-----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, CaJLd+eWCSZ+AJR4cBgEDvbXRwqOotpGjhCm6pNhiN5ECGNTTgtW8R7NiiZc41Q4 StVlTLLzHzNDNNnzMTJXvQ== 0000950131-96-005478.txt : 19961106 0000950131-96-005478.hdr.sgml : 19961106 ACCESSION NUMBER: 0000950131-96-005478 CONFORMED SUBMISSION TYPE: 10-12B/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19961104 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12387 FILM NUMBER: 96653765 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/A 1 AMD #1 TO NEW TENNECO INC. FORM 10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO 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 76-0515284 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 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 (Regular Way and When Issued)
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 Management and Liability and Officers................... Indemnification of Directors and Officers. 6. Executive Compensation...... Management. 7. Certain Relationships and Summary of Certain Information; The Related Transactions....... Industrial Distribution; and Management. 8. Legal Proceedings........... Business and Properties. 9. Market Price of and Dividends on the Registrant's Common Equity Summary of Certain Information; The and Related Stockholder Industrial Distribution; and Description of Matters.................... 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 Liability and Indemnification of Directors and Officers............... and Officers. 13. Financial Statements and Summary of Certain Information; Unaudited Supplementary Data......... 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 Combined Selected Financial Data and Exhibits................... 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 New York Stock Exchange has approved the listing of the Company Common Stock upon notice of issuance. 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 31. ---------------- 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 NOVEMBER 4, 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........................ 30 RISK FACTORS.............................................................. 31 No Current Public Market for Company Common Stock....................... 31 Uncertainty Regarding Trading Prices of Stock Following the Transaction. 31 Uncertainty Regarding Future Dividends.................................. 31 Potential Federal Income Tax Liabilities................................ 31 Certain Antitakeover Features........................................... 33 Potential Liabilities Due to Fraudulent Transfer Considerations and Le- gal Dividend Requirements.............................................. 33 THE COMPANY............................................................... 35 Introduction............................................................ 35 Business Strategy....................................................... 35 FINANCING................................................................. 38 CAPITALIZATION............................................................ 39 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 40 COMBINED SELECTED FINANCIAL DATA.......................................... 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................... 47 Proposed Merger with El Paso............................................ 47 Results of Operations for the Six Months Ended June 30, 1996 and 1995... 48 Results of Operations for the Years 1995, 1994 and 1993................. 54 BUSINESS AND PROPERTIES................................................... 62 Tenneco Automotive...................................................... 62 Tenneco Packaging....................................................... 70 Tenneco Business Services............................................... 76 Properties.............................................................. 76 Environmental Matters................................................... 77 LEGAL PROCEEDINGS......................................................... 78 MANAGEMENT................................................................ 79 Board of Directors...................................................... 79 Executive Officers...................................................... 81 Stock Ownership of Management........................................... 82
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PAGE ---- Committees of the Board of Directors.................................... 83 Executive Compensation.................................................. 83 Compensation of Directors............................................... 89 Employment Contracts and Termination of Employment and Change-in-Control Arrangements........................................................... 89 Transactions with Management and Others................................. 90 Compensation Committee Interlocks and Insider Participation............. 91 Benefit Plans Following the Industrial Distribution..................... 91 DESCRIPTION OF CAPITAL STOCK.............................................. 92 Authorized Capital Stock................................................ 92 Company Common Stock.................................................... 92 Company Preferred Stock................................................. 93 ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS................................ 93 Classified Board of Directors........................................... 93 Number of Directors; Removal; Filling Vacancies......................... 94 Special Meetings........................................................ 94 Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals.............................................................. 94 Record Date Procedure for Stockholder Action by Written Consent......... 95 Stockholders Meetings................................................... 96 Company Preferred Stock................................................. 96 Business Combinations................................................... 96 Amendment of Certain Provisions of the Certificate and By-laws.......... 97 Rights.................................................................. 97 Antitakeover Legislation................................................ 99 Comparison with Rights of Holders of Tenneco Common Stock............... 100 LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 103 Elimination of Liability of Directors................................... 103 Indemnification of Directors and Officers............................... 104 INDEX TO COMBINED 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(c) 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) STATEMENT OF CASH FLOWS DATA(B): Net cash provided (used) by operating activities............. N/A $ 199 $ (9) N/A $ 489 $ 571 $ 324 $ 121 $ 503 Net cash provided (used) by investing activities............. N/A (340) (206) N/A (2,041) (303) (152) (78) (237) Net cash provided (used) by financing activities............. N/A 169 (52) N/A 1,297 50 (165) (41) (251) 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 Distributed............. Based on 170,755,576 shares of Tenneco Common Stock outstanding on September 30, 1996, 170,755,576 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 (the "Distribution Agent"). 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 and approval by the stockholders of Tenneco of the Transaction. The Transaction is also conditioned upon 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"), which IRS Ruling Letter was issued on October 30, 1996. The Distributions and the Merger are part of a unified transaction and will not be effected separately (although Tenneco may elect subsequently to 8 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. The IRS Ruling Letter received on October 30, 1996 satisfies the foregoing condition. Tenneco has also requested a ruling from the IRS 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 which was received as part of the IRS Ruling Letter. 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 New York Stock Exchange has approved the listing 9 of the Company Common Stock upon notice of issuance. 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 (subject to certain adjustments) 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"), to the extent still held on the Distribution Date (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 16 on the Newport News pro forma balance sheet attached as an exhibit to the Distribution Agreement, to the extent still held on the Distribution Date (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 Corporate Restructuring Transactions and the Distributions. 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 liabilities that were subsequently incurred or accrued, 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 liabilities that were subsequently incurred or accrued, 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. 17 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. 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, (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 (d) the amount of certain other capital expenditures and settlements of certain claims by the Energy Business prior to the Merger, and (ii) less (a) the amount, calculated as of the Merger Effective Time, of any rate refunds, including interest, which would be 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) certain 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, (8) unpaid dividends declared on Tenneco Common Stock and Tenneco Preferred Stock (as defined herein) which have a record date before the Merger Effective Time and (9) dividends accrued on the Tenneco Junior Preferred Stock which are unpaid as of 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 18 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, as of the Merger Effective Time Tenneco will be allocated $25 million (subject to certain adjustments) 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 distribution 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 distribution 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. 19 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." 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. Tenneco, the Company and Newport News have entered into the Distribution Agreement which governs certain aspects of their relationships both prior to and following the Distributions. In addition, Tenneco, the Company and/or Newport News (and their appropriate subsidiaries) have entered into, or will prior to the Distributions 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. See "The Industrial Distribution--Corporate Restructuring Transactions." In addition, the Distribution Agreement provides for cross-indemnities such that (i) Tenneco must indemnify the Company and Newport News (and their respective subsidiaries, directors, officers, employees and agents, 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, directors, officers, employees and agents, 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, directors, officers, employees and agents, 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, and for contributions in certain circumstances. 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, 20 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 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 which have been, or prior to consummation of the Distributions will be, entered into by Tenneco, the Company and/or Newport News (and, in certain circumstances, their appropriate subsidiaries). 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 the 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. The IRS Ruling Letter was issued on October 30, 1996 and covered the matters referred to in clause (ii) above. On November 1, 1996 the New York Stock Exchange approved the listing of Company Common Stock and Newport News Common Stock upon notice of issuance. 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 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 On October 30, 1996, the IRS issued the IRS Ruling Letter to the effect, among other things, 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(c) 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. Receipt of the IRS Ruling Letter satisfied a condition to consummation of the Industrial Distribution. 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 (the "Budget Proposal") 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 28 stockholders of the distributing corporation own more than 50% of the distributing corporation and controlled corporations at all times during 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. The Budget Proposal also contains a proposal (the "Nonqualified Preferred Stock Proposal") that would, among other things, treat certain preferred stock received in a reorganization as "other property" (boot) resulting in gain (but not loss) recognition to the recipient of such stock. The Nonqualified Preferred Stock Proposal would apply to transactions entered into after December 7, 1995, with certain exceptions, including an exception for stock issued pursuant to a written agreement binding (subject to customary conditions) on such date. The Roth-Archer Statement provides that should certain revenue proposals included in the Budget Proposal (including the Nonqualified Preferred Stock Proposal) be enacted, their 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 Nonqualified Preferred Stock Proposal. The Merger Agreement which provides for the issuance of preferred stock of El Paso (the "El Paso Preferred Stock"), was entered into on June 19, 1996 and amended and restated on November 1, 1996 (effective as of June 19, 1996). Accordingly, in view of the Roth-Archer Statement, any future legislation including the Nonqualified Preferred Stock Proposal should not apply to the El Paso Preferred Stock, if issued, assuming the effective date of such legislation contains a grandfather clause for stock issued pursuant to a binding agreement (subject to customary conditions) entered into on or before the date of such Congressional action. Nevertheless, there can be no assurances that Congress will not adopt legislation containing the Nonqualified Preferred Stock Proposal that would apply retroactively to the issuance of El Paso Preferred Stock. In the event such legislation is announced or introduced prior to the consummation of the Transaction, if either Tenneco or El Paso determines that there exists a reasonable likelihood that issuance of the El Paso Preferred Stock would cause the Merger to be taxable to holders of Tenneco stock, El Paso is obligated, under the terms of the Merger Agreement, at its own cost, to amend the terms of the El Paso Preferred Stock in a manner so as 29 not to cause the Merger to be taxable to holders of Tenneco stock. If, however, legislation containing the Nonqualified Preferred Stock Proposal were enacted following the Transaction, and such legislation applied retroactively to the issuance of the El Paso Preferred Stock, it is possible that the Merger would not qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the Code and holders of Tenneco stock receiving El Paso Common Stock or El Paso Preferred Stock in the Merger would recognize gain on the exchange. Even if the issuance of El Paso Preferred Stock did not prevent qualification of the Merger as a tax-free reorganization, holders of Tenneco stock receiving El Paso Preferred Depository Shares would recognize gain on the exchange that might be taxable as ordinary income to the extent of the earnings and profits of Tenneco. The failure of the Merger to qualify as a reorganization within the meaning of Code Section 368(a)(1)(B) of the Code or the recognition of gain by shareholders as a result of the receipt of El Paso Preferred Depository Shares may also cause the Industrial Distribution to not qualify as a tax-free distribution under Section 355 of the Code. 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. 30 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 New York Stock Exchange has approved the listing of Company Common Stock upon notice of issuance. 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 On October 30, 1996, the IRS issued the IRS Ruling Letter to the effect, among other things, that the Industrial Distribution will qualify as a tax- free distribution under Section 355 of the Code. Receipt of the IRS Ruling Letter satisfied a condition to consummation of the Industrial Distribution. 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 31 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 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. The Budget Proposal contains a provision that 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 one or more controlled corporations under certain circumstances. If such legislation were enacted, the Industrial Distribution, if ultimately subject to such legislation, may result in significant taxable gain to Tenneco under Section 355(c) of the Code. The Budget Proposal also contains a provision under which the receipt by a stockholder of certain preferred stock in an otherwise tax-free reorganization would result in gain recognition to the stockholder. If such legislation were enacted, it is possible that the receipt of the El Paso Preferred Depositary Shares would cause the Merger to fail to qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the Code resulting in the recognition of gain by Tenneco stockholders as described below. Even if the issuance of El Paso Preferred Stock and El Paso Preferred Depositary Shares did not prevent qualification of the Merger as a tax-free reorganization, holders of Tenneco Stock receiving El Paso Preferred Depositary Shares would recognize gain on the exchange that might be taxable as ordinary income to the extent of the earnings and profits of Tenneco. The failure of the Merger to qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the Code or the recognition of gain by shareholders as a result of the receipt of El Paso Preferred Depositary Shares, may also cause the Industrial Distribution to not qualify as tax-free distributions under Section 355 of the Code. See "Certain Federal Income Tax Consequences-- Possible Future Legislation." 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." 32 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 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 33 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." 34 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. 35 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. 36 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. 37 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." 38 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 subject to the Debt Exchange Offers will be exchanged for Company Public Debt pursuant to the Debt Exchange Offers. 39 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. 40 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. 41 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 ===========
- -------- * Certain amounts have been reclassified to conform to the Company's classification. See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 42 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 ===========
- -------- * Certain amounts have been reclassified to conform to the Company's classification. See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 43 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 subject to the Debt Exchange Offers will be exchanged for Company Public Debt pursuant to the Debt Exchange Offers. Tenneco expects to incur an extraordinary charge as a result of the Debt Realignment. Tenneco estimates that this cost will be approximately $300 million after-tax based on current market rates of interest. Certain other costs will also be incurred in connection with the Corporate Restructuring Transactions and the Distributions which Tenneco estimates will be approximately $100 million after tax. The effect on the Company's debt of these costs has been reflected in this pro forma adjustment. However, such charges have not been reflected in the pro forma income statement. (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. 44 (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. (l) EBITDA, on a pro forma basis, was $603 million and $1,023 million for the six months ended June 30, 1996 and the year ended December 31, 1995, respectively. 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 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. 45 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. 46 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. In addition, the consummation of the Transaction is conditioned upon 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, which ruling was issued on October 30, 1996. 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." 47 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. 48 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. 49 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 50 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)
51 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 52 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 53 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 ====== ======
54 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 55 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. 56 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. 57 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 ====== ======
58 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 59 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). 60 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. 61 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 62 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. 63 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. 64 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 65 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. 66 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: 67
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 68 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 its 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. 69 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 70 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. 71 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 paperboard 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 packag- ing products.......................... 756 593 434 442 Molded fiber products.................. 100 191 186 183 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. 72 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. 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 73 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. 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 74 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. 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. 75 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. 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. 76 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 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. 77 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. 78 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. 79 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. 80 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 81 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 September 30, 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.................. 5,404 (c) W. Michael Blumenthal......... 3,555 (c) M. Kathryn Eickhoff........... 3,697 (c) Peter T. Flawn................ 3,850 (c) Henry U. Harris, Jr........... 5,802 (c) Belton K. Johnson............. 6,111 (c) John B. McCoy................. 2,850 (c) Dana G. Mead.................. 199,310 (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............. 55,262 (c) Stacy S. Dick................. 32,062 (c) Paul T. Stecko................ 28,151 (c) All executive officers and di- rectors as a group........... 690,753(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. 82 (b) Includes shares that are: (i) held in trust under Tenneco's restricted stock plans; at September 30, 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 September 30, 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 305,231 shares of Tenneco Common Stock that are subject to options that are exercisable at September 30, 1996 or within 60 days of said date by all executive officers of the Company as a group, and includes 198,250 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: 83 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; 84 $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. 85 (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. 86 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.
