 7. PAYMENT OF DEFERRED AMOUNTS (a) Except as otherwise provided in subsection (b), (c) or (d) below, a Participant's Deferred Amount shall be paid, or commence to be paid, to the Participant, or the Participant's beneficiary, as soon as practicable after: (i) the Participant's death, (ii) the termination of Participant's Tenneco employment, or (iii) the date specified in the election made by the Participant. In the event of the Participant's death, payment of the balance in the Participant's Deferred Compensation Account shall be made, either (i) in a lump sum or (i) in a number of annual installments, not to exceed five, as soon as administratively feasible to the Participant's designated beneficiary, or if none, to the Participant's estate. (b) The Participant may elect to receive payment of the balance of his or her Deferred Compensation Account either (i) in a lump sum upon termination or (ii) in a single payment at a specified date prior to termination or (iii) in a number of post termination annual installments, not to exceed five, as the Participant shall elect. The distribution election must be made at least one year before the Deferred Amount is payable and must have approval 3 of the Committee. If no election is made, a lump sum payment will be made upon a Participant's termination. (c) Anything contained in this Section to the contrary not withstanding, in the event a Participant incurs a severe financial hardship, the Committee, in its sole discretion and upon written application of such Participant, may direct immediate payment of all or a portion of the then current value of such Participant's Deferred Compensation Account; provided that such payment shall in no event exceed the amount necessary to alleviate such financial hardship; and provided further that in the case of such payment, the Participant's Deferred Compensation Account shall be reduced by 110% of the amount of such payment. 8. PARTICIPANT REPORTS The Committee shall provide a statement to the Participant quarterly concerning the status of his or her Deferred Compensation Account. 9. TRANSFERABILITY OF INTERESTS During the period of deferral, all Deferred Amounts shall be considered as general assets of the Tenneco companies which employ or have employed the Participant for use as they deem necessary and shall be subject to the claims of the companies' creditors. The rights and interests of a Participant during the period of deferral shall be those of a general creditor except that such Participant's rights and interests may not be reached by the creditors of the Participant or the beneficiary, or anticipated, assigned, pledged, transferred or otherwise encumbered except in the event of the death of the Participant, and then only by will or the laws of descent and distribution. 10. AMENDMENT, SUSPENSION AND TERMINATION Tenneco Inc. at any time may amend, suspend or terminate the Plan or any portion thereof in such manner and to such extent as it may deem advisable and in the best interests of Tenneco. No amendment, suspension and termination shall reduce the amount then credited to a Participant's Deferred Compensation Account. 11. UNFUNDED OBLIGATION The Plan shall not be funded; no trust, escrow or other provisions shall be established to secure payments due under the Plan; and the Plan shall be regarded as unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended, and the 4 Internal Revenue Code. A Participant shall be treated as a general, unsecured creditor at all times under the Plan, and shall have no rights to any specific assets of any Tenneco company. All amounts credited to the memorandum accounts of the Participants will remain general assets of the respective companies. 12. NO RIGHT TO EMPLOYMENT OR OTHER BENEFITS Nothing contained herein shall be construed as conferring upon any Participant the right to continue in the employ of Tenneco. Any compensation deferred and any payments made under this Plan shall not be included in creditable compensation in computing benefits under any employee benefit plan of Tenneco except to the extent expressly provided for therein. 13. DISPUTE RESOLUTION By participating in the Plan, the Participant agrees than any dispute arising under the Plan shall be resolved by binding arbitration in Greenwich, Connecticut under the rules of the American Arbitration Association and that there will be no remedy besides the disputed deferred compensation amount at issue. 14. EFFECTIVE DATE The Plan shall be effective on January 1, 1997 if previously approved by the Board of Directors of Tenneco Inc.; otherwise it shall be effective immediately after such approval. After such effective date, eligible Participants shall be permitted to make within 30 days an initial election to defer under Section 4 with respect to the bonus or incentive compensation to be awarded within the first calendar year of the Plan. 5 TENNECO INC. 1997 DEFERRED COMPENSATION PLAN ELECTION TO PARTICIPATE Pursuant to the Tenneco Inc. 1997 Deferred Compensation Plan, I hereby elect to defer, as provided in the Plan, the receipt of one of the following amounts from any bonus or incentive compensation to be awarded to me in calendar year _____ as a result of my employment by a Tenneco company: (Choose one) ( $_______________ ( ____% of such bonuses or compensation ( All such bonuses or compensation in excess of $______ I elect the following investment option(s) for the amount deferred under this Election to Participate: Election For Current Year ------------------------- Chase Prime Rate ______% Tenneco Common Stock Index Account ______% Fidelity Growth Company Fund ______% BZW Barclays U.S. Debt Index Fund (Bond) ______% BZW Barclays Daily Equity Index Fund ______% 100% Subject to the terms of the Plan, payment of such amounts shall be deferred until my death, termination of my Tenneco employment, or the following date ______________ (maximum 5 years from the date of termination). __________________________ (Participant Signature) __________________________ (Printed Name) __________________________ (Social Security Number) __________________________ (Division) __________________________ (Date) 6 Receipt Acknowledged on Behalf of Plan by: __________________________ __________________________ (Date) 7 EX-10.12 21 TENNECO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.12 ------------- THE AMENDED AND RESTATED TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PURPOSE ------- The Tenneco Inc. Supplemental Executive Retirement Plan (the "Plan") is maintained as an unfunded plan solely for the purpose of providing retirement benefits with respect to certain employees that are equal to retirement benefits lost under the Tenneco Inc. Retirement Plan (the "Retirement Plan") as a result of the imposition of the limitation, contained in Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), upon the amount of a Retirement Plan participant's annual compensation that may be taken into account under the Retirement Plan for any plan year. THE PLAN -------- Effective Date - -------------- This Plan is effective as of January 1, 1989. Eligibility - ----------- An employee shall be eligible for benefits under this Plan if the employee is a participant in the Tenneco Inc. Retirement Plan and the employee's benefits under the Retirement Plan are limited by provisions of the Retirement Plan which are designed solely to comply with Section 401(a)(17) of the Code. In no event shall an employee who is not entitled to benefits under the Retirement Plan be eligible for benefits under this Plan. An employee who is eligible for benefits under this Plan is identified herein as a "Participant". Except where this Plan expressly indicates otherwise, any term used in this Plan shall have the same definition that the term has in the Retirement Plan. Amount of Benefit - ----------------- The benefit payable under this Plan to a Participant, or to (the Participant's eligible spouse, Eligible Child(ren), joint annuitant or other beneficiary(ies), all as determined under the provisions of the Retirement Plan, shall equal the excess, if any, of (a) over (b) where: (a) is the benefit that would be paid to such Participant, or to the Participant's beneficiary(ies), under the Retirement Plan if the provisions of the Retirement Plan were administered without regard to the limitation imposed pursuant to Section 401(a)(17) of the Code upon the amount of annual compensation that may be taken into account under the Retirement Plan for any plan year, as well as the limitations imposed pursuant to Section 415 of the Code upon benefits that may be provided by the Retirement Plan; and (b) is the benefit that is payable to such Participant, or to the Participant's beneficiary(ies), under the Retirement Plan and under the Retirement Plan Benefit Equalization portion (arising with respect to the Retirement Plan) of the Tenneco Inc. Benefit Equalization Plan. Form of Benefit Any benefit under this Plan shall be paid to the Participant, or to his beneficiary, in the same form and manner as the benefit payments made to, or with respect to, the Participant under the Tenneco Inc. Retirement Plan ("TRP"). Notwithstanding the preceding sentence, a Participant or his beneficiary also may elect to receive payment of the benefit described in the section entitled Amount of Benefit in the form of a lump sum. In addition, if the benefit payable from this Plan (expressed as an age 65 life annuity) would be less than $50 per month, the benefit payable from this Plan automatically shall be paid as a lump sum. The actuarial factors set forth in the TRP shall be used to compute benefits hereunder. Funding This Plan shall be maintained as an unfunded plan which is not intended to meet the qualification requirements of Section 401 of the Code. All benefits under this Plan shall be payable solely from the general assets of or its appropriate affiliates of Tenneco Inc. No Participant or beneficiary shall be entitled to receive any benefits under this Plan from the funds maintained in accordance with the provisions of the Retirement Plan. No Assignment No benefit under this Plan shall be assignable or alienable or subjected, by attachment or otherwise, to the claims of creditors of a Participant or beneficiary. No Guarantee of Employment This Plan shall not be construed to give any Participant the right to be retained in the employment of Tenneco Inc. or any of its affiliates. Operation and Administration This Plan shall be operated under the direction of the Compensation and Benefits Committee of the Board of Directors of Tenneco Inc. and administered by the Tenneco Benefits Committee. The Tenneco Benefits Committee's decision in all matters involving the interpretation and application of this Plan shall be final and binding. The Tenneco Benefits -2- Committee shall establish a claims procedure which satisfies the requirements of the Employee Retirement Income Security Act of 1974, as amended. Governing Law To the extent not preempted by federal law, this Plan shall be construed, administered and enforced in accordance with the laws of the State of Texas. Amendment and Discontinuance Tenneco Inc. expects to continue this Plan indefinitely but reserves the right, by action of its Board of Directors, to amend or discontinue it, if the Board, in its sole judgment, deems such amendment or discontinuance to be necessary or desirable. However, no such amendment or discontinuance shall impair or adversely affect any benefits accrued under this Plan as of the date of such action (determined as if each Participant then employed had terminated his employment with Tenneco Inc. and its affiliates as of the date of such amendment or discontinuance). IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing, Tenneco Inc., a Delaware corporation, has caused its corporate seal to be affixed hereto and these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized this ____ day of __________________, 1996. (Corporate Seal) TENNECO INC. By: /s/ Robert G. Simpson ---------------------------- Senior Vice President -3- THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN CLAIMS PROCEDURE Pursuant to the provisions of the Tenneco Inc. Supplemental Executive Retirement Plan (the "Plan"), the Tenneco Benefits Committee (the "Committee") adopts the following claims procedure for use in the administration of the Plan: CLAIMS PROCEDURE A. Claims for Benefits 1. As a prerequisite to payment of any benefit under the Plan, the Participant or the beneficiary of the deceased Participant shall make a claim in such manner as the Committee may reasonably require; 2. Promptly upon the receipt of such claim, the Committee shall determine whether the claimant is entitled to the benefit and, if so, the amount thereof. B. Denial of Benefits In the event that any claim for a benefit under this Plan is denied, in whole or in part, the Committee shall furnish the claimant with a written notice setting forth in a manner calculated to be understood by the claimant: 1. The specific reasons for the denial; 2. Specific reference to any pertinent provisions of this Plan upon which the denial is based; 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and 4. Appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review. A claim shall be deemed denied if the Committee does not approve the claim and fails to furnish the aforesaid notice of denial before the expiration of a period commencing with its receipt of the claim and consisting of 90 days, plus such extension of time for processing the claim, not to exceed 90 additional days, as special circumstances require, provided, that, prior to the expiration of the initial 90 days of the period, the claimant has been furnished with a written notice, which indicates the special circumstances requiring the extension and the date by which a decision regarding the claim is expected to be rendered. -4- C. Review of Denied Claims A claimant whose claim for a benefit under the Plan is denied, either in whole or in part, shall have the right, to be exercised by written application filed with the Committee not later than the 60th day after receipt of notice of such denial, to request a review of the claim. Such request for review may contain such issues and comments as the claimant may wish considered in the review and the Committee shall permit the claimant to review pertinent documents in its possession, including copies of the Plan. The Committee shall make a final determination with respect to the claim as soon as practicable. Notice of the final determination shall be furnished to the claimant in writing, in a manner reasonably calculated to be understood by the claimant, and shall set forth the specific reasons for the determination and specific references to any pertinent provisions of the Plan upon which the determination is based. A claim shall be deemed denied on review if the Committee fails to furnish the aforesaid notice of final determination before the expiration of a period commencing with its receipt of the request for review of the claim and consisting of 60 days, plus such extension of time for completing the review, not to exceed 60 additional days, as special circumstances require, provided, that prior to the expiration of the initial 60 days of the period, the claimant has been furnished with a written notice which indicates the special circumstances requiring the extension and the date by which a decision regarding the review of the claim is expected to be rendered. APPROVED ON BEHALF OF THE TENNECO BENEFITS COMMITTEE: By: /s/ Kim R. Bacon ---------------------- -5- SPECIAL APPENDIX I TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Pursuant to the authority reserved by the Company to amend the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), the Plan is hereby amended by adding Special Appendix I thereto effective October 1, 1995. The purpose of this Special Appendix I to the Tenneco Inc. Supplemental Retirement Plan is to provide a window benefit "Window Benefit" to those highly compensated employees employed within the Tenneco Affiliated Group ("the Company") who elect to participate in the Tenneco Management Company Early Retirement Window Program ("Program"). The amount of the benefits payable under this Special Appendix I shall be in lieu of (i) any benefits that would otherwise be payable to a highly compensated employee of the Company if the Window Benefit was paid in accordance with Special Appendix XLV-AA of the Tenneco Inc. Retirement Plan ("TRP") and (ii) any benefits to which an Eligible Participant would otherwise be entitled under the Benefits Equalization Plan. The following rules shall govern notwithstanding any other provision of the Plan to the contrary: A. Window Benefit: (1) An Eligible Participant, as defined below, who retires from the Company during the Window Period shall receive one of the following: a. An addition two (2) Years of Participation, as defined in Section 1.37 of the TRP and an additional two (2) Years of Service as defined in Section 1.38 of the TRP; or b. An additional two (2) years of age under the TRP. Each Eligible Participant who elects to retire during the Window Period shall be permitted to elect which of the foregoing additions he shall receive. The elected addition shall be used for all purposes under this Plan. The additional years of age or Years of Service and Participation, as applicable, shall be added at the date the Eligible Participant actually separates from service with the Company. Notwithstanding the foregoing, nothing in this Special Appendix should be deemed to alter the TRP's rules which limit the number of Years of Participation or Years of Service counted. -6- (2) The amount of the Window Benefit shall be the difference between (a) the benefit payable under the TRP without regard to the restrictions of Sections 415 or 401(a)(17) of the Code, computed including the additional years of Participation, Years of Service or age as set forth in (1) above, and (b) the benefit actually payable under the TRP. (3) Benefits payable under this Special Appendix I shall be payable in a lump sum or in those forms of payment set forth in the TRP. (4) The spousal consent requirements and provisions with respect to payments to beneficiaries set forth in the TRP shall apply to the benefits payable under this Special Appendix I. (5) The benefit described in this Special Appendix I shall not be a permanent benefit under the Plan and its availability as a Plan benefit shall expire on September 30, 1996. B. Definitions: (1) Any capitalized term not defined in this Special Appendix shall have the same meaning as provided in the Plan or in the TRP, except where the context specifically provides for another meaning. For purposes of this Special Appendix, the following terms defined in this Section shall have the defined meaning when capitalized. a. "Eligible Participant" means an individual who during the Window Period and at the time retirement is elected, meets each of the following requirements: 1. is a Highly Compensated Employee; 2. is an active Participant under the TRP; 3. attains or has attained age 53 and at least ten (1) Years of Service or has attained age 55 and at least eight (8) Years of Service; 4. is an active Employee of Tenneco Management Company (discharged employees or those on lay-off status (permanent or temporary) and who are not accruing service under the TRP are not Eligible Participants); and 5. executes such documents as may be required by Tenneco Inc. or by the Tenneco Benefits Committee. -7- Notwithstanding the foregoing, the Chief Executive Officer of Tenneco Inc. and those individuals eligible for benefits under the Tenneco Inc. Pilots' Supplemental Retirement Plan shall not be Eligible Participants under the Plan. b. "Highly Compensated Employee" means an employee who on his date of termination of employment is a participant in the TRP (as defined therein) and is also a highly compensated employee within the meaning of section 414(q) of the Code. c. "Tenneco Affiliated Group" shall have the same meaning as set forth in the TRP. d. "Window Period" means the period beginning October 1, 1995 and ending September 30, 1996. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing, the Tenneco Benefits Committee hereby adopts this Special Appendix I on this _____ day of_________, 1996 to be effective as of October 1, 1995. TENNECO BENEFITS COMMITTEE By: /s/ Kim R. Bacon ----------------------------------- Its: Member -8- SPECIAL APPENDIX II TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Management Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), hereby amends the Plan to add Special Appendix II ("Special Appendix II") for the benefit of Robert T. Blakely ("Blakely"), and the parties hereto agree as follows, effective January 1, 1996: 1. The aggregate monthly pension benefits to which Blakely and his surviving spouse shall be entitled hereunder (provided that Blakely vests in such benefits as provided in Section 3 hereof) shall be equal to the additional benefits to which Blakely and his surviving spouse would be entitled under the Tenneco Inc. Retirement Plan, the Tenneco Inc. Benefit Equalization Plan and the Tenneco Inc. Supplemental Executive Retirement Plan (without regard to this Special Appendix II), each computed as a single life annuity and using the generally applicable rules and actuarial factors of such plans, except that Blakely's compensation used to compute his monthly pension benefit shall include his bonus for the year earned (regardless of when paid). 2. Blakely shall receive benefits under this Special Appendix II in the form of a single life annuity, or in a lump sum or in another form permitted under the Tenneco Inc. Retirement Plan. If Blakely dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the Tenneco Inc. Retirement Plan shall be used to compute the benefits payable hereunder. 3. Blakely shall vest in the pension benefit provided under this Special Appendix II as follows: (a) Provided that Blakely serves the Company as an officer until December 31, 1996, he shall be 50% vested in the benefit provided under this Special Appendix II. -9- (b) Provided that Blakely serves the Company as an officer until December 31, 1997, he shall be 100% vested in the benefit provided under this Special Appendix II. 4. Notwithstanding any other provision hereof, Blakely shall have a fully vested and non-forfeitable interest in the benefit provided under this Special Appendix II in the event of a Change in Control. For this purpose, "Change in Control" means a Change in Control as that term is defined in the Tenneco Benefits Protection Trust Agreement, a copy of which is attached for ease of reference. 5. This Special Appendix II shall be administered by the Company, and the Company shall bear all costs of administration. 6. This Special Appendix II contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 7. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 8. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 9. The Special Appendix II shall be construed, regulated and administered according to the laws of the State of Texas. 10. This Special Appendix II shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 11. Benefits to be paid under this Special Appendix II shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. -10- 12. This Special Appendix II may be amended or terminated only by written agreement between and among the parties hereto. /s/ Robert T. Blakely --------------------- Robert T. Blakely TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead ----------------------------------- Its -------------------------------- -11- SPECIAL APPENDIX III TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Management Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), hereby amends the Plan to add Special Appendix III for the benefit of John J. Castellani ("Castellani"), and the parties hereto agree as follows, effective January 1, 1996: 1. The monthly normal retirement pension benefits to which Castellani and his surviving spouse shall be entitled hereunder shall be equal to the normal retirement pension benefits to which Castellani and his surviving spouse would be entitled under the Tenneco Inc. Retirement Plan (the "TRP"), computed using the generally applicable rules of such plan and adding eleven (11) years of additional service, for all purposes, less the total of (i) any normal retirement benefit payable to Castellani from TRW's qualified defined benefit pension plan; and (ii) any normal retirement benefit payable under the TRP. 2. Castellani shall receive benefits under this Special Appendix III in the form of a single life annuity, or in a lump sum or in another form permitted under the Tenneco Inc. Retirement Plan. If Castellani dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the TRP shall be used to compute the benefits payable hereunder. 3. Castellani and his surviving spouse shall be entitled to benefits hereunder prior to his normal retirement under the following rules. If Castellani or his surviving spouse become entitled to benefits under the TRP under its generally applicable rules prior to Castellani attaining normal retirement, Castellani and his surviving spouse shall be entitled to a benefit hereunder equal to the benefit that would be payable under the TRP at the time in question if the benefit stated in Section 1 hereof were Castellani's normal retirement benefit under the TRP. Only actual service is counted for purposes of determining whether Castellani or his surviving spouse qualify for benefits under the TRP prior to Castellani attaining normal retirement. 4. This Special Appendix III shall be administered by the Company, and the Company shall bear all costs of administration. 5. This Special Appendix III contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 6. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 7. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 8. The Special Appendix III shall be construed, regulated and administered according to the laws of the State of Texas. 9. This Special Appendix III shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 10. Benefits to be paid under this Special Appendix III shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 11. This Special Appendix III may be amended or terminated only by written agreement between and among the parties hereto. /s/ John J. Castellani -------------------------- John J. Castellani TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead ------------------------ Its ______________________ SPECIAL APPENDIX IV TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Management Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), hereby amends the Plan to add Special Appendix IV ("Special Appendix IV") for the benefit of Stacy S. Dick ("Dick"), and the parties hereto agree as follows, effective January 1, 1996: 1. The monthly pension benefits to which Dick and his surviving spouse shall be entitled hereunder shall be equal to the additional benefits to which Dick and his surviving spouse would be entitled under the Tenneco Inc. Retirement Plan, the Tenneco Inc. Benefit Equalization Plan and the Tenneco Inc. Supplemental Executive Retirement Plan (without regard to this Special Appendix IV) (the "Tenneco Plans") each computed as a single life annuity and using the generally applicable rules and actuarial factors of such plans with the following special provisions: (a) For all purposes, including without limitation, benefit accrual and eligibility for early retirement benefits, Dick shall be credited with five (5) additional years of service; and (b) Dick's compensation used to compute his monthly pension benefit shall include his bonus for the year earned (regardless of when paid). 2. Dick shall receive benefits under this Special Appendix IV in the form of a single life annuity, or in a lump sum or in another form permitted under the Tenneco Inc. Retirement Plan. If Dick dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the Tenneco Inc. Retirement Plan shall be used to compute the benefits payable hereunder. 3. This Special Appendix IV shall be administered by the Company, and the Company shall bear all costs of administration. 4. This Special Appendix IV contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 5. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 6. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 7. The Special Appendix IV shall be construed, regulated and administered according to the laws of the State of Texas. 8. This Special Appendix IV shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 9. Benefits to be paid under this Special Appendix IV shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 10. This Special Appendix IV may be amended or terminated only by written agreement between and among the parties hereto. /s/ Stacy S. Dick -------------------------- Stacy S. Dick TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead ----------------------- Its_______________________ SPECIAL APPENDIX V TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Management Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), amends the Plan to add Special Appendix V for the benefit of Arthur H. House ("House"), and the parties hereto agree as follows, effective January 1, 1996: 1. The monthly normal retirement pension benefits to which House and his surviving spouse shall be entitled hereunder shall be equal to the normal retirement pension benefits to which House and his surviving spouse would be entitled under the Tenneco Inc. Retirement Plan (the "TRP"), computed using the generally applicable rules of such plan and adding five (5) years of additional service, for all purposes, including without limitation, benefit accrual and eligibility for early retirement benefits, less any benefit payable under the TRP. 2. House shall receive benefits under this Special Appendix V in the form of a single life annuity, or in a lump sum or in another form permitted under the Tenneco Inc. Retirement Plan. If House dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the TRP shall be used to compute the benefits payable hereunder. 3. This Special Appendix V shall be administered by the Company, and the Company shall bear all costs of administration. 4. This Special Appendix V contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 5. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 6. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 7. The Special Appendix V shall be construed, regulated and administered according to the laws of the State of Texas. 8. This Special Appendix V shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 9. Benefits to be paid under this Special Appendix V shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 10. This Special Appendix V may be amended or terminated only by written agreement between and among the parties hereto. /s/ Arthur H. House -------------------------- Arthur H. House TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead ------------------------ Its_______________________ SPECIAL APPENDIX VI TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Newport News Shipbuilding & Dry Dock Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), amends the Plan to add Special Appendix VI for the benefit of W. R. Phillips, Jr. ("Phillips"), as that term is defined herein, and the parties hereto agree as follows, effective January 1, 1996: 1. Phillips shall be entitled to a monthly life only pension benefit from the Company in the amount of $14,461.34 commencing on the first day of the calendar month immediately following the termination of his employment with the Company, less any normal retirement benefit payable under the Tenneco Inc. Retirement Plan (the "TRP"). Such benefit shall be converted to a benefit payable in either a lump sum or in the same form as Phillips's benefit under the TRP. If Phillips dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the TRP shall be used to compute the amount of the benefit payable hereunder. 2. This Special Appendix VI shall be administered by the Company, and the Company shall bear all costs of administration. 3. This Special Appendix VI contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 4. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 5. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 6. The Special Appendix VI shall be construed, regulated and administered according to the laws of the State of Texas. 7. This Special Appendix VI shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 8. Benefits to be paid under this Special Appendix VI shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 9. This Special Appendix VI may be amended or terminated only by written agreement between and among the parties hereto. IN WITNESS WHEREOF, and to record the adoption of this Special Appendix VI, the undersigned has executed this document this ____ day of ______________, 1996, on behalf of the Company. /s/ W.R. Phillips, Jr. -------------------------- W. R. Phillips, Jr. TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead ----------------------- Its ---------------------- SPECIAL APPENDIX VII TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Management Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), amends the Plan to add Special Appendix VII for the benefit of Barry R. Schuman ("Schuman"), and the parties hereto agree as follows, effective January 1, 1996: 1. The monthly pension benefits to which Schuman and his surviving spouse shall be entitled hereunder shall be equal to the additional benefits to which Schuman and his surviving spouse would be entitled under the Tenneco Inc. Retirement Plan, the Tenneco Inc. Benefit Equalization Plan, and the Tenneco Inc. Supplemental Executive Retirement Plan, (collectively, the "Tenneco Plans"), computed using the generally applicable rules of such plans, with the following special provisions: (a) For all purposes, including without limitation, benefit accrual, death benefits, normal retirement and eligibility for early retirement benefits, Schuman shall be credited with 11 additional years of service; and (b) Schuman's compensation used to compute his monthly pension benefit shall include his bonus earned for the year (regardless of when paid). 2. Schuman shall receive benefits under this Special Appendix VII in the form of a single life annuity, or in a lump sum or in another form permitted under the Tenneco Inc. Retirement Plan. If Schuman dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the Tenneco Inc. Retirement Plan shall be used to compute the benefits payable hereunder. 3. The aggregate monthly pension benefits to which Schuman and his surviving spouse shall be entitled under the Tenneco Plans and this Special Appendix VII shall be no less than the amount to which Schuman and his surviving spouse would have been entitled if Schuman's coverage under the Union Pacific Basic and Supplemental defined benefit plans in effect at the time he left Union Pacific had continued until Schuman's separation from service with the Company, less any benefits Schuman and his surviving spouse are entitled to receive from such Union Pacific defined benefit plans. 4. This Special Appendix VII shall be administered by the Company, and the Company shall bear all costs of administration. 5. This Special Appendix VII contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 6. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 7. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 8. The Special Appendix VII shall be construed, regulated and administered according to the laws of the State of Texas. 9. This Special Appendix VII shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 10. Benefits to be paid under this Special Appendix VII shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 11. This Special Appendix VII may be amended or terminated only by written agreement between and among the parties hereto. /s/ Barry R. Schuman -------------------------- Barry R. Schuman TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead ----------------------- Its ---------------------- SPECIAL APPENDIX VIII TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Packaging Inc. (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), hereby amends the Plan to add Special Appendix VIII ("Special Appendix VIII") for the benefit of Paul T. Stecko ("Stecko"), and the parties hereto agree as follows, effective January 1, 1996: 12. The aggregate monthly pension benefits to which Stecko and his surviving spouse shall be entitled under the Tenneco Inc. Retirement Plan, the Tenneco Inc. Benefit Equalization Plan, the Tenneco Inc. Supplemental Executive Retirement Plan (without regard to this Special Appendix VIII) (collectively, the "Tenneco Plans") and this Special Appendix VIII shall be no less than the amount to which Stecko and his surviving spouse would have been entitled if Stecko's coverage under the International Paper defined benefit plans in effect as of December 3, 1993, had continued until Stecko's separation from service with the Company, less any benefits Stecko and his surviving spouse are entitled to receive from such International Paper defined benefit plans. The amount of the benefits payable under the Tenneco Plans and the International Paper defined plans shall be computed as a single life annuity based on the actuarial factors applicable to each such plan. 13. If Stecko would not otherwise meet the service requirements for early retirement eligibility under the Tenneco Plans but he would meet such service requirements counting his years of service with International Paper, he and his surviving spouse shall be entitled to monthly benefits hereunder which, when taken together with monthly benefits to which he and his surviving spouse are entitled under the Tenneco Plans and the International Paper defined benefit plans, are no less than the benefits to which he and his surviving spouse would have been entitled (subject to the rule stated in Section 1 above) had he met such requirements. 14. For purposes of determining the amount to which Stecko and his surviving spouse would have been entitled if Stecko's coverage under the International Paper defined benefit plans in effect as of December 3, 1993, had continued until Stecko's separation from service with the Company, (i.e., the minimum benefit described in Section 1 hereof) all of Stecko's service with International Paper and the Company shall be aggregated to determine whether Stecko has met the service requirements for early retirement eligibility under the International Paper defined benefit plans. 15. Stecko shall receive benefits under this Special Appendix VIII in the form of a single life annuity. In addition Stecko may elect to receive benefits under this Special Appendix VIII in the form of a lump sum distribution or in any other form then permitted under the Tenneco Inc. Retirement Plan ("TRP"). If Stecko dies before commencing to receive the benefits described hereunder, his Beneficiary will receive a death benefit in a lump sum distribution which is the present value of the benefits which he has accrued hereunder as of the date of his death. If Stecko dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the TRP shall be used to compute the benefits payable hereunder. 16. This Special Appendix VIII shall be administered by the Company, and the Company shall bear all costs of administration. 17. This Special Appendix VIII contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 18. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 19. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 20. The Special Appendix VIII shall be construed, regulated and administered according to the laws of the State of Texas. 21. This Special Appendix VIII shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 22. Benefits to be paid under this Special Appendix VIII shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 23. This Special Appendix VIII may be amended or terminated only by written agreement between and among the parties hereto. /s/ Paul T. Stecko ----------------------------------------- Paul T. Stecko TENNECO PACKAGING INC. By /s/ Dana G. Mead -------------------------------------- Its -------------------------------------- SPECIAL APPENDIX IX TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN --------------------------------------------------- In consideration of his services to Tenneco Management Company (the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, pursuant to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan ("Plan"), amends the Plan to add Special Appendix IX for the benefit of Theodore R. Tetzlaff ("Tetzlaff"), and the parties hereto agree as follows, effective January 1, 1996: 1. The monthly pension benefits to which Tetzlaff and his surviving spouse shall be entitled, provided that Tetzlaff serves the Company as an officer until January 1, 1997, shall be equal to the benefits to which Tetzlaff and his surviving spouse would be entitled under the Tenneco Inc. Retirement Plan (the "TRP"), the Tenneco Inc. Benefit Equalization Plan, and the Tenneco Inc. Supplemental Executive Retirement Plan (collectively, the "Tenneco Plans"), each computed as a single life annuity and using the generally applicable rules and actuarial factors of such plans if he were a participant in such plans, computed using the following special provisions: (a) Tetzlaff's service and participation will be regarded as beginning July 1, 1992. (b) Tetzlaff's retainer and bonus for each calendar year will be prorated for each month that Tetzlaff performs services for the Company as an officer during the calendar year to arrive at a covered monthly compensation under the TRP formula. (c) If Tetzlaff reaches age 55 while performing services for the Company as an officer, Tetzlaff will be eligible for an early retirement benefit with subsidized reductions factors parallel to the TRP factors, even though Tetzlaff does not have the service or participation required under the TRP provisions. (d) Tetzlaff's guaranteed minimum annual life only benefit will be as follows: Age 55 $100,000 per year Age 60 $200,000 per year Age 65 $300,000 per year with a prorated guaranteed minimum annual life only benefit between the above ages. (e) In all other respects, the provisions of the Tenneco Plans shall apply. 2. Tetzlaff shall receive benefits under this Special Appendix IX in the form of a single life annuity, or in a lump sum or in another form permitted under the TRP. If Tetzlaff dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. The actuarial factors set forth in the TRP shall be used to compute the benefits payable hereunder. 3. This Special Appendix IX shall be administered by the Company, and the Company shall bear all costs of administration. 4. This Special Appendix IX contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written. 5. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 6. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 7. The Special Appendix IX shall be construed, regulated and administered according to the laws of the State of Texas. 8. This Special Appendix IX shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 9. Benefits to be paid under this Special Appendix IX shall be paid out of general corporate assets when due, and are not funded, or guaranteed by any government agency. 10. This Special Appendix IX may be amended or terminated only by written agreement between and among the parties hereto. /s/ Theodore R. Tetzlaff ----------------------------------------- Theodore R. Tetzlaff TENNECO MANAGEMENT COMPANY By /s/ Dana G. Mead -------------------------------------- Its -------------------------------------- EX-10.13 22 TENNECO BENEFIT EQUALIZATION PLAN Exhibit 10.13 ------------- AMENDED AND RESTATED TENNECO INC. BENEFIT EQUALIZATION PLAN 1. Name. The name of this plan is the "Tenneco Inc. Benefit Equalization Plan" (hereinafter called "the Plan"). 2. Purpose. Section 415 of the Internal Revenue Code of 1954, as amended by the Employee Retirement Income Security Act of 1974 (hereinafter called "Section 415"), imposes a limitation on the amount of retirement benefits which may be paid to certain Employees of the Company and/or its Qualified Subsidiaries under the Retirement Plan for Eligible Employees of Tenneco Inc. and Designated Domestic Companies (hereinafter called "The Retirement Plan"), and also imposes a limitation on the amount of annual contributions and other additions which may be made to certain Employees' thrift accounts under the Tenneco Inc. Thrift Plan (hereinafter called the "Thrift Plan"). The exclusive purpose of the Plan is to provide additional benefits to those Employees (hereinafter called the "Participants") whose retirement benefits under the Retirement Plan or annual contributions under the Thrift Plan are reduced solely as a result of the limitations imposed by Section 415. 3. Administration. The Plan shall be administered by the Tenneco Inc. Benefits Committee (the "Benefits Committee") and supervised, construed and interpreted by the Salary Committee of the Board of Directors (the "Compensation Committee"). The construction and interpretation by the Salary Committee of any provision of the Plan shall be final, conclusive and binding upon all parties including the Company, its stockholders and its employees. No member of either of said Committees shall be liable for any act done or determination made in good faith. 4. Payment of Benefits to Participants. a. Retirement Plan Benefit Equalization. At such time as a Participant's retirement benefit is payable under the terms of the Retirement Plan, the Company will calculate the retirement benefit which would have been payable had not the provisions of Section 415 limited the retirement benefit. The difference between the amount of the retirement benefit which would have been payable but for the limitation imposed by Section 415 and the amount of the benefit actually payable under the Retirement Plan is hereinafter referred to as "the Retirement plan Benefit Equalization". The Company shall pay a Participant's Retirement Plan Benefit Equalization payment to such persons, at such times, and in such manner as the Retirement Plan benefit is payable pursuant to the terms of the Retirement Plan; provided, however that the Company shall at the Participant's request convert the payment of the Retirement Plan Benefit Equalization into any actuarial equivalent including but not limited to a lump sum as may be requested by the Participant. Conversion of the Retirement Plan Benefit Equalization Payment into any actuarial equivalent form of payment shall be made based on the actuarial factors set forth in the Tenneco Inc. Retirement Plan. b. Thrift Plan Benefit Equalization. If, during any calendar year prior to January 1, 1988, the Company and/or a Qualified subsidiary was prevented from making the maximum matching Employer contribution to the Participant's thrift account under the terms of the Thrift Plan because of the Section 415 limitation upon annual additions to such Participant's thrift account, the Company shall establish a ledger account, referred to as a "Thrift Plan Benefit Equalization Account", in the Participant's name. At any time that the Company and/or Qualified -2- Subsidiary would otherwise have made a matching Employer contribution to the Participant's thrift account and (1) the Participant had made the maximum Employee contribution and maximum Salary Deferral contribution to his thrift account that he was entitled to make determined with regard to the Section 415 limitation or (2) the Participant, with the approval of the Benefits Committee, in order to be permitted to make maximum Salary Deferral contributions to his thrift account within the Section 415 limitation, had elected that his Thrift Plan Benefit Equalization Account be credited with amounts equal to, but in lieu of, the matching Employer contributions which would otherwise be credited to his thrift account (a "Section 415/Maximum Salary Deferral Election"), the Participant's Thrift Plan Benefit Equalization Account shall be credited with the difference between (1) the matching Employer contribution which would have been made at such time to the Participant's thrift account if the Participant had made the maximum Employee contribution or Salary Deferral contribution to his thrift account that he was entitled to make, determined without regard to the Section 415 limitation and any Section 415/Maximum Salary Deferral Election, and (2) the actual matching Employer contribution made to the Participant's thrift account at such time. As of the last day of each month on which a Participant's Thrift Plan Benefit Equalization Account had a positive balance, interest for the month shall be credited in an amount obtained by applying the Thrift Plan Time Deposit interest rate announced for such month to the closing balance of the Participant's Thrift Plan Benefit Equalization Account on the first day of such month. No interest shall be credited for the month during which the balance of the Participant's Thrift Plan Benefit Equalization Account is distributed. -3- A Participant shall be fully vested in any amount credited to his Thrift Plan Benefit Equalization Account. At such time as a Participant terminates employment with the Company, all Qualified Subsidiaries and all other companies controlled thereby, the Company shall cause the Participant or, if the Participant is deceased, the Participant's beneficiary under the Thrift Plan, to be paid the balance of the Participant's Thrift Plan Benefit Equalization Account in a single sum as soon as administratively feasible following termination of employment. c. Nature and Source of Benefit Equalization Payments. The benefit equalization payments described in this Plan shall be deemed to be compensation for services, and shall constitute a liability to the Participants and/or their beneficiaries in accordance with the terms hereof. The payment of such benefits shall be made from the general funds of the Company. No special or separate fund need be established and no segregation of assets need be made to assure the payment of such benefits. No Participant shall have any interest in any particular asset of the Company by virtue of his rights under this Plan. 5. Expenses of Administering the Plan. All expenses of administering the Plan shall be borne by the Company. 6. Amendment or Termination of the Plan. a. The Board of Directors may terminate this Plan at any time. b. The Board of Directors may amend or modify this Plan from time to time in any respect. -4- c. No such termination or amendment by the Board of Directors shall divest a Participant of any benefit then payable to him under this Plan unless the Participant agrees in writing to such divestment. 7. Non-Alienation of Benefits. Except by mutual agreement between Tenneco Inc. and the Participant, any benefit which shall be payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt at such shall be void, and no such benefit shall in any way be subject to the debts, contracts, liabilities, engagements, or torts of the person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person. 8. Definitions. For purposes of this Plan, the following definitions shall be applicable: a. The term "Employee" shall mean any person who is regularly employed on a salary basis by the Company or by a Qualified Subsidiary, including, but not limited to, any employee who is also an officer or director of the Company or of a Qualified Subsidiary. b. The term "Participant" shall mean any Employee who is entitled to benefits under the provisions of 4a or 4b of the Plan. c. The term "Company" shall mean Tenneco Inc. d. The term "Qualified Subsidiary" shall mean a company which has adopted either the Retirement Plan or Thrift Plan. e. The term "Board of Directors" shall mean the Board of Directors of Tenneco Inc. -5- 9. Claims Procedure. a. Claims for Benefits. (i) As a prerequisite to payment of any benefit under the Plan, the Participant or the beneficiary of the deceased Participant shall make a claim in such manner as the committee may reasonably require; (ii) Promptly upon the receipt of such claim, the Benefits Committee shall determine whether the claimant is entitled to the benefit and, if so, the amount thereof. b. Denial of Benefits. In the event that any claim for a benefit under this Plan is denied, in whole or in part, the Benefits Committee shall furnish the claimant with a written notice setting forth in a manner calculated to be understood by the claimant: (i) The specific reasons for the denial; (ii) Specific reference to any pertinent provisions of this Plan upon which the denial is based. (iii) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) Appropriate information as to the steps to be taken if the claimant wishes to subject the claim for review. -6- A claim shall be deemed denied if the Benefits Committee does not approve the claim and fails to furnish the aforesaid notice of denial before the expiration of a period commencing with its receipt of the claim and consisting of 90 days, plus such extension of time for processing the claim, not to exceed 90 additional days, as special circumstances require, provided, that, prior to the expiration of the initial 90 days of the period, the claimant has been furnished with a written notice, which indicates the special circumstances requiring the extension and the date by which a decision regarding the claim is expected to be rendered. c. Review of Denied Claims. A claimant whose claim for a benefit under the Plan is denied, either in whole or in part, shall have the right, to be exercised by written application filed with the Benefits Committee not later than the 60th day after receipt of notice of such denial, to request a review of the claim. Such request for review may contain such issues and comments as the claimant may wish considered in the review and the committee shall permit the claimant to review pertinent documents in its possession, including copies of the Plan. The Benefits Committee shall make a final determination with respect to the claim as soon as practicable. Notice of the final determination shall be furnished to the claimant in writing, in a manner reasonably calculated to be understood by the claimant, and shall set forth the specific reasons for the determination and specific references to any pertinent provisions of the Plan upon which the determination is based. A claim shall be deemed denied on review if the Benefits Committee fails to furnish the aforesaid notice of final determination before the expiration of a period commencing with its receipt of the request -7- for review of the claim and consisting of 60 days, plus such extension of time for completing the review, not to exceed 60 additional days, as special circumstances require, provided, that prior to the expiration of the initial 60 days of the period, the claimant has been furnished with a written notice which indicates the special circumstances requiring the extension and the date by which a decision regarding the review of the claim is expected to be rendered. 10. Effective Date. The Plan shall become effective January 1, 1976. -8- EX-10.14 23 TENNECO OUTSIDE DIRECTORS RETIREMENT PLAN EXHIBIT 10.14 ------------- AMENDED AND RESTATED TENNECO INC. OUTSIDE DIRECTORS RETIREMENT PLAN JUNE 14, 1994 This Plan was terminated on March 12, 1996; however, Directors who were fully vested in the maximum benefit were afforded an election to continue under the Plan and receive monthly benefits upon their separation from service. 1. Purposes. The purpose of this Plan is to provide retirement income to persons who have served as outside (non-employee) directors on the Board of Directors of Tenneco Inc. 2. Eligibility. Effective for an outside director who separates from Board Service on or after June 14, 1994, such outside director who has served as an outside director of Tenneco Inc. for five or more years will, upon ceasing to serve as a director, receive a monthly retirement payment based upon his or her years of service (or fractional years based on whole months of service actually completed) as an outside director, and based on the retainer amounts being received at the time he or she ceased to serve as an outside director, according to the schedule in Section 3. 3. Payment Schedule. (a) An eligible director with years of Board service as an outside director equal to or greater than 5 years but less than 15 years, shall receive a monthly retirement payment equal to the sum of the basic monthly retainer plus any committee or committee chairman monthly retainers. Such monthly payments shall continue for a period equal to the number of years (or fractional years) of Board service as an outside director, provided that if the director dies before receiving all of the foregoing monthly payments, the remaining payments shall be made to the director's designated beneficiary or, if none, to his or her estate, or if the estate is closed, to his or her heirs at law. (b) An eligible director with years of Board service as an outside director equal to or greater than 15 years, shall receive a monthly retirement payment equal to the sum of the basic monthly retainer plus any committee or committee chairman monthly retainer. Such monthly payments shall continue for the director's life, provided that if the director dies before receiving 15 years of payment, the remainder of the 15 years of payments shall be made to the director's designated beneficiary or, if none, to his or her estate, or if the estate is closed, to his or her heirs at law. 4. Method of Payment. The foregoing monthly retirement payments shall be payable on the first of the month. After the death of a director, any remaining payments due the beneficiary or estate may be paid as a lump sum present value. 5. Amendment or Termination. Tenneco Inc. may, at any time, amend or terminate this retirement Plan for outside directors, provided that the retirement benefit based on years (or fractional years) of Board service as an outside director up to the time of plan amendment or termination shall be preserved. In case of plan amendment or termination, Tenneco Inc. may pay the earned retirement benefit to an eligible director or beneficiary as a lump sum present value. 6. Assignment or Attachment. Payments due under this Plan may not be assigned, transferred, pledged or encumbered by the director nor will such payments be subject to garnishment, attachment, execution or other levy. 7. Withholding. Any payments under the Plan may be subject to tax or other withholding, as required by law. 8. Designation of Beneficiary. To be valid, a designation of beneficiary form must, before the date of the director's death, be filed with the Secretary of Tenneco Inc. in a form reasonably acceptable to the Secretary. 9. Controlling Law. This Plan shall be interpreted exclusively under the laws of the State of Texas without regard for Texas conflict of laws provisions. -2- EX-10.15 24 DANA MEAD & TENNECO SUPPLEMENTAL PENSION AGREEMENT EXHIBIT 10.15 ------------- SUPPLEMENTAL PENSION AGREEMENT BETWEEN DANA G. MEAD AND TENNECO INC. In consideration of his services to Tenneco Inc. and Tenneco Management Company (collectively, the "Company") and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company hereby establishes the supplemental pension plan (the "Plan") described herein for the benefit of Dana G. Mead ("Mead") and his Beneficiaries, as that term is defined herein, and the parties hereto agree as follows, effective September 12, 1995: 1. Mead shall be entitled to monthly pension benefits from the Company in the amount determined under Section 2 hereof commencing on the first day of the calendar month immediately following the termination of his employment with the Company. 2. The monthly pension benefits to which Mead shall be entitled shall be equal to the greater of (a) or (b), where (a) equals the benefits to which Mead would be entitled under the Tenneco Inc. Retirement Plan (the "TRP"), Tenneco Inc. Benefit Equalization Plan and Tenneco Inc. Supplemental Executive Retirement Plan, computed using Final Average Earnings, as defined in Section 3 hereof, and Years of Credited Service, as defined in Section 4 hereof, and substituting the rules of Sections 1, 5 and 6 hereof for the generally applicable rules of such plans; and (b) equals 2.48% of Mead's Final Average Earnings, as defined in Section 3 hereof, times his Years of Credited Services, as defined in Section 4 hereof, but not exceeding 20 Years of Credited Service. 3. "Final Average Earnings" means the quotient of (i) Mead's Earnings, as defined below, for the 3 calendar years in which his Earnings were the highest in the 5 consecutive calendar year period ending prior to his termination of employment, divided by (ii) 36. "Earnings" means regular base salary plus Executive Incentive Compensation Plan bonus earned (regardless of when paid) with respect to that period. 4. "Years of Credit Service" means the total of (i) 14 2/3 plus (ii) Mead's Actual Tenneco Service, as defined below. "Actual Tenneco Service" means the period, in whole years and fractions thereof with each month or portion thereof counting as one-twelfth of one year, from April 1, 1992 through the date of Mead's termination of employment with the Company. 5. The benefits provided hereunder shall be paid in the joint and 50% survivor form of annuity if Mead is married at the time benefits are to commence-- i.e., to Mead for life and, after his death, 50% of the monthly amount payable during Mead's life continuing to the spouse, if any, to whom he was legally married at the date of the commencement of payment of benefits hereunder and to whom he was so married on the date of his death. There shall be no reduction in the amount of the benefits payable during Mead's life on account of payment in the joint and 50% survivor form. The benefits provided hereunder shall be paid in the life only form of annuity if Mead is not married at the time that benefit payments are to commence. Subject to the rules stated in the immediately following paragraph, Mead may elect to receive such benefits in another form which is the actuarial equivalent of the normal form of benefit specified above for his marital status at the time in question. At Mead's election, the Company will purchase and distribute to him an annuity contract issued by an insurance company acceptable to Mead to provide such benefits. If his termination of employment is effective after he attains age 62 or earlier with the consent of the Company, Mead may elect to receive such benefits in the form of a lump sum distribution. If a lump sum distribution is elected, it shall be computed under the assumptions then in use with respect to the Tenneco Inc. Retirement Plan, or its successor; provided, that in no event shall the interest assumption be greater than the Pension Benefit Guaranty Corporation immediate annuity interest rate in effect as of January 1 of the year in which the payment is to be made, and provided further that the mortality table shall be no less favorable to Mead or his Beneficiary than the 1983 group annuity table, 50% male, 50% female mix. 6. If Mead dies before commencing to receive the benefits described hereunder, his Beneficiary will receive a death benefit in a lump sum distribution which is the present value of the benefits which he has accrued hereunder as of the date of his death computed in accordance with the rules set forth herein, including the interest assumption specified in Section 5 hereof. Without limiting the generality of the foregoing, it is specifically provided that the special alterative death benefit called for by the TRP as in effect on December 31, 1994, shall apply if that produces a higher benefit. Mead's Beneficiary shall be the person or entity which he has designated on a form filed with the Company prior to his death. If, at the time of his death, no valid beneficiary designation is on file, his Beneficiary shall be his spouse, or, if his spouse does not survive him, his estate. 7. The benefits provided hereunder are in lieu of any benefits to which Mead might otherwise be entitled under the Tenneco Inc. Retirement Plan, Tenneco Inc. Benefit Equalization Plan or Tenneco Inc. Supplemental Executive Retirement Plan, but shall not adversely affect his entitlement to benefits under any other plan, fund or program maintained by the Company, not shall benefits provided under any other such plan fund or program be offset against or otherwise reduce the benefits provided for hereunder. 8. This Plan shall be administered by the Company, and the Company shall bear all costs of administration. -2- 9. This Plan contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written, including, without limitation, Section 9 of that certain agreement among the parties dated March 12, 1992. 10. Benefits provided for hereunder may not be assigned or hypothecated, and to the extent permitted by law, no such benefits shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 11. If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, as determined by a licensed physician, the Company shall have the authority to cause the payments becoming due such person to be made to the legally appointed guardian of any such person or the spouse, brother, sister, or other person as it shall determine. Payments made pursuant to such power shall operate as a complete discharge of the Company. 12. The Plan shall be construed, regulated and administered according to the laws of the State of Texas. 13. This Plan shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be bound to perform if no such succession had taken place. 14. This Plan may be amended or terminated only by written agreement between and among the parties hereto. DANA G. MEAD Dana G. Mead TENNECO MANAGEMENT COMPANY By: ROBERT T. BLAKELY Its: Senior Vice President and chief Financial Officer TENNECO INC. By: KARL A. STEWART Its: Vice President and Secretary -3- EX-10.16 25 CHANGE IN CONTROL SEVERANCE BENEFIT PLAN EXHIBIT 10.16 ------------- TENNECO INC. CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR KEY EXECUTIVES (AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996) ---------------------------------------------- 1. Definitions A. "Change in Control" shall mean the first to occur of the following events (but no event other than the following events), except as otherwise provided below: (1) any person and any of their affiliates or associates becomes the beneficial owner, directly or indirectly, of securities of Tenneco representing twenty-five percent (25%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, and a majority of the Incumbent Board does not approve the acquisition (other than in response to a Threatened Change in Control under circumstances making it reasonably apparent that a change in control of Tenneco has become inevitable) before the acquisition occurs, notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to this clause (i) solely because twenty-five percent (25%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights is acquired by one or more employee benefit plans maintained by one or more Tenneco Companies; (2) members of the Incumbent Board cease to constitute a majority of the Tenneco Board; or (3) The consummation of any plan of merger, consolidation or combination between Tenneco and any person including becoming a subsidiary of any other person without members of the Incumbent Board, as constituted immediately prior to the merger, consolidation or combination constituting a majority of the board of directors of (a) the surviving or successor corporation, or, (b) if the surviving or successor corporation is a majority-owned subsidiary of another corporation or corporations, the ultimate parent company of the surviving or successor corporation; or (4) the consummation of any sale, exchange or other disposition of all or substantially all of Tenneco's assets without members of the Incumbent Board immediately prior to any sale, exchange or disposition of all or substantially all of Tenneco's assets constituting a majority of the board of directors of (a) the corporation which holds such assets after such disposition, or, (b) if such corporation is a majority-owned subsidiary of another corporation or corporations, the ultimate parent company of the successor corporation; or (5) if any person and any of their affiliates and associates, shall elect or have elected, during any period not exceeding 24 months, at least 25% of the members of the Tenneco Board, without the approval of the Incumbent Board and such members are comprised of persons not serving as members of the Tenneco Board immediately prior to the formation of such group or the first solicitation of proxies by such shareholder; provided however that the Incumbent Board may determine that any transaction is not a Change in Control. B. "Constructive Termination" will be deemed to have occurred if, following the Change in Control, a Key Executive separates from service with all Tenneco Companies after the Tenneco Companies, by action or inaction, and without the Key Executive's express written consent: (1) diminish the Key Executive's status, position, duties or responsibilities with Tenneco Companies from those in effect immediately prior to the Change in Control; (2) reduce the Key Executive's current annual cash compensation from Tenneco Companies below the sum of (a) the Key Executive's annual base salary or annual base compensation from Tenneco Companies in effect immediately prior to the Change in Control and (b) the Key Executive's average annual award under the Tenneco Inc. Executive Incentive Compensation Plan for the three calendar year periods completed immediately prior to the Change in Control; (3) cause a material reduction in (a) the level of aggregate Tenneco Companies-paid medical benefit, life insurance and disability plan coverages; or (b) the aggregate rate of Tenneco Companies- paid thrift/savings plan contributions and of Tenneco Companies- paid defined benefit retirement plan benefit accrual, from those coverages and rates in effect immediately prior to the Change in Control; or (4) effectively require the Key Executive to relocate because of transfer of the Key Executive's place of employment with Tenneco Companies. C. "Discharge for Cause" shall be deemed to have occurred only if, following the Change in Control, a Key Executive is discharged by Tenneco Companies from employment or as a non-employee officer because: -2- (1) the Key Executive has engaged in dishonesty or other serious misconduct in his or her capacity as an employee or non-employee officer of Tenneco Companies having the effect of injuring the reputation or business of Tenneco Companies, monetarily or otherwise; or (2) the Key Executive has willfully and continually failed (unless due to incapacity resulting from physical or mental illness) to perform either his or her duties as a non-employee officer or the duties of his or her employment by Tenneco Companies after written demand for substantial performance is delivered to the Key Executive by Tenneco Companies specifically identifying the manner in which the Key Executive has not substantially performed such duties. Notwithstanding the foregoing, a Key Executive who, immediately prior to the Change in Control, is a member of Executive Group 1 shall not be deemed to have been Discharged for Cause unless a written notice has been delivered to the Key Executive stating that either the Tenneco Companies have terminated the Key Executive's employment or status as a non-employee officer, which notice shall include a resolution, adopted by a three-quarter's vote of the Incumbent Board (after the Key Executive has been provided with reasonable notice and an opportunity, together with counsel, for a hearing before the entire Incumbent Board), finding that the Key Executive has engaged in the conduct set forth in clauses "(1)" or "(2)" of the preceding sentence. D. "Executive Group I" shall consist of each individual who, immediately prior to a Change in Control, (1) is an officer of Tenneco of the rank of Vice President or above; (2) who is the President (or other principal officer) of any other Tenneco Company, if designated by the Chairman and Chief Executive Officer of Tenneco, in writing on or before the Change in Control, as a member of Executive Group I; or (3) is a non-employee officer of Tenneco. E. "Executive Group II" shall consist of each individual (1) who is not a member of Executive Group I; and (2) (a) who, immediately prior to the Change in Control, is an active participant in the Tenneco Inc. Executive Incentive Compensation Plan, or (b) who, immediately prior to the Change in Control, is an employee of a Tenneco Company who has been designated by the -3- Chairman and Chief Executive Officer of Tenneco, in writing on or before the Change in Control, as a member of Executive Group II. F. "Incumbent Board" means (1) the members of the Tenneco Board on May 15, 1996, to the extent that they continue to serve as members of the Tenneco Board; and (2) any individual who becomes a member of the Tenneco Board after May 15, 1996, if his or her election or nomination for election as a director is approved by a vote of at least three-quarters of the then Incumbent Board. G. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. H. "Key Executive" means an individual who, immediately prior to the Change in Control, is a member of Executive Group I or Executive Group II. I. "Plan" means the Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives. J. "Tenneco" means Tenneco Inc. K. "Tenneco Board" means the Board of Directors of Tenneco. L. "Tenneco Company" means Tenneco and any stock corporation of which a majority of the voting common or capital stock is owned directly or indirectly by Tenneco. M. "Tenneco Inc. Benefits Protection Trust" means the Tenneco Inc. Benefits Protection Trust. N. "Threatened Change in Control" shall mean each of the following events (but no event other than the following events), except as otherwise provided below: (1) any person and any of their affiliates or associates, without the prior approval of a majority of the Incumbent Board (a) becomes the beneficial owner, directly or indirectly, of securities of Tenneco representing fifteen percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, or (b) initiates a tender offer to acquire (as the beneficial owner) securities of Tenneco representing fifteen percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, notwithstanding the foregoing, -4- a Threatened Change in the Control shall not be deemed to occur pursuant to this clause (i) solely because fifteen percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights is acquired by one or more employee benefit plans maintained by a Tenneco Company; or (2) three or more directors, whose election or nomination for election is not approved by a majority of the Incumbent Board, are elected within any single twelve-month period to serve on the Tenneco Board; or (3) the Incumbent Board has determined that a Threatened Change in Control exists; provided however the Incumbent Board may determine that any transaction is not a Threatened Change in Control. O. "Threatened Change in Control Period" shall mean the period beginning on the date a Threatened Change in Control occurs and ending on the earliest of (1) if the Threatened Change in Control was caused by an event described in clause (i) of the definition of "Threatened Change in Control", on the date first subsequent to the date on which the person referred to therein does not own securities of Tenneco representing fifteen percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, or terminates the tender offer instituted by him as the case may be; or (2) if the Threatened Change in Control was caused by an event described in clause (ii) of the definition of "Threatened Change in Control", on the date first subsequent to the date on which each member of the Tenneco Board shall be either a member of the Incumbent Board or an individual whose election or nomination for election as a director was approved by a majority of the Incumbent Board. (3) if the Threatened Change in Control shall be deemed to have occurred by reason of the determination described in clause (iii) of the definition of "Threatened Change in Control", on the date the Incumbent Board has determined that the circumstances which constituted the Threatened Change in Control no longer exist; or (4) the date the Change in Control occurs. -5- For purposes of the foregoing definitions, the terms "person" and "beneficial owner" shall have the meaning set forth in Sections 3(a) and 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. 2. Plan Purpose. The purpose of the Plan is to induce Key Executives to enter into, or continue their services or employment with, and to steadfastly serve Tenneco Companies if and when a Change in Control is threatened, despite attendant career uncertainties, by committing Tenneco to provide severance benefits in the event their employment with Tenneco Companies terminates as a result of a Change in Control. 3. Effective Date. The Plan was originally effective on May 10, 1988. 4. Eligibility for Benefits. (i) If within two years after a Change in Control, a Key Executive is separated from service as either an employee or as a non-employee officer with Tenneco Companies because (a) the Key Executive is discharged by the Tenneco Companies, provided, such discharge is not Discharge for Cause, or (b) because of Constructive Termination, and (ii) throughout the period beginning with the Change in Control and ending with such separation from service with Tenneco Companies, the Key Executive remains an employee or non-employee officer of Tenneco Companies, then the Key Executive shall be paid the following severance benefit: A. If the Key Executive is a member of Executive Group I immediately prior to the Change in Control -- an amount equal to three times the sum of (a) the Key Executive's annual base salary or other annual base compensation in effect immediately prior to the Change in Control, plus (b) the average of the Key Executive's annual awards under the Tenneco Inc. Executive Incentive Compensation Plan and the Tenneco Inc. Performance Unit Plan, together with any special awards from Tenneco Companies, for the last three years of the Key Executive's employment or provision of services in the case of non-employee officers with Tenneco Companies. B. If the Key Executive is a member of Executive Group II immediately prior to the Change in Control -- an amount equal to two times the sum of (a) the Key Executive's annual base salary in effect immediately prior to the Change in Control, plus (b) the average of the Key Executive's annual awards under the Tenneco Inc. Executive Incentive Compensation Plan and the Tenneco Inc. Performance Unit Plan, together with any special awards from Tenneco Companies, for the last three years of the Key Executive's employment with Tenneco Companies. C. During the first thirty days following the first anniversary of a Change in Control, a member of Executive Group I on the date of the Change in Control, may voluntarily elect to separate from service and will be provided with the severance benefit described in A. above. -6- D. The foregoing constitute minimum severance benefit amounts and, if a Key Executive receives other cash severance benefits from Tenneco Companies, the amount of severance benefit to which the Key Executive is entitled under the Plan shall be considered to be satisfied to the extent of such other cash severance payment. 5. Method of Payment. Tenneco shall pay, or cause to be paid, the severance benefit under the Plan to the Key Executive in a single cash sum within 30 days following the later of the Key Executive's separation from service as either an employee or non-employee officer with Tenneco Companies and submission of a claim as required by Section 13 of the Plan. Except for withholdings required by law to satisfy local, state, and federal tax withholding requirements, no offset nor any other reduction shall be taken in paying such benefit. 6. Gross-Up Payment. If any portion of the severance payments described herein, and/or any payments described in the Tenneco Inc. Benefit Protection Trust, and/or any other payments, shall be subject to the tax imposed by Section 4999 of the Internal Revenue Code (the portion of such payments which are subject to the Excise Tax being referred to herein as the "Payments") Tenneco shall pay to the affected Key Executive, not later than the 30th day following the date the Key Executive becomes subject to the Excise Tax an additional amount (the "Gross-Up Payment"), such that the net amount retained by the Key Executive after deduction of the Excise Tax on such Payments, and all federal, state and local income tax, interest and penalties and Excise Tax on the Gross-Up Payment, shall be equal to the amount which would have been retained by the Key Executive had the payments not been subject to the Excise Tax. 7. Assignment. No Key Executive may assign, transfer, convey, mortgage, hypothecate, or in any way encumber any severance benefit payable under the Plan, nor shall the Key Executive have any right to receive any severance benefit under the Plan except at the time, in the amount and in the manner provided in the Plan. This Plan may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of Tenneco, and any such successor shall be deemed substituted for all purposes of "Tenneco" under the provisions of the Plan. As used in the preceding sentence, the term "successor" shall mean any person, firm, corporation, or business entity which at any time, whether by merger, purchase or otherwise, acquires all, or essentially all, of the assets or business of Tenneco. Notwithstanding such assignment, Tenneco shall remain, with such successor, jointly and severally liable for all obligations under the Plan, which, except as herein provided, may not be assigned by Tenneco. 8. Plan Amendment and Termination. The Plan may be terminated or amended at any time by the Board of Directors except during a Threatened Change in Control Period. However, in the event of a Change in Control, no amendment, or termination, made on or after the date of the Change in Control shall apply to any Key Executive until -7- the expiration of two years and thirty-one days from the date of the Change in Control. 9. Funding. Tenneco shall pay, or cause to be paid, any severance benefit under the Plan out of general assets of Tenneco Companies. 10. Controlling Law. The Plan shall be interpreted under the laws of the State of Texas, except to the extent that federal law preempts. 11. Named Fiduciary and Plan Administrator. The Company is the plan administrator, and it shall have the authority to control and manage the operation of this Plan with the authority to interpret the Plan. The Plan Administrator shall make all reports and disclosures required by law. 12. Plan Sponsor. The Plan sponsor is Tenneco Inc., 1275 King Street, Greenwich, CT 06831. EIN: 76-0233548, Plan No. 829. 13. Agent for Service of Process. Legal process may be served on the Plan Administrator or: Corporate Secretary Tenneco Inc. 1275 King Street Greenwich, CT 06831 14. Making a Claim A. Submission of a Claim. In order to claim a severance benefit under this Plan, a Key Executive need only advise the Plan Administrator in writing that the Key Executive's employment with Tenneco Companies has terminated, that the Key Executive claims a severance benefit under the Plan and of the mailing address to which the severance benefit or related correspondence is to be sent. B. Denial of a Claim. If a Key Executive has made a claim for benefits under this Plan and any portion of the claim is denied, the Plan Administrator will furnish the Key Executive with a written notice stating the specific reasons for the denial, specific reference to pertinent Plan provisions upon which the denial was based, a description of any additional information or material necessary to perfect the claim and an explanation of why such information or material is necessary, and appropriate information concerning steps to take if the Key Executive wishes to submit the claim for review. The claim will be deemed denied if the Plan Administrator does not approve the claim and fails to notify the Key Executive within 90 days after receipt of the claim, plus any extension of time for processing the claim, not to -8- exceed 90 additional days, as special circumstances require. To obtain an extension, the Plan Administrator must advise the Key Executive in writing during the initial 90 days if an extension is necessary, stating the special circumstances requiring the extension and the date by which the Key Executive can expect the Plan Administrator's decision regarding the claim. C. Review Procedure. Within 60 days after the date of written notice denying any benefits, the Key Executive or the Key Executive's authorized representative may write to the Plan Administrator requesting a review of that decision. The request for review may contain such issues and comments as the Key Executive wishes considered in the review. The Key Executive may also review pertinent documents in the Plan Administrator's possession. The Plan Administrator will make a final determination with respect to the claim as soon as practicable. The Plan Administrator will advise the Key Executive of the determination in writing and will set forth the specific reasons for the determination and the specific references to any pertinent Plan provisions upon which the determination is based. The claim will be deemed denied on review if the Plan Administrator fails to give the Key Executive written notice of final determination within 60 days after receipt of the request for review, plus any extension of time for completing the review, not to exceed 60 additional days, as special circumstances require. To obtain an extension, the Plan Administrator must advise the Key Executive in writing during the initial 60 days if any extension is necessary, stating the special circumstances requiring the extension and the date by which the Key Executive can expect the Plan Administrator's decision regarding the review of the claim. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the "Tenneco Inc. Change In Control Severance Benefit Plan For Key Executives", Tenneco Inc., a Delaware corporation, as plan sponsor, has caused its corporate seal to be affixed hereto and these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized, this 30th day of September, 1996. (CORPORATE SEAL) TENNECO INC. By: /s/ Robert G. Simpson -------------------------- Its: Vice President ------------------------------ ATTEST: /s/ Kim Bacon - ------------------- Assistant Secretary -9- EX-10.17 26 TENNECO BENEFITS PROTECTION TRUST EXHIBIT 10.17 ------------- TENNECO ------- BENEFITS PROTECTION TRUST ------------------------- (as amended and restated effective as of October 1, 1996) TABLE OF CONTENTS
ARTICLE PAGE - ------- ---- FIRST: Definitions................................................ 1 SECOND: Creation of Trust.......................................... 6 THIRD: Payments from the Trust.................................... 9 FOURTH: Management of Trust Assets................................. 10 FIFTH: Administrative Powers...................................... 13 SIXTH: [RESERVED]................................................. 15 SEVENTH: [RESERVED]................................................. 15 EIGHTH: Taxes, Expenses and Compensation of Trustee................ 15 NINTH: General Duties of Trustee.................................. 16 TENTH: Indemnification............................................ 18 ELEVENTH: No Duty to Advance Funds................................... 18 TWELFTH: Accounts................................................... 18 THIRTEENTH: Administration of the Plans; Communications................ 20 FOURTEENTH: Resignation or Removal of Trustee.......................... 22 FIFTEENTH: Amendment of Agreement; Termination of Trust............... 24 SIXTEENTH: Prohibition of Diversion................................... 26 SEVENTEENTH: Prohibition of Assignment of Interest...................... 27 EIGHTEENTH: [RESERVED]................................................. 27 NINETEENTH: Miscellaneous.............................................. 27 SCHEDULE 1............................................................... 30 SCHEDULE 1 SUPPLEMENT.................................................... 31
-i- TENNECO BENEFITS PROTECTION TRUST AGREEMENT ------------------------------------------- (as amended and restated effective as of October 1, 1996) THIS AGREEMENT, made as of the 1st day of October 1996, by and between Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter referred to as the "Company" or "Tenneco"), and Dana G. Mead, Theodore R. Tetzlaff, Stacy S. Dick and Robert T. Blakely (hereinafter referred to individually and collectively as the "Trustee"). W I T N E S S E T H: ------------------- WHEREAS, the Company desires to amend and restate the Trust; NOW, THEREFORE, the Company and the Trustee agree as follows: FIRST: Definitions. ----- ----------- (a) "Affiliate" shall mean any corporation, partnership or other entity, the majority interest in which is held by the Company, directly or through one or more intermediaries. (b) "Change in Control" shall mean the first to occur of the following events (but no event other than the following events), except as otherwise provided below: (i) Any person and any of their affiliates or associates becomes the beneficial owner, directly or indirectly, of securities of Tenneco representing twenty-five percent (25%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, and a majority of the Incumbent Board (as hereinafter defined) does not approve the acquisition (other than in response to a Threatened Change in Control under circumstances making it reasonably apparent that a change in control of Tenneco has become inevitable) before the acquisition occurs. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (i), solely because twenty-five percent (25%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights is acquired by one or more employee benefit plans maintained by Tenneco; or (ii) Members of the Incumbent Board cease to constitute a majority of the Tenneco Board (as hereinafter defined); or (iii) The consummation of any plan of merger, consolidation or combination between Tenneco and any person including becoming a subsidiary of any other person without members of the Incumbent Board, as constituted immediately prior to the merger, consolidation or combination constituting a majority of the board of directors of (A) the successor corporation, or, (B) if the surviving or successor corporation is a majority- owned subsidiary of another corporation or corporations, the ultimate parent of the surviving or successor corporation; or (iv) The consummation of any sale, exchange or other disposition of all or substantially all of the Company's assets without members of the Incumbent Board immediately prior to any sale, exchange or disposition of all or substantially all of the Company's assets constituting a majority of the board of directors of (A) the corporation which holds such assets after such disposition, or, (B) if such corporation is a majority-owned subsidiary of another corporation or corporations, the ultimate parent of such corporation; or -2- (v) if any person and any of their affiliates and associates, shall elect or have elected, during any period not exceeding 24 months, at least 25% of the members of the Tenneco Board, without the approval of the Incumbent Board and such members are comprised of persons not serving as members of the Tenneco Board immediately prior to the formation of such group or the first solicitation of proxies by such shareholder; provided however, that the Incumbent Board may determine that any transaction is not a Change in Control. For purposes of this definition, the terms "person" and "beneficial owner" shall have the meaning set forth in Sections 3(a) and 13(d) of the Securities Exchange Act of 1934, as amended, and in the regulations promulgated thereunder. If the Trustee requests in writing that the Company determine or furnish evidence to enable the Trustee to determine whether a Change in Control has occurred, the Company shall do so in writing as soon as practicable following receipt of such request. (c) "Threatened Change in Control" shall mean each of the following events (but no event other than the following events), except as otherwise provided below: (i) Any person, (as defined in Paragraph (b) above), and any of their affiliates and associates without the prior approval of a majority of the Incumbent Board (A) becomes the beneficial owner, (as defined in (b) above), directly or indirectly, of securities of Tenneco representing fifteen -3- percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, or (B) initiates a tender offer to acquire (as the beneficial owner as defined in (b) above) securities of Tenneco representing fifteen (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights. Notwithstanding the foregoing, a Threatened Change in Control shall not be deemed to occur pursuant to this (i) solely because fifteen percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights is acquired by one or more employee benefit plans maintained by Tenneco; or (ii) Three or more directors, whose election or nomination for election is not approved by a majority of the Incumbent Board, are elected within any single twelve-month period to serve on the Tenneco Board; or (iii) The Company notifies the Trustee in writing that the Incumbent Board has determined that a Threatened Change in Control exists; provided however the Incumbent Board may determine that any transaction is not a Threatened Change in Control. -4- (d) "Threatened Change in Control Period" shall mean the period beginning on the date a Threatened Change in Control occurs and ending on the earliest of: (i) If the Threatened Change in Control was caused by an event described in Subparagraph (c)(i), on the date first subsequent to the date on which the person referred to therein does not own securities of Tenneco representing fifteen percent (15%) or more of the combined voting power of Tenneco's then outstanding securities having general voting rights, or terminates the tender offer instituted by him as the case may be; or (ii) If the Threatened Change in Control was caused by an event described in Subparagraph (c)(ii), on the date first subsequent to the date on which each member of the Tenneco Board shall be either a member of the Incumbent Board or an individual whose election or nomination for election as a director was approved by a majority of the Incumbent Board. (iii) If the Threatened Change in Control shall be deemed to have occurred by reason of the notice described in Subparagraph (c)(iii), on the date the Trustee shall be notified by the Company in writing that the Incumbent Board has determined that the circumstances -5- which constituted the Threatened Change in Control no longer exist; or (iv) the date the Change in Control occurs. (e) "Tenneco Board" shall mean the Board of Directors of Tenneco. (f) "Incumbent Board" shall mean (i) the members of the Tenneco Board on May 15, 1996, to the extent that they continue to serve as members of the Tenneco Board, and (ii) any individual who becomes a member of the Tenneco Board after May 15, 1996, if his election or nomination for election as a director was approved by a vote of at least three quarters of the then Incumbent Board. (g) "Plan or Plans" means the plans, arrangements and structures set forth on Schedule 1. (h) "Plan Sponsor" means the corporate entity that maintains any of the Plans set forth on Schedule 1. SECOND: Creation of Trust. (a) The Company hereby establishes with the Trustee and the Trustee hereby accepts the Tenneco Benefits Protection Trust (the "Trust") consisting of: (i) an irrevocable letter of credit in an amount not less than three million dollars ($3,000,000) obtained by the Company at its expense, and cash in the amount of two million dollars ($2,000,000), as well as any earnings thereon, and realized and unrealized gains (net of any losses) attributable thereto, to the extent not withdrawn from the Trust by the Company pursuant hereto. The Company shall continue to maintain such letter of credit in effect -6- until it is replaced by cash or another irrevocable letter of credit or this Agreement terminates, whichever occurs first. The Company shall renew or replace such letter of credit at least thirty (30) days before its expiration for an additional period of one (1) year. If such letter of credit, or any such renewal is not renewed or replaced by a letter of credit delivered to the Trustee at least thirty (30) days before the expiration of the predecessor letter of credit, the Trustee may draw down the full amount of such letter of credit and hold the proceeds pursuant to the terms of this Agreement. The Trustee may also draw down on such letter of credit at any time the Trustee determines the proceeds of such letter of credit are necessary to allow the Trustee to fulfill its obligations under this Agreement. The proceeds of such letter of credit shall be available to the Trustee upon the Trustee's presentation of its sight draft. The Company may, at any time, replace such letter of credit with another irrevocable letter of credit having substantially similar terms or an equal amount of cash or any combination thereof. Any letter of credit shall be issued by a bank reasonably acceptable to the Trustee, and shall be in a form reasonably acceptable to the Trustee; and (ii) such additional cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee as described herein from time to time to provide benefits under one or more Plans, together with the earnings, income, additions and appreciation thereon and thereto. At any time such payments or deliveries are made, the Company -7- shall designate to the Trustee, in writing, the Plan or Plans to which the payment or delivery shall be allocated. (b) The Trustee, for investment purposes only, may commingle all Trust assets and treat them as a single fund, but the records of the Trustee at all times shall show the percentages of the Trust allocable to each of the several Plans. (c) The Company and the Trustee agree that the Trust created herein shall not be revocable by the Company or by any successor thereto during a Threatened Change in Control Period or after a Change in Control, and is intended to be a grantor trust under the provisions of Sections 671 through 678 of the Internal Revenue Code of 1986, as amended. (d) Except as provided in this subparagraph (d), the Company may, from time to time, add to or withdraw from the assets of the Trust, but subject to the termination provisions hereof, such withdrawal may not reduce the cash in the Trust below two million dollars ($2,000,000) plus the letter of credit described in Subparagraph (a)(i), above, or its proceeds. The Company may direct that certain funds subsequently added to the Trust be available for the payment of benefits under one or more designated Plans, but such additional funds shall also be available to pay the fees and expenses of the Trustee if the amounts transferred pursuant to Subparagraph (a)(i) are exhausted. Notwithstanding the foregoing, the Company shall not make any withdrawal from the Trust during a Threatened Change in Control Period or after a Change in Control. -8- (e) Within five business days following a Threatened Change of Control, the Company shall deposit cash and stock to the Trust equal to the amounts specified in Schedule 1 Supplement. Such deposits shall become irrevocable upon the occurrence of a Change in Control or during a Threatened Change in Control Period. (f) Upon the expiration of the Threatened Change in Control Period and absent a Change in Control, the amounts deposited into the Trust as described in (e) above adjusted for investment experience and expenses shall be returned to Tenneco. THIRD: Payments from the Trust. (a) Subject to the rules hereof, the Trustee, from time to time upon receipt (other than during a Threatened Change in Control Period) of direction from the Company prior to a Change in Control shall make payments from the Trust, as specified in such direction to such persons, in such manner and in such amounts as the Company shall direct. (b) The Company shall, from time to time, furnish the Trustee with such written information regarding the participants and beneficiaries under the Plans and the amount and method of determination of benefits under the Plans (hereinafter referred to as "Participant Data") as the Company deems relevant or as the Trustee shall request in writing. The Company shall, during a Threatened Change in Control Period, and after a Change in Control, furnish the Trustee with Participant Data at least once each year or at such other times as the Trustee reasonably requests. Such Participant Data will be for the Plans set forth in Schedule 1. The Company, prior -9- to a Change in Control, will, from time to time, update Schedule 1 as Plans are added, terminated or amended. During a Threatened Change in Control Period or after a Change in Control and notwithstanding any other provisions of this Agreement, the Trustee may, without direction from the Company, make payments to participants and beneficiaries in such manner and in such amounts as the Trustee shall determine they are entitled to be paid under the Plans (to the extent funded through the Trust) based on the most recent Participant Data furnished to the Trustee by the Company prior to a Change in Control and any supplemental information furnished to the Trustee by a participant or beneficiary upon which the Trustee may reasonably rely in making such determination. (c) Any unpaid benefits due participants and beneficiaries shall be paid by the Plan Sponsor. FOURTH: Management of Trust Assets. (a) Prior to a Change in Control, Trust assets will be invested by the Trustee (i) in obligations of the United States or any agency thereof or in obligations guaranteed by the United States or any agency thereof, having a term of not more than five (5) years, or (ii) in shares of one or more mutual funds which principally invest in such obligations. Prior to a Change in Control, but not during a Threatened Change in Control Period, the Company may change the requirement described in the first sentence of this Article. (b) After a Change in Control, the Trustee shall have exclusive authority and discretion to manage and control the Trust assets and may employ investment managers and other -10- professionals including affiliates of the Trustee to manage the investment of the Trust assets. Pursuant to such authority and discretion, the Trustee may exercise, from time to time and at any time, the power: (i) To invest and reinvest the Trust, without distinction between principal and income, in shares of stock (whether common or preferred) or other evidences of ownership, bonds, debentures, notes or other evidences of indebtedness, unsecured or secured by mortgages on real or personal property wherever situated (including any part interest in a bond and mortgage or note and mortgage whether insured or uninsured) and other property, or part interest in property, real or personal, foreign or domestic, and in order to reduce the rate of interest rate fluctuations, contracts, as either buyer or seller, for the future delivery of United States Treasury securities and comparable Federal government-backed securities: (ii) To sell, convey, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposition; -11- (iii) To exercise, personally or by general or limited proxy, the right to vote any shares of stock, bonds or other securities held in the Trust; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise, personally or by power of attorney, any other right appurtenant to any securities or other property of the Trust; (iv) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease, mortgage or sale of the property of any organization the securities of which are held in the Trust; to pay from the Trust any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation; to deposit any property with any committee or depositary; and to retain any property allotted to the Trust in any reorganization, recapitalization, consolidation, merger or liquidation; (v) To exercise or sell any conversion or subscription or other rights appurtenant to any stock, security or other property held in the Trust; (vi) To borrow from any lender (including the Trustee in its individual capacity) money, in any amount and upon any reasonable terms and conditions, for purposes of this Agreement, and to -12- pledge or mortgage any property held in the Trust to secure the repayment of any such loan; (vii) To compromise, settle or arbitrate any claim, debt, or obligation of or against the Trust; to enforce or abstain from enforcing any right, claim, debt or obligation; and to abandon any property determined by it to be worthless; (viii) To make loans of securities held in the Trust to registered brokers and dealers upon such terms and conditions as are permitted by applicable law and regulations, and in each instance to permit the securities so lent to be registered in the name of the borrower or a nominee of the borrower, provided that in each instance the loan is adequately secured and neither the borrower nor any affiliate of the borrower has discretionary authority or control with respect to the assets of the Trust involved in the transaction or renders investment advice with respect to those assets; and (ix) To invest and reinvest any property in the Trust in any other form or type of investment not specifically mentioned in this Paragraph, to the extent permitted by law. (x) To employ suitable agents including but not limited to custodians, actuaries, accountants and counsel and to pay their reasonable expenses and compensation. FIFTH: Administrative Powers. The Trustee shall have and in its sole and absolute discretion may exercise -13- from time to time and at any time the following administrative powers and authority with respect to the Trust: (a) To hold property of the Trust in its own name or in the name of a nominee or nominees, without disclosure of the Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust in accordance herewith; the Trustee's books and records shall at all times show that such property is part of the Trust; and the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees; (b) To organize and incorporate under the laws of any state it may deem advisable one or more corporations (and to acquire an interest in any such corporation that it may have organized and incorporated) for the purpose of acquiring and holding title to any property, interests or rights that the Trustee is authorized to acquire hereunder; (c) To employ in the management of the Trust suitable agents; (d) To make, execute and deliver, as Trustee, any deeds, conveyances, leases, mortgages, contracts, waivers or other instruments in writing that the Trustee may deem necessary or desirable in the exercise of its powers under this Agreement; and (e) To do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth herein hereof or otherwise in the best interests of the -14- Trust, provided further that a majority of any non-corporate Trustee(s) shall be necessary to authorize any action under this Agreement. SIXTH: [RESERVED] SEVENTH: [RESERVED] EIGHTH: Taxes, Expenses and Compensation of Trustee. (a) The Company shall pay any Federal, state, local or other taxes imposed or levied with respect to the corpus and/or income of the Trust or any part thereof under existing or future laws, and the Company, in its discretion, or the Trustee, in its discretion, may contest the validity or amount of any tax, assessment, claim or demand respecting the Trust or any part thereof. The Trustee shall deduct any payroll taxes required to be withheld with respect to any payments made pursuant to the Trust. (b) The Trustee, without direction from the Company, shall pay from the Trust the reasonable and necessary expenses and compensation of counsel and all other reasonable and necessary expenses of managing and administering the Trust and Plans that are not paid by the Company including, but not limited to, computer time charges, data retrieval and input costs, and charges for time expended by personnel of the Trustee and those persons retained by the Trustee in fulfilling the Trustee's duties. (c) The Company shall pay to the Trustee from time to time such reasonable compensation for its services as Trustee as is agreed to by the Company and the Trustee from time to time, but until paid, such compensation and reimbursement for expenses incurred by the Trustee pursuant -15- hereto shall constitute a charge upon the Trust, such charge to have priority over any payments due participants or beneficiaries under the Plans; provided, that any officer of the Company serving as Trustee shall serve without compensation but shall nevertheless be entitled to reimbursement of expenses. (d) After a Change in Control, the Trustee shall bill the Company directly, on a monthly basis, for all expenses and fees which amounts shall be immediately due and payable. The Trustee may commence legal action to recover any amount not paid within thirty (30) days of the billing date, and shall be obligated to commence such an action if the Company's failure to pay causes a reduction below $2,000,000 in the assets of the Trust attributable to contributions made pursuant to Subparagraph (a)(i) of Article SECOND. NINTH: General Duties of Trustee. (a) Subject to the rules hereof, the Trustee shall discharge its duties under this Agreement solely in the interest of the participants in the Plans and their beneficiaries and (i) for the exclusive purpose of providing benefits to such participants and their beneficiaries and defraying reasonable expenses of administering the Plans; and (ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. (b) The Trustee may consult with counsel, who may be counsel for the Trustee in its individual capacity, (or, -16- prior to a Change in Control, for the Company) and shall not be deemed imprudent by reason of its taking or refraining from taking any action in accordance with the opinion of counsel. (c) (1) Within ninety (90) days after a Change in Control, the Company shall notify participants and beneficiaries of the Plans in writing of the Trustee's availability to aid them in pursuing any claims they may have against the Company under the terms of those of the Plans under which they are covered. If the Company fails to do so, the Trustee shall provide such notification. (2) If, after a Change in Control, a participant or beneficiary notifies the Trustee that the Company or an Affiliate or any other party, if applicable has refused to pay a claim asserted by the participant or beneficiary under any of the Plans, then, unless the Trustee shall determine that the claim has no basis in law or fact (in which case the Trustee shall notify the participant or beneficiary of such determination and shall take no further action with respect to the claim), the Trustee shall, in its discretion: (A) pay the participant or beneficiary the amount of the claim from the Trust assets; or (B) commence negotiations and legal proceedings to recover on the claim on behalf of the participant or beneficiary in accordance with subsection C below. (C) to the extent that the Trustee determines to commence negotiations and legal proceeds, it: -17- (i) shall direct the course of the litigation and shall keep the participant or beneficiary informed of the progress of the litigation as the Trustee deems appropriate. (ii) if the Trustee determines that all reasonable litigation efforts have been exhausted but the participant or beneficiary has not received all that he or she is entitled to receive, the Trustee may in its discretion pay additional amounts to such person out of the assets of the Trust. TENTH: Indemnification. The Company agrees, to the extent permitted by law, to indemnify and hold the Trustee harmless from and against any liability that it may incur in the administration of the Trust and the Plans, unless arising from the Trustee's own gross negligence or willful breach of its obligations under this Agreement. The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. ELEVENTH: No Duty to Advance Funds. The Trustee shall have no obligation to advance its own funds for the purposes of fulfilling its responsibilities under this Agreement, and its obligations to incur expenses shall at all times be limited to amounts in the Trust available to be applied toward such expenses. TWELFTH : Accounts: (a)(i) The Trustee shall keep accurate and detailed accounts of all its receipts, investments and disbursements under this Agreement on a calendar year basis. Such person or persons as the Company shall designate shall be allowed to inspect the books of -18- account relating to the Trust upon request at any reasonable time during the business hours of the Trustee. (ii) Within 120 days after the close of each calendar year, the Trustee shall transmit to the Company, and certify the accuracy of, a written statement of the assets and liabilities of the Trust, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to the Trust during the period from the last previous accounting to the close of that year. For the purposes of this Subparagraph, the date of the Trustee's resignation or removal or the date of termination of the Trust shall be deemed to be the close of a year. (iii) Unless the Company shall have filed with the Trustee written exceptions or objections to any such statement and account within 120 days after receipt thereof, the Company shall be deemed to have approved such statement and account; and in such case or upon the written approval by the Company of any such statement and account, the Trustee shall be forever released and discharged with respect to all matters and things contained in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the Company and all persons having any beneficial interest in the Trust were parties. (b) Nothing contained in this Agreement or in the Plans shall deprive the Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of the Trustee's accounts or for instructions in connection with the Trust, the only other -19- necessary party thereto in addition to the Trustee shall be the Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in the Trust, other than the Company, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accountings by the Trustee to the Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. THIRTEENTH: Administration of the Plans; Communications. (a) The Plans shall be administered as provided therein. The Trustee shall not be responsible in any respect for administering the Plans nor shall the Trustee be responsible for the adequacy of the Trust to meet and discharge all payments and liabilities under the Plans. The Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication signed by an officer of the Company who is authorized to execute and deliver, in the name and on behalf of the Company, documents or instruments relating to the Trust (hereinafter an "authorized officer"). The Company, from time to time, shall furnish the Trustee with the names and specimen signatures of the authorized officers and shall promptly notify the Trustee of the termination of office of any authorized officer and the appointment of a successor thereto. Until notified to the contrary, the Trustee shall be fully protected in relying upon the most recent list of the authorized officers furnished to it by the Company. -20- (b) Any action required by any provision of this Agreement to be taken by the Tenneco Board shall be evidenced by a resolution of such Board certified to the Trustee by the Secretary or an Assistant Secretary of the Company, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of the Company under any provision of this Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an authorized officer, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an authorized officer as proof of any fact or matter that it deems necessary or desirable to have established in the administration of the Trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying upon the statements in the certificate. (c) The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication reasonably believed by it to be genuine and to be signed by an authorized officer, and the Trustee shall be under no duty to make investigation or inquiry as to the truth or accuracy of any statement contained therein. (d) Until written notice is given to the contrary, communications to the Trustee shall be sent to it at Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831, -21- Attn: Dana Mead; communications to the Company shall be sent to it at its office at 1275 King Street, Greenwich, Connecticut 06831, Attn: Corporate Secretary. FOURTEENTH: Resignation or Removal of Trustee. (a) A Trustee may resign at any time other than during a Threatened Change in Control Period or after a Change in Control upon 30 days written notice to the Company or such shorter period as is acceptable to the Company. During a Threatened Change in Control Period or after a Change in Control, a Trustee may resign only under one of the following circumstances: (i) In the case of a corporate Trustee only, the Trustee is no longer in the business, or is actively in the process of removing itself from the business, of acting as trustee for employee benefit plans. (ii) The Trustee determines that a conflict of interest exists which would prohibit it from fulfilling its duties under this Agreement in an ethically proper manner. The Trustee shall use its best efforts to avoid the creation of such a conflict. (iii) The assets of the Trust have been exhausted or are insufficient to pay accrued and reasonably anticipated fees and expenses of the Trustee hereunder, the Company has refused to pay voluntarily the Trustee's accrued fees and expenses as required hereunder and the Trustee has been unsuccessful in obtaining a court order requiring -22- the Company to make such payments or has been unable to collect on a judgment for such accrued fees and expenses. (iv) The death or incapacity of a Trustee. Notwithstanding the above, a corporate Trustee may resign for reasons set forth in (i) or (ii) above only if it has obtained the agreement of a bank with assets in excess of $2 billion and net worth in excess of $100 million to replace it as trustee under the terms of this Agreement. In addition, upon the death, incapacity or resignation of a non-corporate Trustee(s), the remaining non-corporate Trustee(s) shall appoint the successor Trustee(s). (b) The Tenneco Board, may, other than during a Threatened Change in Control Period, remove a Trustee before a Change in Control, upon 30 days written notice to the Trustee, or upon shorter notice if acceptable to the Trustee. The Company may not remove a Trustee during a Threatened Change in Control Period or after a Change in Control. In the event a Trustee resigns or is removed, the Trustee shall have a right to have its accounts settled as provided herein. (c) Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee, the Trustee shall transfer and deliver the Trust to the successor trustee, reserving such sums as the Trustee shall deem necessary to defray its expenses in settling its accounts, to pay any of -23- its compensation due and unpaid and to discharge any obligation of the Trust for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to recover the amount of any deficiency from either the Company or from the Trust through the successor trustee, or both. When the Trust shall have been transferred and delivered to the successor trustee and the accounts of the Trustee have been settled as provided herein, the Trustee shall be released and discharged from all further accountability or liability for the Trust and shall not be responsible in any way for the further disposition of the Trust or any part thereof. FIFTEENTH: Amendment of Agreement; Termination of Trust. (a) Subject to Paragraph (b) below, the Company expressly reserves the right at any time to amend or terminate this Agreement and the Trust created thereby to any extent that it may deem advisable. No amendment shall be made without the Trustee's consent thereto in writing if, and to the extent that, the effect of such amendment is to increase the Trustee's responsibilities hereunder. Such proposed amendment shall be delivered to the Trustee as a written instrument of amendment, duly executed and acknowledged by the Company and accompanied by a certified copy of a resolution of the Tenneco Board. The Company also shall deliver to the Trustee a copy of any modifications or amendments to the Plans. The Trustee's consent shall not be required for the termination of the Trust or its removal as Trustee. -24- (b) Notwithstanding any other provision of this Agreement other than the following sentence, the provisions of this Agreement and the Trust created thereby may not be amended or terminated by the Company or the Trustee during a Threatened Change in Control Period or after a Change in Control. The Company, during a Threatened Change in Control Period, or the Trustee, after a Change in Control, upon written advice of counsel, may amend the provisions of this Agreement to the extent required by applicable law. (c) In the event the Company terminates the Trust prior to the occurrence of a Change in Control, other than during a Threatened Change in Control Period, the Trustee shall reserve such sums it deems necessary to pay its fees and expenses, and shall distribute all remaining assets of the Trust in accordance with the written directions of the Company. (d) The Trust shall continue in effect until payment or provision has been made for all benefits payable under the Plans. Upon termination of the Trust, the Trustee shall have a right to have its accounts settled. Any assets remaining in the Trust after payment or provision for all benefits payable under the Plans, and after the Trustee has reserved such sums as it deems necessary for the payment of its expenses and fees hereunder, shall be paid in accordance with the written directions of the Company. When the Trust assets shall have been so applied or distributed and the accounts of the Trustee shall have been so settled, the Trustee shall be released and discharged from all further accountability or liability respecting the Trust. -25- SIXTEENTH: Prohibition of Diversion. (a) At no time prior to the satisfaction of all liabilities with respect to the beneficiaries under this Trust shall any part of the corpus and/or income of the Trust be used for, or diverted to, purposes other than for the exclusive benefit of such beneficiaries or defraying the fees and reasonable expenses of the Trustee hereunder, and the assets of the Trust shall never inure to the benefit of the Company and shall be held for the exclusive purposes of providing benefits to participants in the Plans and their beneficiaries and defraying the fees and reasonable expenses of administering the Plans or performing any of the Trustee's duties under this Agreement. (b) Notwithstanding any provision of this Agreement to the contrary, the assets of the Trust shall at all times be subject to claims of the creditors of the Company. Upon notice that the Company may be insolvent, the Trustee shall not pay benefits from such Trust assets, shall hold the assets for the general creditors of the Company, shall promptly seek a judicial determination regarding the insolvency of the Company, and shall deliver the assets of the Trust to satisfy the claims of creditors, as directed by the court. The Trustee shall resume payments from such Trust assets under the terms of the Trust only after determining that the Company is not insolvent or after receiving a judicial decision to that effect. The Company shall have the duty to inform the Trustee of the insolvency of the Company. The Company shall be considered insolvent if it is unable to -26- pay its debts as they mature or if it is subject to a pending proceeding as a debtor under the Bankruptcy Code. SEVENTEENTH: Prohibition of Assignment of Interest. No interest, right or claim in or to any part of the Trust or any payment therefrom shall be assignable, transferable or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution or levy of any kind, and the Trustee shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute or anticipate the same, except to the extent required by law. EIGHTEENTH: [RESERVED] NINETEENTH: Miscellaneous. (a) This Agreement shall be interpreted, construed and enforced, and the trust hereby created shall be administered, in accordance with the laws of the United States and of the State of Delaware. Prior to a Change in Control, nothing in this Agreement shall be construed to subject the Trust created hereunder to the Employee Retirement Income Security Act of 1974, as amended. (b) The titles to Articles of this Agreement are placed herein for convenience of reference only, and the Agreement is not to be construed by reference thereto. (c) This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively, and the Plans. (d) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one -27- instrument, which may be sufficiently evidenced by any counterpart. (e) If any provision of this Agreement is determined to be invalid or unenforceable, the remaining provisions shall not for that reason alone also be determined to be invalid or unenforceable. (f) This document supersedes in its entirety and amends and restates the Tenneco Benefits Trust Agreement made as of May 19, 1996. (g) IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names as of the day and year first above written. TENNECO INC. By_______________________________________ Its______________________________________ TENNECO MANAGEMENT COMPANY By_______________________________________ Its______________________________________ -28- TRUSTEE _________________________________________ Dana G. Mead _________________________________________ Theodore R. Tetzlaff _________________________________________ Stacy S. Dick _________________________________________ Robert T. Blakely -29- SCHEDULE 1 ---------- I. EXECUTIVE NON-QUALIFIED PLANS ----------------------------- Tenneco Inc. Benefit Equalization Plan Tenneco Inc. Deferred Compensation Plan Tenneco Inc. 1993 Deferred Compensation Plan Tenneco Inc. Board of Directors Deferred Compensation Plan Tenneco Inc. Pilots' Supplemental Retirement Plan Tenneco Inc. Executive Incentive Compensation Plan Tenneco Inc. Supplemental Executive Retirement Plan 1994 Tenneco Inc. Stock Ownership Plan Tenneco Inc. Director's Restricted Stock/Restricted Unit Plan Supplemental Pensions For Dana Mead, Stacy Dick, Arthur House, Theodore Tetzlaff, W.R. Phillips, Paul Stecko, Barry Schuman and Robert Blakely. II. SALARY CONTINUATION ARRANGEMENTS -------------------------------- Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives -30- SCHEDULE 1 SUPPLEMENT TENNECO INC. ------------ BENEFITS PROTECTION PROGRAM --------------------------- Set out below is a description of the special rights which will arise with respect to the Plans, upon a Change in Control ("CIC") and which are to be protected by this program. I. EXECUTIVE NON-QUALIFIED PLANS ----------------------------- A. Tenneco Inc. Benefit Equalization Plan 1. Upon a Threatened Change in Control, Tenneco will calculate each participant's benefit payment amount (estimated as at the end of the then current calendar year) consisting of (i) the account balance for the Thrift Plan portion and (ii) the total, maximum straight-life, monthly annuity payments that could become payable over the next succeeding five-year period with respect to the accrued benefit for the Retirement Plan portion, and Tenneco will deposit the aggregate of the benefit payment amounts so calculated into the Benefits Protection Trust within five business days of the Threatened Change in Control. B. Tenneco Inc. Deferred Compensation Plan, 1993 Deferred Compensation Plan and Board of Directors Deferred Compensation Plan 1. Upon a Threatened Change of Control, Tenneco will calculate the account balance of each participant, including CPI and interest adjustments, (estimated as at the end of the then calendar year) and will deposit the aggregate amount so calculated into the Benefits Protection Trust within five business days of the Threatened Change in Control. C. Tenneco Inc. Pilots' Supplemental Retirement Plan 1. Upon a Threatened Change in Control, Tenneco will estimate (as of the end of the then calendar year) the amount of the benefits payable under the plan and will deposit this amount into the Benefits Protection Trust within five business days of the Threatened Change in Control. -31- D. Tenneco Inc. Executive Incentive Compensation Plan 1. Upon a Threatened Change in Control, Tenneco will deposit into the Benefits Protection Trust within five business days of a Threatened Change in Control an amount equal to the aggregate corporate and divisional individual target incentive award for the current year (or for the immediately preceding year, if no such target awards have been established for the current year), to be paid out by the Trustee, on behalf of the Company, in accordance with the provisions of the Plan. E. Tenneco Inc. Supplemental Executive Retirement Plan 1. Upon a Threatened Change in Control, Tenneco will estimate (as of the end of the then calendar year) the amount of the benefits payable under the plan and will deposit this amount into the Benefits Protection Trust within five business days of a Threatened Change in Control. F. 1994 Tenneco Inc. Stock Ownership Plan. 1. (a) Upon a Change in Control, all Stock Options granted under the plan shall become fully exercisable. (b) Upon a Threatened Change in Control all Stock Appreciation Rights granted under the plan shall become fully vested. Tenneco will estimate the amount payable to employees holding Stock Appreciation Rights and will deposit this amount into the Benefits Protection Trust within five business days of the Threatened Change in Control. (c) Upon a Threatened Change in Control, certificates for all Restricted Stock then held by Tenneco and issued under the plan together with funds in an amount estimated to be sufficient to pay the aggregate cash settlement amounts payable upon reversion of such shares in the event of a Change in Control and a subsequent discharge or constructive termination of the employee beneficiaries (which estimate may not be based on an assumed fair market value per share in excess of 150% of the fair market value on the date of the Threatened Change in Control) will be deposited into the Benefits Protection Trust within five business days of a Threatened Change in Control. (d) Upon a Threatened Change in Control, Tenneco will estimate the aggregate amount payable under the Performance Units, issued pursuant to the plan on account of all Units the cycle for which ends with the then current calendar year and will deposit the amount so estimated into the Benefits Protection -32- Trust within five business days of the Threatened Change in Control. (e) Upon a Threatened Change in Control, Tenneco will estimate the aggregate amount payable under the Stock Equivalent Units and Dividend Equivalent Units issued pursuant to the plan and will deposit the amount so estimated into the Benefits Protection Trust within five business days of the Threatened Change in Control. For purposes of this subsection F, the term "constructive termination" shall have the same meaning as set forth in the Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives. G. Tenneco Inc. Directors Restricted Stock/Restricted Unit Plan. 1. (a) Upon a Threatened Change in Control, certificates for all Restricted Stock then held by the Company and issued under the plan together with funds in an amount estimated to be sufficient to pay the aggregate cash settlement amounts payable upon reversion of such shares in the event of a CIC and a subsequent removal of the Director from the Board (which estimate may not be based on an assumed fair market value per share in excess of 150% of the fair market value on the date of the Threatened Change in Control) will be deposited into the Benefits Protection Trust within five business days of a Threatened Change in Control. (b) Upon a Threatened Change in Control, Tenneco will estimate the aggregate amount payable under the Restricted Units issued pursuant to the plan and will deposit the amount so estimated into the Benefits Protection Trust within five business days of the Threatened Change in Control. H. Supplemental Pensions. 1. Employees Protected - Dana Mead, Stacy Dick, Arthur House, John Castellani, Theodore Tetzlaff, W. R. Phillips, Paul Stecko, Barry Schuman and Robert Blakely. 2. Plan Provision - Upon a Threatened Change in Control, Tenneco will estimate (as of the end of the then calendar year) the amount of the benefits payable under the supplemental pension agreements and will deposit the amount so estimated into the Benefits Protection Trust within five business days of the Threatened Change in Control. -33- II. SALARY AND OTHER CONTINUATION ARRANGEMENTS ------------------------------------------ Upon a Threatened Change in Control, Tenneco will estimate the aggregate amount that it reasonably anticipates may become payable under the Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives and will deposit the amount so estimated into the Benefits Protection Trust within five business days of the Threatened Change in Control. -34- EX-10.18 27 EMPLOYMENT AGREEMENT, DATED 6/29/92 EXHIBIT 10.18 ------------- [ON TENNECO LETTERHEAD] June 29, 1992 Mr. Stacy Dick 1220 Park Avenue, #2D New York, NY 10128 Dear Stacy: On behalf of Tenneco, Inc. ("Tenneco") and Tenneco Management Company ("Company"), I am pleased to offer you the position of Sr. Vice President- Strategy under the following terms and conditions: 1. Your employment will commence as soon as you can conveniently terminate your employment with First Boston. You will report to me. 2. The Company will pay you a monthly base salary of $25,000 ($300,000 per year), which shall be subject to such increases as may from time to time be approved by the Compensation and Benefits Committee of the Board of Directors of Tenneco, payable according to the regular pay schedule for salaried employees. As discussed, effective January 1, 1992, we will adjust your salary to $27,083 per month ($325,000 per year). 3. You will be a participant in Tenneco's Executive Incentive Compensation Plan ("EIC Plan"). The amount distributed to you under the EIC Plan with respect to 1992 will be $100,000 and 1993 will be no less than $125,000, payable in accordance with the terms of the EIC Plan. 4. You will be a participant in Tenneco's Deferred Compensation Plan ("DC Plan"). The amount awarded to you under the DC Plan with respect to 1992 will be $15,000, payable in accordance with the terms of the DC Plan. Mr. Stacy Dick June 29, 1992 Page 2 5. You will be awarded 15,000 restricted shares under Tenneco's Key Employee Restricted Stock and Restricted Unit Plan, vesting in four years following date of grant. You will be eligible to vote the stock and receive quarterly dividends. You will be eligible to receive additional stock grants annually at the discretion of the Compensation and Benefits Committee of the Board of Directors. 6. In consideration of benefits you will forego from your current employer, the Company will pay you the following upon commencement of your employment. . $145,000 if First Boston requires you to reimburse them for 40% of your 1991 bonus. . $290,000 which represents one-half of your estimated accrued 1992 bonus from First Boston. Should the final amount of the bonus generated and earned be more or less than the $290,000, we will settle which each other as is appropriate as soon as the final amount is known. 7. You will receive non-cash compensation and personal benefits comparable to those currently provided to Tenneco's senior executive officers under Tenneco's policies in effect at the time hereof, including reimbursement for the costs of financial, tax and estate planning up to $20,000 per year. 8. We will credit five years of service under our pension effective with your date of employment, plus you will receive a SERP which covers the incentive compensation in addition to base salary. 9. The Company will purchase from you your home in New York for a price equal to the greater of the fair market value determined by an independent appraiser or your cost for the property. 10. You will be reimbursed for the costs incurred in relocating to the Houston, Texas area. 11. If the Company terminates your employment other than upon your death, disability or the material non-performance of your duties, it will pay you a severance benefit in an amount equal to the sum of one times your base salary then in effect. 12. You will be provided an annual physical examination. You will also be provided membership in a country club of your choice and a dining or social club of your choice related to the performance of your role as Sr. Vice President. Mr. Stacy Dick June 29, 1992 Page 3 13. You will be provided an automobile, including gas, maintenance, and insurance in accordance with Tenneco company policy. Materials for the Tenneco Inc. Executive Incentive Plan, Restricted Stock and Deferred Compensation Plan are being mailed to you. Ken Otto is available to answer any questions you may have. Please acknowledge your agreement to these terms by executing a copy of this letter in the space provided below and returning it to me. Very truly yours, /s/ Michael H. Walsh Michael H. Walsh Chairman and Chief Executive Officer Agreed: /s/ Stacy Dick - ------------------ Stacy Dick EX-10.19 28 EMPLOYMENT AGREEMENT, DATED 3/12/92 EXHIBIT 10.19 ------------- [ON TENNECO LETTERHEAD] March 12, 1992 Mr. Dana G. Mead 27 Strickland Road Cos Cob, CT 06807 Dear Dana: On behalf of Tenneco, Inc. ("Tenneco") and Tenneco Management Company ("Company"), I am pleased to offer you the position of President and Chief Operating Officer under the following terms and conditions: 1. Your employment will commence about April 1, 1992 or upon termination of your present employment if that occurs earlier. You will report directly to the Chief Executive Officer. You will serve as Chief Operating Officer and, as of May 12, 1992, you will become President of Tenneco and Chief Operating Officer. 2. The Company will pay you a monthly base salary of $47,917 ($575,000 per year), which shall be subject to such increases as may from time to time be approved by the Compensation and Benefits Committee of the Board of Directors of Tenneco, payable according to the regular pay schedule for salaried employees. 3. You will be a participant in Tenneco's Incentive Compensation Plan ("EIC Plan"). The amount distributed to you under the EIC Plan with respect to 1992 and 1993 will be no less than $300,000 for each year, payable in accordance with the terms of the EIC Plan. 4. You will be a participant in Tenneco's Deferred Compensation Plan ("DC Plan"). The amount awarded to you under the DC Plan with respect to 1992 will be no less than $60,000, payable in accordance with the terms of the DC Plan. Mr. Dana G. Mead March 12, 1992 Page 2 5. You will be awarded 55,000 restricted shares under Tenneco's Key Employee Restricted Stock and Restricted Unit Plan, vesting in five years following date of grant. You will be eligible to vote the stock and receive quarterly dividends. You will be eligible to receive additional stock grants annually at the discretion of the Compensation and Benefits Committee of the Board of Directors. In the event of your termination for any reason, other than death, disability or retirement, these shares will vest on a prorated basis, at a minimum, based on the number of months employed during the five year vesting period. In the event of retirement, death or disability, all shares will be fully vested regardless of length of service. Early retirement (prior to age 65) will require Board approval for vesting. 6. You will be nominated for membership on the Tenneco Inc. Board of Directors at its next meeting on March 10, 1992. 7. In consideration of benefits you will forego from your current employer, the Company will pay you $1,000,000 upon commencement of your employment. 8. You will receive non-cash compensation and personal benefits comparable to those currently provided to Tenneco's senior executive officers under Tenneco's policies in effect at the time hereof, including reimbursement for the costs of financial, tax and estate planning up to $20,000 per year. 9. Your pension benefits from all defined pension benefit plans (whether qualified or non-qualified) will at a minimum be equal to an amount to which you will have been entitled to if your coverage under the International Paper ("IP") defined benefit plans (whether qualified or non- qualified) in effect at this time had continued until your separation from service with Tenneco (less any benefits from such IP Plans). If the Company terminates your employment non-performance of your duties prior to age 60, the Company will guarantee an age 60 retirement (equivalent to that received if you fully vested at age 60), including your IP past service and bonus included in the calculation of such benefit. In the event of death while actively employed, the surviving spouse will receive retirement benefits under a 50% joint and survivor benefit provision. Long Term Disability is a separate program which pays 60% of base pay. If disabled, the retirement plan recognizes the years of disability towards the individual's accrual in the retirement plan. 10. The Company will purchase from you your homes in Greenwich, Connecticut and Cape Cod, Massachusetts or Windham, Vermont for a price equal to the greater of their fair market value determined by an independent appraiser or your cost for the properties. Mr. Dana G. Mead March 12, 1992 Page 3 11. You will be reimbursed for the costs incurred in relocating to the Houston, Texas area, including the cost of transporting your boat for normal temporary living expenses during the duration of the move to Houston and relocation from the Northeast. 12. If the Company terminates your employment other than upon your death, disability or the material non-performance of your duties, it will pay you a severance benefit in an amount equal to the sum of (i) three times your base salary then in effect and (ii) $300,000. If you resign voluntarily, you will not be entitled to any severance benefits. 13. You will be provided an annual physical examination. You will also be provided membership in a country club of your choice and a dining or social club of your choice related to the performance of your role as President and Chief Operating Officer. 14. You will be provided an automobile, including gas, maintenance, and insurance in accordance with Tenneco company policy. Materials for the Tenneco Inc. Executive Incentive Plan, Restricted Stock and Deferred Compensation Plan are being mailed to you. Ken Otto is available to answer any questions you may have. Please acknowledge your agreement to these terms by executing a copy of this letter in the space provided below and returning it to me. Sincerely, /s/ Michael H. Walsh Michael H. Walsh President and Chief Executive Officer Agreed: /s/ Dana G. Mead - ------------------- Dana G. Mead EX-10.20 29 EMPLOYMENT AGREEMENT, DATED 12/3/93 EXHIBIT 10.20 ------------- [ON TENNECO LETTERHEAD] December 3, 1993 PERSONAL AND CONFIDENTIAL - ------------------------- Mr. Paul T. Stecko 9469 Plantation Way Lane Germantown, Tennessee 38139 Dear Paul: On behalf of Tenneco, I am pleased to offer you the position of President and Chief Executive Officer of Packaging Corporation of America, under the following terms and conditions: 1. Your employment will commence on or about December 6, 1993 or upon termination of your present employment, if that occurs earlier. You will report to me as President and Chief Operating Officer of Tenneco. 2. You will be paid a base salary of $320,000 a year, which shall be subject to such increases as may from time to time be approved by the Compensation and Benefits Committee of the Board of Directors of Tenneco, payable according to the regular pay schedule for salaried employees. 3. You will be a participant in the Tenneco Executive Incentive Compensation Plan ("EICP"). The amount distributed to you under the EICP for 1994 will be no less than $175,000, payable in accordance with the terms of the EICP. 4. You will be a participant in Tenneco's Deferred Compensation Plan ("DCP"). The amount awarded to you under the DCP with respect to 1994 will be no less than $22,000, payable in accordance with the terms of the DCP. Mr. Paul T. Stecko December 3, 1993 Page 2 5. At the time of your employment, you will be awarded 5,000 restricted shares under Tenneco's Key Employee Restricted Stock and Restricted Unit Plan, vesting in one year following the date of the grant, subject to Board approval. You will be eligible to vote the stock and receive quarterly dividends. You will be eligible to receive additional restricted stock grants and stock options annually at the discretion of the Compensation and Benefits Committee of the Board of Directors. (1994 target award levels for your position are approximately 5,000 restricted and 16,000 option grants. Annual awards may be greater or lesser than the target depending on performance.) 6. In consideration of the benefits you will forego from your current employer, you will be paid $300,000 upon commencement of your employment. You will be paid an additional signing bonus of $200,000, also payable upon commencement of your employment. 7. You will receive non-cash compensation and personal benefits comparable to those currently provided to Tenneco senior executives under Tenneco's policy in effect at the time hereof, including Health Care, Thrift Plan, Long-Term Disability, and Life Insurance (the plan provides for coverage of one and one-half times your salary paid for by the Company, with the option to purchase at your expense up to five times your salary). You will also be reimbursed the costs for financial and estate planning up to $20,000 per year. The Company will purchase from you your home in Memphis for a price equal to the greater of the fair market value determined by an appraiser, or your cost for the property-which you have indicated is $375,000. You will also be reimbursed for the costs incurred in relocating to the Chicago area according to the Company's relocation plan, which includes a payment equal to one month's salary. 8. You will have four weeks vacation. 9. Your pension benefits from all defined pension benefit plans will, at a minimum, be equal to an amount to which you would have been entitled if your coverage under the International Paper ("IP") defined benefit plans in effect at this time had continued until your separation of service with Tenneco, less any benefits from such IP plans. Years of service with IP will count towards satisfaction of early retirement service requirements in the Tenneco Plan. 10. If your employment is terminated other than for the cause of death, disability or the gross neglect of your duties, you will be paid a severance benefit in an amount equal to three times your base salary ($320,000). We also agree to purchase your Chicago-area home at "fair market value" in the event you become entitled to this severance benefit. Fair market value will be determined by the average of two independent appraisals. These two appraisers will be chosen from a list provided by Tenneco's Mr. Paul T. Stecko December 3, 1993 Page 3 home purchase agent in accordance with the Company's Home Purchase Plan. If you resign voluntarily you will not be entitled to any severance or home purchase plan benefits. 11. If a change in control of Packaging Corporation of America occurs and your relationship with Tenneco and the acquiring company is severed, you will be paid a severance benefit in an amount equal to three times your base salary ($320,000). This severance benefit may be exercised by you at any time within three years of the date of change of control. 12. You will be provided membership in a country club of your choice related to the performance of your role as President and Chief Executive Officer. 13. This offer is contingent upon your successful completion of a pre- employment physical which includes a requisite substance abuse screening. The materials describing the Tenneco Executive Incentive Compensation Plan, Restricted Stock, Deferred Compensation and other benefit plans will be mailed to you. Barry Schuman is available to answer questions you may have. Please acknowledge your agreement of these terms by executing a copy of this letter in the space provided below and returning it to me. Sincerely, /s/ Dana G. Mead Dana G. Mead President and Chief Operating Officer ACKNOWLEDGED AND ACCEPTED: /s/ Paul T. Stecko - --------------------- Paul T. Stecko On this ______ day of December, 1993. EX-10.21 30 FORM OF AGREEMENT, DATED 9/9/92 EXHIBIT 10.21 ------------- [ON TENNECO LETTERHEAD] September 9, 1992 Mr. Theodore R. Tetzlaff Jenner & Block One IBM Plaza Chicago, IL 60611 Dear Ted: As you know, on September 1, 1991, you and Jenner & Block were engaged by Walter W. Sapp, the General Counsel of Tenneco, Inc., to represent Tenneco and its subsidiaries and affiliates ("Tenneco"). In addition, effective July 1, 1992, the Board of Directors of Tenneco designated you to serve as General Counsel of Tenneco. I am writing to confirm our understanding of certain terms concerning Jenner & Block's representation of Tenneco and your service as General Counsel. Tenneco's Board of Directors has appointed you General Counsel with the understanding that during your tenure as General Counsel you will continue to be a partner of Jenner & Block, to reside in Chicago, and to engage in the practice of law with that firm. You have agreed to devote whatever time is necessary to attend to your professional responsibilities as General Counsel of Tenneco, and Tenneco agrees to pay you $300,000 per year for your service as General Counsel. Tenneco will pay for your travel to Houston as well as travel and other expenses you incur on behalf of Tenneco. As an officer of Tenneco, you are also eligible to participate in those benefit plans or programs which are generally available to the other senior officers of Tenneco. It is Tenneco's understanding that Jenner & Block has agreed that Tenneco may pay this compensation and extend these benefits to you to be retained for your personal benefit. You have advised me that during your tenure as General Counsel of Tenneco you will not receive from Jenner & Block any part of the fees paid by Tenneco to Jenner & Mr. Theodore R. Tetzlaff September 9, 1992 Page 2 Block, and that Jenner & Block agrees to take appropriate action to exclude you from participating in the distribution of those fees paid by Tenneco. Also, Jenner & Block agrees that it will not bill Tenneco for your professional services rendered after July 1, 1992. It is Tenneco's understanding that Jenner & Block will render professional services in accordance with the terms contained in the letter dated April 13, 1992, from Tenneco confirming Jenner & Block's engagement. Tenneco understands that Jenner & Block will bill for other members of the firm in accordance with Jenner & Block's regular hourly rates or as otherwise agreed upon by Jenner & Block and the Deputy General Counsels of Tenneco or other members of Tenneco's Office of General Counsel responsible for requesting or monitoring those services. If I have accurately reflected our understanding, I would appreciate it if you and Jenner & Block would kindly acknowledge one copy of this letter. Sincerely, /s/ Dana G. Mead Dana G. Mead, President AGREED: /s/ Theodore R. Tetzlaff - -------------------------- Theodore R. Tetzlaff - ------------------------------------ Jenner & Block EX-10.22 31 TENNECO DIRECTORS RESTRICTED STOCK PROGRAM EXHIBIT 10.22 ------------- 9/16/96 TENNECO INC. BOARD OF DIRECTORS RESTRICTED STOCK PROGRAM Pursuant to the Company's directors' fee structure, annually, on the second Tuesday of January, 300 shares (the "Restricted Shares") of the Company's Common Stock, par value $5 per share (the "Common Stock"), held by the Company in treasury shall be transferred to each non-employee director of the Company (the "Outside Director"). The stock certificate representing said Restricted Shares shall be registered in the Outside Director's name, effective as of such second Tuesday in January (the "Registration Date"). Each Outside Director shall provide the Company with an executed acknowledgment of the transaction, relating to the Restricted Shares, in such form as the Company may reasonably require. Valuation of Restricted Shares. The Restricted Shares issued in connection with this Restricted Stock Program shall be issued at the Fair Market Value thereof, as of the Registration Date. "Fair Market Value" of a Restricted Share is the mean between the highest and the lowest sales prices of a share of the Common Stock on the Composite Tape for such date, as reported by the National Quotation Bureau Incorporated; provided, that (i) if no sales of Common Stock are included on the Composite Tape for such date, or (ii) if in the opinion of the Committee the sales of Common Stock on such date are insufficient to constitute a representative market, the Fair Market Value of a Restricted Share on such date shall be deemed equal to the mean between the highest and lowest sales prices of a share of Common Stock on the Composite Tape for the first preceding date on which sales of Common Stock are included and to which clause (ii) of this paragraph does not apply. Restrictive Legend. The stock certificate shall bear the following legend: "The shares represented by this certificate have been issued pursuant to the terms of the Tenneco Inc. Board of Directors Restricted Stock Program, are subject to forfeiture, and may not be sold, transferred, assigned, pledged, or otherwise encumbered, tendered or exchanged, or disposed of in any manner until such time as is set forth in the terms of such Restricted Stock Program." Restricted Period. The restricted period (the "Restricted Period") applicable to the Restricted Shares begins on the Registration Date and, unless the disinterested members of the Committee shall determine otherwise, ends on the earliest of the Outside Director's: (i) death; (ii) total disability; or (iii) retirement from the Board, after reaching the mandatory retirement age provided by Article II, Section 1 of the By Laws of the Company. Restrictions. During the Restricted Period the Restricted Shares shall be held in custody by the Company for such Outside Director's account. The Outside Directors shall have generally the rights and privileges of a stockholder as to any Restricted Shares, including the right to receive dividends and the right to vote such Restricted Shares, except that the following restrictions shall apply: (i) An Outside Director shall not be entitled to delivery of a stock certificate, representing the Restricted Shares, until the expiration or earlier termination of the Restricted Period: (ii) Should an Outside Director, prior to the expiration or earlier termination of the Restricted Period, resign from the Board, fail to stand for reelection to the Board, or otherwise cease to be a member of the Board of Directors of the Company, the Restricted Shares shall be forfeited, unless otherwise determined by the disinterested members of the Committee; and (iii) No Restricted Shares may be sold, transferred, assigned, pledged, or otherwise encumbered, tendered or exchanged, or disposed of until the expiration or earlier termination of the Restricted Period. In the event of a tender or exchange offer that is applicable to any Restricted Shares, the Committee shall have the sole right to instruct the Company as to whether such Restricted Shares are to be tendered or exchanged, and the Company shall respond in accordance with the instructions so received. Delivery of Shares. Upon the expiration or earlier termination of the Restricted Period, the restrictions applicable to the Restricted Shares shall lapse. As promptly as administratively feasible thereafter, the Company shall deliver to such Outside Director or, if deceased, such Outside Director's beneficiary or estate, a stock certificate for the appropriate number of shares of Common Stock, free of all such restrictions and without the legend described above, except for any restrictions that may be imposed by law. Upon the forfeiture of any Restricted Share, such forfeited share shall be transferred to the Company, without further action by an Outside Director, as an issued, reacquired share. Tax Matters. Under current tax law, the Outside Directors receiving Restricted Shares will generally be taxed on the value of the Restricted Shares on the date the restrictions lapse. However, as an alternative, an Outside Director may elect under the Internal Revenue Code Section 83(b) to be taxed on the value of the Restricted Shares on the Registration Date, identified above. If an Outside Director makes this election, the value of the Restricted Shares will be taxable in the year of the Registrations Date, rather than in the year that the restrictions lapse. An Outside Director making this election, must so notify the Company in writing and file the election with the Internal Revenue Service within thirty (30) days of the Registration Date. This Program and the total compensation of any Outside Director of the Company may be changed at any time by the Committee, and any Outside Director shall not have any rights to Restricted Shares in any particular year until such shares are registered in his or her name. THE RESTRICTED SHARES REFERRED TO HEREIN SHALL NOT BE REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED. EX-10.23 32 DIRECTORS RESTRICTED STOCK & UNIT PROGRAM EXHIBIT 10.23 ------------- 9/16/96 TENNECO INC. BOARD OF DIRECTORS RESTRICTED STOCK AND RESTRICTED UNIT PROGRAM Pursuant to the Company's directors' fee structure, annually, on the second Tuesday of January, (the "Registration Date"), 300 units (the "Restricted Units") shall be credited to the account of each non-employee director of the Company (the "Outside Director") who is not a United States Resident, and said account shall be maintained by the Company's Compensation and Benefits Planning Department. Restrictions. During the Restricted Period the following restrictions shall apply to each Restricted Unit: (i) Should an Outside Director, prior to the expiration or earlier termination of the Restricted Period, resign from the Board, fail to stand for reelection to the Board, or otherwise cease to be a member of the Board of Directors of the Company, the Restricted Units shall be forfeited, unless otherwise determined by the disinterested members of the Committee; and (ii) No Restricted Unit may be sold, transferred, assigned, pledged, or otherwise encumbered, tendered or exchanged, or disposed of until the expiration or earlier termination of the Restricted Period. Dividend Equivalent. As soon as administratively feasible following the payment of any cash dividend on its Common Stock, the Company shall pay a "dividend equivalent" in an amount equal to any cash dividend paid by the Company on one share of Common Stock for each Restricted Unit outstanding under this Program. Delivery of Shares. Upon the expiration or earlier termination of the Restricted Period, the restrictions applicable to the Restricted Units shall lapse. As promptly as administratively feasible thereafter, the Company shall deliver to the Outside Director a stock certificate for the appropriate number of shares of Common Stock, free of all such restrictions, except for any restrictions that may be imposed by law, and the Restricted Units with respect to which the restrictions have lapsed shall cease to be outstanding. In the event the disinterested members of the Committee reasonably believe that the laws of the country in which the Outside Director resides prohibit payment in shares of Common Stock, then, in lieu of the delivery of such stock certificate and without any consent by the Outside Director, the company shall, at the direction of the disinterested members of the Committee, pay the Outside Director a cash amount equal to the Fair Market Value (as of the date the restrictions lapse) of the appropriate number of shares of Common Stock. The appropriate number of shares shall be equal to the number of Restricted Units with respect to which the restrictions have lapsed. Restricted Period. The restricted period (the "Restricted Period") applicable to the Restricted Units, as the case may be, begins on the Registration Date and, unless the disinterested members of the Committee shall determine otherwise, ends on the earliest of the Outside Director's: (i) death; (ii) total disability; or (iii) retirement from the Board, after reaching the mandatory retirement age provided by Article II, Section 1 of the By Laws of the Company. Valuation of Restricted Units. The Restricted Units issued in connection with this Restricted Stock and Restricted Unit Program shall be issued at the Fair Market Value thereof, as of the Registration Date. "Fair Market Value" of a Restricted Unit is the mean between the highest and the lowest sales prices of a share of the Common Stock on the Composite Tape for such date, as reported by the National Quotation Bureau Incorporated; provided, that (i) if no sales of Common Stock are included on the Composite Tape for such date, or (ii) if in the opinion of the Committee the sales of Common Stock on such date are insufficient to constitute a representative market, the Fair Market Value of a Restricted Unit on such date shall be deemed equal to the mean between the highest and lowest sales prices of a share of Common Stock on the Composite Tape for the first preceding date on which sales of Common Stock are included and to which clause (ii) of this paragraph does not apply. Adjustments Upon Changes in Capitalization. Notwithstanding the foregoing, the Committee may at any time make or provide for adjustments to any outstanding Restricted Units with respect to which restrictions have not lapsed as it shall deem appropriate to prevent dilution or enlargement of rights, including adjustments in the event of changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. Tax Matters. Under current tax law, the Outside Directors will incur no immediate U.S. income tax liability upon the award of the Restricted Units. The U.S. tax effect will be determined at the expiration or earlier termination of the Restricted Period, at which time the Restricted Units will cease to be outstanding and Common Stock will be delivered to the Director. The tax effect of such transaction will be determined by each Director's individual situation in the year of the delivery. Factors such as the amount of time spent in the United States and the existence and terms of any applicable tax treaty in effect at the time of the delivery of the Common Stock may affect the Director's ultimate income tax liability, both U.S. and foreign. Consultation with a professional tax advisor is recommended. Payments of the dividend equivalent will be regarded as compensation to the Director. As discussed above the proper tax treatment will depend on each Director's individual situation in the year in which the payments are made. Acknowledgment of Transaction. Each Outside Director shall provide the Company with an executed acknowledgment of the transaction, relating to the Restricted Units in such form as the Company may reasonably require. This Program and the total compensation of any Outside Director of the Company may be changed at any time by the Committee, and any Outside Director shall not have any rights to Restricted Units in any particular year until such shares are registered in his or her name. THE RESTRICTED UNITS REFERRED TO HEREIN SHALL NOT BE REGISTERED PRUSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED. EX-10.24 33 1996 TENNECO STOCK OWNERSHIP PROGRAM EXHIBIT 10.24 ------------- 1996 TENNECO INC. STOCK OWNERSHIP PLAN 1. PURPOSE The purpose of the Plan is to promote the long-tenn success of the Company for the benefit of shareholders by encouraging its officers and key employees to have meaningful investments in the Company so that, as stockholders themselves, those individuals will be more likely to represent the views and interests of other stockholders and by providing incentives to such officers and key employees for continued service. The Company believes that the possibility of participation under the Plan will provide this group of officers and employees an incentive to perform more effectively and will assist the Company in attracting and retaining people of outstanding training, experience and ability. 2. DEFINITIONS "Authorized Plan Shares" has the meaning set forth in Section 6(a). "Award" means an award or grant made to a Participant under Section 8. "Award Agreement" means the agreement provided in connection with an Award under Section 12. "Award Date" means the date that an Award is made, as specified in an Award Agreement. "Board of Directors" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended, or any successor legislation. "Company" means Tenneco Inc. "Committee" means the Compensation and Benefits Committee of the Board of Directors, or any successor committee thereto. "Common Stock" means the Company's common stock, $.01 par value per share. "Covered Employees" shall have the meaning specified in Section 162(m)(3) of the Code. "Dividend Equivalent" means an amount equal to the amount of the cash dividends that are declared and become payable after the Award Date for the Award to which it relates and on or before the Settlement Date for such Award. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" on any date means the average of the highest and the lowest sales prices of a share of Common Stock on the Composite Tape for such date, as reported by the National Quotation Bureau Incorporated, provided that if (i) no sales of Common Stock are included on the Composite Tape for such date, or (ii) in the opinion of the Committee, the sales of Common Stock on such date are insufficient to constitute a representative market, then the Fair Market Value of a share of Common Stock on such date shall be deemed to be the average of the highest and lowest prices of a share of Common Stock as reported on said Composite Tape for the next preceding day on which (x) sales of Common Stock are included and (y) the circumstances described in this clause (ii) do not exist. "ISO" means any Stock Option designated in an Award Agreement as an "Incentive Stock Option" within the meaning of Section 422 of the Code. "Non-Qualified Stock Option" means any Stock Option that is not an ISO. "Option Price" means the purchase price of one share of Common Stock under a Stock Option. "Participant" means an employee or officer of a Tenneco Company who has been selected by the Committee to receive an Award under the Plan. "Performance Unit" means an Award denominated in cash, the amount of which may be based on performance of the Participant or of Tenneco Inc. or of any subsidiary or division thereof. "Plan" means this 1996 Tenneco Inc. Stock Ownership Plan, as amended from time to time. "Reload Stock Option" means a Stock Option (i) that is awarded, either automatically in accordance with the terms of an Award Agreement in which one or more other Awards are made or by separate Award, upon the exercise of a stock option granted under this Plan or otherwise where the option price is paid by the option holder by delivery of shares of Common Stock on the Settlement Date for such exercise and (ii) that entitles such holder to purchase the number of shares so delivered for an Option Price equal to the Fair Market Value of a share of Common Stock on such Settlement Date. "Restricted Stock" means shares of Common Stock subject to restrictions and conditions pursuant to Section 8(c). "Rule 16b-3" means Regulation (S) 240.16b-3 of the rules and regulations of the Securities and Exchange Commission promulgated under the Exchange Act. -2- "Settlement Date" means, (i) with respect to any Stock Option that has been exercised in whole or in part, the date or dates upon which shares of Common Stock are to be delivered to the Participant and the Option Price therefor paid, (ii) with respect to any SARs that have been exercised, the date or dates upon which a cash payment is to be made to the Participant, or in the case of SARs that are to be settled in shares of Common Stock, the date or dates upon which such shares are to be delivered to the Participant, (iii) with respect to Performance Units, the date or dates upon which cash or shares of Common Stock are to be delivered to the Participant, (iv) with respect to Dividend Equivalents, the date upon which payment thereof is to be made, and (v) with respect to Stock Equivalent Units, the date upon which payment thereof is to be made, in each case, determined in accordance with the terms of the Award Agreement under which any such Award was made. "Stock Appreciation Right" or "SAR" means an Award that entitles the Participant to receive on the Settlement Date an amount equal to the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise of the SAR over (ii) the Fair Market Value of one share of Common Stock on the Award Date or any other higher amount specified in the Award Agreement. "Stock Equivalent Unit" means an Award that entitles the Participant to receive on the Settlement Date an amount equal to the Fair Market Value of one share of Common Stock on such date. "Stock Option" or "Option" means any right to purchase shares of Common Stock (including a Reload Stock Option) awarded pursuant to Section 8(a). "Tenneco Company" means the Company, any stock corporation of which a majority of the capital stock generally entitled to vote for directors is owned directly or indirectly by the Company, and any other company designated as such by the Committee, but only during the period of such ownership or designation. 3. TERM The Plan shall be effective as of October 8, 1996, and shall remain in effect through December 31, 2001. After termination of the Plan, no further Awards may be granted other than Reload Stock Options granted in accordance with Award Agreements existing as of December 31, 2001, but outstanding Awards shall remain effective in accordance with their terms and the terms of the Plan. 4. PLAN ADMINISTRATION (a) The Committee shall be responsible for administering the Plan. -3- (i) Composition of the Committee. The Committee shall be comprised of two or more members of the Board of Directors, all of whom shall be "non-employee directors" as defined in Rule 16b-3) and "outside directors" as that term is used in Section 162 of the Code and the regulations promulgated thereunder. (ii) Powers. The Committee shall have full and exclusive discretionary power to interpret the Plan and to determine eligibility for benefits and to adopt such rules, regulations and guidelines for administering the Plan as the Committee may deem necessary or proper. Such power shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to Section 13, adopting modifications and amendments to the Plan or any Award Agreement, including without limitation, any that are necessary to comply with the laws of the countries in which the Company or its affiliates operate. (iii) Delegation. The Committee may delegate to one or more of its members or to one or more agents or advisors such non- discretionary administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. (b) The Committee may employ attorneys, consultants, accountants and other persons, and the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Participants, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or Awards, and all members of the Committee shall be fully protected by the Company, to the fullest extent permitted by applicable law, in respect of any such action, determination or interpretation. 5. ELIGIBILITY Awards will be limited to persons who are officers or key employees of the Tenneco Companies. In determining the persons to whom Awards shall be made, the Committee shall, in its discretion, take into account the nature of the person's duties, past and potential contributions to the success of the Tenneco Companies and such other factors as the Committee shall deem relevant in connection with accomplishing the purposes of the Plan. A director of the Company who is not also an officer or employee shall not be eligible to receive an Award. A person who has received an Award or Awards may receive an additional Award or Awards. For purposes of this Section 5, the terms "employee" and "officer" shall also include any former employee or former officer of a Tenneco Company eligible to receive a replacement award as contemplated in the third sentence of Section 8. -4- 6. AUTHORIZED AWARDS; LIMITATIONS (a) Except for adjustments pursuant to Section 7, the maximum number of shares of Common Stock that shall be available for issuance under the Plan (the "Authorized Plan Shares") shall be 17,000,000 (approximately 10% of the issued and outstanding shares of Common Stock on the effective date of the Plan). (b) Except for adjustments pursuant to Section 7, in no event (i) shall more than 6.0 million of the Authorized Plan Shares be available for issuance pursuant to the exercise of ISOs awarded under the Plan; and (ii) shall more than 5.0 million of the Authorized Plan Shares be available for issuance pursuant to Restricted Stock Awards. (c) If an Award expires unexercised or is forfeited, surrendered, canceled, terminated or settled in cash in lieu of Common Stock, the shares of Common Stock that were theretofore subject (or potentially subject) to such Award may again be made subject to an Award Agreement. (d) Common Stock that may be issued under the Plan may be either authorized and unissued shares, or issued shares that have been reacquired by the Company and that are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan; provided, however, that cash, in an amount equal to the Fair Market Value of a fractional share of Common Stock as of the Settlement Date of the Award, shall be paid in lieu of any fractional shares in the settlement of Awards payable in shares of Common Stock. (e) In no event shall the number of shares of Common Stock subject to Stock Options plus the number of shares underlying SARs awarded to any one Participant during the period from October 8, 1996, through December 31, 2001, exceed 10% of the Authorized Plan Shares. In all events, determinations under the preceding sentence shall be made in a manner that is consistent with Code Section 162 and the regulations promulgated thereunder. 7. ADJUSTMENTS AND REORGANIZATIONS The Committee may make such adjustments to Awards granted under the Plan (including the terms, exercise price and otherwise) as it deems appropriate in the event of changes that impact the Company, the Company's share price, or share status, provided that any such actions are consistently and equitably applied to all affected Participants; provided, that, notwithstanding any other provision hereof, insofar as any Award is subject to performance goals established to qualify payments thereunder as "performance-based compensation" as described in Section 162(m) of the Code, the Committee shall have no power to adjust such Awards other than (i) negative discretion and (ii) the power to adjust Awards for corporate transactions, in either case to the extent permissible under regulations interpreting Code Section 162(m). -5- In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, extraordinary dividend, spin-off, split-up, rights offering, share combination, or other change in the corporate structure of the Company affecting the Common Stock, the number and kind of shares that may be delivered under the Plan shall be subject to such equitable adjustment as the Committee, in its sole discretion, may deem appropriate in order to preserve the benefits or potential benefits to be made available under the Plan, and the number and kind and price of shares subject to outstanding Awards and any other terms of outstanding Awards shall be subject to such equitable adjustment as the Committee, in its sole discretion, may deem appropriate in order to prevent dilution or enlargement of outstanding Awards. 8. AWARDS The Committee shall determine the type and amount of any Award to be made to any Participant; provided, however, that, except as provided in paragraph (g), no Award granted pursuant to this Plan shall vest in less than six months after the date the Award is granted. Awards may be granted singly, in combination, or in tandem. Awards may also be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for, grants or rights under any other employee benefit or compensation plan of the Tenneco Companies, including any such employee benefit or compensation plan of any acquired entity. (a) Stock Options. (i) Grants. Stock Options (including Reload Stock Options) granted under this Plan may be either of the following: (1) an ISO or (2) a Non-Qualified Stock Option The Committee may grant any Participant one or more ISOs, Non- Qualified Stock Options, or both types of Stock Options, in each case with or without SARs or Reload Stock Options or any other form of Award. Stock Options granted pursuant to this Plan shall be subject to such additional terms, conditions, or restrictions as may be provided in the Award Agreement relating to such Stock Option. (ii) Option Price. The Option Price of a Stock Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the Award Date; provided, however, that in the case of a Stock Option granted retroactively in tandem with or as a substitution for another Award, the Option Price shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of such other Award; and provided further that in any case ISOs shall have a price equal to 100% of the Fair Market Value of a share of Common Stock on the Award Date. -6- (iii) ISOs. Anything in this Plan to the contrary notwithstanding, no term of this Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority awarded under the Plan be exercised, so as to disqualify this Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any ISO under Section 422 of the Code. An ISO shall not be granted to an individual who, on the date of grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the employing Company or of its parent or any subsidiary corporation. The aggregate Fair Market Value, determined on the Award Date, of the shares of Common Stock or other stock with respect to which one or more ISOs (or other "incentive stock options," within the meaning of Subsection (b) of Section 422 of the Code, under all other stock option plans of the Participant's employing Company and its parent and subsidiary corporations) that are exercisable for the first time by the Participant during any particular calendar year shall not exceed the $100,000 limitation imposed by Section 422(d) of the Code. (iv) Manner of Payment of Option Price. The Option Price shall be paid in full at the time of the exercise of the Stock Option and may be paid in any of the following methods or combinations thereof: (A) In United States dollars in cash, check, bank draft or money order payable to the order of the Company; (B) By the delivery of shares of Common Stock having an aggregate Fair Market Value on the date of such exercise equal to the Option Price; (C) Participants may simultaneously exercise Stock Options and sell their shares of Common Stock acquired thereby and apply the proceeds to the payment of the Option Price pursuant to the procedures established by the Committee; and (D) In any other manner that the committee shall approve. (E) Any shares of Common Stock required or permitted to be sold by an executive officer of the Company in connection with the payment of the Option Price shall be transferred to the Company. (v) Reload Stock Options. The Committee may award Reload Stock Options to any Participant either in combination with other Awards or in separate Award Agreements that grant Reload Stock Options upon exercise of outstanding stock options granted under this Plan or otherwise. -7- (b) Stock Appreciation Rights. (i)Grants. The Committee may award any Participant SARs, which shall be subject to such additional terms, conditions, or restrictions as may be provided in the Award Agreement to such SAR Award, including any limits on aggregate appreciation. SARs may be settled in Common Stock or cash or both. (ii)Award Price. The Award Price per share of Common Stock of a SAR shall be fixed in the Award Agreement and shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of the award; provided, however, that in the case of a SAR awarded retroactively in tandem with or as a substitution for another Award, the Award Price per share of a SAR shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of such other Award. (iii)Distribution of SARs. SARs shall be exercisable in accordance with the conditions and procedures set out in the Award Agreement relating to such SAR Award. (c) Restricted Stock. The Committee may award Restricted Stock to any Participant Awards of Restricted Stock shall be subject to such conditions and restrictions as are established by the Committee and set forth in the Award Agreement, which may include, but are not limited to, continued service with the Company, achievement of specific business objectives, and other measurements of individual or business unit or Company performance. (d) Stock Equivalent Units. The Committee may award Stock Equivalent Units to any Participant. All or part of any Stock Equivalent Units Award may be subject to conditions and restrictions established by the Committee, and set forth in the Award Agreement, which may include some or all of the following; continued service with the Company, achievement of specific business objectives, and other measurements of individual or business unit or Company performance that may include but shall not be limited to, earnings per share, net profits, total shareholder return, cash flow, return on shareholders' equity, EVA, and cumulative return on net assets employed. Without limiting the generality of the foregoing, it is intended that the Committee shall establish performance goals applicable to Stock Equivalent Units granted to Participants who, in the judgment of the Committee, may be Covered Employees in such manner as shall permit it to qualify as "performance-based compensation" as described in Section 162(m)(4)(C) of the Code. The maximum number of Stock Equivalent Units that may be granted to any Participant in any one calendar year shall not exceed 100,000. (e) Dividend Equivalents. The Committee may provide in any Award Agreement in which Stock Equivalent Units are awarded that such Stock Equivalent Units may accrue Dividend Equivalents. In lieu of awarding Dividend Equivalents, the Committee may provide for automatic awards of additional Stock Equivalent Units on each date that -8- cash dividends are paid on the Common Stock in an amount equal to (i) the product of the dividend per share on the Common Stock times the total number of Stock Equivalent Units then held by the Participant, divided by (ii) the Fair Market Value of the Common Stock on the dividend payment date. (f) Performance Units. Performance Units shall be based on attainment over a specified period of individual performance targets or on other parameters that may include but shall not be limited to, earnings per share, net profits, total shareholder return, cash flow, return on shareholders' equity, EVA, and cumulative return on net assets employed. Performance Units may be settled in Common Stock or cash or both. Without limiting the generality of the foregoing, it is intended that the Committee shall establish performance goals applicable to Performance Units granted to Participants who, in the judgment of the Committee, may be Covered Employees in such a manner as shall permit payments with respect thereto to qualify as "performance-based compensation" as described in Section 162(m)(4)(C) of the Code. The maximum amount of compensation that may be paid to any one Participant with respect to any one year shall be $2,000,000. (g) The Committee may also, in its sole discretion, shorten or terminate the restricted period or waive any other conditions for the lapse of restrictions with respect to all or any portion of any Award. Notwithstanding the foregoing, all restricted periods shall terminate and the Awards shall be fully vested with respect to any Participant upon the Participant's Retirement, death, or Total Disability, coincident with termination of employment with Tenneco Companies. For purposes of this Section 8: "Retirement" means the Participant's termination of employment with the Tenneco Company at a time when, under the Tenneco Inc. Retirement Plan or under any other retirement plan that is maintained by a Tenneco Company and that is determined by the Committee to be the functional equivalent of the Tenneco Inc. Retirement Plan, the Participant is eligible to receive an immediately payable normal retirement benefit, or, if approved by the Committee, the Participant is eligible to receive an immediately payable early retirement benefit under such plans; and "Total Disability" means the permanent inability of the Participant, which is a result of accident or sickness, to perform such Participant's occupation or employment for which the Participant is suited by reason of the Participant's previous training, education and experience and which results in the termination of the Participant's employment with any Tenneco Company. 9. DIVIDENDS The Committee may provide in the appropriate Award Agreement that dividends on Restricted Stock may be paid currently in cash or credited to a Participant's account for subsequent distribution as determined by the Committee. The Award Agreement may provide for the reinvestment of dividends paid on Restricted Stock in shares of Common Stock. -9- 10. DEFERRALS AND SETTLEMENTS Settlement of Awards may be in the form of cash, Common Stock, other Awards, or in combinations thereof as the Committee shall determine, and with such other restrictions as it may impose. The Committee may also require or permit Participants to defer the issuance or vesting of shares or the settlement of Awards under such rules and procedures as it may establish under the Plan. The Committee may also provide that deferred settlements include the payment of, or crediting of interest on, the deferral amounts or the payment or crediting of Dividend Equivalents on deferred settlements denominated in shares. 11. TRANSFERABILITY AND BENEFICIARIES No Awards under the Plan shall be assignable, alienable, saleable or otherwise transferable other than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined by the Code) or Title I of the Employee Retirement Income Security Act, or the rules thereunder unless otherwise determined by the Committee. 12. AWARD AGREEMENTS Awards under the Plan shall be evidenced by Award Agreements that set forth the details, conditions and limitations for each Award, which may include the term of an Award (except that (i) except as provided in Section 8(g), no Award shall vest in less than six months after the date the Award is granted and (ii) in no event shall the term of any ISO exceed a period of ten years from the date of its grant), the provisions applicable in the event the Participant's employment terminates, and the Company's authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind any Award. 13. AMENDMENTS; COMPLIANCE WITH RULE 16B-3 The Committee may suspend, terminate, or amend the Plan as it deems necessary or appropriate to better achieve the purposes of the Plan, except that, without the approval of the Company's shareholders, no such amendment shall be made for which shareholder approval is necessary to comply with any applicable tax or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief under Section 16b of the Exchange Act. 14. TAX WITHHOLDING The Company shall have the right to (i) make deductions from any settlement of an Award made under the Plan, including the delivery or vesting of shares, or require shares or cash or both be withheld from any Award, in each case in an amount sufficient to satisfy withholding of any federal, state or local taxes required by law, or (ii) take such other action as may be necessary or appropriate to satisfy any such withholding obligations. The Committee may determine the manner in which such tax withholding may be satisfied, -10- and may permit shares of Common Stock (rounded up to the next whole number) to be used to satisfy required tax withholding based on the Fair Market Value of any such shares of Common Stock, as of the Settlement Date of the applicable Award. 15. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS Unless otherwise specifically determined by the Committee, settlements of Awards received by a Participant under the Plan shall not be deemed a part of the Participant's regular, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan, severance program or severance pay law of any country. Further, the Company may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary. 16. UNFUNDED PLAN Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any person holds any rights by virtue of a grant awarded under the Plan, such right (unless otherwise determined by the Committee) shall be no greater than the right of an unsecured general creditor of the Company. 17. FUTURE RIGHTS No person shall have any claim or right to be granted an award under the Plan, and no Participant shall have any right under the Plan to be retained in the employment of the Company or its affiliates. 18. GOVERNING LAW The validity, construction and effect of the Plan, and any actions taken or relating to the Plan, shall be determined in accordance with the laws of the State of Delaware and applicable federal law. 19. SUCCESSORS AND ASSIGNS The Plan shall be binding on all successors and assigns of a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 20. RIGHTS AS A SHAREHOLDER Except as otherwise provided in any Award Agreement, a Participant shall have no rights as a shareholder of the Company until he or she becomes the holder of record of Common Stock. -11- 21. No Award or other transaction shall be permitted under this Plan which would have the effect of imposing liability for a participant under Section 16 of the Exchange Act. Irrespective of any other provision of this Plan or Award Agreement, any such Award or other transaction purportedly made under or pursuant to this Plan shall be void, ab initio. -12- EX-10.25 34 LEASE AGREEMENT, TOMAHAWK Exhibit 10.25 ------------- ================================================================================ LEASE AGREEMENT, TOMAHAWK Dated as of January 30, 1991 between THE CONNECTICUT NATIONAL BANK, as Owner Trustee, Lessor and PACKAGING CORPORATION OF AMERICA, Lessee --------------------------------- Papermill in Tomahawk, WI --------------------------------- This Lease has been executed in multiple counterparts. No security interest in Lessor's right, title and interest in and to this Lease may be created through the transfer or possession of any counterpart other than the original counterpart. ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT THEREFOR EXECUTED BY STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, ON THE SIGNATURE PAGE THEREOF. THIS IS NOT THE ORIGINAL COUNTERPART. ================================================================================ This instrument was drafted by and after recording return to: Peter Schwartz, Esq. Debevoise & Plimpton 875 Third Avenue New York, New York 10022 TABLE OF CONTENTS ARTICLE I - Definitions.................................................. 1 ARTICLE II - Lease of Facility............................................ 1 SECTION 2.01. Lease.................................................. 1 SECTION 2.02. Personal Property...................................... 1 SECTION 2.03. Enforcement of Warranties.............................. 1 SECTION 2.04. Site Sublease.......................................... 1 ARTICLE III - Rent......................................................... 2 SECTION 3.01. Interim Rent and Basic Rent............................ 2 SECTION 3.02. Supplemental Rent...................................... 2 SECTION 3.03. Adjustments............................................ 2 SECTION 3.04. Method of Payment...................................... 4 SECTION 3.05. Late Payment........................................... 4 SECTION 3.06. Net Lease; No Setoff; etc.............................. 5 ARTICLE IV - Lessee Options............................................... 6 SECTION 4.01. Renewal................................................ 6 SECTION 4.02. Obsolescence Termination............................... 8 ARTICLE V - Return of Facility........................................... 9 SECTION 5.01. Return of Facility..................................... 9 SECTION 5.02. Disposition Services................................... 9 ARTICLE VI - Lessor Agreements and Rights................................. 9 SECTION 6.01. Quiet Enjoyment........................................ 9 SECTION 6.02. Disclaimer of Warranties............................... 10 SECTION 6.03. Inspection............................................. 10 SECTION 6.04. Right to Perform for Lessee............................ 11 ARTICLE VII - Lessee Agreements............................................ 11 SECTION 7.01. Indemnification........................................ 11 SECTION 7.02. Compliance with Laws................................... 13 SECTION 7.03. No Liens............................................... 14 SECTION 7.04. Merger, Consolidation, etc............................. 15 SECTION 7.05. Debt................................................... 16 i SECTION 7.06. Restricted Payments...................................... 16 SECTION 7.07. Transactions with Affiliates............................. 17 ARTICLE VIII - General Tax Indemnity......................................... 17 SECTION 8.01. Indemnity................................................ 17 SECTION 8.02. Exclusions from General Tax Indemnity.................... 18 SECTION 8.03. Contests................................................. 21 SECTION 8.04. Refunds.................................................. 23 SECTION 8.05. Tax Savings.............................................. 23 SECTION 8.06. Payments................................................. 23 SECTION 8.07. Reports.................................................. 24 SECTION 8.08. Verification............................................. 24 ARTICLE IX - Special Tax Indemnities....................................... 24 SECTION 9.01. Tax Assumptions.......................................... 24 SECTION 9.02. Records.................................................. 26 SECTION 9.03. Representations, Warranties and Covenants of Lessee............................................. 27 SECTION 9.04. Indemnity................................................ 28 SECTION 9.05. Foreign Tax Credit Indemnity............................. 30 SECTION 9.06. Income Inclusion: Reverse Indemnities.................... 30 SECTION 9.07. Excluded Losses.......................................... 32 SECTION 9.08. Contest Provisions....................................... 34 SECTION 9.09. Determination of Payments................................ 35 SECTION 9.10. Affiliated Group......................................... 36 SECTION 9.11. Recalculation............................................ 36 ARTICLE X - Lessee Agreements Relating to Facility........................ 37 SECTION 10.01. Liens.................................................... 37 SECTION 10.02. Operation, Maintenance and Completion.................... 37 SECTION 10.03. Reports.................................................. 38 SECTION 10.04. Replacement of Parts..................................... 38 SECTION 10.05. Required Alterations..................................... 39 SECTION 10.06. Optional Alterations..................................... 39 SECTION 10.07. Reports of Alterations................................... 39 SECTION 10.08. Title to Alterations..................................... 39 SECTION 10.09. Funding of Alterations................................... 40 SECTION 10.10. Identification........................................... 40 SECTION 10.11. Manuals, Logs, Plans and Specifications.................. 40 ARTICLE XI - Insurance..................................................... 41 SECTION 11.01. Coverage................................................. 41 ii SECTION 11.02. Endorsements. . . . . . . . . . . . . . . . . . . . . . 42 SECTION 11.03. Adjustment of Losses. . . . . . . . . . . . . . . . . 43 SECTION 11.04. Application of Insurance Proceeds . . . . . . . . . . 43 SECTION 11.05. Evidence of Insurance . . . . . . . . . . . . . . . . 44 SECTION 11.06. Additional Insurance. . . . . . . . . . . . . . . . . 44 SECTION 11.07. Insurance Report. . . . . . . . . . . . . . . . . . . . 44 ARTICLE XII - Events of Loss . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 12.01. Payment of Stipulated Loss Value. . . . . . . . . . . 44 SECTION 12.02. Application of Other Payments on an Event of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 12.03. Application of Payments Not Relating to an Event of Loss. 45 SECTION 12.04. Other Dispositions. . . . . . . . . . . . . . . . . . . 45 ARTICLE XIII - Events of Default . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE XIV - Enforcement . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 14.01. Remedies. . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 14.02. No Release. . . . . . . . . . . . . . . . . . . . . . 51 SECTION 14.03. Remedies Cumulative. . . . . . . . . . . . . . . . . . 51 ARTICLE XV - Assignments and Subleases . . . . . . . . . . . . . . . . . . 51 SECTION 15.01. Assignment or Sublease by Lessee. . . . . . . . . . . 51 SECTION 15.02. Assignment by Lessor; Security for Lessor's Obligations to Indenture Trustee . . . . . . . 52 ARTICLE XVI - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 16.01. Further Assurances. . . . . . . . . . . . . . . . . . 53 SECTION 16.02. Notices . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 16.03. Severability. . . . . . . . . . . . . . . . . . . . . . 54 SECTION 16.04. Survival . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 16.05. Successors and Assigns. . . . . . . . . . . . . . . . . 54 SECTION 16.06. Amendment. . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 16.07. Headings . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 16.08. Counterparts. . . . . . . . . . . . . . . . . . . . . 55 SECTION 16.09. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . 55 SECTION 16.10. True Lease . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 16.11. Liabilities of Owner Trustee. . . . . . . . . . . . . . 55 SECTION 16.12. Consent to Jurisdiction; Forum Selection. . . . . . . 56 iii LEASE AGREEMENT, TOMAHAWK dated as of January 30, 1991, between THE CONNECTICUT NATIONAL BANK, a national banking association, not in its individual capacity but solely as trustee under the Trust Agreement as Lessor, and PACKAGING CORPORATION OF AMERICA, a Delaware corporation, as Lessee. In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions ----------- Capitalized terms used herein have the meanings assigned to them in Exhibit A hereto, and the rules of usage contained in Exhibit A are applicable hereto. ARTICLE II Lease of Facility ----------------- SECTION 2.01. Lease. On the Closing Date, subject to all the terms and conditions of this Lease and the satisfaction of the conditions set forth in the Participation Agreement, Lessor shall lease, and hereby as of the Closing Date does lease, the Facility Assets to Lessee, and Lessee shall lease, and hereby as of the Closing Date does lease, the Facility Assets from Lessor, for the Term or such shorter period as may result from earlier termination of this Lease as provided herein. SECTION 2.02. Personal Property. It is the express intention of Lessor and Lessee that the Facility Assets shall at all times be and remain personal property as to all Persons and for all purposes to the fullest extent permitted by law. SECTION 2.03. Enforcement of Warranties. Lessor hereby authorizes Lessee (except at such time as a Default or Event of Default exists) to assert and enforce during the Term for Lessor's account all Lessor's claims and rights under the Acquisition Agreements against Sellers and under any warranties and indemnities of and claims against dealers, manufacturers, vendors, contractors and subcontractors relating to the Facility which were assigned to Lessor pursuant to the Acquisition Agreements. Any amount received by Lessee under any such warranty, indemnity or claim shall be applied as provided in Section 12.03. SECTION 2.04. Site Sublease. On the Closing Date, subject to all the terms and conditions of this Lease and satisfaction of the conditions set forth in the Participation Agreement, Lessor shall sublease, and hereby as of the Closing Date does sublease, the Site to Lessee and Lessee shall sublease, and hereby as of the Closing Date does sublease, the Site from Lessor, for the Term or such shorter period as may result from earlier termination of this Lease as provided herein. During the term of such sublease, Lessee shall pay Lessor on each anniversary of the Closing Date $100 per annum as a sublease rental payment for the Site for the year preceding such anniversary of the Site; provided, however, that Lessor hereby directs Lessee to deliver each such sublease rental payment to Ground Lessor as payment, on behalf of Ground Lessee, of the rental payments due under the Ground Lease. Notwithstanding any provision to the contrary contained in this Lease, it is understood that such sublease is and shall at all times remain subordinate to the Ground Lease. ARTICLE III Rent ---- SECTION 3.01. Interim Rent and Basic Rent. (a) Lessee shall pay to Lessor, in respect of the Facility Assets, rent for the Interim Term on July 31, 1991, in an amount equal to all accrued and unpaid interest on the Loan Certificates payable on such date not paid by Owner Participant as required by Section 6.01(b) of the Participation Agreement. (b) Lessee shall pay to Lessor, in respect of the Facility Assets, Basic Rent in installments in arrears on the Rent Dates during the Basic Term, each such installment to be in an amount equal to the percentage of Lessor's Cost set forth opposite such Rent Date on Schedule A. Such amounts of Basic Rent are subject to adjustment pursuant to Section 3.03. Lessee shall pay Basic Rent with respect to any Renewal Term as provided in Section 4.01. (c) Each installment of Interim Rent and Basic Rent shall be payable and paid in the manner set forth in Section 3.04. SECTION 3.02. Supplemental Rent. Lessee shall pay to Lessor, or to whoever shall be entitled thereto, any and all Supplemental Rent promptly as the same shall become due and payable. Lessee shall pay, as Supplemental Rent, amounts equal to all amounts payable by Lessor under the Indenture, including any premium payable in connection with the prepayment of any Loan Certificate (but excluding principal of and interest on the Loan Certificates) and all amounts payable to Owner Participant in respect of the commitment fee payable pursuant to Section 8.02 of the Participation Agreement. SECTION 3.03. Adjustments. If at any time (i) any of the Variable Assumptions set forth in Schedule 3.03(i) is incorrect, 2 (ii) the Refinancing occurs at the request of Lessee pursuant to Section 8.01 of the Participation Agreement, (iii) Lessor finances the cost of any Alterations pursuant to Section 8.02 of the Participation Agreement, (iv) a Change in Tax Law occurs or clause (ii) of section 9.04 is applicable, or (v) any Work in Progress is not completed by April 30, 1991, the schedules of Basic Rent and Stipulated Loss Values shall be adjusted (upward or downward) to preserve Net Economic Return and the percentages set forth in clauses (ii) and (v) of Section 4.02(a) shall be adjusted (upward or downward) based on the original method of computation thereof (but taking into account, in the case of clause (iii) above, any change in the conclusion of an appraiser mutually agreeable to Owner Participant and Lessee arising in respect of such Alterations, it being understood that the issue will be presented to such appraiser), except that, in the case of clause (v) above, the percentages set forth in Section 9.01(e) shall be adjusted as applicable and except that, in the case of clause (iii) above, the portion of Net Economic Return with respect to such Alterations shall be adjusted to reflect the assumptions set forth in Schedule 3.03(i) and to reflect any increase or decrease, at the time of determination, in the per annum rate paid an five-year Treasury Certificates issued by the United States of America from the rate paid an such Treasury Certificates on the date five days prior to the Closing Dates. All such adjustments shall be made as soon as practicable after the occurrence of the event giving rise thereto and shall be made in respect of installments of Basic Rent falling due after the determination thereof, except that if the next Rent Date falls due within 30 days after such determination, such adjustments shall be made in respect of all installments of Basic Rent falling due after such Rent Date. All such adjustments (x) shall be in compliance with the provisions of Revenue Procedure 75-21 and Revenue Procedure 75-28, (y) shall not cause the Lease to be treated as a "disqualified leaseback or long-term agreement" within the meaning of Section 467 of the Code and shall be made in a manner otherwise designed to comply with Section 467 of the Code and any regulations thereunder (except that, in connection with an adjustment made within four months after the Closing Date to take into account Transaction Expenses, such compliance with Section 467 shall be required to the extent the original calculation of Interim and Basic Rent would have so complied and, in connection with an adjustment made pursuant to clause (iii) above with respect to Known Alterations, if such compliance, taking into account each payment of Basic Rent as so adjusted, would increase the net present value of Basic Rent over the net present value of Basic Rent if such compliance with Section 467 were required to this extent the original calculation of Interim and Basic Rent would have so complied, then, unless Lessee, and Owner Participant shall otherwise agree, the portion of Basic Rent attributable to such Known Alterations shall be treated as a separate tranche of Basic Rent and such compliance with Section 467 shall be required with respect to such separate tranche of Basic Rent attributable to such Known Alterations) and (z) to the 3 extent not inconsistent with the foregoing clauses (x) and (y), shall generally preserve, to the extent practicable, the original pattern of payments of Basic Rent. Such adjustments may, but need not, be reflected in an amendment to this Lease but shall become effective upon completion and verification of the computations, as provided in this Section 3.03. Upon the occurrence of an event requiring an adjustment, Owner Participant shall make the necessary computations as soon as practicable and furnish to Lessee, Owner Trustee and Indenture Trustee an instrument setting forth the adjusted schedules. Upon request of Lessee made within a reasonable time following the delivery to Lessee by Owner Participant of such instrument, such amounts shall be verified by the independent public accounting firm that audits owner Participant's financial statements. The cost of such verification shall be borne by Lessee unless such verification results in a reduction of 2% or more in the net present value of Basic Rent as computed by Owner Participant, in which case such cost shall be borne by Owner Participant. Notwithstanding any other provision in this Lease or in any of the other Operative Documents, under all circumstances the Basic Rent payable on any Rent Date during the Basic Term will be an amount at least sufficient to pay in full on such Rent Date the aggregate amount of principal of and interest on the Loan Certificates scheduled to be payable on such Rent Date, and each payment of Stipulated Loss Value will be in an amount at least sufficient, when combined with any Rent payable simultaneously therewith, to pay the unpaid principal amount of and unpaid and accrued interest on and premium then payable on all Loan Certificates outstanding at the time Stipulated Loss Value and such Rent is due and payable hereunder. SECTION 3.04. Method of Payment. Subject to section 15.02, Interim Rent and Basic Rent payable to Lessor shall be paid to Owner Participant's Account No. 50-205-776 at Bankers Trust Company, New York, N.Y., ABA No. 0210- 0103-3 GECC/T&I Depository Account (and shall reference "1991 Packaging Corporation Tomahawk"), or to such other account at such other place as owner Participant shall specify in writing. Each payment of Rent shall be initiated into the Federal Reserve Funds wire transfer system and such initiation shall have been confirmed by telephone or other notice by the initiating bank to Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of receipt, on the scheduled date on which such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next Business Day and be accompanied by interest at the Payment Rate on the amount of such payment from and including such scheduled date to the date of payment. SECTION 3.05. Late Payment. If any Rent shall not be paid when due, Lessee shall pay to Lessor (or, in the case of Supplemental Rent, to whoever shall be entitled thereto), as Supplemental Rent, interest (to the extent permitted by law) on such overdue amount from and including the due date thereof to but excluding the date of payment thereof (unless such payment shall not have been initiated into the Federal Reserve Funds wire transfer system or such initiation shall not have been confirmed by telephone or other notice by the initiating bank to Indenture Trustee and Lessor prior to 4 12:00 noon, local time at the place of receipt, on such date of payment, in which case such date of payment shall be included) at the Designated Rate. If any Rent shall be paid an the date when due, but either not initiated into the Federal Reserve Funds wire transfer system or such initiation shall not have been confirmed by telephone or other notice by the initiating bank to Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of receipt interest shall be payable as aforesaid for one day. SECTION 3.06. Net Lease; No Setoff; etc. This Lease is a net lease and, notwithstanding any other provision of this Lease except as may be expressly provided herein or in Section 6.01(b) of the Participation Agreement, all Rent shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction. The obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected (except as may be expressly provided herein or in Section 6.01(b) of the Participation Agreement) for any reason, including: (a) any defect in the condition, merchantability, quality or fitness for use of the Facility or any part thereof; (b) any damage to, removal, abandonment salvage, loss, scrapping or destruction of or any requisition or taking of the Facility or any part thereof; (c) any restriction, prevention or curtailment of or interference with any use of the Facility or any part thereof; (d) any defect in or any Lien on the Facility or any part thereof; (e) any change, waiver, extension, indulgence or other action or omission in respect of any obligation or liability of Lessee or Lessor; (f) any bankruptcy insolvency, reorganization composition, adjustment, dissolution, liquidation or other like proceeding relating to Lessee, any Lessor Party, any holder of Loan Certificates or any other Person, or any action taken with respect to this Lease by any trustee or receiver of any Person mentioned above, or by any court; (g) any claim that Lessee has or might have against any Person, including any failure on the part of any Lessor Party to perform or comply with any of the terms hereof or of any other agreement; (i) any invalidity or unenforceability or disaffirmance of this Lease or any provision hereof or any of the other Operative Documents or any provision of any thereof, in each case whether against or by Lessee or otherwise; or (j) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing. This Lease shall be noncancelable by Lessee, and, except as expressly provided herein, Lessee, to the extent permitted by law, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution or reduction of Rent payable by Lessee hereunder. All payments by Lessee made hereunder shall be final, absent manifest error, and Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. If for any reason whatsoever this Lease shall be terminated in whole or part by operation of Law or otherwise except as expressly provided herein, Lessee shall nonetheless pay an amount equal to each Rent payment at the time and in the manner that such payment would have become due and payable under the terms of this Lease if it had not been terminated in whole or in part. All covenants and agreements of Lessee shall be performed at its cost, expense and risk unless expressly otherwise stated. 5 Nothing in this.Article III shall be construed as a guaranty by Lessee of any residual value in the Facility or as a guaranty of the Loan Certificates. ARTICLE IV Lessee Options -------------- SECTION 4.01. Renewal. (a) Right to Renew. Unless the Facility Assets shall have been sold or disposed of pursuant to this Lease or an Event of Loss shall have occurred or a Default described in clause (a) or (f) of Article XIII or an Event of Default shall exist at the time of giving the notice referred to below or at the commencement of the relevant Renewal Term, Lessee shall have the right to renew this Lease (i) at the end of the Basic Term for the Fixed Price Renewal Term and (ii) at the end of the Basic Term or the Fixed Price Renewal Term, if elected, or a Fair Market Renewal Term, if elected, for a Fair Market Renewal Term. In order to exercise any such right, Lessee shall notify each Lessor Party thereof in writing not more than 12 month nor less than 6 months prior to the commencement of the relevant Renewal Term, which notice shall be irrevocable and shall specify the type of renewal term elected in accordance with this Section 4.01(a) and the duration thereof (which shall be an integral multiple of six months, shall not end after the end of the Ground Lease Term 6 and, in the case of a Fair Market Renewal Term, shall be at least one year and not more than five years or, in the case of the Fixed Price Renewal Term, shall be, subject to Section 4.01(c), at least one year and not more than 50% of the Basic Term). If Lessee shall fail to renew this Lease as provided above, Lessor shall, subject to Section 4.02, be free to lease or dispose of all or any part of the Facility to any other Person on any terms acceptable to Owner Participant. (b) Terms. All the terms and provisions of this Lease shall be applicable during any Renewal Term. Lessee shall pay to Lessor as Basic Rent for the Facility Assets (i) on each of the Rent Dates during the Fixed Price Renewal Term an amount equal to 60% of the average of the installments of Basic Rent payable during the Basic Term and (ii) on each of the Rent Dates during any Fair Market Rental Value of the Facility Assets. (c) Determinations. Promptly after Lessee shall have given a notice pursuant to Section 4.01(a), Lessee and Owner Participant shall agree upon the Fair Market Rental Value (if such notice designates a Fair Market Renewal Term) of the Facility Assets, the Fair Market Sale Value of the Facility Assets, the useful life of the Facility Assets and the first date at which the Facility Assets will no longer be expected to have a Fair Market Sale Value of at least 20% of Lessor's Cost after eliminating the effect of any inflation or deflation since the Closing Date, each as of the commencement of the relevant Renewal Term, or, if they shall fail to agree within 30 days after the giving of such notice, such values, life and date shall be determined by the Appraisal Procedure. Promptly after any such determination, Schedule B hereto shall be modified to set forth therein the Fair Market Sale Value so determined as the Stipulated Loss Value applicable at the commencement of such Renewal Term, amortized ratably in semiannual steps over the estimated remaining useful life of the Facility Assets. If Lessee has elected the Fixed Price Renewal Term and either the date at which 75% of the redetermined useful life of the Facility Assets will have expired or the first date at which the Facility Assets will no longer be expected to have a Fair Market Sale Value of at least 20% of Lessor's Cost, as determined above, is before the Rent Date on which the Fixed Price Renewal Term would otherwise end, the duration thereof shall automatically be reduced so that it ends on the latest Rent Date which precedes the earlier of the two dates mentioned above. SECTION 4.02. Purchase. (a) Right to Purchase. Unless the Facility Assets shall have been sold or disposed of pursuant to this Lease or an Event of Loss shall have occurred or an Event of Default shall exist at the time of giving the notice referred to below or at the date fixed for purchase, Lessee shall have the right, at its option, to purchase the Facility Assets at the time and at the price as follows: (i) on July 31, 2005, January 31, 2006, or July 31, 2006, for a purchase price equal to the greater of Stipulated Loss Value on such Rent Date and the Fair Market Sale Value of the Facility Assets of such Rent Date, (ii) on January 31, 1997, for a purchase price equal to 117.03223952% of Lessor's Cost, (iii) on the first Rent Date occurring more than 90 days after Lessee shall have delivered to Lessor and Indenture Trustee an Officer's Certificate in form and substance satisfactory to each of them evidencing in reasonable detail that Burdensome Alterations are required and have not yet been effected (if such Rent Date is after the fifth anniversary of the Closing Date) or, if there shall have occurred a Burdensome Event, on the first Rent Date occurring more than 90 days after such occurrence, in either case for a purchase price equal to the greater of Stipulated Loss Value on such Rent Date and the Fair Market Sale Value of the Facility Assets on such Rent Date, (iv) on the last day of the Basic Term, for a purchase price equal to the Fair Market Sale Value of the Facility Assets, (v) on the last day of the Basic Term, for a purchase price equal to 74% of Lessor's Cost or (vi) on the last day of any Renewal Term, for a purchase price equal to the Fair Market Sale Value of the Facility Assets on such date. In order to exercise any such right, Lessee shall notify each Lessor Party thereof in writing not more than 12 months nor less than 6 months (30 days in the case of clause (iii) above) prior to the date fixed for purchase, which notice shall be irrevocable and shall specify the basis for the notice, the option selected and the date purchase is to be made. If Lessee shall fail to purchase the Facility Assets pursuant to this Section 4.02 at the end of the Term (including any elected Renewal Term), Lessor shall, subject to Section 4.01, be free to lease or dispose of all or any part of the Facility Assets to any other Person on any terms acceptable to Owner Participant. (b) Payment. If Lessee has elected to purchase the Facility Assets as provided in Section 4.02(a), Lessee shall pay the purchase price of the Facility Assets on the date fixed for purchase and shall simultaneously pay all Rent due and all Rent accrued through and including such date, whereupon Lessor shall Transfer the Facility to Lessee. If Lessee exercises its right to purchase the Facility Assets pursuant to Section 4.02(a)(ii), so long as no Default or Event of Default exists, Lessee may elect (by so specifying in the notice delivered pursuant to Section 4.02(a)) to assume the Indenture and the Loan Certificates in accordance with Section 6.09 of the Indenture, and the purchase price of the Facility Assets shall be reduced by the unpaid principal amount of the Loan Certificates assumed. If Lessee shall fail to pay for or purchase the Facility Assets an the date fixed for purchase, it shall lose its right to purchase the Facility Assets pursuant to the relevant clause of Section 4.02(a) (but its right, if any, to purchase under the other clauses shall be unaffected) and any Lessor Party may proceed by appropriate court action to recover damages or obtain other appropriate relief, including specific performance, with respect to such failure. (c) Determinations. Promptly after Lessee shall have given a notice pursuant to clause (i), (iii), (iv) or (vi) of Section 4.02(a), Lessee and Owner Participant shall agree upon the Fair Market Sale Value of the Facility Assets as of the date fixed for purchase or, if they shall fail to agree within 30 days after the giving of such notice, such Fair Market Sale Value shall be determined by the Appraisal Procedure. SECTION 4.03. Obsolescence Termination. (a) Right to Terminate. Unless an Event of Loss shall have occurred or an Event of Default shall exist at the time of giving the notice referred to below or at the date fixed for termination, Lessee shall have the right at any time during the Basic Term to terminate this Lease on the Rent Date specified in such notice, but only if Lessee shall have determined (and shall have delivered to each Lessor Party an Officer's Certificate to the effect) that the Facility Assets have become obsolete, surplus or uneconomic to Lessee's purposes for any reason, including government mandated Alterations. In order to exercise such right, Lessee shall notify each Lessor Party thereof in writing not more than 12 months nor less than 6 months prior to the date fixed for termination, which notice shall be irrevocable. From and after the giving of such notice, Lessee shall, as agent for Lessor, use all reasonable efforts to sell the Facility Assets for the best cash price obtainable. On the date fixed for termination, Lessor shall (subject to receipt of the sales price and all additional payments specified in the next sentence and subject to its rights set forth in Section 4.03(b)), Transfer the Facility for cash to the purchaser (who may not be Lessee or any Affiliate thereof) who has offered the highest cash price. The total sales price realized at such sale shall be retained by Lessor and on the date fixed for termination Lessee shall pay to Lessor the excess, if any, of the Stipulated Loss Value as of the date fixed for termination over the sales price of the Facility after deducting all expenses incurred by Lessor Parties in connection with such Transfer, and Lessee shall simultaneously pay all Rent due and all Rent accrued through and including the date fixed for termination, whereupon the Term shall end. If a Transfer shall not have occurred on or as of the date fixed for termination, the Facility shall continue to be subject to this Lease and this Lease shall continue in full force and effect with respect thereto, Lessee shall be required to make a Supplemental Rent payment in the amount specified in Section 4.04 of the Indenture and, unless such nonoccurrence results from default by the purchaser, Lessee shall thereafter have no right of termina- 8 tion under this Section 4.03. No Lessor Party shall be under any duty to solicit bids or sales, to inquire into the efforts of Lessee to obtain bids or otherwise to take any action in connection with any such sale other than the obligation of Lessor to Transfer the Facility as provided above. (b) Retention. Notwithstanding Section 4.03(a), Lessor may, at the direction of Owner Participant, on not less than 90 days' prior written notice to Lessee, refuse to Transfer the Facility pursuant to Section 4.03(a), in which case (i) Lessee shall not be obligated to pay the amounts specified in the antepenultimate sentence of Section 4.03(a) but rather shall pay to Lessor on the date fixed for termination all Rent due and all Rent accrued through and including the date fixed for termination and (ii) Lessor or Owner Participant shall contemporaneously pay to Indenture Trustee on such date such amount as may, when added to amounts held or received by Indenture Trustee for such purpose, be required to make the payments specified in clauses "First" through "Fourth" of Section 3.02 of the Indenture, whereupon (and only whereupon) the Term shall end. ARTICLE V Return of Facility ------------------ SECTION 5.01. Return of Facility. Unless the Facility shall have been or is being Transferred to Lessee pursuant to this Lease, Lessee shall return the Facility to Lessor or to any transferee or assignee of Lessor on the Termination Date by surrendering the same into the possession of Lessor or such transferee or assignee free and clear of all Liens other than Lessor Liens and Permitted Encumbrances and in the condition required by Section 7.02 and Article X and free of all Hazardous Substances and Hazardous Wastes except those that are present in compliance with law. In addition, at the end of the Term, if requested to do so by Lessor, Lessee shall, at Lessor's risk and expense and without unreasonably interfering with Lessee's operations, dismantle, crate, remove and ship the Facility Assets as specified by Lessor. SECTION 5.02. Disposition Services. If Lessee shall not have exercised any of its rights provided in Article IV, during the last six months of the Term, Lessee will fully cooperate with Lessor and Owner Participant in connection with efforts to lease or dispose of the Facility. ARTICLE VI Lessor Agreements and Rights ---------------------------- SECTION 6.01. Quiet Enjoyment. So long as no Event of Default exists, Lessee shall have the right to, and Lessor Parties shall not take or cause to be 9 taken any action contrary to Lessee's right to quiet enjoyment of, or the continuing possession, use and operation of the Facility during the Term, except in accordance with the provisions of this Lease. SECTION 6.02. Disclaimer of Warranties. The warranty set forth in Section 6.01 is in lieu of all other representations and warranties of any Lessor Party, whether written, oral or implied, with respect to this Lease or the Facility. As between each Lessor Party and Lessee, execution by Lessee of this Lease shall be conclusive proof of the compliance of the Facility with all requirements of this Lease, and LESSOR LEASES AND LESSEE TAKES THE FACILITY AND EACH PART THEREOF AS IS AND WHERE LOCATED, and no Lessor Party shall be deemed to have made, and EACH LESSOR PARTY HEREBY DISCLAIMS, ANY OTHER REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE DESIGN OR CONDITION OF THE FACILITY OR ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO THE FACILITY OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL ANY LESSOR PARTY BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE), it being agreed that all such risks, as between each Lessor Party and Lessee, are to be borne by Lessee. Lessee has made such investigation as it deems appropriate regarding the Facility and its entering into the Operative Documents. The provisions of this Section 6.02 have been negotiated, and, except as provided in Section 6.01, the foregoing provisions are intended to be a complete exclusion and negation of any representation or warranty by any Lessor Party, express or implied, with respect to this Lease or the Facility that may arise pursuant to any Governnmental Rule now or hereafter in effect or otherwise. SECTION 6.03. Inspection. Any Lessor Party and its authorized representatives may enter upon, inspect and examine, at their own expense (unless an Event of Default exists, in which case such expense shall be for the account of Lessee), the Facility and the books and records of Lessee relative thereto, and make copies and extracts therefrom. Any Participant may discuss Lessee's affairs, finances and accounts with Lessee's officers. Owner Participant, any Loan Participant as of the date hereof or other Loan Participants holding individually or in the aggregate at least $5,000,000 in aggregate principal amount of the Loan Certificates, may request, specifying a reasonable basis for doing so, that the chief financial officer of Lessee arrange a meeting with Lessee's independent public accountants to discuss Lessee's affairs, finances and accounts, and upon such request, such chief financial officer shall arrange for such meeting to take place promptly but in any event within 10 Business Days, provided that if the chief financial officer shall not arrange such a meeting, any such Participant or Participants may arrange such a meeting with Lessee's independent public accountants. Lessee authorizes such accountants to discuss with each of Owner 10 Participant and any such Loan Participant and their authorized representatives the affairs, finances and accounts of Lessee at such meeting. Representatives of Lessee shall be afforded an opportunity to be present at any such meeting with Lessee's independent public accountants. Lessee shall furnish to each Lessor Party statements accurate in all material respects regarding the condition and state of repair of the Facility, as often as may be reasonably requested. No Lessor Party shall have any duty to make any such inspection or inquiry and shall not incur any liability or obligation by reason of not making any such inspection or inquiry. Each Lessor Party shall treat all information received pursuant to the terms of this Section 6.03 as required by the terms of Section 9.12 of the Participation Agreement. Notwithstanding the foregoing, no Loan Certificateholder (other than an institutional investor) that is a direct or indirect competitor of Lessee shall have the rights set forth in this Section 6.03. SECTION 6.04. Right to Perform for Lessee. If Lessee shall fail to make any payment of Rent or shall fail to perform or comply with any of its other agreements contained herein (including in Article XI), any Lessor Party may, but shall not be obligated to, make such payment or perform or comply with such agreement, and the amount of such payment and the amount of all costs and expenses (including reasonable attorneys' and other professionals' fees and expenses) incurred by such Lessor Party in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Designated Rate, shall be payable by Lessee upon demand. ARTICLE VII Lessee Agreements ----------------- SECTION 7.01. Indemnification. Whether or not any of the transactions contemplated by the Operative Documents shall be consummated, Lessee shall pay, assume liability for, indemnify, protect, defend, save and hold harmless each Indemnified Person from and against, on an After-Tax Basis, any and all Claims imposed on, incurred by or asserted against any Indemnified Person (whether because of act or omission by such Indemnified Person or otherwise and whether or not such Indemnified Person shall also be indemnified as to any such Claim by any other Person, including Sellers), in any way relating to or arising out of (i) the Facility or any part thereof, (ii) any Operative Document, any Acquisition Agreement, the issuance, purchase or sale of the Loan Certificates or the making of any investment in the Facility, any payment made pursuant thereto or any other transaction contemplated by any Operative Document or Acquisition Agreement or (iii) the manufacture, financing, refinancing, construction, purchase, acceptance, rejection, ownership, acquisition, delivery, nondelivery, lease, sublease, preparation, installation, storage, maintenance, repair, transportation, transfer of title, abandonment, possession, rental, use, operation, condition, sale, return or other application or disposition of all or any part of the Facility or any interest therein, including (A) claims or penalties arising from any violation of law (including any environmental Governmental Rule) or liability 11 in tort (strict or otherwise) or from the active or passive negligence of any Indemnified Person, (B) loss of or damage to any property or the environment or death or injury to any Person, (C) latent or other defects, whether or not discoverable, (D) any claim for patent, trademark or copyright infringement and (D) any Claim arising as a direct or indirect result of the presence on or under, or escape, seepage, leakage, spillage, discharge, emission or release from any of Ground Lessor's or Lessee's property (including the Site and the Facility) or property under Ground Lessor's or Lessee's control of, any Hazardous Substance or any Hazardous Waste or arising out of or resulting from the environmental condition of any such property or the applicability of any Governmental Rule relating to any Hazardous Substance, whether or not occasioned wholly or in part by any condition, accident or event caused by any act or omission of Ground Lessor or Lessee or arising out of or resulting from the violation of any Governmental Rule applicable to the Site or the Facility or with respect to any activity conducted thereon; provided, however, that Lessee shall not be required to indemnify any Indemnified Person pursuant to this sentence for (i) any Claim in respect of the Facility to the extent arising from acts or events not attributable to Lessee which occur after possession of the Facility has been returned and delivered to Lessor in accordance with Section 5.01 (or, if such return occurs when an Event of Default exists, after full compliance by Lessee with all its obligations under this Lease as of such date), (ii) any Claim resulting solely from acts which would constitute the willful misconduct or gross negligence of such Indemnified Person (unless imputed to such Indemnified Person by reason of the Facility or its interest therein), (iii) any Transaction Expense to be paid by Owner Participant or (iv) any Taxes, except as provided above with respect to the obligation to make payments on an After-Tax Basis. If any Indemnified Person or Lessee shall have received written notice of any Claim indemnifiable under this Section 7.01, it shall give prompt notice thereof to Lessee or such Indemnified Person, as the case may be, but the failure to give such notice shall not affect any obligations under this Section 7.01. Upon payment in full to any Indemnified Person of any indemnity pursuant to this Section 7.01, Lessee shall be subrogated to any right of such Indemnified Person in respect of the matter against which such indemnity has been paid. Unless, in the reasonable judgment of Lessee, no reasonable basis exists for defending against the Claim giving rise to a Claim for which Lessee is obligated to indemnify such Indemnified Person, such Indemnified Person shall either (A) defend against such claim itself, in which case such Indemnified Person shall control such defense but shall consult with Lessee concerning the conduct thereof, or (B) permit Lessee to defend against such claim, in which case such Indemnified Person shall cooperate with Lessee by providing such witnesses, documents and other assistance as Lessee say reasonably request. Neither such Indemnified Person nor Lessee shall settle the contest of such claim without the written consent of the other, which consent will not be unreasonably withheld. Notwithstanding the two preceding sentences, an Indemnified Person shall have no obligation thereunder if (i) a Lease Default or Lease Event of Default shall exist, (ii) any material danger exists of (A) foreclosure, sale, forfeiture or loss of, or imposition of any Lien, other than a Permitted Lien, on the Facility or substantial interference with the operation of the Facility or (B) any criminal liability of such Indemnified Person or (iii) Lessee shall not have delivered to such Indemnified Person an acknowledgement of its obligations under 12 this Section 7.01 without prejudice to its right to contest claims as provided above. Nothing contained in this paragraph shall be construed as a guaranty by Lessee of any residual value in the Facility or as a guaranty of the Loan Certificates. Without limitation of the foregoing, Lessee shall pay (i) the ongoing fees, expenses and disbursements of Owner Trustee and Indenture Trustee, on a pre-tax basis, (ii) all costs and expenses incurred by any Lessor Party in connection with (A) any Event of Default, (B) the entering into or giving, or withholding of any supplement, amendment, modification, waiver or consent with respect to any Operative Document or any Acquisition Agreement, (C) any Event of Loss or, after the occurrence of any Default or Event of Default which is continuing any transfer of all or any part of the right, title and interest of Lessor or Owner Trustee in the Facility or in, to and under any Operative Document or any Acquisition Agreement or (D) any Refinancing or Additional Financing and (iii) all Supplemental Rent to whoever is entitled thereto. SECTION 7.02. Compliance with Laws. (a) Lessee shall comply with all Governmental Rules and Governmental Actions, including those relating to pollution and environmental matters applicable to or pertaining to the property, business and operations of Lessee, including the Facility; provided that Lessee shall not be deemed to be in breach of this covenant so long as it is in good faith contesting the applicability or validity of any Governmental Rule or Governmental Action, or defending any alleged violation thereof, by appropriate proceedings being diligently conducted and such contest would not violate clause (x), (y) or (z) of the definition of Permitted Liens, and provided further that the payment of any fine or penalty imposed by a Governmental Authority and the cure of any continuing noncompliance shall be deemed to effect a complete and satisfactory cure of the related breach of this Section 7.02(a). (b) Lessee shall promptly (but in any case not more than 10 days after the and of the calendar month in which any such event occurs) notify each Lessor Party in writing of any of the following events: (i) a Responsible Officer obtains knowledge that the disposition, use, refining, generation, manufacture, production, storage, handling, treatment, transfer, release, processing or transportation of any Hazardous Substance or Hazardous Waste by, at, or in connection with the operation of, the Facility has been done in material violation of any Governmental Rule or Governmental Action, (ii) any material Governmental Rule or Governmental Action is entered or taken by any Governmental Authority (other than the promulgation of a rule or regulation of general applicability) against Lessee with respect to the Facility or the Facility's business or operations as a result of any Hazardous Substance or Hazardous Waste on, or emanating from or generated by, the Facility or (iii) any material claim made by any third party relating to any Hazardous Substance or Hazardous Waste on, or emanating from or generated by, the Facility (any such material violation, order, action or claim, an "Environmental Violation"). After the occurrence of any Environmental Violation, Lessee shall forthwith prepare and deliver to each of the parties identified in the next sentence a Remedial Plan addressing such Environmental Violation wherein Lessee shall describe and undertake such actions as may be 13 necessary and appropriate and consistent with good business practices for the complete remediation of such Environmental Violation at the earliest practicable date; provided, that such Remedial Plan shall be deemed to satisfy the foregoing requirements if such Remedial Plan shall have been approved, and reasonable evidence of such approval shall have been provided to Lessor and Indenture Trustee, by all Governmental Authorities having jurisdiction over the subject matter thereof. The Remedial Plan shall be delivered to each Lessor Party not more than 30 days after notice of the related Environmental Violation was given by Lessee (or required hereunder to have been so given or, in the case of the Environmental Violation described in the proviso to the next sentence, on or before March 1, 1991). For purposes of this Section 7.02(b), a violation, order, action or claim described in clause (i), (ii) or (iii) above shall be an Environmental Violation if (x) the compliance with, remediation or satisfaction of, such violation, order, action or claim could, together with any fines or penalties imposed in connection therewith, reasonably be expected to cost (the "Cleanup Cost") (A) $5 million or more or (B) $1 million or more if such Cleanup Cost, together, with the Cleanup Costs associated with all other then outstanding environmental violations having a Cleanup Cost of $1 million or more, exceeds $5 million; provided that the deficiencies in the wastewater treatment system and the related groundwater contamination at the Facility described in the Dames & Moore environmental audit report of December 7, 1990, shall be deemed to be an Environmental Violation. (c) Lessee shall diligently and promptly take all necessary actions to remedy each Environmental Violation in accordance with the provisions of the relevant Remedial Plan (including the schedules and the periodic reporting obligations set forth therein); provided that, subject to Lessee's right to contest as set forth in Section 7.02(a) above, Lessee shall take all remedial actions required of it by any Governmental Authority with respect to any Environmental Violation. SECTION 7.03. No Liens. Lessee shall not directly or indirectly create, incurs assume or suffer to exist at any time, whether voluntarily or by operation of law, Liens (other than Permitted Liens) on Lessee's assets or any portion thereof except for (i) Liens on assets acquired subsequent to the Closing Date by Lessee (and in the case of real property so acquired, on any improvements or additions or replacements thereto) securing Debt not at any time exceeding the acquisition cost of such assets and incurred at or before or within 90 days after the time such assets are so acquired and not extending to any other assets; (ii) Liens for extensions, renewals or refundings of obligations secured by Liens permitted by clause (i) not in excess of the amount being extended, renewed or refunded; (iii) Liens for Taxes or other governmental charges or mechanics', materialmen's, carriers', employees', warehousemen's, repairers' or other similar Liens incurred in the ordinary course of business, in each case which are not yet due or which are being contested in good faith by appropriate proceedings (so long as such contest does not violate clause (x), (y) or (z) of clause (iii) of the definition of Permitted Liens); (iv) pledges or deposits to secure payment of workmen's compensation, good faith deposits in connection with tenders, contracts (other than contracts for the repayment of Debt), deposits to secure public or statutory obligations, deposits to secure or in lieu of surety or appeal bonds 14 and pledges or deposits for similar purposes in the ordinary course of business; (v) leases on property owned by Lessee and landlords' liens on property held under lease; (vi) encumbrances under contracts and contract rights relating to the sale of assets, including options and rights of first refusal; (vii) other Liens or encumbrances on real property incurred in the ordinary course of business and not in connection with the borrowing of money or the obtaining of advances or credit which do not in the aggregate materially detract from the value of such real property subject thereto or materially impair the use thereof in the operation of Lessee's business; and (viii) other Liens securing obligations for the payment of money which do not at the time of encumbrance, taken together with all other such Liens then encumbering Lessee's property, exceed an amount equal to 10% of Lessee's consolidated total assets (as shown on the most recent balance sheet delivered pursuant to Section 6.03 of the Participation Agreement). SECTION 7.04. Merger, Consolidation, etc. Except as hereinafter provided in this Section 7.04, Lessee shall maintain its corporate existence. Lessee shall not consolidate or merge with or into any other Person or sell, transfer, convey or lease all or substantially all of its assets (treating for such purpose all sales, transfers conveyances and leases of assets during any 24 month period as if constituting a single transaction) to any Person or cease to be a subsidiary of Tenneco Inc., unless: (a) such Person is before and after such transaction a Subsidiary of Tenneco Inc. or the prior written consent of Owner Participant has been obtained; (b) the successor formed by such consolidation or merger or that acquires by conveyance, transfer or lease all or substantially all its assets as an entirety (i) shall be a corporation organized under the laws of the United States of America, a state thereof or the District of Columbia, (ii) shall execute and deliver to Indenture Trustee, Owner Trustee and each Participant an agreement in form and substance satisfactory to each of them containing an assumption by such successor of the due and punctual performance of each covenant, obligation and condition of the Operative Documents and Acquisition Agreements to be performed or observed by Lessee, (iii) immediately after such transaction would be permitted to incur an additional $1 of Funded Debt in accordance with Section 7.05, (iv) immediately after such transaction would be permitted to make a Restricted Payment of at least $1 in accordance with Section 7.06 and (v) immediately after such transaction no Event of Default would exist; (c) immediately after Lessee ceases to be a Subsidiary of Tenneco Inc. (i) Lessee would be permitted to incur an additional $1 of Funded Debt in accordance with Section 7.05, (ii) Lessee would be permitted to make a Restricted Payment of at least $1 in accordance with Section 7.06 and (iii) no Event of Default would exist; and 15 (d) Lessee shall have delivered to each Lessor Party an Officer's Certificate and an opinion of counsel satisfactory to each such Person, stating that such transaction, and any assumption agreement required by paragraph (b) of this Section 7.04, complies with this Section 7.04 and that all conditions precedent relating to such transaction have been complied with. Upon consummation of any such transaction in accordance with this Section 7.04, the successor shall succeed to, and be substituted for, and may exercise every right and power of, Lessee under the Operative Documents and Acquisition Agreements with the same effect as if such successor had been named therein. No such transaction shall have the effect of releasing Lessee or any successor that shall theretofore have become such in the manner prescribed in this Section 7.04 from its liability under the Operative Documents or the Acquisition Agreements. SECTION 7.05. Debt. Neither Lessee nor any of its Subsidiaries shall incur any Funded Debt unless immediately thereafter, upon giving pro forma effect thereto, Cash Flow Coverage of Fixed Charges would exceed 2.0 and Funded Debt of Lessee and its Subsidiaries, an a consolidated basis, would not exceed 55% of Total Capital of Lessee and its Subsidiaries, on a consolidated basis. For purposes of the foregoing, "Cash Flow Coverage of Fixed Charges" means, for the four fiscal quarterly periods ending immediately prior to the date of determination thereof, the ratio of Net Income before taxes plus depreciation and interest expense and lease rentals minus capital expenditures (other than Known Modifications financed by Owner Participant) to interest expense and lease rentals and dividends on all mandatorily redeemable preferred stock of Lessee and its Subsidiaries. SECTION 7.06. Restricted Payments. (a) Lessee shall not pay or declare any Restricted Payment (other than as permitted by Section 7.06(b)) if (i) immediately after the making thereof Funded Debt of Lessee and its Subsidiaries, on a consolidated basis, would exceed 50% of Total Capital of Lessee and its Subsidiaries, on a consolidated basis, or (ii) the making thereof would cause Lessee's Net Worth to be less than $800 million or (iii) there shall exist any Default or Event of Default under this Lease or any default or event of default under the Other Lease. (b) Neither Lessee nor any of its Subsidiaries shall make or permit to exist any loan or advance to Tenneco Inc. or any of its Affiliates except loans or advances to Tenneco Inc. that are payable upon demand, bear interest, payable at least annually, at a rate equal to the prime rate as quoted by Morgan Guaranty Trust Company of New York from time to time and are made out of cash generated in the ordinary course of operations of Lessee or its Subsidiaries and only if (I) Tenneco Inc. owns, directly or indirectly, all the outstanding equity securities of Lessee and either (i) all publicly held debt obligations of Tenneco Inc. having a maturity of one year or more from the date of issue are rated at least investment grade by Moody's and Standard & Poors, or (ii) arrangements have been made which are in all respects satisfactory to Owner Participant and Loan Participants, whereby return of the amount loaned or advanced is unconditionally guaranteed, (II) Funded Debt of Lessee and its 16 Subsidiaries, on a consolidated basis, does not exceed 55% of the excess of Total Capital of Lessee and its Subsidiaries, on a consolidated basis, over the aggregate amount of all loans and advances to Tenneco Inc. and (III) no Default or Event of Default exists. SECTION 7.07. Transactions with Affiliates. Lessee shall conduct all transactions (including payments and receipt of benefits) with any of its Affiliates in a manner consistent with the conduct of transactions among Tenneco Inc. and all its Subsidiaries and on terms which, in the case of a material transaction, the Board of Directors of Lessee has determined in good faith to be in the best interests of Lessee and not materially adverse to Participants. Schedule 7.07 sets forth an accurate description of the tax sharing arrangements between Lessee and Tenneco Inc. as of the Closing Date and no tax sharing agreement between Lessee and Tenneco Inc. or any Affiliate thereof shall be altered or revised in any way which would materially alter Lessee's cash flow. ARTICLE VIII General Tax Indemnity --------------------- SECTION 8.01. Indemnity. All payments by Lessee in connection with the Overall Transaction shall be free of withholdings of any nature whatsoever (including any withholdings in respect of payments pursuant to this Article VIII). If Lessee is required to make any payment upon which any withholding is required, Lessee shall pay an additional amount such that the net amount actually received by the Person entitled to receive such payment will, after such withholding, equal the full amount of the payment then due. If for any reason, Lessee is required to make any payment to a taxing authority or to any such Person as a result of the application of the preceding sentence that relates to or is a result of any Tax imposed on or with respect to any such Person which Tax is not the responsibility of Lessee under the terms of this Section 8.01, then such Person shall, within 30 days after receipt of notice of payment of the Tax and appropriate payment documentation with respect thereto, pay to Lessee an amount which equals the amount paid by Lessee with respect to or as a result of such Tax that is not the responsibility of Lessee increased by the amount of any net tax savings to such Person attributable to the making of such payment to Lessee. Except as provided in Section 8.02, Lessee shall pay on an After-Tax Basis, and on written demand shall indemnify, defend and hold each Indemnified Person harmless on an After-Tax Basis from and against, any and all Taxes imposed on or with respect to any Indemnified Person, Lessee, any sublessee, the Facility, the Site or any portion thereof or interest therein by any Federal, state or local government or other taxing authority in the United States, or any government or taxing authority of or in a foreign country or any international authority, in connection with or in any way relating to (a) the manufacture, construction, financing, refinancing, purchase, acquisition, acceptance, rejection, delivery, nondelivery, transport, ownership, 17 assembly, possession, repossession, operation, use, condition, maintenance, repair, sale, dismantling, return, abandonment, preparation, installation, storage, replacement, redelivery, leasing, subleasing, modification, transfer of title, rebuilding, rental, importation, exportation or other application or disposition of, or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) on, the Facility, the Site or any portion thereof or interest therein, (b) the payment of Rent or the receipts or earnings arising from or received with respect to the Facility, the Site or any portion thereof or any interest therein, (c) the Loan Certificates and the Indenture, their issuance, execution, filing, recording, sale, delivery, refinancing, assumption, exchange, reoptimization or acquisition, or the payments of any amounts thereon, (d) the property, or other proceeds with respect to the property, held by Indenture Trustee under the Indenture, (e) any other amount paid or payable pursuant to any Operative Document, (f) the Facility, the Site or any portion thereof or any interest therein, (g) all or any of the Operative Documents, any other documents contemplated thereby and any amendments and supplements thereto, and (h) otherwise with respect to or in connection with the Overall Transaction (whether or not any of the transactions contemplated by the Operative Documents shall be consummated). The term "Taxes" shall mean any and all fees (including documentation, license and registration fees), taxes (including income, gross receipts, value-added, sales, use, property (personal and real, tangible and intangible), intangible taxes, intangible recording taxes, documentary stamp and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any and all penalties, fines, additions thereto and interest thereon. SECTION 8.02. Exclusions from General Tax Indemnity. Section 8.01 (except for the first two sentences of the first paragraph thereof) shall not apply to: (a) in the case of Owner Participant and any Loan Participant, Taxes (other than Taxes that are or are in the nature of sales, use, property, value-added, license or rental Taxes) imposed by the United States Federal government pursuant to Subtitle A of the Code or any successor provision (including any minimum Taxes, withholding Taxes and any Taxes on or measured by any items of tax preference), other than in the case of any Loan Participant (i) Taxes that would not have been imposed if a change in the Amortization Schedules pursuant to Section 2.03(b) of the Indenture had not occurred and (ii) Taxes that would not have been imposed if Lessee had not assumed the Loan Certificates pursuant to Section 6.09 of the Indenture or Section 4.02(b) of the Lease; (b) in the case of Owner Participant and Loan Participants, Taxes (other than Taxes that are or are in the nature of sales, use, property, value-added, license or rental Taxes and other than any Taxes imposed by any government or taxing authority outside the United States as a result of the location of the Facility Assets or any part thereof in the jurisdiction imposing the Tax ("Indemnified Foreign-Taxes")) imposed on an Indemnified Person that are based upon or measured by gross or not income or gross or net receipts of 18 such Indemnified Person (including any capital gains Taxes, minimum Taxes and any Taxes on or measured by any items of tax preference) other than in the case of any Loan Participant (i) Taxes that would not have been imposed if a change in the Amortization Schedules pursuant to Section 2.03(b) of the Indenture had not occurred, (ii) Taxes that would not have been imposed if Lessee had not assumed the Loan Certificates pursuant to Section 6.09 of the Indenture or Section 4.02(b) of this Lease, (iii) Taxes that would not have been imposed if the loans evidenced by the Loan Certificates had been made directly to Lessee and (iv) Taxes imposed by any jurisdiction other than a taxing jurisdiction in which such Loan Participant is subject to such Taxes without regard to the transactions contemplated by the operative Documents. (c) in the case of Owner Participant and Loan Participants, franchise Taxes imposed on an Indemnified Person and Taxes on capital or net worth of an Indemnified Person (in each case, other than Taxes that are or are in the nature of sales, use, property, value-added, license or rental Taxes and other than Indemnified Foreign Taxes) other than, in the case of any Loan Participant (i) Taxes that would not have been imposed if the loans evidenced by the Loan Certificates had been made directly to Lessee and (ii) Taxes imposed by any jurisdiction other than a taxing jurisdiction in which such Loan Participant is subject to such Taxes without regard to the transactions contemplated by the Operative Documents; (d) Taxes that are based on, or measured by, the fees or other compensation received by Owner Trustee or Indenture Trustee for acting as trustees under the Trust Agreement and the Indenture, respectively; (e) Taxes that have not been paid or credited and that are being contested in accordance with the provisions of Section 8.03, during the pendency of such contest, so long as Lessor shall be receiving all payments required under this Lease and holders of the Loan Certificates shall be receiving all payments required under the Loan Certificates when payable without reduction for such Taxes; (f) Taxes that are imposed an any Indemnified Person as a result of such Indemnified Person's gross negligence or willful misconduct (other than gross negligence or willful misconduct imputed to such Indemnified Person solely by reason of its interest in the Facility or its participation in the Overall Transaction); (g) Taxes imposed on an Indemnified Person that result from any voluntary transfer (it being understood that the term "voluntary transfer" does not include any transfer provided for in the Operative Documents (other than pursuant to Article VII of the Participation Agreement or Section 15.02 of this Lease and, if Lessor shall receive an amount at least equal to the applicable Stipulated Loss Value free and clear of any such Taxes, other than pursuant to 19 Section 4.03 of this Lease) or any transfer to Lessee or any Affiliate thereof) by such Indemnified Person of any interest in the Facility, the Site or any part thereof or any interest arising under the Operative Documents, or from any involuntary transfer by such Indemnified Person of any of the foregoing interests in connection with any bankruptcy or other proceeding for the relief of debtors in which such Indemnified Person is the debtor (except if such proceeding shall have been caused by the Lessee); provided, however, that the exception set forth in this subparagraph (h) shall not apply if any such transfer shall occur at any time while a Lease Event of Default shall have occurred and be continuing; (h) other than in the case of Loan Participants, Indenture Trustee and Indenture Estate, Taxes imposed on an Indemnified Person by any jurisdiction that would not have been imposed an such Indemnified Person but for activities of such Indemnified Person in such jurisdiction which activities are unrelated to the transactions contemplated by the Operative Documents; (i) Taxes imposed on an Indemnified Person (A) that result from the failure of such Indemnified Person to file tax returns properly and on a timely basis (unless such failure results from a failure of Lessee to properly and timely file an Indemnified Person's tax return that Lessee (rather than the Indemnified Person) is required to file under Section 8.07 or to notify such Indemnified Person of its obligation to file such return in cases where the requirement for filing arises from such Indemnified Person's participation in the transactions contemplated by the Operative Documents), or (B) that would not have been imposed but for the failure of such Indemnified Person to comply with certification, reporting or other similar requirements of the jurisdiction imposing such Tax (unless such failure results from a failure of Lessee to notify such Indemnified Person of its obligation to comply with such requirements in cases in which such requirements arise from such Indemnified Person's participation in the transactions contemplated by the Operative Documents); (j) Taxes relating to the Facility Assets or any interest therein imposed on an Indemnified Person for any period following the expiration or early termination of the Lease; provided, however, that this exclusion (j) shall not apply to (x) Taxes imposed on Indenture Trustee or the holder of any Loan Certificate so long as any Loan Certificate is outstanding, (y) Taxes relating to events occurring prior to or simultaneously with such expiration or early termination and (z) Taxes incurred in connection with the exercise of any remedies pursuant to Section 14.01 following the occurrence of a Lease Event of Default; (k) Taxes imposed on or with respect to an Indemnified Person arising as a result of a material failure of such Indemnified Person to fulfill its obligations with respect to the contest of any claim in accordance with Section 8.03 of this Lease; 20 (l) Taxes included in and paid as part of Transaction Expenses or in Lessor's Cost; (m) Taxes imposed on an Indemnified Person that would not have been imposed but for the status of such Indemnified Person as other than a United States person (as defined in Section 7701(a) of the Code) for United States Federal or other income tax purposes; and (n) in the case of any Loan Participant, Taxes imposed on a transferee of such Loan Participant in excess of the Taxes that would have been imposed on such Loan Participant if no transfer had occurred. SECTION 8.03. Contests. (a) If any written claim shall be made against any Indemnified Person or if any proceeding shall be commenced against any Indemnified Person (including a written notice of such proceeding) for any Taxes as to which Lessee shall have an indemnity obligation pursuant to Section 8.01, such Indemnified Person shall promptly notify Lessee in writing and shall not take any action with respect to such claim or Tax without the consent of Lessee for 30 days after the giving of such notice to Lessee; provided, however, that the failure to so notify Lessee shall not relieve Lessee of its obligations under this Article VIII unless such failure precludes Lessee from pursuing a contest of such Taxes; provided further, however, that, if such Indemnified Person shall be required by law or regulation to take action prior to the end of such 30-day period, such Indemnified Person shall, in such notice to Lessee, so inform Lessee, and such Indemnified Person shall not take any action with respect to such claim or Tax without the consent of Lessee before the date such Indemnified Person shall be required to take action. If requested by Lessee in writing within 30 days after the giving of such notice (or by such earlier date referred to in the preceding sentence), such Indemnified Person shall, at the expense of Lessee (including all costs, expenses and reasonable attorneys' and accountants' fees and disbursements), in good faith contest the validity, applicability or amount of such Taxes by, in the case of a contest involving only Taxes for which Lessee is liable (a "Lessee-Controlled Contest"), in the Lessee's sole discretion, or, in the case of any other contest (an "Indemnified Person-Controlled Contest"), in such Indemnified Person's sole discretion, (i) resisting payment thereof, (ii) not paying the same except under protest, if protest shall be necessary and proper, or (iii) if payment shall be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings; provided, however, that in no event shall such Indemnified Person be required to contest the imposition of any Tax for which Lessee is obligated pursuant to this Article VIII unless (t) Lessee shall have made all payments than payable under the terms of the Operative Documents; (u) no Lease Event of Default shall have occurred and be continuing; (v) prior to taking such action, Lessee shall have furnished, if requested by such Indemnified Person, such Indemnified Person with an opinion of Dewey Ballantine or other independent tax counsel selected by Lessee and reasonably acceptable to such Indemnified Person to the effect that a reasonable basis exists for such contest; (w) Lessee shall have acknowledged its liability to such Indemnified Person for an indemnity payment pursuant to this Article VIII as a result 21 of such claim or Tax if and to the extent such Indemnified Person shall not prevail in the contest of such claim or Tax, provided that such acknowledgment shall be of no force or effect to the extent the contest is resolved on an articulated basis that clearly does not constitute a basis for indemnification hereunder; (x) Lessee shall have agreed in writing to pay such Indemnified Person all reasonable costs and expenses that such Indemnified Person shall incur in connection with contesting such claim (including all costs, expenses, reasonable legal and accounting fees and disbursements); (y) such Indemnified Person, Indenture Trustee and Owner Participant shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of, or the creation of any Lien (except if Lessee shall have adequately bonded such Lien or otherwise made provision to protect the interests of such Indemnified Person, Loan Participants and Owner Participant in a manner reasonably satisfactory to such Indemnified Person, Indenture Trustee and Owner Participant) on the Facility or any interest therein or in any interference with timely payments of Rent or any amount on the Loan Certificates from time to time becoming due and payable; and (z) if such contest shall involve payment of the claim, Lessee shall advance the amount thereof plus interest, penalties and additions to tax with respect thereto to such Indemnified Person on an interest- free basis and with no additional net after-tax cost to such Indemnified Person. In the sole discretion of an Indemnified Person, any contest required to be pursued by such Indemnified Person pursuant to this Article VIII shall be conducted by Lessee in the name of such Indemnified Person or Lessee. Lessee shall control the conduct (including the choice of forum) of a Lessee-Controlled Contest and the relevant Indemnified Person shall control the conduct (including the choice of forum) of an Indemnified Person-Controlled Contest. In addition, so long as no Lease Event of Default shall have occurred and be continuing, Lessee may, at its expense, in the name of Lessee or, with the consent of such Indemnified Person (which consent will not unreasonably be withheld), in the name of such Indemnified Person, contest (and control the contest of), including by way of suit for refund, any Taxes as to which Lessee would have an indemnity obligation pursuant to Section 8.01, if such contest can be conducted independently of any proceeding involving a tax liability of such Indemnified Person that is not indemnified by Lessee hereunder; provided, however, that Lessee may take no action in contesting any claim if Indenture Trustee, such Indemnified Person or Owner Participant shall have reasonably determined that such action will result in any material danger of sale, forfeiture or loss of, or the creation of any Lien (except if Lessee shall have adequately bonded such Lien or otherwise made provision to protect the interests of such Indemnified Person and Owner Participant in a manner reasonably satisfactory to them) on the Facility or any interest therein or any interference with timely payments of Rent or any amounts on the Loan Certificates from time to time becoming due and payable. (b) Notwithstanding anything contained in Section 8.03(a), an Indemnified Person will not be required to contest or to permit Lessee to contest the imposition of any Taxes if such Indemnified Person (1) shall waive its right to indemnity under this Article VIII with respect to such Taxes and (2) shall pay to Lessee any amount previously paid or advanced by Lessee pursuant to this Article VIII by way of reimbursement with respect to such Taxes. 22 SECTION 8.04. Refunds. If any Indemnified Person shall receive a refund of all or any part of any Taxes paid, reimbursed or advanced by Lessee, such Indemnified Person shall pay to Lessee within 30 days of such receipt an amount equal to the lesser of (a) the amount of such refund plus any net tax benefit (taking into account any Taxes incurred by such Indemnified Person by reason of the receipt of such refund) realized by such Indemnified Person as a result of any payment by such Indemnified Person and pursuant to this sentence, and (b) the tax payment, reimbursement or advance to such Indemnified Person made by Lessee that gave rise to such refund; provided, however, that such Indemnified Person shall not be obligated to make any payment to Lessee pursuant to this or the next succeeding sentence while a Lease Event of Default shall have occurred and be continuing. If, in addition to such refund, such Indemnified Person shall receive or be credited an amount representing interest on the amount of such refund, such Indemnified Person shall pay to Lessee within 30 days of such receipt that proportion of such interest that shall be fairly attributable to Taxes paid, reimbursed or advanced by Lessee prior to the receipt of such refund. SECTION 8.05. Tax Savings. If an Indemnified Person shall realize, against any tax for which an indemnity payment is not required of Lessee pursuant to this Article VIII, any net tax saving or credit from any amount with respect to which Lessee has indemnified such Indemnified Person, its Affiliates or (A) in the case of Owner Participant, any net tax saving or credit with respect to Taxes for which Lessee has indemnified Owner Trustee, or the Trust Estate or (B) in the case of any Loan Participant, any net tax saving or credit with respect to Taxes for which Lessee has indemnified Indenture Trustee or the Indenture Estate (it being understood that any such net tax saving or credit shall not be deemed to exist to the extent that such other person referred to in clause (A) or (B), as the case may be, realizes an unindemnified tax detriment) pursuant to this Article VIII, the Indemnified Person realizing such tax saving or credit, so long as no Lease Event of Default shall have occurred and be continuing, shall pay to Lessee within 30 days after such Indemnified Person shall have realized such tax saving or credit the amount of such saving or credit, together with the amount of any tax saving resulting from any payment pursuant to this sentence; provided, however, that the aggregate amount payable pursuant to this sentence in respect of any tax saving or credit shall not exceed the amount previously paid by Lessee with respect to the Tax that gave rise to such saving or credit. Each Indemnified Person agrees to use its good faith efforts (consistent with its overall tax position) to claim any credit or tax savings available to it that would reduce the amount of Lessee's indemnity obligations under this Article VIII or that would give rise to a payment to Lessee under this Article VIII. SECTION 8.06. Payments. Any amount payable to an Indemnified Person pursuant to this Article VIII shall be paid within 30 days after receipt of a written demand therefor from such Indemnified Person accompanied by a written statement describing in reasonable detail the amount so payable but not before the date 10 days prior to the date that the relevant Taxes are due. 23 SECTION 8.07. Reports. If any report, return or statement is required to be filed with respect to any Taxes that are subject to indemnification under this Article VIII, Lessee shall promptly notify the appropriate Indemnified Person of such requirement and, if permitted by applicable laws to do so, Lessee shall timely file such report, return or statement with respect to such Taxes, except for any such report, return or statement that such Indemnified Person has notified Lessee that such Indemnified Person intends to file; provided, however, that such Indemnified Person shall have furnished Lessee, at Lessee's request and expense, with such information, not within the control of Lessee, as is in such Indemnified Person's control and is reasonably available to such Indemnified Person and necessary to file such report, return or statement; and provided, further, that if Lessee is not permitted by applicable laws to file any such report, return or statement, Lessee will promptly notify the appropriate Indemnified Person that it is not so permitted. With respect to any report, return or statement that is required to be filed with respect to any Taxes that are subject to indemnification under this Article VIII, Lessee shall either show the ownership of the Facility in Lessor and send a copy of such reports return or statement to Lessor and the appropriate Indemnified Person or, where not permitted to so show such ownership, shall promptly notify the Lessor of such requirement and prepare and deliver to the Lessor and the appropriate Indemnified Person a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. SECTION 8.08. Verification. At Lessee's request, the calculation of the amount (but not the existence or scope of any liability for payment under this Article VIII) of any indemnity payment by Lessee pursuant to this Article VIII or any payment by an Indemnified Person to Lessee pursuant to this Article VIII shall be verified and certified by a nationally recognized accounting firm mutually acceptable to such Indemnified Person and Lessee that does not represent either such Indemnified Person or Lessee. The costs of such verification shall be borne by Lessee unless such verification reveals an error in the Indemnified Person's favor of 5% or more of the amount actually payable in which event the cost of such verification shall be borne by the Indemnified Person. ARTICLE IX Special Tax Indemnities ----------------------- SECTION 9.01. Tax Assumptions. The Basic Rent payable by Lessee and Net Economic Return have been computed on the basis of the following tax assumptions: (a) for Federal income tax purposes the Trust Estate will be treated as a trust subject to the provisions of Section 671 through 679 of the Code, and Owner Participant will, as the owner of the entire interest in the Trust Estate, take into account in computing its Federal income tax liability all items of 24 income, loss, gain, deduction and credit (including the MACRS Deductions (as hereinafter defined)) of the Trust Estate; (b) the Lease will be treated as a true lease under which Owner Participant will be treated as owner and lessor and Lessee will be treated as lessee; (c) for Federal income tax purposes, including for purposes of Section 861 of the Code, all amounts includible in the gross income of Owner Participant, Lessor or the Trust Estate with respect to the transactions contemplated by the Operative Documents and all deductions and credits allowable to Owner Participant, Lessor or the Trust Estate with respect to the transactions contemplated by the Operative Documents will be treated as derived from, or allocable to, sources within the United States; (d) the Federal rate of tax on the taxable income of Lessor will be 34%; (e) Owner Participant, as the owner of the Facility Assets as of the Closing Date, will be entitled to such deductions, credits and other benefits as are provided by the Code to an owner of property, including (A) as to an amount (the "Seven-year Amount") equal to 92.988% of Lessor's Cost, deductions for cost recovery with respect to the Facility Assets under Section 168(b)(1) of the Code computed using a seven-year recovery period, the 200% declining-balance method (switching to straight-line) and the half-year convention, resulting in deductions in an amount equal to 14.29% of the Seven-year Amount in the taxable year of Lessor that includes the Closing Date and 24.49%, l7.49%, 12.49%, 8.93%, 8.92%, 8.93% and 4.46% of the Seven-year Amount (such percentages to be calculated to more than two decimal places for purposes of determining the actual deductions) in its succeeding seven taxable years, respectively, (B) an to an amount (the "Nonresidential Real Property Amount") equal to 7.012% of Lessor's Cost, deductions for cost recovery with respect to the Facility under Section 168(b) of the Code computed using a 31.5-year recovery period, the straight-line method and the mid-month convention, resulting in deductions in an amount equal to 3.042% of the Nonresidential Real Property Amount in the taxable year of Lessor that includes the Closing Date, 3.175% in the succeeding thirty taxable years and 1.720% in the last taxable year (the deductions referred to in clauses (A) and (B) being hereinafter referred to as the "MACRS Deductions"); (f) neither Owner Participant, Lessor nor the Trust Estate will at any time be required for Federal income tax purposes to include in its gross income any amount with respect to the transactions contemplated by the Operative Documents other than (i) payments of Basic Rent in the amounts specified herein accrued ratably over the six-month period preceding the date on which each such payment is required to be made; (ii) the amount of any payment of Stipulated 25 Loss Value on the date such amount is paid under this Lease (but not earlier than the date an which such amount is required to be paid under this Lease); (iii) any amount paid to Lessor or Owner Participant and specifically identified as interest under the Operative Documents on the date such amount is paid; (iv) any amount paid to Lessor or Owner Participant under the Operative Documents, the calculation of which is specifically determined under the Operative Documents to include any amount necessary to hold Lessor or Owner Participant harmless against the income tax consequences of the receipt or accrual thereof; (v) any amount to the extent offset in the same taxable year of Lessee or Owner Participant in which such amount is included in income by a related deduction of the same tax character which deduction is not otherwise taken into account pursuant to this Section 9.01; (vi) payment by Lessee, of the purchase option price pursuant to its exercise of its purchase option pursuant to Section 4.02 on the date such amount is paid; and (vii) the "good-faith deposit" referred to in Section 6.01(c) of the Participation Agreement, if such good-faith deposit is retained by Owner Participant pursuant to clause (ii) of that Section 6.01(c); (g) Lessor's taxable year that includes the Closing Date will be a full taxable year consisting of 12 months and each taxable year of Lessor thereafter will be the calendar year ending December 31; and (h) Owner Participant will be entitled for Federal income tax purposes to (A) deductions with respect to interest on the Loan Certificates in the amounts and at the times interest is stated to accrue on the Loan Certificates pursuant to Section 163 of the Code and to current deductions with respect to premium, if any, and all other amounts (except principal) paid or accrued on the Loan Certificates (such deductions hereinafter referred to as the "Interest Deductions") and (B) deductions with respect to the amortization of an amount equal to Transaction Expenses with respect to the Facility ratably over the Interim and Basic Terms (such deductions hereinafter referred to as the "Amortization Deductions"). For purposes of Section 9.01(e), the term "Lessor's Cost" does not include any Alterations financed by Lessor or Owner Participant. At the time of any such financing, the assumptions set forth in this Section 9.01 shall be revised to reflect the assumptions applicable to such Alterations. SECTION 9.02. Records. Lessee shall maintain, or cause to be maintained, such records as shall be reasonably necessary in order to verify the factual basis for the matters referred to in this Article IX. Lessee shall make the records referred to in the preceding sentence available, or cause such records to be made available, for inspection by Owner Participant or its authorized agents, during normal business hours at the Facility, upon request by, and five days' prior written notice from, Owner Participant. Lessee shall, at its expense, upon request by Owner Participant, provide a copy of such records which shall be certified to be a true copy 26 by an affidavit attached thereto and executed by an officer of Lessee. Notwithstanding the preceding sentence, Owner Participant or its authorized agents shall have the right to make copies and extracts of any such records at their sole expense. Lessee shall have no obligation to make available its income tax returns and may impose reasonable confidentiality requirements for any information or records provided under this Section 9.02. In addition, Lessee shall have no obligation under this Section 9.02 with respect to records disposed of after Lessee has requested and received Owner Participant's written consent (which consent shall not be unreasonably withheld) for such disposal. SECTION 9.03. Representations, Warranties and Covenants of Lessee. Lessee represents, warrants and covenants that: (a) assuming that Owner Participant is treated as owner of the Facility Assets for Federal income tax purposes, in the hands of Owner Participant the Facility Assets will be eligible for the MACRS Deduction; (b) the Facility Assets will not be treated as "tax-exempt bond financed property" as defined in Section 168(g)(5) of the Code and Owner Participant will not be required, except by reason of an act or omission of Owner Participant unrelated to the transactions contemplated by the Operative Documents, to use the "alternative depreciation system" described in Section 168(g) of the Code; (c) the Facility Assets do not and will not constitute "public utility property" as defined in Section 168(i)(10) of the Code, unless such status shall result from acts or omissions of Owner Participant unrelated to its participation in the transactions contemplated by the Operative Documents, and will not be subject to the provisions of Sections 168(f)(2) of the Code; (d) the Facility Assets will be placed in service no later than the Closing Date; (e) as of the Closing Date, the Facility Assets will require no improvements, modifications or additions (other than the Known Alterations) in order to be rendered complete for their intended use by Lessee and Lessee has no present intention to make any specific non-severable improvements, modifications or additions (other than the Known Alterations and the Work in Progress) to the Facility Assets; (f) all written information supplied by Lessee or any of its Affiliates or either of Sellers or their Affiliates to any independent appraiser or engineer in connection with the appraisal referred to in Section 4.02(t) of the Participation Agreement (and, in the case of written information supplied by either of Sellers or their Affiliates, specifically identified in writing by such appraiser or engineer, and confirmed by Lessee as having been provided by Sellers or their Affiliates), with respect