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 87 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 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). 88 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 89 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. 90 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. 91 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 September 30, 1996, up to approximately 170,755,576 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 New York Stock Exchange has approved the listing of the Company Common Stock upon notice of issuance. 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 92 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, 93 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. 94 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. 95 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 96 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 97 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 98 (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 99 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. 100 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 101 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 102 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. 103 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. 104 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 Decem- ber 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 pe- riod 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 depre- ciation shown below).............. 3,737 3,050 2,854 2,303 1,828 Engineering, research and develop- ment expenses..................... 67 43 39 44 33 Selling, general and administra- tive.............................. 588 473 451 396 276 Depreciation, depletion and amorti- zation............................ 196 142 137 147 92 ------ ------ ------ -------- -------- 4,588 3,708 3,481 2,890 2,229 ------ ------ ------ -------- -------- Income before interest expense, in- come 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 mi- nority 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 ac- counting 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 in- terest rate 8.8% in 1995 and 8.4 % in 1994................................................ 26 20 Current maturities............................................ (6) (5) ------ ------ 61 67 ------ ------ Allocated corporate debt obligations, average effective inter- est 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 maturi- ties) (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 ob- ligation 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 obliga- tion................. $1,793 $1,672 $ 35 $ 24 $1,828 $1,696 Non-vested benefit ob- ligation............. 38 31 4 2 42 33 ------ ------ ------- ------- ------ ------ Accumulated benefit obligation........... $1,831 $1,703 $ 39 $ 26 $1,870 $1,729 Additional amounts re- lated to projected sal- ary 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 pro- jected benefit obliga- tion at September 30... $ 330 $ 202 $ (34) $ (21) $ 296 $ 181 Contributions during the fourth quarter......... 4 14 -- -- 4 14 Unrecognized net loss resulting from plan ex- perience and changes in actuarial assumptions.. 142 234 2 3 144 237 Unrecognized prior serv- ice obligations result- ing from plan amend- ments.................. 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 lia- bility................. -- -- (2) (2) (2) (2) ------ ------ ------- ------- ------ ------ Prepaid (accrued) pen- sion 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 pro- jected 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 geo- graphic 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 ex- penses................... (61) -- -- -- -- (61) ------ ---- ------ ---- ---- ------ Income before interest ex- pense, 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 geo- graphic 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 ex- penses................... (27) -- -- -- -- (27) ------ ---- ------ ---- ---- ------ Income before interest ex- pense, 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 administra- tive......................................... 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 equip- ment............................................. (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 November 4, 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 Distribution Agreement, November 1, 1996, 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. 10.5 Form of Transition Services Agreement by and among, Tenneco Business Services, Inc., 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. 10.28 Professional Services Agreement, dated August 22, 1996, by and between Tenneco Business Services Inc. and Newport News Shipbuilding Inc. +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. Exhibits which were previously filed are designated by a dagger (+); all exhibits not so designated are being filed herewith. EX-2 2 DISTRIBUTION AGREEMENT APPENDIX A DISTRIBUTION AGREEMENT AMONG TENNECO INC., NEW TENNECO INC. AND NEWPORT NEWS SHIPBUILDING INC. (FORMERLY KNOWN AS TENNECO INTERAMERICA INC.) DATED AS OF NOVEMBER 1, 1996 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS.................................................. A-1 SECTION 1.01. General........................................ A-1 SECTION 1.02. References..................................... A-12 ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS............. A-13 SECTION 2.01. Corporate Restructuring Transactions........... A-13 SECTION 2.02. Pre-Distribution Stock Dividends to Tenneco.... A-13 SECTION 2.03. Charters and Bylaws............................ A-13 SECTION 2.04. Election of Directors of Industrial Company and Shipbuilding Company............................. A-13 SECTION 2.05. Transfer and Assignment of Certain Licenses and Permits.......................................... A-14 SECTION 2.06. Transfer and Assignment of Certain Agreements.. A-14 SECTION 2.07. Consents....................................... A-15 SECTION 2.08. Other Transactions............................. A-15 SECTION 2.09. Election of Officers........................... A-15 SECTION 2.10. Registration Statements........................ A-16 SECTION 2.11. State Securities Laws.......................... A-16 SECTION 2.12. Listing Application............................ A-16 SECTION 2.13. Certain Financial and Other Arrangements....... A-16 SECTION 2.14. Director, Officer and Employee Resignations.... A-17 SECTION 2.15. Transfers Not Effected Prior to the Distributions; Transfers Deemed Effective as of the Distribution Date............................ A-17 SECTION 2.16. Ancillary Agreements........................... A-18 ARTICLE III THE DISTRIBUTIONS............................................ A-18 SECTION 3.01. Tenneco Action Prior to the Distributions...... A-18 SECTION 3.02. The Distributions.............................. A-19 SECTION 3.03. Fractional Shares.............................. A-19 ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS.............................. A-20 SECTION 4.01. Conditions Precedent to the Distributions...... A-20 SECTION 4.02. No Constraint.................................. A-21 SECTION 4.03. Deferral of Distribution Date.................. A-21 SECTION 4.04. Public Notice of Deferred Distribution Date.... A-21 ARTICLE V COVENANTS.................................................... A-22 SECTION 5.01. Further Assurances............................. A-22 SECTION 5.02. Tenneco Name................................... A-22 SECTION 5.03. Supplies and Documents......................... A-22 SECTION 5.04. Assumption and Satisfaction of Liabilities..... A-23 SECTION 5.05. No Representations or Warranties; Consents..... A-23 SECTION 5.06. Removal of Certain Guarantees.................. A-24 SECTION 5.07. Public Announcements........................... A-24 SECTION 5.08. Intercompany Agreements........................ A-25 SECTION 5.09. Tax Matters.................................... A-25 ARTICLE VI ACCESS TO INFORMATION........................................ A-25 SECTION 6.01. Provision, Transfer and Delivery of Applicable Corporate Records........................................... A-25 SECTION 6.02. Access to Information.......................... A-26 SECTION 6.03. Reimbursement; Other Matters................... A-26 SECTION 6.04. Confidentiality................................ A-26 SECTION 6.05. Witness Services............................... A-27 SECTION 6.06. Retention of Records........................... A-27 SECTION 6.07. Privileged Matters............................. A-27
A-i
PAGE ---- ARTICLE VII INDEMNIFICATION............................................ A-28 SECTION 7.01. Indemnification by Tenneco................... A-28 SECTION 7.02. Indemnification by Industrial Company........ A-28 SECTION 7.03. Indemnification by Shipbuilding Company...... A-28 SECTION 7.04. Limitations on Indemnification Obligations... A-29 SECTION 7.05. Procedures for Indemnification............... A-30 SECTION 7.06. Indemnification Payments..................... A-31 SECTION 7.07. Other Adjustments............................ A-31 SECTION 7.08. Obligations Absolute......................... A-32 SECTION 7.09. Survival of Indemnities...................... A-32 SECTION 7.10. Remedies Cumulative.......................... A-32 SECTION 7.11. Cooperation of the Parties With Respect to Actions and Third Party Claims................. A-32 SECTION 7.12. Contribution................................. A-33 ARTICLE VIII MISCELLANEOUS.............................................. A-33 SECTION 8.01. Complete Agreement; Construction............. A-33 SECTION 8.02. Ancillary Agreements......................... A-33 SECTION 8.03. Counterparts................................. A-33 SECTION 8.04. Survival of Agreements....................... A-33 SECTION 8.05. Responsibility for Expenses.................. A-34 SECTION 8.06. Notices...................................... A-34 SECTION 8.07. Waivers...................................... A-34 SECTION 8.08. Amendments................................... A-34 SECTION 8.09. Assignment................................... A-35 SECTION 8.10. Successors and Assigns....................... A-35 SECTION 8.11. Termination.................................. A-35 SECTION 8.12. Third Party Beneficiaries.................... A-35 SECTION 8.13. Attorney Fees................................ A-35 SECTION 8.14. Title and Headings........................... A-35 SECTION 8.15. Exhibits and Schedules....................... A-35 SECTION 8.16. Specific Performance......................... A-35 SECTION 8.17. Governing Law................................ A-35 SECTION 8.18. Severability................................. A-36 SECTION 8.19. Subsidiaries................................. A-36 SECTION 8.20. Shipbuilding Hedging Transactions............ A-36
A-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 first day of November, 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 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. A-1 "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, A-2 Shipbuilding 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 A-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 A-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 A-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 A-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. A-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. A-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. A-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, A-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 A-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. A-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. A-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. A-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 Industrial Company and of Shipbuilding Company will be as set forth in the Industrial Information Statement and the Shipbuilding Information Statement, respectively. A-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. A-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 A-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. A-18 SECTION 3.02. THE DISTRIBUTIONS. (a) DUTIES AND OBLIGATIONS OF TENNECO. Subject to the conditions contained herein, on the Distribution Date but effective immediately following the close of business 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. A-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. (h) 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. A-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 A-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. A-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. A-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. A-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 A-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. A-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 A-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 A-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 A-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. A-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 A-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. A-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. A-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. A-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 A-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. SECTION 8.20. SHIPBUILDING HEDGING TRANSACTIONS. Notwithstanding any other provisions of this Agreement or any other document or instrument (including any of the other Ancillary Agreements), any gains or losses relating to hedging or similar transactions undertaken by Shipbuilding Company or any other member of the Shipbuilding Group which are in effect on the date hereof or at any time hereafter through the Distribution Date shall be for the account of Shipbuilding Company, and, without limiting the generality of the foregoing, (i) Shipbuilding Company and the other members of the Group shall finance and fund any such losses through their own finance facilities, and (ii) no cash or debt relating to any such gains or losses shall be taken into account in making any of the determinations under the Debt and Cash Allocation Agreement, including determinations regarding the amount of the Allocated Shipbuilding Debt and/or the Guaranteed Shipbuilding Cash Amount. 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: A-36 EX-3.2 3 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 2/3% 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 2/3% 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 2/3% 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-10.1 4 FORM OF DEBT AND CASH ALLOCATION AGREEMENT 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. For purposes of this Agreement only, the "Effective Time" means 12:01 AM, Houston time, on the date on which the Merger Effective Time occurs. 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 A-C-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 include any amounts (including interest, fees and other charges) 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) other than the amount of Factored Proceeds (the "ASCC Amount"). (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 or to repair any gas 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 as of the Effective Time 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 A-C-2 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. and I.C.H. Corporation) reduced by 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 from the NPS Issuance (as defined in the Merger Agreement) less the amount of any expenses, fees or other out-of-pocket costs 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; provided, that in all events checks issued by Tenneco and the Energy Subsidiaries which remain unpaid as of the Effective Time shall be deducted from Cash and Cash Equivalents, and checks received by Tenneco and the Energy Subsidiaries which remain uncollected prior to the Effective Time (other than checks that have been dishonored) shall be included in Cash and Cash Equivalents. (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, which amount shall not exceed $100,000,000. (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 Agreement" means the Amended and Restated Agreement and Plan of Merger, dated as of June 19, 1996, among Tenneco, El Paso Natural Gas Company and El Paso Merger Company, as amended from time to time. (v) "Merger Closing Date" means the date on which the Merger is consummated. A-C-3 (w) "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. (x) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning ascribed to such term in SECTION 6 below. (y) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such term in SECTION 6 below. (z) "Shipbuilding Credit Facility" has the meaning ascribed to such term in SECTION 3 below. (aa) "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. (bb) "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. A-C-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 and (II) the total amount of the Factored Proceeds (the lesser of such amounts being referred to as the "Section 5 Amount") and (iii) should the Effective Time occur after the day of the month on which Tenneco generally collects receivables from customers of its regulated pipeline business (typically, the 25th day of a month), the lesser of the amount of (A) the Section 5 Amount owing to ASCC as of the Effective Time, and (B) the total amount of such receivables actually collected by Tenneco or any of its Subsidiaries during the period beginning on the day such receivables are first collected and ending at the Effective Time (the "Actual Collection Amount"), so long as that amount is owing to ASCC as of the Effective Time. It is expressly understood that as of the Effective Time all payables and receivables are for the account of Acquiror. (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 Section 5 Amount, the Actual Collection Amount, 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 A-C-5 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, the Section 5 Amount, the Actual Collection Amount (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 (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 A-C-6 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 "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. A-C-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. A-C-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: A-C-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 A-C-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
A-C-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. A-C-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 actually incurred and paid 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) received by Tenneco or any of its consolidated subsidiaries 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 (other than taxes based upon income, which shall not be deducted from cash proceeds in determining Net Cash Proceeds), 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 and which will remain an obligation or liability of such entity (or any member of its Group) after giving effect to the Distributions without reimbursement therefor by Tenneco or any other member of the Energy 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 actually incurred and paid 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 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 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 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 (other than taxes based upon income, which shall not be deducted from cash proceeds in determining Net Cash Proceeds), or (B) incurred by any member of the Shipbuilding Group or Industrial Group and remain unpaid as of the Effective Time and which will remain an obligation or liability of such entity (or any member of its Group) after giving effect to the Distributions without reimbursement therefor by Tenneco or any other member of the Energy Group. A-C-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 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 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 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 (without duplication) 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 from any sale of Tenneco Ventures during the Pre-Closing Period. 12. 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: A-C-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 has not been paid 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 has not been paid equals the Tenneco Bonus Portion, the Base Amount shall not be increased or decreased in respect of the 1996 Bonus Amount. (c) The 1996 Bonus Amount shall be determined by Tenneco prior to the Effective Time with the consent of Acquiror which shall not be unreasonably withheld. 13. Non Cash Proceeds Any proceeds received by Tenneco or any of its subsidiaries from the transactions described in paragraphs 1, 2, 3, 4, 5, 6 and 11 other than cash proceeds shall be for the account of Acquiror and shall be retained by or distributed to the Energy Business. A-C-15 EX-10.4 5 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)(A) 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 (i)(C) 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. (f) Representation Regarding Cumulative 1996 Federal Income Tax Payments. Industrial Company represents and warrants to Tenneco that, as of the the date hereof, $205,500,000 of cumulative net payments have been made by Tenneco, and credited by the Internal Revenue Service, with respect to the 1996 Tenneco Federal Consolidated Return. 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 14 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 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 15 (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. 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 6 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-10.28 7 PROFESSIONAL SERVICE AGREEMENT PROFESSIONAL SERVICES AGREEMENT THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement"), is made and entered into this 22nd day of August, 1996, between Tenneco Technology Services Inc. a Delaware corporation with its principal offices at 8401 New Trail Drive, The Woodlands, Texas 77381 ("TTS") and Newport News Shipbuilding & Dry Dock Company, a Virginia corporation with its principal offices at 4101 Washington Avenue, Newport News, Virginia 23607 ("NNS"). RECITALS -------- WHEREAS, TTS has been performing and/or providing certain mainframe data processing and distributed system services to its corporate affiliate NNS at the Newport News, Virginia data center ("Data Center"); WHEREAS, NNS will no longer be affiliated with TTS, but TTS has agreed to provide the above-mentioned services to NNS, and NNS has agreed to continue receiving the above-mentioned services from TTS, subject to the terms and conditions of this Agreement; NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to as follows: 1. SERVICES. During the term of this Agreement, TTS shall perform and/or provide, as the case may be, all labor, professional services and supervision necessary to perform certain services at the Data Center as more specifically identified in the attached Schedule 1 relating to NNS' present mainframe and distributed systems configurations (identified in Exhibits A and B to Schedule 1), including Business Management, Capacity Planning, Classified Processing, Computer Operations, Production Control, Output Services, Performance and Tuning, Service Desk Problem and Change Management, Product Installation and Support, Service Delivery Reporting, Physical Security Management, Storage Management, Systems Recovery Planning, Systems Security and Telecommunications. Except to the extent otherwise provided herein, TTS will perform and/or provide the above-mentioned services (collectively referred to herein as the "TTS Services") in a competent and professional manner conforming to generally accepted data processing practices and consistent with TTS' present manner and level of performance and deliverables on behalf of NNS at the Data Center, except as otherwise described in Schedule 1. The employees provided by TTS to perform the Services, including the employees of any secondary suppliers utilized by TTS, are referred to herein as the "Service Employees". It is understood by the parties that performance of the TTS Services are conditioned upon NNS fulfilling certain responsibilities and obligations as described in this Agreement and Schedule 1. Any additions, deletions or changes to the TTS Services may result in a Change Order (as defined below). 2. TERM. The term of this Agreement shall begin on the effective date ("Effective Date") of NNS' spinoff from Tenneco Inc. (the "Spinoff") and continue through December 31, 1998, unless terminated earlier pursuant to Section 13 herein or terminated earlier or extended further by the parties' mutual agreement. 3. TTS RESPONSIBILITIES. a. TTS shall furnish all labor, professional services, supervision, materials, tools and supplies necessary to perform the TTS Services. Notwithstanding the foregoing, TTS shall not be responsible for providing certain services and supplies identified in Schedule 1. b. Except as identified in Schedule 1, TTS shall pay all fees and expenses relating to performing and/or providing the TTS Services on a timely basis and shall at all times otherwise perform the TTS Services so that no lien, claim or encumbrance arises in connection therewith. c. TTS will use reasonable efforts to provide to NNS information from TTS records on TTS costs and comparable market pricing relating to the TTS Services to assist NNS with NNS government contract compliance duties. Further, in order to assist NNS in performing NNS obligations to the Defense Contracting Auditing Agency ("DCAA"), DCAA will be permitted access to the Data Center and limited computer access to verify security, compliance procedures and cost data of NNS on the computer systems in the Data Center. This Agreement shall not impose any other reporting or disclosure obligation on TTS with respect to NNS or DCAA. d. TTS will not be responsible for any potential software vendor fees or associated taxes, if any, that may be incurred for TTS' right to continue operating and maintaining the third party software identified in Exhibit C of Schedule 1 on the NNS mainframe computer systems for NNS' benefit. e. TTS will not be responsible for any potential software vendor fees or associated taxes, if any, that may be incurred for NNS' right to continue having the third party software identified in Exhibit D of Schedule 1 run on its mainframe computers after TTS' right to do so for NNS' benefit has terminated or expired. f. If requested by NNS, TTS shall make all reasonable efforts to cooperate with and assist NNS in the transfer of any assignable or assumable portion of the third party software identified in Exhibit D to NNS. -2- g. TTS will comply with all NNS security and safety rules and regulations while on NNS' premises and will not allow access to such premises by non- U.S. citizens, unless approved by NNS. h. TTS will not use materials in the provision of TTS Services that contain or have come in direct contact with mercury, mercury compounds or with any mercury containing device employing a single boundary of containment, unless approved by NNS. 4. NNS RESPONSIBILITIES. a. NNS will allow TTS to keep system and network diagnostic and maintenance programs and operating system software resident on NNS' mainframe and/or distributed systems at the Data Center for TTS' use in performing TTS Services. NNS acknowledges that NNS has no ownership interest in such TTS-licensed software and that TTS may remove such software from NNS' computer systems upon termination of this Agreement or expiration of any term, if application, where TTS is permitted to continue using such software for NNS' benefit after the Spinoff. b. NNS will provide TTS with access to and use of all information, NNS data, owned and licensed software, internal resources and facilities determined necessary by TTS to provide the TTS Services. c. NNS will secure, at its own cost and with TTS' assistance, the right for TTS to continue installing and maintaining the third party software identified in Exhibit C, which is currently licensed to NNS (for NNS' benefit) and necessary for the provision of TTS Services. d. NNS will secure, at its own cost and with TTS' assistance, the rights for TTS to continue installing and maintaining the third party software identified in Exhibit D, which currently runs on NNS' mainframe computers, is licensed to TTS (in part, for NNS' benefit) and is necessary for the provision of TTS Services after TTS' right to do so for NNS terminates or expires. e. NNS will renew and maintain current contracts for any services where NNS expects TTS to act as its agent with a third party. f. NNS will cooperate with TTS and respond to all reasonable requests to facilitate TTS' provision of TTS Services. g. NNS will be responsible for its own cost and expenses for services outside the specific TTS Services provided for herein, including its costs and expenses specifically identified in Schedule 1. -3- h. NNS will perform and comply with all NNS responsibilities identified in Schedule 1. i. NNS may, at its sole discretion and with reasonable notice to TTS, add, delete, upgrade, modify or otherwise change NNS hardware or NNS- licensed software or systems configurations at the Data Center (as identified in Exhibits A-D of Schedule 1). NNS acknowledges that any such change may adversely affect TTS' ability to provide the TTS Services at the fixed prices identified in Article 5 herein and, if so, will result in a Change Order to reimburse TTS for any additional expenses incurred due to such change. j. NNS will be responsible throughout the term hereof for advising TTS of all applicable rules and regulations which will affect TTS' provision of TTS Services, and of any subsequent changes thereto. If so advised, TTS will use its reasonable efforts to comply with NNS' rules and regulations and any changes thereto, but TTS shall not be required to do so if such compliance would materially increase TTS costs or burdens in relations to the TTS Services. NNS acknowledges that any such compliance by TTS may result in a Change Order. k. NNS will be responsible for all costs and expenses related to its portion of software fees and associated taxes, if any, that may be incurred by TTS for third party software identified in Exhibit D prior to (i) the expiration of TTS' right to use the same for NNS' benefit or (ii) NNS' entry, at its option, into an amendment, novation, new agreement or other arrangement to effectively relieve TTS of NNS' portion, whichever occurs first. If NNS does enter into an arrangement to effectively relieve TTS of any such portion and TTS already has paid for future license fee obligations related thereto which will subsequently benefit NNS, NNS will reimburse TTS for such payment within thirty (30) days of TTS' invoicing NNS for the same. If NNS fails to enter into an arrangement to effectively relieve TTS of its obligation with respect to such portion and TTS' right to use the third party software related to such portion for NNS' benefit has expired, NNS shall reimburse TTS for fifty percent (50%) of any continued monetary obligation TTS subsequently incurs during the term of this Agreement. Notwithstanding the foregoing, NNS is obligated to relieve TTS of NNS' portion of the Computer Associates International license agreement (see software identified in Exhibit D); and if NNS fails to do so, it will reimburse TTS for one hundred percent (100%) of any continued monetary obligation TTS subsequently incurs for NNS during the term of TTS' license agreement with Computer Associates International. 5. COMPENSATION. a. In consideration for TTS' provision of TTS Services as described in this Agreement, NNS will pay TTS a fixed price of Nine million One Hundred Thousand Dollars ($9,100,000) for TTS Services in 1997 and Nine Million Six -4- Hundred Thousand Dollars ($9,600,000) for TTS Services in 1998. For each year, compensation shall be payable in equal monthly installments due on or before the fifth of each month. If the Spinoff occurs prior to the end of 1996, NNS shall pay TTS (as compensation for TTS Services for the remainder of 1996) a proration of the 1997 fixed price. Except for any initial payment, if applicable, to cover compensation for TTS Services rendered for less than a full month, any 1996 compensation payments shall be payable in equal monthly installments. b. If NNS fails to fully pay any monthly installment when due, TTS may discontinue the provision of TTS Services until payment is received without committing breach of this Agreement. c. If any sales, use or similar taxes are due with regard to the annual fixed price, such taxes will be invoiced to NNS, if applicable, as separate costs in addition to the annual fixed prices. 6. ADJUSTMENTS TO THE TTS SERVICES. During the term of this Agreement, NNS may request changes to the TTS Services by submitting such requests in writing to TTS. Within thirty (30) days after receipt of a change request, TTS will advise NNS whether the requested change can be made and, if so, the resulting impact on the provision of TTS Services and the related cost adjustment (plus or minus) to the fixed price. TTS will not unreasonably refuse to make a requested change. In order to implement any such changes(s), the parties must mutually agree to any change in the TTS Services and the resultant fixed price adjustment and execute a change order ("Change Order") with respect thereto. TTS will not commence any work related to any change(s) until such change(s) and fixed price adjustments have been agreed to in writing by Change Order. If any additional TTS Services are required in connection with transition services in the event of any termination of this Agreement, such additional TTS Services shall be the subject of a Change Order. 7. INTELLECTUAL PROPERTY RIGHTS. a. Each party represents and warrants that it has the intellectual property rights or interest necessary to perform its responsibilities as identified in this Agreement, clear and free of all liens and encumbrances and in a manner that does not infringe or misappropriate any patent, copyright or trade secret of any third party. b. NNS will defend and hold TTS harmless or settle at its own expense any claim against TTS that TTS' use of NNS-owned hardware or software or NNS-licensed software in the provision of TTS Services infringes or misappropriates any third party's patent, copyright or trade secret. -5- c. TTS will defend and hold NNS harmless or settle at its own expense any claim against NNS that the use of TTS-licensed software (identified in Exhibit D) for NNS' benefit in the provision of TTS Services infringes or misappropriates any third party's patent, copyright or trade secret. Notwithstanding the foregoing, this intellectual property indemnification ceases when TTS' right to use such software for NNS' benefit terminates or expires. 8. WORKERS COMPENSATION AND LIABILITY INSURANCE. During the term of this Agreement, both TTS and NNS will, at the expense of each for its own insurance, provide and keep in full force and effect Workers' Compensation, Employer's Liability, Automobile Liability, Commercial General Liability, Property and Umbrella Liability insurance, the kinds and minimum amounts of such insurance to be agreed to by the parties. The types of coverage and minimum amounts may be modified or supplemented by the parties on mutual agreement. Prior to or as soon as possible following commencement of the TTS Services, each party will furnish the other party with certificates evidencing such insurance coverage and name the other party an Additional Insured as the party's interests may appear. There will be no cancellation of any insurance coverage by either party without 30 days prior written notice. 9. EMPLOYEE SUPERVISION. Each party shall be responsible for supervision of such party's own employees, including, without limitation, with respect to compliance with all laws, regulations, rules and executive orders relating to employment, discrimination, workplace safety, minimum wages and overtime. 10. INDEMNIFICATIONS. a. Subject to Sections 10.b. and 10.c. hereof, each party hereto shall indemnify, hold harmless and defend the other party and its respective present and future parents, subsidiaries, commonly controlled entities, affiliates, directors, officers, employees and agents ("Related Parties") from and against any and all claims, demands, losses, damages, liabilities, causes of action and expenses (including but not limited to costs of defense, mediation, settlement, and reasonable attorneys' fees) ("Damages") on account of the death or personal injury to any person or injury to or destruction of tangible property, if and to the extent such Damages directly or indirectly arise out of, relate to or are in connection with any negligent act or omission or the intentional action of such indemnifying party or its Related Parties or any permitted subcontractors. b. NNS shall indemnify TTS and TTS' Related Parties for Damages on account of the death or injury to any person, if and to the extent such Damages directly or -6- indirectly arise out of, relate to or are in connection with any hazardous substances, pollutants or contaminants present on, emanating from or affecting any property owned, operated or controlled by NNS. c. Notwithstanding any other provision of this Section 10, neither party will be liable to the other party hereunder for Damages to tangible property in excess of $300,000 in the aggregate per incident. 11. DISCLAIMER OF WARRANTY; LIMITATIONS OF LIABILITY. a. DISCLAIMER OF WARRANTY. TTS EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES WITH RESPECT TO ANY WORK OR SERVICES PROVIDED BY TTS PURSUANT HERETO, INCLUDING WITHOUT LIMITATION, ANY WARRANTY THAT THE WORK OR SERVICES PROVIDED PURSUANT HERETO WILL BE FIT FOR ANY PARTICULAR PURPOSE. b. LIMITATIONS OF LIABILITY. Except for any fixed or license agreement amounts owed, neither party will be liable to the other party for claims, damages or losses of any kind whatsoever arising out of, related to or in connection with lost data, lost profits, lost revenues or loss of goodwill. Neither party will be liable to the other party for any indirect, consequential, special, exemplary, punitive or incidental damages. Further, the liability of a party in any action or series of actions by the other party arising out of any alleged breach or breaches of this Agreement, other than an action for indemnification under Section 10.a. hereof, shall be limited to $250,000 in the aggregate. 12. PERMITS AND LICENSES. Each party will maintain in effect during the term of this Agreement any and all federal, state and/or local licenses and permits which may be required with respect to the respective business in which each party is engaged. NNS will maintain at its expense the licenses and permits required by applicable authorities in order to engage in NNS' business, and if TTS is requested to obtain these types of permits and/or licenses on behalf of NNS, any related cost, including time to procure such permit and/or license, will be billed to NNS as an expense in addition to the fixed price. -7- 13. TERMINATION. a. Either party may terminate this Agreement if the other party fails to keep, observe or perform any material covenant in this Agreement by providing the breaching party with prior written notice as stated below of the material breach and the opportunity to cure the same. In the event the material breach is a failure to pay an amount due and payable under this Agreement when due, the cure period after prior written notice shall be ten (10) days. For all other material breaches, the cure period after prior written notice shall be forty-five (45) days. If it is unreasonable to expect a cure of a non-monetary breach within the forty-five (45) day cure period, the breaching party shall have an additional time reasonably necessary to cure the breach, which shall not exceed thirty (30) additional days. If the material breach is not cured within the aforementioned periods, the terminating party may terminate the Agreement immediately by giving written notice of the same to the breaching party. b. Either party may terminate this Agreement if the other party: i. is adjudicated an involuntary bankrupt, or a decree or order approving a petition or answer filed against such party asking for reorganization under the Federal bankruptcy laws as now or hereafter amended, or under the laws of any state, shall be entered, or if a petition for involuntary bankruptcy has been filed against the other party and such petition (and the proceeding arising therefrom, if any) has not been dismissed within thirty (30) days of the filing. ii. files or admits to the jurisdiction of the court and the material allegations contained in any petition pursuant, or purporting to be pursuant, to the Federal Bankruptcy laws as now or hereafter amended, or such party shall institute any proceeding for any relief under any bankruptcy or insolvency law or any law relating to the relief of debtors, readjustment of indebtedness, reorganization, arrangements, composition or extension; or iii. makes any assignment for the benefit of creditors or applies for consent to the appointment of a receiver for itself or any of its property. 14. INDEPENDENT CONTRACTOR. TTS is an independent contractor and nothing herein shall be construed to create the relationship of agent, partner, joint venturer or employee between TTS and NNS. All Service Employees hereunder shall remain employees of TTS (or a secondary supplier, where applicable). -8- 15. CONFIDENTIALITY. a. During the course of performing the TTS Services, each party may be given access to information that relates to the other party's past, present, and future research, development, business activities, products, customer and vendor data, services, and technical knowledge, and other similar information that is considered confidential and proprietary (collectively "Confidential Information"). Each party acknowledges that all reports of information produced as a result of this Agreement shall be deemed Confidential Information. In connection therewith, the following shall apply: i. Any Confidential Information received by either party may be used only for the purposes intended by this Agreement. ii. Each party agrees to protect the confidentiality of the Confidential Information in the same manner that it protects the confidentiality of its own proprietary and confidential information. To that end, access to the Confidential Information shall be restricted to those of each party's personnel on a "need to know" basis only. iii. All Confidential Information made available hereunder, including copies thereof, shall be returned to the owner or destroyed upon the latter to occur of (A) the need for access has been fulfilled or (B) completion of the TTS Services or termination of this Agreement. iv. Nothing in this Agreement shall prohibit or limit either party's use of information (including, but not limited to ideas, concepts, know-how, techniques, and methodologies) (A) previously known to it without obligation of confidence, (B) independently developed by it outside of the scope of the Services, (C) acquired by it from a third party which is not, to its knowledge, under an obligation of confidence with respect to such information or (D) which is or becomes publicly available through no breach of this Agreement. v. As part of the performance under this Agreement, each party will promptly notify the other party of any of the following events: A. Any unauthorized disclosure or use of any Confidential Information, B. Any request by anyone to examine, inspect or copy any Confidential Information, or -9- C. Any attempt to serve, or the actual service of a court or administrative order, subpoena, or summons that requires the production of any Confidential Information. Upon receiving such request, subpoena, order or summons, the receiving party will surrender any Confidential Information to any third party only with the consent of the other party or the final order of a court having jurisdiction. b. Nothing contained in this Agreement shall be construed as granting either party a license, either express or implied, under any patent, copyright, trade secret or other intellectual property right now or hereafter owned, obtained or licensed by the other party. 16. NON-SOLICITATION OF EMPLOYEES. Throughout the term of this Agreement until its last ninety (90) days, the parties hereto agree not to solicit or cause to be solicited for employment any employee of the other party, or to encourage any such employee to cease employment with the other party, unless the parties have mutually agreed to such solicitation or encouragement. During the last ninety (90) days of this Agreement, either party with prior written notice of the Chief Information Officer ("CIO") of the other party may contact employees of the other party to solicit their employment. 