to the description, nature, function, testing and cost of 27 the Facility, including facts relating to its intended use, economic life and residual value, was complete (to the best of Lessee's knowledge) and accurate in all material respects at the time given and on the Closing Date, and neither Lessee nor any Affiliate has any reason to believe that any of the conclusions set forth in the appraisal are in any manner incorrect or misleading; provided, however, that while the projections and estimates made by Lessee or Sellers that are included in such information were made in good faith, Lessee does not make any representations as to the reasonableness or accuracy of any estimates or projections included in such information; (g) no loss, damage, destruction, condemnation, seizure, confiscation, theft, forfeiture, requisition of title or requisition of use with respect to the Facility or any portion thereof that does not constitute an Event of Loss will result in the disallowance, loss, recapture or deferral of all or any portion of the MACRS Deductions or the Interest Deductions; (h) on the Closing Date, there will not be any portion of the acquisition cost of the Facility Assets paid for or incurred by Lessee or any Affiliate thereof for which Lessee shall not have been reimbursed by Owner Participant; (i) the basis of the Facility Assets will not be reduced and the Interest Deductions will not be affected at any time as a result of, or in connection with, the characterization as interest or original issue discount of any amount denominated as principal under any Loan Certificate pursuant to the application of Section 483, 1272, 1273, 1274, 1275 or 7872 of the Code; (j) neither Lessee nor any of its Affiliates has acquired or will acquire any of the Loan Certificates except as permitted by Section 4.02(b); and (k) neither Lessee nor any Affiliate will at any time take any action, directly or indirectly, or file any returns or other documents inconsistent with the tax assumptions set forth in Section 9.01, and Lessee and each Affiliate will file such returns, maintain such records, take such actions and execute such documents an Owner Participant may request in writing as being reasonably necessary to facilitate accomplishment of the intent thereof. SECTION 9.04. Indemnity. If directly as a result of: (A) any act or omission (other than an act or omission expressly required by the Operative Documents and other than (v) the execution and delivery of the Operative Documents, (w) the exercise of Lessee's right to purchase the Facility Assets pursuant to Section 4.02, to renew this Lease pursuant to Section 4.01 or to terminate this Lease early pursuant to Section 4.03, (x) a Refinancing of the Loan Certificates in accordance with Section 8.01 of the Participation Agreement or any 28 assumption by Lessee of the Loan Certificates in accordance with the provisions of Section 4.02(b), (y) the making of the Known Alterations in accordance with the provisions of Section 8.02 of the Participation Agreement and (z) any sublease of the Facility Assets in accordance with the provisions of Section 15.01 to a Person who is not a "tax- exempt entity'" within the meaning of Section 168(h) of the Code) on the part of Lessee, any officer, employee, agent of Lessee, any Affiliate of Lessee, any sublessee, assignee, user or person in possession of the Facility Assets, the Site or any part thereof, or any Person claiming by, through or under Lessee in each case other than Lessor, Owner Participant, their Affiliates or anyone claiming through them (other than Lessee) (any of the foregoing being hereinafter referred to as a "Lessee Person"); or (B) (i) any breach or inaccuracy of any representation, warranty or covenant set forth in Section 9.03 hereof or Section 5.01 or 5.06 of the Participation Agreement an the part of Lessee or any Lessee Person or (ii) any exercise of any remedies by Indenture Trustee or one or more holders of any Loan Certificate resulting from any breach by Lessee of any obligation under the Operative Documents or of any covenant contained therein); or (C) any bankruptcy of Lessee or any Lessee Person or other proceedings for the relief of debtors involving Lessee or any Lessee Person or any foreclosure on or against Lessee or any Lessee Person; or (D) any non-use of, repair or replacement of, or the making of any addition, modification or improvement (other than the Known Alterations or the Work in Progress) to, or any payment of any warranty not permitted to be retained by Lessor or Owner Participant in respect of, the Facility Assets or any part thereof; Owner Participant shall lose, shall suffer a disallowance of, shall suffer a delay in claiming, shall not have the right to claim, shall not claim (based on a written opinion of Cravath, Swaine & Moore or other independent tax counsel selected by Owner Participant and reasonably acceptable to Lessee ("Owner Participant's Tax Counsel") to the effect that there is no substantial authority for such claim (an "Owner Participant Opinion")), or shall be required to recapture all or any portion of the MACRS Deductions, the Interest Deductions or the Amortization Deductions (any such event being hereinafter referred to as a "Loss"), then Lessee shall pay to Owner Participant on an After-Tax Basis as an indemnity not later than 30 days after written notice to Lessee by Owner Participant of such Loss specifying in reasonable detail the calculation of such Loss and the event giving rise thereto, such amount (calculated pursuant to Section 9.09) as shall, taking into account any interest and any penalties and additions to tax payable as a result of and properly attributable to such Loss or any contest of such Loss (net of any deductions currently available for, such interest, penalties or additions), cause Owner Participant's Net Economic Return (computed 29 otherwise on the same assumptions (other than the changed assumptions giving rise to Lessee's payment) as were utilized by Owner Participant in originally computing the Basic Rent set forth in Section 3.01) to equal the Net Economic Return (as so computed) that would have been realized by Owner Participant if such Loss had not occurred. In lieu of such payment Lessee may elect to (i) pay on an After-Tax Basis to Owner Participant, within 30 days after such written notice by, Owner Participant, an amount (calculated pursuant to Section 9.09) equal to the Federal income taxes payable by Owner Participant as a result of such Loss and any interest and any penalties and additions to tax imposed as a result of and properly attributable to such Loss or the contest of such Loss (net of any deductions currently available for such interest, penalties or additions) or (ii) unless this Lease shall have terminated, pay the indemnity described in the next preceding sentence by increasing payments of Basic Rent (commencing on the Rent Date following notice by Owner Participant of such Loss) by such amounts as are necessary, taking into account such indemnity, to preserve Owner Participant's Net Economic Return, adjusted to reflect any increase in the per annum rate paid at the time of determination on five-year Treasury Certificates issued by the United States of America from the rate paid on such Treasury Certificates on the date five days prior to the Closing Date. SECTION 9.05. Foreign Tax Credit Indemnity. If, by reason of the location of the Facility Assets, the Site or any part of any thereof outside the United States prior to the termination of the Lease, any item of income, gain, loss, deduction or credit with respect to the transactions contemplated by the Operative Documents shall not be treated as derived from, or allocable to, sources within the United States for a given taxable year (any such event hereinafter referred to as a "Foreign Allocation"), then Lessee shall pay to Owner Participant on an After-Tax Basis within 30 days after written demand therefor from Owner Participant as an indemnity, an amount equal to the sun of: (1) the excess of (x) the foreign tax credits to which Owner Participant would have been entitled for such year had no such Foreign Allocation occurred over (y) the foreign tax credit to which Owner Participant was limited taking into account such Foreign Allocation; and (2) the amount of any interest and any penalties and additions to tax (taking currently allowable deductions into account) payable as a result of and properly attributable to such Foreign Allocation. The amount payable to Owner Participant pursuant to this Section 9.05 shall be paid not later than 30 days after written demand by Owner Participant accompanied by a written statement describing in reasonable detail such Foreign Allocation and the computation of the amount so payable. SECTION 9.06. Income Inclusion: Reverse Indemnities. (a) If, directly as a result of an event described in Section 9.04 (A), (B), (C) or (D) or directly as a result of the payment by any Lessee Person of any expenses of any Indemnified Person pursuant to Section 8.03(a) or 9.08, at any time Owner Participant, Lessor or the Trust Estate is required to include in its Federal gross income with respect to any period prior to the termination of the Lease (or, if the Lease shall have terminated as the result of an Event of Default, with respect to any period) an amount in respect of the transactions contemplated by the Operative Documents other than the 30 amounts described in Section 9.01(f)(i) through (vii) at the times described therein (an "Income Inclusion"), then Lessee shall pay to Owner Participant on an After-Tax Basis within 30 days after written demand therefor from Owner Participant accompanied by a written statement describing in reasonable detail the calculation of the event giving rise to such Income Inclusion and the computation of the amount so payable, as an indemnity, an amount (calculated in accordance with Section 9.09) equal to the sum of (x) the net aggregate additional Federal, state and local income taxes or franchise taxes based an income payable by Owner Participant from time to time as a result of such Income Inclusion plus (y) the amount of any interest and any penalties and additions to tax (taking currently allowable deductions into account) payable as a result of and properly attributable to any such Income Inclusion. In lieu of such payment Lessee may elect to (i) pay Owner Participant as an indemnity on an After-Tax Basis, within 30 days of such written notice by Owner Participant, such amount (calculated pursuant to Section 9.09) as shall, taking into account any interest and any penalties and additions to tax payable as a result of and properly attributable to such Income Inclusion (net of any deductions currently available for such interest, penalties or additions) cause Owner Participant's Net Economic Return (computed otherwise on the same assumptions (other than the changed assumptions giving rise to Lessee's payment) as were utilized by Owner Participant in originally computing the Basic Rent as set forth in Section 3.01) to equal the Net Economic Return (as so computed) that would have been realized by Owner Participant if such Income Inclusion had not occurred or (ii) unless this Lease shall have terminated, pay the indemnity described in clause (i) above by increasing payments of Basic Rent by such amounts as are necessary to preserve Owner Participant's Net Economic Return, adjusted to reflect any increase in the per annum rate paid at the time of determination on five-year Treasury Certificates issued by the United States of America from the rate paid on such Treasury Certificates on the date five days prior to the Closing Date. (b) If as a result of any such Loss or Income Inclusion with respect to which Lessee shall have paid an indemnity pursuant to Section 9.04 or 9.05 or this Section 9.06, the Federal (or in the case of an Income Inclusion, the Federal, state or local) income taxes paid by Owner Participant for any taxable year shall be less than the amount of such taxes that would have been payable by Owner Participant taking into account the assumptions set forth in Section 9.09 had no such Loss or Income Inclusion occurred and such reduction was not previously taken into account in calculating the amount of Lessee's indemnity obligation, then Owner Participant shall pay Lessee the net amount of such savings in taxes (calculated in accordance with Section 9.09) plus the amount of any additional Federal, state or local income tax benefits realized by Owner Participant as a result of any payment pursuant to this sentence; provided, however, that Owner Participant shall not be obligated to make any payment pursuant to this sentence to the extent that the amount of such payment would exceed (x) the amount of all prior payments by Lessee to Owner Participant pursuant to Section 9.04 or 9.05 or this Section 9.06 in respect of the Loss or Income Inclusion that gave rise to such tax benefits less (y), the amount of all prior payments by Owner Participant to Lessee hereunder. Any payment due to Lessee from Owner Participant pursuant to this Section 9.06(b) shall be paid within 30 days after Owner Participant is 31 deemed to realize any such savings in its income taxes or additional tax benefits, as the case may be. SECTION 9.07. Excluded Losses. Notwithstanding any other provision of Section 9.04, 9.05 or 9.06, no indemnity shall be payable pursuant to Section 9.04, 9.05 or 9.06, if such Loss or Income Inclusion results directly from any of the following events: (a) the failure of Lessor or Owner Participant to have a full taxable year for its taxable year in which the Closing Date occurs, for purposes of claiming cost recovery deductions; (b) a determination by a United States taxing authority that the terms and conditions of the Operative Documents fail to result in this Lease being treated as a true lease for Federal income tax purposes, or that Owner Participant is not the purchaser, owner or lessor of the Facility Assets except if such determination shall result directly from any inaccuracy of the representations, warranties or covenants contained in Section 9.03 (e), (f), (j) or (k) or Section 5.01 (a), (b), (d), (e), (j), or (l) or 5.06 (a), (b), (d) or (e) of the Participation Agreement; (c) the classification as a taxable entity of the trust created by the Trust Agreement (d) noncompliance with Section 467 of the Code except (i) in connection with a change in the rental schedule after a Default or Event of Default shall have occurred or (ii) if any Lessee Person shall deduct any payment of Basic Rent in any period other than the period to which such payment is allocated hereunder unless such Lessee Person shall have received an opinion of Dewey, Ballantine or other independent tax counsel selected by Lessee Person and reasonably acceptable to Owner Participant to the effect that there is no reasonable basis for deducting such payments in the periods to which such payments are allocated under this Lease; (e) the failure of Owner Participant to contest any proposed adjustment that it is required to contest pursuant to Section 9.08 in accordance with such provision; (f) except with respect to any replacement or substitution of the Facility or any part of any thereof, any change in the Code enacted after the Closing Date; (g) except as provided in Section 9.05, the treatment of any item of income, gain, loss or deduction as having been derived from sources outside the United States (under Section 861 of the Code or otherwise); 32 (h) the existence of the provisions set forth in Section 6.01(b) of the Participation Agreement or Section 3.01(a) of this Lease; (i) a voluntary transfer (it being understood that the term "voluntary transfer" does not include any transfer provided for in the Operative Documents (other than pursuant to Article VII of the Participation Agreement or Section 15.02 of this Lease) or any transfer to Lessee or any Affiliate thereof) by Owner Participant of any interest in the Facility or any part thereof or any interest arising under the Operative Documents or from any involuntary transfer by Owner Participant of any of the foregoing interests in connection with any bankruptcy or other proceeding for the relief of debtors in which Owner Participant or Owner Trustee is the debtor (except if such proceeding shall have been caused by Lessee); provided, however, that the exception set forth in this subparagraph (i) shall not apply if any such transfer shall occur at any time while a Lease Event of Default shall have occurred and be continuing; (j) an event which results in Lessee making a payment of Stipulated Loss Value or Termination Value or any amount determined by reference to Stipulated Loss Value or Termination Value; (k) a failure by Owner Participant or Owner Trustee to claim in a timely and proper manner all or any portion of the Federal income tax benefits set forth in Section 9.01 or the inclusion in gross income of an amount with respect to an Income Inclusion in each case unless as a result of the receipt of an opinion described in Section 9.04 that there is no substantial authority for such claim or such exclusion from gross income; (l) Owner Participant or Owner Trustee being or becoming a "tax- exempt entity" within the meaning of Section 168 of the Code; (m) a reorganization, liquidation, merger, consolidation or other structural change of Owner Participant, Owner Trustee or any Affiliate of either thereof unrelated to the Transactions contemplated by the Operative Documents; (n) the imposition of any minimum tax, alternative minimum tax or tax on tax preference items; (o) the application of Section 168(d)(3) of the Code; (p) the treatment of the Facility Assets as "public utility property" within the meaning of Section 168(i)(10) of the Code as a result of the identity or status of Owner Participant or Owner Trustee or any Affiliate of either other than as the result of such party's participation in the Overall Transaction; or (q) the inaccuracy of any conclusion set forth in the appraisal referred to in Section 4.02(t) of the Participation Agreement unless such inaccuracy 33 results in the inaccuracy of Section 9.03(a) hereof or results from the inaccuracy of Section 9.03(f) hereof. SECTION 9.08. Contest Provisions. (a) If the Internal Revenue Service or other appropriate taxing authority shall propose an adjustment in the Federal income taxes of Owner Participant for which Lessee may be required to indemnify Owner Participant pursuant to this Article IX, then Owner Participant shall give Lessee prompt written notice of such adjustment: provided, however, that the failure to so notify Lessee shall not relieve Lessee of its obligations under this Article IX unless such failure precludes Lessee from exercising its contest rights under this Section 9.08. If requested by Lessee in writing within 20 days, Owner Participant shall request an opinion of Owner Participant's Tax Counsel, the cost of which shall be borne by Lessee, as to whether there in a reasonable basis in law and in fact for the contest of such adjustment. If the opinion is to that effect and if Lessee promptly (but no later than 15 days thereafter) requests Owner Participant to do so, Owner Participant shall contest the proposed adjustment in good faith unless the aggregate amount of the indemnity that Lessee would be required to pay with respect thereto would not exceed $200,000; provided, however, that Owner Participant shall determine in its sole discretion the nature of all action to be taken to contest such proposed adjustment including (i) whether any action to contest such proposed adjustment shall initially be by way of judicial or administrative proceedings, or both, (ii) whether any such proposed adjustment shall be contested by resisting payment thereof or by paying the same and seeking a refund thereof and (iii) if Owner Participant shall undertake judicial action with respect to such proposed adjustment, the court or other judicial body before which such action shall be commenced. Although Owner Participant agrees to consult in good faith with Lessee on matters relating to the contest and to consider in good faith timely suggestions from Lessee with respect to the contest (including suggestions as to choice of forum), Owner Participant shall have full control over any contest pursuant to this Section 9.08 and shall not, except as specifically provided below, be obligated to pursue an appeal from any judicial determination. Subject to satisfaction of the other conditions set forth in this Section 9.08, Owner Participant shall be obligated to pursue (but only to one additional judicial level and in no event to the United States Supreme Court), with respect to a determination by a court, an appeal with respect to such determination if Owner Participant shall have received, at the expense of Lessee, an opinion of Owner Participant's Tax Counsel to the effect that the basis in law and in fact for Owner Participant's position exceeds the basis in law and in fact against such position. At any time, whether before or after commencing to take the action set forth in this Section 9.08, Owner Participant may decline to take any such action that it would otherwise be required to take pursuant to this Section 9.08 with respect to all or any portion of a proposed adjustment by notifying Lessee in writing that Lessee is relieved of its obligations to indemnify Owner Participant with respect to the adjustment or such portion, as the case may be, in which event Owner Participant shall repay any indemnity amount previously advanced by Lessee with respect to such adjustment (but not any costs or expenses with respect to any contest). 34 (b) Owner Participant shall not be required to take any action pursuant to this Section 9.08 unless and until Lessee shall have acknowledged its indemnity obligation provided that such acknowledgment shall be of no force or effect if the contest is resolved on an articulated basis that clearly does not constitute a basis for indemnification hereunder and shall have agreed to indemnify Owner Participant in a manner reasonably satisfactory to Owner Participant for any liability or loss which Owner Participant may incur as a result of contesting the validity of any proposed adjustment and shall have agreed to pay to Owner Participant on demand all costs and expenses which Owner Participant may incur in connection with contesting such proposed adjustment (including fees and disbursements of counsel). If Owner Participant determines to contest any adjustment by paying the additional tax and suing for a refund, Lessee shall pay to Owner Participant an amount equal to the sum, on an After- Tax Basis, of any tax, interest, penalties and additions to tax which are required to be paid. Upon receipt by Owner Participant of a refund of any amounts paid by it based on the adjustment in respect of which amounts it shall have previously been paid funds by Lessee, Owner Participant shall pay to Lessee, the amount of such refund net of any tax consequences of the receipt of such refund (or such portion thereof as is properly allocable to the adjustment) together with any interest received by it on such refund and any tax savings resulting from such payment. In lieu of the payment referred to in the second preceding sentence, Lessee may elect to lend to Owner Participant, on an interest-free basis, an amount equal to the sum of any tax, interest, penalties and additions to tax which are required to be paid in order to conduct such contest; provided, however, that Lessee shall have agreed to indemnify Owner Participant, in a manner reasonably acceptable to Owner Participant, for any additional taxes, interest, penalties and additions to tax which Owner Participant may be required to pay in respect of the receipt of such loan. SECTION 9.09. Determination of Payments. (a) Whenever it may be necessary for purposes of this Article IX to determine the amount of any Income Inclusion, or the amount of any tax savings resulting from an Income Inclusion, such determination shall be made on the assumption that the Federal, state and local income taxes of Owner Participant are payable at the highest marginal statutory tax rates in effect for corporate taxpayers for the respective years to which such Income Inclusion or tax savings relate (the "Effective Rate"). When determining the amount of any Loss suffered by Owner Participant, or the amount of any tax savings resulting from a Loss, such determination shall be made on the basis of the assumption that the Federal income taxes of Owner Participant are payable at the rate set forth in Section 9.01(d) (the "Assumed Rate") and on the assumption that in computing its Federal income tax liability, Owner Participant can currently fully utilize the tax benefits that are the subject of any Loss or that result from a Loss against taxes payable at the Assumed Rate. In calculating the amount payable with respect to an Income Inclusion, or the tax savings resulting therefrom, it shall be conclusively presumed that, for any taxable year of Owner Participant, Owner Participant suffers a corresponding Income Inclusion for state and local income tax purposes in any circumstance in which it suffers an Income Inclusion (and realizes corresponding state and local income tax benefits resulting from an Income Inclusion when such benefits are available for Federal income tax purposes) 35 respectively. For purposes of determining the amount of tax savings from any payment by the Owner Participant to Lessee, it shall be assumed that Federal, state and local taxes are payable by Owner Participant at the highest marginal statutory rates in effect for the relevant period. The determination of the amount payable to Owner Participant under this Article IX shall be made by Owner Participant, who shall furnish Lessee with a notice setting forth in reasonable detail the computations and methods used in computing such amount. Lessee agrees that it will not have the right to inspect the tax returns, books, records or any other documents of Owner Participant in connection with any computation pursuant to this Article IX. (b) At the request of Lessee, the calculation of any amount (but not the existence of any liability for payment under this Article IX) payable pursuant to this Article IX and any corresponding adjustment to Stipulated Loss Value shall be verified or corrected by a nationally recognized accounting firm mutually acceptable to Owner Participant and Lessee that does not currently represent either Owner Participant or Lessee. The cost of such verification or correction will be borne by Lessee unless the initial calculation was incorrect in the Owner Participant's favor by more than 5% of the amount actually determined in which event the cost of such verification shall be borne by Owner Participant. SECTION 9.10. Affiliated Group. For purposes of this Article IX, the term "Owner Participant" shall include any member of an affiliated group of corporations of which Owner Participant is, or may become, a member if consolidated or combined returns are or shall be filed for such affiliated group for Federal income tax purposes (and, with respect to amounts payable in connection with an Income Inclusion and amounts payable in order to make payments on an After-Tax Basis, if consolidated or combined returns are filed for state or local income tax purposes). SECTION 9.11. Recalculation. If an amount shall be payable pursuant to this Article IX, the schedules of Stipulated Loss Value shall, to the extent appropriate, be adjusted by Owner Participant based on the original assumptions used in preparing such schedules, other than those assumptions changed as a result of the event giving rise to such adjustment. If an Event of Loss or termination or any other event giving rise to a payment of Stipulated Loss Value or an amount determined by reference thereto occurs and as a result thereof the date as of which Owner Participant shall have been affected for Federal income tax purposes shall be earlier than the date assumed in calculating the relevant amount of Stipulated Loss Value, then such Stipulated Loss Value shall be appropriately increased by Owner Participant based otherwise on the same assumptions on which such Stipulated Loss Value was originally calculated. 36 ARTICLE X Lessee Agreements Relating to Facility -------------------------------------- SECTION 10.01. Liens. (a) Lessee shall not directly or indirectly create incur, assume or suffer to exist any Lien on or with respect to the Facility or any portion thereof or interest therein or any part of the Trust Estate or the Indenture Estate, including Basic Rent or Supplemental Rent or any amount or part thereof, except Permitted Liens (including Lessor Liens), and Lessee shall notify each Lessor Party in writing promptly after Lessee becomes aware of the existence of any such Lien, and will promptly, at its sole expense, take such action as may be necessary duly to discharge any such Lien. (b) Nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of any Lessor Party, express or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration to or repair of the Facility, nor as giving Lessee a right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials whether as agent of or on behalf of or to the benefit of any Lessor Party or otherwise, or that would give rise to the filing of any mechanic's or materialman's liens against Lessor's interest in the Facility. Notice is hereby given that neither any Lessor Party nor any of Lessor Party's agents shall be liable for any labor or materials furnished or to be furnished to Lessee upon credit, and that no mechanic's or other Lien for such labor or materials shall attach to or affect any estate or interest of Lessor in and to the Facility. Nothing contained in this Lease shall be deemed or construed to constitute Lessee as any Lessor Party's agent or contractor for the performance of any work by Lessee on or with respect to the Facility. Lessee hereby acknowledges that any such work performed by Lessee is to be performed solely for the benefit of Lessee and not for the benefit of any Lessor Party. SECTION 10.02. Operation, Maintenance and Completion. (a) Lessee shall at all times (i) operate, service, maintain and repair the Facility (x) in accordance with standards of prudence applicable to the paper industry and standards at least as high as those standards applicable to comparable facilities owned or leased by Lessee, with such operating standards as shall be required to enforce all material warranty claims against dealers, manufacturers, vendors, contractors and subcontractors and with the terms and conditions of all insurance policies in effect at any time with respect thereto and (y) to the extent required to maintain the Facility in good operating condition and repair, ordinary wear and tear excepted, and to cause the Facility to continue to have the capacity and functional ability to perform, on a continuing basis and in normal commercial operations, the functions for which it was designed, (ii) comply with all Governmental Rules and Governmental Actions affecting the Facility or the use, operation or maintenance thereof (except that Lessee may contest in good faith by appropriate proceedings any such Governmental Rule or Governmental Action so long an such contest does not violate clause (x), (y) or (z) of clause (iii) of the 37 definition of Permitted Liens) and (iii) keep and maintain proper books and records relating to all services rendered and all funds expended for operation and maintenance of the Facility or the acquisition, construction or installation of all Parts and Alterations, all in accordance with customary practices in the paper industry. Except as expressly provided herein, Lessor shall not be obliged in any way to maintain, alter, repair, rebuild or replace the Facility or any part thereof, and Lessee expressly waives the right to perform any such action at the expense of Lessor pursuant to any law at any time in effect. (b) Lessee shall diligently complete or cause to be completed each of the works in progress listed on Schedule 10.02 ("Work in Progress") in such manner that when completed all Work in Progress will (i) have been completed and constructed in a good and workmanlike manner in accordance with good construction and engineering practice and the plans and specifications therefore, (ii) conform in all material respects to the description thereof contained in Schedule 10.02, (iii) have been tested and found to operate satisfactorily, have been placed in commercial operation on a continuing basis and have demonstrated the capacity and functional ability to perform the functions for which such Work in Progress was specifically designed in accordance with the plans and specifications therefor and (iv) comply with all applicable Governmental Rules and Governmental Actions. Upon each part of Work in Progress being completed in accordance with this Section 10.02(b), Lessee shall deliver to each Lessor Party a notice certifying as to such completion. (c) Except in the ordinary course of business, Lessee shall not remove or permit to be removed from the Site any of the Facility Assets, except as permitted by this Lease or any other Operative Documents. SECTION 10.03. Reports. To the extent permissible, Lessee shall prepare and file in timely fashion, or, where Lessor shall be required to file, Lessee shall prepare and deliver to Lessor within a reasonable time prior to the date for filing, any reports with respect to the condition or operation of the Facility that shall be required to be filed with any Governmental Authority. SECTION 10.04. Replacement of Parts. Except after the occurrence of an Event of Loss, Lessee will promptly repair or replace any necessary or useful Part which may from time to time fail to function in accordance with its intended use, or become worn out, destroyed, damaged beyond repair, lost, condemned, confiscated, stolen or seized for any reason whatsoever. In addition, in the ordinary course of maintenance, service, repair or testing, Lessee may remove any Part, but Lessee shall cause such Part to be replaced by a replacement Part as promptly as practicable. All replacement Parts shall be free and clear of all Liens except Permitted Liens and shall be in at least as good operating condition as, and shall have a value and utility at least equal to, the Parts replaced, assuming such replaced Parts were in at least the condition and repair required to be maintained hereunder. Each Part at any time removed from the Facility shall remain the property of Lessor, no 38 matter where located, until such time as such Part shall be replaced by a replacement Part which has been incorporated in the Facility and which meets the requirements for replacement Parts specified above. Immediately upon any replacement Part becoming incorporated in the Facility, without further act, (i) title to the removed Part shall thereupon vest in Lessee or such other Person as shall be designated by Lessee, free and clear of all rights of Lessor Parties, (ii) title to such replacement Part shall thereupon vest in Lessor and be subject to the Indenture and (iii) such replacement Part shall become subject to this Lease and be deemed a part of the Facility for all purposes hereof to the same extent as the Part originally incorporated in the Facility. Prior to or on the date of installation of any replacement Part with a value in excess of $1,000,000 individually or $4,000,000 in the aggregate with other replacement Parts, Lessee will (x) use all reasonable efforts to furnish Lessor with a full warranty bill of sale conveying title to such replacement Part to Lessor free and clear of all Liens except Permitted Liens and (y) furnish each Lessor Party with such evidence of Lessor's title to, and the condition of, such replacement Part as such Lessor Party may request. SECTION 10.05. Required Alterations. Notwithstanding Section 10.09, Lessee shall make all Severable and Non-Severable Alterations to the Facility as may be required from time to time to meet the requirements of Governmental Rules or Governmental Actions. All such Alterations shall be completed in a good and workmanlike manner, with reasonable dispatch. SECTION 10.06. Optional Alterations. Lessee may from time to time make such Severable and Non-Severable Alterations to the Facility which are not required pursuant to Section 10.05 as Lessee may deem desirable in the proper conduct of its business provided that (i) no such Alteration shall materially diminish the value, utility, condition or useful life of the Facility below the value, utility, useful life and condition thereof immediately prior to such Alteration, assuming the Facility was then in at least the condition and repair required to be maintained by the terms of this Lease, and (ii) such Alteration shall not be in replacement of, or in substitution for, any Part originally incorporated in the Facility or any Part title to which shall have vested in Lessor. All such Alterations shall be completed in a good and workmanlike manner, with reasonable dispatch. SECTION 10.07. Reports of Alterations. On or before March 31 of each year and on the Termination Date, Lessee shall furnish each Lessor Party with a report stating the total cost of all Alterations and describing separately and in reasonable detail each Alteration (or related group of Alterations) of value in excess of $1,000,000 made during the period from the date hereof to the end of the preceding calendar year in the case of the first such report or during the period from the end of the period covered by the last previous report to the date one month prior to such report in the case of subsequent reports. SECTION 10.08. Title to Alterations. Title to each Alteration shall without further act vest in Lessor and be deemed to constitute a part of the Facility and be subject to this Lease if such Alteration is required pursuant to Section 10.05 or is a 39 Non-Severable Alteration or is financed by Owner Participant or Lessor pursuant to Section 10.09. If (i) no Event of Default shall exist (or upon all Events of Default having been cured), (ii) such Alteration has not been financed by Lessor or Owner Participant pursuant to Section 10.09 and is not included in Work in Progress and (iii) Lessee shall have provided to each Lessor Party (x) a certificate substantially in the form of Schedule 10.08 of a licensed professional engineer to the effect that such Alteration is not required pursuant to Section 10.05 and is Severable and (y) the written agreement of each Person (other than Lessee) in which title to such Alteration shall vest to be bound by the remainder of this Section 10.08, then title to such Alteration shall vest in Lessee (or any such Person), subject to the rights of Lessor provided in the remainder of this Section 10.08. Any Alteration covered by the preceding sentence may, so long as such removal shall not result in any violation of any Governmental Rule or Governmental Action nor cause any material damage to the Facility and so long as no Default or Event of Default shall exist, be removed by Lessee (or such other Person) prior to delivery of the Facility to Lessor in accordance with the provisions of this Lease upon 30 days' prior written notice to each Lessor Party. However, Lessor may purchase for cash any such Alteration at the time it would have been so removed by giving to Lessee (or such other Person) written notice of its election to do so within 15 days after receipt of such prior written notice. The purchase price of such Alteration shall be the Fair Market Sale Value thereof as of the date of purchase as determined by mutual agreement of Owner Participant and Lessee or, in the absence of such agreement, by the Appraisal Procedure. SECTION 10.09. Funding of Alterations. Certain Alterations may be funded by Lessor or Owner Participant in accordance with Section 8.02 of the Participation Agreement and in accordance with the terms of the Indenture. Lessee shall afford Lessor the opportunity to finance other Alterations on terms mutually acceptable to Lessee and Owner Participant. SECTION 10.10. Identification. Lessee shall maintain in prominent places at the Site throughout the Term plates or other appropriate markings bearing the inscription "PROPERTY OF THE CONNECTICUT NATIONAL BANK, AS OWNER TRUSTEE, LESSOR" and, so long as the Facility shall constitute part of the Indenture Estate, the inscription "STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A., AS INDENTURE TRUSTEE, SECURED PARTY" in letters not less than two inches in height. Except as above provided or as otherwise directed by a Lessor Party, Lessee shall not allow the name of any Person other than that of Lessee to be placed on any part of the Facility as a designation that might reasonably be interpreted as a claim of ownership or right to possession or use thereof. SECTION 10.11. Manuals, Logs, Plans and Specifications. Lessee shall keep on file and maintain at the Site manuals and logs relating to the Facility, maintenance and repair reports in sufficient detail to indicate the nature and date of major work done and a complete set of all plans and specifications for the Facility, and shall make such manuals, logs, reports and plans and specifications available to any Lessor Party upon reasonable request. Unless the Facility shall have been Transferred 40 to Lessee pursuant to this Lease, on the Termination Date Lessee shall deliver to Lessor a complete set, current as of the Termination Date, of all such manuals, logs, reports and plans and specifications, and all work drawings and similar documents with respect to this Facility. ARTICLE XI Insurance --------- SECTION 11.01. Coverage. Without limiting any of the other obligations or liabilities of Lessee under this Lease, Lessee will at all times during the Term carry and maintain at least the following minimum insurance coverage with respect to the Facility in each case with insurers of recognized responsibility and acceptable to Owner Participant and Indenture Trustee: (i) Comprehensive general liability insurance in an amount not less than $100,000,000 including premises/operations, broad form contractual, products and completed operations, independent contractors, broad form property damage and personal injury; (ii) Workers compensation insurance in compliance with applicable laws and employer's liability insurance in an amount not less than $100,000,000; (iii) Auto liability insurance in an amount not less than $100,000,000 covering owned, non-owned and hired, vehicles; (iv) All-risk property insurance covering loss or damage to the Facility including fire and extended coverage, collapse, flood, earthquake and comprehensive boiler machinery including production equipment, written in an amount at least equal to the lesser of $285,000,000 (computed as the sum of actual insurance coverage plus the then existing deductible only to the extent permitted hereunder) and the Stipulated Loss Value; and (v) Business interruption insurance written on a gross earnings form covering loss of net profits and continuing expenses including Rent payments, written in an amount equivalent to the sum of two years of net profits, continuing expenses and Rent payments and not including any coinsurance penalty; and in any event shall maintain insurance in amounts and against risks which are not less than that which is customarily maintained with respect to similar properties owned, leased or operated by Lessee. The amounts of insurance specified above may not be reduced and the amount of the deductible or self- insured retention shall not exceed $25,000,000 without the prior written consent of Owner Participant and Indenture 41 Trustee. Any insurance described in this Section 11.01 may be carried under blanket policies maintained by Lessee or its Affiliates so long as such policies otherwise comply with the provision or its Affiliates of this Section 11.01. SECTION 11.02. Endorsements. Any insurance carried in accordance with Section 11.01 shall provide or be endorsed to provide: (i) with respect to the insurance referred to in Section 11.01(i) and (iii), Lessor, Owner Participant and Indenture Trustee are named as additional insureds with the understanding that any obligation imposed upon the insured (including the liability to pay premiums, but excluding any obligation of the insured to cooperate with any insurer or any insurer's representative in the investigation, defense or settlement of any claim covered under such insurance) shall be the sole obligation of Lessee and not that of any other insured; and with respect to the insurance referred to in Section 11.01(iv) and (v), Lessor, Owner Participant and Indenture Trustee are named as loss payees; (ii) proceeds received under any policy shall be payable in accordance with Section 11.04; (iii) the insurer thereunder waives all rights of subrogation against Lessor, any Participant and Indenture Trustee; (iv) such insurance shall be primary without right of contribution from any other insurance carried by or on behalf of Lessee, Lessor, Owner Participant, Indenture Trustee, any Loan Participant or any other Person with respect to its interest in the Facility except in the event of loss or liability resulting solely from such Person's gross negligence; (v) with respect to all liability insurance, all terms, conditions, insuring agreements and endorsements, with the exception of limits of liability, shall operate in the same manner as if there were a separate policy covering each insured; (vi) if insurance (other than that provided by Oil Insurance Limited) is cancelled for any reason other than non-payment of premium, such cancellation shall not be effective as to additional insureds and/or loss payees named on the policies until 30 days after written notice of cancellation is tendered by the insurer to each of them; if insurance (other than that provided by Oil Insurance Limited) is cancelled by reason of non- payment of premium, such cancellation shall not be effective as to additional insureds and/or loss payees named in the policy until 10 days after written notice of cancellation is tendered by the insurer to each of them; upon any cancellation or notice of impending cancellation of insurance provided by Oil Insurance Limited, Lessee will immediately give written notice of such cancellation or impending cancellation to Owner Participant and Indenture Trustee; and 42 (vii) to the extent a material change endorsement is commercially available, the policies shall be endorsed to provide that any material change or reduction in the coverage shall not be effective as to additional insureds or loss payees named an the policies until 30 days after written notice of such change or reduction is tendered to each of them; to the extent such an endorsement is not commercially available, Lessee shall promptly give notice of any such material change or reduction in the coverage to Owner Participant and Indenture Trustee. SECTION 11.03. Adjustment of Losses. The loss, if any, covered under any insurance required to be carried by paragraph (iv) or (v) of Section 11.01 shall be adjusted with the insurance companies or otherwise collected including the filing of appropriate proceedings, by Lessee, subject to the approval of Owner Participant and Indenture Trustee if the loss exceeds $25,000,000. SECTION 11.04. Application of Insurance Proceeds. Subject to Section 12.04, all insurance proceeds (except under insurance described in Section 11.06) up to $10,000,000 on account of any physical loss or damage to the Facility or any part thereof (less the actual costs, fees and expenses incurred in the collection thereof) shall be paid to Lessee, and all insurance proceeds (except under insurance described in Section 11.06) equal to or greater than $10,000,000 in the aggregate on account of such physical loss or damage shall be paid to Indenture Trustee (or to Lessor after discharge of the lien of the Indenture) and all such proceeds shall be applied or dealt with as follows: (a) All such proceeds not in respect of an Event of Loss shall be paid over to Lessee or as it may direct from time to time as restoration progresses, to pay (or reimburse Lessee for) the cost of restoration, if the amount of such proceeds received by Indenture Trustee or Lessor, together with such additional amounts, if any, theretofore expended by Lessee out of its own funds for such restoration, are sufficient to pay the estimated cost of completing such restoration, then, but only upon a written application and an Officer's Certificate of Lessee showing in reasonable detail the nature of such restoration, the actual cash expenditures made to date for such restoration and the estimated cost to complete such restoration and stating that no Default or Event of Default exists (which certification shall be concurred in by a licensed professional engineer). Upon the written request of Lessee, accompanied by evidence satisfactory to Owner Participant and Indenture Trustee that such restoration has been completed and the costs thereof paid in full and that there are no mechanics' or similar Liens for labor or materials supplied in connection therewith, the balance, if any, of such proceeds shall be paid over or assigned to Lessee or as it may direct. (b) All such proceeds in respect of an Event of Loss shall be dealt with in accordance with Section 12.02. 43 SECTION 11.05. Evidence of Insurance. On or before the execution of this Lease and thereafter on the anniversary date hereof, Lessee shall cause to be furnished to each Lessor Party (a) certifications, executed by each insurer or by an authorized representative of each insurer where it is not practical for such insurer to do so, with respect to all insurance relating to the Facility, identifying underwriters, type of insurance, insurance limits (including applicable deductibles) and policy term and specifically listing the special provisions required by Section 11.02 and (b) an Officer's Certificate of Lessee and a certificate of an independent insurance broker, each specifying the full insurable value of the Facility and stating that all premiums then due have been paid and that, in the opinion of the signer or signers thereof, is in accordance with the terms of this Article XI. Upon request, Lessee will furnish each Lessor Party with copies of all insurance policies, binders and cover notes or other evidence of such insurance. SECTION 11.06. Additional Insurance. Nothing in this Article XI shall prohibit any Lessor party from maintaining, at its expense, additional insurance for its own account with respect to loss or damage to the Facility or any part thereof. SECTION 11.07. Insurance Report. Concurrently with the furnishing of the certification referred to in Section 11.05(b), Lessee shall provide a report from an independent insurance broker stating that all premiums then due have been paid and that, in the opinion of such broker, the insurance then carried and provided through such broker and maintained is in accordance with the terms of this Article XI. Furthermore, Lessee shall cause such broker to advise Lessor promptly in writing of any default in the payment of any premiums or any other act or omission on the part of any Person of which such broker has knowledge which might invalidate or render unenforceable in whole or in part, any insurance provided through such broker hereunder. Lessor may at its sole option obtain such insurance if not provided by Lessee and, in such event, Lessee shall reimburse Lessor upon demand for the cost thereof. ARTICLE XII Events of Loss -------------- SECTION 12.01. Payment of Stipulated Loss Value. If the Facility or any substantial part thereof shall suffer an Event of Loss or substantial destruction, damage, loss, condemnation, confiscation, theft or seizure for any reason whatsoever, such fact shall promptly, and in any event within five Business Days, be reported by Lessee to each Lessor Party. If an Event of Loss shall occur, Lessee shall pay as compensation for the Event of Loss the Stipulation Loss Value determined as of the Rent Date next preceding the occurrence of the Event of Loss. From the date of the Event of Loss to and including the date of payment of such Stipulated Loss Value hereinafter specified, all Rent shall continue to the paid when due. Such Stipulated Loss Value shall be paid on the Rent Date next succeeding the occurrence of the Event 44 of Loss, unless the Event of Loss shall have occurred less than 30 days prior to such Rent Date, in which case such Stipulated Loss Value, together with interest thereon at the Payment Rate from such Rent Date to and including the date of payment, shall be paid on the 60th day after the date of such occurrence. Upon payment in full of such Stipulated Loss Value, together with all Rent due and owing through and including the date of such payment and such interest, if any, the Term shall end and Lessor shall Transfer the Facility to Lessee. SECTION 12.02. Application of Other Payments on an Event of Loss. Any payments (except under insurance described in Section 11.06) received at any time by any Lessor Party or Lessee from any Governmental Authority insurer or other Person (except Lessee) as a result of the occurrence of an Event of Loss shall be applied as follows: (a) all such payments received at any time by Lessee shall be promptly paid to Indenture Trustee (or Lessor after release of the lien of the Indenture) for application pursuant to the following provisions of this Section 12.02, except that Lessee may retain any amounts that would at the time be payable to Lessee as reimbursement under the provisions of paragraph (b) below; (b) so much of such payments as shall not exceed the Stipulated Loss Value required to be paid by Lessee pursuant to Section 12.01 shall be applied in reduction of Lessee's obligation to pay such amount if not already paid by Lessee or, if already paid by Lessee, shall be applied to reimburse Lessee for its payment of such amount; and (c) the balance, if any, of such payments remaining thereafter shall be divided between Lessor and Lessee as their interests may appear except that any such balance resulting from such insurance shall be paid to Lessee. SECTION 12.03. Application of Payments Not Relating to an Event of Loss. Unless a Default or Event of Default shall exist, payments (except under insurance described in Section 11.06) received at any time by any Lessor Party or Lessee from any Governmental Authority, insurer or other Person with respect to any destruction, damage, loss, condemnation, confiscation, theft or seizure of or requisition of title to or use of the Facility or any part thereof not constituting an Event of Loss shall be paid to or retained by Indenture Trustee (or Lessor after release of the lien of the Indenture) and first shall be applied in accordance with the provisions of Section 11.04(a) (other than the last sentence thereof) to restore or replace what has been destroyed, damaged, lost, condemned, confiscated, stolen, seized or requisitioned, and second in accordance with the provisions of Section 12.02. SECTION 12.04. Other Dispositions. Notwithstanding the foregoing provisions of this Article XII, so long as a Default or Event of Default shall exist, any amount that would otherwise be payable to or for the account of, or that would 45 otherwise be retained by, Lessee pursuant to Article XI or this Article XII shall be paid to Indenture Trustee (or Lessor after release of the lien of the Indenture) as security for the obligations of Lessee under this Lease and, at such time thereafter as no Default or Event of Default shall exist, such amount shall be paid promptly to Lessee unless this Lease shall have theretofore been declared to be in default, in which event such amount shall be disposed of in accordance with the provisions hereof, of the Indenture and of the Trust Agreement. ARTICLE XIII Events of Default ----------------- The term Event of Default shall mean any of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or come about or be effected by operation of law or be pursuant to or in compliance with any Governmental Rule): (a) Lessee shall fail to pay (A) Basic Rent or Stipulated Loss Value within 5 days after payment thereof shall have become due or (B) Supplemental Rent or any other payment under the Operative Documents within 15 days after payment thereof shall have become due; (b) Lessee shall fail to maintain insurance as required by Article XI; (c) Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under Section 7.02(b), 7.02(c), 7.03, 7.04, 7.05 or 7.06; (d) Lessee shall fail to perform or observe any other covenant, condition or agreement to be performed or observed by it under this Lease (other than Article VIII and IX) or any Operative Document (other than Section 6.06 of the Participation Agreement) and such failure shall continue for a period of 45 days (180 days if such failure is capable of being cured (other than solely by payment of money) by Lessee and Lessee if proceeding diligently to cure such failure) after the earlier to occur of (A) Actual Knowledge of such failure by a Responsible Officer of Lessee and (B) receipt by Lessee of notice specifying such failure and requiring it to be remedied; provided that failure to perform or observe any covenant, condition or agreement set forth in Section 7.02(a) with respect to compliance with environmental Governmental Rules or Governmental Actions shall not be an Event of Default under this paragraph (d) unless (x) with respect to events for which the aggregate amount of outstanding Cleanup Costs then known to Lessee could reasonably be expected to exceed $25 million in the aggregate (but excluding from such calculation each event not relating to the Other Facility having a Cleanup Cost not exceeding $5 million and each event relating to the Facility or the Other Facility having a Cleanup 46 Cost not exceeding $100,000), after giving effect to the aggregate amount of all such Cleanup Costs, on a pro forma basis as of the end of the last calendar month immediately prior to the expiration of the applicable grace period (treating such Cleanup Costs as a reduction of Net Worth), Lessee would be unable to pay or declare any Restricted Payment under the terms of Section 7.06 or (y) with respect to events related to the Facility for which the aggregate amount of outstanding Cleanup Costs then known to Lessee could reasonably be expected to exceed $10 million in the aggregate (but excluding from such calculation any such event having a Cleanup Cost not exceeding $100,000), as of the end of the last calendar month immediately prior to the expiration of the applicable grace period, the aggregate outstanding principal amount of the Loan Certificates would be more than 80% of the Fair Market Sale Value of the Facility taking into account the existence of each event having a Cleanup Cost equal to or exceeding $100,000 and the aggregate amount of Cleanup Costs which could reasonably be expected to be associated with all such events (any such deficiency, herein the "Loan to Value Deficiency"); provided, further, that Lessee shall have an additional period of 30 days to cure any event that would otherwise be an Event of Default under the preceding clause (y) by providing to Lessor and Indenture Trustee such collateral, letters of credit or other arrangements (herein the "Deficiency Collateral") which are in all respects satisfactory to Lessor and Indenture Trustee in order to secure Lessee's obligations under this Lease in an amount equal to the Loan to Value Deficiency (it being understood that such Deficiency Collateral shall be released by Lessor and Indenture Trustee at such time as Lessee shall have demonstrated to each thereof that there no longer would exist an Event of Default under such clause (y) without the additional credit support provided by the Deficiency Collateral; (e) any representation or warranty made by Lessee (other than in Section 9.03) hereunder or under the Participation Agreement shall prove to have been incorrect in a material respect as of the date when made, provided that (i) such representation or warranty shall continue to be material at the time it has been discovered to be incorrect and (ii) if the event or condition causing such representation or warranty to be incorrect is capable of being remedied, such event or condition shall not have been remedied within 45 days after the earlier to occur of (A) Lessee obtaining Actual Knowledge of such incorrectness and (B) written notice of such incorrectness having been given to Lessee by Lessor or Indenture Trustee or (iii) if the event or condition causing such representation or warranty to be incorrect is not capable of being cured, upon written notice from any Participant; (f) Lessee shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such 47 official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing, or an involuntary case or other proceeding shall be commenced against Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or similar law now or hereafter in effect or the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; (g) with respect to any Debt of Lessee in excess of $25,000,000, failure to pay such Debt at maturity or beyond any applicable grace period or a default or event of default in respect thereof which results in acceleration of the maturity of such Debt; (h) final judgment for the payment of money in excess of $25,000,000 shall be rendered against Lessee and Lessee shall not, within 30 days from the entry thereof, have discharged the same or provided for its discharge in accordance with its terms or bonded the same or procured a stay of execution thereof; or (i) an Event of Default as defined in the other Lease shall have occurred and be continuing, and the Loan Certificates associated with such other Lease shall have been accelerated. ARTICLE XIV Enforcement ----------- SECTION 14.01. Remedies. If an Event of Default shall have occurred and be continuing, Lessor may at any time thereafter exercise one or more of the following as Lessor in its sole discretion shall elect: (a) Lessor may, by notice to Lessee, declare this Lease to be in default or rescind or terminate this Lease; (b) Lessor may (i) demand that Lessee, and thereupon Lessee shall, return the Facility promptly to Lessor in the manner and condition required by, and otherwise in accordance with the provisions of, this Lease as if the Facility were being returned at the and of the Term and (ii) enter upon the premises where the Facility shall be located and take immediate possession of (to the exclusion of Lessee) the Facility, or remove the Facility, or both, by summary proceedings or otherwise, all without incurring liability to Lessee for or by reason of such entry or taking of possession, whether for the restoration of 48 damage to property caused by such taking or otherwise; provided that no reentry or taking possession of the Facility by Lessor shall be construed as an election on its part to terminate this Lease unless Lessor gives written notice to Lessee of such intention or the termination thereof shall be decreed by a court of competent jurisdiction; provided further that notwithstanding any reletting without termination, Lessor may at any time thereafter elect to terminate this Lease for such previous default; and provided further that Lessee does hereby waive any defense to any action by Lessor to obtain possession of the Facility, which defense is based upon payment of the Rent and related expenses claimed in any such proceeding after filing of a complaint for such possession by Lessor; (c) Lessor may sell the Facility, with or without any of its interest under the Ground Lease, the Support Agreement and the License Agreement, or any part thereof, at public or private sale, as Lessor may determine, free and clear of any rights of Lessee and without any duty to Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by paragraph (e) or (f) below if Lessor shall elect to exercise its rights thereunder) in which event Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be (except to the extent that Basic Rent is to be included in computations under paragraph (e) or (f) below if Lessor shall elect to exercise its rights thereunder); (d) Lessor may hold, keep idle or lease to others all or any part of the Facility, as Lessor in its sole discretion may determine, free and clear of any rights of Lessee and without any duty to Lessee with respect to such action or inaction or any proceeds with respect to such action or inaction, except that Lessee's obligation to pay basic Rent for periods commencing after Lessee shall have been deprived of use of the Facility pursuant to this paragraph (d) shall be reduced by the net proceeds, if any, received by Lessor from leasing the Facility to any Person other than Lessee for the same periods or any portion thereof; (e) Lessor may, whether or not Lessor shall have exercised or shall thereafter at any time exercise its rights under paragraph (b), (c) or (d) above, demand, by written notice to Lessee specifying a payment date which shall be a Rent Date not earlier than 10 days after the date of such notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Rent Date specified in such notice, because it would be extremely impracticable and difficult to calculate the damage and harm which Lessor would suffer due to Lessee's default, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due after the Rent Date specified in such notice) any unpaid Rent due through and including the Rent Date specified in such notice plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Designated Rate from the Rent Date specified in such notice to the date of actual payment), and Lessee and 49 Lessor hereby acknowledge that any such amount will be a reasonable estimate of the total damage that Lessor will suffer due to Lessee's default: (i) an amount equal to the excess, if any, of Stipulated Loss Value, computed as of the Rent Date specified in such notice, over the Fair Market Rental Value of the Facility until the end of the remaining useful life of the Facility, after discounting such Fair Market Rental Value semiannually to present value as of the Rent Date specified in such notice at a rate of 10% per annum; (ii) an amount equal to the excess, if any, of such Stipulated Loss Value over the Fair Market Sale Value of the Facility as of the Rent Date specified in such notice; (iii) an amount equal to the excess of (A) the present value as of the Rent Date specified in such notice of all installments of Basic Rent until the end of the Basic Term or applicable Renewal Term, discounted semiannually at a rate of 10% per annum, over (B) the present value as of such Rent Date of the Fair Market Rental Value of the Facility until the end of the Basic Term or applicable Renewal Term, discounted semiannually at a rate of 10% per annum; or (iv) an amount equal to such Stipulated Loss Value and, in this event, upon full payment by the Lessee of all sums due hereunder and under all other Operative Documents, Lessor shall Transfer the Facility to Lessee, whereupon this Lease shall terminate; (f) if Lessor shall have sold all the Facility, together with its interest under the Support Agreement, the License Agreement and the Ground Lease, pursuant to paragraph (c) above, Lessor, in lieu of exercising its rights under paragraph (e) above with respect to the Facility, may demand, because it would be extremely impracticable and difficult to calculate the damage and harm which Lessor would suffer due to Lessee's default, that Lessee pay to Lessor and Lessee shall pay to Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Rent Date following the date of such sale) any unpaid Rent due through such Rent Date, plus the amount of any deficiency between the net proceeds of such sale and Stipulated Loss Value, computed as of such Rent Date, and the net proceeds of such sale, together with interest at the Designated Rate on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment, and Lessee and Lessor hereby acknowledge that the foregoing is a reasonable estimate of the total damage that Lessor will suffer due to Lessee's default; or 50 (g) Lessor may exercise any other right or remedy that may be available to it under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. SECTION 14.02. No Release. No rescission or termination of this Lease, in whole or in part, or repossession of the Facility or exercise of any remedy under Section 14.01 shall, except as specifically provided therein, relieve Lessee of any of its liabilities and obligations hereunder. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by any Lessor Party by reason of the occurrence of any Default or Event of Default or the exercise of Lessor's remedies with respect thereto and including all costs and expenses incurred in connection with the return of the Facility in the manner and condition required by, and otherwise in accordance with the provisions of, this Lease as if the Facility were being returned at the end of the Term. At any sale of the Facility or any part thereof pursuant to Section 14.01, any Lessor Party may bid for and purchase such property. SECTION 14.03. Remedies Cumulative. To the extent permitted by, and subject to the mandatory requirements of, applicable law, each and every right, power and remedy under Section 14.01 or otherwise available to Lessor shall be cumulative and shall be in addition to every other right, power and remedy, and each and every right, power and remedy may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor, and the exercise or the beginning of exercise of any such right, power or remedy shall not exhaust the same or be construed to be a waiver of the right to exercise at the same time or thereafter the same or any other right, power or remedy. No delay or omission by Lessor in the exercise of any right, power or remedy shall restrict Lessor from exercising the same or any other right, power or remedy thereafter nor be construed to be a waiver of any Default or Event of Default or to be an acquiescence therein. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. To the extent permitted by applicable law, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise that may require Lessor to sell, lease or otherwise use the Facility or any part thereof in mitigation of Lessor's damages or that may otherwise limit or modify any of Lessor's rights or remedies under this Article XIV. ARTICLE XV Assignments and Subleases ------------------------- SECTION 15.01. Assignment or Sublease by Lessee. Except with the prior written consent of each Lessor Party, Lessee shall not assign, transfer or encumber (except for Permitted Liens) all or any of its leasehold interest or other rights 51 under this Lease nor sublease the Facility or any part thereof if such amendment, modification, supplement or waiver would have a material adverse affect on Lessee or the Facility) unless (i) the sublessee is a United States Affiliate of Tenneco Inc. or a corporation consented to by owner Participant and Indenture Trustee (such consent not to be unreasonably withheld) or whose long- term unsecured debt obligations are rated at least investment grade by Moody's (ii) such sublease shall not extend beyond the end of the Basic Term, shall prohibit further subleasing and shall require the sublessee to operate the property subleased for its intended purpose and to comply with all operating permits and with covenants relating to maintenance and environmental standards at least as rigorous as those set forth in this Lease, (iii) such sublease shall not impair or diminish any of the rights of any Lessor Party or obligations of Lessee hereunder or under any other Operative Document, which rights and obligations shall continue in full force and effect as though no sublease had been made, (iv) Owner Participant shall have received an opinion from its tax counsel that such sublease would not cause an unindemnified event causing the loss of tax benefits, (v) such sublease shall be expressly subject and subordinate to the provisions of this Lease and the Operative Documents, including the rights of Lessor to enforce remedies under Article XIV if an Event of Default shall exist, and (vi) Lessee shall have effectively assigned to Lessor as security for the performance by Lessee of its obligations hereunder, in a manner satisfactory to each Lessor Party, such sublease and all rentals and other proceeds payable thereunder. Lessee shall not, without the prior written consent of each Lessor Party, part with the possession or control, or suffer or allow to pass out of its possession or control, the Facility or any part thereof, except to the extent permitted by the provisions of this Lease. Lessee shall give each Lessor Party written notice of any such assignment transfer or encumbrance. SECTION 15.02. Assignment by Lessor; Security for Lessor's Obligations to Indenture Trustee. Lessor may assign, transfer or encumber this Lease or all or any of its interests and rights hereunder without the consent of Lessee if, in the case of an assignment, the assignee or, in the case of an assignment to a trustee, the beneficiary of the trust or the parent of such assignee or beneficiary who has guaranteed the obligations of such assignee or beneficiary, has a net worth of at least $100 million. In addition, in order to secure the indebtedness evidenced by the Loan Certificates, the Indenture provides, among other things, for the assignment by Lessor to Indenture Trustee of its right, title and interest in, to and under this Lease, to the extent set forth in the Indenture, and for the creation of a mortgage lien on and security interest in the Facility in favor of Indenture Trustee. Lessee hereby consents to such assignment and to the creation of such mortgage and security interest and acknowledges receipt of copies of the Indentures. Lessee hereby further consents to any assignment arising as a consequence of or at any time subsequent to the exercise of remedies pursuant to the Indenture, including any assignment to or by any purchaser at a foreclosure sale. Lessee will furnish to Indenture Trustee, counterparts of all writings required to be delivered hereunder by Lessee to Lessor. Unless and until Lessee shall have received written notice from Indenture Trustee that the lien of the Indenture has been discharged, (i) Lessee shall make all payments of Basic Rent, and all other amounts payable hereunder to Lessor to the extent assigned to Indenture Trustee, to 52 Indenture Trustee at such office as Indenture Trustee may specify from time to time by notice to Lessor and Lessee, and the right of Indenture Trustee to receive all such payments shall not be subject to any defense, counterclaim, setoff or other right or claim of any kind which Lessee may be able to assert against Lessor or Owner Participant in an action brought by either thereof on this Lease and (ii) to the extent provided in the Indenture, Indenture Trustee shall have the right to exercise the rights of Lessor under this Lease (and, without prejudice to Lessee's rights under other Operative Documents, Lessor shall have no liability to Lessee hereunder for acts of Indenture Trustee which interrupt Lessee's possession or use of the Facility unless such acts are at the request or direction of Lessor) and Lessee shall have no liability to Lessor for reasonably relying on instructions of Indenture Trustee pursuant to this sentence. ARTICLE XVI Miscellaneous ------------- SECTION 16.01. Further Assurances. Lessee shall cause the Operative Documents and any amendments, supplements and modifications to any of them (together with any other instruments, financing statements, continuation statements records or papers necessary in connection therewith) to be recorded and/or filed and rerecorded and/or refiled in each jurisdiction as and to the extent necessary in order to, and shall take such other actions as may from time to time be necessary to, establish, perfect and maintain (a) Lessor's right, title and interest in and to the Facility, subject to no Liens other than Permitted Liens, (b) for the benefit of Indenture Trustee and the holders of Loan Certificates, the first mortgage lien and first priority security interest provided for in the Indenture and (c) each of the rights and other interests created by the Indenture or by any other Operative Document in any Participant, Lessor, Indenture Trustee or any holder of a Loan Certificate. Lessee will promptly and duly execute and deliver to each Lessor Party such documents and assurances and take such further action as any of them may from time to time reasonably request in order to carry out more effectively the intent and purpose of this Lease and to establish and protect the rights and remedies created or intended to be created in favor of Lessor, and to establish, perfect, and maintain Lessor's rights, title and interest in and to the Facility and, for the benefit of Indenture Trustee, the first mortgage lien and first priority security interest provided for in the Indenture, including, if requested by any Lessor Party, the recording or filing of counterparts or appropriate memoranda of any Operative Document or of such financing statements or other documents with respect hereto as any Lessor Party may from time to time reasonably request. Lessee shall, at the time Lessee shall furnish its annual financial statements pursuant to Section 6.03 of the Participation Agreement, furnish to each Lessor Party an opinion of counsel for Lessee (which may be regularly employed by Lessee), satisfactory to each Lessor Party, stating that all recordings and filings, if any, necessary or advisable to perfect or continue the perfection of Lessor's rights title and 53 interest in and to the Facility and any Parts and Alterations incorporated in the Facility pursuant to Article X, and to perfect or continue the perfection for the benefit of Indenture Trustee of a valid first mortgage lien and first priority security interest in the Indenture Estate provided for in the Indenture, have been made and stating the requirements of applicable law with respect to the rerecording or refiling of such documents in order to continue and preserve such right, title and interest and such first mortgage lien and first priority security interest. SECTION 16.02. Notices. Unless otherwise specifically provided herein, all notices and other communications required or permitted hereunder shall be in writing and shall be addressed and became effective as provided in the Participation Agreement. SECTION 16.03. Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect. SECTION 16.04. Survival. The representations, warranties and indemnities of the parties provided for in the Operative Documents and the parties' obligations under any and all thereof shall survive the execution and delivery of this Lease, the investment by Owner Participant, the issuance of the Loan Certificates, any disposition of any interest of any Lessor Party in the Facility and the expiration, cancellation or other termination of any of the Operative Documents, and shall be and continue in effect notwithstanding any investigation made by any of such parties and the fact that any Lessor Party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. The obligations of Lessee to pay Supplemental Rent and the obligations of Lessee under Articles VIII and IX and Sections 5.01, 7.01 and 16.12 shall survive the expiration or termination of this Lease. The extension of any applicable statute of limitations by Lessor, Indenture Trustee, Lessee, any Participant or any Indemnified Person shall not affect such survival. SECTION 16.05. Successors and Assigns. This Lease shall be binding upon and inure to the benefit of Lessee, Lessor Parties and their respective successors and permitted assigns, and, to the extent provided in the next sentence, each Indemnified Person and its successors and assigns. The obligations of Lessee under Articles VIII and IX and Section 7.01 are expressly made for the benefit of, and shall be enforceable by, any Indemnified Person or Person indemnified thereunder, separately or together, without resorting to any other right of indemnification or declaring this Lease to be in default and notwithstanding any assignment by Lessor of this Lease or any of its rights hereunder or any disposition by any Lessor Party of all or any part of its interest in the Facility or the Operative Documents. All payments 54 required to be made pursuant to such Sections shall be made directly to, or as otherwise requested by, the Indemnified Person entitled thereto upon written demand by such Indemnified Person. SECTION 16.06. Amendment. Except where any necessary consent is otherwise expressly stated, neither this Lease nor any of the terms hereof may be terminated, amended, supplemented waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination amendment, supplement, waiver or modification shall be sought and, in the case of Lessor, consented to by Owner Participant and Indenture Trustee, except as otherwise expressly sot forth in Section 9.01 of the Indenture. SECTION 16.07. Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions, hereof. SECTION 16.08. Counterparts. This Lease may be executed by the parties hereto in separate counterparts. All such counterparts shall together constitute but one and the same instrument. It shall not be necessary for any counterpart to bear the signature of both parties. SECTION 16.09. GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THAT WISCONSIN LAW MAY BE MANDATORILY APPLICABLE HERETO. SECTION 16.10. True Lease. This Lease is an agreement of lease and does not convey to Lessee any right, title or interest in or to the Facility except as a lessee. SECTION 16.11. Liabilities of Owner Trustee. The Connecticut National Bank is entering into this lease solely as trustee as provided in the Trust Agreement and not in its individual capacity, and in no case whatsoever shall The Connecticut National Bank be personally liable for, or for any loss in respect of, any of the statements, representations, warranties, agreements or obligations of Owner Trustee hereunder, as to all of which Lessee agrees to look solely to the Trust Estate; provided, however, that The Connecticut National Bank in its individual capacity shall be liable hereunder for its own gross negligence or willful misconduct. Owner Participant shall not be-liable for any matter hereunder except as expressly provided in Article VIII or IX of the Participation Agreement. Each time a successor Owner Trustee is appointed in accordance with the terms of the Trust Agreement, such successor Owner Trustee shall, without further act, succeed to all the rights, duties, immunities and obligations of Lessor hereunder and under the other Operative Documents, and the predecessor Owner Trustee shall be released from all further duties and obligations hereunder and under the other Operative Agreements, all without the necessity of any consent or 55 approval by Lessee and without in any way altering the terms of this Lease or such other Operative Document or the obligations of Lessee hereunder or thereunder. Lessee shall, upon receipt of written notice of the appointment of a successor owner Trustee under the Trust Agreement, promptly make such modifications and changes to reflect such appointment as shall be reasonably requested by such successor Owner Trustee in such insurance policies, schedules, certificates and other instruments relating to the Facility or this Lease or the other Operative Documents, all in form and substance satisfactory to such successor. SECTION 16.12. Consent to Jurisdiction; Forum Selection. Each party hereto hereby irrevocably submits to the jurisdiction of any New York state court or any Federal court located in the State of New York over any action or proceeding commenced or maintained by any other party to this Lease and arising out of or relating to this Lease or any other Operative Document or Acquisition Agreement to which it is a party, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard in such state or Federal court. Each party hereto hereby irrevocably waives any objection it may now have or hereafter acquire to the laying of venue of any such action or proceeding brought in any such court and any claim it may now or hereafter acquire that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Each party hereto agrees that final judgment in any such action or proceeding brought in any such court shall be conclusive and binding upon such party hereto and may be enforced in any competent court located elsewhere. Each party hereto irrevocably consents to the service of the summons and complaint and any other process in any such action or proceeding by the mailing of copies of such process to such party hereto at its address referred to in Section 9.01 of the Participation Agreement by registered or certified mail, return receipt requested. Nothing in this Section 16.12 shall affect the right of any Person to serve legal process in any other manner permitted by law. Each party hereto further agrees that the Federal or state courts located in New York, New York, will have exclusive jurisdiction over any action which is either directly or indirectly related to the business relationship evidenced by this Lease. The parties further waive all question of personal jurisdiction or venue for the purposes of carrying out this Section 16.12. 56 IN WITNESS WHEREOF, the parties hereto have each caused this Lease to be duly executed and sealed by their respective officers thereunto duly authorized. THE CONNECTICUT NATIONAL BANK, not in its individual capacity but solely as trustee under the Trust Agreement, By: /s/ Philip G. Kane, Jr. ------------------------ Title: Vice President Attest: /s/ Frank McDonald, Jr. --------------------------- Title: Vice President Signed, sealed and delivered [BANK SEAL] in the presence of: ____________________________ Witness ____________________________ Notary Public PACKAGING CORPORATION OF AMERICA, By: /s/ R.D. Harlow --------------------------------- Title: Senior Vice President Attest: /s/ Randolph W. Bryant ---------------------------- Title: Assistant Secretary [CORPORATE SEAL] Signed, sealed and delivered in the presence of: ____________________________ Witness ____________________________ Notary Public 57 STATE OF NEW YORK ) ) SS COUNTY OF NEW YORK ) Personally came before me, this 30th day of January, 1991, the above named PHILIP G. KANE, JR. and FRANK McDONALD, JR., the Vice President and Vice President of THE CONNECTICUT NATIONAL BANK, to me known to be the officers of said corporation who executed the foregoing instrument and acknowledged the same as the lease of the Facility between such corporation and PACKAGING CORPORATION OF AMERICA. /s/ Gina M. Wondolowski ----------------------------- Notary Public STATE OF NEW YORK ) ) SS COUNTY OF NEW YORK ) Personally came before me, this 30th day of January, 1991, the above named ROBERT De HARLOW and R.W, BRYANT, the Senior Vice President and Assistant Secretary of PACKAGING CORPORATION OF AMERICA, to me known to be the officers of said corporation who executed the foregoing instrument and acknowledged the same as the lease of the Facility between such corporation and THE CONNECTICUT NATIONAL BANK. /s/ Gina M. Wondolowski ----------------------------- Notary Public 58 EX-10.26 35 LEASE AGREEMENT, VALDOSTA Exhibit 10.26 ------------- =============================================================================== LEASE AGREEMENT, VALDOSTA Dated as of January 30, 1991 between THE CONNECTICUT NATIONAL BANK, (but not as to the State of Florida), and PHILIP G. KANE, JR., FRANK McDONALD, JR., and WILLIAM R. MUNROE, as Owner Trustee, Lessor and PACKAGING CORPORATION OF AMERICA, Lessee _________________________________ Papermill in Valdosta, GA _________________________________ This Lease has been executed in multiple counterparts. No security interest in Lessor's right, title and interest in and to this Lease may be created through the transfer or possession of any counterpart other than the original counterpart. ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT THEREFOR EXECUTED BY STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, ON THE SIGNATURE PAGE THEREOF. THIS IS NOT THE ORIGINAL COUNTERPART. ================================================================================ TABLE OF CONTENTS
ARTICLE I - Definitions........................................................1 ARTICLE II - Lease of Facility.................................................1 SECTION 2.01. Lease...............................................1 SECTION 2.02. Personal Property...................................1 SECTION 2.03. Enforcement of Warranties...........................1 SECTION 2.04. Site Sublease.......................................2 ARTICLE III - Rent.............................................................2 SECTION 3.01. Interim Rent and Basic Rent.........................2 SECTION 3.02. Supplemental Rent...................................2 SECTION 3.03. Adjustments.........................................3 SECTION 3.04. Method of Payment...................................4 SECTION 3.05. Late Payment........................................5 SECTION 3.06. Net Lease; No Setoff; etc...........................5 ARTICLE IV - Lessee Options....................................................6 SECTION 4.01. Renewal.............................................6 SECTION 4.02. Purchase............................................7 SECTION 4.03. Obsolescence Termination............................8 ARTICLE V - Return of Facility.................................................9 SECTION 5.01. Return of Facility..................................9 SECTION 5.02. Disposition Services................................9 ARTICLE VI - Lessor Agreements and Rights.....................................10 SECTION 6.01. Quiet Enjoyment....................................10 SECTION 6.02. Disclaimer of Warranties...........................10 SECTION 6.03. Inspection.........................................10 SECTION 6.04. Right to Perform for Lessee........................11 ARTICLE VII - Lessee Agreements...............................................11 SECTION 7.01. Indemnification....................................11 SECTION 7.02. Compliance with Laws...............................13 SECTION 7.03. No Liens...........................................14
-i- SECTION 7.04. Merger, Consolidation, etc.........................15 SECTION 7.05. Debt...............................................16 SECTION 7.06. Restricted Payments................................16 SECTION 7.07. Transactions with Affiliates.......................17 ARTICLE VIII - General Tax Indemnity..........................................17 SECTION 8.01. Indemnity..........................................17 SECTION 8.02. Exclusions from General Tax Indemnity..........................................18 SECTION 8.03. Contests...........................................21 SECTION 8.04. Refunds............................................22 SECTION 8.05. Tax Savings........................................23 SECTION 8.06. Payments...........................................23 SECTION 8.07. Reports............................................23 SECTION 8.08. Verification.......................................24 ARTICLE IX - Special Tax Indemnities..........................................24 SECTION 9.01. Tax Assumptions....................................24 SECTION 9.02. Records............................................26 SECTION 9.03. Representations, Warranties and Covenants of Lessee................................27 SECTION 9.04. Indemnity..........................................28 SECTION 9.05. Foreign Tax Credit Indemnity.......................30 SECTION 9.06. Income Inclusion: Reverse Indemnities..............30 SECTION 9.07. Excluded Losses....................................32 SECTION 9.08. Contest Provisions.................................34 SECTION 9.09. Determination of Payments..........................35 SECTION 9.10 Affiliated Group...................................36 SECTION 9.11 Recalculation......................................36 ARTICLE X - Lessee Agreements Relating to Facility............................37 SECTION 10.01 Liens..............................................37 SECTION 10.02 Operation, Maintenance and Completion..............37 SECTION 10.03 Reports............................................38 SECTION 10.04 Replacement of Parts...............................38 SECTION 10.05 Required Alterations...............................39 SECTION 10.06 Optional Alterations...............................39 SECTION 10.07 Reports of Alterations.............................39 SECTION 10.08 Title to Alterations...............................40 SECTION 10.09 Funding of Alterations.............................40 SECTION 10.10 Identification.....................................40 SECTION 10.11 Manuals, Logs, Plans and Specifications............40
-ii- ARTICLE XI - Insurance........................................................41 SECTION 11.01. Coverage...........................................41 SECTION 11.02 Endorsements.......................................42 SECTION 11.03 Adjustment of Losses...............................43 SECTION 11.04 Application of Insurance Proceeds..................43 SECTION 11.05 Evidence of Insurance..............................44 SECTION 11.06 Additional Insurance...............................44 SECTION 11.07 Insurance Report...................................44 ARTICLE XII - Events of Loss..................................................44 SECTION 12.01 Payment of Stipulated Loss Value...................44 SECTION 12.02 Application of Other Payments on an Event of Loss......................................45 SECTION 12.03 Application of Payments Not Relating to an Event of Loss.......................45 SECTION 12.04 Other Dispositions.................................45 ARTICLE XIII - Events of Default..............................................46 ARTICLE XIV - Enforcement.....................................................48 SECTION 14.01 Remedies...........................................48 SECTION 14.02 No Release.........................................51 SECTION 14.03 Remedies Cumulative................................51 ARTICLE XV - Assignments and Subleases........................................51 SECTION 15.01 Assignment or Sublease by Lessee...................51 SECTION 15.02 Assignment by Lessor; Security for Lessor's Obligations to Indenture Trustee...................52 ARTICLE XVI - Miscellaneous...................................................53 SECTION 16.01 Further Assurances.................................53 SECTION 16.02 Notices............................................54 SECTION 16.03 Severability.......................................54 SECTION 16.04 Survival...........................................54 SECTION 16.05 Successors and Assigns.............................54 SECTION 16.06 Amendment..........................................55 SECTION 16.07 Headings...........................................55 SECTION 16.08 Counterparts.......................................55 SECTION 16.09 Govering Law.......................................55 SECTION 16.10 True Lease.........................................55 SECTION 16.11 Liabilities of Owner Trustee.......................55