17. RESOLUTION OF DISPUTES. The parties hereto agree to use reasonable efforts to resolve any disputes arising hereunder before resorting to litigation, and the CIOs of the parties shall negotiate in good faith to reach a mutually acceptable solution to unresolved disputes arising from time-to-time during the term hereof. If the CIOs cannot resolve the dispute, then the dispute shall be elevated to the presidents of TTS and NNS for their review and resolution. If the dispute still cannot be resolved by the presidents, then either party may initiate a formal proceeding for the judicial resolution of such dispute. However, such formal proceeding may not be initiated until thirty (30) days after the CIOs have initially met to negotiate such dispute. 18. PUBLICITY. Neither party shall advertise, make or issue any public statement with respect to this Agreement or otherwise disclose the fact that this Agreement is in existence without the prior review and written consent of the other party; provided that either party may disclose that TTS is supplying services to NNS. In the event, however, that legal counsel for either party is of the opinion that a statement or announcement is required by applicable law, then that party may issue a statement or announcement limited solely to that which legal counsel for that party advises is required under law or such rules. Notwithstanding the foregoing, Tenneco Inc. may make such disclosures in connection with the reporting to the Securities and Exchange Commission and the public by it and its subsidiaries in connection with the Spinoff and all other transactions contemplated to take place on the Effective Date as Tenneco Inc. and its counsel shall determine. In addition, NNS may make such disclosures in connection with its reporting to the DCAA and related government contract compliance procedures. The disclosing party shall -10- provide the other party with a copy of any such statement or announcement for prior review before issuing such statement or announcement. Subject to the reporting requirements stated above, neither party shall in any case disclose the contents of this Agreement to any third party. 19. NOTICES. Any and all notices and other communications necessary or desirable to be served hereunder shall be either personally delivered or sent by telecopy, prepaid same-day or overnight delivery service, proof of delivery requested, or United States certified or registered mail, postage prepaid, return receipt requested, addressed as follows: a. If to NNS: Newport News Shipbuilding and Dry Dock Company 4101 Washington Avenue Newport News, Virginia 23607 Attention: Chief Information Officer Telecopier No.: (757) 688-1900 b. If to TTS: Director of Business Management Tenneco Business Services Inc. 8401 New Trails Drive The Woodlands, Texas 77381 Telecopier No.: (713) 539-6812 with a copy to: Chief Information Officer Tenneco Technology Services Inc. 230 41st Street Newport News, Virginia 23607 Telecopier No.: (757) 380-4610 -11- or to such other address or addresses as either party may designate for itself from time to time in a written notice served upon the other party hereto in accordance herewith. Any notice sent as hereinabove provided shall be deemed delivered upon receipt or refusal of delivery. 20. BENEFIT; ASSIGNMENT. This Agreement and all provisions hereof shall be binding upon and inure to the benefit of TTS, NNS and their respective successors and assigns; provided, however, that neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party, which consent may be withheld in other party's sole discretion. Notwithstanding the foregoing, TTS may assign this Agreement to any present or future parent or subsidiary of, or entity commonly controlled with, TTS. Any assignment in violation of this provision shall be void. In the event that one party consents to an assignment by the other party, the assigning party shall remain jointly and severally responsible with the assignee for its obligations and duties under this Agreement. Notwithstanding any other provision in this Agreement, it is acknowledged by the parties that TTS is supplying the TTS Services hereunder as a vendor, and not as a subcontractor, with respect to any contracts between NNS or its subsidiaries or divisions and the United States government and any of its agencies or departments. Further, TTS is supplying commercially available automatic data processing services readily available in the open market which NNS is using for the performance of administrative tasks in support of all of its operations, including commercial and government sales. 21. CHOICE OF LAW; VENUE. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York without regard to its conflicts of laws. 22. INTERPRETATION. This Agreement has been reviewed by counsel for both TTS and NNS and, consequently, the parties agree that this Agreement shall not be construed against the drafter. 23. NO WAIVER. The terms, covenants, representations, warranties and conditions of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 24. SEVERABILITY. In the event any provision of this Agreement is invalid as applied to any fact or circumstance, its invalidity shall not affect the validity of any other provision or of the same provision as applied to any other fact or circumstance. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as enforceable. -12- 25. ENTIRE AGREEMENT. This Agreement, together with all Exhibits hereto and documents incorporated herein by reference, constitutes the entire agreement between the parties, and supersedes all prior or contemporaneous oral or written agreements and related documents and correspondence concerning the subject matter hereof. The parties shall not be bound by, or liable for, any statement, covenant, representation, promise, inducement or understanding not set forth herein. 26. FORCE MAJEURE. Any delay or failure of either party in the performance of its obligations hereunder shall be excused if and to the extent caused by unforeseeable events beyond the reasonable control of such party. Such events may include, but are not limited to, acts of God, strikes, actions of regulatory agencies, fire, flood, windstorm, explosion, riot, war, sabotage, interruption of power or other utilities, court injunction or order. The time for performing any obligations affected by a Force Majeure event shall be extended during the period such event persists, provided that prompt notice of such delay is given by the affected party to the other and the affected party diligently attempts to remove the cause or causes of such event. 27. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each counterpart shall constitute an original instrument, and all such separate counterparts taken together shall constitute one and the same agreement. 28. NO THIRD PARTY BENEFICIARIES. This Agreement is made solely for the benefit of the parties hereto and shall not give rise to any rights of any kind to any other third parties. 29. AMENDMENT. No amendment or modification of any of the terms or conditions of this Agreement shall be valid unless reduced to writing and executed by TTS and NNS. 30. HEADINGS. The paragraph headings have been inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. * * * * * * -13- IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective duly authorized representatives as of the day and year shown above. TENNECO TECHNOLOGY SERVICES INC. By: /s/ Mathew W. Appel ------------------------------ Title: President ------------------------------ NEWPORT NEWS SHIPBUILDING & DRY DOCK COMPANY By: /s/ John E. Shepherd Jr. ------------------------------ Title: Vice President ------------------------------ -14- Schedule 1 TTS Services Introduction - ------------ TTS Services to be provided NNS to support NNS' workload on its present mainframe environment (Exhibit A) and distributed systems environment (Exhibit B) are defined herein. References to UNIX and VMS Systems exclude Time and Attendance, the Machine Shops VMS system and development LANs. TTS Services - ------------ Business Management TTS will provide staff support for financial management, contract administration and accounts payable relating to the TTS Services listed in this Schedule. - -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Mainframe Systems - -------------------------------------------------------------------------------- Negotiate NNS hardware, hardware maintenance, software license P A and related service contracts. - -------------------------------------------------------------------------------- Process and pay TTS hardware maintenance, software license and related service invoices for the benefit of NNS. P - -------------------------------------------------------------------------------- Secure the right for TTS to continue installing and maintaining the P A third party software identified in Exhibit D on NNS' mainframe environment after TTS' right to do so terminates or expires. All such software must be properly licensed for TTS to provide TTS Services. - -------------------------------------------------------------------------------- Process and pay NNS software license invoices. P A - -------------------------------------------------------------------------------- Secure the right for TTS to continue installing and maintaining the P A third party software identified in Exhibit C on NNS' mainframe environment. All such software supplied to NNS must be properly licensed for TTS to provide TTS Services. - -------------------------------------------------------------------------------- Manage hardware and software inventories. P P - -------------------------------------------------------------------------------- Assist NNS with audit requests. P A - -------------------------------------------------------------------------------- Distributed Systems - -------------------------------------------------------------------------------- No TTS Services provided. - -------------------------------------------------------------------------------- Legend: P = Primary Responsibility Page 1 A = Assists - -------------------------------------------------------------------------------- [TENNECO LOGO] Schedule 1 TTS Services Capacity Planning Annually, TTS will develop the planned mainframe (processor, DASD, tape and telecommunications) resource capacity requirements for the next three year period, based upon workload projections and data provided by NNS. As a result of monthly performance reviews, TTS and NNS will address mainframe resource capacity requirements, as needed. TTS shall use reasonable efforts to meet the performance metric response time goals contained herein (see Service Delivery Reporting). - -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Mainframe Systems - -------------------------------------------------------------------------------- Determine scope of capacity plan. P A - -------------------------------------------------------------------------------- Gather and interpret NNS user requirements including P proposed new applications. - -------------------------------------------------------------------------------- Translate user requirements into systems' requirements. A P - -------------------------------------------------------------------------------- Measure and verify base level of systems' capacity. A P - -------------------------------------------------------------------------------- Document capacity planning assumptions and recommend A P capacity planning strategy. - -------------------------------------------------------------------------------- Determine tools required to monitor systems. A P - -------------------------------------------------------------------------------- Produce capacity plan annually and deliver during the A P first quarter. - -------------------------------------------------------------------------------- Provide an actual versus plan utilization report quarterly. A P - -------------------------------------------------------------------------------- Respond in writing within 30 days to a NNS request for A P impact on a change in business volume that may necessitate the installation of new hardware or negatively impact key performance measurements. - -------------------------------------------------------------------------------- Provide to NNS an actual performance and utilization report A P monthly. - -------------------------------------------------------------------------------- Distributed Systems - -------------------------------------------------------------------------------- No TTS Services provided regarding capacity planning. - -------------------------------------------------------------------------------- Legend: P = Primary Responsibility A = Assists Page 2 - -------------------------------------------------------------------------------- [TENNECO LOGO] Schedule 1 TTS Services Classified Processing NNS is required to handle DoD (Department of Defense) classified data. TTS will support and comply with NNS and DoD classified processing procedures. - -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Mainframe Systems - -------------------------------------------------------------------------------- Provide support for classified processing on System D in P Building 600. - -------------------------------------------------------------------------------- Provide print and plot room operations for System D. P - -------------------------------------------------------------------------------- Distribute System D classified output to NNS. A P - -------------------------------------------------------------------------------- Distributed Systems - -------------------------------------------------------------------------------- Provide UNIX operating systems installation support for P classified processing on the AIXC System in Building 600. - -------------------------------------------------------------------------------- Legend: P = Primary Responsibility A = Assists Page 3 Schedule 1 TTS Services COMPUTER OPERATIONS TTS is responsible for monitoring and responding to mainframe systems console commands, detecting and resolving mainframe hardware problems and monitoring the facilities' environment. TTS will use reasonable efforts to provide computer operations, 24 hours/day, 7 days/week, including holidays, with mainframe systems availability at 99%, 24 hours/day, Monday through Friday. TTS will operate the on-site tape cartridge library (currently 101,000 cartridge tapes). NNS is responsible for all incremental expenses incurred to maintain the on-site tape cartridge library if library usage exceeds 106,000 cartridge tapes or if tape cartridge mounts exceed 67,000 per month. TTS is responsible for monitoring and responding to systems console commands for the mid-range computers and PC-based LAN servers in Building 521, as identified in Exhibit B, between 12:30 AM and 4:30 PM, Monday through Friday, excluding holidays. TTS will provide two (2) Full Time Equivalent (FTE) persons to support the distributed systems environment. An FTE equals 2080 hours/year, including vacation, sick days, and holidays.
- ----------------------------------------------------------------------------------------- Functional Description NNS TTS - ----------------------------------------------------------------------------------------- BOTH MAINFRAME AND DISTRIBUTED SYSTEMS ENVIRONMENTS - ----------------------------------------------------------------------------------------- Coordinate systems maintenance with repair vendors. P - ----------------------------------------------------------------------------------------- Pay for repair costs not covered by maintenance contracts. P - ----------------------------------------------------------------------------------------- Initiate system problem determination. P - ----------------------------------------------------------------------------------------- Document operations procedures. P - ----------------------------------------------------------------------------------------- Perform backup and archive functions. P - ----------------------------------------------------------------------------------------- Prepare and deliver to NNS backup tapes of systems data upon A P request with reasonable notice. - ----------------------------------------------------------------------------------------- MAINFRAME SYSTEMS - ----------------------------------------------------------------------------------------- Use reasonable efforts to provide for mainframe systems availability P (Building 521 9021-900, Building 600 9021-720) at 99%, 24 hours/day, Monday through Friday. - ----------------------------------------------------------------------------------------- Legend: P = Primary Responsibility Page 4 A = Assists
SCHEDULE 1 TTS SERVICES PRODUCTION CONTROL TTS is responsible for scheduling, processing, monitoring and distributing output for all batch jobs submitted via the production job scheduler or restart system. TTS will use reasonable efforts to provide job scheduling 24 hours/day, 7 days/week, including holidays. If an abnormal job termination (ABEND) occurs, TTS will use reasonable efforts to complete the original job schedule in a timely manner and will contact NNS if ABEND requires NNS's assistance. Job scheduling for monthly batch jobs in excess of 75,000 or for additional IDMS central versions, CICS regions or distributed platforms are outside the scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement. - -------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - -------------------------------------------------------------------------------- BOTH MAINFRAME AND DISTRIBUTED SYSTEMS ENVIRONMENTS - -------------------------------------------------------------------------------- Job Scheduling - -------------------------------------------------------------------------------- Set up and maintain production schedules. A P - -------------------------------------------------------------------------------- Provided pre-turnover production analysis and documentation as identified by TTS. P A - -------------------------------------------------------------------------------- Schedule ad hoc jobs and tasks. A P - -------------------------------------------------------------------------------- Establish production parameters. P A - -------------------------------------------------------------------------------- Set and execute production parameters. P - -------------------------------------------------------------------------------- Verify receipt of input data. A P - -------------------------------------------------------------------------------- Select execution class, prioritize job selection and build dependency structure during production turnover. A P - -------------------------------------------------------------------------------- Alter dispatch priority, as necessary. A P - -------------------------------------------------------------------------------- Execution Control - -------------------------------------------------------------------------------- Initiate production schedule and monitor job termination status. P - -------------------------------------------------------------------------------- Terminate/cancel jobs. A P - -------------------------------------------------------------------------------- Job Restart - -------------------------------------------------------------------------------- Determine job failure condition. P - -------------------------------------------------------------------------------- Review job rerun/restart documentation. P - -------------------------------------------------------------------------------- Execute rerun/restart procedures and modify JCL, as required. A P - -------------------------------------------------------------------------------- Monitor and verify job termination status. P - -------------------------------------------------------------------------------- Page 5 Legend: P = Primary Responsibility A = Assists Schedule 1 TTS Services Output Services TTS is responsible for the centralized printing and packaging for pick-up by NNS of computer generated reports and drawings from Buildings 522 and 600. Additionally, TTS will maintain mircofiche distribution information and coordinate with the microfiche vendor the processing and delivery of microfiche to NNS. NNS is responsible for paying for and providing consumable print and plot supplies used for the benefit of NNS as well as paying for shipping charges and electronic transmissions to authorized NNS addresses. TTS will exercise reasonable efforts to reduce supply waste. The provision of more than 90,000 masters and 400,000 duplicate microfiche per year is outside the scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement.
- ---------------------------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - ---------------------------------------------------------------------------------------------------- BOTH MAINFRAME AND DISTRIBUTED SYSTEMS ENVIRONMENTS - ---------------------------------------------------------------------------------------------------- Print and Plot - ---------------------------------------------------------------------------------------------------- Provide NNS purchase order for consumable paper, toner, P A special forms etc. used for NNS benefit. - ---------------------------------------------------------------------------------------------------- Requisition consumable paper, toner, special forms, etc. P against NNS purchase order. - ---------------------------------------------------------------------------------------------------- Provide printer operations and maintenance. P - ---------------------------------------------------------------------------------------------------- Collect, sort and prepare output for NNS pick-up. P - ---------------------------------------------------------------------------------------------------- Microfiche - ---------------------------------------------------------------------------------------------------- Prepare tapes for microfiche vendor pick-up. P - ---------------------------------------------------------------------------------------------------- NNS' mailroom receives microfiche for local distribution. P - ---------------------------------------------------------------------------------------------------- Magnetic Media - ---------------------------------------------------------------------------------------------------- Package tapes and disks for NNS pick-up. P - ----------------------------------------------------------------------------------------------------
Legend: P = Primary Responsibility Page 6 A = Assists Schedule 1 TTS Services Performance and Tuning TTS is responsible for monitoring systems performance and adjusting systems to meet changing business requirements. TTS will make recommendations regarding performance and tuning changes to NNS for NNS applications and databases. TTS shall use reasonable efforts to meet the performance metric response time goals contained herein. Annually, TTS will undertake a mainframe data center benchmark analysis with an independent party.