-iii- SECTION 16.12 Consent to Jurisdiction; Forum Selection...........56
-iv- LEASE AGREEMENT, VALDOSTA dated as of January 30, 1991, between THE CONNECTICUT NATIONAL BANK, a national banking association, not in its individual capacity but solely as trustee under the Trust Agreement (but not with respect to any portion of the Facility located in the State of Florida), PHILIP G. KANE, JR., FRANK McDONALD, JR., and WILLIAM R. MUNROE, not in their individual capacities but solely as trustees under the Trust Agreement, collectively as Lessor, and PACKAGING CORPORATION OF AMERICA, a Delaware corporation, as Lessee. In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions ----------- Capitalized terms used herein have the meanings assigned to them in Exhibit A hereto, and the rules of usage contained in Exhibit A are applicable hereto. All references to the "lien of the Indenture" or the creation of a "mortgage lien" shall, to the extent that any portion of the Site is located in Georgia, mean the security title created in the Indenture. ARTICLE II Lease of Facility ----------------- SECTION 2.01. Lease. On the Closing Date, subject to all the terms and conditions of this Lease and the satisfaction of the conditions set forth in the Participation Agreement, Lessor shall lease, and hereby as of the Closing Date does lease, the Facility Assets to Lessee, and Lessee shall lease, and hereby as of the Closing Date does lease, the Facility Assets from Lessor, for the Term or such shorter period as may result from earlier termination of this Lease as provided herein. The interest conveyed by this Section 2.01 is a usufruct and not an estate in real property to the extent permitted by law. SECTION 2.02. Personal Property. It is the express intention of Lessor and Lessee that the Facility Assets shall at all times be and remain personal property as to all Persons and for all purposes to the fullest extent permitted by law. SECTION 2.03. Enforcement of Warranties. Lessor hereby authorizes Lessee (except at such time as a Default or Event of Default exists) to assert and enforce during the Term for Lessor's account all Lessor's claims and rights under the Acquisition Agreements against Sellers and under any warranties and indemnities of and claims against dealers, manufacturers, vendors, contractors and subcontractors relating to the Facility which were assigned to Lessor pursuant to the Acquisition Agreements. Any amount received by Lessee under any such warranty, indemnity or claim shall be applied as provided in Section 12.03. SECTION 2.04. Site Sublease. On the Closing Date, subject to all the terms and conditions of this Lease and satisfaction of the conditions set forth in the Participation Agreement, Lessor shall sublease, and hereby as of the Closing Date does sublease, the Site to Lessee and Lessee shall sublease, and hereby as of the Closing Date does sublease, the Site from Lessor, for the Term or such shorter period as may result from earlier termination of this Lease as provided herein. During the term of such sublease, Lessee shall pay Lessor on each anniversary of the Closing Date $100 per annum as a sublease rental payment for the Site for the year preceding such anniversary of the Site; provided, however, that Lessor hereby directs Lessee to deliver each such sublease rental payment to Ground Lessor as payment, on behalf of Ground Lessee, of the rental payments due under the Ground Lease. Notwithstanding any provision to the contrary contained in this Lease, it is understood that such sublease is and shall at all times remain subordinate to the Ground Lease. ARTICLE III Rent ---- SECTION 3.01. Interim Rent and Basic Rent. (a) Lessee shall pay to Lessor, in respect of the Facility Assets, rent for the Interim Term on July 31, 1991, in an amount equal to all accrued and unpaid interest on the Loan Certificates payable on such date not paid by Owner Participant as required by Section 6.01(b) of the Participation Agreement. (b) Lessee shall pay to Lessor, in respect of the Facility Assets, Basic Rent in installments in arrears on the Rent Dates during the Basic Term, each such installment to be in an amount equal to the percentage of Lessor's Cost set forth opposite such Rent Date on Schedule A. Such amounts of Basic Rent are subject to adjustment pursuant to Section 3.03. Lessee shall pay Basic Rent with respect to any Renewal Term as provided in Section 4.01. (c) Each installment of Interim Rent and Basic Rent shall be payable and paid in the manner set forth in Section 3.04. SECTION 3.02. Supplemental Rent. Lessee shall pay to Lessor, or to whoever shall be entitled thereto, any and all Supplemental Rent promptly as the same shall become due and payable. Lessee shall pay, as Supplemental Rent, amounts equal to all amounts payable by Lessor under the Indenture, including any premium payable in connection with the prepayment of any Loan Certificate (but excluding principal of and -2- interest on the Loan Certificates) and all amounts payable to Owner Participant in respect of the commitment fee payable pursuant to Section 8.02 of the Participation Agreement. SECTION 3.03. Adjustments. If at any time (i) any of the Variable Assumptions set forth in Schedule 3.03(i) is incorrect, (ii) the Refinancing occurs at the request of Lessee pursuant to Section 8.01 of the Participation Agreement, (iii) Lessor finances the cost of any Alterations pursuant to Section 8.02 of the Participation Agreement, (iv) a Change in Tax Law occurs or clause (ii) of section 9.04 is applicable, or (v) any Work in Progress is not completed by April 30, 1991, the schedules of Basic Rent and Stipulated Loss Values shall be adjusted (upward or downward) to preserve Net Economic Return and the percentages set forth in clauses (ii) and (v) of Section 4.02(a) shall be adjusted (upward or downward) based on the original method of computation thereof (but taking into account, in the case of clause (iii) above, any change in the conclusion of an appraiser mutually agreeable to Owner Participant and Lessee arising in respect of such Alterations, it being understood that the issue will be presented to such appraiser), except that, in the case of clause (v) above, the percentages set forth in Section 9.01(e) shall be adjusted as applicable and except that, in the case of clause (iii) above, the portion of Net Economic Return with respect to such Alterations shall be adjusted to reflect the assumptions set forth in Schedule 3.03(i) and to reflect any increase or decrease, at the time of determination, in the per annum rate paid an five-year Treasury Certificates issued by the United States of America from the rate paid an such Treasury Certificates on the date five days prior to the Closing Dates. All such adjustments shall be made as soon as practicable after the occurrence of the event giving rise thereto and shall be made in respect of installments of Basic Rent falling due after the determination thereof, except that if the next Rent Date falls due within 30 days after such determination, such adjustments shall be made in respect of all installments of Basic Rent falling due after such Rent Date. All such adjustments (x) shall be in compliance with the provisions of Revenue Procedure 75-21 and Revenue Procedure 75-28, (y) shall not cause the Lease to be treated as a "disqualified leaseback or long-term agreement" within the meaning of Section 467 of the Code and shall be made in a manner otherwise designed to comply with Section 467 of the Code and any regulations thereunder (except that, in connection with an adjustment made within four months after the Closing Date to take into account Transaction Expenses, such compliance with Section 467 shall be required to the extent the original calculation of Interim and Basic Rent would have so complied and, in connection with an adjustment -3- made pursuant to clause (iii) above with respect to Known Alterations, if such compliance, taking into account each payment of Basic Rent as so adjusted, would increase the net present value of Basic Rent over the net present value of Basic Rent if such compliance with Section 467 were required to this extent the original calculation of Interim and Basic Rent would have so complied, then, unless Lessee, and Owner Participant shall otherwise agree, the portion of Basic Rent attributable to such Known Alterations shall be treated as a separate tranche of Basic Rent and such compliance with Section 467 shall be required with respect to such separate tranche of Basic Rent attributable to such Known Alterations) and (z) to the extent not inconsistent with the foregoing clauses (x) and (y), shall generally preserve, to the extent practicable, the original pattern of payments of Basic Rent. Such adjustments may, but need not, be reflected in an amendment to this Lease but shall become effective upon completion and verification of the computations, as provided in this Section 3.03. Upon the occurrence of an event requiring an adjustment, Owner Participant shall make the necessary computations as soon as practicable and furnish to Lessee, Owner Trustee and Indenture Trustee an instrument setting forth the adjusted schedules. Upon request of Lessee made within a reasonable time following the delivery to Lessee by Owner Participant of such instrument, such amounts shall be verified by the independent public accounting firm that audits owner Participant's financial statements. The cost of such verification shall be borne by Lessee unless such verification results in a reduction of 2% or more in the net present value of Basic Rent as computed by Owner Participant, in which case such cost shall be borne by Owner Participant. Notwithstanding any other provision in this Lease or in any of the other Operative Documents, under all circumstances the Basic Rent payable on any Rent Date during the Basic Term will be an amount at least sufficient to pay in full on such Rent Date the aggregate amount of principal of and interest on the Loan Certificates scheduled to be payable on such Rent Date, and each payment of Stipulated Loss Value will be in an amount at least sufficient, when combined with any Rent payable simultaneously therewith, to pay the unpaid principal amount of and unpaid and accrued interest on and premium then payable on all Loan Certificates outstanding at the time Stipulated Loss Value and such Rent is due and payable hereunder. SECTION 3.04. Method of Payment. Subject to section 15.02, Interim Rent and Basic Rent payable to Lessor shall be paid to Owner Participant's Account No. 50-205-776 at Bankers Trust Company, New York, N.Y., ABA No. 0210- 0103-3 GECC/T&I Depository Account (and shall reference "1991 Packaging Corporation Tomahawk"), or to such other account at such other place as owner Participant shall specify in writing. Each payment of Rent shall be initiated into the Federal Reserve Funds wire transfer system and such initiation shall have been confirmed by telephone or other notice by the initiating bank to Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of receipt, on the scheduled date on which such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next Business Day and be accompanied by interest at the Payment Rate on the amount of such payment from and including such scheduled date to the date of payment. -4- SECTION 3.05. Late Payment. If any Rent shall not be paid when due, Lessee shall pay to Lessor (or, in the case of Supplemental Rent, to whoever shall be entitled thereto), as Supplemental Rent, interest (to the extent permitted by law) on such overdue amount from and including the due date thereof to but excluding the date of payment thereof (unless such payment shall not have been initiated into the Federal Reserve Funds wire transfer system or such initiation shall not have been confirmed by telephone or other notice by the initiating bank to Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of receipt, on such date of payment, in which case such date of payment shall be included) at the Designated Rate. If any Rent shall be paid an the date when due, but either not initiated into the Federal Reserve Funds wire transfer system or such initiation shall not have been confirmed by telephone or other notice by the initiating bank to Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of receipt interest shall be payable as aforesaid for one day. SECTION 3.06. Net Lease; No Setoff; etc. This Lease is a net lease and, notwithstanding any other provision of this Lease except as may be expressly provided herein or in Section 6.01(b) of the Participation Agreement, all Rent shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction. The obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected (except as may be expressly provided herein or in Section 6.01(b) of the Participation Agreement) for any reason, including: (a) any defect in the condition, merchantability, quality or fitness for use of the Facility or any part thereof; (b) any damage to, removal, abandonment salvage, loss, scrapping or destruction of or any requisition or taking of the Facility or any part thereof; (c) any restriction, prevention or curtailment of or interference with any use of the Facility or any part thereof; (d) any defect in or any Lien on the Facility or any part thereof; (e) any change, waiver, extension, indulgence or other action or omission in respect of any obligation or liability of Lessee or Lessor; (f) any bankruptcy insolvency, reorganization composition, adjustment, dissolution, liquidation or other like proceeding relating to Lessee, any Lessor Party, any holder of Loan Certificates or any other Person, or any action taken with respect to this Lease by any trustee or receiver of any Person mentioned above, or by any court; (g) any claim that Lessee has or might have against any Person, including any failure on the part of any Lessor Party to perform or comply with any of the terms hereof or of any other agreement; (i) any invalidity or unenforceability or disaffirmance of this Lease or any provision hereof or any of the other Operative Documents or any provision of any thereof, in each case whether against or by Lessee or otherwise; or (j) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing. This Lease shall be noncancelable by Lessee, and, except as expressly provided herein, Lessee, to the extent permitted by law, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution or reduction of Rent payable by Lessee hereunder. All payments by Lessee made hereunder shall be final, absent manifest error, and Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent -5- manifest error. If for any reason whatsoever this Lease shall be terminated in whole or part by operation of Law or otherwise except as expressly provided herein, Lessee shall nonetheless pay an amount equal to each Rent payment at the time and in the manner that such payment would have become due and payable under the terms of this Lease if it had not been terminated in whole or in part. All covenants and agreements of Lessee shall be performed at its cost, expense and risk unless expressly otherwise stated. Nothing in this.Article III shall be construed as a guaranty by Lessee of any residual value in the Facility or as a guaranty of the Loan Certificates. ARTICLE IV Lessee Options -------------- SECTION 4.01. Renewal. (a) Right to Renew. Unless the Facility Assets shall have been sold or disposed of pursuant to this Lease or an Event of Loss shall have occurred or a Default described in clause (a) or (f) of Article XIII or an Event of Default shall exist at the time of giving the notice referred to below or at the commencement of the relevant Renewal Term, Lessee shall have the right to renew this Lease (i) at the end of the Basic Term for the Fixed Price Renewal Term and (ii) at the end of the Basic Term or the Fixed Price Renewal Term, if elected, or a Fair Market Renewal Term, if elected, for a Fair Market Renewal Term. In order to exercise any such right, Lessee shall notify each Lessor Party thereof in writing not more than 12 month nor less than 6 months prior to the commencement of the relevant Renewal Term, which notice shall be irrevocable and shall specify the type of renewal term elected in accordance with this Section 4.01(a) and the duration thereof (which shall be an integral multiple of six months, shall not end after the end of the Ground Lease Term and, in the case of a Fair Market Renewal Term, shall be at least one year and not more than five years or, in the case of the Fixed Price Renewal Term, shall be, subject to Section 4.01(c), at least one year and not more than 50% of the Basic Term). If Lessee shall fail to renew this Lease as provided above, Lessor shall, subject to Section 4.02, be free to lease or dispose of all or any part of the Facility to any other Person on any terms acceptable to Owner Participant. (b) Terms. All the terms and provisions of this Lease shall be applicable during any Renewal Term. Less shall pay to Lessor as Basic Rent for the Facility Assets (i) on each of the Rent Dates during the Fixed Price Renewal Term an amount equal to 60% of the average of the installments of Basic Rent payable during the Basic Term and (ii) on each of the Rent Dates during any Fair Market Renewal Term an amount equal to the Fair Market Rental Value of the Facility Assets. (c) Determinations. Promptly after Lessee shall have given a notice pursuant to Section 4.01(a), Lessee and Owner Participant shall agree upon the Fair Market Rental Value (if such notice designates a Fair Market Renewal Term) of the Facility Assets, the Fair Market Sale Value of the Facility Assets, the useful life of the Facility Assets and the first date at which the Facility Assets will no longer be expected -6- to have a Fair Market Sale Value of at least 20% of Lessors' Cost after eliminating the effect of any inflation or deflation since the closing Date, each as of the commencement of the relevant Renewal Term, or, if they shall fail to agree within 30 days after the giving of such notice, such values, life and date shall be determined by the Appraisal Procedure. Promptly after any such determination, Schedule B hereto shall be modified to set forth therein the Fair Market Sale Value so determined as the Stipulated Loss Value applicable at the commencement of such Renewal Term, amortized ratably in semiannual steps over the estimated remaining useful life of the Facility Assets. If Lessee has elected the Fixed Price Renewal Term and either the date at which 75% of the redetermined useful life of the Facility Assets will have expired or the first date at which the Facility Assets will not longer be expected to have a Fair Market Sale Value of at least 20% of Lessor's Cost, as determined above, is before the Rent Date on which the Fixed Price Renewal Term would otherwise end, the duration thereof shall automatically be reduced so that it ends on the latest Rent Date which precedes the earlier of the two dates mentioned above. SECTION 4.02. Purchase. (a) Right to Purchase. Unless the Facility Assets shall have been sold or disposed of pursuant to this Lease or an Event of Loss shall have occurred or an Event of Default shall exist at the time of giving the notice referred to below or at the date fixed for purchase, Lessee shall have the right, at its option, to purchase the Facility Assets as the time and at the price as follows: (i) on July 31, 2001, January 31, 2002, or July 31, 2002, for a purchase price equal to the greater of Stipulated Loss Value on such Rent Date and the Fair Market Sale Value of the Facility Assets on such Rent Date, (ii) on January 31, 1997, for a purchase price equal to 112.10784139% of Lessor's Cost, (iii) on the first Rent Date occurring more than 90 days after Lessee shall have delivered to Lessor and Indenture Trustee an Officer's Certificate in form and substance satisfactory to each of them evidencing in reasonable detail that Burdensome Alterations are required and have not yet been effected (if such Rent Date is after the fifth anniversary of the Closing Date) or, if there shall occurred a Burdensome Event, on the first Rent Date occurring more than 90 days after such occurrence, in either case for a purchase price equal to the greater of Stipulated Loss Value on such Rent Date and the Fair Market Sale Value of the Facility Assets on such Rent Date, (iv) on the last day of the Basic Term, for a purchase price equal to the Fair Market Sale Value of the Facility Assets, (v) on the last day of the Basic Term, for a purchase price equal to 60.00% of Lessors' Cost or (vi) on the last day of any Renewal Term, for a purchase price qual to the Fair Market Sale Value of the Facility Assets on such date. IN order to exercise any such right, Lessee shall notify each Lessor Party thereof in writing not more than 12 months nor less than 6 months (30 days in the case of clause (iii) above) prior to the date fixed for purchase, which notice shall be irrevocable and shall specify the basis for the notice, the option selected and the date purchase is to be made. If Lessee shall fail to purchase the Facility Assets pursuant to this Section 4.02 at the end of the Term (including any elected Renewal Term), Lessor shall, subject to Section 4.01, be free to lease or dispose of all or any part of the Facility assets to any other Person on any terms acceptable to Owner Participant. -7- (b) Payments. If Lessee has elected to purchase the Facility Assets as provided in Section 4.02(a), Lessee shall pay the purchase price of the Facility Assets on the date fixed for purchase and shall simultaneously pay all Rent due and all Rent accrued through and including such date, whereupon Lessor shall Transfer the Facility to Lessee. If Lessee exercises its right to purchase the Facility Assets pursuant to Section 4.02(a)(ii), so long as no Default or Event of Default exists, Lessee may elect (by so specifying in the notice delivered pursuant to Section 4.02(a)) to assume the Indenture and the Loan Certificates in accordance with Section 6.09 of the Indenture, and the purchase price of the Facility Assets shall be reduced by the unpaid principal amount of the Loan Certificates assumed. If Lessee shall fail to pay for or purchase the Facility Assets an the date fixed for purchase, it shall lose its right to purchase the Facility Assets pursuant to the relevant clause of Section 4.02(a) (but its right, if any, to purchase under the other clauses shall be unaffected) and any Lessor Party may proceed by appropriate court action to recover damages or obtain other appropriate relief, including specific performance, with respect to such failure. (c) Determinations. Promptly after Lessee shall have given a notice pursuant to clause (i), (iii), (iv) or (vi) of Section 4.02(a), Lessee and Owner Participant shall agree upon the Fair Market Sale Value of the Facility Assets as of the date fixed for purchase or, if they shall fail to agree within 30 days after the giving of such notice, such Fair Market Sale Value shall be determined by the Appraisal Procedure. SECTION 4.03. Obsolescence Termination. (a) Right to Terminate.. Unless an Event of Loss shall have occurred or an Event of Default shall exist at the time of giving the notice referred to below or at the date fixed for termination, Lessee shall have the right at any time during the Basic Term to terminate this Lease on the Rent Date specified in such notice, but only if Lessee shall have determined (and shall have delivered to each Lessor Party an Officer's Certificate to the effect) that the Facility Assets have become obsolete, surplus or uneconomic to Lessee's purposes for any reason, including government mandated Alterations. In order to exercise such right, Lessee shall notify each Lessor Party thereof in writing not more than 12 months nor less than 6 months prior to the date fixed for termination, which notice shall be irrevocable. From and after the giving of such notice, Lessee shall, as agent for Lessor, use all reasonable efforts to sell the Facility Assets for the best cash price obtainable. On the date fixed for termination, Lessor shall (subject to receipt of the sales price and all additional payments specified in the next sentence and subject to its rights set forth in Section 4.03(b)), Transfer the Facility for cash to the purchaser (who may not be Lessee or any Affiliate thereof) who has offered the highest cash price. The total sales price realized at such sale shall be retained by Lessor and on the date fixed for termination Lessee shall pay to Lessor the excess, if any, of the Stipulated Loss Value as of the date fixed for termination over the sales price of the Facility after deducting all expenses incurred by Lessor Parties in connection with such Transfer, and Lessee shall simultaneously pay all Rent due and all Rent accrued through and including the date fixed for termination, whereupon the Term shall end. If a Transfer shall not have occurred on or as of the date fixed for termination, the Facility shall continue to be subject to this Lease and this Lease shall continue in full force and effect with respect -8- thereto, Lessee shall be required to make a Supplemental Rent payment in the amount specified in Section 4.04 of the Indenture and, unless such nonoccurrence results from default by the purchaser, Lessee shall thereafter have no right of termination under this Section 4.03. No Lessor Party shall be under any duty to solicit bids or sales, to inquire into the efforts of Lessee to obtain bids or otherwise to take any action in connection with any such sale other than the obligation of Lessor to Transfer the Facility as provided above. (b) Retention. Notwithstanding Section 4.03(a), Lessor may, at the direction of Owner Participant, on not less than 90 days' prior written notice to Lessee, refuse to Transfer the Facility pursuant to Section 4.03(a), in which case (i) Lessee shall not be obligated to pay the amounts specified in the antepenultimate sentence of Section 4.03(a) but rather shall pay to Lessor on the date fixed for termination all Rent due and all Rent accrued through and including the date fixed for termination and (ii) Lessor or Owner Participant shall contemporaneously pay to Indenture Trustee on such date such amount as may, when added to amounts held or received by Indenture Trustee for such purpose, be required to make the payments specified in clauses "First" through "Fourth" of Section 3.02 of the Indenture, whereupon (and only whereupon) the Term shall end. ARTICLE V Return of Facility ------------------ SECTION 5.01. Return of Facility. Unless the Facility shall have been or is being Transferred to Lessee pursuant to this Lease, Lessee shall return the Facility to Lessor or to any transferee or assignee of Lessor on the Termination Date by surrendering the same into the possession of Lessor or such transferee or assignee free and clear of all Liens other than Lessor Liens and Permitted Encumbrances and in the condition required by Section 7.02 and Article X and free of all Hazardous Substances and Hazardous Wastes except those that are present in compliance with law. In addition, at the end of the Term, if requested to do so by Lessor, Lessee shall, at Lessor's risk and expense and without unreasonably interfering with Lessee's operations, dismantle, crate, remove and ship the Facility Assets as specified by Lessor. SECTION 5.02. Disposition Services. If Lessee shall not have exercised any of its rights provided in Article IV, during the last six months of the Term, Lessee will fully cooperate with Lessor and Owner Participant in connection with efforts to lease or dispose of the Facility. -9- ARTICLE VI Lessor Agreements and Rights ---------------------------- SECTION 6.01. Quiet Enjoyment. So long as no Event of Default exists, Lessee shall have the right to, and Lessor Parties shall not take or cause to be taken any action contrary to Lessee's right to quiet enjoyment of, or the continuing possession, use and operation of the Facility during the Term, except in accordance with the provisions of this Lease. SECTION 6.02. Disclaimer of Warranties. The warranty set forth in Section 6.01 is in lieu of all other representations and warranties of any Lessor Party, whether written, oral or implied, with respect to this Lease or the Facility. As between each Lessor Party and Lessee, execution by Lessee of this Lease shall be conclusive proof of the compliance of the Facility with all requirements of this Lease, and LESSOR LEASES AND LESSEE TAKES THE FACILITY AND EACH PART THEREOF AS IS AND WHERE LOCATED, and no Lessor Party shall be deemed to have made, and EACH LESSOR PARTY HEREBY DISCLAIMS, ANY OTHER REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE DESIGN OR CONDITION OF THE FACILITY OR ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO THE FACILITY OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL ANY LESSOR PARTY BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE), it being agreed that all such risks, as between each Lessor Party and Lessee, are to be borne by Lessee. Lessee has made such investigation as it deems appropriate regarding the Facility and its entering into the Operative Documents. The provisions of this Section 6.02 have been negotiated, and, except as provided in Section 6.01, the foregoing provisions are intended to be a complete exclusion and negation of any representation or warranty by any Lessor Party, express or implied, with respect to this Lease or the Facility that may arise pursuant to any Governnmental Rule now or hereafter in effect or otherwise. SECTION 6.03. Inspection. Any Lessor Party and its authorized representatives may enter upon, inspect and examine, at their own expense (unless an Event of Default exists, in which case such expense shall be for the account of Lessee), the Facility and the books and records of Lessee relative thereto, and make copies and extracts therefrom. Any Participant may discuss Lessee's affairs, finances and accounts with Lessee's officers. Owner Participant, any Loan Participant as of the date hereof or other Loan Participants holding individually or in the aggregate at least $5,000,000 in aggregate principal amount of the Loan Certificates, may request, specifying a reasonable basis for doing so, that the chief financial officer of Lessee arrange a meeting with Lessee's independent public accountants to discuss Lessee's affairs, -10- finances and accounts, and upon such request, such chief financial officer shall arrange for such meeting to take place promptly but in any event within 10 Business Days, provided that if the chief financial officer shall not arrange such a meeting, any such Participant or Participants may arrange such a meeting with Lessee's independent public accountants. Lessee authorizes such accountants to discuss with each of Owner Participant and any such Loan Participant and their authorized representatives the affairs, finances and accounts of Lessee at such meeting. Representatives of Lessee shall be afforded an opportunity to be present at any such meeting with Lessee's independent public accountants. Lessee shall furnish to each Lessor Party statements accurate in all material respects regarding the condition and state of repair of the Facility, as often as may be reasonably requested. No Lessor Party shall have any duty to make any such inspection or inquiry and shall not incur any liability or obligation by reason of not making any such inspection or inquiry. Each Lessor Party shall treat all information received pursuant to the terms of this Section 6.03 as required by the terms of Section 9.12 of the Participation Agreement. Notwithstanding the foregoing, no Loan Certificateholder (other than an institutional investor) that is a direct or indirect competitor of Lessee shall have the rights set forth in this Section 6.03. SECTION 6.04. Right to Perform for Lessee. If Lessee shall fail to make any payment of Rent or shall fail to perform or comply with any of its other agreements contained herein (including in Article XI), any Lessor Party may, but shall not be obligated to, make such payment or perform or comply with such agreement, and the amount of such payment and the amount of all costs and expenses (including reasonable attorneys' and other professionals' fees and expenses) incurred by such Lessor Party in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Designated Rate, shall be payable by Lessee upon demand. ARTICLE VII Lessee Agreements ----------------- SECTION 7.01. Indemnification. Whether or not any of the transactions contemplated by the Operative Documents shall be consummated, Lessee shall pay, assume liability for, indemnify, protect, defend, save and hold harmless each Indemnified Person from and against, on an After-Tax Basis, any and all Claims imposed on, incurred by or asserted against any Indemnified Person (whether because of act or omission by such Indemnified Person or otherwise and whether or not such Indemnified Person shall also be indemnified as to any such Claim by any other Person, including Sellers), in any way relating to or arising out of (i) the Facility or any part thereof, (ii) any Operative Document, any Acquisition Agreement, the issuance, purchase or sale of the Loan Certificates or the making of any investment in the Facility, any payment made pursuant thereto or any other transaction contemplated by any Operative Document or Acquisition Agreement or (iii) the manufacture, financing, refinancing, construction, purchase, acceptance, rejection, ownership, acquisition, -11- delivery, nondelivery, lease, sublease, preparation, installation, storage, maintenance, repair, transportation, transfer of title, abandonment, possession, rental, use, operation, condition, sale, return or other application or disposition of all or any part of the Facility or any interest therein, including (A) claims or penalties arising from any violation of law (including any environmental Governmental Rule) or liability in tort (strict or otherwise) or from the active or passive negligence of any Indemnified Person, (B) loss of or damage to any property or the environment or death or injury to any Person, (C) latent or other defects, whether or not discoverable, (D) any claim for patent, trademark or copyright infringement and (E) any Claim arising as a direct or indirect result of the presence on or under, or escape, seepage, leakage, spillage, discharge, emission or release from any of Ground Lessor's or Lessee's property (including the Site and the Facility) or property under Ground Lessor's or Lessee's control of, any Hazardous Substance or any Hazardous Waste or arising out of or resulting from the environmental condition of any such property or the applicability of any Governmental Rule relating to any Hazardous Substance, whether or not occasioned wholly or in part by any condition, accident or event caused by any act or omission of Ground Lessor or Lessee or arising out of or resulting from the violation of any Governmental Rule applicable to the Site or the Facility or with respect to any activity conducted thereon; provided, however, that Lessee shall not be required to indemnify any Indemnified Person pursuant to this sentence for (i) any Claim in respect of the Facility to the extent arising from acts or events not attributable to Lessee which occur after possession of the Facility has been returned and delivered to Lessor in accordance with Section 5.01 (or, if such return occurs when an Event of Default exists, after full compliance by Lessee with all its obligations under this Lease as of such date), (ii) any Claim resulting solely from acts which would constitute the willful misconduct or gross negligence of such Indemnified Person (unless imputed to such Indemnified Person by reason of the Facility or its interest therein), (iii) any Transaction Expense to be paid by Owner Participant or (iv) any Taxes, except as provided above with respect to the obligation to make payments on an After-Tax Basis. If any Indemnified Person or Lessee shall have received written notice of any Claim indemnifiable under this Section 7.01, it shall give prompt notice thereof to Lessee or such Indemnified Person, as the case may be, but the failure to give such notice shall not affect any obligations under this Section 7.01. Upon payment in full to any Indemnified Person of any indemnity pursuant to this Section 7.01, Lessee shall be subrogated to any right of such Indemnified Person in respect of the matter against which such indemnity has been paid. Unless, in the reasonable judgment of Lessee, no reasonable basis exists for defending against the Claim giving rise to a Claim for which Lessee is obligated to indemnify such Indemnified Person, such Indemnified Person shall either (A) defend against such claim itself, in which case such Indemnified Person shall control such defense but shall consult with Lessee concerning the conduct thereof, or (B) permit Lessee to defend against such claim, in which case such Indemnified Person shall cooperate with Lessee by providing such witnesses, documents and other assistance as Lessee say reasonably request. Neither such Indemnified Person nor Lessee shall settle the contest of such claim without the written consent of the other, which consent will not be unreasonably withheld. Notwithstanding the two preceding sentences, an Indemnified Person shall have no obligation thereunder if (i) a Lease Default or Lease Event of Default shall -12- exist, (ii) any material danger exists of (A) foreclosure, sale, forfeiture or loss of, or imposition of any Lien, other than a Permitted Lien, on the Facility or substantial interference with the operation of the Facility or (B) any criminal liability of such Indemnified Person or (iii) Lessee shall not have delivered to such Indemnified Person an acknowledgement of its obligations under this Section 7.01 without prejudice to its right to contest claims as provided above. Nothing contained in this paragraph shall be construed as a guaranty by Lessee of any residual value in the Facility or as a guaranty of the Loan Certificates. Without limitation of the foregoing, Lessee shall pay (i) the ongoing fees, expenses and disbursements of Owner Trustee and Indenture Trustee, on a pre-tax basis, (ii) all costs and expenses incurred by any Lessor Party in connection with (A) any Event of Default, (B) the entering into or giving, or withholding of any supplement, amendment, modification, waiver or consent with respect to any Operative Document or any Acquisition Agreement, (C) any Event of Loss or, after the occurrence of any Default or Event of Default which is continuing, any transfer of all or any part of the right, title and interest of Lessor or Owner Trustee in the Facility or in, to and under any Operative Document or any Acquisition Agreement or (D) any Refinancing or Additional Financing and (iii) all Supplemental Rent to whoever is entitled thereto. SECTION 7.02. Compliance with Laws. (a) Lessee shall comply with all Governmental Rules and Governmental Actions, including those relating to pollution and environmental matters applicable to or pertaining to the property, business and operations of Lessee, including the Facility; provided that Lessee shall not be deemed to be in breach of this covenant so long as it is in good faith contesting the applicability or validity of any Governmental Rule or Governmental Action, or defending any alleged violation thereof, by appropriate proceedings being diligently conducted and such contest would not violate clause (x), (y) or (z) of the definition of Permitted Liens, and provided further that the payment of any fine or penalty imposed by a Governmental Authority and the cure of any continuing noncompliance shall be deemed to effect a complete and satisfactory cure of the related breach of this Section 7.02(a). (b) Lessee shall promptly (but in any case not more than 10 days after the and of the calendar month in which any such event occurs) notify each Lessor Party in writing of any of the following events: (i) a Responsible Officer obtains knowledge that the disposition, use, refining, generation, manufacture, production, storage, handling, treatment, transfer, release, processing or transportation of any Hazardous Substance or Hazardous Waste by, at, or in connection with the operation of, the Facility has been done in material violation of any Governmental Rule or Governmental Action, (ii) any material Governmental Rule or Governmental Action is entered or taken by any Governmental Authority (other than the promulgation of a rule or regulation of general applicability) against Lessee with respect to the Facility or the Facility's business or operations as a result of any Hazardous Substance or Hazardous Waste on, or emanating from or generated by, the Facility or (iii) any material claim made by any third party relating to any Hazardous Substance or Hazardous Waste on, or emanating from or generated by, the Facility (any such material violation, order, action or claim, -13- an "Environmental Violation"). After the occurrence of any Environmental Violation, Lessee shall forthwith prepare and deliver to each of the parties identified in the next sentence a Remedial Plan addressing such Environmental Violation wherein Lessee shall describe and undertake such actions as may be necessary and appropriate and consistent with good business practices for the complete remediation of such Environmental Violation at the earliest practicable date; provided, that such Remedial Plan shall be deemed to satisfy the foregoing requirements if such Remedial Plan shall have been approved, and reasonable evidence of such approval shall have been provided to Lessor and Indenture Trustee, by all Governmental Authorities having jurisdiction over the subject matter thereof. The Remedial Plan shall be delivered to each Lessor Party not more than 30 days after notice of the related Environmental Violation was given by Lessee (or required hereunder to have been so given). For purposes of this Section 7.02(b), a violation, order, action or claim described in clause (i), (ii) or (iii) above shall be an Environmental Violation if (x) the compliance with, remediation or satisfaction of, such violation, order, action or claim could, together with any fines or penalties imposed in connection therewith, reasonably be expected to cost (the "Cleanup Cost") (A) $5 million or more or (B) $1 million or more if such Cleanup Cost, together, with the Cleanup Costs associated with all other then outstanding environmental violations having a Cleanup Cost of $1 million or more, exceeds $5 million. (c) Lessee shall diligently and promptly take all necessary actions to remedy each Environmental Violation in accordance with the provisions of the relevant Remedial Plan (including the schedules and the periodic reporting obligations set forth therein); provided that, subject to Lessee's right to contest as set forth in Section 7.02(a) above, Lessee shall take all remedial actions required of it by any Governmental Authority with respect to any Environmental Violation. SECTION 7.03. No Liens. Lessee shall not directly or indirectly create, incurs assume or suffer to exist at any time, whether voluntarily or by operation of law, Liens (other than Permitted Liens) on Lessee's assets or any portion thereof except for (i) Liens on assets acquired subsequent to the Closing Date by Lessee (and in the case of real property so acquired, on any improvements or additions or replacements thereto) securing Debt not at any time exceeding the acquisition cost of such assets and incurred at or before or within 90 days after the time such assets are so acquired and not extending to any other assets; (ii) Liens for extensions, renewals or refundings of obligations secured by Liens permitted by clause (i) not in excess of the amount being extended, renewed or refunded; (iii) Liens for Taxes or other governmental charges or mechanics', materialmen's, carriers', employees', warehousemen's, repairers' or other similar Liens incurred in the ordinary course of business, in each case which are not yet due or which are being contested in good faith by appropriate proceedings (so long as such contest does not violate clause (x), (y) or (z) of clause (iii) of the definition of Permitted Liens); (iv) pledges or deposits to secure payment of workmen's compensation, good faith deposits in connection with tenders, contracts (other than contracts for the repayment of Debt), deposits to secure public or statutory obligations, deposits to secure or in lieu of surety or appeal bonds and pledges or deposits for similar purposes in the ordinary course of business; (v) leases on property owned by -14- Lessee and landlords' liens on property held under lease; (vi) encumbrances under contracts and contract rights relating to the sale of assets, including options and rights of first refusal; (vii) other Liens or encumbrances on real property incurred in the ordinary course of business and not in connection with the borrowing of money or the obtaining of advances or credit which do not in the aggregate materially detract from the value of such real property subject thereto or materially impair the use thereof in the operation of Lessee's business; and (viii) other Liens securing obligations for the payment of money which do not at the time of encumbrance, taken together with all other such Liens then encumbering Lessee's property, exceed an amount equal to 10% of Lessee's consolidated total assets (as shown on the most recent balance sheet delivered pursuant to Section 6.03 of the Participation Agreement). SECTION 7.04. Merger, Consolidation, etc. Except as hereinafter provided in this Section 7.04, Lessee shall maintain its corporate existence. Lessee shall not consolidate or merge with or into any other Person or sell, transfer, convey or lease all or substantially all of its assets (treating for such purpose all sales, transfers conveyances and leases of assets during any 24 month period as if constituting a single transaction) to any Person or cease to be a subsidiary of Tenneco Inc., unless: (a) such Person is before and after such transaction a Subsidiary of Tenneco Inc. or the prior written consent of Owner Participant has been obtained; (b) the successor formed by such consolidation or merger or that acquires by conveyance, transfer or lease all or substantially all its assets as an entirety (i) shall be a corporation organized under the laws of the United States of America, a state thereof or the District of Columbia, (ii) shall execute and deliver to Indenture Trustee, Owner Trustee and each Participant an agreement in form and substance satisfactory to each of them containing an assumption by such successor of the due and punctual performance of each covenant, obligation and condition of the Operative Documents and Acquisition Agreements to be performed or observed by Lessee, (iii) immediately after such transaction would be permitted to incur an additional $1 of Funded Debt in accordance with Section 7.05, (iv) immediately after such transaction would be permitted to make a Restricted Payment of at least $1 in accordance with Section 7.06 and (v) immediately after such transaction no Event of Default would exist; (c) immediately after Lessee ceases to be a Subsidiary of Tenneco Inc. (i) Lessee would be permitted to incur an additional $1 of Funded Debt in accordance with Section 7.05, (ii) Lessee would be permitted to make a Restricted Payment of at least $1 in accordance with Section 7.06 and (iii) no Event of Default would exist; and (d) Lessee shall have delivered to each Lessor Party an Officer's Certificate and an opinion of counsel satisfactory to each such Person, stating that such transaction, and any assumption agreement required by paragraph (b) of -15- this Section 7.04, complies with this Section 7.04 and that all conditions precedent relating to such transaction have been complied with. Upon consummation of any such transaction in accordance with this Section 7.04, the successor shall succeed to, and be substituted for, and may exercise every right and power of, Lessee under the Operative Documents and Acquisition Agreements with the same effect as if such successor had been named therein. No such transaction shall have the effect of releasing Lessee or any successor that shall theretofore have become such in the manner prescribed in this Section 7.04 from its liability under the Operative Documents or the Acquisition Agreements. SECTION 7.05. Debt. Neither Lessee nor any of its Subsidiaries shall incur any Funded Debt unless immediately thereafter, upon giving pro forma effect thereto, Cash Flow Coverage of Fixed Charges would exceed 2.0 and Funded Debt of Lessee and its Subsidiaries, an a consolidated basis, would not exceed 55% of Total Capital of Lessee and its Subsidiaries, on a consolidated basis. For purposes of the foregoing, "Cash Flow Coverage of Fixed Charges" means, for the four fiscal quarterly periods ending immediately prior to the date of determination thereof, the ratio of Net Income before taxes plus depreciation and interest expense and lease rentals minus capital expenditures (other than Known Modifications financed by Owner Participant) to interest expense and lease rentals and dividends on all mandatorily redeemable preferred stock of Lessee and its Subsidiaries. SECTION 7.06. Restricted Payments. (a) Lessee shall not pay or declare any Restricted Payment (other than as permitted by Section 7.06(b)) if (i) immediately after the making thereof Funded Debt of Lessee and its Subsidiaries, on a consolidated basis, would exceed 50% of Total Capital of Lessee and its Subsidiaries, on a consolidated basis, or (ii) the making thereof would cause Lessee's Net Worth to be less than $800 million or (iii) there shall exist any Default or Event of Default under this Lease or any default or event of default under the Other Lease. (b) Neither Lessee nor any of its Subsidiaries shall make or permit to exist any loan or advance to Tenneco Inc. or any of its Affiliates except loans or advances to Tenneco Inc. that are payable upon demand, bear interest, payable at least annually, at a rate equal to the prime rate as quoted by Morgan Guaranty Trust Company of New York from time to time and are made out of cash generated in the ordinary course of operations of Lessee or its Subsidiaries and only if (I) Tenneco Inc. owns, directly or indirectly, all the outstanding equity securities of Lessee and either (i) all publicly held debt obligations of Tenneco Inc. having a maturity of one year or more from the date of issue are rated at least investment grade by Moody's and Standard & Poors, or (ii) arrangements have been made which are in all respects satisfactory to Owner Participant and Loan Participants, whereby return of the amount loaned or advanced is unconditionally guaranteed, (II) Funded Debt of Lessee and its Subsidiaries, on a consolidated basis, does not exceed 55% of the excess of Total Capital of Lessee and its Subsidiaries, on a consolidated basis, over the aggregate amount of all loans and advances to Tenneco Inc. and (III) no Default or Event of Default exists. -16- SECTION 7.07. Transactions with Affiliates. Lessee shall conduct all transactions (including payments and receipt of benefits) with any of its Affiliates in a manner consistent with the conduct of transactions among Tenneco Inc. and all its Subsidiaries and on terms which, in the case of a material transaction, the Board of Directors of Lessee has determined in good faith to be in the best interests of Lessee and not materially adverse to Participants. Schedule 7.07 sets forth an accurate description of the tax sharing arrangements between Lessee and Tenneco Inc. as of the Closing Date and no tax sharing agreement between Lessee and Tenneco Inc. or any Affiliate thereof shall be altered or revised in any way which would materially alter Lessee's cash flow. ARTICLE VIII General Tax Indemnity --------------------- SECTION 8.01. Indemnity. All payments by Lessee in connection with the Overall Transaction shall be free of withholdings of any nature whatsoever (including any withholdings in respect of payments pursuant to this Article VIII). If Lessee is required to make any payment upon which any withholding is required, Lessee shall pay an additional amount such that the net amount actually received by the Person entitled to receive such payment will, after such withholding, equal the full amount of the payment then due. If for any reason, Lessee is required to make any payment to a taxing authority or to any such Person as a result of the application of the preceding sentence that relates to or is a result of any Tax imposed on or with respect to any such Person which Tax is not the responsibility of Lessee under the terms of this Section 8.01, then such Person shall, within 30 days after receipt of notice of payment of the Tax and appropriate payment documentation with respect thereto, pay to Lessee an amount which equals the amount paid by Lessee with respect to or as a result of such Tax that is not the responsibility of Lessee increased by the amount of any net tax savings to such Person attributable to the making of such payment to Lessee. Except as provided in Section 8.02, Lessee shall pay on an After-Tax Basis, and on written demand shall indemnify, defend and hold each Indemnified Person harmless on an After-Tax Basis from and against, any and all Taxes imposed on or with respect to any Indemnified Person, Lessee, any sublessee, the Facility, the Site or any portion thereof or interest therein by any Federal, state or local government or other taxing authority in the United States, or any government or taxing authority of or in a foreign country or any international authority, in connection with or in any way relating to (a) the manufacture, construction, financing, refinancing, purchase, acquisition, acceptance, rejection, delivery, nondelivery, transport, ownership, assembly, possession, repossession, operation, use, condition, maintenance, repair, sale, dismantling, return, abandonment, preparation, installation, storage, replacement, redelivery, leasing, subleasing, modification, transfer of title, rebuilding, rental, importation, exportation or other application or disposition of, or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) on, the Facility, the -17- Site or any portion thereof or interest therein, (b) the payment of Rent or the receipts or earnings arising from or received with respect to the Facility, the Site or any portion thereof or any interest therein, (c) the Loan Certificates and the Indenture, their issuance, execution, filing, recording, sale, delivery, refinancing, assumption, exchange, reoptimization or acquisition, or the payments of any amounts thereon, (d) the property, or other proceeds with respect to the property, held by Indenture Trustee under the Indenture, (e) any other amount paid or payable pursuant to any Operative Document, (f) the Facility, the Site or any portion thereof or any interest therein, (g) all or any of the Operative Documents, any other documents contemplated thereby and any amendments and supplements thereto, and (h) otherwise with respect to or in connection with the Overall Transaction (whether or not any of the transactions contemplated by the Operative Documents shall be consummated). The term "Taxes" shall mean any and all fees (including documentation, license and registration fees), taxes (including income, gross receipts, value-added, sales, use, property (personal and real, tangible and intangible), intangible taxes, intangible recording taxes, documentary stamp and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any and all penalties, fines, additions thereto and interest thereon. SECTION 8.02. Exclusions from General Tax Indemnity. Section 8.01 (except for the first two sentences of the first paragraph thereof) shall not apply to: (a) in the case of Owner Participant and any Loan Participant, Taxes (other than Taxes that are or are in the nature of sales, use, property, value-added, license or rental Taxes) imposed by the United States Federal government pursuant to Subtitle A of the Code or any successor provision (including any minimum Taxes, withholding Taxes and any Taxes on or measured by any items of tax preference), other than in the case of any Loan Participant (i) Taxes that would not have been imposed if a change in the Amortization Schedules pursuant to Section 2.03(b) of the Indenture had not occurred and (ii) Taxes that would not have been imposed if Lessee had not assumed the Loan Certificates pursuant to Section 6.09 of the Indenture or Section 4.02(b) of the Lease; (b) in the case of Owner Participant and Loan Participants, Taxes (other than Taxes that are or are in the nature of sales, use, property, value-added, license or rental Taxes and other than any Taxes imposed by any government or taxing authority outside the United States as a result of the location of the Facility Assets or any part thereof in the jurisdiction imposing the Tax ("Indemnified Foreign-Taxeses")) imposed on an Indemnified Person that are based upon or measured by gross or net income or gross or net receipts of such Indemnified Person (including any capital gains Taxes, minimum Taxes and any Taxes on or measured by any items of tax preference) other than in the case of any Loan Participant (i) Taxes that would not have been imposed if a change in the Amortization Schedules pursuant to Section 2.03(b) of the Indenture had not occurred, (ii) Taxes that would not have been imposed if Lessee had not assumed the Loan Certificates pursuant to Section 6.09 of the Indenture or -18- Section 4.02(b) of this Lease, (iii) Taxes that would not have been imposed if the loans evidenced by the Loan Certificates had been made directly to Lessee and (iv) Taxes imposed by any jurisdiction other than a taxing jurisdiction in which such Loan Participant is subject to such Taxes without regard to the transactions contemplated by the operative Documents. (c) in the case of Owner Participant and Loan Participants, franchise Taxes imposed on an Indemnified Person and Taxes on capital or net worth of an Indemnified Person (in each case, other than Taxes that are or are in the nature of sales, use, property, value-added, license or rental Taxes and other than Indemnified Foreign Taxes) other than, in the case of any Loan Participant (i) Taxes that would not have been imposed if the loans evidenced by the Loan Certificates had been made directly to Lessee and (ii) Taxes imposed by any jurisdiction other than a taxing jurisdiction in which such Loan Participant is subject to such Taxes without regard to the transactions contemplated by the Operative Documents; (d) Taxes that are based on, or measured by, the fees or other compensation received by Owner Trustee or Indenture Trustee for acting as trustees under the Trust Agreement and the Indenture, respectively; (e) Taxes that have not been paid or credited and that are being contested in accordance with the provisions of Section 8.03, during the pendency of such contest, so long as Lessor shall be receiving all payments required under this Lease and holders of the Loan Certificates shall be receiving all payments required under the Loan Certificates when payable without reduction for such Taxes; (f) Taxes that are imposed an any Indemnified Person as a result of such Indemnified Person's gross negligence or willful misconduct (other than gross negligence or willful misconduct imputed to such Indemnified Person solely by reason of its interest in the Facility or its participation in the Overall Transaction); (g) Taxes imposed on an Indemnified Person that result from any voluntary transfer (it being understood that the term "voluntary transfer" does not include any transfer provided for in the Operative Documents (other than pursuant to Article VII of the Participation Agreement or Section 15.02 of this Lease and, if Lessor shall receive an amount at least equal to the applicable Stipulated Loss Value free and clear of any such Taxes, other than pursuant to Section 4.03 of this Lease) or any transfer to Lessee or any Affiliate thereof) by such Indemnified Person of any interest in the Facility, the Site or any part thereof or any interest arising under the Operative Documents, or from any involuntary transfer by such Indemnified Person of any of the foregoing interests in connection with any bankruptcy or other proceeding for the relief of debtors in which such Indemnified Person is the debtor (except if such proceeding shall -19- have been caused by the Lessee); provided, however, that the exception set forth in this subparagraph (h) shall not apply if any such transfer shall occur at any time while a Lease Event of Default shall have occurred and be continuing; (h) other than in the case of Loan Participants, Indenture Trustee and Indenture Estate, Taxes imposed on an Indemnified Person by any jurisdiction that would not have been imposed an such Indemnified Person but for activities of such Indemnified Person in such jurisdiction which activities are unrelated to the transactions contemplated by the Operative Documents; (i) Taxes imposed on an Indemnified Person (A) that result from the failure of such Indemnified Person to file tax returns properly and on a timely basis (unless such failure results from a failure of Lessee to properly and timely file an Indemnified Person's tax return that Lessee (rather than the Indemnified Person) is required to file under Section 8.07 or to notify such Indemnified Person of its obligation to file such return in cases where the requirement for filing arises from such Indemnified Person's participation in the transactions contemplated by the Operative Documents), or (B) that would not have been imposed but for the failure of such Indemnified Person to comply with certification, reporting or other similar requirements of the jurisdiction imposing such Tax (unless such failure results from a failure of Lessee to notify such Indemnified Person of its obligation to comply with such requirements in cases in which such requirements arise from such Indemnified Person's participation in the transactions contemplated by the Operative Documents); (j) Taxes relating to the Facility Assets or any interest therein imposed on an Indemnified Person for any period following the expiration or early termination of the Lease; provided, however, that this exclusion (j) shall not apply to (x) Taxes imposed on Indenture Trustee or the holder of any Loan Certificate so long as any Loan Certificate is outstanding, (y) Taxes relating to events occurring prior to or simultaneously with such expiration or early termination and (z) Taxes incurred in connection with the exercise of any remedies pursuant to Section 14.01 following the occurrence of a Lease Event of Default; (k) Taxes imposed on or with respect to an Indemnified Person arising as a result of a material failure of such Indemnified Person to fulfill its obligations with respect to the contest of any claim in accordance with Section 8.03 of this Lease; (l) Taxes included in and paid as part of Transaction Expenses or in Lessor's Cost; (m) Taxes imposed on an Indemnified Person that would not have been imposed but for the status of such Indemnified Person as other than a -20- United States person (as defined in Section 7701(a) of the Code) for United States Federal or other income tax purposes; and (n) in the case of any Loan Participant, Taxes imposed on a transferee of such Loan Participant in excess of the Taxes that would have been imposed on such Loan Participant if no transfer had occurred. SECTION 8.03. Contests. (a) If any written claim shall be made against any Indemnified Person or if any proceeding shall be commenced against any Indemnified Person (including a written notice of such proceeding) for any Taxes as to which Lessee shall have an indemnity obligation pursuant to Section 8.01, such Indemnified Person shall promptly notify Lessee in writing and shall not take any action with respect to such claim or Tax without the consent of Lessee for 30 days after the giving of such notice to Lessee; provided, however, that the failure to so notify Lessee shall not relieve Lessee of its obligations under this Article VIII unless such failure precludes Lessee from pursuing a contest of such Taxes; provided further, however, that, if such Indemnified Person shall be required by law or regulation to take action prior to the end of such 30-day period, such Indemnified Person shall, in such notice to Lessee, so inform Lessee, and such Indemnified Person shall not take any action with respect to such claim or Tax without the consent of Lessee before the date such Indemnified Person shall be required to take action. If requested by Lessee in writing within 30 days after the giving of such notice (or by such earlier date referred to in the preceding sentence), such Indemnified Person shall, at the expense of Lessee (including all costs, expenses and reasonable attorneys' and accountants' fees and disbursements), in good faith contest the validity, applicability or amount of such Taxes by, in the case of a contest involving only Taxes for which Lessee is liable (a "Lessee-Controlled Contest"), in the Lessee's sole discretion, or, in the case of any other contest (an "Indemnified Person-Controlled Contest"), in such Indemnified Person's sole discretion, (i) resisting payment thereof, (ii) not paying the same except under protest, if protest shall be necessary and proper, or (iii) if payment shall be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings; provided, however, that in no event shall such Indemnified Person be required to contest the imposition of any Tax for which Lessee is obligated pursuant to this Article VIII unless (t) Lessee shall have made all payments than payable under the terms of the Operative Documents; (u) no Lease Event of Default shall have occurred and be continuing; (v) prior to taking such action, Lessee shall have furnished, if requested by such Indemnified Person, such Indemnified Person with an opinion of Dewey Ballantine or other independent tax counsel selected by Lessee and reasonably acceptable to such Indemnified Person to the effect that a reasonable basis exists for such contest; (w) Lessee shall have acknowledged its liability to such Indemnified Person for an indemnity payment pursuant to this Article VIII as a result of such claim or Tax if and to the extent such Indemnified Person shall not prevail in the contest of such claim or Tax, provided that such acknowledgment shall be of no force or effect to the extent the contest is resolved on an articulated basis that clearly does not constitute a basis for indemnification hereunder; (x) Lessee shall have agreed in writing to pay such Indemnified Person all reasonable costs and expenses that such Indemnified Person shall -21- incur in connection with contesting such claim (including all costs, expenses, reasonable legal and accounting fees and disbursements); (y) such Indemnified Person, Indenture Trustee and Owner Participant shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of, or the creation of any Lien (except if Lessee shall have adequately bonded such Lien or otherwise made provision to protect the interests of such Indemnified Person, Loan Participants and Owner Participant in a manner reasonably satisfactory to such Indemnified Person, Indenture Trustee and Owner Participant) on the Facility or any interest therein or in any interference with timely payments of Rent or any amount on the Loan Certificates from time to time becoming due and payable; and (z) if such contest shall involve payment of the claim, Lessee shall advance the amount thereof plus interest, penalties and additions to tax with respect thereto to such Indemnified Person on an interest- free basis and with no additional net after-tax cost to such Indemnified Person. In the sole discretion of an Indemnified Person, any contest required to be pursued by such Indemnified Person pursuant to this Article VIII shall be conducted by Lessee in the name of such Indemnified Person or Lessee. Lessee shall control the conduct (including the choice of forum) of a Lessee-Controlled Contest and the relevant Indemnified Person shall control the conduct (including the choice of forum) of an Indemnified Person-Controlled Contest. In addition, so long as no Lease Event of Default shall have occurred and be continuing, Lessee may, at its expense, in the name of Lessee or, with the consent of such Indemnified Person (which consent will not unreasonably be withheld), in the name of such Indemnified Person, contest (and control the contest of), including by way of suit for refund, any Taxes as to which Lessee would have an indemnity obligation pursuant to Section 8.01, if such contest can be conducted independently of any proceeding involving a tax liability of such Indemnified Person that is not indemnified by Lessee hereunder; provided, however, that Lessee may take no action in contesting any claim if Indenture Trustee, such Indemnified Person or Owner Participant shall have reasonably determined that such action will result in any material danger of sale, forfeiture or loss of, or the creation of any Lien (except if Lessee shall have adequately bonded such Lien or otherwise made provision to protect the interests of such Indemnified Person and Owner Participant in a manner reasonably satisfactory to them) on the Facility or any interest therein or any interference with timely payments of Rent or any amounts on the Loan Certificates from time to time becoming due and payable. (b) Notwithstanding anything contained in Section 8.03(a), an Indemnified Person will not be required to contest or to permit Lessee to contest the imposition of any Taxes if such Indemnified Person (1) shall waive its right to indemnity under this Article VIII with respect to such Taxes and (2) shall pay to Lessee any amount previously paid or advanced by Lessee pursuant to this Article VIII by way of reimbursement with respect to such Taxes. SECTION 8.04. Refunds. If any Indemnified Person shall receive a refund of all or any part of any Taxes paid, reimbursed or advanced by Lessee, such Indemnified Person shall pay to Lessee within 30 days of such receipt an amount equal to the lesser of (a) the amount of such refund plus any net tax benefit (taking into -22- account any Taxes incurred by such Indemnified Person by reason of the receipt of such refund) realized by such Indemnified Person as a result of any payment by such Indemnified Person and pursuant to this sentence, and (b) the tax payment, reimbursement or advance to such Indemnified Person made by Lessee that gave rise to such refund; provided, however, that such Indemnified Person shall not be obligated to make any payment to Lessee pursuant to this or the next succeeding sentence while a Lease Event of Default shall have occurred and be continuing. If, in addition to such refund, such Indemnified Person shall receive or be credited an amount representing interest on the amount of such refund, such Indemnified Person shall pay to Lessee within 30 days of such receipt that proportion of such interest that shall be fairly attributable to Taxes paid, reimbursed or advanced by Lessee prior to the receipt of such refund. SECTION 8.05. Tax Savings. If an Indemnified Person shall realize, against any tax for which an indemnity payment is not required of Lessee pursuant to this Article VIII, any net tax saving or credit from any amount with respect to which Lessee has indemnified such Indemnified Person, its Affiliates or (A) in the case of Owner Participant, any net tax saving or credit with respect to Taxes for which Lessee has indemnified Owner Trustee, or the Trust Estate or (B) in the case of any Loan Participant, any net tax saving or credit with respect to Taxes for which Lessee has indemnified Indenture Trustee or the Indenture Estate (it being understood that any such net tax saving or credit shall not be deemed to exist to the extent that such other person referred to in clause (A) or (B), as the case may be, realizes an unindemnified tax detriment) pursuant to this Article VIII, the Indemnified Person realizing such tax saving or credit, so long as no Lease Event of Default shall have occurred and be continuing, shall pay to Lessee within 30 days after such Indemnified Person shall have realized such tax saving or credit the amount of such saving or credit, together with the amount of any tax saving resulting from any payment pursuant to this sentence; provided, however, that the aggregate amount payable pursuant to this sentence in respect of any tax saving or credit shall not exceed the amount previously paid by Lessee with respect to the Tax that gave rise to such saving or credit. Each Indemnified Person agrees to use its good faith efforts (consistent with its overall tax position) to claim any credit or tax savings available to it that would reduce the amount of Lessee's indemnity obligations under this Article VIII or that would give rise to a payment to Lessee under this Article VIII. SECTION 8.06. Payments. Any amount payable to an Indemnified Person pursuant to this Article VIII shall be paid within 30 days after receipt of a written demand therefor from such Indemnified Person accompanied by a written statement describing in reasonable detail the amount so payable but not before the date 10 days prior to the date that the relevant Taxes are due. SECTION 8.07. Reports. If any report, return or statement is required to be filed with respect to any Taxes that are subject to indemnification under this Article VIII, Lessee shall promptly notify the appropriate Indemnified Person of such requirement and, if permitted by applicable laws to do so, Lessee shall timely file such -23- report, return or statement with respect to such Taxes, except for any such report, return or statement that such Indemnified Person has notified Lessee that such Indemnified Person intends to file; provided, however, that such Indemnified Person shall have furnished Lessee, at Lessee's request and expense, with such information, not within the control of Lessee, as is in such Indemnified Person's control and is reasonably available to such Indemnified Person and necessary to file such report, return or statement; and provided, further, that if Lessee is not permitted by applicable laws to file any such report, return or statement, Lessee will promptly notify the appropriate Indemnified Person that it is not so permitted. With respect to any report, return or statement that is required to be filed with respect to any Taxes that are subject to indemnification under this Article VIII, Lessee shall either show the ownership of the Facility in Lessor and send a copy of such reports return or statement to Lessor and the appropriate Indemnified Person or, where not permitted to so show such ownership, shall promptly notify the Lessor of such requirement and prepare and deliver to the Lessor and the appropriate Indemnified Person a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. SECTION 8.08. Verification. At Lessee's request, the calculation of the amount (but not the existence or scope of any liability for payment under this Article VIII) of any indemnity payment by Lessee pursuant to this Article VIII or any payment by an Indemnified Person to Lessee pursuant to this Article VIII shall be verified and certified by a nationally recognized accounting firm mutually acceptable to such Indemnified Person and Lessee that does not represent either such Indemnified Person or Lessee. The costs of such verification shall be borne by Lessee unless such verification reveals an error in the Indemnified Person's favor of 5% or more of the amount actually payable in which event the cost of such verification shall be borne by the Indemnified Person. ARTICLE IX Special Tax Indemnities ----------------------- SECTION 9.01. Tax Assumptions. The Basic Rent payable by Lessee and Net Economic Return have been computed on the basis of the following tax assumptions: (a) for Federal income tax purposes the Trust Estate will be treated as a trust subject to the provisions of Section 671 through 679 of the Code, and Owner Participant will, as the owner of the entire interest in the Trust Estate, take into account in computing its Federal income tax liability all items of income, loss, gain, deduction and credit (including the MACRS Deductions (as hereinafter defined)) of the Trust Estate; -24- (b) the Lease will be treated as a true lease under which Owner Participant will be treated as owner and lessor and Lessee will be treated as lessee; (c) for Federal income tax purposes, including for purposes of Section 861 of the Code, all amounts includible in the gross income of Owner Participant, Lessor or the Trust Estate with respect to the transactions contemplated by the Operative Documents and all deductions and credits allowable to Owner Participant, Lessor or the Trust Estate with respect to the transactions contemplated by the Operative Documents will be treated as derived from, or allocable to, sources within the United States; (d) the Federal rate of tax on the taxable income of Lessor will be 34%; (e) Owner Participant, as the owner of the Facility Assets as of the Closing Date, will be entitled to such deductions, credits and other benefits as are provided by the Code to an owner of property, including (A) as to an amount (the "Seven-year Amount") equal to 97.800% of Lessor's Cost, deductions for cost recovery with respect to the Facility Assets under Section 168(b)(1) of the Code computed using a seven-year recovery period, the 200% declining-balance method (switching to straight-line) and the half-year convention, resulting in deductions in an amount equal to 14.29% of the Seven-year Amount in the taxable year of Lessor that includes the Closing Date and 24.49%, l7.49%, 12.49%, 8.93%, 8.92%, 8.93% and 4.46% of the Seven-year Amount (such percentages to be calculated to more than two decimal places for purposes of determining the actual deductions) in its succeeding seven taxable years, respectively, (B) an to an amount (the "Nonresidential Real Property Amount") equal to 7.012% of Lessor's Cost, deductions for cost recovery with respect to the Facility under Section 168(b) of the Code computed using a 31.5-year recovery period, the straight-line method and the mid-month convention, resulting in deductions in an amount equal to 3.042% of the Nonresidential Real Property Amount in the taxable year of Lessor that includes the Closing Date, 3.175% in the succeeding thirty taxable years and 1.720% in the last taxable year and (C) as to an amount (the "Fifteen-year amount" equal to .005% % of Lessor's Cost, deductions for cost recovery with respect to the Facility under Section 168(b) of the Code computer using a fifteen-year recovery period, the 150% declining-balance method (switching to straight-line) and the half-year convention, resulting in deductions in an amount equal to 5.00% of the Fifteen-year Amount in the taxable year of Lessor that includes the Closing Date and 9.50%, 8.55%, 7.70%, 6.93%, 6.23%, 5.90%, 5.90%, 5.91%, 5.90%, 5.91%, 5.90%, 5.91%, 5.90%, 5.91% and 2.95% in its succeeding fifteen taxable years, respectively (the deductions referred to in clauses (A), (B) and (c) being hereinafter referred to as the "MACRS Deductions"); -25- (f) neither Owner Participant, Lessor nor the Trust Estate will at any time be required for Federal income tax purposes to include in its gross income any amount with respect to the transactions contemplated by the Operative Documents other than (i) payments of Basic Rent in the amounts specified herein accrued ratably over the six-month period preceding the date on which each such payment is required to be made; (ii) the amount of any payment of Stipulated Loss Value on the date such amount is paid under this Lease (but not earlier than the date an which such amount is required to be paid under this Lease); (iii) any amount paid to Lessor or Owner Participant and specifically identified as interest under the Operative Documents on the date such amount is paid; (iv) any amount paid to Lessor or Owner Participant under the Operative Documents, the calculation of which is specifically determined under the Operative Documents to include any amount necessary to hold Lessor or Owner Participant harmless against the income tax consequences of the receipt or accrual thereof; (v) any amount to the extent offset in the same taxable year of Lessee or Owner Participant in which such amount is included in income by a related deduction of the same tax character which deduction is not otherwise taken into account pursuant to this Section 9.01; (vi) payment by Lessee, of the purchase option price pursuant to its exercise of its purchase option pursuant to Section 4.02 on the date such amount is paid; and (vii) the "good-faith deposit" referred to in Section 6.01(c) of the Participation Agreement, if such good-faith deposit is retained by Owner Participant pursuant to clause (ii) of that Section 6.01(c); (g) Lessor's taxable year that includes the Closing Date will be a full taxable year consisting of 12 months and each taxable year of Lessor thereafter will be the calendar year ending December 31; and (h) Owner Participant will be entitled for Federal income tax purposes to (A) deductions with respect to interest on the Loan Certificates in the amounts and at the times interest is stated to accrue on the Loan Certificates pursuant to Section 163 of the Code and to current deductions with respect to premium, if any, and all other amounts (except principal) paid or accrued on the Loan Certificates (such deductions hereinafter referred to as the "Interest Deductions") and (B) deductions with respect to the amortization of an amount equal to Transaction Expenses with respect to the Facility ratably over the Interim and Basic Terms (such deductions hereinafter referred to as the "Amortization Deductions"). For purposes of Section 9.01(e), the term "Lessor's Cost" does not include any Alterations financed by Lessor or Owner Participant. At the time of any such financing, the assumptions set forth in this Section 9.01 shall be revised to reflect the assumptions applicable to such Alterations. SECTION 9.02. Records. Lessee shall maintain, or cause to be maintained, such records as shall be reasonably necessary in order to verify the factual basis for the matters referred to in this Article IX. Lessee shall make the records -26- referred to in the preceding sentence available, or cause such records to be made available, for inspection by Owner Participant or its authorized agents, during normal business hours at the Facility, upon request by, and five days' prior written notice from, Owner Participant. Lessee shall, at its expense, upon request by Owner Participant, provide a copy of such records which shall be certified to be a true copy by an affidavit attached thereto and executed by an officer of Lessee. Notwithstanding the preceding sentence, Owner Participant or its authorized agents shall have the right to make copies and extracts of any such records at their sole expense. Lessee shall have no obligation to make available its income tax returns and may impose reasonable confidentiality requirements for any information or records provided under this Section 9.02. In addition, Lessee shall have no obligation under this Section 9.02 with respect to records disposed of after Lessee has requested and received Owner Participant's written consent (which consent shall not be unreasonably withheld) for such disposal. SECTION 9.03. Representations, Warranties and Covenants of Lessee. Lessee represents, warrants and covenants that: (a) assuming that Owner Participant is treated as owner of the Facility Assets for Federal income tax purposes, in the hands of Owner Participant the Facility Assets will be eligible for the MACRS Deduction; (b) the Facility Assets will not be treated as "tax-exempt bond financed property" as defined in Section 168(g)(5) of the Code and Owner Participant will not be required, except by reason of an act or omission of Owner Participant unrelated to the transactions contemplated by the Operative Documents, to use the "alternative depreciation system" described in Section 168(g) of the Code; (c) the Facility Assets do not and will not constitute "public utility property" as defined in Section 168(i)(10) of the Code, unless such status shall result from acts or omissions of Owner Participant unrelated to its participation in the transactions contemplated by the Operative Documents, and will not be subject to the provisions of Sections 168(f)(2) of the Code; (d) the Facility Assets will be placed in service no later than the Closing Date; (e) as of the Closing Date, the Facility Assets will require no improvements, modifications or additions (other than the Known Alterations) in order to be rendered complete for their intended use by Lessee and Lessee has no present intention to make any specific non-severable improvements, modifications or additions (other than the Known Alterations and the Work in Progress) to the Facility Assets; (f) all written information supplied by Lessee or any of its Affiliates or either of Sellers or their Affiliates to any independent appraiser or engineer in -27- connection with the appraisal referred to in Section 4.02(t) of the Participation Agreement (and, in the case of written information supplied by either of Sellers or their Affiliates, specifically identified in writing by such appraiser or engineer, and confirmed by Lessee as having been provided by Sellers or their Affiliates), with respect to the description, nature, function, testing and cost of the Facility, including facts relating to its intended use, economic life and residual value, was complete (to the best of Lessee's knowledge) and accurate in all material respects at the time given and on the Closing Date, and neither Lessee nor any Affiliate has any reason to believe that any of the conclusions set forth in the appraisal are in any manner incorrect or misleading; provided, however, that while the projections and estimates made by Lessee or Sellers that are included in such information were made in good faith, Lessee does not make any representations as to the reasonableness or accuracy of any estimates or projections included in such information; (g) no loss, damage, destruction, condemnation, seizure, confiscation, theft, forfeiture, requisition of title or requisition of use with respect to the Facility or any portion thereof that does not constitute an Event of Loss will result in the disallowance, loss, recapture or deferral of all or any portion of the MACRS Deductions or the Interest Deductions; (h) on the Closing Date, there will not be any portion of the acquisition cost of the Facility Assets paid for or incurred by Lessee or any Affiliate thereof for which Lessee shall not have been reimbursed by Owner Participant; (i) the basis of the Facility Assets will not be reduced and the Interest Deductions will not be affected at any time as a result of, or in connection with, the characterization as interest or original issue discount of any amount denominated as principal under any Loan Certificate pursuant to the application of Section 483, 1272, 1273, 1274, 1275 or 7872 of the Code; (j) neither Lessee nor any of its Affiliates has acquired or will acquire any of the Loan Certificates except as permitted by Section 4.02(b); and (k) neither Lessee nor any Affiliate will at any time take any action, directly or indirectly, or file any returns or other documents inconsistent with the tax assumptions set forth in Section 9.01, and Lessee and each Affiliate will file such returns, maintain such records, take such actions and execute such documents an Owner Participant may request in writing as being reasonably necessary to facilitate accomplishment of the intent thereof. SECTION 9.04. Indemnity. If directly as a result of: (A) any act or omission (other than an act or omission expressly required by the Operative Documents and other than (v) the -28- execution and delivery of the Operative Documents, (w) the exercise of Lessee's right to purchase the Facility Assets pursuant to Section 4.02, to renew this Lease pursuant to Section 4.01 or to terminate this Lease early pursuant to Section 4.03, (x) a Refinancing of the Loan Certificates in accordance with Section 8.01 of the Participation Agreement or any assumption by Lessee of the Loan Certificates in accordance with the provisions of Section 4.02(b), (y) the making of the Known Alterations in accordance with the provisions of Section 8.02 of the Participation Agreement and (z) any sublease of the Facility Assets in accordance with the provisions of Section 15.01 to a Person who is not a "tax-exempt entity'" within the meaning of Section 168(h) of the Code) on the part of Lessee, any officer, employee, agent of Lessee, any Affiliate of Lessee, any sublessee, assignee, user or person in possession of the Facility Assets, the Site or any part thereof, or any Person claiming by, through or under Lessee in each case other than Lessor, Owner Participant, their Affiliates or anyone claiming through them (other than Lessee) (any of the foregoing being hereinafter referred to as a "Lessee Person"); or (B) (i) any breach or inaccuracy of any representation, warranty or covenant set forth in Section 9.03 hereof or Section 5.01 or 5.06 of the Participation Agreement an the part of Lessee or any Lessee Person or (ii) any exercise of any remedies by Indenture Trustee or one or more holders of any Loan Certificate resulting from any breach by Lessee of any obligation under the Operative Documents or of any covenant contained therein); or (C) any bankruptcy of Lessee or any Lessee Person or other proceedings for the relief of debtors involving Lessee or any Lessee Person or any foreclosure on or against Lessee or any Lessee Person; or (D) any non-use of, repair or replacement of, or the making of any addition, modification or improvement (other than the Known Alterations or the Work in Progress) to, or any payment of any warranty not permitted to be retained by Lessor or Owner Participant in respect of, the Facility Assets or any part thereof; Owner Participant shall lose, shall suffer a disallowance of, shall suffer a delay in claiming, shall not have the right to claim, shall not claim (based on a written opinion of Cravath, Swaine & Moore or other independent tax counsel selected by Owner Participant and reasonably acceptable to Lessee ("Owner Participant's Tax Counsel") to the effect that there is no substantial authority for such claim (an "Owner Participant Opinion")), or shall be required to recapture all or any portion of the MACRS Deductions, the Interest Deductions or the Amortization Deductions (any such event being hereinafter referred to as a "Loss"), then Lessee shall pay to Owner Participant on an After-Tax Basis as an indemnity not later than 30 days after written notice to Lessee by Owner Participant of such Loss specifying in reasonable detail the calculation of -29- such Loss and the event giving rise thereto, such amount (calculated pursuant to Section 9.09) as shall, taking into account any interest and any penalties and additions to tax payable as a result of and properly attributable to such Loss or any contest of such Loss (net of any deductions currently available for, such interest, penalties or additions), cause Owner Participant's Net Economic Return (computed otherwise on the same assumptions (other than the changed assumptions giving rise to Lessee's payment) as were utilized by Owner Participant in originally computing the Basic Rent set forth in Section 3.01) to equal the Net Economic Return (as so computed) that would have been realized by Owner Participant if such Loss had not occurred. In lieu of such payment Lessee may elect to (i) pay on an After-Tax Basis to Owner Participant, within 30 days after such written notice by, Owner Participant, an amount (calculated pursuant to Section 9.09) equal to the Federal income taxes payable by Owner Participant as a result of such Loss and any interest and any penalties and additions to tax imposed as a result of and properly attributable to such Loss or the contest of such Loss (net of any deductions currently available for such interest, penalties or additions) or (ii) unless this Lease shall have terminated, pay the indemnity described in the next preceding sentence by increasing payments of Basic Rent (commencing on the Rent Date following notice by Owner Participant of such Loss) by such amounts as are necessary, taking into account such indemnity, to preserve Owner Participant's Net Economic Return, adjusted to reflect any increase in the per annum rate paid at the time of determination on five-year Treasury Certificates issued by the United States of America from the rate paid on such Treasury Certificates on the date five days prior to the Closing Date. SECTION 9.05. Foreign Tax Credit Indemnity. If, by reason of the location of the Facility Assets, the Site or any part of any thereof outside the United States prior to the termination of the Lease, any item of income, gain, loss, deduction or credit with respect to the transactions contemplated by the Operative Documents shall not be treated as derived from, or allocable to, sources within the United States for a given taxable year (any such event hereinafter referred to as a "Foreign Allocation"), then Lessee shall pay to Owner Participant on an After-Tax Basis within 30 days after written demand therefor from Owner Participant as an indemnity, an amount equal to the sun of: (1) the excess of (x) the foreign tax credits to which Owner Participant would have been entitled for such year had no such Foreign Allocation occurred over (y) the foreign tax credit to which Owner Participant was limited taking into account such Foreign Allocation; and (2) the amount of any interest and any penalties and additions to tax (taking currently allowable deductions into account) payable as a result of and properly attributable to such Foreign Allocation. The