- -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Both Mainframe and Distributed Environments (except LAN/NT) - -------------------------------------------------------------------------------- Monitor systems and applications performance. A P - -------------------------------------------------------------------------------- Provide systems performance adjustments. P - -------------------------------------------------------------------------------- Recommend applications and database performance adjustments. A P - -------------------------------------------------------------------------------- Implement applications and database performance adjustments. P A - -------------------------------------------------------------------------------- Define performance groups, systems specifications and priorities. A P - -------------------------------------------------------------------------------- Distributed Systems (LAN/NT Environment) - -------------------------------------------------------------------------------- Monitor systems and applications performance. P - -------------------------------------------------------------------------------- Provide systems and applications performance adjustments. P - --------------------------------------------------------------------------------
Legend: Page 7 P = Primary Responsibility A = Assists SCHEDULE 1 TTS SERVICES SERVICE DESK PROBLEM AND CHANGE MANAGEMENT The TTS Service Desk is responsible for the problem and change management process within the Data Center. All reported computer, network, telecommunications, and software problems will be recorded and assigned by the Service Desk to the appropriate TTS or NNS resolver group or to a repair vendor. TTS is responsible for the ongoing process of communicating, scheduling, monitoring, and coordinating changes to the computing environment. Reported problems are monitored through resolution, and the resolution is verified with the reporting user. - -------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - -------------------------------------------------------------------------------- ALL ENVIRONMENTS - -------------------------------------------------------------------------------- Use reasonable efforts to provide Service Desk operators 24 P hours/day, 7 days/week, including holidays. - -------------------------------------------------------------------------------- Install, customize and maintain problem and change management P software. - -------------------------------------------------------------------------------- Provided problem and change management training (4 hour session) P to NNS twice a year. - -------------------------------------------------------------------------------- Submit change requests, review requests for impact, assess P P criticality of the requests, approve and prioritize requests. - -------------------------------------------------------------------------------- Log change requests, track status, escalate and process A P emergency change requests, where authorized. - -------------------------------------------------------------------------------- Conduct weekly change management meetings. A P - -------------------------------------------------------------------------------- Provide problem and change activity reports. P - -------------------------------------------------------------------------------- Maintain interface between the IBM Information Management A P product and NNS' CIMS system. - -------------------------------------------------------------------------------- For each problem notification, Service Desk will create a problem P ticket. TTS will use reasonable efforts to answer calls within one minute, 95% of the time when volumes are less than 230 per day between 6 AM and 6 PM, Monday through Friday, excluding holidays. - -------------------------------------------------------------------------------- At time of problem notification, Service Desk verifies NNS A P computer inventory data and corrects the NNS CIMS database as to location, make, model, and serial number, as necessary. - -------------------------------------------------------------------------------- Analyze, categorize, prioritize and assign problem to resolver A P group(s). TTS will use reasonable efforts to forward or re-route reported problems to NNS resolver groups within 5 minutes following initial contact by user reporting incident, 98% of time. - -------------------------------------------------------------------------------- Page 8 Legend: P= Primary Responsibility A= Assists Schedule 1 TTS Services - -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Contact repair vendors and coordinate repair A P with user. Between 6 AM and 6 PM, Monday through Friday, excluding holidays, TTS will use reasonable efforts to initiate a service call with the repair vendor within 30 minutes of "send to vendor" decision 98% of time. - -------------------------------------------------------------------------------- Provide status and confirm resolution with A P problem reporter. - -------------------------------------------------------------------------------- Meet with repair vendor management, as needed. P - -------------------------------------------------------------------------------- Coordinate time and material repairs for NNS A P and Navy owned equipment and software. - -------------------------------------------------------------------------------- Certify time and material invoices from P repair vendors for payment by NNS. - -------------------------------------------------------------------------------- Suspend, restart, redirect print jobs P utilizing TSPrint and VPS. - -------------------------------------------------------------------------------- Legend: P = Primary Responsibility A = Assists Page 9 Schedule 1 TTS Services PRODUCT INSTALLATION AND SUPPORT TTS is responsible for installing and maintaining the latest version and/or release upgrades to the existing installed mainframe software base, including a reasonable transition to such upgrades. This includes management of the software inventory, version and/or release levels, customization and installation verification. TTS will perform a maximum of two software group updates per year on the mainframe systems. TTS can only support software where maintenance is current and available. New applications and software products which require customization in the form of program code development are outside the scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement. TTS will provide ongoing product maintenance including problem identification, regular maintenance cycles to implement fixes to known problems, and program fix installation and validation. TTS will provide installation and support for software products shown on the software inventory lists attached as Exhibits C and D. NNS in-house developed software and shareware (software code obtained from free as-is sources) is not listed in Exhibits C and D. TTS will use reasonable efforts to support these products, given adequate documentation exists, but cannot assume responsibility for lost functionality due to supported software release upgrades, program errors, lost data resulting from usage or system integrity flaws. TTS will provide UNIX and VMS systems support expertise up to five (5) FTE persons on an annual basis.
- --------------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - --------------------------------------------------------------------------------------- MAINFRAME SYSTEMS - --------------------------------------------------------------------------------------- Install, customize, test and maintain operating systems and A P database management software. - --------------------------------------------------------------------------------------- Install, customize, test and maintain NNS applications P A software. - --------------------------------------------------------------------------------------- Perform problem resolution services for operating systems A P software. - --------------------------------------------------------------------------------------- Perform problem resolution services for applications P A software. - --------------------------------------------------------------------------------------- Perform problem resolution services for database P P management software. - --------------------------------------------------------------------------------------- Determine placement of program libraries. P - --------------------------------------------------------------------------------------- Provide response to NNS technical audits. P A - --------------------------------------------------------------------------------------- Perform global applications changes. P A - --------------------------------------------------------------------------------------- DISTRIBUTED SYSTEMS - --------------------------------------------------------------------------------------- Support NNS' main Internet server and its installed software. A P - --------------------------------------------------------------------------------------- Install, customize, test and maintain UNIX and VMS operating A P systems and associated hardware platforms. - --------------------------------------------------------------------------------------- Install, customize, test and maintain NT operating systems P A and associated hardware platforms. - --------------------------------------------------------------------------------------- Legend: P = Primary Responsibility Page 10 A = Assists
Schedule 1 TTS Services
Functional Description NNS TTS - -------------------------------------------------------------------------------- Set and enforce documentation standards. P - -------------------------------------------------------------------------------- Support Unix to LAN/NT interfaces - UNIX side. A P - -------------------------------------------------------------------------------- Support UNIX to LAN/NT interfaces - LAN/NT side. P A - -------------------------------------------------------------------------------- Perform problem resolution services for UNIX and VMS operating systems software. A P - -------------------------------------------------------------------------------- Perform problem resolution services for LAN/NT operating systems software. P - -------------------------------------------------------------------------------- Perform problem resolution services for UNIX and VMS applications software. P A - -------------------------------------------------------------------------------- Perform problem resolution services for LAN/NT applications software. P A - -------------------------------------------------------------------------------- Perform mass script changes for NNS jobs on UNIX and VMS systems. P A - -------------------------------------------------------------------------------- Provide response to NNS technical audits. P A - --------------------------------------------------------------------------------
Legend: Page 11 P = Primary Responsibility A = Assists Schedule 1 TTS Services Service Delivery Reporting TTS will provide a "Morning Report" identifying the previous 24 hours processing activities for production control, including scheduled jobs not run, unscheduled jobs submitted, problems with job execution, ABENDS, reruns and reporting schedule versus actual availability for on-line systems. TTS will provide monthly reports that document systems performance as compared to the performance metric response time goals set forth below.
- --------------------------------------------------------------------------------------------------------- Users Percent of NNS System ID/Name Max/Avg Transactions Response Time Goals Category - ---------------------------------------------------------------------------------------------------------- System-D Engineering: - ---------------------------------------------------------------------------------------------------------- TSO 35 22 90% 2 Seconds - ---------------------------------------------------------------------------------------------------------- VIVID/R/ 60 38 85% 1 Second - ---------------------------------------------------------------------------------------------------------- CADAM 260 150 Avg response per attention = (less than) .2 Sec. - ---------------------------------------------------------------------------------------------------------- General Batch 90% (1st shift) 2 Hours - ---------------------------------------------------------------------------------------------------------- Production Batch 90% (1st shift) 2 Hours - ---------------------------------------------------------------------------------------------------------- Quickie Jobs (Class Q) 90% 15 Minutes - ---------------------------------------------------------------------------------------------------------- System-E Business and Manufacturing: - ---------------------------------------------------------------------------------------------------------- TSO 70 50 90% 2 Seconds - ---------------------------------------------------------------------------------------------------------- CICS 65 45 90% 1 Second - ---------------------------------------------------------------------------------------------------------- IDMS 575 410 90% 5 Seconds - ---------------------------------------------------------------------------------------------------------- General Batch 90% (1st shift) 2 Hours - ---------------------------------------------------------------------------------------------------------- Production Batch 90% (1st shift) 2 Hours - ---------------------------------------------------------------------------------------------------------- IDMS Batch 90% 1 Hour - ---------------------------------------------------------------------------------------------------------- Quickie Jobs (Class Q) 90% 15 Minutes - ---------------------------------------------------------------------------------------------------------- System-C End-User Computing: - ---------------------------------------------------------------------------------------------------------- TSO 180 150 90% 2 Seconds - ---------------------------------------------------------------------------------------------------------- General Batch 90% (1st shift) 1 Hour - ---------------------------------------------------------------------------------------------------------- Quickie Jobs (Class Q) 90% 15 Minutes - ---------------------------------------------------------------------------------------------------------- System-A Logistics and NNS Customer Access: - ---------------------------------------------------------------------------------------------------------- TSO 40 25 90% 2 Seconds - ---------------------------------------------------------------------------------------------------------- CICS 65 45 90% 1 Second - ---------------------------------------------------------------------------------------------------------- General Batch 90% (1st shift) 1 Hour - ---------------------------------------------------------------------------------------------------------- Production Batch 90% (1st shift) 2 Hours - ---------------------------------------------------------------------------------------------------------- Quickie Jobs (Class Q) 90% 15 Minutes - ----------------------------------------------------------------------------------------------------------
Legend: Page 12 P= Primary Responsibility A= Assists SCHEDULE 1 TTS SERVICES PHYSICAL SECURITY MANAGEMENT TTS will provide physical security to restrict access to computer areas. - -------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - -------------------------------------------------------------------------------- BOTH MAINFRAME AND DISTRIBUTED SYSTEMS (EXCEPT LAN/NT) - -------------------------------------------------------------------------------- Maintain computer facility access and control for Buildings 521 A P and 522. - -------------------------------------------------------------------------------- Maintain card access control system. P - -------------------------------------------------------------------------------- Maintain facility access control list of authorized personnel for P Buildings 521 and 522. - -------------------------------------------------------------------------------- Maintain facility access control list of authorized personnel for P Building 600. - -------------------------------------------------------------------------------- Comply with NNS access control requirements. P P - -------------------------------------------------------------------------------- Page 13 Legend: P = Primary Responsibility A = Assists SCHEDULE 1 TTS SERVICES STORAGE MANAGEMENT TTS is responsible for monitoring mainframe DASD usage, identifying and correcting mainframe and distributed systems hardware problems and providing tape backup. Except for archiving and restoring files, LAN/NT storage management is outside the scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement. - -------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - -------------------------------------------------------------------------------- BOTH MAINFRAME AND DISTRIBUTED SYSTEMS (EXCEPT LAN/NT) - -------------------------------------------------------------------------------- Monitor the performance of the DASD subsystems. P - -------------------------------------------------------------------------------- Assign and initialize DASD volumes. P - -------------------------------------------------------------------------------- Monitor DASD usage. P - -------------------------------------------------------------------------------- Coordinate DASD hardware maintenance. P - -------------------------------------------------------------------------------- Define NNS mainframe Budget DASD allocation percentages. P A - -------------------------------------------------------------------------------- Manage data migration. P - -------------------------------------------------------------------------------- Archive and restore files, including LAN/NT files, as requested by A P NNS. - -------------------------------------------------------------------------------- Page 14 Legend: P = Primary Responsibility A = Assists Schedule 1 TTS Services Systems Recovery Planning In the event of a disaster, TTS will restore the mainframe systems and data as they existed when the last weekly disaster backup tapes were created and stored off-site. In addition, TTS will establish the telecommunications network facility to the backup site. NNS determines the frequency of disaster recovery backups and is responsible for continuity plans for the period between the disaster event and restoration of systems. TTS will provide a recovery subscription for a mainframe hot site according to the following specifications:
SYSTEM MIPS DASD GB ------ ---- ------- NNS-A 15 194 NNS-C 41 292 NNS-E 104 609
NNS is responsible for its pro rata share of charges associated with actual use of the hot site. Such charges, when incurred, are not part of the recovery subscription fee and are not included in the fixed fee for TTS. They will be invoiced separately to NNS. Recovery subscription for NNS-D is outside the scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement. TTS will backup UNIX, VMS and LAN/NT systems located in Building 521 connected to the NNS corporate network. Recovery services, including the provision of recovery facilities for the distributed systems environment and equipment to backup these systems, are outside the scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement.
- -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Mainframe Systems - -------------------------------------------------------------------------------- Determine systems and data backup requirements and strategy. A P - -------------------------------------------------------------------------------- Determine applications and database backup requirements and P A strategy. - -------------------------------------------------------------------------------- Perform complete systems and data backup weekly. P - -------------------------------------------------------------------------------- Send disaster recovery backup tapes to an off-site vault, A P as required by NNS. - -------------------------------------------------------------------------------- Create business continuity plans. P A - -------------------------------------------------------------------------------- Prepare system recovery plans. A P - -------------------------------------------------------------------------------- Declare disaster situation. A P - -------------------------------------------------------------------------------- Provide an operational system (from the last vaulted tapes) P within 48 hours of a disaster declaration. - -------------------------------------------------------------------------------- Establish testing schedule and execute test plan. A P - -------------------------------------------------------------------------------- Provide feedback on test. P P - -------------------------------------------------------------------------------- Distributed Systems - -------------------------------------------------------------------------------- Determine systems and data backup strategy. A P - -------------------------------------------------------------------------------- Determine applications and database backup strategy. P A - --------------------------------------------------------------------------------
Legend: Page 15 P = Primary Responsibility A = Assists [TENNECO LOGO] Schedule 1 TTS Services
- -------------------------------------------------------------------------------- Perform complete systems and data backup weekly. P - -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Send disaster recovery backup tapes to an off-site vault, P as required by NNS. - -------------------------------------------------------------------------------- Create business continuity and system recovery plans. P A - --------------------------------------------------------------------------------
Legend: P = Primary Responsibility Page 16 A = Assists Schedule 1 TTS Services System Security NNS will control access to its computer resources. TTS will install and provide software maintenance on security software packages on the NNS mainframe and UNIX and VMS systems.
- -------------------------------------------------------------------------------- Functional Description NNS TTS - -------------------------------------------------------------------------------- Both Mainframe and Distributed Systems (excluding LAN/NT) - -------------------------------------------------------------------------------- Authorize system users (issuing User-ID's). P - -------------------------------------------------------------------------------- Administer file access and software access controls (read/write P A permissions). - -------------------------------------------------------------------------------- Maintain security software. P - -------------------------------------------------------------------------------- Define, create and administer security groups. P A - -------------------------------------------------------------------------------- Comply with security requirements. P A - --------------------------------------------------------------------------------
Legend: P = Primary Responsibility A = Assists Page 17 SCHEDULE 1 TTS SERVICES TELECOMMUNICATIONS TTS is responsible for the Network Control Center (NCC) functions relating to NNS business systems in Building 521. In addition, TTS will provide NNS up to 4000 consultation hours per year for various telecommunication and network design expertise. Consultation in excess of 4000 hours per year is outside the scope of the TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the Professional Services Agreement.
- -------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - -------------------------------------------------------------------------------- Participate in the Problem and Change Management Process. - -------------------------------------------------------------------------------- Provide first and second level support for A P telecommunications problem tickets. This support includes problem resolution from the NCC, prioritizing, directing, and assisting NNS field engineers, and redirecting remaining problems to appropriate resolver. - -------------------------------------------------------------------------------- Support change management processes for A P telecommunication changes. This includes creating, approving, and closing NNS change management tickets and providing a point of contact for questions and impact assessments. - -------------------------------------------------------------------------------- Installation and Maintenance of Communications Equipment - -------------------------------------------------------------------------------- Provide administration for the ISN (Information Systems A P Network) packet switchers and concentrators from Building 521 for support of equipment within the NNS campus. - -------------------------------------------------------------------------------- Install and maintain NNS modems and maintain associated A P leased lines supporting NNS interests in Hawaii, Charlottesville, Houston, Norwich, Portsmouth, Medford and warehouses in Newport News. - -------------------------------------------------------------------------------- Install and maintain all local controllers, channel A P extenders, multiplexers and repeaters supporting the SNA (System Network Architecture) environment in Buildings 521, 522 and 500. - -------------------------------------------------------------------------------- Install, and maintain communications to NNS LANs (Local P A Area Networks) within Building 521. - -------------------------------------------------------------------------------- Install and maintain terminal servers, bridges, routers, P A hubs and repeaters for NNS Banyan, Novell, DEC/VAX, Ultimate and Time & Attendance platforms within Building 521. - -------------------------------------------------------------------------------- Provide telephone voice systems and services support. P - --------------------------------------------------------------------------------
Legend: P = Primary Responsibility A = Assists Page 18 Schedule 1 TTS Services - -------------------------------------------------------------------------------- FUNCTIONAL DESCRIPTION NNS TTS - -------------------------------------------------------------------------------- Install and maintain the following NNS networking systems: - -------------------------------------------------------------------------------- Information System Network (ISN). A P - -------------------------------------------------------------------------------- AT&T STARKEEPER II Management System. A P - -------------------------------------------------------------------------------- Intellinet Network Monitoring System. A P - -------------------------------------------------------------------------------- UDS Global View Modem Pool, and A P - -------------------------------------------------------------------------------- IBM Token Ring Manager. A P - -------------------------------------------------------------------------------- Provide fault management and proactive problem determination A P and resolution utilizing the following NNS management tools: Accumaster Integrator, Systems Manager, Computer Manager, Netview, Intellinet, Globalview, Token-ring manager/trace and performance and LAN analyzer. - -------------------------------------------------------------------------------- Respond to technology related questions and design reviews and P A provide technical support for field engineers in the Computer Equipment/Services Request (CE/SR) Process. - -------------------------------------------------------------------------------- Provide operations recovery support for telecommunications A P facilities. - -------------------------------------------------------------------------------- Provide the following ad hoc support services, up to 4000 hours per year: - -------------------------------------------------------------------------------- On-call support between 4:30 PM and 7:30 AM, 7 A P days/week, including holidays, for the Network Control Center (Building 521). TTS will use reasonable efforts to provide one hour callback response utilizing proper escalation procedures. - -------------------------------------------------------------------------------- LAN, Wide Area Network (WAN) and Desktop support. P A - -------------------------------------------------------------------------------- CADAM and VIVID network design. P A - -------------------------------------------------------------------------------- Technical resource assistance for most computer P A network installations at NNS. - -------------------------------------------------------------------------------- Network management and design consulting. P A - -------------------------------------------------------------------------------- Intranet design and implementation consulting. P A - -------------------------------------------------------------------------------- WAN design and consulting. P A - -------------------------------------------------------------------------------- High-level network documentation and mapping. P A - -------------------------------------------------------------------------------- Tier 3 level support for major computer network P A problems at NNS. - -------------------------------------------------------------------------------- Legend: P = Primary Responsibility A = Assists Page 19 Schedule 1 TTS Services Exhibit A Mainframe Hardware Listing Mainframe Systems ----------------- - -------------------------------------------------------------------------------- PROCESSORS STORAGE (MB) - ------------------------ CPU ---------------------------------------- MODEL QTY MIPS CENTRAL EXPANDED TOTAL ================================================================================ 9021-720 1 117 512 512 1024 - -------------------------------------------------------------------------------- 9021-900 1 235 1024 1024 2048 - -------------------------------------------------------------------------------- - ------------------------------------------ ---------------------------- NNS DASD SUMMARY NNS TAPE SUMMARY - ------------------------------------------ ---------------------------- DISK DRIVES MODEL - ------------------------------------------ NO. QTY MODEL QTY GB ============================ ========================================== 3422-A01 3 3380-AJ4 8 20.16 ---------------------------- - ------------------------------------------ 3422-B01 6 3380-BJ4 8 20.16 ---------------------------- - ------------------------------------------ 3490-A20 7 3390-A28 15 226.50 ---------------------------- - ------------------------------------------ 3490-B40 18 3390-A38 8 181.44 ---------------------------- - ------------------------------------------ TOTAL 34 3390-B2C 30 680.40 ---------------------------- - ------------------------------------------ 3390-B3C 14 476.00 - ------------------------------------------ TOTAL 83 1,604.66 - ------------------------------------------ DISK CONTROLLERS - ------------------------------------------ 3990-002 4 -- - ------------------------------------------ 3990-G03 3 - ------------------------------------------ 3990-JO3 10 -- - ------------------------------------------ 3990-LO3 4 -- - ------------------------------------------ TOTAL 21 -- - ------------------------------------------ Page 20 Schedule I TTS Services Exhibit B Distributed Hardware Listing Distributed Systems Supported by Computer Operators --------------------------------------------------- VAX/VMS Systems: - ---------------- Alpha Beta (B.4632) Gamma Quark (B.4632) Vax-B Vax-C Vax-D Vax-E Vax-M Open VMS: DEC-A DEC-B - --------- UNIX Systems: Global A520 - ------------- B520 B521 Ultimate Manager IV IRIX Systems: SGIA SGIB - ------------- ULTRIX Systems: Ult-D - --------------- UNIX Based BANYAN Systems: - -------------------------- NNS003 NNS004 NNS005 NNS007 NNS008 NNS012 NNS013 NNS014 NNS016 NNS017 OS/2 Systems: NNS046 - ------------- NOVELL Systems: NNS009 NNS011 - --------------- NNS012 NNS021 NNS024 NNS029 NNS032 NNS033 NNS034 NNS035 NNS037 NNS040 NNS041 NNS042 NNS043 NNS048 NNS049 NNS050 WINDOWS NT Systems: - ------------------- NNS305 NNS307 EXHIBIT B Page 21 Schedule 1 TTS Services DOS Based Systems: C60LAN01 C60LAN02 C60NOV01 Inventory Mgt. NNS045 Human Resources Trades A36 Master A37 Slave NNS014 PC Any Where NNS037 PC Any Where NNS003 FOCUS Database Server Distributed Systems Supported by Technical Support
- ------------------------------------------------------------------------------- Platform Operating Model Number of Disks Department System Clients Space Supported - ------------------------------------------------------------------------------- SGIA/SGIB IRIX Challenge L 200 70 GB Engineering - ------------------------------------------------------------------------------- SGID IRIX Indy 40 4 GB NNS Internet - ------------------------------------------------------------------------------- NNSOSS IRIX Indy 2 1 GB Double Eagle - ------------------------------------------------------------------------------- SUN SUN O/S Sparc Station 14 20 GB All Plotting - ------------------------------------------------------------------------------- AIXC AIX RS 6000 64 30 GB Vivid - ------------------------------------------------------------------------------- JLTD Uitrix DEC 5500 4 30 GB C60 Development (T & A) - ------------------------------------------------------------------------------- /AXE VMS VAX 4300 3 30 GB C60 Development (RADCON) - ------------------------------------------------------------------------------- /AXB/VAXC VMS VAX 4300 11 20 GB Sheet Metal - ------------------------------------------------------------------------------- /AXD VMS VAX 3100 1 GB Automated Steel Fabrication - ------------------------------------------------------------------------------- Alpha/Beta VMS VAX 4200 2 10 GB RADCON - ------------------------------------------------------------------------------- VAXI VMS VAXStation 5 GB RADCON Imaging - ------------------------------------------------------------------------------- AXM VMS VAXStation 2 GB Facilities - ------------------------------------------------------------------------------- ECA/B VMS Alpha 34 30 GB Facilities - -------------------------------------------------------------------------------
Page 22 Schedule 1 TTS Services Exhibit C NNS Licensed Software
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNSA NNBC NNSD NNSE - ------------------------------------------------------------------------------------------------------------------------------------ BGS Systems BEST/1-DATACENTER Workload Modeling Tool X X X X - ------------------------------------------------------------------------------------------------------------------------------------ BGS Systems BEST/1-VISUALIZER Best/1-Visualizer X X X X - ------------------------------------------------------------------------------------------------------------------------------------ BGS Systems CAPTURE/DATACENTER Capture / DataCenter X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Boole And Babbage, Inc. BGT-DASD Budget Dasd (BBI Bought Emplact) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Bruning Computer Graphics GPR 5 Plotting Software X - ------------------------------------------------------------------------------------------------------------------------------------ Bruning Computer Graphics GPR 50 Plotting Software X - ------------------------------------------------------------------------------------------------------------------------------------ Bruning Computer Graphics ZMD-PLOT Zeta GDDM Services X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Cincom Systems, Inc. SUPRA V.1 Database Manager X - ------------------------------------------------------------------------------------------------------------------------------------ Computational Mechanics LINEAR Beasy Linear X - ------------------------------------------------------------------------------------------------------------------------------------ Computational Mechanics PROC Beasy Pre & Post Processor X - ------------------------------------------------------------------------------------------------------------------------------------ Computational Mechanics SUPERTAB Beasy Supertab Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Data Base Architects, Inc. OL-HELP On-Line Help X - ------------------------------------------------------------------------------------------------------------------------------------ Data Based Development Systems, Inc. DBA-RPTS IDMS DB Analyzer Reports X X - ------------------------------------------------------------------------------------------------------------------------------------ Dun & Bradstreet Software Services FIX ASSET Fixed Assets Accounting X - ------------------------------------------------------------------------------------------------------------------------------------ Dun & Bradstreet Software Services UE RPTG Use W/MSA & Non-MSA Sys X - ------------------------------------------------------------------------------------------------------------------------------------ Erisco CLAIMFACT Claimfacts X - ------------------------------------------------------------------------------------------------------------------------------------ Gatileo-Travelmaster (Formerly Covia) TRVL-MSTR Travel Master X - ------------------------------------------------------------------------------------------------------------------------------------ Generative Technology (formerly Precision Nesting) GEOMETRIC Geometric Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Generative Technology (formerly Precision Nesting MEGANEST Automatic Nesting Program X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. ABR Automatic Backup Recovery X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. COMPAKTOR DASD Volume Compactor X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. FATAR Fast Analysis Tape Recovery X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. FATS Fast Analysis Tape Surfaces X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. FDR File Dump And Restore X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. IAM Innovation Access Method X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Integral Systems, Inc. CSP/DB2 Payroll/Personnel Mgmnt X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences DATASTORE TCP/IP-80 Datastore TCP/IP Maintenance-Model 80 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences DATASTORE/VS2 VMS Datastore VS2 VMS Site License X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences NETWORK CNTRLR 3722 DECnet Network Controller Maintenance X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences NETWORK CNTRLR 3752 Network Controller Maintenance - 2/2 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences NETWORK CNTRLR 3762 FDDI Network Controller Maintenance X X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/NFS-60 SNS/NFS Maintenance - Model 60 X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services Exhibit C NNS Licensed Software --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/NFS-80 SNS/NFS Maintenance - Model 80 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/TCPACCESS-60 SNS/TCPaccess Maintenance - Model 60 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Scienes SNS/TCPACCESS-80 SNS/TCPaccess Maintenance - Model 80 X - ------------------------------------------------------------------------------------------------------------------------------------ Intersolv, Inc. (formerly Sage Software, Inc.) APS 20 Seats Of Aps X - ------------------------------------------------------------------------------------------------------------------------------------ Laderman Associates ADSO Migration Utility X - ------------------------------------------------------------------------------------------------------------------------------------ Laderman Associates ADSO/XREF ADSO XREF Utility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Laderman Associates LADERMAN UTILITIES Laderman Utilities X X - ------------------------------------------------------------------------------------------------------------------------------------ Lockeed Missiles Space Corporation BOSOR4 Structural Analysis S/W X - ------------------------------------------------------------------------------------------------------------------------------------ Lockeed Missiles Space Corporation BOSOR5 Structural Analysis S/W X - ------------------------------------------------------------------------------------------------------------------------------------ Lucas Management ARTEMIS Artemis Project Management (Formerly Lucas) X - ------------------------------------------------------------------------------------------------------------------------------------ Marcon & Associates, Inc. TOSRT TSO On-Line Sorce(Trak) (Formerly The Bridge) X - ------------------------------------------------------------------------------------------------------------------------------------ Marcon & Associates, Inc. TRAK Traking System (Formerly The Bridge) X - ------------------------------------------------------------------------------------------------------------------------------------ Marcon & Associates, Inc. TSO TSO Option(TRAK) (Formerly The Bridge) X - ------------------------------------------------------------------------------------------------------------------------------------ Martin Marietta Data Systems EXIT Martin Marietta X - ------------------------------------------------------------------------------------------------------------------------------------ Mazda Computer Corporation CHANGE ACTION Change Action X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Merrill Consultants MXG Site License X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Mobius Management Systems, Inc. JCLWTR Infopac-JCL Writer X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DAMS Direct Access Management System/OS-A X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DAS Data Center Accounting System X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DIS Data Inquiry System/OS-A X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/IDCI CA-IDMS Charging Interface X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/OLC Online Costing/OS-A X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pitney Bowes BARCODE EXPRESS Barcode Express X - ------------------------------------------------------------------------------------------------------------------------------------ Pitney Bowes CICS ON-LINE, WINDOWS CICS ON-LINE, WINDOWS X - ------------------------------------------------------------------------------------------------------------------------------------ Pitney Bowes FINALIST NNS Employee Address Database X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/ACCESS/DB2 Access DB2 Facility X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/AF Application Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/ASSIST Assist Facility X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/BASE Core Product X X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/C C Language Compiler X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/CALC Calculations Facility X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/CBT Computer Based Training Facility X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services Exhibit C NNS Licensed Software
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNSA NNBC NNSD NNSE - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/CONNECT Connect Facility X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/ETS Econometrics & Time Series Facility X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/FSP Full Screen Processing Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/GRAPH Graphics Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/OR Operations Research Facility X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/QC Quality Control Facility X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/SHARE Multi-User File Sharing Facility X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/STAT Statistics Facility X - ------------------------------------------------------------------------------------------------------------------------------------ Software Engineering Of America PDSFAST PDSfast/Driver X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Sterling Software FTS-MVS File Transfer System-MVS X - ------------------------------------------------------------------------------------------------------------------------------------ Sterling Software NETMASTER FOUNDATION File Transfer Facility X - ------------------------------------------------------------------------------------------------------------------------------------ Stone & Webster Engineering STONERULE Program #Srv-015 X - ------------------------------------------------------------------------------------------------------------------------------------ Structural Dynamics Research I-DEAS I-Deas Complete X - ------------------------------------------------------------------------------------------------------------------------------------ Tact-The A Consulting Team, Inc. TEDIT Tedit Software X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Technetron Unlimited, Inc. DB/DYNAM IDMS Dynamic File Allocate/Deallocate X X X - ------------------------------------------------------------------------------------------------------------------------------------ Tone Software Corporation TAM TSO Access Manager X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Tone Software Corporation TS-PRINT TS-Prnt License 9/96 9/96 9/96 9/96 - ------------------------------------------------------------------------------------------------------------------------------------ Trinzic Corporation ADS/DB2 Development System/HPO X - ------------------------------------------------------------------------------------------------------------------------------------ Trinzic Corporation ADS/MVS Development System/MVS X - ------------------------------------------------------------------------------------------------------------------------------------ Trinzic Corporation MVS HPO Development System/HPO X - ------------------------------------------------------------------------------------------------------------------------------------ Unitech Systems, Inc. U/ACR-S Automated Control Reporting X - ------------------------------------------------------------------------------------------------------------------------------------ Visual Numerics, Inc. IMSL LIC Class II Primary License X - ------------------------------------------------------------------------------------------------------------------------------------ Visual Numerics, Inc. MULTIPLE 2Nd Multiple Use Pd-Up X - ------------------------------------------------------------------------------------------------------------------------------------ Visual Numerics, Inc. MUTIEIAT EIAT Multiple Use Pd-Up X - ------------------------------------------------------------------------------------------------------------------------------------ Vmark Labs, Inc. (Formerly APX) XCHNGMVS XMS And VTAM Connectivity Access Control X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Vmark Labs, Inc. (Formerly APX) XPLCICS Send/Receive Interface CICS Gate X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Vmark Labs, Inc. (Formerly APX) XPLIDMS Send/Receive Interface Dynamic Transactions X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 8/21/96 TTS Services Exhibit D TTS Licensed Software