amount payable to Owner Participant pursuant to this Section 9.05 shall be paid not later than 30 days after written demand by Owner Participant accompanied by a written statement describing in reasonable detail such Foreign Allocation and the computation of the amount so payable. SECTION 9.06. Income Inclusion: Reverse Indemnities. (a) If, directly as a result of an event described in Section 9.04 (A), (B), (C) or (D) or directly as a result of the payment by any Lessee Person of any expenses of any Indemnified Person pursuant to Section 8.03(a) or 9.08, at any time Owner Participant, Lessor or the Trust -30- Estate is required to include in its Federal gross income with respect to any period prior to the termination of the Lease (or, if the Lease shall have terminated as the result of an Event of Default, with respect to any period) an amount in respect of the transactions contemplated by the Operative Documents other than the amounts described in Section 9.01(f)(i) through (vii) at the times described therein (an "Income Inclusion"), then Lessee shall pay to Owner Participant on an After-Tax Basis within 30 days after written demand therefor from Owner Participant accompanied by a written statement describing in reasonable detail the calculation of the event giving rise to such Income Inclusion and the computation of the amount so payable, as an indemnity, an amount (calculated in accordance with Section 9.09) equal to the sum of (x) the net aggregate additional Federal, state and local income taxes or franchise taxes based an income payable by Owner Participant from time to time as a result of such Income Inclusion plus (y) the amount of any interest and any penalties and additions to tax (taking currently allowable deductions into account) payable as a result of and properly attributable to any such Income Inclusion. In lieu of such payment Lessee may elect to (i) pay Owner Participant as an indemnity on an After-Tax Basis, within 30 days of such written notice by Owner Participant, such amount (calculated pursuant to Section 9.09) as shall, taking into account any interest and any penalties and additions to tax payable as a result of and properly attributable to such Income Inclusion (net of any deductions currently available for such interest, penalties or additions) cause Owner Participant's Net Economic Return (computed otherwise on the same assumptions (other than the changed assumptions giving rise to Lessee's payment) as were utilized by Owner Participant in originally computing the Basic Rent as set forth in Section 3.01) to equal the Net Economic Return (as so computed) that would have been realized by Owner Participant if such Income Inclusion had not occurred or (ii) unless this Lease shall have terminated, pay the indemnity described in clause (i) above by increasing payments of Basic Rent by such amounts as are necessary to preserve Owner Participant's Net Economic Return, adjusted to reflect any increase in the per annum rate paid at the time of determination on five-year Treasury Certificates issued by the United States of America from the rate paid on such Treasury Certificates on the date five days prior to the Closing Date. (b) If as a result of any such Loss or Income Inclusion with respect to which Lessee shall have paid an indemnity pursuant to Section 9.04 or 9.05 or this Section 9.06, the Federal (or in the case of an Income Inclusion, the Federal, state or local) income taxes paid by Owner Participant for any taxable year shall be less than the amount of such taxes that would have been payable by Owner Participant taking into account the assumptions set forth in Section 9.09 had no such Loss or Income Inclusion occurred and such reduction was not previously taken into account in calculating the amount of Lessee's indemnity obligation, then Owner Participant shall pay Lessee the net amount of such savings in taxes (calculated in accordance with Section 9.09) plus the amount of any additional Federal, state or local income tax benefits realized by Owner Participant as a result of any payment pursuant to this sentence; provided, however, that Owner Participant shall not be obligated to make any payment pursuant to this sentence to the extent that the amount of such payment would exceed (x) the amount of all prior payments by Lessee to Owner Participant pursuant to Section 9.04 -31- or 9.05 or this Section 9.06 in respect of the Loss or Income Inclusion that gave rise to such tax benefits less (y), the amount of all prior payments by Owner Participant to Lessee hereunder. Any payment due to Lessee from Owner Participant pursuant to this Section 9.06(b) shall be paid within 30 days after Owner Participant is deemed to realize any such savings in its income taxes or additional tax benefits, as the case may be. SECTION 9.07. Excluded Losses. Notwithstanding any other provision of Section 9.04, 9.05 or 9.06, no indemnity shall be payable pursuant to Section 9.04, 9.05 or 9.06, if such Loss or Income Inclusion results directly from any of the following events: (a) the failure of Lessor or Owner Participant to have a full taxable year for its taxable year in which the Closing Date occurs, for purposes of claiming cost recovery deductions; (b) a determination by a United States taxing authority that the terms and conditions of the Operative Documents fail to result in this Lease being treated as a true lease for Federal income tax purposes, or that Owner Participant is not the purchaser, owner or lessor of the Facility Assets except if such determination shall result directly from any inaccuracy of the representations, warranties or covenants contained in Section 9.03 (e), (f), (j) or (k) or Section 5.01 (a), (b), (d), (e), (j), or (l) or 5.06 (a), (b), (d) or (e) of the Participation Agreement; (c) the classification as a taxable entity of the trust created by the Trust Agreement (d) noncompliance with Section 467 of the Code except (i) in connection with a change in the rental schedule after a Default or Event of Default shall have occurred or (ii) if any Lessee Person shall deduct any payment of Basic Rent in any period other than the period to which such payment is allocated hereunder unless such Lessee Person shall have received an opinion of Dewey, Ballantine or other independent tax counsel selected by Lessee Person and reasonably acceptable to Owner Participant to the effect that there is no reasonable basis for deducting such payments in the periods to which such payments are allocated under this Lease; (e) the failure of Owner Participant to contest any proposed adjustment that it is required to contest pursuant to Section 9.08 in accordance with such provision; (f) except with respect to any replacement or substitution of the Facility or any part of any thereof, any change in the Code enacted after the Closing Date; -32- (g) except as provided in Section 9.05, the treatment of any item of income, gain, loss or deduction as having been derived from sources outside the United States (under Section 861 of the Code or otherwise); (h) the existence of the provisions set forth in Section 6.01(b) of the Participation Agreement or Section 3.01(a) of this Lease; (i) a voluntary transfer (it being understood that the term "voluntary transfer" does not include any transfer provided for in the Operative Documents (other than pursuant to Article VII of the Participation Agreement or Section 15.02 of this Lease) or any transfer to Lessee or any Affiliate thereof) by Owner Participant of any interest in the Facility or any part thereof or any interest arising under the Operative Documents or from any involuntary transfer by Owner Participant of any of the foregoing interests in connection with any bankruptcy or other proceeding for the relief of debtors in which Owner Participant or Owner Trustee is the debtor (except if such proceeding shall have been caused by Lessee); provided, however, that the exception set forth in this subparagraph (i) shall not apply if any such transfer shall occur at any time while a Lease Event of Default shall have occurred and be continuing; (j) an event which results in Lessee making a payment of Stipulated Loss Value or Termination Value or any amount determined by reference to Stipulated Loss Value or Termination Value; (k) a failure by Owner Participant or Owner Trustee to claim in a timely and proper manner all or any portion of the Federal income tax benefits set forth in Section 9.01 or the inclusion in gross income of an amount with respect to an Income Inclusion in each case unless as a result of the receipt of an opinion described in Section 9.04 that there is no substantial authority for such claim or such exclusion from gross income; (l) Owner Participant or Owner Trustee being or becoming a "tax- exempt entity" within the meaning of Section 168 of the Code; (m) a reorganization, liquidation, merger, consolidation or other structural change of Owner Participant, Owner Trustee or any Affiliate of either thereof unrelated to the Transactions contemplated by the Operative Documents; (n) the imposition of any minimum tax, alternative minimum tax or tax on tax preference items; (o) the application of Section 168(d)(3) of the Code; (p) the treatment of the Facility Assets as "public utility property" within the meaning of Section 168(i)(10) of the Code as a result of the identity -33- or status of Owner Participant or Owner Trustee or any Affiliate of either other than as the result of such party's participation in the Overall Transaction; or (q) the inaccuracy of any conclusion set forth in the appraisal referred to in Section 4.02(t) of the Participation Agreement unless such inaccuracy results in the inaccuracy of Section 9.03(a) hereof or results from the inaccuracy of Section 9.03(f) hereof. SECTION 9.08. Contest Provisions. (a) If the Internal Revenue Service or other appropriate taxing authority shall propose an adjustment in the Federal income taxes of Owner Participant for which Lessee may be required to indemnify Owner Participant pursuant to this Article IX, then Owner Participant shall give Lessee prompt written notice of such adjustment: provided, however, that the failure to so notify Lessee shall not relieve Lessee of its obligations under this Article IX unless such failure precludes Lessee from exercising its contest rights under this Section 9.08. If requested by Lessee in writing within 20 days, Owner Participant shall request an opinion of Owner Participant's Tax Counsel, the cost of which shall be borne by Lessee, as to whether there in a reasonable basis in law and in fact for the contest of such adjustment. If the opinion is to that effect and if Lessee promptly (but no later than 15 days thereafter) requests Owner Participant to do so, Owner Participant shall contest the proposed adjustment in good faith unless the aggregate amount of the indemnity that Lessee would be required to pay with respect thereto would not exceed $200,000; provided, however, that Owner Participant shall determine in its sole discretion the nature of all action to be taken to contest such proposed adjustment including (i) whether any action to contest such proposed adjustment shall initially be by way of judicial or administrative proceedings, or both, (ii) whether any such proposed adjustment shall be contested by resisting payment thereof or by paying the same and seeking a refund thereof and (iii) if Owner Participant shall undertake judicial action with respect to such proposed adjustment, the court or other judicial body before which such action shall be commenced. Although Owner Participant agrees to consult in good faith with Lessee on matters relating to the contest and to consider in good faith timely suggestions from Lessee with respect to the contest (including suggestions as to choice of forum), Owner Participant shall have full control over any contest pursuant to this Section 9.08 and shall not, except as specifically provided below, be obligated to pursue an appeal from any judicial determination. Subject to satisfaction of the other conditions set forth in this Section 9.08, Owner Participant shall be obligated to pursue (but only to one additional judicial level and in no event to the United States Supreme Court), with respect to a determination by a court, an appeal with respect to such determination if Owner Participant shall have received, at the expense of Lessee, an opinion of Owner Participant's Tax Counsel to the effect that the basis in law and in fact for Owner Participant's position exceeds the basis in law and in fact against such position. At any time, whether before or after commencing to take the action set forth in this Section 9.08, Owner Participant may decline to take any such action that it would otherwise be required to take pursuant to this Section 9.08 with respect to all or any portion of a proposed adjustment by notifying Lessee in writing that Lessee is relieved of its obligations to indemnify Owner Participant with respect to the adjustment -34- or such portion, as the case may be, in which event Owner Participant shall repay any indemnity amount previously advanced by Lessee with respect to such adjustment (but not any costs or expenses with respect to any contest). (b) Owner Participant shall not be required to take any action pursuant to this Section 9.08 unless and until Lessee shall have acknowledged its indemnity obligation provided that such acknowledgment shall be of no force or effect if the contest is resolved on an articulated basis that clearly does not constitute a basis for indemnification hereunder and shall have agreed to indemnify Owner Participant in a manner reasonably satisfactory to Owner Participant for any liability or loss which Owner Participant may incur as a result of contesting the validity of any proposed adjustment and shall have agreed to pay to Owner Participant on demand all costs and expenses which Owner Participant may incur in connection with contesting such proposed adjustment (including fees and disbursements of counsel). If Owner Participant determines to contest any adjustment by paying the additional tax and suing for a refund, Lessee shall pay to Owner Participant an amount equal to the sum, on an After- Tax Basis, of any tax, interest, penalties and additions to tax which are required to be paid. Upon receipt by Owner Participant of a refund of any amounts paid by it based on the adjustment in respect of which amounts it shall have previously been paid funds by Lessee, Owner Participant shall pay to Lessee, the amount of such refund net of any tax consequences of the receipt of such refund (or such portion thereof as is properly allocable to the adjustment) together with any interest received by it on such refund and any tax savings resulting from such payment. In lieu of the payment referred to in the second preceding sentence, Lessee may elect to lend to Owner Participant, on an interest-free basis, an amount equal to the sum of any tax, interest, penalties and additions to tax which are required to be paid in order to conduct such contest; provided, however, that Lessee shall have agreed to indemnify Owner Participant, in a manner reasonably acceptable to Owner Participant, for any additional taxes, interest, penalties and additions to tax which Owner Participant may be required to pay in respect of the receipt of such loan. SECTION 9.09. Determination of Payments. (a) Whenever it may be necessary for purposes of this Article IX to determine the amount of any Income Inclusion, or the amount of any tax savings resulting from an Income Inclusion, such determination shall be made on the assumption that the Federal, state and local income taxes of Owner Participant are payable at the highest marginal statutory tax rates in effect for corporate taxpayers for the respective years to which such Income Inclusion or tax savings relate (the "Effective Rate"). When determining the amount of any Loss suffered by Owner Participant, or the amount of any tax savings resulting from a Loss, such determination shall be made on the basis of the assumption that the Federal income taxes of Owner Participant are payable at the rate set forth in Section 9.01(d) (the "Assumed Rate") and on the assumption that in computing its Federal income tax liability, Owner Participant can currently fully utilize the tax benefits that are the subject of any Loss or that result from a Loss against taxes payable at the Assumed Rate. In calculating the amount payable with respect to an Income Inclusion, or the tax savings resulting therefrom, it shall be conclusively presumed that, for any taxable year of -35- Owner Participant, Owner Participant suffers a corresponding Income Inclusion for state and local income tax purposes in any circumstance in which it suffers an Income Inclusion (and realizes corresponding state and local income tax benefits resulting from an Income Inclusion when such benefits are available for Federal income tax purposes) respectively. For purposes of determining the amount of tax savings from any payment by the Owner Participant to Lessee, it shall be assumed that Federal, state and local taxes are payable by Owner Participant at the highest marginal statutory rates in effect for the relevant period. The determination of the amount payable to Owner Participant under this Article IX shall be made by Owner Participant, who shall furnish Lessee with a notice setting forth in reasonable detail the computations and methods used in computing such amount. Lessee agrees that it will not have the right to inspect the tax returns, books, records or any other documents of Owner Participant in connection with any computation pursuant to this Article IX. (b) At the request of Lessee, the calculation of any amount (but not the existence of any liability for payment under this Article IX) payable pursuant to this Article IX and any corresponding adjustment to stipulated Loss Value shall be verified or corrected by a nationally recognized accounting firm mutually acceptable to Owner Participant and Lessee that does not currently represent either Owner Participant or Lessee. The cost of such verification or correction will be borne by Lessee unless the initial calculation was incorrect in the Owner Participant's favor by more than 5% of the amount actually determined in which event the cost of such verification shall be borne by Owner Participant. SECTION 9.10 Affiliated Group. For purposes of this Article IX, the term "Owner Participant" shall include any member of an affiliated group of corporations of which Owner Participant is, or may become, a member if consolidated or combined returns are or shall be filed for such affiliated group for Federal income tax purposes (and, with respect to amounts payable in connection with an Income Inclusion and amounts payable in order to make payments on an After-Tax Basis, if consolidated or combined returns are filed for state or local income tax purposes). SECTION 9.11 Recalculation. If an amount shall be payable pursuant to this Article IX, the schedules of Stipulated Loss Value shall, to the extent appropriate, be adjusted by Owner Participant based on the original assumptions used in preparing such schedules, other than those assumptions changed as a result of the event giving rise to such adjustment. If an Event of Loss or termination or any other event giving rise to a payment of Stipulated Loss Value or an amount determined by reference thereto occurs and as a result thereof the date as of which Owner Participant shall have been affected for Federal income tax purposes shall be earlier than the date assumed in calculating the relevant amount of Stipulated Loss Value, then such Stipulated Loss Value shall be appropriately increased by Owner Participant based otherwise on the same assumptions on which such Stipulated Loss Value was originally calculated. -36- ARTICLE X Lessee Agreements Relating to Facility -------------------------------------- SECTION 10.01 Liens. (a) Lessee shall not directly or indirectly create incur, assume or suffer to exist any Lien on or with respect to the Facility or any portion thereof or interest therein or any part of the Trust Estate or the Indenture Estate, including Basic Rent or Supplemental Rent or any amount or part thereof, except Permitted Liens (including Lessor Liens), and Lessee shall notify each Lessor Party in writing promptly after Lessee becomes aware of the existence of any such Lien, and will promptly, at its sole expense, take such action as may be necessary duly to discharge any such Lien. (b) Nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of any Lessor Party, express or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration to or repair of the Facility, nor as giving Lessee a right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials whether as agent of or o behalf of or to the benefit of any Lessor Party or otherwise, or that would give rise to the filing of any mechanic's or materialman's liens against any Lessor Party's interest in the Facility. Notice is hereby given that neither any Lessor Party nor any of any Lessor Party's agents shall be liable for any labor or materials furnished or to be furnished to Lessee upon credit, and that no mechanic's or other Lien for such labor or materials shall attach to or affect any estate or interest of Lessor in and to the Facility. Nothing contained in this Lease shall be deemed or construed to constitute Lessee as any Lessor Party's agent or contractor for the performance of any work by Lessee on or with respect to the Facility. Lessee hereby acknowledges that any such work performed by Lessee is to be performed solely for the benefit of Lessee and not for the benefit of any Lessor Party. SECTION 10.02 Operation, Maintenance and Completion. (a) Lessee shall at all times (i) operate, service, maintain and repair the Facility (x) in accordance with standards of prudence applicable to the paper industry and standards at least as high as those standards applicable to comparable facilities owned or leased by Lessee, with such operating standards as shall be required to enforce all material warranty claims against dealers, manufacturers, vendors, contractors and subcontractors, and with the terms and conditions of all insurance policies in effect at any time with respect thereto and (y) to the extent required to maintain the Facility in good operating condition and repair, ordinary wear and tear excepted, and to cause the Facility to continue to have the capacity and functional ability to perform, on a continuing basis and in normal commercial operations, the functions for which it was designed, (ii) comply with all Governmental Rules and Governmental Actions affecting the Facility or the use, operation or maintenance thereof (except that Lessee may contest in good faith by appropriate proceedings any such Governmental Rule or Governmental Action so long an such contest does not violate clause (x), (y) or (z) of clause (iii) of the -37- definition of Permitted Liens) and (iii) keep and maintain proper books and records relating to all services rendered and all funds expended for operation and maintenance of the Facility or the acquisition, construction or installation of all Parts and Alterations, all in accordance with customary practices in the paper industry. Except as expressly provided herein, Lessor shall not be obliged in any way to maintain, alter, repair, rebuild or replace the Facility or any part thereof, and Lessee expressly waives the right to perform any such action at the expense of Lessor pursuant to any law at any time in effect. (b) Lessee shall diligently complete or cause to be completed each of the works in progress listed on Schedule 10.02 ("Work in Progress") in such manner that when completed all Work in Progress will (i) have been completed and constructed in a good and workmanlike manner in accordance with good construction and engineering practice and the plans and specifications therefore, (ii) conform in all material respects to the description thereof contained in Schedule 10.02, (iii) have been tested and found to operate satisfactorily, have been placed in commercial operation on a continuing basis and have demonstrated the capacity and functional ability to perform the functions for which such Work in Progress was specifically designed in accordance with the plans and specifications therefor and (iv) comply with all applicable Governmental Rules and Governmental Actions. Upon each part of Work in Progress being completed in accordance with this Section 10.02(b), Lessee shall deliver to each Lessor Party a notice certifying as to such completion. (c) Except in the ordinary course of business, Lessee shall not remove or permit to be removed from the Site any of the Facility Assets, except as permitted by this Lease or any other Operative Documents. (d) Leessee hereby waives any obligation of Lessor under the provisions of O.C.G.A. (S) 44-7-13. SECTION 10.03 Reports. To the extent permissible, Lessee shall prepare and file in timely fashion, or, where Lessor shall be required to file, Lessee shall prepare and deliver to Lessor within a reasonable time prior to the date for filing, any reports with respect to the condition or operation of the Facility that shall be required to be filed with any Governmental Authority. SECTION 10.04 Replacement of Parts. Except after the occurrence of an Event of Loss, Lessee will promptly repair or replace any necessary or useful Part which may from time to time fail to function in accordance with its intended use, or become worn out, destroyed, damaged beyond repair, lost, condemned, confiscated, stolen or seized for any reason whatsoever. In addition, in the ordinary course of maintenance, service, repair or testing, Lessee may remove any Part, but Lessee shall cause such Part to be replaced by a replacement Part as promptly as practicable. All replacement Parts shall be free and clear of all Liens except Permitted Liens and shall be in at least as good operating condition as, and shall have a value and -38- utility at least equal to, the Parts replaced, assuming such replaced Parts were in at least the condition and repair required to be maintained hereunder. Each Part at any time removed from the Facility shall remain the property of Lessor, no matter where located, until such time as such Part shall be replaced by a replacement Part which has been incorporated in the Facility and which meets the requirements for replacement Parts specified above. Immediately upon any replacement Part becoming incorporated in the Facility, without further act, (i) title to the removed Part shall thereupon vest in Lessee or such other Person as shall be designated by Lessee, free and clear of all rights of Lessor Parties, (ii) title to such replacement Part shall thereupon vest in Lessor and be subject to the Indenture and (iii) such replacement Part shall become subject to this Lease and be deemed a part of the Facility for all purposes hereof to the same extent as the Part originally incorporated in the Facility. Prior to or on the date of installation of any replacement Part with a value in excess of $1,000,000 individually or $4,000,000 in the aggregate with other replacement Parts, Lessee will (x) use all reasonable efforts to furnish Lessor with a full warranty bill of sale conveying title to such replacement Part to Lessor free and clear of all Liens except Permitted Liens and (y) furnish each Lessor Party with such evidence of Lessor's title to, and the condition of, such replacement Part as such Lessor Party may request. SECTION 10.05 Required Alterations. Notwithstanding Section 10.09, Lessee shall make all Severable and Non-Severable Alterations to the Facility as may be required from time to time to meet the requirements of Governmental Rules or Governmental Actions. All such Alterations shall be completed in a good and workmanlike manner, with reasonable dispatch. SECTION 10.06 Optional Alterations. Lessee may from time to time make such Severable and Non-Severable Alterations to the Facility which are not required pursuant to Section 10.05 as Lessee may deem desirable in the proper conduct of its business provided that (i) no such Alteration shall materially diminish the value, utility, condition or useful life of the Facility below the value, utility, useful life and condition thereof immediately prior to such Alteration, assuming the Facility was then in at least the condition and repair required to be maintained by the terms of this Lease, and (ii) such Alteration shall not be in replacement of, or in substitution for, any Part originally incorporated in the Facility or any Part title to which shall have vested in Lessor. All such Alterations shall be completed in a good and workmanlike manner, with reasonable dispatch. SECTION 10.07 Reports of Alterations. On or before March 31 of each year and on the Termination Date, Lessee shall furnish each Lessor Party with a report stating the total cost of all Alterations and describing separately and in reasonable detail each Alteration (or related group of Alterations) of value in excess of $1,000,000 made during the period from the date hereof to the end of the preceding calendar year in the case of the first such report or during the period from the end of the period covered by the last previous report to the date one month prior to such report in the case of subsequent reports. -39- SECTION 10.08 Title to Alterations. Title to each Alteration shall without further act vest in Lessor and be deemed to constitute a part of the Facility and be subject to this Lease if such Alteration is required pursuant to Section 10.05 or is a Non-Severable Alteration or is financed by Owner Participant or Lessor pursuant to Section 10.09. If (i) no Event of Default shall exist (or upon all Events of Default having been cured), (ii) such Alteration has not been financed by Lessor or Owner Participant pursuant to Section 10.09 and is not included in Work in Progress and (iii) Lessee shall have provided to each Lessor Party (x) a certificate substantially in the form of Schedule 10.08 of a licensed professional engineer to the effect that such Alteration is not required pursuant to Section 10.05 and is Severable and (y) the written agreement of each Person (other than Lessee) in which title to such Alteration shall vest to be bound by the remainder of this Section 10.08, then title to such Alteration shall vest in Lessee (or any such Person), subject to the rights of Lessor provided in the remainder of this Section 10.08. Any Alteration covered by the preceding sentence may, so long as such removal shall not result in any violation of any Governmental Rule or Governmental Action nor cause any material damage to the Facility and so long as no Default or Event of Default shall exist, be removed by Lessee (or such other Person) prior to delivery of the Facility to Lessor in accordance with the provisions of this Lease upon 30 days' prior written notice to each Lessor Party. However, Lessor may purchase for cash any such Alteration at the time it would have been so removed by giving to Lessee (or such other Person) written notice of its election to do so within 15 days after receipt of such prior written notice. The purchase price of such Alteration shall be the Fair Market Sale Value thereof as of the date of purchase as determined by mutual agreement of Owner Participant and Lessee or, in the absence of such agreement, by the Appraisal Procedure. SECTION 10.09 Funding of Alterations. Certain Alterations may be funded by Lessor or Owner Participant in accordance with Section 8.02 of the Participation Agreement and in accordance with the terms of the Indenture. Lessee shall afford Lessor the opportunity to finance other Alterations on terms mutually acceptable to Lessee and Owner Participant. SECTION 10.10 Identification. Lessee shall maintain in prominent places at the Site (other than in Florida) throughout the Term plates or other appropriate markings bearing the inscription "PROPERTY OF THE CONNECTICUT NATIONAL BANK, AS OWNER TRUSTEE, LESSOR" and, so long as the Facility shall constitute part of the Indenture Estate, the inscription "STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A., AS INDENTURE TRUSTEE, SECURED PARTY" in letters not less than two inches in height. Except as above provided or as otherwise directed by a Lessor Party, Lessee shall not allow the name of any Person other than that of Lessee to be placed on any part of the Facility as a designation that might reasonably be interpreted as a claim of ownership or right to possession or use thereof. SECTION 10.11 Manuals, Logs, Plans and Specifications. Lessee shall keep on file and maintain at the Site manuals and logs relating to the Facility, -40- maintenance and repair reports in sufficient detail to indicate the nature and date of major work done and a complete set of all plans and specifications for the Facility, and shall make such manuals, logs, reports and plans and specifications available to any Lessor Party upon reasonable request. Unless the Facility shall have been Transferred to Lessee pursuant to this Lease, on the Termination Date Lessee shall deliver to Lessor a complete set, current as of the Termination Date, of all such manuals, logs, reports and plans and specifications, and all work drawings and similar documents with respect to this Facility. ARTICLE XI Insurance --------- SECTION 11.01. Coverage. Without limiting any of the other obligations or liabilities of Lessee under this Lease, Lessee will at all times during the Term carry and maintain at least the following minimum insurance coverage with respect to the Facility in each case with insurers of recognized responsibility and acceptable to Owner Participant and Indenture Trustee: (i) Comprehensive general liability insurance in an amount not less than $100,000,000 including premises/operations, broad form contractual, products and completed operations, independent contractors, broad form property damage and personal injury; (ii) Workers compensation insurance in compliance with applicable laws and employer's liability insurance in an amount not less than $100,000,000; (iii) Auto liability insurance in an amount not less than $100,000,000 covering owned, non-owned and hired, vehicles; (iv) All-risk property insurance covering loss or damage to the Facility including fire and extended coverage, collapse, flood, earthquake and comprehensive boiler machinery including production equipment, written in a minimum amount of $200,000,000 (computed as the sum of actual insurance coverage plus the then existing deductible only to the extent permitted hereunder); and (v) Business interruption insurance written on a gross earnings form covering loss of net profits and continuing expenses including Rent payments, written in an amount equivalent to the sum of two years of net profits, continuing expenses and Rent payments and not including any coinsurance penalty; and in any event shall maintain insurance in amounts and against risks which are not less than that which is customarily maintained with respect to similar properties owned, -41- leased or operated by Lessee. The amounts of insurance specified above may not be reduced and the amount of the deductible or self-insured retention shall not exceed $25,000,000 without the prior written consent of Owner Participant and Indenture Trustee. Any insurance described in this Section 11.01 may be carried under blanket policies maintained by Lessee or its Affiliates so long as such policies otherwise comply with the provision or its Affiliates of this Section 11.01. SECTION 11.02 Endorsements. Any insurance carried in accordance with Section 11.01 shall provide or be endorsed to provide: (i) with respect to the insurance referred to in Section 11.01(i) and (iii), Lessor, Owner Participant and Indenture Trustee are named as additional insureds with the understanding that any obligation imposed upon the insured (including the liability to pay premiums, but excluding any obligation of the insured to cooperate with any insurer or any insurer's representative in the investigation, defense or settlement of any claim covered under such insurance) shall be the sole obligation of Lessee and not that of any other insured; and with respect to the insurance referred to in Section 11.01(iv) and (v), Lessor, Owner Participant and Indenture Trustee are named as loss payees; (ii) proceeds received under any policy shall be payable in accordance with Section 11.04; (iii) the insurer thereunder waives all rights of subrogation against Lessor, any Participant and Indenture Trustee; (iv) such insurance shall be primary without right of contribution from any other insurance carried by or on behalf of Lessee, Lessor, Owner Participant, Indenture Trustee, any Loan Participant or any other Person with respect to its interest in the Facility except in the event of loss or liability resulting solely from such Person's gross negligence; (v) with respect to all liability insurance, all terms, conditions, insuring agreements and endorsements, with the exception of limits of liability, shall operate in the same manner as if there were a separate policy covering each insured; (vi) if insurance (other than that provided by Oil Insurance Limited) is cancelled for any reason other than non-payment of premium, such cancellation shall not be effective as to additional insureds and/or loss payees named on the policies until 30 days after written notice of cancellation is tendered by the insurer to each of them; if insurance (other than that provided by Oil Insurance Limited) is cancelled by reason of non-payment of premium, such cancellation shall not be effective as to additional insureds and/or loss payees named in the policy until 10 days after written notice of cancellation is tendered by the insurer to each of them; upon any cancellation or notice of impending cancellation of -42- insurance provided by Oil Insurance Limited, Lessee will immediately give written notice of such cancellation or impending cancellation to Owner Participant and Indenture Trustee; and (vii) to the extent a material change endorsement is commercially available, the policies shall be endorsed to provide that any material change or reduction in the coverage shall not be effective as to additional insureds or loss payees named an the policies until 30 days after written notice of such change or reduction is tendered to each of them; to the extent such an endorsement is not commercially available, Lessee shall promptly give notice of any such material change or reduction in the coverage to Owner Participant and Indenture Trustee. SECTION 11.03 Adjustment of Losses. The loss, if any, covered under any insurance required to be carried by paragraph (iv) or (v) of Section 11.01 shall be adjusted with the insurance companies or otherwise collected including the filing of appropriate proceedings, by Lessee, subject to the approval of Owner Participant and Indenture Trustee if the loss exceeds $25,000,000. SECTION 11.04 Application of Insurance Proceeds. Subject to Section 12.04, all insurance proceeds (except under insurance described in Section 11.06) up to $10,000,000 on account of any physical loss or damage to the Facility or any part thereof (less the actual costs, fees and expenses incurred in the collection thereof) shall be paid to Lessee, and all insurance proceeds (except under insurance described in Section 11.06) equal to or greater than $10,000,000 in the aggregate on account of such physical loss or damage shall be paid to Indenture Trustee (or to Lessor after discharge of the lien of the Indenture) and all such proceeds shall be applied or dealt with as follows: (a) All such proceeds not in respect of an Event of Loss shall be paid over to Lessee or as it may direct from time to time as restoration progresses, to pay (or reimburse Lessee for) the cost of restoration, if the amount of such proceeds received by Indenture Trustee or Lessor, together with such additional amounts, if any, theretofore expended by Lessee out of its own funds for such restoration, are sufficient to pay the estimated cost of completing such restoration, then, but only upon a written application and an Officer's Certificate of Lessee showing in reasonable detail the nature of such restoration, the actual cash expenditures made to date for such restoration and the estimated cost to complete such restoration and stating that no Default or Event of Default exists (which certification shall be concurred in by a licensed professional engineer). Upon the written request of Lessee, accompanied by evidence satisfactory to Owner Participant and Indenture Trustee that such restoration has been completed and the costs thereof paid in full and that there are no mechanics' or similar Liens for labor or materials supplied in connection therewith, the balance, if any, of such proceeds shall be paid over or assigned to Lessee or as it may direct. -43- (b) All such proceeds in respect of an Event of Loss shall be dealt with in accordance with Section 12.02. SECTION 11.05 Evidence of Insurance. On or before the execution of this Lease and thereafter on the anniversary date hereof, Lessee shall cause to be furnished to each Lessor Party (a) certifications, executed by each insurer or by an authorized representative of each insurer where it is not practical for such insurer to do so, with respect to all insurance relating to the Facility, identifying underwriters, type of insurance, insurance limits (including applicable deductibles) and policy term and specifically listing the special provisions required by Section 11.02 and (b) an Officer's Certificate of Lessee and a certificate of an independent insurance broker, each specifying the full insurable value of the Facility and stating that all premiums then due have been paid and that, in the opinion of the signer or signers thereof, is in accordance with the terms of this Article XI. Upon request, Lessee will furnish each Lessor Party with copies of all insurance policies, binders and cover notes or other evidence of such insurance. SECTION 11.06 Additional Insurance. Nothing in this Article XI shall prohibit any Lessor party from maintaining, at its expense, additional insurance for its own account with respect to loss or damage to the Facility or any part thereof. SECTION 11.07 Insurance Report. Concurrently with the furnishing of the certification referred to in Section 11.05(b), Lessee shall provide a report from an independent insurance broker stating that all premiums then due have been paid and that, in the opinion of such broker, the insurance then carried and provided through such broker and maintained is in accordance with the terms of this Article XI. Furthermore, Lessee shall cause such broker to advise Lessor promptly in writing of any default in the payment of any premiums or any other act or omission on the part of any Person of which such broker has knowledge which might invalidate or render unenforceable in whole or in part, any insurance provided through such broker hereunder. Lessor may at its sole option obtain such insurance if not provided by Lessee and, in such event, Lessee shall reimburse Lessor upon demand for the cost thereof. ARTICLE XII Events of Loss -------------- SECTION 12.01 Payment of Stipulated Loss Value. If the Facility or any substantial part thereof shall suffer an Event of Loss or substantial destruction, damage, loss, condemnation, confiscation, theft or seizure for any reason whatsoever, such fact shall promptly, and in any event within five Business Days, be reported by Lessee to each Lessor Party. If an Event of Loss shall occur, Lessee shall pay as compensation for the Event of Loss the Stipulation Loss Value determined as of the Rent Date next preceding the occurrence of the Event of Loss. From the date of the Event of Loss to and including the date of payment of such Stipulated Loss Value -44- hereinafter specified, all Rent shall continue to the paid when due. Such Stipulated Loss Value shall be paid on the Rent Date next succeeding the occurrence of the Event of Loss, unless the Event of Loss shall have occurred less than 30 days prior to such Rent Date, in which case such Stipulated Loss Value, together with interest thereon at the Payment Rate from such Rent Date to and including the date of payment, shall be paid on the 60th day after the date of such occurrence. Upon payment in full of such Stipulated Loss Value, together with all Rent due and owing through and including the date of such payment and such interest, if any, the Term shall end and Lessor shall Transfer the Facility to Lessee. SECTION 12.02 Application of Other Payments on an Event of Loss. Any payments (except under insurance described in Section 11.06) received at any time by any Lessor Party or Lessee from any Governmental Authority insurer or other Person (except Lessee) as a result of the occurrence of an Event of Loss shall be applied as follows: (a) all such payments received at any time by Lessee shall be promptly paid to Indenture Trustee (or Lessor after release of the lien of the Indenture) for application pursuant to the following provisions of this Section 12.02, except that Lessee may retain any amounts that would at the time be payable to Lessee as reimbursement under the provisions of paragraph (b) below; (b) so much of such payments as shall not exceed the Stipulated Loss Value required to be paid by Lessee pursuant to Section 12.01 shall be applied in reduction of Lessee's obligation to pay such amount if not already paid by Lessee or, if already paid by Lessee, shall be applied to reimburse Lessee for its payment of such amount; and (c) the balance, if any, of such payments remaining thereafter shall be divided between Lessor and Lessee as their interests may appear except that any such balance resulting from such insurance shall be paid to Lessee. SECTION 12.03 Application of Payments Not Relating to an Event of Loss. Unless a Default or Event of Default shall exist, payments (except under insurance described in Section 11.06) received at any time by any Lessor Party or Lessee from any Governmental Authority, insurer or other Person with respect to any destruction, damage, loss, condemnation, confiscation, theft or seizure of or requisition of title to or use of the Facility or any part thereof not constituting an Event of Loss shall be paid to or retained by Indenture Trustee (or Lessor after release of the lien of the Indenture) and first shall be applied in accordance with the provisions of Section 11.04(a) (other than the last sentence thereof) to restore or replace what has been destroyed, damaged, lost, condemned, confiscated, stolen, seized or requisitioned, and second in accordance with the provisions of Section 12.02. SECTION 12.04 Other Dispositions. Notwithstanding the foregoing provisions of this Article XII, so long as a Default or Event of Default shall exist, any -45- amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, Lessee pursuant to Article XI or this Article XII shall be paid to Indenture Trustee (or Lessor after release of the lien of the Indenture) as security for the obligations of Lessee under this Lease and, at such time thereafter as no Default or Event of Default shall exist, such amount shall be paid promptly to Lessee unless this Lease shall have theretofore been declared to be in default, in which event such amount shall be disposed of in accordance with the provisions hereof, of the Indenture and of the Trust Agreement. ARTICLE XIII Events of Default ----------------- The term Event of Default shall mean any of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or come about or be effected by operation of law or be pursuant to or in compliance with any Governmental Rule): (a) Lessee shall fail to pay (A) Basic Rent or Stipulated Loss Value within 5 days after payment thereof shall have become due or (B) Supplemental Rent or any other payment under the Operative Documents within 15 days after payment thereof shall have become due; (b) Lessee shall fail to maintain insurance as required by Article XI; (c) Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under Section 7.02(b), 7.02(c), 7.03, 7.04, 7.05 or 7.06; (d) Lessee shall fail to perform or observe any other covenant, condition or agreement to be performed or observed by it under this Lease (other than Article VIII and IX) or any Operative Document (other than Section 6.06 of the Participation Agreement) and such failure shall continue for a period of 45 days (180 days if such failure is capable of being cured (other than solely by payment of money) by Lessee and Lessee if proceeding diligently to cure such failure) after the earlier to occur of (A) Actual Knowledge of such failure by a Responsible Officer of Lessee and (B) receipt by Lessee of notice specifying such failure and requiring it to be remedied; provided that failure to perform or observe any covenant, condition or agreement set forth in Section 7.02(a) with respect to compliance with environmental Governmental Rules or Governmental Actions shall not be an Event of Default under this paragraph (d) unless (x) with respect to events for which the aggregate amount of outstanding Cleanup Costs then known to Lessee could reasonably be expected to exceed $25 million in the aggregate (but excluding from such calculation each event not relating to the Other Facility having a Cleanup Cost not exceeding $5 million and each event -46- relating to the Facility or the Other Facility having a Cleanup Cost not exceeding $100,000), after giving effect to the aggregate amount of all such Cleanup Costs, on a pro forma basis as of the end of the last calendar month immediately prior to the expiration of the applicable grace period (treating such Cleanup Costs as a reduction of Net Worth), Lessee would be unable to pay or declare any Restricted Payment under the terms of Section 7.06 or (y) with respect to events related to the Facility for which the aggregate amount of outstanding Cleanup Costs then known to Lessee could reasonably be expected to exceed $10 million in the aggregate (but excluding from such calculation any such event having a Cleanup Cost not exceeding $100,000), as of the end of the last calendar month immediately prior to the expiration of the applicable grace period, the aggregate outstanding principal amount of the Loan Certificates would be more than 80% of the Fair Market Sale Value of the Facility taking into account the existence of each event having a Cleanup Cost equal to or exceeding $100,000 and the aggregate amount of Cleanup Costs which could reasonably be expected to be associated with all such events (any such deficiency, herein the "Loan to Value Deficiency"); provided, further, that Lessee shall have an additional period of 30 days to cure any event that would otherwise be an Event of Default under the preceding clause (y) by providing to Lessor and Indenture Trustee such collateral, letters of credit or other arrangements (herein the "Deficiency Collateral") which are in all respects satisfactory to Lessor and Indenture Trustee in order to secure Lessee's obligations under this Lease in an amount equal to the Loan to Value Deficiency (it being understood that such Deficiency Collateral shall be released by Lessor and Indenture Trustee at such time as Lessee shall have demonstrated to each thereof that there no longer would exist an Event of Default under such clause (y) without the additional credit support provided by the Deficiency Collateral; (e) any representation or warranty made by Lessee (other than in Section 9.03) hereunder or under the Participation Agreement shall prove to have been incorrect in a material respect as of the date when made, provided that (i) such representation or warranty shall continue to be material at the time it has been discovered to be incorrect and (ii) if the event or condition causing such representation or warranty to be incorrect is capable of being remedied, such event or condition shall not have been remedied within 45 days after the earlier to occur of (A) Lessee obtaining Actual Knowledge of such incorrectness and (B) written notice of such incorrectness having been given to Lessee by Lessor or Indenture Trustee or (iii) if the event or condition causing such representation or warranty to be incorrect is not capable of being cured, upon written notice from any Participant; (f) Lessee shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent -47- to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing, or an involuntary case or other proceeding shall be commenced against Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or similar law now or hereafter in effect or the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; (g) with respect to any Debt of Lessee in excess of $25,000,000, failure to pay such Debt at maturity or beyond any applicable grace period or a default or event of default in respect thereof which results in acceleration of the maturity of such Debt; (h) final judgment for the payment of money in excess of $25,000,000 shall be rendered against Lessee and Lessee shall not, within 30 days from the entry thereof, have discharged the same or provided for its discharge in accordance with its terms or bonded the same or procured a stay of execution thereof; or (i) an Event of Default as defined in the other Lease shall have occurred and be continuing, and the Loan Certificates associated with such other Lease shall have been accelerated. ARTICLE XIV Enforcement ----------- SECTION 14.01 Remedies. If an Event of Default shall have occurred and be continuing, Lessor may at any time thereafter exercise one or more of the following as Lessor in its sole discretion shall elect: (a) Lessor may, by notice to Lessee, declare this Lease to be in default or rescind or terminate this Lease; (b) Lessor may (i) demand that Lessee, and thereupon Lessee shall, return the Facility promptly to Lessor in the manner and condition required by, and otherwise in accordance with the provisions of, this Lease as if the Facility were being returned at the and of the Term and (ii) enter upon the premises where the Facility shall be located and take immediate possession of (to the exclusion of Lessee) the Facility, or remove the Facility, or both, by summary proceedings or otherwise, all without incurring liability to Lessee for or by -48- reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise; provided that no reentry or taking possession of the Facility by Lessor shall be construed as an election on its part to terminate this Lease unless Lessor gives written notice to Lessee of such intention or the termination thereof shall be decreed by a court of competent jurisdiction; provided further that notwithstanding any reletting without termination, Lessor may at any time thereafter elect to terminate this Lease for such previous default; and provided further that Lessee does hereby waive any defense to any action by Lessor to obtain possession of the Facility, which defense is based upon payment of the Rent and related expenses claimed in any such proceeding after filing of a complaint for such possession by Lessor; (c) Lessor may sell the Facility, with or without any of its interest under the Ground Lease, the Support Agreement and the License Agreement, or any part thereof, at public or private sale, as Lessor may determine, free and clear of any rights of Lessee and without any duty to Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by paragraph (e) or (f) below if Lessor shall elect to exercise its rights thereunder) in which event Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be (except to the extent that Basic Rent is to be included in computations under paragraph (e) or (f) below if Lessor shall elect to exercise its rights thereunder); (d) Lessor may hold, keep idle or lease to others all or any part of the Facility, as Lessor in its sole discretion may determine, free and clear of any rights of Lessee and without any duty to Lessee with respect to such action or inaction or any proceeds with respect to such action or inaction, except that Lessee's obligation to pay basic Rent for periods commencing after Lessee shall have been deprived of use of the Facility pursuant to this paragraph (d) shall be reduced by the net proceeds, if any, received by Lessor from leasing the Facility to any Person other than Lessee for the same periods or any portion thereof; (e) Lessor may, whether or not Lessor shall have exercised or shall thereafter at any time exercise its rights under paragraph (b), (c) or (d) above, demand, by written notice to Lessee specifying a payment date which shall be a Rent Date not earlier than 10 days after the date of such notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Rent Date specified in such notice, because it would be extremely impracticable and difficult to calculate the damage and harm which Lessor would suffer due to Lessee's default, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due after the Rent Date specified in such notice) any unpaid Rent due through and including the Rent Date specified in such notice plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Designated Rate from the Rent Date specified in such notice to the date of actual payment), and Lessee and -49- Lessor hereby acknowledge that any such amount will be a reasonable estimate of the total damage that Lessor will suffer due to Lessee's default: (i) an amount equal to the excess, if any, of Stipulated Loss Value, computed as of the Rent Date specified in such notice, over the Fair Market Rental Value of the Facility until the end of the remaining useful life of the Facility, after discounting such Fair Market Rental Value semiannually to present value as of the Rent Date specified in such notice at a rate of 10% per annum; (ii) an amount equal to the excess, if any, of such Stipulated Loss Value over the Fair Market Sale Value of the Facility as of the Rent Date specified in such notice; (iii) an amount equal to the excess of (A) the present value as of the Rent Date specified in such notice of all installments of Basic Rent until the end of the Basic Term or applicable Renewal Term, discounted semiannually at a rate of 10% per annum, over (B) the present value as of such Rent Date of the Fair Market Rental Value of the Facility until the end of the Basic Term or applicable Renewal Term, discounted semiannually at a rate of 10% per annum; or (iv) an amount equal to such Stipulated Loss Value and, in this event, upon full payment by the Lessee of all sums due hereunder and under all other Operative Documents, Lessor shall Transfer the Facility to Lessee, whereupon this Lease shall terminate; (f) if Lessor shall have sold all the Facility, together with its interest under the Support Agreement, the License Agreement and the Ground Lease, pursuant to paragraph (c) above, Lessor, in lieu of exercising its rights under paragraph (e) above with respect to the Facility, may demand, because it would be extremely impracticable and difficult to calculate the damage and harm which Lessor would suffer due to Lessee's default, that Lessee pay to Lessor and Lessee shall pay to Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Rent Date following the date of such sale) any unpaid Rent due through such Rent Date, plus the amount of any deficiency between the net proceeds of such sale and Stipulated Loss Value, computed as of such Rent Date, and the net proceeds of such sale, together with interest at the Designated Rate on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment, and Lessee and Lessor hereby acknowledge that the foregoing is a reasonable estimate of the total damage that Lessor will suffer due to Lessee's default; or -50- (g) Lessor may exercise any other right or remedy that may be available to it under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. SECTION 14.02 No Release. No rescission or termination of this Lease, in whole or in part, or repossession of the Facility or exercise of any remedy under Section 14.01 shall, except as specifically provided therein, relieve Lessee of any of its liabilities and obligations hereunder. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by any Lessor Party by reason of the occurrence of any Default or Event of Default or the exercise of Lessor's remedies with respect thereto and including all costs and expenses incurred in connection with the return of the Facility in the manner and condition required by, and otherwise in accordance with the provisions of, this Lease as if the Facility were being returned at the end of the Term. At any sale of the Facility or any part thereof pursuant to Section 14.01, any Lessor Party may bid for and purchase such property. SECTION 14.03 Remedies Cumulative. To the extent permitted by, and subject to the mandatory requirements of, applicable law, each and every right, power and remedy under Section 14.01 or otherwise available to Lessor shall be cumulative and shall be in addition to every other right, power and remedy, and each and every right, power and remedy may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor, and the exercise or the beginning of exercise of any such right, power or remedy shall not exhaust the same or be construed to be a waiver of the right to exercise at the same time or thereafter the same or any other right, power or remedy. No delay or omission by Lessor in the exercise of any right, power or remedy shall restrict Lessor from exercising the same or any other right, power or remedy thereafter nor be construed to be a waiver of any Default or Event of Default or to be an acquiescence therein. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. To the extent permitted by applicable law, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise that may require Lessor to sell, lease or otherwise use the Facility or any part thereof in mitigation of Lessor's damages or that may otherwise limit or modify any of Lessor's rights or remedies under this Article XIV. ARTICLE XV Assignments and Subleases ------------------------- SECTION 15.01 Assignment or Sublease by Lessee. Except with the prior written consent of each Lessor Party, Lessee shall not assign, transfer or encumber (except for Permitted Liens) all or any of its leasehold interest or other rights under this Lease nor sublease the Facility or any part thereof if such amendment, modification, -51- supplement or waiver would have a material adverse affect on Lessee or the Facility) unless (i) the sublessee is a United States Affiliate of Tenneco Inc. or a corporation consented to by owner Participant and Indenture Trustee (such consent not to be unreasonably withheld) or whose long-term unsecured debt obligations are rated at least investment grade by Moody's (ii) such sublease shall not extend beyond the end of the Basic Term, shall prohibit further subleasing and shall require the sublessee to operate the property subleased for its intended purpose and to comply with all operating permits and with covenants relating to maintenance and environmental standards at least as rigorous as those set forth in this Lease, (iii) such sublease shall not impair or diminish any of the rights of any Lessor Party or obligations of Lessee hereunder or under any other Operative Document, which rights and obligations shall continue in full force and effect as though no sublease had been made, (iv) Owner Participant shall have received an opinion from its tax counsel that such sublease would not cause an unindemnified event causing the loss of tax benefits, (v) such sublease shall be expressly subject and subordinate to the provisions of this Lease and the Operative Documents, including the rights of Lessor to enforce remedies under Article XIV if an Event of Default shall exist, and (vi) Lessee shall have effectively assigned to Lessor as security for the performance by Lessee of its obligations hereunder, in a manner satisfactory to each Lessor Party, such sublease and all rentals and other proceeds payable thereunder. Lessee shall not, without the prior written consent of each Lessor Party, part with the possession or control, or suffer or allow to pass out of its possession or control, the Facility or any part thereof, except to the extent permitted by the provisions of this Lease. Lessee shall give each Lessor Party written notice of any such assignment transfer or encumbrance. SECTION 15.02 Assignment by Lessor; Security for Lessor's Obligations to Indenture Trustee. Lessor may assign, transfer or encumber this Lease or all or any of its interests and rights hereunder without the consent of Lessee if, in the case of an assignment, the assignee or, in the case of an assignment to a trustee, the beneficiary of the trust or the parent of such assignee or beneficiary who has guaranteed the obligations of such assignee or beneficiary, has a net worth of at least $100 million. In addition, in order to secure the indebtedness evidenced by the Loan Certificates, the Indenture provides, among other things, for the assignment by Lessor to Indenture Trustee of its right, title and interest in, to and under this Lease, to the extent set forth in the Indenture, and for the creation of a mortgage lien on and security interest in the Facility in favor of Indenture Trustee. Lessee hereby consents to such assignment and to the creation of such mortgage and security interest and acknowledges receipt of copies of the Indentures. Lessee hereby further consents to any assignment arising as a consequence of or at any time subsequent to the exercise of remedies pursuant to the Indenture, including any assignment to or by any purchaser at a foreclosure sale. Lessee will furnish to Indenture Trustee, counterparts of all writings required to be delivered hereunder by Lessee to Lessor. Unless and until Lessee shall have received written notice from Indenture Trustee that the lien of the Indenture has been discharged, (i) Lessee shall make all payments of Basic Rent, and all other amounts payable hereunder to Lessor to the extent assigned to Indenture Trustee, to Indenture Trustee at such office as Indenture Trustee may specify from time to time by notice to Lessor and Lessee, and -52- the right of Indenture Trustee to receive all such payments shall not be subject to any defense, counterclaim, setoff or other right or claim of any kind which Lessee may be able to assert against Lessor or Owner Participant in an action brought by either thereof on this Lease and (ii) to the extent provided in the Indenture, Indenture Trustee shall have the right to exercise the rights of Lessor under this Lease (and, without prejudice to Lessee's rights under other Operative Documents, Lessor shall have no liability to Lessee hereunder for acts of Indenture Trustee which interrupt Lessee's possession or use of the Facility unless such acts are at the request or direction of Lessor) and Lessee shall have no liability to Lessor for reasonably relying on instructions of Indenture Trustee pursuant to this sentence. ARTICLE XVI Miscellaneous ------------- SECTION 16.01 Further Assurances. Lessee shall cause the Operative Documents and any amendments, supplements and modifications to any of them (together with any other instruments, financing statements, continuation statements records or papers necessary in connection therewith) to be recorded and/or filed and rerecorded and/or refiled in each jurisdiction as and to the extent necessary in order to, and shall take such other actions as may from time to time be necessary to, establish, perfect and maintain (a) Lessor's right, title and interest in and to the Facility, subject to no Liens other than Permitted Liens, (b) for the benefit of Indenture Trustee and the holders of Loan Certificates, the first mortgage lien and first priority security interest provided for in the Indenture and (c) each of the rights and other interests created by the Indenture or by any other Operative Document in any Participant, Lessor, Indenture Trustee or any holder of a Loan Certificate. Lessee will promptly and duly execute and deliver to each Lessor Party such documents and assurances and take such further action as any of them may from time to time reasonably request in order to carry out more effectively the intent and purpose of this Lease and to establish and protect the rights and remedies created or intended to be created in favor of Lessor, and to establish, perfect, and maintain Lessor's rights, title and interest in and to the Facility and, for the benefit of Indenture Trustee, the first mortgage lien and first priority security interest provided for in the Indenture, including, if requested by any Lessor Party, the recording or filing of counterparts or appropriate memoranda of any Operative Document or of such financing statements or other documents with respect hereto as any Lessor Party may from time to time reasonably request. Lessee shall, at the time Lessee shall furnish its annual financial statements pursuant to Section 6.03 of the Participation Agreement, furnish to each Lessor Party an opinion of counsel for Lessee (which may be regularly employed by Lessee), satisfactory to each Lessor Party, stating that all recordings and filings, if any, necessary or advisable to perfect or continue the perfection of Lessor's rights title and interest in and to the Facility and any Parts and Alterations incorporated in the Facility pursuant to Article X, and to perfect or continue the perfection for the benefit of -53- Indenture Trustee of a valid first mortgage lien and first priority security interest in the Indenture Estate provided for in the Indenture, have been made and stating the requirements of applicable law with respect to the rerecording or refiling of such documents in order to continue and preserve such right, title and interest and such first mortgage lien and first priority security interest. SECTION 16.02 Notices. Unless otherwise specifically provided herein, all notices and other communications required or permitted hereunder shall be in writing and shall be addressed and became effective as provided in the Participation Agreement. SECTION 16.03 Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect. SECTION 16.04 Survival. The representations, warranties and indemnities of the parties provided for in the Operative Documents and the parties' obligations under any and all thereof shall survive the execution and delivery of this Lease, the investment by Owner Participant, the issuance of the Loan Certificates, any disposition of any interest of any Lessor Party in the Facility and the expiration, cancellation or other termination of any of the Operative Documents, and shall be and continue in effect notwithstanding any investigation made by any of such parties and the fact that any Lessor Party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. The obligations of Lessee to pay Supplemental Rent and the obligations of Lessee under Articles VIII and IX and Sections 5.01, 7.01 and 16.12 shall survive the expiration or termination of this Lease. The extension of any applicable statute of limitations by Lessor, Indenture Trustee, Lessee, any Participant or any Indemnified Person shall not affect such survival. SECTION 16.05 Successors and Assigns. This Lease shall be binding upon and inure to the benefit of Lessee, Lessor Parties and their respective successors and permitted assigns, and, to the extent provided in the next sentence, each Indemnified Person and its successors and assigns. The obligations of Lessee under Articles VIII and IX and Section 7.01 are expressly made for the benefit of, and shall be enforceable by, any Indemnified Person or Person indemnified thereunder, separately or together, without resorting to any other right of indemnification or declaring this Lease to be in default and notwithstanding any assignment by Lessor of this Lease or any of its rights hereunder or any disposition by any Lessor Party of all or any part of its interest in the Facility or the Operative Documents. All payments required to be made pursuant to such Sections shall be made directly to, or as otherwise requested by, the Indemnified Person entitled thereto upon written demand by such Indemnified Person. -54- SECTION 16.06 Amendment. Except where any necessary consent is otherwise expressly stated, neither this Lease nor any of the terms hereof may be terminated, amended, supplemented waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination amendment, supplement, waiver or modification shall be sought and, in the case of Lessor, consented to by Owner Participant and Indenture Trustee, except as otherwise expressly sot forth in Section 9.01 of the Indenture. SECTION 16.07 Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions, hereof. SECTION 16.08 Counterparts. This Lease may be executed by the parties hereto in separate counterparts. All such counterparts shall together constitute but one and the same instrument. It shall not be necessary for any counterpart to bear the signature of both parties. SECTION 16.09 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THAT WISCONSIN LAW MAY BE MANDATORILY APPLICABLE HERETO. SECTION 16.10 True Lease. This Lease is an agreement of lease and does not convey to Lessee any right, title or interest in or to the Facility except as a lessee. SECTION 16.11 Liabilities of Owner Trustee. The Connecticut National Bank is entering into this lease solely as trustee as provided in the Trust Agreement and not in its individual capacity, and in no case whatsoever shall The Connecticut National Bank be personally liable for, or for any loss in respect of, any of the statements, representations, warranties, agreements or obligations of Owner Trustee hereunder, as to all of which Lessee agrees to look solely to the Trust Estate; provided, however, that The Connecticut National Bank in its individual capacity shall be liable hereunder for its own gross negligence or willful misconduct. Owner Participant shall not be-liable for any matter hereunder except as expressly provided in Article VIII or IX of the Participation Agreement. Each time a successor Owner Trustee is appointed in accordance with the terms of the Trust Agreement, such successor Owner Trustee shall, without further act, succeed to all the rights, duties, immunities and obligations of Lessor hereunder and under the other Operative Documents, and the predecessor Owner Trustee shall be released from all further duties and obligations hereunder and under the other Operative Agreements, all without the necessity of any consent or approval by Lessee and without in any way altering the terms of this Lease or such other Operative Document or the obligations of Lessee hereunder or thereunder. Lessee shall, upon receipt of written notice of the appointment of a successor owner Trustee under the Trust Agreement, promptly make such modifications and changes to reflect such -55- appointment as shall be reasonably requested by such successor Owner Trustee in such insurance policies, schedules, certificates and other instruments relating to the Facility or this Lease or the other Operative Documents, all in form and substance satisfactory to such successor. SECTION 16.12 Consent to Jurisdiction; Forum Selection. Each party hereto hereby irrevocably submits to the jurisdiction of any New York state court or any Federal court located in the State of New York over any action or proceeding commenced or maintained by any other party to this Lease and arising out of or relating to this Lease or any other Operative Document or Acquisition Agreement to which it is a party, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard in such state or Federal court. Each party hereto hereby irrevocably waives any objection it may now have or hereafter acquire to the laying of venue of any such action or proceeding brought in any such court and any claim it may now or hereafter acquire that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Each party hereto agrees that final judgment in any such action or proceeding brought in any such court shall be conclusive and binding upon such party hereto and may be enforced in any competent court located elsewhere. Each party hereto irrevocably consents to the service of the summons and complaint and any other process in any such action or proceeding by the mailing of copies of such process to such party hereto at its address referred to in Section 9.01 of the Participation Agreement by registered or certified mail, return receipt requested. Nothing in this Section 16.12 shall affect the right of any Person to serve legal process in any other manner permitted by law. Each party hereto further agrees that the Federal or state courts located in New York, New York, will have exclusive jurisdiction over any action which is either directly or indirectly related to the business relationship evidenced by this Lease. The parties further waive all question of personal jurisdiction or venue for the purposes of carrying out this Section 16.12. -56- IN WITNESS WHEREOF, the parties hereto have each caused this Lease to be duly executed and sealed by their respective officers thereunto duly authorized. THE CONNECTICUT NATIONAL BANK, not in its individual capacity but solely as trustee under the Trust Agreement (but not with respect to any portion of the Facility located in the State of Florida) Signed, sealed and delivered in the presence of: By: /s/ Philip G. Kane, Jr. - ---------------------------- ------------------------------------------ Witness Title: Vice President By: /s/ Frank McDonald, Jr. - ---------------------------- ------------------------------------------ Witness Title: Vice President [BANK SEAL] /s/ Philip G. Kane, Jr. --------------------------------------------- PHILIP G. KANE, JR., not in his individual capacity but solely as Owner Trustee under Trust Agreement dated as of January 31, 1991, Signed, sealed and delivered in the presence of: _________________________________ Witness __________________________________ Witness -57- /s/ Frank McDonald, Jr. --------------------------------------------- FRANK McDONALD, JR., not in his individual capacity but solely as Owner Trustee under Trust Agreement dated as of January 31, 1991, Signed, sealed and delivered in the presence of: _________________________________ Witness __________________________________ Witness /s/ William R. Munroe --------------------------------------------- WILLIAM R. MUNROE, not in his individual capacity but solely as Owner Trustee under Trust Agreement dated as of January 31, 1991, Signed, sealed and delivered in the presence of: _________________________________ Witness __________________________________ Witness -58- PACKAGING CORPORATION OF AMERICA, By: /s/ R.D. Harlow ------------------------------------------ Title: Senior Vice President Attest: /s/ Randolph W. Bryant ---------------------------- Title: Assistant Secretary [CORPORATE SEAL] Signed, sealed and delivered in the presence of: ____________________________ Witness ____________________________ Witness -59- STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this January 31, 1991, by Philip G. Kane, Jr., Vice President of The Connecticut National Bank, a national banking association, as Owner Trustee pursuant to the Trust Agreement. /s/ Gina M. Wondolowski ----------------------------------- Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this January 31, 1991, by Philip G. Kane, Jr., Frank McDonald, Jr., and William R. Munroe, as Owner Trustee pursuant to the Trust Agreement. /s/ Gina M. Wondolowski ----------------------------------- Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this January 31, 1991, by Robert D. Harlow, Senior Vice President of Packaging Corporation of America, a Delaware corporation. /s/ Gina M. Wondolowski ----------------------------------- Notary Public -60- EX-10.27 36 TIMBERLAND LEASE, DATED 1/31/91 EXHIBIT 10.27 ------------- TIMBERLAND LEASE BY AND BETWEEN FOUR STATES TIMBER VENTURE (as Lessor) and PACKAGING CORPORATION OF AMERICA (as Lessee) January 31, 1991 This document was prepared by: Haynes R. Roberts, Esq. Sutherland, Asbill & Brennan 999 Peachtree Street, N.E. Atlanta, Georgia 30309-3996 TABLE OF CONTENTS
1. PROPERTY............................................................... 2 1.1 DESCRIPTION; LEASE TERM.......................................... 2 1.2 ADDITIONS AND DELETIONS.......................................... 2 1.3 ASSIGNMENT OF PERMITS............................................ 3 2. RENT................................................................... 3 2.1 BASIC RENT....................................................... 3 2.2 MANNER OF PAYMENT; BASIC RENT NET................................ 4 2.3 ADDITIONAL RENT; DEFAULT INTEREST................................ 5 2.4 TAX TREATMENT.................................................... 5 3. FINANCIAL STATEMENTS AND REGULATORY FILINGS............................ 5 4. NO COUNTERCLAIM, ABATEMENT, ETC........................................ 6 5. CONDITION AND USE OF PROPERTY; MINERAL RIGHTS.......................... 7 6. IMPOSITIONS............................................................ 8 7. COMPLIANCE, ETC........................................................ 9 7.1 COMPLIANCE WITH REQUIREMENTS, ETC................................ 9 7.2 RECORDING........................................................ 9 8. LIENS, ETC............................................................. 10 9. PERMITTED CONTESTS..................................................... 10 10. NO CLAIMS AGAINST LESSOR, ETC.......................................... 10 11. INDEMNIFICATIONS AND COVENANTS OF LESSEE............................... 11 11.1 GENERAL INDEMNIFICATION.......................................... 11 11.2 ENVIRONMENTAL COVENANTS AND INDEMNITIES.......................... 12 12. UTILITY SERVICES....................................................... 14 13. QUIET ENJOYMENT........................................................ 14 13.1 QUIET ENJOYMENT GENERALLY........................................ 14 13.2 LOSS OF TITLE TO PROPERTY........................................ 14 14. LESSEE'S EQUIPMENT..................................................... 14
-i- 15. INSURANCE....................................................... 15 15.1 RISKS TO BE INSURED....................................... 15 15.2 POLICY PROVISIONS......................................... 15 15.3 EVIDENCE OF INSURANCE..................................... 16 16. TAKING.......................................................... 16 16.1 LESSEE TO GIVE NOTICE, ETC................................ 16 16.2 TOTAL TAKING.............................................. 16 16.3 PARTIAL TAXING............................................ 16 16.4 APPLICATION OF AWARDS AND OTHER PAYMENTS.................. 16 16.5 AWARD IF LESSEE IN DEFAULT................................ 17 16.6 REDUCTION OF RENT UPON PAYMENT TO LESSOR.................. 17 17. ASSIGNMENT OF SUBRENTS ETC...................................... 17 18. PERFORMANCE ON BEHALF OF LESSEE................................. 17 19. ASSIGNMENTS, MORTGAGES, SUBLEASES, ETC.......................... 18 20. EVENTS OF DEFAULT; TERMINATION.................................. 18 21. ENTRY BY LESSOR................................................. 20 22. REPOSSESSIONS ETC............................................... 21 23. RELETTING....................................................... 21 24. SURVIVAL OF LESSEE'S OBLIGATIONS; DAMAGES....................... 21 24.1 TERMINATION OF LEASE NOT TO RELIEVE LESSEE OF OBLIGATIONS............................................... 21 24.2 CURRENT DAMAGES........................................... 21 24.3 FINAL DAMAGES............................................. 22 25. LESSEE'S WAIVER OF STATUTORY RIGHTS............................. 22 26. NO WAIVER, ETC., BY LESSOR OR LESSEE............................ 23 27. LESSOR'S REMEDIES, ETC., CUMULATIVE............................. 23 28. ACCEPTANCE OF SURRENDER......................................... 23 29. NO MERGER OF TITLE.............................................. 23 30. ESTOPPEL CERTIFICATE............................................ 23 31. CONVEYANCE BY LESSOR............................................ 24
-ii- 32. END OF LEASE TERM............................................... 24 33. PROVISIONS SUBJECT TO APPLICABLE LAW............................ 24 34. TIMBER MANAGEMENT AND CUTTING PROVISIONS........................ 24 34.1 GENERAL TIMBER MANAGEMENT OBLIGATIONS..................... 24 34.2 TIMBER CUTTING PRIVILEGES................................. 28 34.3 LOSS OF PRE-MERCHANTABLE PLANTED TREES BY CASUALTY.................................................. 30 34.4 FORESTRY CONSULTANT....................................... 30 34.5 TIMBER CRUISE............................................. 33 34.7 ANNUAL REPORTS............................................ 34 34.8 TIMBER SPECIFICATIONS AND CALCULATIONS.................... 35 35. DISPOSITION OF PROPERTY......................................... 35 35.1 LESSEE'S OPTION TO PURCHASE............................... 35 35.2 SALE OF TIMBERLANDS DURING THE INITIAL LEASE.............. 36 35.3 SALE OF PROPERTY DURING THE EXTENSION PERIODS............. 39 35.4 SALES PURSUANT TO OPTION AGREEMENTS....................... 39 36. APPRAISAL....................................................... 39 37. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.................................................... 40 37.1 GENERAL REPRESENTATIONS AND WARRANTIES.................... 40 37.2 COVENANTS................................................. 42 37.3 MUTUAL REPRESENTATIONS REGARDING ENFORCEABILITY........... 46 40. NOTICES, ETC.................................................... 59 41. MISCELLANEOUS................................................... 61 42. PARTITION OF LEASE.............................................. 61 43. FOREST TAX LAWS................................................. 62