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNSA NNBC NNSD NNSE - ------------------------------------------------------------------------------------------------------------------------------------ Allen Systems Group, Inc. FAST/ACCESS DBMS Tool X X - ------------------------------------------------------------------------------------------------------------------------------------ Allen Systems Group, Inc. JCLPREP JCL Checking Facility (Was Altare Owned) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Allen Systems Group, Inc. PRE-ALERT MVS/IDMS Pre Alert (Was Shopmon) X - ------------------------------------------------------------------------------------------------------------------------------------ BMC Software, Inc. DB2 CATALOG MANAGER Mastermind Component X - ------------------------------------------------------------------------------------------------------------------------------------ BMC Software, Inc. DB2 MON DB2 Activity Monitor X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle CL/SUPER Super-XSM Gateway/XA/ESA X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEG-CICS Omegamon Pac For CICS X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEG-MVS Omegamon Pac For MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEG-VTAM Omegamon For VTAM X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEGAVIEW Omegaview X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ADS BATCH ADS Batch X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ADS/ONLINE-MVS ADS Online X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ASTEX DASD Monitor (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CA90S SERVICES MVS CA Provided-Not A Product X X X X - ----------------------------------------------------------------------------------------------------------------------------------- Computer Associates International CAS ACCTS PAYABLE Accounts Payable X - ----------------------------------------------------------------------------------------------------------------------------------- Computer Associates International CAS BILL OF MATERIAL Bill Of Material X - ----------------------------------------------------------------------------------------------------------------------------------- Computer Associates International CAS INVENTORY CONTROL Inventory Control X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS MASTR PROD SCHED Master Product Scheduling X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS MATERIAL REQ PLN Material Requirements Planning X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS PURCHASING REP Purchasing Package X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS SHOP FLOOR CNTRL Shop Floor Control X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CMA CONN CMA Connection M-D Plot (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASE/AU Ease/Author (Formerly Legent) X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASE/IN Ease/Instructor (Formerly Legent) X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASYTRIEVE PLUS Easytrieve Plus MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASYTRIEVE PLUS DL/1 Easytrieve Plus DL/1 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ELEVEN Job Rerun/Restart/Tracking X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software
- -------------------------------------------------------------------------------------------------------------------------------- Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International ENDEVOR Endvevor CI/MVS (Formerly Legent) X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International ENDEVOR/CSP Endevor/CSP X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International ENDEVOR/MVS Endevor/MVS (Formerly Legent) X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International ESSI Extended Security System (Formerly Legent) X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS DATA DICTIONARY Integrated Data Dictionary (IDD) IBM X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS DBA TOOL KIT DBA Tool Kit X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS DEVELOPER TOOL Developer Tool Kit X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS DICTIONARY LOAD Dictionary Loader X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS DISTRIBUTED DB Distributive Database X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS PERF MONITOR Performance Monitor X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS SQL EXTEND ARCH IDMS SQL Extend Architecture X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS-MVS IDMS-MVS X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS/CULPRIT-MVS IDMS/Culprit/Library Of Routines X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS/CV-MVS IDMS Central Version X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International IDMS/DC-MVS DC X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International INTERTEST/BATCH Intertest/Batch X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International INTERTEST/CICS Intertest/CICS X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International LIBRARY OF ROUTINES Library Of Routines X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MASTER LICENSE Computer Associates & Legent Agreement X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS BASE MICS Base (Formerly Legent) X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS CICS CICS (Formerly Legent) X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS DASD DASD Space Analyzer (Formerly Legent) X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS DB2 DB2 Analyzer (Formerly Legent) X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS IDMS IDMS Analyzer (Formerly Legent) X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS PERF Performance Management (Formerly Legent) X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MICS SNA SNA Network Analyzer (Formerly Legent) X X X X - -------------------------------------------------------------------------------------------------------------------------------- Computer Associates International MIM Multi-Image Integrity Tape Share X X X X (Formerly Legent) - --------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ONE Tape Management System X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ONLINE QUERY-MVS Online Query (OLQ) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International OPS/MSF Multi-System Comm Facility (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International OPS/MVS OPS/MVS JESS2 Base Product (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International OPS/OCF Outboard Console Facility (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International PHOENIX Phoenix (Foremerly Legent) X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International PROAUDIT Auditor For DB2 Software X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International PROSECURE Secure For DB2 Software X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International SEVEN Job Scheduler X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International SEVEN RPT Report Distribution X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International STORMATE MICS SMS Analyzer (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International TRANSIT Data File Translator X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International TSO/MON TSO Monitor (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International XCOM 6.2 Batch File Transfer S/W (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Hybrid Systems Limited, Inc. DBSTATS Database Statistics X X X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/CMT COBOL Master Translator X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/DB2 DB2 (Data Mgmt) Read/Write Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/EMR Extended Matrix Reporter X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/GPH Graphics Subsystem X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/DMS IDMS Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/MSO Multi-Session Option X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/PDE PC Date Export X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/TT Tabletalk/Filetalk/Modify X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/VSAM VSAM Read/Write Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/WTR Report Writer/Dialog Manager X - ------------------------------------------------------------------------------------------------------------------------------------ Insync Marketing, Inc. BATCH/MVS Insync Master License X X X X - ----------------------------------------------------------------------------------------------------------------------------------- Insync Marketing, Inc. DB2 Insync Master License X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Insync Marketing, Inc. IMS Insync Master License X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5635-001 Cadam/Base 3.2.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5635-003 Cadam/Pipe 3.2.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5648-001 IGES 3.1.0 Initial Graphics Exchange Standard X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5648-063 ACF/NCP V7 X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-007 Nelview MVS/ESA V3 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-018 CICS/ESA 4.1.1 Customer Information Control System 12/96 12/96 - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-041 ACF/SSP MVS V4 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-042 ISPF 4.1.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-068 MVS/ESA 5.1.0 NNS Enterprise Systems Architecture X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-084 RMF/ESA 5.1.0 Feature X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-257 1.16.0 Device Suport Facility For MVS/XA (ICKDSF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-HAL TCP/IP MVS 3.1.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5658-260 3.5.0 Environment Recording Edit & Print (EREP) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-307 Print Management Facility (PMF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-310 Report Management & Distribution System (RMDS) X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-311 3270-PC File Transfer Program X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-403 CICS/MVS 12/96 12/96 12/96 12/96 - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-488 System Display & Search Facility (SDSF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-948 Basic/MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-767 Pascal Compiler & Library 1.2.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-806 VS Fortran Compiler Library & Debug 2.6.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-812 2.1.2 GDDM Presentation Graphics Feature (GDDM/PGF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-854 ACF/NCP For 3725 4.3.1 Network Control Program X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-949 1.8.1 System Modification Program Extended (SMP/E) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-976 GAM/SP 1.3.1 Graphics Access Method X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5685-025 TSO/E 2.4.0 Extentions For MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5685-083 CICS/ESA 3.3.0 Customer Information Control Center X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5685-DB2 3.1.0 Database 2 MVS X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-015 Publishing Systems Bookmaster 1.4.0 X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-093 GDDM/Graphigs 2.3.0 Programming Interface X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-113 GDDM-OS2/Link 1.0 (GDDM) X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-169 GDGF 2.1.0 Graphical Display Query Facility X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-190 PPFA/370 1.1.0 Page Printer Formating Aid X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-191 OGL/370 1.1.0 Overlay Generation Language X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-197 COBOL/370 1.1.0 Ad/Cycle X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-198 Lang/370 1.3.0 Language Environment X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-206 CSP/370Rs 4.1.0 Cross Sys Product Runtime Services X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-216 C/370 Ad/Cycle Compiler 2.1.0 X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-218 CSP/370Ad 4.1.0 Cross System Product Ad X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5688-235 Ad/Cycle Pt/l Compiler 1.2.0 X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-039 RACF 2.1.0 Resource Access Control Facility X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-040 PSF 2.2.0 Print Service Facility Base Code X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-046 Book Manager/Read 1.2.0 MVS X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-100 MVS/Ditto 2.1.0 X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-117 VTAM 4.2.0 Virtual Telecommunications Access Methd X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-167 GDDM 3.1.0 Graphical Data Display Manager X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-171 Information Management 6.1.0 X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-DB2 DB2 4.1.0 X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5695-DF1 DFSMS/MVS 1.2.0 Data Facility Systems Managed Stor X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5696-234 High Level Assembler MVS, VM, VS 1.1.0 X X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5706-254 QMF/MVS 3.1.1 Query Management Facility X X X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5713-ADX Cadam Drawing Compare X - ----------------------------------------------------------------------------------------------------------------------------------- International Business Machine 5719-EMI Series/1 Input/Output Executive X X X - -----------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5734-UT1 TSO/Utilities 1.1.4 TSO Data Utilities X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5735-XXB EP 1.9.0 27OX Emulation Program On 3705/20/25 X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5740-CB1 COBOL/VS 1.2.4 Compiler and Library X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5740-SM1 DF/Sort 1.12.0 Data Facility Sort/Merge X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5748-AP1 VS/APL 1.4.0 Application Programming Language X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5748-XX9 DCF/Base 1.4.0. Doc Composition Facility (Script) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5748-XXE DLF 1.3.0 Document Library Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5752-VS2 ICKD5F MVS/370 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5756-265 ANO 1.2.0 Automatic Network Operations/MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ABA Fonts 1.1.2 Sonoran Serif Fonts X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ABB Fonts 1.1.2 Sonoran Sans Serif X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ABC Fonts 1.1.1 PL & Specials X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ADA Fonts 1.1.2. Data 1 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ADT Fonts 1.1.0 Math & Science X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5796-PPN Dataset Fsm 1.2.0 Dataset and Free Space Manager X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-DQD Cache/Reporter 1.1.4 Cache RMF Reporter X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-DWR 3 Of 9 Barcode For 3800/20-III Apa Mode 1.1.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-PXJ DSL Dynamic Symulation Language X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-RYA CDEP 2.1.0 Classified Data Erasure Program X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5799-AXX GASP 1.3.9 3277 Graphics Attachment Support X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5799-EPB NCIMM 1.1 Network Carrier Interconnect Mgt Agent X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5799-EPD NCIMA 1.1 Network Carrier Interconnect Mgt Manager X - ------------------------------------------------------------------------------------------------------------------------------------ Macro 4, Inc. MACRO4 DUMPMASTER Dumpmaster/MVS Batch/CICS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Programart STROBE Perf Measurement Includes COBOL, IDMS, CICS, DB2 X X X - ------------------------------------------------------------------------------------------------------------------------------------ Softworks, Inc. CATALOG SOLUTION Backup, Recovery & Integrity of File Sys Catalogs X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Teubner & Associates, Inc. A-NET A-Net Software/OS-A X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services DOS Based Systems: - ------------------ C60LAN01 C60LAN02 C60NOV01 Inventory Mgt. NNS045 Human Resources Trades A36 Master A37 Slave NNS014 PC Any Where NNS037 PC Any Where NNS003 FOCUS Database Server
DISTRIBUTED SYSTEMS SUPPORTED BY TECHNICAL SUPPORT -------------------------------------------------- - ----------------------------------------------------------------------------------------------- PLATFORM OPERATING MODEL NUMBER OF DISKS DEPARTMENT SYSTEM CLIENTS SPACE SUPPORTED - ------------------------------------------------------------------------------------------------ SGIA/SGIB IRIX Challenge L 200 70 GB Engineering - ------------------------------------------------------------------------------------------------ SGID IRIX Indy 40 4 GB NNS Internet - ------------------------------------------------------------------------------------------------ NNSOSS IRIX Indy 2 1 GB Double Eagle - ------------------------------------------------------------------------------------------------ SUN SUN O/S Sparc Station 14 20 GB All Plotting - ------------------------------------------------------------------------------------------------ AIXC AIX RS 6000 64 30 GB Vivid - ------------------------------------------------------------------------------------------------ ULTD Ultrix DEC 5500 4 30 GB C60 Development (T & A) - ------------------------------------------------------------------------------------------------ VAXE VMS VAX 4300 3 30 GB C60 Development RADCON - ------------------------------------------------------------------------------------------------ VAXB/VAXC VMS VAX 4300 11 20 GB Sheet Metal - ------------------------------------------------------------------------------------------------ VAXD VMS VAX 3100 1 GB Automated Steel Fabrication - ------------------------------------------------------------------------------------------------ Alpha/Beta VMS VAX 4200 2 10 GB RADCON - ------------------------------------------------------------------------------------------------ VAXI VMS VAXStation 5 GB RADCON Imaging - ------------------------------------------------------------------------------------------------ VAXM VMS VAXStation 2 GB Facilities - ------------------------------------------------------------------------------------------------ DECA/B VMS Alpha 34 30 GB Facilities - ------------------------------------------------------------------------------------------------
Page 22
Schedule 1 TTS Services Exhibit C NNS Licensed Software --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ BGS Systems BEST/1-DATACENTER Workload Modeling Tool X X X X - ------------------------------------------------------------------------------------------------------------------------------------ BGS Systems BEST/1-VISUALIZER Best/1-Visualizer X X X X - ------------------------------------------------------------------------------------------------------------------------------------ BGS Systems CAPTURE/DATACENTER Capture/Datacenter X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Boole And Babbage, Inc. BGT-DASD Budget Dasd (BB1 Bought Empact) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Bruning Computer Graphics GPR 5 Plotting Software X - ------------------------------------------------------------------------------------------------------------------------------------ Bruning Computer Graphics GPR 50 Plotting Software X - ------------------------------------------------------------------------------------------------------------------------------------ Bruning Computer Graphics ZMD-PLOT Zeta GDDM Services X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Cincom Systems, Inc. SUPRA V.1 Database Manager X - ------------------------------------------------------------------------------------------------------------------------------------ Computational Mechanics LINEAR Beasy Linear X - ------------------------------------------------------------------------------------------------------------------------------------ Computational Mechanics PROC Beasy Pre & Post Processor X - ------------------------------------------------------------------------------------------------------------------------------------ Computational Mechanics SUPERTAB Beasy Supertab Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Data Base Architects, Inc. OL-HELP On-Line Help X - ------------------------------------------------------------------------------------------------------------------------------------ Data Based Development Systems, Inc. DBA-RPTS IDMS DB Analyzer Reports X X - ------------------------------------------------------------------------------------------------------------------------------------ Dun & Bradstreet Software Services FIX ASSET Fixed Assets Accounting X - ------------------------------------------------------------------------------------------------------------------------------------ Dun & Bradstreet Software Services UE RPTG Use W/MSA & Non-MSA Sys X - ------------------------------------------------------------------------------------------------------------------------------------ Erisco CLAIMFACT Claimfacts X - ------------------------------------------------------------------------------------------------------------------------------------ Galileo-Travelmaster (Formerly Covia) TRVL-MSTR Travel Master X - ------------------------------------------------------------------------------------------------------------------------------------ Generative Technology (formerly Precision Nesting) GEOMETRIC Geometric Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Generative Technology (formerly Precision Nesting) MEGANEST Automatic Nesting Program X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. ABR Automatic Backup Recovery X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. COMPAKTOR DASD Volume Compactor X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. FATAR Fast Analysis Tape Recovery X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. FATS Fast Analysis Tape Surfaces X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. FDR File Dump and Restore X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Innovation Data Processing, Inc. IAM Innovation Access Method X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Integral Systems, Inc. CSP/DB2 Payroll/Personnel Mgmnt X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences DATASTORE TCP/IP-80 Datastore TCP/IP Maintenance - Model 80 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences DATASTORE/VS2 VMS Datastore VS2 VMS Site License X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences NETWORK CNTRLR 3722 DECnet Network Controller Maintenance X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences NETWORK CNTRLR 3752 Network Controller Maintenance - 2/2 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences NETWORK CNTRLR 3762 FDDI Network Controller X X Maintenance - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/NFS-60 SNS/NFS Maintenance - Model 60 X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services Exhibit C NNS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNB-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/NFS-80 SNS/NFS Maintenance - Model 80 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/TCPACCESS-60 SNS/TCPaccess Maintenance - Model 60 X - ------------------------------------------------------------------------------------------------------------------------------------ Interlink Computer Sciences SNS/TCPACCESS-80 SNS/TCPaccess Maintenance - Model 80 X - ------------------------------------------------------------------------------------------------------------------------------------ Intersolv, Inc. (formerly Sage Software, Inc.) APS 20 Seats Of Aps X - ------------------------------------------------------------------------------------------------------------------------------------ Laderman Associates ADSO Migration Utility X - ------------------------------------------------------------------------------------------------------------------------------------ Laderman Associates ADSO/XREF ADSO XREF Utility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Laderman Associates LADERMAN UTILITIES Laderman Utilities X X - ------------------------------------------------------------------------------------------------------------------------------------ Lockheed Missiles Space Corporation BOSOR4 Structural Analysis S/W X - ------------------------------------------------------------------------------------------------------------------------------------ Lockheed Missiles Space Corporation BOSOR5 Structural Analysis S/W X - ------------------------------------------------------------------------------------------------------------------------------------ Lucas Management ARTEMIS Artemis Project Management (Formerly Lucas) X - ------------------------------------------------------------------------------------------------------------------------------------ Marcon & Associates, Inc. TOSRT TSO On-Line Sorce (Trak) (Formerly The Bridge) X - ------------------------------------------------------------------------------------------------------------------------------------ Marcon & Associates, Inc. TRAK Traking System (Formerly The Bridge) X - ------------------------------------------------------------------------------------------------------------------------------------ Marcon & Associates, Inc. TSO TSO Option (TRAK) (Formerly The Bridge) X - ------------------------------------------------------------------------------------------------------------------------------------ Martin Marietta Data Systems EXIT Martin Marietta X - ------------------------------------------------------------------------------------------------------------------------------------ Mazda Computer Corporation CHANGE ACTION Change Action X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Merrill Consultants MXG Site License X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Mobius Management Systems, Inc. JCLWTR Infopac-JCL Writer X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DAMS Direct Access Management System/OS-A X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DAS Data Center Accounting System X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DIS Data Inquiry System/OS-A X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/DCI CA-IDMS Changing Interface X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pace Applied Technology, Inc. KOM/OLC Online Costing/OS-A X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Pitney Bowes BARCODE EXPRESS Barcode Express X - ------------------------------------------------------------------------------------------------------------------------------------ Pitney Bowes CICS ON-LINE, WINDOWS CICS ON-LINE, WINDOWS X - ------------------------------------------------------------------------------------------------------------------------------------ Pitney Bowes FINALIST NNS Employee Address Database X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/ACCESS/DB2 Access DB2 Facility X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/AF Application Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/ASSIST Assist Facility X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/BASE Core Product X X X X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/C C Language Complier X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/CALC Calculations Facility X - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/CBT Computer Based Training Facility X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services Exhibit C NNS Licensed Software --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/CONNECT Connect Facility x x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/ETS Econometrics & Time Series Facility x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/FSP Full Screen Processing Facility x x x x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/GRAPH Graphics Facility x x x x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/OR Operations Research Facility x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/QC Quality Control Facility x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/SHARE Multi-User File Sharing Facility x x - ------------------------------------------------------------------------------------------------------------------------------------ SAS Institute SAS/STAT Statistics Facility x - ------------------------------------------------------------------------------------------------------------------------------------ Software Engineering Of America PDSFAST PDS fast/Driver x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Sterling Software FTS-MVS File Transfer System-MVS x - ------------------------------------------------------------------------------------------------------------------------------------ Sterling Software NETMASTER FOUNDATION File Transfer Facility x - ------------------------------------------------------------------------------------------------------------------------------------ Stone & Webster Engineering STONERULE Program #Srv-015 x - ------------------------------------------------------------------------------------------------------------------------------------ Structural Dynamics Research I-DEAS I-Deas Complete x - ------------------------------------------------------------------------------------------------------------------------------------ Tact - The A Consulting Team, Inc TEDIT Tedit Software x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Technetron Unlimited, Inc. DB/DYNAM IDMS Dynamic File Allocate/Deallocate x x x - ------------------------------------------------------------------------------------------------------------------------------------ Tone Software Corporation TAM TSO Access Manager x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Tone Software Corporation TS-PRINT TS-Pmt License 9/96 9/96 9/96 9/96 - ------------------------------------------------------------------------------------------------------------------------------------ Trinzic Corporation ADS/DB2 Development System/HPO x - ------------------------------------------------------------------------------------------------------------------------------------ Trinzic Corporation ADS/MVS Development System/MVS x - ------------------------------------------------------------------------------------------------------------------------------------ Trinzic Corporation MVS/HPO Development System/HPO x - ------------------------------------------------------------------------------------------------------------------------------------ Unitech Systems, Inc. U/ACR-S Automated Control Reporting x - ------------------------------------------------------------------------------------------------------------------------------------ Visual Numerics, Inc. IMSL LIC Class II Primary License x - ------------------------------------------------------------------------------------------------------------------------------------ Visual Numerics, Inc. MULTIPLE 2Nd Multiple Use Pd-Up x - ------------------------------------------------------------------------------------------------------------------------------------ Visual Numerics, Inc. MUTI EIAT EIAT Multiple Use Pd-Up x - ------------------------------------------------------------------------------------------------------------------------------------ Vmark Lab, Inc. (Formerly APX) XCHNGMVS XMS And VTAM Connectivity Access Control x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Vmark Labs, Inc. (Formerly APX) XPLCICS Send/Receive Interface CICS Gate x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Vmark Labs, Inc. (Formerly APX) XPLIDMS Send/Receive Interface Dynamic Transactions x x x x - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Allen Systems Group, Inc. FAST/ACCESS DBMS Tool X X - ------------------------------------------------------------------------------------------------------------------------------------ Allen Systems Group, Inc. JCLPREP JCL Checking Facility (Was Altare Owned) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Allen Systems Group, Inc. PRE-ALERT MVS/IDMS Pre Alert (Was Shopmon) X - ------------------------------------------------------------------------------------------------------------------------------------ BMC Software, Inc. DB2 CATALOG MANAGER Mastermind Component X - ------------------------------------------------------------------------------------------------------------------------------------ BMC Software, Inc. DB2 MON DB2 Activity Monitor X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle CL/SUPER Super-XSM Gateway/XA/ESA X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEG-CICS Omegamon Pac For CICS X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEG-MVS Omegamon Pac For MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEG-VTAM Omegamon For VTAM X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Candle OMEGAVIEW Omegaview X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ADS BATCH ADS Batch X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ADS/ONLINE-MVS ADS Online X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ASTEX DASD Monitor (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CA90S SERVICES MVS CA Provided - Not A Product X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS ACCTS PAYABLE Accounts Payable X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS BILL OF MATERIAL Bill of Material X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS INVENTORY CONTRL Inventory Control X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS MASTR PROD SCHED Master Product Scheduling X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS MATERIAL REQ PLN Material Requirements Planning X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS PURCHASING REP Purchasing Package X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CAS SHOP FLOOR CNTRL Shop Floor Control X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International CMA CONN CMA Connection M-D Plot (Formely Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASE/AU Ease/Author (Formerly Legent) X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASE/IN Ease/Instructor (Formerly Legent) X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASYTRIEVE PLUS Easytrieve Plus MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International EASYTRIEVE PLUS DL/1 Easytrieve Plus DL/1 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ELEVEN Job Rerun/Restart/Tracking X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services Exhibit D 8/21/96 TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ONE Tape Management System X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ONLINE QUERY-MVS Online Query (OLQ) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International OPW/MSF Multi-System Comm Facility (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International OPS/MVS OPS/MVS JESS 2 Base Product (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International OPS/OCF Outboard Console Facility (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International PHOENIX Phoenix (Formerly Legent) X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International PROAUDIT Auditor For DB2 Software X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International PROSECURE Secure For DB2 Software X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International SEVEN Job Scheduler X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International SEVEN RPT Report Distribution X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International STORMATE MICS SMS Analyzer (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International TRANSIT Data File Translator X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International TSO/MON TSO Monitor (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International XCOM 6.2 Batch File Transfer S/W (Formerly Legent) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Hybrid Systems Limited, Inc. DBSTATS Database Statistics X X X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/CMT COBOL Master Translator X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/DB2 DB2 (Data Mgmt) Read/Write Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/EMR Extended Matrix Reporter X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/GPH Graphics Subsystem X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/DMS IDMS Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/MSO Multi-Session Option X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/PDE PC Data Export X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/TT Tabletalk/Filetalk/Modify X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/VSAM VSAM Read/Write Interface X - ------------------------------------------------------------------------------------------------------------------------------------ Information Builders, Inc. FOCUS/WTR Report Writer/Dialog Manager X - ------------------------------------------------------------------------------------------------------------------------------------ Insync Marketing, Inc. BATCH MVS Insync Master License X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Insync Marketing, Inc DB2 Insync Master License X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 TTS Services 8/21/96 Exhibit D TTS Licensed Software ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Insync Marketing, Inc. IMS Insync Master License X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5635-001 Cadam/Base 3.2.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5635-003 Cadam/Pipe 3.2.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5648-001 IGES 3.1.0 Initial Graphics Exchange Standard X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5648-063 ACF/NCP V7 X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-007 Netview MVS/ESA V3 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-018 CICS/ESA 4.1.1 Customer Information Control System 12/96 12/96 - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-041 ACF/SSP MVS V4 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-042 ISPF 4.1.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-068 MVS/ESA/ 5.1.0 MVS Enterprise Systems Architecture X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-084 RMF/ESA 5.1.0 Feature X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-257 1.16.0 Device Support Facility for MVS/XA (ICKDSF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5655-HAL TCP/IP MVS 3.1.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5658-260 3.5.0 Environmental Recording Edit & Print(EREP) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-307 Print Management Facility (PMF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-310 Report Management & Distribution System (RMDS) X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-311 3270-PC File Transfer Program X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-403 CICS/MVS 12/96 12/96 12/96 12/96 - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-488 System Display & Search Facility (SDSF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5665-948 Basic/MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-767 Pascal Complier & Library 1.2.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-806 VS Fortran Compiler Library & Debug 2.6.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-812 21.2 GDDM Presentation Graphics Feature (GDDM/PGF) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-854 ACF/NCP For 3725 4.3.1 Network Control Program X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-949 1.8.1 System Modification Program Extended (SMP/E) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5668-978 GAM/SP 1.3.1 Graphics Access Method X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5685-025 TSO/E 2.4.0 Extentions For MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 8/21/96 TTS Services Exhibit D TTS Licensed Software --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5685-083 CICS/ESA 3.3.0 Customer Information Control System X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5685-DB2 3.1.0 Database 2 MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-015 Publishing Systems Bookmaster 1.4.0 X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-093 GDDM/Graphics 2.3.0 Programming Interface X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-113 GDDM-OS2/Link 1.0 (GDDM) X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-169 GDGF 2.1.0 Graphical Display Query Facility X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-190 PPFA/370 1.1.0 Page Printer Formating Aid X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-191 OGL/370 1.1.0 Overlay Generation Language X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-197 COBOL/370 1.1.0 Ad/Cycle X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-198 Lang/370 1.3.0 Language Environment X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-208 CSP/370Rs 4.1.0 Cross Sys Product Runtime Services X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-216 C/370 Ad/Cycle Compiler 2.1.0 X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-218 CSP/370Ad 4.1.0 Cross System Product Ad X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5688-235 Ad/Cycle Pt/t Compiler 1.2.0 X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-039 RACF 2.1.0 Resource Access Control Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-040 PSF 2.2.0 Print Service Facility Base Code X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-046 Book Manager/Read 1.2.0 MVS X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-100 MVS/Ditto 2.1.0 X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-117 VTAM 4.2.0 Virtual Telecommunications Access Methd X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-167 GDDM 3.1.0 Graphical Data Display Manager X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-171 Information Management 5.1.0 X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-DB2 DB2 4.1.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5695-DF1 DFSMS/MVS 1.2.0 Data Facility Systems Managed Stor X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5696-234 High Level Assembler MVS, VM, VS 1.1.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5706-254 QMF/MVS 3.1.1 Query Management Facility X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5713-ADX Cedam Drawing Compare X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5719-EMI Series/1 Input/Output Executive X X X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1 8/21/96 TTS Services Exhibit D TTS Licensed Software --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5734-UT1 TSO/Utilities 1.1.4 TSO Data Utilities X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5735-XXB EP 1.9.0 270X Emulation Program On 3705/20/25 X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5740-CB1 COBOL/VS 1.2.4 Compiler And Library X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5740-SM1 DF/Sort 1.12.0 Data Facility Sort/Merge X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5748-AP1 VS/APL 1.4.0 Application Programming Language X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5748-XX9 DCF/Base 1.4.0 Doc Composition Facility (Script) X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5748-XXE DLF 1.3.0 Document Library Facility X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5752-VS2 ICKD5F MVS/370 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5756-265 ANO 1.2.0 Automatic Network Operations/MVS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ABA Fonts 1.1.2 Sonoran Serif Fonts X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ABB Fonts 1.1.2 Sonoran Sans Serif X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ABC Fonts 1.1.1 Pl & Specials X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ADA Fonts 1.1.2 Data 1 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5771-ADT Fonts 1.1.0 Math & Science X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5796-PPN Dataset Fsm 1.2.0 Dataset And Free Space Manager X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-DQD Cache/Reporter 1.1.4 Cache RMF Reporter X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-DWR 3 Of 9 Barcode For 3800/20-iii Apa Mode 1.1.0 X X X X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-PXJ DSL Dynamic Symulation Language X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5798-RYA CDEP 2.1.0 Classified Data Erasure Program X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5799-AXX GASP 1.3.9 3277 Graphics Attachment Support X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5799-EPB NCIMM 1.1 Network Carrier Interconnect Mgt Agent X - ------------------------------------------------------------------------------------------------------------------------------------ International Business Machine 5799-EPD NCIMA 1.1 Network Carrier Interconnect Mgt Manager X - ------------------------------------------------------------------------------------------------------------------------------------ Macro 4, Inc. MACRO4 DUMPMASTER Dumpmaster/MVS Batch/CICS X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Programart STROBE Perf Measurment includes COBOL, IDMS, CICS, DB2 X X X - ------------------------------------------------------------------------------------------------------------------------------------ Softworks, Inc. CATALOG SOLUTION Backup, Recovery & Integrity Of File Sys Catalogs X X X X - ------------------------------------------------------------------------------------------------------------------------------------ Teubner & Associates, Inc. A-NET A-Net Software / OS-A X - ------------------------------------------------------------------------------------------------------------------------------------
Schedule I TTS Services 8/21/96 Exhibit D TTS Licensed Software --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ENDEVOR Endevor CI/MVS (Formerly Legent) x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ENDEVOR/CSP Endevor/CSP x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ENDEVOR/MVS Endevor/MVS (Formerly Legent) x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International ESSI Extended Security System (Formerly Legent) x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS DATA DICTIONARY Intergrated Data Dictionary (IDD) IBM x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS DBA TOOL KIT DBA Tool Kit x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS DEVELOPER TOOL Developer Tool Kit x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS DICTIONARY LOAD Dictionary Loader x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS DISTRIBUTED DB Distributive Database x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS PERF MONITOR Performance Monitor x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS SQL ENTEND ARCH IDMS SQL Extend Architecture x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS-MVS IDMS-MVS x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS/CULPRIT-MVS IDMS/Culprit/Library Of Routines x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS/CV-MVS IDMS Central Version x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International IDMS/DC-MVS DC x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International INTERTEST/BATCH Intertest/Batch x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International INTERTEST/CICS Intertest/CICS x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International LIBRARY OF ROUTINES Library Of Routines x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MASTER LICENSE Computer Associates & Legent Agreement x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS BASE MICS Base (Formerly Legent) x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS CICS CICS (Formerly Legent) x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS DASD DASD Space Analyzer (Formerly Legent) x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS DB2 DB2 Analyzer (Formerly Legent) x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS IDMS IDMS Analyzer (Formerly Legent) x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS PERF Performance Management (Formerly Legent) x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MICS SNA SNA Network Analyzer (Formerly Legent) x x x x - ------------------------------------------------------------------------------------------------------------------------------------ Computer Associates International MIM Multi-Image Integrity Tape Share x x x x (Formerly Legent) - -----------------------------------------------------------------------------------------------------------------------------------
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