-iii- EXHIBITS -------- EXHIBIT A LEGAL DESCRIPTIONS EXHIBIT B PERMITTED EXCEPTIONS EXHIBIT C LIST OF IMPROVEMENTS, PERSONAL PROPERTY AND INTANGIBLES EXHIBITS D-1 CATEGORIES, ADJUSTMENT AMOUNTS AND THROUGH D-3 ADMINISTRATIVE AMOUNTS EXHIBIT E TIMBER CRUISE SPECIFICATIONS EXHIBITS F-1 AND F-2 FORMS OF ANNUAL REPORT OF FORESTRY CONSULTANT EXHIBIT G PERMITTED INVESTMENTS EXHIBIT H INITIAL CUTTING RIGHTS EXHIBIT I PERMITS EXHIBIT J OPTION AGREEMENTS EXHIBIT K SUPPLIED MATERIALS -iv- TIMBERLAND LEASE ---------------- TIMBERLAND LEASE, dated January 31, 1991 by and between FOUR STATES TIMBER VENTURE, a joint venture formed under the laws of the State of Georgia ("Lessor") having its principal office and place of business at One John Hancock Place, Boston, Massachusetts 02117, and PACKAGING CORPORATION OF AMERICA, a Delaware corporation ("Lessee"), having its principal office and place of business in Evanston, Illinois. W I T N E S S E T H: - - - - - - - - - - WHEREAS, Tenneco Inc, ("Tenneco") has entered into that certain Asset Purchase Agreement dated as of September 26, 1990 (the "Purchase Agreement"), among Georgia-Pacific Corporation ("G-P"), Nekoosa Packaging Corporation ("NPC"), NP Northern Woodlands Inc., ("Woodlands") and Nekoosa Papers, Inc. ("Papers") (G-P, NPC, Woodlands and Papers being hereinafter referred to collectively and severally as "Sellers") and Tenneco, whereby Tenneco has the right to acquire from the Sellers the Property described in Section 1.1 hereof; WHEREAS, Metropolitan Life Insurance Company ("Metropolitan") and John Hancock Mutual Life Insurance Company ("John Hancock") desired to jointly acquire all right, title and interest to the Property which Tenneco had a right to acquire pursuant to the Purchase Agreement; WHEREAS, for the purpose of acquiring the Property from Sellers, Metropolitan and John Hancock formed Lessor; WHEREAS, pursuant to the Timberland Acquisition Agreement dated as of January 31, 1991, made by and among Tenneco, Lessee, John Hancock and Metropolitan (the "Acquisition Agreement"), Lessor acquired all of Tenneco's right to acquire the Property pursuant to the Purchase Agreement and to assume certain obligations associated therewith on the condition that Lessor lease the Property to Lessee; and WHEREAS, as of the date hereof Lessor has acquired the Property from Sellers. NOW, THEREFORE, in consideration of the premises and the mutual agreements, covenants and provisions hereinafter set forth, the parties agree as follows: DEFINITIONS ----------- Unless otherwise defined herein, capitalized terms have the meanings given to such terms in Section 39 hereof. 1. PROPERTY. 1.1 DESCRIPTION; LEASE TERM. Upon and subject to the conditions and limitations set forth below, Lessor leases to Lessee, and Lessee rents from Lessor, the following property (the "Property"): (a) all the land described on Exhibit A attached hereto and hereby made a part hereof (the "Land"), subject to the Permitted Exceptions set forth on Exhibit B attached hereto and hereby made a part hereof (the "Permitted Exceptions"); (b) all buildings, structures and other improvements now or hereafter located on the Land, including without limitation, those improvements described on Exhibit C attached hereto and hereby made a part hereof (the "Improvements"); (c) all timber and trees now or hereafter standing or lying on or planted or growing in the soil of the Land (the "Timber"); (d) all rights of way or of use, servitudes, licenses, tenements, hereditaments, appurtenances and easements now or hereafter belonging or pertaining to any of the foregoing; and (e) all personal and intangible property described on Exhibit C hereto. TO HAVE AND TO HOLD for a term commencing on the date hereof (the "Commencement Date") and expiring at midnight on December 31, 2002, unless extended or terminated as hereinafter provided. 1.2 ADDITIONS AND DELETIONS. The Property leased hereunder is intended to be the same property acquired by Lessor in accordance with the Purchase Agreement, Pursuant to Section 5.13 of the Purchase Agreement, Lessor may reconvey to the Sellers certain portions of the Property which are deemed unacceptable by Lessor, and pursuant to Section 5,16 of the Purchase Agreement the Sellers may be required to convey additional or substitute properties to Lessor. Pursuant to Section 8.3 of the Acquisition Agreement, Lessors may convey certain portions of the Property to Lessee. Any Property conveyed to or by Lessor in accordance with the provisions of the Purchase Agreement or the Acquisition Agreement shall automatically be subject to or released from this Lease, as the case may be, and Lessor and Lessee shall enter into any amendments to this Lease which are necessary from time to time to evidence such additions or deletions, The term "Property" as used in this Lease shall mean the Property described in Section 1.1 hereof together with any additions thereto or deletions therefrom contemplated by this Section 1.2 and the applicable sections of the Purchase Agreement or the Acquisition Agreement. -2- 1.3 ASSIGNMENT OF PERMITS. Upon and subject to the conditions and limitations set forth below, Lessor hereby assigns, to the extent assignable, all right, title and interest in and to the permits which are more particularly described on attached hereto and incorporated herein by this reference (the "Permits"), The parties hereto hereby agree that this is a revocable assignment and that such assignment shall be deemed revoked upon the expiration or earlier termination of this Lease or upon Lessor's repossession of the Property in accordance with the provisions of Section 22 hereof. 2. RENT. 2.1 BASIC RENT. Lessee will pay to Lessor rent during the Lease Term as follows: (a) QUARTERLY RENT. Lessee shall pay to Lessor, in advance, on the Commencement Date and thereafter on the first day of each January, April, July and October during the Lease Term an installment of rent ("Quarterly Rent") in an amount calculated as follows: (i) Each installment of Quarterly Rent paid during the First Lease Year shall be in an amount equal to 2,6875% of the Base Value; provided, however, that until such time as the Base Value can be established hereunder, Lessee shall pay Quarterly Rent in the amount of $4,646,499.00; provided, further, that Lessee's first installment of Quarterly Rent shall be reduced by an amount equal to Daily Quarterly Rent times the number of calendar days from and including January 1, 1991 to but not including the Commencement Date; provided, further, that if, upon determination of the Base Value hereunder, it is determined that Lessee has paid Quarterly Rent in excess of 2,6875% of Base Value, such excess amount shall be offset by Lessee against the immediately succeeding installments of Quarterly Rent; (ii) Installments of Quarterly Rent paid during the Second Lease Year and each successive Lease Year thereafter during the Lease Term shall be in an amount equal to the Quarterly Rent in effect at the end of the previous Lease Year less an amount equal to 2,6875% of the Annual Rent actually paid by Lessee with respect to the previous Lease Year in accordance with the provisions of subsection 2,1(b) hereof as such Annual Rent may be adjusted from time to time in accordance with the provisions hereof; and (iii) Notwithstanding the foregoing, in the event any portion of the Property is sold by Lessor free and clear of this Lease, is the subject of a Taking or is otherwise released from this Lease prior to the end of the Lease Term, installments of Quarterly Rent shall be adjusted and thereafter paid by Lessee in an amount equal to (A) the amount of Quarterly Rent which would have otherwise been payable had no such sales, Takings or releases occurred minus (B) the product obtained by multiplying the Cumulative Allocation Ratio after such sale, Taking or release times the amount of -3- Quarterly Rent which would have otherwise been payable had no such sales, Takings or releases occurred, In addition to the adjustment provided in the preceding sentence, the Quarterly Rent for the calendar quarter following such sale, Taking or release shall be reduced by an amount equal to the product of (X) the difference between the Daily Quarterly Rent prior to and the Daily Quarterly Rent after the sale, Taking or release and (Y) the actual number of days from and including the date of such sale, Taking or release to but not including the date upon which such Quarterly Rent payment becomes due. (b) ANNUAL RENT. (i) In addition to the Quarterly Rent provided for in subsection 2.1(a) above, Lessee shall pay to Lessors in arrears, commencing January 1. 1992, and continuing on the first day of each Lease Year thereafter during the Initial Lease Term, an installment of re, (the "Annual Rent") in an amount equal to $1,192,366,00 less 5.71% of the amount, if any, by which the Adjusted Base Value exceeds the Base Value; provided, however, that the Annual Rent Payment for the First Lease Year shall be equal to $1,192,366,00 less 5,71% of the amount, if any, by which the Adjusted Base Value exceeds the Base Value times eleven twelfths (11/12ths). (ii) Notwithstanding the foregoing, in the event any portion of the Property is sold by Lessor free and clear of this Lease, is the subject of a Taking or is otherwise released from this Lease prior to the end of the Lease Term, for the Lease Year in which such sale, Taking or release takes place, the Annual Rent for such year shall be reduced by an amount equal to the product of (A) the difference between the Daily Annual Rent prior to and the Daily Annual Rent after such sale, Taking or release and (B) the actual number of days from and including the date of such sale, Taking or release to but not including the first day of the next Lease Year. The installments of Annual Rent required to be paid by Lessee pursuant to subsection 2.1(b)(i) above for Lease Years beginning subsequent to the Lease Year in which such sale, Taking or release took place shall be adjusted and thereafter paid in an amount equal to (X) the Annual Rent payment which would have otherwise been payable had no such sales, Takings or releases occurred minus (Y) the product obtained by multiplying the Cumulative Allocation Ratio after such sale, Taking or release times the Annual Rent payment which would have otherwise been payable had no such sales, Takings or releases occurred. (c) BASIC RENT. The term "Basic Rent" refers collectively to the Quarterly Rent and the Annual Rent, as each may be adjusted from time to time, The parties stipulate that the Basic Rent reflects the fair rental value of the Property for the Lease Term. 2.2 MANNER OF PAYMENT; BASIC RENT NET. Basic Rent and all other sums payable to Lessor hereunder shall be wired to Lessor by Lessee before noon (E.S.T. or E.D.T., as applicable) an the due date thereof by Fedwire transfer through the Federal Reserve System of immediately available funds in U.S. dollars to the account or -4- accounts designated by Lessor by written notice at least three Business Days prior to such due date, or at such place, by such method and to such Person as Lessor from time to time may designate. An identification number confirming such wire shall also be delivered to Lessor prior to the noon deadline. Basic Rent shall be absolutely net to Lessor so that this Lease shall yield to Lessor the full amount of the installments of Basic Rent throughout the Lease Term without deduction, Nothing contained in the preceding sentence shall be construed so as to obligate Lessee to pay any Excluded Taxes. If for any reason, Lessee is required by law or order to make any payment to any tax or governmental authority of Excluded Taxes, by way of withholding or otherwise, Lessor shall within 30 days after receipt from Lessee of notice of payment of such Excluded Taxes and appropriate payment documentation with respect thereto, pay to Lessee an amount which equals the amount of such Excluded Taxes paid to such tax or governmental authority. Whenever any payment hereunder is due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. 2.3 ADDITIONAL RENT; DEFAULT INTEREST. Lessee will also pay from time to time as provided in this Lease, as additional rent, all other amounts and obligations which Lessee herein agrees to pay to Lessor or is required to pay to Lessor in accordance with the provisions of this Lease ("Additional Rent"). Lessee shall also pay Default Interest on Basic Rent and Additional Rent (if such Additional Rent is not paid within ten days after demand from Lessor for such payment) from the due date or the date of such demand, as the case may be, until payment thereof, In the event of any failure on the part of Lessee to pay any Additional Rent, Lessor shall have all the rights, powers and remedies provided for in this Lease or at law or in equity or otherwise in the case of non-payment of Basic Rent. 2.4 TAX TREATMENT. For Federal and state income tax purposes, Lessor and Lessee shall each report all amounts of Basic Rent and Additional Rent, as defined herein (but not any other item which Lessee may incur hereunder or pay to any Person other than Lessor under the terms of this Lease) as rental income and rental expense, respectively. 3. FINANCIAL STATEMENTS AND REGULATORY FILINGS. (a) Lessee, at its expense, shall furnish to Lessor as soon as practical after the end of each fiscal year of Lessee, and in any event within 120 days thereafter, a consolidated balance sheet of Lessee and its consolidated subsidiaries as of the end of such fiscal year and the related statements of income, stockholder's equity and cash flows (or such similar or additional statement then required by GAAP) for such fiscal year prepared in accordance with GAAP, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by independent public accountants of nationally recognized standing who are retained by Tenneco to audit its year-end financial statements; -5- (b) Lessee shall furnish to Lessor as soon as practical after the end of each of the first three fiscal quarters of each fiscal year of Lessee, and in any event within 60 days thereafter, a balance sheet of Lessee as at the end of such period and the related statements of income, stockholder's equity and cash flows (or such similar or additional statement then required by GAAP), prepared in accordance with GAAP, using a comparable format and comparable categories as the last audited financial statement and accompanied by a certificate of the chief financial officer of Lessee to the effect that to the best of his knowledge such statements present fairly the financial condition and results of operations of Lessee, subject to normal year-end adjustments; (c) In addition to the financial statements delivered in accordance with subsections (a) and (b) above, Lessee shall furnish to Lessor as soon as practical after the end of each fiscal year of Lessee, and in any event within 120 days thereafter, a statement of Operating Expenses for the previous year, certified as being true and correct by the chief financial officer of Lessee; (d) Lessee shall provide to Lessor, within 30 days following the date of such filing, copies of any and all reports on Forms 10-K. 10-Q and 8-K (or their equivalent) and such other reports as Lessor may reasonably specify from time to time, filed with the Securities and Exchange Commission by Lessee, its ultimate parent company and any and all intermediary parent companies in accordance with the provisions of applicable law; and (e) Lessee will permit any Person designated by Lessor in writing, at the expense of Lessor, and subject to such limitations as Lessee may reasonably impose to ensure compliance with any applicable legal or contractual restrictions, to visit and inspect any of the properties of Lessee, to examine the corporate books and financial records of Lessee (other than income tax records) and to make copies thereof or extracts therefrom, and to discuss the affairs, finances and accounts of Lessee with the principal officers of Lessee, all at such reasonable times and as often as Lessor may reasonably request. 4. NO COUNTERCLAIM, ABATEMENT, ETC. Basic Rent and Additional Rent shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of or any Taking of the Property or any part thereof; (b) any restriction or prevention of or interference with any use of the Property or any part thereof; (c) any title defect or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; (d) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Lessor, or any action taken with respect to this Lease by any trustee or receiver of Lessor (other than a rejection of this Lease by such trustee or receiver pursuant to the provisions of (S)365 of the Bankruptcy Code), or by any court, in any such proceeding; (e) any claim which Lessee has or might have against Lessor; (f) any failure -6- on the part of Lessor to perform or comply with any of the terms hereof or of any other agreement with Lessee; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing; whether or not Lessee shall have notice or knowledge of any of the foregoing. Except as expressly provided herein, Lessee waives all rights now or hereafter conferred by statute or otherwise (other than the right, if any, as may be available to Lessee to reject this Lease in accordance with the provisions of (S)365 of the Bankruptcy Code, to the extent that such right is not waivable under applicable law) to quit, terminate or surrender this Lease or the Property or any part thereof, or to any abatement, suspension, deferment, diminution or reduction of Basic Rent, Additional Rent or any other sum payable by Lessee hereunder. 5. CONDITION AND USE OF PROPERTY; MINERAL RIGHTS. (a) Lessee specifically acknowledges and agrees that Lessor has no greater knowledge of the Property than does Lessee, that Lessor makes no representation or warranty with respect to the title to or the condition of the Property or its fitness or availability for any particular use and that Lessor shall not be liable for any latent or patent defect therein, Except as expressly provided herein, Lessee shall have no right to avoid any duty or obligation under this Lease, including the obligation to pay rent hereunder, on account of the condition of the Property or Lessor's title thereto. Lessee shall use the Property for the production and harvesting of timber in accordance with Section 34 hereof, and other incidental and nonconflicting uses including, without limitation, farming, hunting and fishing, All other uses by Lessee shall be subject to the prior written approval of Lessor, which approval maybe given or withheld as Lessor, in its sole discretion, shall determine, provided that the use of the Property for any other purpose as may be approved by Lessor must at all times comply in all respects with all requirements, limitations and restrictions, that Lessor may from time to time impose. Except as may be expressly permitted elsewhere in this Lease, Lessee will not do or, if within Lessee's power, permit any act or thing which might materially impair the value, usefulness or marketability of the Property or any part thereof, or which constitutes a public or private nuisance or waste, Lessee expressly covenants to operate and maintain the Property as required by Section 34 hereof, During the Lease Term and except as prohibited by applicable law, Lessee shall be entitled to enter into and receive income from hunting and fishing leases, farm rental agreements and other incidental uses of the Property which do not conflict with title provisions of Section 34 hereof; provided, however, that annual rentals therefrom may not exceed $5,000,000.00 in the aggregate without the prior written consent of Lessor. (b) Subject to Section 35 hereof and notwithstanding any other provision contained in this Lease to the contrary, Lessor hereby (i) expressly retains all rights to exploit oil, gas, minerals and other subsurface reserves located on, in or under the Property (the "Mineral Rights"), (ii) shall be entitled to exploit the Mineral Rights at any time and from time to time during the Lease Term and (iii) shall be entitled to receive 100% of the income therefrom, Lessee agrees to cooperate with Lessor in connection with any such exploitation of the Mineral Rights by Lessor on the Property, In the event Lessor's exploitation of the Mineral Rights (by strip mining or otherwise) -7- materially interferes with Lessee's ability to conduct its commercial timber operations on any portion of the Property, the affected portion of the Property shall be specifically identified by Lessor and shall be released from the terms and provisions of this Lease, whereupon Basic Rent shall be reduced in accordance with the provisions of Section 2,1 hereof. 6. IMPOSITIONS. Subject to Section 9 hereof relating to contests, Lessee will pay all Impositions on or before the due date thereof, and will furnish to Lessor for inspection within 30 days after written request by Lessor, official receipts of the appropriate taxing authority or other proof satisfactory to Lessor evidencing such payment of Impositions. If by law any Imposition may be paid in installments, Lessee shall be entitled to pay in those installments as they become due from time to time; and any Imposition relating to any tax, accounting or other fiscal period of the taxing authority, part of which is included within the term of this Lease and a part of which extends beyond such term shall be apportioned between Lessor and Lessee as of the expiration of the term of this Lease; provided, however, that Lessor shall be permitted to offset any amounts which it would otherwise be required to pay to Lessee as a result of such apportionment against any Basic Rent and/or Additional Rent which is due and owing to Lessor as of the date of such apportionment. Notwithstanding the foregoing, in the event a notice of Imposition is delivered to Lessor but not to Lessee, Lessor shall promptly forward such notice to Lessee so that Lessee may pay such Imposition in a timely manner as provided herein, If Lessor receives such a notice of Imposition more than 15 Business Days prior to the due date thereof and fails to deliver such notice to Lessee on or before the fifth Business Day prior to the due date thereof, and as a result of such failure, Lessee is unable to pay such Imposition in a timely fashion, Lessee shall be permitted to offset against the next succeeding installments of Quarterly Rent any interest, penalties, fines or other costs which it is required to pay as a result of the late payment of the Imposition, The provisions of the preceding sentence shall not be applicable in the event Lessee receives notice of such Imposition from a source other than Lessor or its constituent venturers prior to the due date thereof. Lessee shall not be in default hereunder for failure to pay any impositions on or before the due date thereof if Lessee did not receive notice thereof at least five Business Days prior to the due date thereof; provided, however, that in such event, Lessee shall be required to pay such Imposition within ten Business Days following receipt of such notice (unless such Imposition is being properly contested in accordance with the provisions of Section 9 hereof). Lessor agrees to cooperate (at Lessee's expense) with Lessee in Lessee's efforts to minimize impositions with respect to the Property, including the filing of exemptions and other actions, so long as Lessor believes that such efforts are reasonable under the circumstances. Lessor shall, at the request of Lessee, forward to Lessee copies of all relevant documentation (including copies of returns) in Lessor's possession, or the possession of Lessor's agents, representatives or constituent joint venturers, relating to Impositions on the Property. -8- 7. COMPLIANCE, ETC. 7.1 COMPLIANCE WITH REQUIREMENTS, ETC. Subject to the provisions of Sections 6 and 9 hereof, Lessee, at its expense, will promptly and diligently (a) comply with all Legal Requirements and Insurance Requirements and (b) comply with any instruments of record at the time in force affecting the Property or any part thereof, other than in each case those: (i) whose application or validity is being contested in good faith by appropriate proceeding in accordance with the provisions of Section 9 hereof. (ii) compliance with which shall have been excused or exempted by a nonconforming use permit, waiver, extension or forbearance exempting the Property therefrom, or (iii) the failure with which to comply would not result in any material adverse consequences to Lessor or have a material adverse effect upon Lessee's ability to perform its obligations under this Lease. For purposes of this subsection, a material adverse consequence shall include, without limitation, any material risk of (w) the sale, forfeiture or loss of the Property or any material portion thereof, (x) a lien being created against the Property in violation of the provisions of Section 8 hereof, (y) material interference with the operation, use or disposition of the Property, or any material portion thereof, or with the payment of Basic Rent or Additional Rent under this Lease, or (z) any liability (including any criminal liability) on the part of, or any adverse effect on, the Lessor, its agents, employees, officers or constituent joint venturers, or any of their agents, employees, officers or directors other than civil liability related to tax obligations which are assumed by Lessee hereunder. 7.2 RECORDING. The parties hereto agree that: (a) Lessor or Lessee shall, at the request of the other, execute and deliver counterparts of this Lease or counterparts of a memorandum of this, Lease for the purpose of recording, but such memorandum shall not under any circumstances be deemed to modify or to change any of the provisions of this Lease; provided, however, that Lessor and Lessee agree not to record this Lease in its entirety except in those jurisdictions where the recording of a memorandum or short-form of lease does not provide adequate protection of the rights of Lessor and Lessee under this Lease against claims of third parties; (b) after the expiration or termination of this Lease, Lessee shall, at the request of Lessor, within 20 Business Days following the request of Lessor, execute and deliver to Lessor an instrument cancelling of record any memorandum of this Lease which was recorded; and (c) Lessee shall promptly, upon the reasonable request of the Lessor and at the Lessee's expense, execute, acknowledge and deliver, or cause the execution, -9- acknowledgement and delivery of, and thereafter register, file or record in the appropriate governmental office, any document or instrument necessary to preserve and protect any right of Lessor under this Lease and shall furnish to Lessor an opinion satisfactory to Lessor, of counsel satisfactory to Lessor, with respect to the adequacy of such registration, filing and recording. 8. LIENS, ETC. During the term of this Lease, Lessee will not directly or indirectly create or permit to be created or to remain, and will discharge any Lien on the Property or any part thereof, Lessee's interest therein, or Basic Rent or Additional Rent other than (a) this Lease, (b) Liens for Impositions or judgments not yet due and payable, or payable without the addition of any fine, penalty, interest or cost for non-payment, or being contested as permitted by Sections 6 or 9 hereof, (c) Permitted Exceptions, (d) Liens which are not created or permitted by Lessee but arise solely from acts or agreements of Lessor, and (e) Liens of mechanics, materialmen, suppliers or vendors, or rights thereto, incurred in the ordinary course of business for sums which under the terms of the related contracts are not at the time due. 9. PERMITTED CONTESTS. Lessee, at its expense, may contest, after prior written notice to Lessor, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, judgment, Lien or Legal Requirement or the application of any instrument of record referred to in Section 7.1 hereof, provided that (a) Lessee shall first make all contested payments, under protest if it desires, unless the legal proceedings instituted by Lessee shall suspend the collection of such contested amounts from Lessor, from Basic Rent and Additional Rent and from the Property, (b) neither the value or marketability of the Property or any part thereof or interest therein would be adversely affected by such contest nor would the Property or any part thereof or interest therein or any such Basic Rent or Additional Rent be in any danger of being sold, forfeited, lost or interfered with, and (c) neither Lessor nor its agents, employees, officers or constituent joint venturers, nor any of their agents, employees, officers or directors would be subject to any additional civil liability (other than additional interest of penalties or additions which Lessee is obligated to pay hereunder which may accrue with respect to any tax obligation being contested hereunder) or any criminal liability because of Lessee's failure to comply therewith and the Property would not be subject to the imposition of any Lien in violation of Section 8 hereof as a result of such failure. 10. NO CLAIMS AGAINST LESSOR, ETC. Nothing contained in this Lease shall constitute any consent or request by Lessor, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof, nor as giving Lessee any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Lessor or the Property or any part thereof except as permitted by Section 8 hereof. -10- 11. INDEMNIFICATIONS AND COVENANTS OF LESSEE. 11.1 GENERAL INDEMNIFICATION. Lessee will protect, defend, indemnify and save harmless Lessor from and against all litigation, liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses, but excluding any Excluded Taxes) imposed upon or incurred by or asserted against Lessor or the Property or any part thereof by reason of the occurrence or existence during the Lease Term of any of the following, unless arising solely from acts which would constitute the willful misconduct or gross negligence of Lessor: (a) ownership of the Property or any interest therein, or receipt of any rent or other sum therefrom; (b) any accident, injury to or death of persons (including workmen) or loss of or damage to property occurring on or about the Property or any part thereof or the adjoining streets or ways; (c) any use, non-use or condition of the Property or any part thereof; (d) any failure on the part of Lessee to perform or comply with any of the terms of this Lease; (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; or (f) any other loss or liability incurred or suffered by Lessor in connection with the Property or this Lease. In case any action, suit or proceeding is brought against Lessor by reason of any such occurrence, Lessee will (unless an Event of Default has occurred and is continuing hereunder, in which case Lessor may elect to control, at Lessee's expense, the defense of such action, suit or proceeding), at Lessee's expense, resist and defend such action, suit or proceeding, or cause the same to be resisted and defended by counsel designated by Lessee and approved by Lessor; provided, however, that Lessee shall consult with Lessor with respect to such defense and shall keep Lessor apprised as to the status of such defense; provided, further, that, in the event Lessee proposes to enter into a settlement agreement with respect to any such action, suit or proceeding Lessee will send notice to Lessor of such proposed settlement, and Lessor shall have a period of 30 days after receipt of such notice to reject, in its reasonable judgment, such settlement. Failure to reject such settlement within such 30-day period shall be deemed to be an acceptance of such settlement, In the event Lessor rejects such settlement, Lessor shall assume the defense of such action, suit or proceeding, at its own cost and expense; provided, -11- however, that if Lessor rejects any such proposed settlement and assumes the defense of such action, suit or proceeding, Lessee shall in any event only be obligated to indemnify Lessor for such action, suit or proceeding in the amount of the proposed settlement rejected by Lessor; provided, further, if Lessor believes that Lessee is not diligently pursuing the defense of any such action, suit or proceeding, Lessor shall have the option, but not the obligation, to assume such defense, and if Lessor assumes such defense, Lessor (i) shall conduct such defense diligently with a view to minimizing the costs of disposing of such action, suit or proceeding, (ii) Lessor shall advise Lessee of all settlement offers received in respect thereof and (iii) Lessee shall have no liability in respect of such action, suit or proceeding in excess of the amount of any settlement offer proposed to Lessor in writing by the person asserting such action, suit or proceeding to which Lessee shall have offered to perform. The obligations of Lessee under this section shall survive the expiration or earlier termination of this Lease, Lessee shall not be required to indemnify Lessor against any such occurrence which arises from acts or events not attributable to Lessee which occur after possession of the Property has been returned and delivered by Lessee to Lessor or after such Property has been released from this Lease; provided, however, if an Event of Default shall exist at the time of any such return and delivery of the Property by Lessee to Lessor, then Lessee's indemnification obligations shall continue until such time as Lessee shall have fully complied with all of its obligations under this Lease; provided, further, that Lessee shall not be required to indemnify Lessor solely on account of a decline in the market value of the Property not caused directly or indirectly by an act or omission of Lessee. 11.2 ENVIRONMENTAL COVENANTS AND INDEMNITIES. Lessee hereby covenants that: (a) Lessee will not engage in any activity on, or with respect to, the Property which would result in the generation, manufacture, refining, treatment, storage or handling or disposal of, or the conduct or performance of any abnormally dangerous activity in connection with, any Hazardous Material which would subject the Lessor to any liability under or pursuant to any Environmental Law; provided, however, that Lessee shall be permitted to use Hazardous Materials on the Property which are ordinarily used in commercial timber management activities, provided (i) the use of any such Hazardous Materials is not prohibited by any Environmental Law, (ii) that Lessee uses such Hazardous Materials in a safe and responsible manner and in accordance with the method of application approved by the manufacturer of each such Hazardous Materials, (iii) that Lessee uses such Hazardous Materials in strict accordance with any and all Environmental Laws applicable to the use thereof, and (iv) that, before using any such Hazardous Materials on all or any portion of the Property, Lessee shall have obtained any and all permits which may from time to time be required by any regulatory agency or other public body as a condition to such use. The provisions of this subsection 11,2(a) shall in no way limit the indemnity obligations of Lessee arising pursuant to the provisions of subsection 11.2(c) hereof; (b) Subject to the provisions of Section 9 hereof, Lessee will comply with the requirements of all Environmental Laws now or hereafter in effect -12- which would subject Lessor to any liability or subject the Property to any Lien under or pursuant to any Environmental Law, Lessee will promptly upon discovery notify Lessor of any release of any Hazardous Material, whether before or after the Commencement Date, at, upon, under, or within the Property which is required to be reported to any federal, state or local governmental agency or authority pursuant to the provisions of any Environmental Law, including the presence of asbestos or asbestos-containing materials, PCB's, radon gas, or urea formaldehyde foam insulation on the Property. Lessee will notify Lessor of the receipt by Lessee of any notice from any governmental agency or authority or from any tenant or other occupant or from any other person with respect to any alleged such release or presence of Hazardous Materials, promptly upon receipt of such notice, Lessee will send Lessor copies of all results of tests of underground storage tanks on the Property; (c) Lessee agrees to indemnify and hold Lessor harmless from and against any and all litigation, loss, cost, damage, liability, and expense, including but not limited to reasonable attorneys' fees, suffered or incurred by or threatened against Lessor at any time, whether before, during, or after enforcement of Lessor's rights and remedies upon default, on account of any release of any Hazardous Material (unless arising solely from acts which would constitute the willful misconduct or gross negligence of Lessor), whether before or after the Commencement Date, at, upon, under, within or adjacent to the Property, including the presence of asbestos or asbestos containing materials, PCBIs, radon gas, or urea formaldehyde foam insulation at the Property, including but not limited to (a) the imposition by any governmental authority of any Lien or any so called "super priority lien" upon the Property or any part thereof, (b) clean-up costs, (c) investigation and monitoring costs, (d) liability for personal injury or property damage or damage to the environment, and (e) fines, penalties and punitive or exemplary damages, Lessee shall not be required to indemnify Lessor against any such occurrence which arises from acts or events not attributable to Lessee which acts or events occur after possession of the Property has been returned and delivered by Lessee to Lessor or after such Property has been released from this Lease; provided, however, if an Event of Default shall exist at the time of any such return and delivery of the Property by Lessee to Lessor, then Lessee's indemnification obligations shall continue until such time as Lessee shall have fully complied with all of its obligations under this Lease. The provisions of this subparagraph shall survive the expiration or earlier termination of this Lease; and (d) Without limitation of any of Lessor's other rights under this Lease, Lessor will have the right, but not the obligation, to enter onto the Property and to take such other actions as it deems necessary or advisable to clean up, remove, resolve or minimize the impact of, or otherwise deal with, any release of any Hazardous Material, whether before or after the Commencement Date, at, under, upon or within the Property or any other breach of any Environmental Law relating to the Property upon its receipt of any notice from any person or entity, including, without limitation, the United States Environmental Protection Agency, asserting the existence of any such release or breach on or pertaining to the Property which, if true, would be reasonably expected to result in an order, suit or other action against Lessee or Lessor affecting any -13- part of the Property by any governmental agency or otherwise which, in the sole opinion of Lessor, would be reasonably expected to jeopardize Lessee's ability to perform its obligations under the Lease or materially and adversely affect the value of the Property. All costs and expenses incurred by Lessor in the exercise of any such rights will be payable by Lessee upon demand, together with Default Interest thereon. 12. UTILITY SERVICES. Lessee will pay or cause to be paid all charges for all public or private utility services and all protective services at any time rendered to or in connection with the Property or any part thereof. 13. QUIET ENJOYMENT. 13.1 QUIET ENJOYMENT GENERALLY. Lessor covenants that, so long as no Event of Default shall have occurred and be continuing hereunder, Lessee shall not be hindered or molested by Lessor (or any person claiming by, through or under Lessor) in its enjoyment of the Property, which enjoyment-is subject to the Permitted Exceptions, In the event Lessee does not have standing to pursue such action against any other Person interfering with Lessee's peaceful possession of the Property in its own name, Lessee shall be permitted to pursue in Lessor's name any action against any third party necessary to defend Lessee's interest in the Property, provided Lessee indemnifier Lessor fully against any liability, damage, costs or expenses arising out of or related to such action. 13.2 LOSS OF TITLE TO PROPERTY. In the event title to all or any portion of the Property is lost because of a title defect, whether or not such title defect is a Permitted Exception, Lessee's obligation to pay rent with respect to such portion of the Property shall not abate and Lessee will continue to pay rent to Lessor with respect to such Property without adjustment; provided, however, that Lessee's rental obligation with respect to any such portion of the Property lost because of a title defect shall abate and Basic Rent shall be adjusted in accordance with the provisions of Section 2.1 hereof as if such portion of the Property had been sold as of the date Lessor receives from the title insurance company or companies insuring Lessor's title to the Property (and/or from Lessee or any other Person to the extent that title insurance proceeds received by Lessor are insufficient) a payment of monies equal to the greater of (i) the Make-Whole Price applicable to such portion of the Property calculated as of the date possession of such portion of the Property is actually lost and (ii) the excess of (a) the value obtained by compounding quarterly the Allocated Base Value of the portion of the Property lost because of the title defect at a rate of 11% per annum from the Commencement Date of this Lease to the date possession of such portion of the Property is actually lost over (b) the sum of the values obtained by compounding quarterly at a rate of 11% per annum each payment of Allocated Quarterly Rent and Compounding annually at a rate of 11% per annum each payment of Allocated Annual Rent from the dates each such payments were actually made to the date possession of such portion of the Property is actually lost. 14. LESSEE'S EQUIPMENT. All Lessee's Equipment shall be the property of Lessee, provided that upon the occurrence of an Event of Default, Lessor shall, to the -14- extent permitted by law, have (in addition to all other rights) a right of distress for rent and a Lien on all Lessee's Equipment (other than Lessee's Equipment not owned by Lessee) then on the Property as security for all Basic Rent and Additional Rent, Any of Lessee's Equipment (other than Lessee's Equipment not owned by Lessee) not removed by Lessee at its expense within 90 days after any repossession of the Property by Lessor (whether or not this Lease has been terminated) shall be considered abandoned by Lessee and may be appropriated, sold, destroyed, or otherwise disposed of by Lessor, Lessee will pay Lessor, upon demand, all costs and expenses incurred by Lessor in removing, storing or disposing of any of Lessee's Equipment. Lessee will immediately repair at its expense all damage to the Property or any part thereof caused by any removal of Lessee's Equipment therefrom, whether effected by Lessee, or any other Person, Except as may be required by applicable law, Lessor shall not be responsible for any loss of or damage to Lessee's Equipment. 15. INSURANCE. 15.1 RISKS TO BE INSURED. Lessee, at its expense, will cause to be carried and maintained (a) all risks physical damage insurance with respect to the Improvements; (b) workers' compensation and employers' liability insurance with a limit of not less than $500,000; (c) commercial general liability insurance covering all operations of the insured against all claims for personal injury, bodily injury, death and property damage, including contractual liability, in such amount and in such form as Lessee customarily maintains with respect to similar properties owned, leased or operated by Lessee (but in no event less than $100,000,000); (d) comprehensive automobile liability insurance covering all owned, non-owned and hired automobiles or automotive equipment with a combined single limit of not less than $3,000,000 for bodily injury or property damage; and in any event shall maintain insurance in amounts and against risks which are not less than that which are customarily maintained with respect to similar properties owned, leased or operated by Lessee. The amounts of insurance specified above may not be reduced and the amount of the deductible or self-insured retention shall not exceed $25,000,000 without the prior written consent of Lessor. Any insurance described in this Section 15.1 may be carried under blanket policies as long as such policies otherwise comply with the provisions of this Section 15,1. 15.2 POLICY PROVISIONS. Lessor shall be named as a "Loss Payee" on all applicable all risks physical damage insurance policies, With the exception of the worker's compensation insurance, the general liability policies shall name Lessor as an additional insured with respect to liability arising out of the Property or related operations, To the extent such an endorsement is commercially obtainable, all policies required hereunder shall further provide that no cancellation, reduction in amount or material change in coverage shall be effective until at least 30 days after notice of such cancellation, change or reduction is tendered to Lessor by the insurer. Lessee waives all rights of subrogation against Lessor and all policies required hereunder shall each contain a clause waiving subrogation against Lessor. -15- 15.3 EVIDENCE OF INSURANCE. Upon the execution of this Lease and thereafter not less than 15 days prior to the expiration date of any applicable policy, Lessee will deliver to Lessor a certificate of the insurer, satisfactory to Lessor in substance and form I as to the issuance and effectiveness of such policy and the amount of coverage afforded thereby. 16. TAKING. 16.1 LESSEE TO GIVE NOTICE, ETC. In case of a Taking of all or any part of the Property, or the commencement of any proceedings or negotiations which might result in such Taking, the party receiving notice of the commencement of such proceedings or negotiations will promptly give written notice thereof to the other party hereto, generally describing the nature and extent of such Taking or the nature of such proceedings and negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. Lessor and Lessee may each file and prosecute their respective claims for an award, but all awards and other payments on account of a Taking shall be paid to Lessor and shall be applied as hereinafter provided. 16.2 TOTAL TAKING. In case of a Taking (other than for temporary use) of all or substantially all of the Property, this Lease shall terminate as of the date of such Taking, Any Taking of the Property of the character referred to in this Section 16.2 which results in the termination of this Lease is referred to as a "Total Taking." 16.3 PARTIAL TAXING. In case of a Taking of the Property other than a Total Taking, this Lease shall remain in full force and effect as to the portion of the Property remaining immediately after such Taking, without any abatement or reduction of Basic Rent or Additional Rent, except as provided in Section 16.6. 16.4 APPLICATION OF AWARDS AND OTHER PAYMENTS. Awards and other payments on account of a Taking (less costs, fees and expenses incurred by Lessor and Lessee in connection therewith) shall be applied as follows: (a) Net awards and other payments received on account of a Taking other than a Taking for temporary use shall be paid (i) first, to Lessor in an amount up to and including the greater of the Minimum Return Price or the Make-Whole Price applicable to the portion of the Property lost as a result of such Taking, and (ii) the balance, if any, of such awards or payments shall be paid to Lessee; (b) Net awards and other payments received on account of a Taking for temporary use during the Lease Term shall be applied to the payment of the installments of Basic Rent and Additional Rent becoming due and payable hereunder during the period of such temporary Taking, and the balance, if any, of such awards and payments shall, unless an Event of Default has occurred and is continuing hereunder, be paid to Lessee; and -16- (c) Lessee hereby irrevocably assigns to Lessor any and all separate awards to which it may in the future be entitled in connection with any Taking, together with the right to collect and receive such awards, In the event separate awards are granted to Lessor and Lessee as a result of any such Taking, such awards shall be deemed a single award, shall be paid to Lessor and shall thereafter be distributed in accordance with the provisions of subsections 16.4(a) and 16.4(b) hereof. 16.5 AWARD IF LESSEE IN DEFAULT. Notwithstanding the foregoing, if at the time of any Taking or at any time thereafter, an Event of Default has occurred and is continuing under this Lease, Lessor is hereby authorized and empowered, in the name and on behalf of Lessee, to file and prosecute Lessee's claim, if any, for an award on account of any Taking and to collect such award and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such Event of Default and any other then existing Default under this Lease. 16.6 REDUCTION OF RENT UPON PAYMENT TO LESSOR. In the event a Taking of all or any portion of the Property (other than a Taking for a temporary use) shall occur during the Lease Term, Basic Rent shall be reduced from and after the date of such Taking in accordance with the provisions of Section 2.1 hereof. 17. ASSIGNMENT OF-SUBRENTS ETC. Lessee hereby irrevocably assigns to Lessor all rents due or to become due from any sublessee or any tenant or occupant of the Property or any part thereof, and all amounts due or to become due to Lessee under any contract referred to in paragraph (j) of Section 34.1 hereof, together with the right to collect and receive such rents and amounts; provided, however, that, so long as no Event of Default has occurred and is continuing, Lessee shall have the right to collect such rents and amounts for its own use and purposes and Lessee shall not be obligated to pay over to Lessor any such rents, Lessor shall apply to the Basic Rent and Additional Rent due under this Lease the net amount (after deducting all costs and expenses incident to the collection thereof and the operation and maintenance, including repairs, of the Property or any part thereof) of any rents and amounts so collected or received by it. In the event the net amount of any such rents collected or received by Lessee during any Lease Year exceeds the total amount of Basic Rent required to be paid by Lessee in such Lease Year, Lessee shall pay to Lessor, as Additional Rent, 80% of such excess amount, Nothing contained in this section shall be construed so as to permit Lessee to sublet all or any portion of the Property without the express written consent of Lessor, which consent may be withheld by Lessor in its sole discretion, except as set forth in Section 5(a) hereof. 18. PERFORMANCE ON BEHALF OF LESSEE. In the event that Lessee shall fail to make any payment or perform any act required hereunder to be made or performed by Lessee, then Lessor may, but shall be under no obligation to, make such payment or perform such act with the same effect as if made or performed by Lessee. Entry by Lessor upon the Property or any part thereof for such purpose shall not waive or release Lessee from any obligation or default hereunder. Lessee shall promptly reimburse Lessor for all sums so paid and all costs and expenses so incurred in -17- connection with the performance of any such act by Lessor, and shall also pay to Lessor Default Interest on such sums, calculated from the date such sums were advanced or incurred by Lessor. 19. ASSIGNMENTS, MORTGAGES, SUBLEASES, ETC. Except as expressly permitted in Sections 5 and 8 hereof, Lessee's interest in this Lease may not be sold, conveyed, transferred, assigned, mortgaged, pledged or encumbered in any manner whatsoever. So long as no Event of Default shall have occurred and be continuing hereunder, Lessee shall have the right to sublease portions of the Land, provided (a) Lessee first obtains Lessor's prior written consent to each such subletting, which consent may be given or withheld by Lessor in its sole discretion, except as set forth in Section 5(a) hereof, and (b) that each such sublease shall expressly provide that the interest of the sublessee thereunder is subject and subordinate to this Lease. No such subletting nor the entry by Lessee into any contract referred to in Section 34.1(j) hereof shall release Lessee from any obligations and liabilities hereunder, Lessee shall remain primarily liable on and under the covenants, conditions and obligations of this Lease as the principal party to this Lease and not as a surety thereof. Nothing shall relieve or release Lessee of its liability hereunder except an express written release executed by Lessor. If any portion of the Land is sublet or occupied by any Person other than Lessee, or if Lessee enters into any contract referred to in Section 34.1(j) hereof. Lessor may, during the continuance of any Event of Default hereunder, collect rent from the sublessee or occupant and any amounts due under any such contract and apply the same in accordance with Section 17 hereof. The collection or application by Lessor of any such amounts shall not constitute a waiver of the provisions of this Section 19, or an acceptance of such sublessee or occupant as tenant, or a release of Lessee from the further performance by Lessee of the terms, covenants and conditions of this Lease. Any violation of any provision of this Lease, whether by act or omission, by any sublessee, occupant or Person with whom Lessee has contracted shall be a violation of such provision by Lessee, it being the intention of the parties hereto that Lessee shall assume and be liable to Lessor for any and all acts and omissions of any and all sublessees and occupants of the Land and Persons with whom Lessee has contracted; provided, however, that Lessee shall not be responsible for any acts or omissions of any sublessee under a sublease entered into in the name of Lessee pursuant to Section 23 hereof. 20. EVENTS OF DEFAULT; TERMINATION. If any one or more of the following events (each of which is referred to in this Lease as an "Event of Default") shall occur: (a) if Lessee shall fail to pay any Basic Rent within five days after the due date thereof; (b) if Lessee shall fail to pay any Additional Rent within five days after the due date thereof; (c) if Lessee shall fail to perform or comply with any term or provision of this Lease other than a failure to pay Basic Rent or Additional Rent and -18- such failure shall continue for more than 30 days from the earlier of (i) the date upon which Lessor gives notice of such failure to Lessee or (ii) the date upon which the principal operating officer of Lessee responsible for the operations of the Property determines that such failure has occurred; provided that, in the case of any such failure that is susceptible of cure by the Lessee, but that cannot with diligence be cured within such 30 day period, if Lessee shall have promptly commenced to cure the same and shall thereafter prosecute the curing thereof with diligence, the period within which such failure may be cured shall be extended for such further period (not exceeding 90 days) as shall reasonably be required for the curing thereof with diligence; (d) if Lessee shall make an assignment for the benefit of creditors, or shall be generally not paying its debts as they become due or shall commence a case under the Bankruptcy Code, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting or shall fail timely to contest the material allegations of a petition filed against it in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, custodian, receiver or liquidator of Lessee or any material part of its properties; (e) if, without the consent or acquiescence of Lessee, an order shall be entered constituting an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future statute, law or regulation, or if any such petition shall be filed against Lessee and such petition shall not be dismissed within 60 days, or if, without the consent or acquiescence of Lessee, an order shall be entered appointing a trustee, custodian, receiver or liquidator of Lessee or of any material part of its properties, and such appointment shall not be dismissed within 60 days; (f) if a final judgment for the payment of money of more than $20,000,000.00 shall be rendered against Lessee and within 60 days after the entry thereif, such judgment shall not have been removed or its enforcement stayed by bond or otherwise; (g) if Lessee shall fail to comply in all material respects with the requirements of any note, mortgage, deed to secure debt, security agreement or other instrument or document evidencing, securing or otherwise relating to any indebtedness for monies borrowed of $20,000,000.00 or more owed by Lessee to Lessor or to any third party and as a result thereof such indebtedness becomes due before its stated maturity, or if Lessee shall fail to comply in all material respects with the requirements of any lease with Lessor, either of the GECC Leases or with the requirements of any Material Lease, and as i result of such failure Lessor, GECC or the lessor under such Material Lease shall terminate such lease or shall exercise its right to retake possession of the leased property without terminating such lease; -19- (h) if any representation or warranty made by Lessee under this Lease, under the Acquisition Agreement or in any officer's certificate shall prove to have been inaccurate in any material respect when made (unless such inaccuracy was unintentional and is no longer material) and Lessee shall fail to take such action as is necessary to make such warranty or representation true and accurate within a period of 30 days after Lessor shall have notified Lessee of such inaccuracy; or (i) if any one or more of the following shall occur: (ii) Lessee shall cease to be a wholly-owned subsidiary of Tenneco; (iii) Lessee shall be sold to, merged into or consolidated with any other corporation, or substantially all of its assets shall be sold, whether or not such transaction is permitted under the provisions of Section 38 hereof; (iv) 30% or more of the outstanding common stock of Lessee shall be repurchased by Lessee during any 12 month period; or (v) Lessee shall pay or declare a dividend; and as a result of the occurrence of (i), (ii), (iii) or (iv), the Net Worth of Lessee immediately thereafter shall not be at least 50% of the level of Lessee's Net Worth as of the fiscal year-end immediately preceding such occurrence; then, and in any such event (regardless of the pendency of any proceeding which has or might have the effect of preventing Lessee from complying with the terms of this Lease), Lessor, at any time thereafter so long as such event shall be continuing may give a written termination notice to Lessee, and on the date specified in such notice this Lease shall terminate and, subject to Section 24, the Lease Term shall expire and terminate, and all rights of Lessee under this Lease shall cease, unless before such date (i) all arrears of Basic Rent and Additional Rent payable by Lessee under this Lease (together with Default Interest thereon) and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by or on behalf of Lessor hereunder, shall have been paid by Lessee, and (ii) all other Defaults at the time existing under this Lease shall have been fully remedied to the satisfaction of Lessor, Lessee shall reimburse Lessor for all costs and expenses incurred by or on behalf of Lessor (including, without limitation, attorneys' fees and expenses) occasioned by any Default by Lessee under this Lease. 21. ENTRY BY LESSOR. Lessor and its authorized representatives shall have the right to enter the Property or any part thereof at any time (a) for the purpose of inspecting the same or for the purpose of doing any work under Section 18, and to take all such action thereon as may be necessary or appropriate for any such purpose (but nothing contained in this Lease shall create or imply any duty on the part of Lessor to make any such inspection or do any such work), and (b) for the purpose of showing the Property to prospective purchasers, lessees or mortgagees, and (c) during the 12-month period preceding the expiration of the Initial Lease Term and at all times during the Extension Period, to display on the Property advertisements for sale or letting if such -20- advertisements do not interfere with the business conducted on the Property, No such entry shall constitute an eviction of Lessee, During any such entry of the Property, Lessor or its representatives shall not unduly interfere with Lessee's operations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing under this Lease, Lessor agrees that it will enter Lessee's business offices on the Property only during Lessee's regular business hours after providing Lessee reasonable prior notice of such entry. 22. REPOSSESSIONS ETC. If an Event of Default shall have occurred and be continuing, Lessor, whether or not the Lease Term shall have been terminated pursuant to Section 20, may enter upon and repossess the Property or any part thereof by force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other persons and any and all property therefrom as permitted by and in accordance with applicable law, Unless otherwise provided under applicable law, Lessor shall be under no liability for or by reason of any such entry, repossession or removal. 23. RELETTING. At any time or from time to time after the repossession of the Property or any part thereof pursuant to Section 22, whether or not the Lease Term shall have been terminated pursuant to Section 20, Lessor may (but shall be under no obligation to) relet the Property or any part thereof for the account of Lessee, in the name of Lessee or Lessor or otherwise, without notice to Lessee, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Lease Term) and on such conditions (which may include concessions or free rent) and for such uses as Lessor, in its sole discretion, may determine, and may collect and receive the rents therefor. Lessor shall not be responsible or liable for any failure to relet the Property or any part thereof or for any failure to collect any rent due upon any such reletting. 24. SURVIVAL OF LESSEE'S OBLIGATIONS; DAMAGES. 24.1 TERMINATION OF LEASE NOT TO RELIEVE LESSEE OF OBLIGATIONS. No expiration or termination of the Lease Term pursuant to Section 20 or by operation of law, or otherwise (except as expressly provided herein), and no repossession of the Property or any part thereof pursuant to Section 22, or otherwise, shall relieve Lessee of its liabilities and obligations hereunder, all of which shall survive such expiration, termination or repossession. 24.2 CURRENT DAMAGES. In the event of any such expiration, termination, or repossession, Lessee will pay to Lessor all Basic Rent and Additional Rent up to the time of such expiration, termination or repossession, and thereafter Lessee, until the end of what would have been the Lease Term in the absence of such expiration, termination or repossession, and whether or not the Property or any part thereof shall have been relet, shall be liable to Lessor for, and shall pay to Lessor, as liquidated and agreed current damages for Lessee's default, (a) all Basic Rent and Additional Rent which would be payable under this Lease by Lessee in the absence of such expiration, termination or repossession, less (b) all net rents collected by Lessor -21- from sublessees, tenants and occupants plus the net proceeds, if any, of any reletting pursuant to Section 23 after deducting from such rents and proceeds all of Lessor's reasonable expenses in connection with such collection and reletting (including, without limitation, repossession costs, brokerage commissions, accounting expenses, attorneys' fees and expenses, employees' expenses, promotional expenses, and expenses of preparation for such collection and reletting). Lessee will pay such current damages on the payment dates of installments of Basic Rent applicable in the absence of such expiration, termination or repossession, and Lessor shall be entitled to recover the same from Lessee on each such date. 24.3 FINAL DAMAGES. At any time after any such expiration, termination or repossession, whether or not Lessor shall have collected any current damages as aforesaid, Lessor shall be entitled to recover from Lessee and Lessee will pay to Lessor on demand, as and for liquidated and agreed final damages for Lessee's default and in lieu of all current damages beyond the date of such demand, an amount equal to the present value of the excess, if any, of (a) all Basic Rent and Additional Rent which would be payable under this Lease from the date of such demand (or, if it be earlier, the date to which Lessee shall have satisfied in full its obligations under Section 24.2 to pay current damages) for what would be the then unexpired Lease Term in the absence of such expiration, termination or repossession over (b) the then fair net rental value of the Property for the same period, such present value to be determined using a discount rate equal to the Average Life Treasury Rate, In the event a dispute arises between the parties as to the then fair net rental value of the Property, such fair net rental value shall be determined as of the date of calculation by an appraiser appointed by Lessor in its sole discretion who is competent, qualified by training and experience in appraising timberlands, disinterested and independent and who is a member in good standing of the Association of Consulting Foresters. All costs, fees and expenses of any such appraiser appointed by Lessor to determine the fair net rental value of the Property shall be paid by Lessee. Lessee will also pay to Lessor all reasonable expenses incurred by Lessor in connection with the reletting of the Property including, without limitation, repossession costs, brokerage commissions, accounting expenses, attorneys' fees and expenses, employees' expenses, promotional expenses, and expenses of preparation for such reletting, Upon the payment of such final damages, this Lease if not already terminated, shall be deemed terminated, If any statute or rule of law shall validly limit the amount of such liquidated final damages to less than the amount above agreed upon, Lessor shall be entitled to the maximum amount allowable under such statute or rule of law. 25. LESSEE'S WAIVER OF STATUTORY RIGHTS. In the event of any termination of the Lease Term pursuant to Section 20 or any repossession of the Property pursuant to Section 22, Lessee, so far as permitted by law, waives (a) any notice of re-entry or of the institution of legal proceedings to that end, (b) any right of redemption, re-entry or repossession, and (c) the benefits of any laws now or hereafter in force exempting property from liability for rent or for debt. -22- 26. NO WAIVER, ETC., BY LESSOR OR LESSEE. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no submission by Lessee or acceptance by Lessor of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. No waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect, or the respective rights of Lessor or Lessee with respect to any other then existing or subsequent breach. 27. LESSOR'S REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of Lessor provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Lessor of any one or more of the rights, powers or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Lessor of any or all such other rights, powers or remedies. 28. ACCEPTANCE OF SURRENDER. No termination or surrender of this Lease or surrender of the Property or any part thereof or any interest therein by Lessee shall be valid or effective unless agreed to and accepted in writing by Lessor, and no act by any representative or agent of Lessor, other than such a written agreement and acceptance by Lessor, shall constitute an acceptance thereof. 29. NO MERGER OF TITLE. There shall be no merger of the leasehold estate created by this Lease with the fee estate in the Property by reason of the fact that the same person may own or hold (a) the leasehold estate created by this Lease or any interest in such leasehold estate, and (b) the fee estate in the Property or any interest in such fee estate; and no such merger shall occur unless and until all persons having any interest in (i) the leasehold estate created by this Lease, and (ii) the fee estate in the Property, shall join in a written instrument effecting such merger and shall duly record the same. 30. ESTOPPEL CERTIFICATE. (a) BY LESSEE. Lessee will execute, acknowledge and deliver to Lessor, as soon as reasonably practicable, but in no event later than 30 days following receipt of a request therefor from Lessor, a certificate certifying that (i) this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect, as modified, and stating the modifications), (ii) the dates, if any, to which Basic Rent and Additional Rent have been paid, and (iii) no notice has been received by Lessee of any Default which has not been cured, except as to Defaults specified in said certificate. Any such certificate may be relied upon by any prospective purchaser or mortgagee of the Property or any part thereof. -23- (b) BY LESSOR. Lessor will execute, acknowledge and deliver to Lessee, within 30 days following a request therefor from Lessee, a certificate certifying that (i) this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect, as modified, and stating the modifications), (ii) the dates, if any, to which Basic Rent and Additional Rent have been paid, and (iii) Lessor is unaware of any Default which has not been cured, except for the Defaults specified in said certificate. Any such certificate may be relied upon by any permitted assignee of this Lease or any permitted sublessee of the Property or any part thereof. 31. CONVEYANCE BY LESSOR. In case the Lessor or any successor thereto shall convey or otherwise dispose of the Property by transfer which does not violate the provisions of Section 35.2(a) hereof, it shall thereupon be released from all liabilities and obligations of Lessor under this Lease (except those accruing prior to such conveyance or other disposition) and such liabilities and obligations shall be binding solely on the then owner of the Property, provided such owner expressly assumes the liabilities and obligations of Lessor under this Lease. 32. END OF LEASE TERM. Upon the expiration or other termination of the Lease Term, Lessee shall quit and surrender to Lessor the Property in good order and condition, and shall remove all Lessee's Equipment therefrom, In the event Lessee fails to so vacate the Property, such hold over shall be as a tenant at sufferance and not as a tenant at will. Lessee shall pay Lessor, on demand, as rent for the period of such hold over an amount equal to one and one- quarter (1.25) times the Quarterly Rent which would have been payable by Lessee had the hold over period been a part of the Lease Term, together with the amount of any actual direct or consequential damages suffered or incurred by Lessor on account of such hold over by Lessee or any violation by Lessee of any other term or condition of this Lease during such hold over period, In no event shall the payment of rent during such hold over period cause Lessee to be or be deemed to be a tenant at will. No holding over by Lessee, whether with or without consent of Lessor, shall operate to extend the Lease Term except as otherwise expressly provided in a written agreement executed by both Lessor and Lessee. 33. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Lease invalid, unenforceable or not entitled to be recorded under any applicable law. If any term of this Lease shall be held to be invalid, illegal or unenforceable, the validity of the other terms of this Lease shall in no way be affected thereby. 34. TIMBER MANAGEMENT AND CUTTING PROVISIONS. 34.1 GENERAL TIMBER MANAGEMENT OBLIGATIONS. Lessee covenants and agrees that the Property shall be operated for its highest and best use as timberland, having due regard to soil conditions, stand arrangements and other factors -24- relevant to the conduct of sound silvicultural and harvesting practices, Lessee agrees that any intermediate harvesting of Timber shall be carried out in a manner calculated to produce the maximum growth per acre, consistent with the production of the highest quality and greatest quantity of Merchantable Timber, Lessee shall have the right to manage the Property for maximum pulpwood production and to utilize all products, including sawtimber, as pulpwood, provided the Timber is properly accounted for by Lessee as pulpwood or sawtimber, as the case may be, in accordance with the timber classifications, specifications, utilization limits and calculation standards set forth on Exhibit E hereto. Lessee further covenants and agrees: (a) HARVESTING OPERATIONS. That all Timber cutting shall be conducted in such a manner as to realize the greatest return from the individual tree and from the timber stand, to effect suitable utilization of the Land, to assure the early and complete regeneration of stands of desirable Timber, and to bring about their optimum development both as to growth and quality; that trees shall be cut as close to the ground as practicable in order to leave the lowest stump, with jump-butting to be used when necessary; that all desirable trees which are not at the time being harvested, including young trees, shall be protected against unnecessary injury from felling, skidding and hauling; and that all measures reasonably practicable shall be used to prevent soil erosion including the proper location of skidways and roads. (b) RESTRICTIONS ON GRAZING AND USE OF FIRE. That Lessee shall not permit grazing of livestock on the Land in such a way as to be injurious to forest regeneration, soils or forest growth, or permit the use of fire for eradication of noxious growth or for any other reason whatsoever except with Lessor's prior written consent; provided, however, application of fire in a controlled manner for the benefit of timber production ("prescribed burning") may be utilized in the management of the Property, without Lessor's prior written consent, if (i) state and county fire protection agencies are notified and all fire protection and other applicable laws are followed, (ii) appropriate equipment and trained personnel are available and utilized, (M) fire is applied only when weather conditions are favorable, and (iv) the prescribed burning area is isolated from other areas by appropriate natural or man-made fire breaks. (c) SALVAGE. That to the extent economically feasible, all trees which are dead, diseased, fallen or otherwise damaged by casualty, shall be salvaged and harvested in accordance with sound silvicultural practices and shall be reported pursuant to Section 34.5 hereof. (d) FIRE PROTECTION. That all measures shall be taken which are reasonably necessary to protect the Land and the Timber from loss by fire, which measures shall be at least equal to fire-control practices generally followed on timber-producing property in the same general area, including the adoption of suitable prevention and control measures, the maintenance of adequate fire-fighting equipment, proper disposal of slash and slabs, and full cooperation with county, state and federal agencies on matters of fire prevention and control. -25- (e) MAINTENANCE OF ROADS. That an adequate system of roads and roadways shall be maintained in such manner as to permit access of mobile fire- fighting equipment and logging equipment to all parts of the Land. (f) REGENERATION OF THE SOUTHERN TIMBERLANDS. That Lessee shall take care to leave the Southern Timberlands in the same general condition at the end of the Lease Term as existed on the Commencement Date of this Lease. Thus, all reasonable measures shall be taken to insure proper regeneration of Timber on the Southern Timberlands. This means, all portions of the Southern Timberlands which are economically suited for growing pine trees and which have either been clear-cut or are without adequate seed source shall be site-prepared and replanted in pine seedlings using to the extent available the most superior type, so as to establish and maintain pine trees on all portions of the Southern Timberlands which are economically suited for the production of pine timber, Any clear-cut area shall be site prepared and replanted within 18 months of such clear-cutting. In areas of the Southern Timberlands which have not been clear- cut but which are without adequate seed source and are economically suited for the production of pine timber, Lessee shall institute and maintain a planting program designed adequately to reforest such land. For each one acre of the Southern Timberlands clear-cut but not site-prepared and replanted prior to the expiration of the Lease Term, Lessee shall pay to Lessor the sum of $150.00 per acre to be retained as a performance deposit until the clear-cut acreage is site-prepared and replanted satisfactorily to Lessor. Lessee shall have until the expiration of the 18 month period following the clear-cutting to which the performance deposit relates to site-prepare and replant the clear-cut acreage and obtain a refund of said deposit, which shall be retained by Lessor if site preparation and replanting have not been completed by such time; provided, however, if such 18 month period shall have expired prior to the expiration of the Lease Term, then Lessee shall have a period of 12 months following the expiration of the Lease Term to complete such site preparation and replanting and to obtain a refund of said deposit. The preceding sentence shall not be construed in any way so as to relieve Lessee of its obligation to site-prepare and replant within 18 months of any clear-cutting during the Lease Term and any failure by Lessee so to site-prepare and replant within such 18 months shall constitute a Default under this Lease. (g) REGENERATION OF THE NORTHERN TIMBERLANDS. That Lessee shall take care to leave the Northern Timberlands in the same general condition at the end of the Lease Term as existed on the Commencement Date of this Lease. Thus, all reasonable measures shall be taken to insure proper regeneration of Timber on the Northern Timberlands. This means, each clear-cut area (except for Lowland Brush (Spruce) described on Exhibit D-3 hereof) within the Northern Timberlands which cannot be adequately regenerated by natural means shall be site-prepared and replanted in coniferous or hardwood seedlings suitable for the site using to the extent available the most superior type. Any clear-cut area which has not regenerated naturally within 12 months of such clear-cutting shall be site- prepared and replanted within 24 months of such clear-cutting. In areas of the Northern Timberlands which have not been clear-cut but which are unable to regenerate naturally, Lessee shall institute and maintain a planting program designed adequately to reforest such land. For each one acre of clear- -26- cut land in the Northern Timberlands requiring site preparation and replanting which is not site prepared and replanted prior to the expiration of the Lease Term, Lessee shall pay to Lessor the sum of $150,00 per acre to be retained as a performance deposit until such acreage is site-prepared and replanted satisfactorily to Lessor, Lessee shall have until the expiration of the 24 month period following the clear-cutting to which the performance deposit relates to site-prepare and replant such acreage and obtain a refund of said deposit, which shall be retained by Lessor if site preparation and replanting have not been completed by such time; provided, however, if such 24 month period shall have expired prior to the expiration of the Lease Term, Lessee shall have a period of 12 months following the expiration of the Lease Term to complete such site preparation and replanting and to obtain a refund of said deposit. The preceding sentence shall not be construed in any way so as to relieve Lessee of its obligation to site-prepare and replant within 24 months of any clear-cutting during the Lease Term which has not regenerated naturally within 12 months following such clear-cutting and any failure by Lessee so to site-prepare and replant within such 24 months shall constitute a Default under this Lease. (h) CONTROL OF DISEASE. That, to the extent economically feasible, there shall be maintained at all times in accordance with sound silvicultural practices all reasonable and effective measures to prevent the development of and to control the spread of disease and insect infestation on the Land, including, but not limited to, the shifting of logging operations to remove diseased or insect-infested trees and other trees threatened with disease or insect infestation, and all such other accepted forest sanitation and control measures as are necessary to prevent the development and spread of disease and insect infestation. (i) TRESPASS. That the Land shall be marked to indicate the boundaries thereof in a Conspicuous manner satisfactory to Lessor; that such markings shall be renewed from time to time as may be necessary clearly to maintain public notice of boundaries; and that Lessee shall cause the Land to be inspected for the purpose of preventing trespass of any type or nature, including unauthorized cutting of Timber. (j) CONTRACTS. That no contracts or agreements (whether written or oral) for the lease, sale or disposition of Timber wherein third parties are granted the privilege of entry upon the Land for cutting and removal of Timber or the care or management of all or part of the Property shall be made without the prior written approval of Lessor; provided, however, that so long as no Event of Default shall have occurred and be continuing hereunder, no prior written approval of Lessor shall be required for any such contracts or agreements which (i) have a term of 1_ months or less, but in no event expiring after December 31, 2002 (except that any such contract may expire after December 31, 2002, provided such contract expressly provides that it will terminate, without cost or penalty to Lessor, upon the sale by Lessor of all or any portion of the Property affected by such contract), (ii) require payment or delivery of goods and/or services by Lessee in an aggregate amount of less than $500,000.00, and (iii) are expressly subject and subordinate to this Lease; provided, further, however, that no written approval of Lessor shall be required in connection with the assumption by -27- Lessee of various contracts of Sellers by instrument of even date herewith pursuant to the provisions of the Purchase Agreement and the Acquisition Agreement. 34.2 TIMBER CUTTING PRIVILEGES. Lessee agrees neither to cut or remove nor permit the cutting or removal of any Timber without the prior written consent of Lessor, except as expressly provided herein, Unless a Default has occurred and is continuing under this Section 34.2 or unless an Event of Default has occurred and is continuing under any provision of this Lease, Lessee shall have the right to cut and remove Merchantable Timber from the Land, but only in strict accordance with the following provisions: (a) ANNUAL CUTTING PRIVILEGE. As soon as reasonably possible after the Commencement Date of this Lease and thereafter on or before the last day of the Fifth and Tenth Lease Years, Lessee shall cause the Forestry Consultant to deliver to the Lessor a Projected Growth Report for the next five years itemized by Category, Lessee's timber cutting right during the Lease Term shall be based upon such Projected Growth Reports as follows: (i) During each Lease Year of the Initial Lease Term, Lessee shall have the right to cut up to 100% of the average projected annual growth (net of mortality) by Category as determined by the Forestry Consultant in the Projected Growth Report applicable to such Lease Year. If mortality exceeds average projected annual growth in any Category during any Lease Year, such excess shall be deducted from Lessee's cutting rights for such Category for the following Lease Years. Lessee may, at its option, elect to cut less than 100% of such average projected annual growth during any Lease Year and, in such event, Lessee shall be permitted to cut, without penalty, the remainder of such projected growth in any subsequent Lease Year covered by the five-year Projected Growth Report applicable to such Lease Year; and (ii) During each Lease Year during the Extension Period, Lessee shall have the right to cut up to 75% of the average projected annual growth (net of mortality) by Category as determined by the Forestry Consultant in the Projected Growth Report applicable to such Lease Year, If mortality exceeds 75% of average projected annual growth in any Category during any Lease Year, such excess shall be deducted from Lessee's cutting rights for such Category for the following Lease Years; -28- provided, however, that: A. the permitted volume of cutting in any Category for any Lease Year shall be reduced by an amount equal to the excess volume, if any, cut or removed during the preceding Lease Years pursuant to paragraph (b) of this Section 34.2, multiplied by 1.5; B. the Forestry Consultant shall revise and update its Projected Growth Report annually to reflect each sale, Taking or release of all or any portion of the Property during the Lease Term and Lessee's timber cutting privilege shall be adjusted in conformity with such revised report; C. the permitted volume of cutting in any Category for the Sixth through the Fifteenth Lease Years shall be increased or decreased to correct any growth projection errors applicable to prior periods which are revealed by the Cruise performed by the Forestry Consultant at the end of the Fifth and Tenth Lease Years; D. in the event the Annual Report delivered by the Forestry Consultant indicates that variances exist between the actual growth of Timber by Category and the projections set forth in the Projected Growth Report, Lessor or Lessee, with the consent of the other, which consent is not to be unreasonably withheld by either party, shall have the right to require the Forestry Consultant to revise the Projected Growth Report to reflect such variances and Lessee's Timber cutting right shall be adjusted in conformity with such revised report; and E. until such time as the Forestry Consultant shall deliver its initial Projected Growth Report to Lessor and Lessee and provided Lessee would otherwise be permitted to cut Timber in accordance with the provisions of this Section 34.2, Lessee shall be permitted to cut the volumes of Timber by Category set forth on Exhibit H attached hereto and incorporated herein by this reference. (b) EXCESS CUTTING. Subject strictly to compliance by Lessee with this paragraph (b) of this Section 34.2, Lessee may without default cut and remove -29- Merchantable Timber in excess of the volumes permitted under paragraph (a) of this Section 34.2, provided, that such excess cutting in any Lease Year does not exceed 10% (on a non-cumulative basis) of the volume (in any Category) in such Lease Year permitted to be cut under paragraph (a) of this Section 34.2; provided further, that with respect to each such excess volume of each Category of Merchantable Timber, Lessee shall be required to pay as Additional Rent to Lessor an amount equal to the greater of (i) 150% of the amount calculated by multiplying such excess volume of each Category times the applicable Adjustment Amount Per Cord for each Category set forth on Exhibits D-1, D-2 and D-3 hereto, or (ii) 150% of the fair market value of the excess Merchantable Timber cut, as determined by the Forestry Consultant as of the last day of such Lease Year. (c) MERCHANTABLE TIMBER CUT BY OTHERS; LOSS OF MERCHANTABLE TIMBER BY CASUALTY. All Merchantable Timber on the Land which is cut or removed by any Person other than Lessee or which is lost or destroyed by fire, windstorm, disease, infestation, act of government or war or third parties or any similar cause (other than that which is lost as a result of a Taking), whether or not salvaged, shall be deemed to have been cut or removed by Lessee for purposes of this Lease; provided, however, the volumes of any Merchantable Timber so lost or destroyed shall not be deemed to have been cut or removed by Lessee for purposes of the lot limitation set forth in the first proviso in the first sentence of paragraph (b) of this Section 34.2 so long as Lessee shall have paid the Additional Rent with respect to such lost or destroyed Merchantable Timber required to be paid under the second proviso in the first sentence of paragraph (b) of this Section 34.2. (d) TITLE TO MERCHANTABLE TIMBER. Title to all Merchantable Timber located on the Property is now and shall remain vested in Lessor throughout the Lease Term; provided, however, that title to any Merchantable Timber which is cut or removed from the Property by Lessee in strict accordance with the provisions of this Section 34.2, shall, upon such cutting and removal, vest in Lessee. 34.3 LOSS OF PRE-MERCHANTABLE PLANTED TREES BY CASUALTY. In the event any Pre-Merchantable Planted Trees are lost or destroyed by fire, windstorm, disease, infestation, act of government or war or third parties or any similar cause (other than that which is lost as a result of a Taking), then, in any such event Lessee shall site-prepare and replant the acreage of such lost or destroyed Pre-Merchantable Planted Trees in the same manner and within the same time as would be required by Section 34.1 if said acreage had been clear- cut. 34.4 FORESTRY CONSULTANT. (a) APPOINTMENT. Lessee hereby acknowledges and agrees that Lessor shall have the right, at all times during the Term of this Lease and at Lessee's sole cost and expense, to employ an independent forestry consulting firm or firms of established reputation to act on behalf of Lessor hereunder (the "Forestry Consultant"). Lessor and Lessee further acknowledge and agree that, with respect to the Southern -30- Timberlands, the initial Forestry Consultant shall be Resource Management, Inc., and, with respect to the Northern Timberlands, the initial Forestry Consultant shall be George Banzhaf & Company. (b) Duties. During the Lease Term the Forestry Consultant shall: (i) periodically perform a Cruise of the Property and prepare a Projected Growth Report with respect thereto in accordance with the provisions of section 34.5 hereof ; (ii) upon completion of the initial Cruise, prepare an appraisal by Category of the fair market value of the Property as of the Commencement Date of this Lease (the "Property Appraisal") to be delivered to Lessor and Lessee on or before March 1, 1991; (iii) prepare an Annual Report with respect to the Property in accordance with the provisions of Section 34.7 hereof; (iv) make periodic determinations of acreage and timber volumes by Category with respect to portions of the Property to be sold, taken or otherwise released from this Lease; (v) verify any and all reports, certifications or other information provided by Lessee to Lessor in accordance with the provisions of this Lease; (vi) monitor Lessee's business and activities on the Property to assure compliance by Lessee with the provisions of this Lease; (vii) notify Lessor of any Default or Event of Default hereunder promptly upon obtaining knowledge of same; (viii) notify Lessor if for any reason it becomes impossible for such Forestry Consultant faithfully and fully to perform its obligations hereunder; (ix) accept no obligation or responsibility to Lessee which is inconsistent with the faithful discharge of such Forestry Consultant's obligations to Lessor hereunder; and (x) perform such other duties with respect to the Property and this Lease as Lessor may from time to time reasonably request. -31- (c) RECORDS. All of the records of the Forestry Consultant relating to the Property, including without limitation, all books, maps, surveys, photographs, reports and similar information, shall be and become the property of Lessor shall be held by the Forestry Consultant as agent for Lessor and shall be furnished or made available to Lessor as it may from time to time request. Lessee shall have the right to examine and make copies of the foregoing, all at Lessee's expense, as the Lessee may from time to time reasonably request. (d) PAYMENT OF FEES. Lessee covenants and agrees to pay all fees and to reimburse all expenses of the Forestry Consultant hereunder, If Lessee fails or refuses to pay any fees or to reimburse any expenses of the Forestry Consultant when due, Lessor may at its election advance and pay any such sum and said sum, together with Default Interest thereon calculated from the due date thereof, shall be paid by Lessee to Lessor as Additional Rent on or before the fifth day following the date upon which Lessor advances such amount. (e) TERMINATION OF FORESTRY CONSULTANT'S EMPLOYMENT. (i) Lessor shall have the right to terminate the employment of the Forestry Consultant at any time, with or without cause, by giving 30 days advance written notice of such termination to the Forestry Consultant and to Lessee. (ii) Lessee shall have the right to terminate the employment of the Forestry Consultant at any time for cause consisting of failure to perform, or bad faith, negligence, or misconduct in the performance of, its duties as the Forestry Consultant hereunder, by giving 30 days advance written notice of such termination to the Forestry Consultant and to Lessor. (iii) Upon the termination of the employment of the Forestry Consultant by either the Lessor or Lessee, then the other party shall have the right to propose a successor Forestry Consultant. (iv) In the event of the resignation of the Forestry Consultant, Lessor shall have the right to propose a successor Forestry Consultant. (v) In the event Lessor and Lessee, after good faith negotiations have been attempted by Lessor, do not for any reason agree in writing on the appointment of a successor Forestry Consultant within 30 days after such termination or resignation, and provided Lessor desires that a successor Forestry Consultant be appointed, then Lessor shall provide to Lessee a list of three forestry consulting firms which are acceptable to Lessor, and Lessee shall have ten Business Days following receipt of such list to select one of the three consulting firms listed thereon to act as Forestry Consultant hereunder; provided, however, if Lessee fails to make its selection within such ten-day period, Lessor shall have the right but not the obligation to appoint a successor Forestry Consultant in its sole discretion. -32- (vi) In case of termination of the employment of the Forestry Consultant by the Lessee, the effective date of such termination shall be extended, if so requested by the Lessor, until the successor Forestry Consultant has accepted the engagement and is in a position fully to perform the duties of the Forestry Consultant hereunder; provided, however, that no such extension shall be for a period in excess of 90 days from the original termination date set forth in Lessee's notice of termination. (f) No Obligation to Utilize Consultant. Notwithstanding the foregoing, Lessor shall have no obligation to utilize the services of a Forestry Consultant under the terms of this Section 34.4. For any period of time during which there is no Forestry Consultant employed and acting as such, Lessor shall have the right to take such steps as it considers necessary to make the determinations, verifications and inspections to be made by the Forestry Consultant hereunder, by its own employees or otherwise. Lessee agrees to pay and reimburse all reasonable costs and expenses incurred by Lessor in making such determinations, verifications and inspections that would otherwise be performed by the Forestry Consultant, including without limitation, travel expenses and the reasonable fees and expenses of independent foresters, surveyors, engineers and attorneys. (g) Cooperation. Lessee covenants to cooperate fully with the Forestry Consultant in good faith so as to aid the Forestry Consultant in performing its duties hereunder. 34.5 TIMBER CRUISE. Lessee shall cause the Forestry Consultant to perform a cruise (in each case, the "Cruise") of the Property at Lessee's sole expense on or before March 1, 1991 to verify the actual timber volumes and acreages by Category included in the Property as of the Commencement Date of this Lease and thereafter as of December 31, 1995 and December 31, 2000 to verify the actual timber volumes and acreages by Category included in the Property as of each of such dates. Each Cruise shall be conducted in accordance with the cruise specifications set forth on Exhibit E attached hereto and incorporated herein by this reference. The results of each Cruise shall be delivered in report form to Lessor and Lessee on or before the due date thereof and shall include a projected annual growth report for the Property for the five year period commencing on such due date, itemized by Category (in each case, the "Projected Growth Report"). In connection with the initial Cruise, the Forestry Consultant shall also prepare and deliver the Property Appraisal. In the event that Lessor or Lessee disagrees in good faith with any determination (volume and/or acreage) by the Forestry Consultant, such party shall deliver to the other party a written notice of objection (the "Objection Notice") and the parties hereto shall undertake to negotiate in good faith to resolve their differences) or, at the option of either the Lessor or Lessee, a reputable forestry consulting firm shall be appointed by the Lessor and Lessee to resolve such dispute, one-half the cost of which shall be borne by each party. In the event Lessor and Lessee, after good faith negotiations have been attempted by Lessor, do not for any reason agree on a forestry consulting firm within 30 days following the date the objection Notice is delivered by the objecting party, Lessor shall provide to Lessee a list of three -33- forestry consulting firms which are acceptable to Lessor, and Lessee shall have ten Business Days following receipt of such list to select one of the three consulting firms listed thereon to resolve the dispute; provided, however, if Lessee fails to make its selection within said ten-day period, Lessor shall have the right to appoint such reputable forestry consulting firm in its sole discretion. 34.6 SEMI-ANNUAL REPORTS. Lessee covenants to furnish to the Forestry Consultant and to the Lessor not later than 45 days after the end of each calendar semi-annual period, a semiannual report with respect to the Southern Timberlands in a form substantially similar to that attached hereto as Exhibit F-1 and incorporated herein by this reference and with respect to the Northern Timberlands in a form substantially similar to that attached hereto as Exhibit F-2 and incorporated herein by this reference, with full and accurate information furnished in completion thereof, for each management unit of the Property, including in addition to the information requested therein a current compartment map (in such detail as Lessor or the Forestry Consultant may reasonably specify from time to time) for each compartment in which a change occurred in the volumes or acreages of Land or Timber (other than a change merely by reason of timber growth) and such other information as Lessor or the Forestry Consultant may reasonably request from time to time with respect to timber activity on the Property including without limitation, new plantings, Timber cutting, Timber utilization, Timber damage by casualty, loss of Timber or Land by eminent domain or condemnation, and improvement of the Property. The information to be furnished to the Forestry Consultant and Lessor shall also include a statement setting forth the Administrative Amount of the Property by Category as of the end of the semi-annual period covered by said report. In addition, the Lessee covenants to furnish to the Forestry Consultant and to the Lessor, a synopsis of all changes in acreage and volumes of Land and Timber for the Lease Year through the semi-annual period covered by the report. 34.7 ANNUAL REPORTS. In addition to the semi-annual reports required by Section 34.6 above, Lessee covenants to furnish to the Lessor not later than 90 days after the end of every Lease Year an annual report of the Forestry Consultant (the "Annual Report") addressed to the Lessee and to the Lessor, for the preceding Lease Year. The Annual Report shall contain the following: (i) a detailed report of all matters and transactions involving or affecting the Property in such detail as may be reasonably required; (ii) the certification of the Forestry Consultant, as of December 31 of the Lease Year covered by the report, as to the acreage of Land, volume of Merchantable Timber by Category and acreage of Pre- Merchantable Planted Pine contained within the Property; (iii) the opinion of the Forestry Consultant as to whether the actual growth of Timber on the Property during such period was consistent with -34- the projections set forth in the Projected Growth Report applicable to such period and, if not, setting forth the variances therefrom by Category; and (iv) a reconciliation of the timber inventory and projected growth to take into account all changes in volumes and acreages of Timber and Land within the Property through December 31 of the Lease Year covered by the report. 34.8 TIMBER SPECIFICATIONS AND CALCULATIONS. The timber classifications, specifications, utilization limits and calculation standards set forth on Exhibit E to this Lease with respect to the Southern Timberlands and the Northern Timberlands are hereby agreed to by Lessor and Lessee and shall be used for all purposes under this Lease. 35. DISPOSITION OF PROPERTY. 35.1 LESSEE'S OPTION TO PURCHASE. Provided this Lease has not been terminated for any reason by either Lessor or Lessee prior thereto, Lessee shall have, at its option but with no obligation, the right to purchase all of Lessor's right, title and interest in the Property and, to the extent transferable, the Permits (the "Purchase Option") for a purchase price equal to the Purchase option Price, upon giving Lessor written notice of its election to purchase not less than 90 days prior to the expiration of the Initial Lease Term. If Lessee fails to give notice of its election to purchase within the time herein allowed or if this Lease is terminated prior to giving such notice, the Purchase option shall expire and shall be of no further force or effect. The purchase transaction shall be consummated on December 31, 2002 or on such other day during December 2002 as Lessor and Lessee shall agree to in writing (the "Option Closing Date") by delivery of limited warranty deeds and special warranty deeds to Lessee, or such other party as Lessee may direct, against payment of the Purchase Option Price in immediately available funds (excepting from such deeds such portion, if any, of the Property as shall have been sold by Lessor prior to the Option Closing Date pursuant to Section 35.2 hereof, taken by a Taking or otherwise released from this Lease pursuant to the terms hereof), and the title so to be transferred may be subject to (a) any and all defects in title and rights of third parties existing at the date Lessor acquired the Property, (b) the lien or effect of any and all Impositions and any and all Legal Requirements, (c) encumbrances and exceptions arising as a result of action taken by Lessor to enforce its rights and remedies under this Lease, and (d) any and all rights of third parties created or suffered by Lessee or by Lessor with the consent of or at the request of Lessee or as a result of any act or failure to act of Lessee, but shall be free of any other defects of title or rights of third parties created or permitted over the objections of Lessee by Lessor or Liens for Excluded Taxes, except this Lease. Lessee shall pay or cause to be paid, and shall indemnify and hold Lessor harmless against, all charges incident to the proposed conveyance (whether or not the same shall be consummated), including, without limitation, all reasonable counsel fees and expenses, all escrow fees, recording fees, title insurance premiums, survey costs and all applicable transfer taxes, deed taxes, stamp taxes or similar taxes imposed by reason of the -35- conveyance of title to the Property by Lessor to Lessee or the execution, delivery and recording of the deeds, it being the intent hereof that the Purchase Option Price paid to Lessor for the Property shall be absolutely net to Lessor and that such conveyance be effected without cost or expense to Lessor; provided, however, Lessee shall not be responsible for or obligated to indemnify Lessor for any Excluded Taxes hereunder other than transfer taxes, deed taxes, stamp taxes or similar taxes. Lessee hereby acknowledges and agrees that, in the event Lessee for any reason does not exercise the Purchase Option, the Lease Term will immediately be extended to include the Extension Period. 35.2 SALE OF TIMBERLANDS DURING THE INITIAL LEASE TERM. (a) Lessor's Right to Sell. Lessor shall have the right at all times during the Initial Lease Term to sell all or any portion of the Timberlands subject to this Lease and the Purchase Option without the consent or approval of Lessee; (b) Lessee's Right to Market; Requirements for Sale. On or before the 30th day following its receipt of the Annual Report of the Forestry Consultant each Lease Year during the Initial Lease Term, Lessor shall identify 80,000 acres of the Timberlands (as identified by Lessor from time to time hereinafter referred to as the "Pre-Approved Property") which Lessee shall be permitted to market for sale on behalf of Lessor during the twelve-month period commencing April 1 of each Lease Year during the Initial Lease Term (the "Marketing Period"). The Pre-Approved Property shall not include and shall be in addition to the Non-Strategic Lands. Lessor hereby agrees that it will sell all or any remaining portion of the Non-Strategic Lands and up to 27,000 acres of the Pre- Approved Property per Lease Year during the Initial Lease Term to one or more purchasers identified by Lessee, provided: (i) no Default or Event of Default shall exist under this Lease as of the date of Lessor's request pursuant to subsection 35.2(c) or as of the date of any such proposed sale; (ii) the proposed sale shall be an arm's length transaction with a Person who is not a Related Entity and who is otherwise acceptable to Lessor in its reasonable discretion; (iii) the net proceeds (after deduction of all closing costs and any other costs and expenses in connection with such sale, including any taxes imposed or recaptured under any Forest Tax Law) received by Lessor as a result of any such sale shall be no less than the greater of the Minimum Return Price or the Make-Whole Price applicable to such sale; (iv) all conveyance instruments and other documentation in connection with such sale shall be in form and substance satisfactory to Lessor; -36- (v) Lessee shall have complied fully with the requirements of subsection 35.2(c) hereof as they relate to such proposed sale; and (vi) all information and certifications set forth in the certificates required under subsection 35.2(c) shall be true, accurate and complete. Lessor's agreement to sell up to 27,000 acres of the Pre-Approved Property per Lease Year during the Initial Lease Term shall be on a cumulative basis, but in no event shall Lessor be required to (A) sell more than 80,000 acres of the Timberlands during any Lease Year or (B) process more than ten written requests for sale delivered by Lessee in accordance with the provisions of subparagraph (c) below during any Lease Year. Lessee shall pay all costs and expenses related to any such sale, including any and all expenses incurred by Lessor in connection therewith. Notwithstanding the foregoing, Lessor shall have until June 1, 1991 to identify the Non-Strategic Lands and the Pre-Approved Property for the initial Marketing Period. (c) Documentation Required. Not less than 60 days prior to the date upon which any proposed sale under subsection 35.2(b) is to occur, Lessee shall provide a written request for such sale to Lessor, which request shall include the following documentation, all of which must be in form and substance satisfactory to Lessor: (i) a legal description of the tract or tracts to be sold; (ii) if less than an entire contiguous tract (as described in the legal descriptions attached hereto as Exhibit A) is to be sold, a plat of survey of the portion of the Timberlands to be sold prepared by a reputable registered engineer or land surveyor acceptable to Lessor; (iii) a certificate from the Forestry Consultant: A. stating that access to the remaining Timberlands after such sale will not be materially impaired and will be adequate for commercial forestry operations; B. listing by Category the amounts of acreage and volumes of Land and Timber contained within the tract or tracts to be sold, which listing shall be based on the results of a current stratified cruise complying with the cruise specifications set forth on Exhibit E attached hereto, and describing any Improvements thereon; -37- C. setting forth a detailed computation of the Administrative Amount of the tract or tracts to be sold; and D. stating to the best of the knowledge and belief of the Forestry Consultant that no Default or Event of Default then exists under this Lease; (iv) a certificate from the principal operating officer of Lessee responsible for Lessee's operations on the Property: A. stating that no Default or Event of Default then exists under this Lease; B. setting forth a detailed computation of the Make-Whole Price and Minimum Return Price applicable to such sale; C. stating that the proposed sale will not impair the marketability or value of the remaining Timberlands or materially impair the accessibility of the remaining Timberlands; D. stating that, to the best of the knowledge and belief of such officer, the information contained in the certificate delivered by the Forestry Consultant in connection with such sale is true, accurate and complete; and E. stating that the proposed sale is to be an arm's length transaction with one or more Persons, none of whom is a Related Entity; and (v) a true, correct and complete copy of the contract for the sale of the tract or tracts to be sold; (d) Excess Proceeds. Any proceeds received by Lessor as a result of any sale of Timberlands in accordance with the provisions of subsection (b) above which are in excess of the greater of the Minimum Return Price or the Make-Whole Price applicable to such sale shall be paid by Lessor to Lessee; (e) Other Sales. In the event Lessee wishes to market for sale during the Initial Lease Term portions of the Timberlands which are not included in the -38- Pre-Approved Property or which are in excess of the amount of acreage which Lessor has agreed to sell pursuant to subsection 35.2(b) hereof, Lessee may submit a written request to Lessor to sell such additional property, which request shall comply with the provisions of subsection 35.2(c) hereof, Lessor shall have a period of not less than 90 days from the date Lessee makes such written request and provides such materials to evaluate the proposed sale and to decide whether to approve such sale, which approval may be given or denied by Lessor in its sole discretion; provided, however, Lessor agrees that it will, in good faith, consider such request, but Lessor shall be entitled to deny such request if Lessor determines, in its sole discretion, that such sale would not be in the best interest of Lessor for any reason; and (f) Release of Property Sold. This Lease shall terminate with respect to any portion of the Property sold pursuant to this Section 35.2(b) and Basic Rent shall thereupon be adjusted in accordance with the provisions of Section 2.1 hereof. 35.3 SALE OF PROPERTY DURING THE EXTENSION PERIODS. Lessor shall have the right at all times during the Extension Period to sell all or any portion of the Property free and clear of this Lease without the consent or approval of Lessee. In the event of such a sale during the Extension Period, Lessee shall be entitled to receive from Lessor 20% of the excess, if any, of the sales proceeds from such sale (net of all costs and expenses of such sale, including without limitation, brokerage commissions and attorney's fees) over the Adjusted Base Value of the Property. Upon the expiration of the Lease Term, Lessee's right to receive any portion of proceeds from the sale of all or a portion of the Property shall cease. 35.4 SALES PURSUANT TO OPTION AGREEMENTS. The documents described on Exhibit J attached hereto and incorporated herein by this reference (the "Option Agreements") grant to third parties options to purchase portions of the Property. Upon the sale of any portion of the Property pursuant to the provisions of any of the Option Agreements, the proceeds from such sale (less costs, fees and expenses incurred by Lessor and Lessee in connection therewith) shall be paid (i) first, to Lessor in an amount up to and including the greater of the Minimum Return Price or the Make-Whole Price applicable to the portion of the Property sold, and (ii) the balance, if any, of such proceeds shall be paid to Lessee. 36. APPRAISAL. In the event the Agreed Value has not been established by Lessor and Lessee on or before the 180th day prior to the expiration of the Initial Lease Term (the "Determination Date"), the Agreed Value shall be determined as follows: (a) Not later than the 15th day after the Determination Date, Lessor and Lessee shall each appoint one appraiser and shall give notice of such appointment to the other party. If either party shall fail or refuse so to appoint an appraiser and give notice thereof within said 15-day period, then the appraiser appointed by the other party shall appoint a second appraiser within ten days after the expiration of said 15-day period, each of the two appraisers so appointed shall individually determine -39- the Agreed Value within 30 days after the appointment of the second appraiser, and the average of the two values so determined shall be deemed to be the Agreed Value for purposes of this Lease and shall be final and binding upon the parties. If Lessor and Lessee have each appointed an appraiser and given notice thereof within said 15-day period, then the two appraisers so appointed shall appoint a third appraiser within ten days after the expiration of said 15-day period. Within 30 days after the appointment of the third appraisal, each of the three appraisers shall individually determine the Agreed Value, and the average of the two highest values determined by said appraisers shall be deemed to be the Agreed Value for purposes of this Lease and shall be final and binding upon the parties. (b) All appraisers appointed hereunder shall be competent, qualified by training and experience in appraising timberlands, disinterested and independent and shall be members in good standing of the Association of Consulting Foresters, and all appraisal reports shall be rendered in writing and signed by the appraiser making the report. Each party shall pay the costs, fees and expenses of the appraiser appointed by it and one-half of the costs, fees and expenses of the appraiser appointed by the other appraiser or appraisers. 37. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE. 37.1 GENERAL REPRESENTATIONS AND WARRANTIES. Lessee hereby warrants and represents to Lessor that: (a) Lessee is a corporation duly incorporated and validly existing under the laws of the State of Delaware, is in good standing therein, is duly qualified to do business and is in good standing in the States of Florida, Georgia, Michigan and Wisconsin, and has full corporate power and authority to enter into this Lease and to perform its obligations hereunder; (b) The execution and delivery of this Lease by Lessee and the performance of its obligations hereunder have been duly authorized by all necessary corporate action and will not violate any provision of law or of its charter or by-laws or result in the breach of or constitute a default under any material indenture or other agreement or instrument to which Lessee is a party or by which Lessee or the Property may be bound or affected; (c) The consolidated balance sheet of the Lessee and its Subsidiaries dated September 30, 1990, and the related consolidated statements of income, retained earnings and cash flow which have been delivered to Lessor by Lessee have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved and fairly present (i) the financial condition of Lessee and its Subsidiaries as of the date of such balance sheet, and (ii) the results of operations of the Lessee and its Subsidiaries for the period then ended; -40- (d) No material adverse change in the business, operations, properties, assets or financial condition of the Lessee has occurred subsequent to September 30, 1990; (e) Lessee possesses all trademarks, trade names, copyrights, patents, governmental licenses, franchises, certificates, consents, permits and approvals necessary to enable it to carry on its business in all material respects as now conducted and to own or operate the properties material to its business as now owned or operated, without conflict with rights of others, and that all such trademarks, trade names, copyrights, patents, governmental licenses, franchises, certificates, consents, permits and approvals which are material to Lessee are valid and subsisting; (f) No actions, suits or proceedings are pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee at law or in equity before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which involve any transaction herein contemplated or would have a material adverse change on the business, operations, properties, assets or financial condition of the Lessee; and that Lessee is not in default or in violation of any Legal Requirement which would have a material adverse effect on its ability to perform any of its obligations hereunder; (g) None of the materials listed on Exhibit K attached hereto and incorporated herein by this reference (the "Supplied Materials") which were furnished to Lessor in writing by Lessee or by Tenneco on behalf of Lessee in connection with this Lease contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which made except for changes reflected in the report of Dames & Moore dated December 7, 1990; and except for changes reflected in the Supplied Materials and in such report of Dames & Moore, no facts have come to the attention of any officer of Lessee which leads any such officer to believe that the Confidential offering Memorandum dated June 1990 prepared by Goldman, Sachs & Co, and Wasserstein Parella & Co., Inc., relating to the sale of the Property by Sellers, a copy of which was delivered to Lessor, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which made; provided, however, that while the projections and estimates made by Lessee that are included in the Supplied Materials were made in good faith, Lessee does not make any representation as to the reasonableness or accuracy of any estimates or projections included in any of the Supplied Materials; (h) No employee benefit plan established or maintained by the Lessee, which is subject to Part 3 of Subtitle B of Title I of ERISA, had an accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such plan ended prior to the date hereof which was or would have been material to the Lessee and its Subsidiaries taken as a whole; no liability -41- to the Pension Benefit Guaranty Corporation has been, or is expected by Lessee to be, incurred with respect to any employee benefit plan maintained by the Lessee or any of its Subsidiaries, which is subject to Part 3 of Subtitle B of Title I of ERISA, which would be material to the Lessee and its Subsidiaries taken as a whole; and Lessee is in compliance in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder; (i) As of the date hereof, Lessee has filed all tax returns which are required to be filed by it and has paid all taxes shown to be due pursuant to such returns and all other taxes, assessments, fees and other governmental charges upon the Lessee and upon its properties, assets, income and franchises, except those being contested by the Lessee, those the nonpayment of which would not have a material adverse effect on the Lessee, or those which are not yet due and payable; and (j) All filings and notifications required to be made by Lessee and its parent company, Tenneco, in connection with this Lease and the transactions contemplated by the Purchase Agreement and the Acquisition Agreement under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, have been made, and the applicable waiting period, including any extensions thereof, has expired. No additional action of, or filing with, any governmental or public body or authority is required in connection with the execution, delivery and performance of this Lease (other than routine filings with the Securities and Exchange Commission and other governmental entities required or contemplated by this Lease). 37.2 COVENANTS. The following are additional covenants of the Lessee: (a) Except as permitted by Section 38 hereof, Lessee will at all times (i) conduct continuously and operate actively its business, (ii) keep in full force and effect its corporate existence and, where noncompliance would materially and adversely interfere with Lessee's ability to perform its obligations hereunder, comply with all the laws and regulations governing the conduct of its business, and (iii) make all such reports and pay all such franchise and other taxes and license fees and do all such other similar acts and things as may be lawfully required to maintain its rights, licenses, leases, powers and franchises under the laws of the United States and of the States of Georgia, Florida, Michigan and Wisconsin; (b) Lessee and its Subsidiaries shall not incur any Funded Debt unless immediately thereafter total Pre-Tax Cash Flow coverage of Fixed Charges would exceed 2.0 times, and total Funded Debt would not exceed 55% of Total Capital; (c) Lessee shall be permitted to incur short-term debt, including intercompany debt, for working capital purposes; provided that a portion of such short-term debt that is outstanding during any 12 month period shall be deemed to be Funded Debt at the time of determination, with such portion to be equal to the lowest daily -42- average principal amount outstanding for any period of 30 consecutive days during the preceding 12 month period; (d) Lessee shall not at any time, whether voluntarily or by operation of law, without the prior written consent of Lessor, mortgage, pledge, or otherwise encumber or place any Lien, or permit same, on its assets or any portion thereof, except for the following: (i) any Lien upon any property or assets of Lessee in existence at the Commencement Date, or created pursuant to an "after-acquired property" clause or similar term (including Liens created upon substitution of cash or collateral of similar value) in existence at the Commencement Date, or any mortgage, pledge agreement, security agreement or other similar instrument in existence on the Commencement Date; (ii) any Lien upon any property or assets of Lessee created at the time of the acquisition of such property or assets by Lessee or within 90 days 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; (iii) any Lien upon any property or assets existing thereon at the time of the acquisition thereof by Lessee (whether or not the obligations secured thereby are assumed by the Lessee); (iv) the assumption by Lessee of obligations secured by any Lien existing at the time of the acquisition by Lessee of the property or assets subject to such Lien; (v) any extension, renewal or refunding of any Lien permitted by subsections (i), (ii), (iii) or (iv) of this Section 37.2(d) on substantially the same property or assets theretofore subject thereto or any part thereof, securing debt not in excess of the amount outstanding on the date of such extension, renewal or refunding; (vi) any Lien created or assumed by the Lessee 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 Code for the purpose of financing, in whole or in part, the acquisition or construction of property or assets to be used by the Lessee; (vii) any governmental Lien, mechanics', materialmen's, carriers' or similar Lien incurred in the ordinary course of business which is not yet due and payable or which is being contested in good faith by appropriate proceedings and any undetermined Lien which is incidental to construction; -43- (viii) 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; (ix) Liens for taxes and assessments which are (A) for the then current tax period or year, (B) not at the time delinquent or (C) delinquent but the validity of which is being contested at the time by Lessee in good faith; (x) Liens of, or to secure performance of, leases; (xi) 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, provided that the aggregate book value of all assets so deposited does not exceed 25% of the consolidated Net Worth of Lessee, as shown on a balance sheet as of the end of the most recent fiscal quarter prior to any such deposit for which a balance sheet is available; (xii) any Lien upon property or assets acquired or sold by Lessee resulting from the exercise of any rights arising out of defaults on receivables; (xiii) any Lien incurred in the ordinary course of business in connection with workmen's compensation or unemployment insurance, or to secure obligations imposed by statute or governmental regulations; (xiv) any Lien upon any property or assets in accordance with customary banking practice to secure any debt incurred by Lessee in connection with the exporting of goods to, or between, or the marketing of goods in, or the importing of goods from, foreign countries; (xv) 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 subdivisions (i) through (xvi) inclusive of this Section 37.2(d); or (xvi) any Lien securing any debt in an amount which, together with all other debt secured by a Lien that is not otherwise permitted by this Section 37.2(d), does not at the time of the incurrence of the debt so secured exceed 12% of Lessee's total Tangible Assets, as shown on a balance sheet as of the end of the most recent fiscal quarter prior to the incurrence of such debt for which a balance sheet is available; -44- provided, however, that nothing contained in this Section 37.2(d) shall be construed to permit any Lien to be placed on the Property, Lessee's interest therein, on Basic Rent or on Additional Rent, except as permitted pursuant to the provisions of Section 8 hereof; (e) Lessee shall not pay or declare any dividend or distribution if: (i) immediately thereafter Funded Debt would exceed 50% of Total Capital; or (ii) immediately thereafter Lessee's Net Worth would be less than $800 million; or (iii) there shall exist either a Default in the payment of Basic Rent or Additional Rent or an Event of Default under any provision of this Lease, or any default shall exist under either of the GECC Leases or under any Material Lease; or (iv) there shall exist a default in the payment of money or any other default under any debt obligation of Lessee having an outstanding principal balance in excess of $20,000,000,00; or (v) such payment or declaration would cause an Event of Default to occur under subsection 20(i) hereof; provided, however, that Lessee may make distributions of funds in excess of its current requirements which would otherwise be prohibited by this covenant if, prior to such distribution, the return of such funds to Lessee is guaranteed in form and substance satisfactory to Lessor; (f) Lessee shall not make any intercompany loans, except that Lessee may make intercompany loans to Tenneco, payable upon demand, out of cash generated from Lessee's operations, subject to the following: (i) Lessee shall have the right to make such loans to Tenneco, without limitation as to amount, so long as Tenneco's long-term debt securities are rated investment grade by both Moody's and Standard & Poors; (ii) if at any time Tenneco's long-term debt securities are not rated as investment grade by either Moody's or Standard & Poors, such loans to Tenneco shall not exceed $25,000,000.00 at any time outstanding; and (iii) in determining Net Worth and Total Capital for the purposes of this Section 37.2, all intercompany loans outstanding at the time of such determination that are in excess of $100,000,000.00 shall be deducted; -45- (g) Lessee shall restrict its short term investments of surplus cash to investments listed in, and in conformance with, Tenneco Corporate Policy TCP 3-104 which is set forth on Exhibit G attached hereto and incorporated herein by this reference ("Permitted Investments") provided, however, that Lessee shall be permitted to revise Policy TCP 3-104 from time to time, but such amendment shall not be effective for purposes of this Lease until Lessee has provided Lessor a copy of such amendment. Lessor hereby expressly reserves the right to object to any specific changes in investment policy provided for in such amendment which Lessor, acting reasonably, finds unacceptable and any specific changes objected to by Lessor shall not be effective hereunder; (h) Lessee shall conduct all intercompany transactions in a manner consistent with all other Tenneco subsidiaries and such intercompany transactions shall at all times be in the best interest of Lessee. Any existing tax sharing agreements between Lessee and Tenneco shall not be revised in any way so as to materially alter the cash flow of Lessee available under such agreement. Any intercompany loan to Tenneco shall bear a market rate of interest; and (i) Lessee hereby covenants to deliver notice to Lessor of the occurrence or existence of any Default or Event of Default hereunder within five business days after the date upon which the principal operating officer of Lessee responsible for Lessee's operations with respect to this Lease determines that a Default or Event of Default has occurred. 37.3 MUTUAL REPRESENTATIONS REGARDING ENFORCEABILITY. (a) Lessor hereby warrants and represents to Lessee that this Lease has been duly executed and delivered by Lessor, and that this Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms. (b) Lessee hereby warrants and represents to Lessor that this Lease has been duly executed and delivered by Lessee, and that this Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms. -46- EXHIBIT A Page 4 of 5 right-of-way of Grant Road; thence, proceed N 42 (degrees) 15'E along the Eastern right-of-way of Grant Road for a distance of 354.17' to a point which is the point of curvature; thence, proceed along the arc of a curve having a delta angle (LT) of 20 (degrees) 05', a tangent of 104.05' and a radius of 587.58' for a distance of 106.3' to a point; thence, proceed S 87 (degrees) 19' E for a distance of 669.7' to a point located on the original lot line between lots 484 and 485 which is the Point of Beginning. The above described parcel of land contains 6.79 acres and is more fully described according to a plat of survey prepared by James L. Conine, Georgia Registered Surveyor No. 1545. 11th Land District - Sirmans Tract 507 All that tract or parcel of land situate, lying and being in Land Lot 507 of the 11th Land District of Lanier County, Georgia, containing 102.387 acres and being more particularly shown on a plat of survey entitled SURVEY FOR ALAN G. SIRMANS AND FRANCES A. FAIN SIRMANS, dated 5/14/82, prepared by Charles M. Harris, Georgia Registered Surveyor #2031, and recorded in Plat Record Book 3, page 44, in the office of the Clerk of the Superior Court of Lanier County, Georgia, which said plat of survey and the record thereof are herein incorporated by reference for all purposes of description, and being more particularly described as follows: Commence at the NW corner of Land Lot 507 of the 11th Land District for a P.O.B.; thence North 89 (degrees) 40' 33" East a distance of 1495.61 feet; thence South 00 (degrees) 02' 38" East a distance of 1524.46 feet; thence South 01 (degrees) 22' 00" East a distance of 1480.94 feet; thence South 89 (degrees) 37' 40" West a distance of 1489.33 feet; thence North 00 (degrees) 48' 55" West a distance of 3006.50 feet to the P.O.B. Said property is the same property described in a Warranty Deed dated July 12, 1978 from Gordan B. Sirmans (A/K/A Gordon Sirmans) to Alan G. Sirmans and Frances A. Fain Sirmans recorded in Deed Book 34, page 151, aforesaid records of Lanier County, Georgia. -47- Agreed Value: the value of the Property as of the Option Closing Date as agreed to by Lessor and Lessee not less than 180 days prior to the end of the Initial Lease Term for purposes of determining the Purchase option Price; provided, however, that if Lessor and Lessee cannot agree on a value for the Property on or before said 180th day, such value shall be determined by independent appraisers in accordance with the provisions of Section 36 of this Lease. Allocated Adjusted Bass Value: for any portion of the Property, a value determined by applying the Adjustment Amounts set forth on Exhibits D-1, D-2 and D-3 to actual unit measurements of acreage and volume by Category, as determined by the Forestry Consultant, for such portion as of the date of calculation. Allocated Annual Rent Payment: for any portion of the Property being sold, taken or released during the Initial Lease Term, an amount determined by multiplying the Allocation Ratio for such portion of the Property times the Annual Rent amount determined in accordance with the provisions of Section 2.1(b)(i) hereof (giving no effect to any previous sale, Taking or release of,any portion of the Property). Allocated Base Value: for any portion of the Property, the amount determined by multiplying the Allocation Ratio for such portion of the Property times the Base Value. Allocated Quarterly Rent Payments: for any portion of the Property being sold, taken or released during the Initial Lease Term, an amount determined by multiplying the Allocation Ratio for such portion of the Property times the Quarterly Rent amount determined in accordance with the provisions of subsections 2,1(a)(i) and 2.1(a)(ii) hereof (giving no effect to any previous sale, Taking or release of any portion of the Property). Allocation Ratio: for any portion of the Property, the ratio of the Allocated Adjusted Base Value of such portion to the Adjusted Base Value. Annual Rent: as defined in paragraph (b) of Section 2.1. Appraised Value: the fair market value of the Property as of the Commencement Date of this Lease as set forth in the Property Appraisal. Assumed Value: $172,893,000.00. Average Life Treasury Rate: the yield as of the date of calculation on the United States Treasury security having a Weighted Average Life to Maturity nearest to the Weighted Average Life to Maturity of the amounts discounted in calculating the Make-Whole Price, in calculating Lessor's final damages under Section 24.3 hereof, in determining whether a lease is a Material Lease or in determining Funded Debt related to a Material Lease, plus 50 basis points. In calculating the Make-Whole Price for any sale, Taking or release of all or any portion of the Property during the First, Second and -48- Third Lease Years, the Average Life Treasury Rate shall be increased by an additional 25 basis points. Bankruptcy Code: means the United States Bankruptcy Code, 11 U,S,C, (S)(S)101-1330, as amended from time to time. Base Value: the lesser of the Appraised Value, the Adjusted Base Value or the Assumed Value. Basic Rent: as defined in Section 2.1(c) hereof. Business Day: means a day other than a Saturday, Sunday or other day on which commercial banks in Chicago or New York are required by law to close. Capital Lease: means and includes at any time any lease of property, real or personal, which in accordance with GAAP would at such time be required to be capitalized on the balance sheet of the Lessee. Capital Lease Obligation: means at any time the capitalized amount of the rental commitment under a Capital Lease which in accordance with GAAP would at such time be required to be shown on a balance sheet. Category: shall mean with respect to the: (a) Southern Timberlands: each of the categories of Land, Merchantable Timber and Pre-Merchantable Planted Pine set forth on Exhibits D-1 and D-2 hereto; and (b) Northern Timberlands: each of the Categories of Land and Merchantable Timber set forth on Exhibit D-3 hereto. Code: the Internal Revenue Code of 1986, as amended from time to time. Commencement Date: as defined in Section 1.1 hereof. Cruise: as defined in Section 34.5. Cumulative Allocation Ratio: the sum of the Allocation Ratios of each and every portion of the Property sold, taken or otherwise released during the Initial Lease Term. Daily Annual Rent: an amount determined by dividing the amount of Annual Rent required to be paid by Lessee in accordance with the provisions of subsection 2.1(b) hereof by the actual number of days in the Lease Year for which such calculation is being made, as may be adjusted from time to time in connection with any sale, Taking or release of all or any portion of the Property. -49- Daily Quarterly Rent: an amount determined by dividing the amount of Quarterly Rent required to be paid by Lessee in accordance with the provisions of subsection 2.1(a) hereof by the actual number of days in the calendar quarter for which such calculation is being made, as may be adjusted from time to time in connection with any sale, Taking or release of all or any portion of the Property. Default: any condition or event which constitutes or which, after notice or lapse of time or both, would constitute an Event of Default. Default Interest: interest calculated at a rate equal to the lesser of: (a) the greater of (i) 12.75% per annum or (ii) two percent (2%) per annum over the rate announced from time to time by The Chase Manhattan Bank, N.A. as its prime interest rate per annum (or, in the event The Chase Manhattan Bank, N,A. shall for any reason discontinue announcing its prime interest rate, the prime interest rate announced by a similar financial institution selected by Lessor), and (b) the highest rate per annum permitted to be charged in accordance with applicable law. Environmental Law: any applicable federal, state or local law, rule or regulation relating to: (a) releases or threatened releases of Hazardous Materials; (b) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Materials or materials containing Hazardous Materials; or (c) otherwise relating to pollution of the environment or the protection of human health, including but not limited to, the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S)6901 et seq., as amended, and the regulations promulgated from time to time thereunder, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C., (S)(S)9601 et seq., as amended, and the regulations promulgated from time to time thereunder, the Hazardous Materials Transportation Act, 42 U.S.C. (S)(S)1801 et seq., as amended, and the regulations promulgated from time to time thereunder, The Clean Air Act, 42 U.S.C. (S)(S)7401 et seq., as amended, and the regulations promulgated from time to time thereunder, The Clean Water Act, 33 U.S.C. (S)(S)1251 at et seq., as amended, and the regulations promulgated from time to time thereunder, and The Toxic Substances Control Act, 15 U.S.C. (S)(S)2601 et seq., as amended, and the regulations promulgated from time to time thereunder. ERISA: the Employee Retirement Income Security Act of 1974, as amended from time to time. Event of Default: as defined in Section 20. Excluded Taxes: In each instance as they apply to the Lessor (but only to the extent they apply to the Lessor): (i) taxes, assessments, fees and charges imposed on, based on, or measured by, net or gross income, gross or net receipts, capital, net worth, franchises or similar items (including without limitation, any minimum taxes or taxes on items of tax preference) other than Rent Taxes or property taxes; (ii) taxes and charges resulting from any sale, assignment or disposition of any interest in this Lease or the Property (other than (A) any property taxes or other taxes recaptured or assessed by any -50- governmental authority under any Forest Tax Law which were previously exempted or deferred, but which became due and payable as a result of such sale, assignment or disposition and (B) any transfer taxes, deed taxes, stamp taxes or similar taxes, in each case to the extent required to be paid by Lessee pursuant to the provisions of this Lease); (iii) capital gains taxes, excess profits taxes, franchise taxes, taxes on doing business and other similar taxes other than Rent Taxes or property taxes; (iv) foreign taxes; (v) taxes, assessments, fees and charges imposed by any jurisdiction that would not have been imposed but for activities of Lessor or its constituent joint venturers unrelated to this Lease and the Property or which are attributable to other activities, operations and assets of the Lessor or its constituent joint venturers; (vi) any property taxes or other taxes recaptured or assessed by any governmental authority under any Forest Tax Law which are required to be paid by Lessor in accordance with the provisions of Section 43 hereof; and (vii) any amounts specifically assessed in lieu of any of the aforementioned taxes, assessments, fees or charges, and interest, additions and penalties in respect thereof. Extension Period: a period of three years commencing January 1, 2003 and expiring December 31, 2005, during which the Lessee shall continue to lease the Property from Lessor under the terms contained herein, such extension period to (i) occur only in the event Lessee for any reason does not exercise its Purchase Option and (ii) terminate with respect to any portion of the Property upon the sale of such portion by the Lessor. Fixed Charges: all interest, capitalized interest, lease payments (whether operating or capital and including payments required under this Lease)r and amortization of debt discount required to be paid or to be incurred by Lessee in accordance with GAAP or any such items the payment or collection of which has been guaranteed by Lessee. Forest Tax Laws: collectively and severally (i) the Commercial Forest Act, Michigan Compiled Laws Annotated (S)(S)320.301-320.314; (ii) the Forestry Reserve Act, Michigan Compiled Laws Annotated (S)320.104; (iii) the Private Forestry Act, Michigan Compiled Laws Annotated (S)(S)320.271-320.281; (iv) the Forest Cropland Law, Wisconsin Statutes (S)(S)77.01-77.14; (v) the Woodland Tax Law, Wisconsin Statutes (S)77.16; (vi) the Managed Forest Land Law, Wisconsin Statutes (S)(S)77.80-77.87; (vii) Florida Statutes (S)193.461 (Agricultural Lands; classification and assessment); and (viii) any and all similar laws now enacted or which may be enacted in the future under the laws of the States of Florida, Georgia, Wisconsin or Michigan which grant tax exemptions, deferrals or reductions with respect to property taxes. Forestry Consultant: as defined in Section 34.4. Funded Debt: means without duplication, whether incurred directly, assumed or guaranteed by Lessee or secured by a Lien permitted under Section 37.2(d) hereof, the following: (i) all indebtedness for monies borrowed which by its terms matures more than one year from the date as of which any calculation of Funded Debt is -51- made, (ii) any indebtedness for monies borrowed maturing within one year from such date which is renewable at the option of the obligor beyond one year from such date, including any indebtedness for monies borrowed renewable or extendable (whether or not theretofore renewed or extended) under, or payable from the proceeds of other indebtedness for monies borrowed which may be incurred pursuant to the provisions of, any revolving credit agreement or other similar agreement but excluding all payments in respect of any indebtedness for monies borrowed otherwise covered by this definition (whether installment, serial maturity, sinking fund or otherwise) which are required to be made less than one year after any date of determination of Funded Debt, (iii) all Capital Lease Obligations, and (iv) the present value of all remaining payment obligations (calculated using a discount rate equal to the Average Life Treasury Rate) under any operating lease which is a Material Lease. GAAP: means such accounting principles as conform at the time to the generally accepted accounting principles announced by the Financial Accounting Standards Board or its equivalent. GECC Leases: means the leases of even date herewith between Lessee and certain lessors affiliated with General Electric Capital Corporation which relate to papermills located in Tomahawk, Wisconsin, and Valdosta, Georgia. Hazardous Materials: any material, waste, contaminate or other substance which is defined and/or regulated as hazardous or toxic (or as a pollutant under any Environmental Law enacted by the State of Florida) under or pursuant to any applicable Environmental Law. Impositions: all taxes, assessments (including, without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the term hereof), ground rents, water, sewer or similar rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees and similar charges, in each case, whether general or special, ordinary or extraordinary, of every character (including all interest, additions and penalties thereon), which at any time during or in respect of the term hereof are assessed, levied, confirmed or imposed on or in respect of or become a Lien upon (a) the Property or any part thereof, or any rent therefrom (whether under this Lease or any sublease) or any estate, right or interest therein, or (b) any occupancy, use or possession of or activity conducted on the Property or any part thereof, The term "Impositions" as used herein shall specifically include all Rent Taxes and shall specifically exclude all Excluded Taxes. Improvements: as defined in paragraph (b) of Section 1. Initial Lease Term: the First through the Twelfth Lease Years, inclusive. -52- Insurance Requirements: all terms of any insurance policy covering or applicable to the Property or any part thereof, all requirements of the issuer of any such policy, and the terms of Section 15 hereof. Land: as defined in Paragraph (a) of Section 1. Lease: this Lease, as at the time amended, modified or supplemented. Lease Term: the Initial Lease Term and the Extension Period unless earlier terminated in accordance with the provisions of this Lease. Lease Year: (a) The Lease Years during the Initial Lease Term hereunder shall be as follows: First Lease Year Commencement Date through December 31, 1991 Second Lease Year January 1, 1992 through December 31, 1992 Third Lease Year January 1, 1993 through December 31, 1993 Fourth Lease Year January 1, 1994 through December 31, 1994 Fifth Lease Year January 1, 1995 through December 31, 1995 Sixth Lease Year January 1, 1996 through December 31, 1996 Seventh Lease Year January 1, 1997 through December 31, 1997 Eighth Lease Year January 1, 1998 through December 31, 1998 Ninth Lease Year January 1, 1999 through December 31, 1999 Tenth Lease Year January 1, 2000 through December 31, 2000 Eleventh Lease Year January 1, 2001 through December 31, 2001 Twelfth Lease Year January 1, 2002 through December 31, 2002 (b) The Lease Years during the Extension Period hereunder shall be as follows: Thirteenth Lease Year January 1, 2003 through December 31, 2003 Fourteenth Lease Year January 1, 2004 through December 31, 2004 Fifteenth Lease Year January 1, 2005 through December 31, 2005 -53- Legal Requirements: all laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, franchises, authorizations, directions and requirements of all governments, departments commissions, boards, courts, authorities, agencies, officials and officers, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Property or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Property or any part thereof, including, but not limited to, all federal, state and local Environmental Laws. Losses's Equipment: all of the following which are owned or held for use by Lessee: (i) all fixtures, machinery, apparatus, furniture, furnishings and other equipment and (ii) all temporary or auxiliary structures installed by Lessee in or about the Property or any part thereof. Lien: any mortgage, deed of trust, deed to secure debt, pledge, security interest, lien or other encumbrance. Make-Whole Price: With respect to the sale, Taking or release of any portion of the Property, the sum of the values calculated in (i), (ii) and (iii) below. The values in (i), (ii) and (iii) below shall be obtained by discounting at the Average Life Treasury Rate to the date of such sale, Taking or release the following amounts: (i) All Allocated Quarterly Rent Payments from each and every date of the Initial Lease Term following the date of such sale, Taking or release on which an installment of Quarterly Rent would normally be due if no such sale, Taking or release had occurred; (ii) All Allocated Annual Rent Payments from each and every date of the Initial Lease Term following the date of such sale, Taking or release on which an installment of Annual Rent would normally be due if no such sale, Taking or release had occurred; and (iii) the excess of Allocated Base Value with respect to the portion of the Property being sold, taken or released over the sum of the Allocated Annual Rent Payments with respect to the portion of the Property being sold, taken or released which would normally have been due during the Initial Lease Term if no such sale, Taking or release had occurred, from the twelfth anniversary of this Lease. Material Lease: any lease to which Lessee is a party, whether capital or operating in nature, under which the present value of all remaining payment obligations, calculated at a discount rate equal to the Average Life Treasury Rate, is greater than or equal to $20,000,000.00. Merchantable Timber: Pine Pulpwood, Hardwood Pulpwood, Pine Sawtimber, Hardwood Sawtimber, Cypress Pulpwood, Cypress Sawtimber, Conifer -54- Pulpwood and Conifer Sawtimber, as determined using the timber specifications, utilization limits and calculation standards set forth on Exhibit E attached hereto. Mineral Rights: as defined in Section 5(b) hereof. Minimum Return Price: with respect to the sale, Taking or release of all or any portion of the Property, the greater of (i) or (ii) calculated as follows: (i) the Allocated Base Value for the portion of the Property being sold or taken plus 80% of the excess, if any, of the gross sales price of, net award from or other proceeds from the portion of the Property to be sold, taken or released over the Allocated Base Value for such portion. During the Initial Lease Term only, such excess may be net of (a) Operating Expenses attributable to such portion of the Property, but only to the extent of such excess, and (b) the sum of Allocated Annual Rent Payments previously made with respect to the portion of the Property being sold, taken or released. (ii) the excess of (a) the value obtained by compounding quarterly the Allocated Base Value of the portion of the Property to be sold, taken or released at the applicable Minimum Return Rate from the Commencement Date of this Lease to the date of such sale, Taking or release over (b) the sum of the values obtained by compounding quarterly at the applicable Minimum Return Rate each Allocated Quarterly Rent Payment and compounding annually at the applicable Minimum Return Rate each Allocated Annual Rent Payment from the date each such payment was actually made to the date of such sale, Taking or release. Minimum Return Rate: 15% per annum; 13% per annum for sales of Non- Strategic Lands. Moody's: means Moody's Investors Service, Inc. Net Worth: the excess of Lessee's total assets over Lessee's total liabilities as determined in accordance with GAAP. Non-Strategic Lands: not more than 30,000 acres of the Property identified by Lessee and approved by Lessor as being non-strategic which may be sold during the Lease Term in accordance with the provisions of Section 35.2. Northern Timberlands: those portions of the Property located in the States of Michigan and Wisconsin. Operating Expenses: all reasonable and customary costs and expenses incurred by Lessee during the Initial Lease Term in connection with the care and -55- maintenance of the Property, including without limitation, site preparation expenses, planting expenses and boundary and road maintenance expenses, but specifically excluding real property taxes, such expenses not to exceed the lesser of (i) $3.00 per acre of the Property per Lease Year (partial Lease Years to be prorated on a per them basis), or (ii) the excess, if any, of the Agreed Value over the Adjusted Base Value. Option Closing Date: as defined in Section 35.1 hereof. Permitted Exceptions: as defined in paragraph (a) of Section 1. Person: an individual, a corporation, an association, a partnership, a joint venture, an organization, or other business entity, or a governmental or political unit or agency. Planted Pine: growing pine trees on the Land which have been planted in accordance with standards and practices followed generally by pulp and paper companies in planting pine on their own pine-growing lands in the same area. Pre-Merchantable Planted Trees: all growing trees on the Land which have been planted by Lessee in accordance with the provisions of Sections 34.1(f) and 34.1(g) and all pre-merchantable planted pine trees otherwise located on the Southern Timberlands and identified in accordance with the provisions and specifications of Exhibit E attached hereto. Pre-Tax Cash Flow: Income before Federal income taxes for Lessee and its consolidated subsidiaries determined in accordance with GAAP, plus Fixed Charges and any and all depreciation, depletion, amortization and other non-cash items charged against income (including deferred Federal income taxes), less extraordinary non-cash gains resulting from the disposition of real or personal property by Lessee, less any and all capital expenditures. Projected Growth Report: as defined in Section 34.5 hereof. Property: as defined in Section 1. Property Appraisal: as defined in Section 34.4(b)(ii) hereof. Purchase Option Price: an amount equal to the sum of the following amounts: (a) the Remaining Base Value less the excess of(i) the sum of all installments of Annual Rent paid by Lessee during the Initial Lease Term prior to the exercise of the Purchase Option over (ii) the sum of all Allocated Annual Rent Payments associated with sales of portions of the Property sold, taken or released prior to exercise of the Purchase Option; -56- (b) 80% of the excess, if any, of the Agreed Value over the Remaining Base Value (such excess to be net of Operating Expenses attributable to the remaining unsold Property at the time the Purchase option is exercised, but only to the extent of such excess); and (c) the amount of any and all Basic Rent and Additional Rent owed to Lessor by Lessee as of the Option Closing Date. Quarterly Rent: as defined in Section 2.1(a) hereof. Related Entity: a Person (1) which directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, Lessee, (2) which beneficially owns or holds 5% or more of any class of the Voting Stock of Lessee, (3) 5% of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by Lessee or a Subsidiary or (4) which is a Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Remaining Base Value: the excess, if any, of the Base Value over the product of the Base Value times the Cumulative Allocation Ratio. Rent Taxes: any and all rental, sales and use taxes or other similar taxes levied or imposed by any city, county or state or other governmental body having authority, including, without limitation, taxes imposed under (i) Florida Statutes (S)212.031 and (ii) Michigan Compiled Laws Annotated (S)208.1 et seq., (the "SBTA"); provided, however, that the SBTA shall be included within the definition of Rent Taxes only to the extent of the lesser of (x) the actual tax imposed on Lessor by the SBTA or (y)the deemed tax imposed on Lessor by the SBTA computed with the following modifications and limitations: (a) All income and revenue items of Lessor (including income and revenues from the sale, assignment or disposition of any interest in or portion of this Lease or the Property) other than Basic Rent shall be excluded from the computation of the SBTA; (b) All expenditures and other costs of Lessor resulting from activities associated with this Lease which are deductible in calculating the SBTA shall be deducted; (c) All adjustments to the "tax base" and "adjusted tax base" (as such terms are defined in the SBTA) of Lessor made in computing the SBTA shall be excluded from such computation if such adjustments relate to activities of Lessor which are not associated with this Lease or such adjustments increase the "tax base" or -57- "adjusted tax base" by items which are Excluded Taxes or otherwise not reimbursable by Lessee under this Lease. (d) All assets, revenues and expenditures of Lessor from activities which are not associated with this Lease shall be excluded from any allocation or apportionment factors of Lessor used in computing the SBTA; (e) All exemptions and credits available to Lessor with respect to the SBTA shall be included in the computation of the SBTA in amounts, respectively, which bear the same ratio to the sum of such exemptions and credits, respectively, as the ratio of Basic Rent bears to the total income of Lessor; and that all requests by Lessor for payment or reimbursement of tax imposed by the SBTA, under this Lease, shall be accompanied by a true copy of Lessor's actual SBTA return and a detailed computation of the deemed tax imposed by the SBTA, with the modifications and limitations set forth in provisions (a) through (e) above. Southern Timberlands: those portions of the Property located in the States of Florida and Georgia. Standard & Poors: means Standard & Poor's Corporation. Subsidiary: (a) any corporation at least a majority of whose outstanding stock having ordinary voting power for the election of a majority of the members of the board of directors (or other governing body) of such corporation (other than stock having such power only by reason of the happening of a contingency) shall at the time be owned by the Lessee and/or one or more Subsidiaries of the Lessee, and (b) any partnership or joint venture in which Lessee, either alone or in conjunction with one or more of its subsidiaries, shall at the time own more than a 50% interest. Taking: a taking during the term hereof of all or any part of the Property, or any leasehold or other interest therein or right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain or a sale in lieu or in anticipation of such exercise. Tangible Assets: Lessee's total assets as determined in accordance with GAAP excluding (i) any goodwill shown on Lessee's balance sheet, (ii) any prepaid expenses, and (iii) any and all intangible assets owned by Lessee. Timber: as defined in paragraph (c) of Section 1. Timberlands: collectively, the Land, Timber and Improvements as defined in Section I hereof. Total Capital: Funded Debt plus Net Worth. -58- Unavoidable Delays: delays due to strikes, acts of God, governmental restrictions, enemy action, riot, civil commotion, fire, unavoidable casualty or other causes beyond the control of Lessee, provided that no delay shall be deemed an Unavoidable Delay if the Property or any part thereof or any interest therein, the Basic Rent or Additional Rent would be in any danger of being sold, forfeited, lost or interfered with, or if Lessor or Lessee would be in danger of incurring any civil or criminal liability for failure to perform the required act. Lack of funds shall not be deemed a cause beyond the control of Lessee. Voting Stock: securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Weighted Average Life to Maturity: means (a) with respect to any United States Treasury security, the period from the date of determination to the date of maturity of such security (provided that only securities whose entire principal amount matures at one time and whose maturity cannot be accelerated by the issuer are to be considered), (b) with respect to this Lease, as of the date of determination, the number of years (rounded to the nearest one-twelfth) obtained by dividing the then Remaining Dollar-Years of this Lease by the Allocated Base Value, and (c) with respect to any lease other than this Lease, as of the date of determination, the number of years (rounded to the nearest one-twelfth) obtained by dividing the then Remaining Dollar-Years of such lease by the sum of all remaining payments to be made by Lessee to the lessor during the remaining term of such lease. For the purposes of this definition, "Remaining Dollar-Years" means the sum of the amounts obtained by multiplying each Owed Amount by the number of years (calculated to the nearest one-twelfth) which will elapse between the time of such determination and the date such Owed Amount would normally be due. For purposes of this definition, "Owed Amount" means, with respect to a sale, Taking or release of a portion of the Property, (x) each Allocated Annual Rent Payment from the date of such sale, Taking or release to the end of the Initial Lease Term, and (y) the excess of the Allocated Base Value with respect to the portion of the Property being sold, taken or released over the sum of (x) above (such excess deemed to be normally due on the 12th anniversary of this Lease), and with respect to any lease other than this Lease, any payment required to be made by Lessee to the lessor thereunder. 40. NOTICES, ETC. All notices and other communications hereunder shall be in writing and shall be sent by confirmed telecopy transmission and by first class registered or certified mail, postage prepaid, (a) if to Lessee. Packaging Corporation of America 1603 Orrington Avenue Evanston, Illinois 60204 Attention: Robert D. Harlow Senior Vice President Telecopy: (708) 570-3044 -59- with a copy to: Tenneco Inc. Tenneco Building P.O. Box 2511 Houston, Texas 77252-2511 Attention: Corporate Secretary Telecopy: (713) 757-3581 or at such other address as Lessee shall have furnished in writing to Lessor, or (b) if to Lessor. Four States Timber Venture c/o John Hancock Mutual Life Insurance Company One John Hancock Place P.O. Box 111 T-44 Boston, Massachusetts 02117 Attention: Ken Hines, Jr, Telecopy: (617) 572-1165 with copies to: John Hancock Mutual Life Insurance Company Forest Industry Financing Suite 101 12 Siebald Street Statesboro, Georgia 30458 Attention: Amos M. Connell Telecopy: (912) 764-5047 Metropolitan Life Insurance Company Suite 700 - 8717 West 110th Street Overland Park, Kansas 66210-2101 Attention: Vice President Telecopy: (913) 661-2254 Agricultural Investments East Central Branch Office Metropolitan Life Insurance Company 2230 Chester Boulevard Richmond, Indiana 47374-1288 Attention: Manager Telecopy: (913) 661-2254 Metropolitan Life Insurance Company 500 Park Boulevard - Suite 545 Itasca, Illinois 60143-1267 Attention: Associate General Counsel -60- Telecopy: (708) 250-8098 Sutherland, Asbill & Brennan 999 Peachtree Street, N.E. Atlanta, Georgia 30309-3996 Attention: Haynes R. Roberts, Esq. Telecopy: (404) 853-8806 or at such other address as Lessor shall have furnished in writing to Lessee. Each notice will be deemed delivered upon the earlier of the confirmed facsimile transmission of such notice or three days after deposit of such notice in the United States Mail. 41. MISCELLANEOUS (a) This Lease may be changed, waived, discharged, or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. It is the intention of the parties hereto to create an estate for years in the Property and to create the relationship of Lessor and Lessee and no other relationship whatsoever and nothing contained herein shall be construed to create between Lessor and Lessee any association, partnership or joint venture or the relationship of debtor and creditor or of principal and agent for any purpose whatsoever. This Lease shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. The headings in this Lease are for purposes of reference only and shall not limit or define the meaning hereof. This Lease may be executed in any number of counterparts, each of which is an original, but all of which shall constitute one instrument. Time is of the essence with respect to each and every covenant, requirement and obligation on Lessee's part to be complied with or performed hereunder. (b) The terms and provisions this Lease shall be governed by the laws of the State of Georgia except for those matters which relate to enforcement against any of the Property, which matters shall be governed by the applicable laws of the state or states in which the Property is located. 42. PARTITION OF LEASE In the event the Persons who constitute the joint venturers of Lessor (hereinafter referred to collectively as the "Venturers" and individually as a "Venturer") shall at any time divide the Property between or among themselves in connection with a termination of Lessor, then such Venturers shall have the right to divide this Lease into two or more new, separate leases (hereinafter referred to as the "New Leases"), each of which shall be between a Venturer (or its successors, assigns or designees), as lessor, and Lessee, as lessee, shall cover and relate to the portion of the Property conveyed to such Venturer in connection with such division (and Exhibit A thereto shall describe only such portion of the Property), and shall be in the same form and contain the same terms and provisions as this Lease, except as follows: (a) each of the New Leases shall provide that in the event Lessee exercises the Purchase option under any of the New Leases, Lessee must exercise the Purchase Option under all of the New Leases, and the closing of the purchase by Lessee pursuant to Section 35.1 of each New Lease shall be contingent upon the closing of all purchases by Lessee pursuant to Section 35.1 of all of the New Leases; (b) each of the New Leases shall provide that -61- the occurrence of any Event of Default under any of the New Leases shall constitute an Event of Default under all of the New Leases; and (c) each of the following figures in this Lease shall be changed in each of the New Leases to the figure representing the pro rata share thereof of the Venturer which is the lessor thereunder: (i) the figure "$1,192,366.00" appearing in Section 2.1(b)(i); (ii) the figure "$5,000,000.00" appearing in Section 5(a); (iii) the figures "80,000" and "27,000" appearing in Section 35.2(b); (iv) the figure "$172,893,000.00" appearing in the definition of "Assumed Value" in Section 39; and (v) the figure "30,000" appearing in the definition of "Non-Strategic Lands" in Section 39. Lessee agrees to cooperate with the Venturers by executing and delivering the New Leases and taking such other actions as are reasonably necessary or desirable to accomplish such division, provided that the Venturers shall be responsible for paying all costs and expenses associated with or resulting from such division and the preparation and recordation of the New Leases. 43. FOREST TAX LAWS. Notwithstanding anything contained in this Lease to the contrary, the following agreements are made with respect to taxes imposed by and other matters associated with Forest Tax Laws: (a) Lessee shall at all times during the Lease Term comply with such requirements as are necessary to maintain and preserve the tax status and accompanying tax benefits of all portions of the Property currently enrolled in, listed or designated under any of the Forest Tax Laws as of the Commencement Date of this Lease, Lessee may, at its option, elect to subject additional portions of the Property to the provisions of any Forest Tax Law, provided such subjection does not unreasonably interfere with commercial forestry operations on the Property. Lessor agrees that it will cooperate with Lessee in complying with the provisions of the Forest Tax Laws. (b) Lessee shall pay to the appropriate governmental authorities any and all assessments or charges which may be imposed under any Forest Tax Law with respect to all or any portion of the Property, as a result of the transfer of the Property to Lessor pursuant to the Purchase Agreement, any transfer of all or any portion of the Property in accordance with Section 35.2(b) hereof (which cost may be deducted from the gross proceeds of such sale in accordance with the provisions of said Section 35.2(b)), any Taking of all or any portion of the Property (which cost may be deducted from the gross amount of any awards, payments or proceeds received in connection with such Taking in accordance with the provisions of Section 16 hereof) or as a result of Lessee's failure to comply with the provisions of any Forest Tax Law. (c) Lessor shall pay all assessments or charges which may be imposed under any Forest Tax Law relating to any transfer of all or any portion of the Property in accordance with Section 35.2(a) hereof, any mineral lease or mining activity entered into or performed by or on behalf of Lessor with respect to all or any portion of the Property or any other affirmative action taken by Lessor, without the express written consent of Lessee which changes the tax status of all or any portion of the Property under any Forest Tax Law. -62- (d) Lessee shall be responsible for preparing and filing any notices or certificates required to be filed under any Forest Tax Law in connection with the sale of the Property by Lessor to Lessee pursuant to the provisions of Section 35.1 hereof, and Lessee shall be responsible for payment of any charges or assessments imposed under any Forest Tax Law in connection with such sale; provided, however, Lessor agrees that it will cooperate with Lessee in preparing, executing and filing such notices or certificates so as to avoid, to the extent possible, the imposition of charges or assessments under any Forest Tax Law in connection with such sale. (SIGNATURES BEGIN ON FOLLOWING PAGE] -63- IN WITNESS WHEREOF, Lessor and Lessee have caused this lease to be executed and their seals to be hereunto affixed and attested by their officers thereunto duly authorized. LESSOR: FOUR STATES TIMBER VENTURE, a Georgia Joint Venture, by both of its joint venturers Signed, sealed and By: John Hancock Mutual Life delivered in the presence Insurance Company of: By: /s/ Wm. R. Gordon ------------------------------------- /s/ Valerie Van Der Meer Name: - ----------------------------- ------------------------------ Name: Title: - ------------------------------ ----------------------------- Witness Attest: /s/ Barry P. Sanboln ------------------------- /s/ Neil Able Name: - ----------------------------- ----------------------------- Name: Title: ------------------------ ---------------------------- Witness [CORPORATE SEAL] - ------------------------------ Name: ------------------------- Notary Public [NOTARIAL SEAL] Signed, sealed and By: Metropolitan Life Insurance delivered in the presence Company of: By: /s/ Gerald J. Hoenig -------------------- /s/ Kathleen Curdy Name: - ----------------------------- ------------------------ Name: ------------------------ Title: Witness ----------------------- /s/ Sandra R. Nauman Name: /s/ Nancy J. Hammer - --------------------------- ------------------------ Name: ---------------------- Title: Witness ----------------------- [CORPORATE SEAL] -64- /s/ Merrit J. Massergill - ---------------------------------- Name: ----------------------------- Notary Public [NOTARIAL SEAL] Signed, sealed and LESSEE: delivered in the presence of: PACKAGING CORPORATION OF AMERICA /s/ M. W. Meyer --------------------------------- Name: By: /s/ R. D. Harlow ----------------------------- ------------------------------------- Witness: Name: ------------------------------- Title: ------------------------------- /s/ W. G. Collins - ---------------------------------- Name: Attest: /s/ Karl A. Stewart ----------------------------- --------------------------------- Witness Name: ------------------------ /s/ Merritt J. Massergill Title: ----------------------- - ---------------------------------- Name: ----------------------------- [CORPORATE SEAL] Notary Public [NOTARIAL SEAL] -65- EX-12 37 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 THE BUSINESSES OF NEW TENNECO COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, --------------------- ----------------------------- PRO FORMA PRO FORMA 1996 1996 1995 1995 1995 1994 1993 1992 1991 --------- ----- ----- --------- ----- ----- ----- ----- ----- Income from continuing operations............. $ 205 $ 178 $ 168 $ 328 $ 258 $ 238 $ 165 $ 209 $ 139 Add: Interest.............. 83 100 74 166 160 104 101 103 112 Portion of rentals representative of in- terest factor........ 31 31 26 57 57 52 47 47 44 Preferred stock divi- dend requirements of majority-owned subsidiaries......... 10 10 12 23 23 -- -- -- -- Income tax expense and other taxes on income............... 147 126 124 291 231 114 115 156 92 Amortization of inter- est capitalized...... 1 1 1 2 2 1 -- 1 1 Undistributed (earn- ings) losses of af- filiated companies in which less than a 50% voting interest is owned................ -- -- -- -- -- -- -- 2 2 ----- ----- ----- ----- ----- ----- ----- ----- ----- Earnings as defined. $ 477 $ 446 $ 405 $ 867 $ 731 $ 509 $ 428 $ 518 $ 390 ===== ===== ===== ===== ===== ===== ===== ===== ===== Interest................ $ 83 $ 100 $ 74 $ 166 $ 160 $ 104 $ 101 $ 103 $ 112 Interest capitalized.... 5 5 1 5 5 2 1 1 4 Portion of rentals rep- resentative of interest factor................. 31 31 26 57 57 52 47 47 44 Preferred stock dividend requirements of majority-owned subsidi- aries on a pretax ba- sis.................... 17 16 20 42 42 -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- Fixed charges as de- fined.............. $ 136 $ 152 $ 121 $ 270 $ 264 $ 158 $ 149 $ 151 $ 160 ===== ===== ===== ===== ===== ===== ===== ===== ===== Ratio of earnings to fixed charges.......... 3.51 2.93 3.35 3.21 2.77 3.22 2.87 3.43 2.44 ===== ===== ===== ===== ===== ===== ===== ===== =====
EX-21 38 LIST OF SUBSIDIARIES AND AFFILIATES OF NEW TENNECO EXHIBIT 21 ---------- NEW TENNECO INC. SUBSIDIARIES AND AFFILIATES --------------------------------------------
New Tenneco Inc. Autopartes Walker, S.A. de C.V. (Mexico)........................................... 99.98% (New Tenneco Inc. owns 99.98% and Monroe Auto Equipment Company owns .02% Counce Limited Partnership (Texas Limited Partnership)............................. 95 (New Tenneco Inc. owns 95%, as Limited Partner; and Tenneco Packaging, Inc. owns 5%, as General Partner) Counce Finance Corporation (Delaware)........................................... 100 Monroe-Mexico S.A. de C.V. (Mexico)............................................. 0.01 (New Tenneco Inc. owns 0.01%; and Monroe Auto Equipment Company owns 99.99%) Omni-Pac GmbH (Germany)............................................................ 1 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and New Tenneco Inc. owns 1%) Omni-Pac S.A.R.L. (France)......................................................... 97 (Omni-Pac GmbH owns 3%; and New Tenneco Inc. owns 97% Tenneco Asia Inc. (Delaware)....................................................... 100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................. 1 (New Tenneco Inc. owns 1%; and Monroe Auto Equipment Company owns 99%) Tenneco Automotive Inc. (Delaware)................................................. 100 Autopartes Walker, S.A. de C.V. (Mexico)........................................ 0.02 (New Tenneco Inc. owns 99.98%; Monroe Auto Equipment Company owns 0.02%) Beijing Monroe Automobile Shock Absorber Company Ltd. (China)................... 51 (Monroe Auto Equipment Company owns 51%; and Beijing Automotive Industry Corporation, an unaffiliated company, owns 49%) Consorcio Terranova S.A. de C.V. (Mexico)....................................... 99.99 (Monroe Auto Equipment Company owns 99.99%; and Josan Latinamericana S.A. de C.V., an unaffiliated company, owns 0.01%) McPherson Strut Company Inc. (Delaware)......................................... 100 Monroe Auto Equipement France, S.A. (France).................................... 100 Monroe Europe Coordination Center N.V. (Belgium)............................. 0.1 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Monroe Packaging N.V. (Belgium).............................................. 0.1 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Tenneco Automotive Italia S.r.l. (Italy)..................................... 15 (Monroe Auto Equipment Company owns 85%; and Monroe Auto Equipment France, S.A. owns 15%) Monroe Auto Pecas S.A. (Brazil).................................................... 2.82 (Monroe Auto Equipment Company owns 2.82%; Monroe do Brasil Industria e Comercio Ltda. Owns 82.71%; and Monteiro Aranha S/A, an unaffiliated company, owns 14.47%) Monroe-Mexico S.A. de C.V. (Mexico)................................................ 99.99
Subsidiaries of New Tenneco Inc. - --------------------------------
(Monroe Auto Equipment Company owns 99.99%; and New Tenneco Inc. owns 0.01%) Precision Modular Assembly Corp. (Delaware)..................................................................... 100 Rancho Industries Europe B.V. (Netherlands)..................................................................... 100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................................................. 99 (Monroe Auto Equipment Company owns 99%; and New Tenneco Inc. owns 1%) Tenneco Automotive International Sales Corporation (Delaware (In Dissolution)................................... 100 Tenneco Automotive Italia S.r.1. (Italy)........................................................................ 85 (Monroe Auto Equipment Company owns 85%; and Monroe Auto Equipement France, S.A. owns 15%) Tenneco Automotive Japan Ltd. (Japan)........................................................................... 100 The Pullman Company.......................................................................................... 100 Axios Produtos de Elastomeros Limitada (Brazil).......................................................... 99 (The Pullman Company owns 99% and Peabody International Corporation owns 1%) Clevite Industries Inc. (Delaware)....................................................................... 100 Holmes Machinery Company (Delaware)...................................................................... 100 Peabody International Corporation (Delaware)............................................................. 100 Axios Produtos de Elastomeros Limitada (Brazil)....................................................... 1 (The Pullman Company owns 99% and Peabody International Corporation owns 1%) Barasset Corp. (Ohio)................................................................................. 100 Galco, Inc. (Delaware)................................................................................ 100 Holmes Blowers, Inc (Illinois)........................................................................ 100 Peabody ABC Corp. (Delaware).......................................................................... 100 Peabody Galion Corporation (Delaware)................................................................. 100 Peabody Gordon-Piatt, Inc. (Delaware)................................................................. 100 Peabody Instruments, Inc. (Delaware).................................................................. 100 Peabody-Myers Corporation (Illinois).................................................................. 100 Peabody N.E., Inc. (Delaware)......................................................................... 100 Peabody Noise Control, Inc. (Ohio).................................................................... 100 Peabody Pumps, Inc. (California)...................................................................... 100 Peabody Solid Wastes Mgmt. Inc. - Dewald (California)................................................. 100 Peabody World Trade Corporation (Delaware)............................................................ 100 Pullmex, S.A. de C.V. (Mexico)..................................................................... 0.1 (The Pullman Company owns 99.9% and Peabody World Trade Corporation owns 0.1% (approximately one share of the total 5,131,260 shares issued is held by Peabody World Trade Corporation)) Pullman Canada Ltd. (Canada).......................................................................... 61 (Peabody International Corporation owns 61% (383 shares) and The Pullman Company owns 39% (244 shares)) Pullman Aerospace, Inc. (Delaware)....................................................................... 100 Pullman Aircraft Products, Inc........................................................................... 100
-2-
Subsidiaries of New Tenneco Inc. - -------------------------------- Pullman Canada Ltd...................................................................................... 39 (Peabody International Corporation owns 61% (383 shares) and The Pullman Company owns 39% (244 shares)) Pullman RSC Company (Delaware).......................................................................... 100 Pullman Standard Inc. (Delaware)........................................................................ 100 Pullmex, S.A. de C.V. (Mexico).......................................................................... 99.9 (The Pullman Company owns 99.9% and Peabody World Trade Corporation owns 0.1% (approximately one share of the total 5,131,260 shares issued is held by Peabody World Trade Corporation)) Tenneco Automotive Trading Company (Delaware)................................................................. 100 Tenneco Brake, Inc. (Delaware)................................................................................ 100 Tenneco Brazil Ltda. (Brazil)................................................................................. 100 Monroe do Brazil Industria e Comercio Ltda. (Brazil).......................................................... 100 Monroe Auto Pecas S.A. (Brazil)............................................................................ 82.71 (Monroe do Brazil Industria e Comercio Ltda. Owns 82.71%; Monroe Auto Equipment Company owns 2.82%; and Monteiro Aranha S/A, an unaffiliated company owns 14.47%) Tenneco Business Services Inc. (Delaware)..................................................................... 100 Tenneco Deutschland Holdinggesellschaft mbH (Germany)......................................................... 99.97 (New Tenneco Inc. owns 99.97%; and Atlas Bermoegensverwaltung, an unaffiliated company, owns 0.03%) GILLET Unternehmesverwaltungs (Germany).................................................................... 100 Heinrich Gillet GmbH & Co. KG (Germany)................................................................. 0.1 (GILLET Unternehmesverwaltungs GmbH owns 0.1%; and Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%) Heinrich Gillet GmbH & Co. KG (Germany).................................................................... 99.9 (Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and GILLET Unternehmesverwaltungs GmbH owns 0.1%) Gillet-Abgassysteme Zwickau Gmbh (Germany).............................................................. 100 Mastra-Gillet Industria e Comercio Ltda. (Brazil)....................................................... 50 (Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria e Comercio Ltda., an unaffiliated company, owns 50%) Monroe Auto Equipment GmbH (Germany)....................................................................... 100 Omni-Pac Ekco GmbH Verpackungsmittel (Germany)............................................................. 100 Omni-Pack Poland sp. z o.o. (Poland)................................................................... 100 PCA Embalajes Espana, S.L. (Spain)..................................................................... 1 (Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and PCA Verpackungsmittel GmbH owns 99%) Omni-Pac GmbH (Germany).................................................................................... 99 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and New Tenneco Inc. owns 1%) Omni-Pac ApS (Denmark).................................................................................. 100 Omni-Pac A.B. (Sweden).................................................................................. 100 Omni-Pac S.A.R.L. (France).............................................................................. 3
-3- Subsidiaries of New Tenneco Inc. - --------------------------------
(Omni-Pac GmbH owns 3%; and New Tenneco Inc. owns 97%) Walker Deutschland GmbH (Germany).......................................... 99 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and New Tenneco Inc. owns 1%) Walker Gillet (Europe) GmbH (Germany)................................... 100 Tenneco Foam Products Company (Delaware)........................................ 100 Tenneco Hexacomb Acquisition Inv. (Delaware).................................... 100 Tenneco Inc. (Nevada)........................................................... 100 Tenneco International Holding Corp. (Delaware).................................. 100 Monroe Australia Pty. Limited (Australia).................................... 100 Monroe Springs (Australia) Pty. Ltd. (Australia)........................... 100 Monroe Superannuation Pty. Ltd. (Australia)................................ 100 Walker Australia Pty. Limited (Australia).................................. 100 S.A. Monroe Europe N.V. (Belgium)............................................... 100 Borusan Amortisor Imalat Ve Ticaret A.S. (Turkey)............................ 16.67 (S.A. Monroe Europe N.V. owns 16.67%; Borusan Holding AS, an unaffiliated company, owns 83.03%; and various unaffiliated individual stockholders owns 0.3%) Monroe Europe Coordination Center N.V. (Belgium)............................. 99.9 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Monroe Europe (UK) Limited (United Kingdom).................................. 18 (S.A. Monroe Europe N.V. owns 18%; and Tenneco United Kingdom Holdings Limited owns 82%) Monroe Packaging N.V. (Belgium).............................................. 99.9 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Tenneco Canada Inc. (Ontario)................................................... 51.28 (Tenneco International Holding Corp. Owns 100% of the issued and outstanding Common Stock, 51.28% of total equity; and Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity) 98174 Ontario Limited (Ontario)............................................... 100 Tenneco Canada Wholesale Finance Company (Alberta)............................ 100 Tenneco Credit Canada Corporation (Alberta)................................... 100 Tenneco Espana Holdings, Inc. (Delaware)........................................ 100 Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)......................... 100 Tenneco Espana S.A. (Spain)................................................ 100 Gillet Iberica, S.A. (Spain)............................................... 100 Manufacturas Fonos, S.L. (Spain)........................................... 100 Omni-Pac Embalajes S.A. (Spain)............................................ 100 Thibault Investments Limited (Mauritius)..................................... 100 Hydraulics Limited (India)................................................ 51 (Thibault Investments Limited owns 51% and Bangalore Union Services Limited, an unaffiliated company, owns 49%)
-4- Subsidiaries of New Tenneco Inc. - --------------------------------
Tenneco Holdings Danmark A/S (Denmark)........................................................ 100 Gillet Exhaust Technologie (Proprietary) Limited (South Africa)100 Gillet Lazne Belohrad, s.r.o. (Republic of Czechoslovakia).............................. 100 Heinrich Gillet Portuguesa - Sistemas de Escape, Lda. (Portugal......................... 100 Walker Danmark A/S (Denmark)............................................................ 100 Walker Inapal Escapes, S.a. (Portugal).................................................. 90 (Tenneco Holdings Danmark A/S owns 90%; Inapal, Industria Nacional de Acessorios Para Automoveis, SA, an unaffiliated company, owns 9.99%; and Walker Danmark A/S owns 0.01%) Tenneco Liquidation Company (Delaware)............................................................ 100 Tenneco Management Company (Delaware)............................................................. 100 Tenneco Moorhead Acquisition Inc. (Delaware)...................................................... 100 Tenneco Packaging Inc. (Delaware)................................................................. 100 A&E Plastics, Inc. (Delaware)................................................................ 100 Alupak A.G. (Switzerland).................................................................... 100 American Cellulose Corporation (Delaware).................................................... 50 (Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an unaffiliated individual, owns 50%) The Corinth and Counce Railroad Company (Mississippi)........................................ 100 Marinette, Tomahawk & Western Railroad Company (Wisconsin).............................. 100 Valdosta Southern Railroad Company (Florida)............................................ 100 Counce Limited Partnership (Texas Limited Partnership)....................................... 5 (New Tenneco Inc. owns 95%, as Limited Partner; and Tenneco Packaging Inc. owns 5%, as General Partner) Dahlonega Packaging Corporation (Delaware)................................................... 100 Dixie Container Corporation (Virginia)....................................................... 100 Dixie Convoy Corporation (North Carolina).................................................... 100 Dongguan PCA packaging Co., Ltd. (Peoples Republic of China)................................. 50 (Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color Printing & Packaging Factory, an unaffiliated company, owns 50%) EKCO Products, Inc. (Illinois)............................................................... 100 E-Z Por Corporation (Delaware)............................................................... 100 Hexacomb Corporation (Illinois).............................................................. 100 Hexacomb International Sales Corporation (U.S. Virgin Islands).......................... 100 Packaging Corporation of America (Nevada).................................................... 100 PCA Box Company (Delaware)................................................................... 100 PCA-Budafok (Kartongyar) Kft. (Hungary)...................................................... 100 PCA Hydro, Inc. (Delawre).................................................................... 100 PCA Leasing Company (Delaware)............................................................... 100 PCA Romania Srl (Romania).................................................................... 50 (Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated company owns 50%) PCA Tomahawk Corporation (Delaware).......................................................... 100 PCA Valdosta Corporation (Delaware).......................................................... 100
-5- Subsidiaries of New Tenneco Inc. - -------------------------------- PCA Verpackungsmittel GmbH (Germany)................................................100 PCA Embalajes Espana S.L. (Spain).................................................99 (PCA Verpackungsmittel GmbH owns 99%; and Omni-Pac Ekco GmbH Verpackungsmittel owns 1%) PCA West Inc. (Delaware)............................................................100 Coast-Packaging Company (California General Partnership).........................50 (PCA West Inc. owns 50%, as General Partner; and J.G. Haddy Sales Company, an unaffiliated company, owns 50%, as General Partner) Pressware International, Inc. (Delaware)............................................100 Revere Foil Containers, Inc. (Delaware).............................................100 Tenneco Packaging-Romania S.R.L. (Romania)..........................................100 Tenneco Plastics Company (Delaware).................................................100 798795 Ontario Limited (Ontario)....................................................100 PCA Canada Inc. (Ontario)........................................................100 Tenneco Romania Holdings Inc. (Delaware)...............................................100 Tenneco United Kingdom Holdings Limited (Delaware).....................................100 Monroe Europe (UK) Limited (United Kingdom)..........................................82 (Tenneco United Holdings Limtied owns 82%; and S.A. Monroe Europe N.V. owns 18%) Omni-Pac U.K. Limited (United Kingdom)..............................................100 Packaging Corporation of America (UK) Limited (Scotland)............................100 Alpha Products (Bristol Limited (United Kingdom)................................100 Calendered Plastics Limited (United Kingdom)....................................100 Delyn Packaging Limited (United Kingdom)........................................100 Penlea Plastics Limited (United Kingdom)........................................100 Polbeth Packaging Limited (Scotland)............................................100 Brucefield Plastics Limited (Scotland)......................................100 Polbeth Packaging (Corby) Limited (Scotland)................................100 Tenneco Canada Inc. (Ontario) 48.72 (Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity; and Tenneco International Holding Corporation owns 100% of the issued and outstanding common stock, 51.28% of total equity) Tenneco Europe Limited (Delaware)...................................................100 Tenneco Asia Limited (United Kingdom)............................................100 Tenneco International Finance Limited (United Kingdom)..............................100 Tenneco International Finance B.V. (Netherlands)....................................100 Tenneco Management (Europe) Limited (United Kingdom)................................100 Tenneco Packaging (UK) Limited (United Kingdom).....................................100 Tenneco West Limited (United Kingdom)...............................................100 Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)....................100 Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)....................100 Thompson and Stammers Dunmow (Number 8) Limited (United Kingdom)....................100 Walker Limited (United Kingdom).....................................................100 Gillet Exhaust Manufacturing Limited (United Kingdom)............................100
-6- Subsidiaries of New Tenneco Inc. - -------------------------------- Gillett Pressings Cardiff Limited (United Kingdom).............................100 Gillett Torsmaskiner UK Limited (United Kingdom)................................50 (Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and AB Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares, 50% of total equity) Exhaust Systems Technology Limited (United Kingdom)......................99.99 (Gillet Torsmaskiner UK Limited owns 99.99%; and Heinrich Gillett Gmbh & Co. KG & AB Torsmaskiner, an unaffiliated company owns 0.01%) Walker UK Ltd. (United Kingdom)................................................100 J.W. Hartley (Motor Trade) Limited (United Kingdom).........................100 Tenneco - Walker (UK) Limited (United Kingdom)..............................100 Tenneco Windsor Box & Display Inc. (Delaware)..........................................100 Walker Deutschland GmbH (Germany)........................................................1 (New Tenneco Inc. owns 1%; and Tenneco Deutschland Holdinggesellsschaft mbH owns 99%) Walker Europe, Inc. (Delaware)............................................100 Walker Electronic Mufflers, Inc. (Delaware)............................................100 Walker Noise Cancellation Technologies (New York Partnership).......................100 (Walker Electronic Mufflers, Inc. owns 50% as General Partner; and Expedite Oyster, Inc., an unaffiliated company, owns 50% as General Partner) Walker France S.A. (France)............................................................100 Constructions Mettalurgiques de Wissembourg - Wimetal (France)..................100 Societte Europeenne des Esembles-Montes (France).............................100 Gillet Tubes Technologies G.T.T. (France).......................................100 Walker Manufacturing Company (Delaware)................................................100 Ced's Inc. (Illinois)...............................................................100 Walker Norge A/S (Norway)..............................................................100 Walker Sverige A.B. (Sweden)...........................................................100
-7- EX-27.(A) 39 FINANCIAL DATA SCHEDULE DATED 12/31/95
5 This schedule contains summary financial information extracted from The Business of New Tenneco Combined Financial Statements and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 103 0 351 0 838 1,695 4,138 1,480 6,117 1,559 1,648 0 0 0 1,852 6,117 5,221 5,221 3,737 3,737 851 0 160 512 231 258 0 0 0 258 0 0
EX-27.(B) 40 FINANCIAL DATA SCHEDULE DATED 6/30/96
5 This schedule contains summary financial information extracted from The Business of New Tenneco Combined Financial Statements and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 129 0 477 0 820 2,002 4,332 1,584 6,523 1,710 1,573 0 0 0 2,168 6,523 3,233 3,233 2,303 2,303 587 0 100 314 126 178 0 0 0 178 0 0
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