-----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, KCwHMZ2/0R8+bM0Y6Jq8FUy8iQr+tkfqrvyJA5RrOftS6q15kk2pfeSQ07rfki1E weA+418/FNz8ekV62Ic6PQ== 0000950131-97-001730.txt : 19970313 0000950131-97-001730.hdr.sgml : 19970313 ACCESSION NUMBER: 0000950131-97-001730 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970312 SROS: CSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNECO INC /DE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12387 FILM NUMBER: 97555203 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 FORMER COMPANY: FORMER CONFORMED NAME: NEW TENNECO INC DATE OF NAME CHANGE: 19961011 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (mark one) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-12387 TENNECO INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0515284 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 06831 1275 KING STREET, GREENWICH, CT (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 863-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- 6.70% Notes due 2005; 7.45% Debentures due 2025; 8.075% Notes due 2002; 8.20% Notes due 1999; 9.20% Debentures due 2012; 10.075% Notes due 2001; 10.20% Debentures due 2008................ New York Stock Exchange Common Stock, par value $.01 per share.......... New York, Chicago, Pacific and London Stock Exchanges
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.
CLASS OF VOTING STOCK AND NUMBER MARKET VALUE OF SHARES HELD HELD BY NON-AFFILIATES AT BY NON- JANUARY 31, 1997 AFFILIATES -------------------------------- --------------- Common Stock, 171,235,101 shares $6,849,404,040*
- -------- * Based upon the closing sale price on the Composite Tape for the Common Stock on January 31, 1997. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, par value $.01 per share, 171,717,373 shares outstanding as of January 31, 1997. DOCUMENTS INCORPORATED BY REFERENCE:
PART OF THE FORM 10-K DOCUMENT INTO WHICH INCORPORATED -------- ----------------------- Tenneco Inc.'s Definitive Proxy Statement for the Part III Annual Meeting of Stockholders to be Held May 13, 1997
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, the prospects and developments of the Company (as defined) 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 "anticipates," "anticipated," "intend," "intends," "intended," "goal," "estimate," "estimates," "estimated," "expects," "expect," "expected," "project," "projects," "projections," "plans," "should," "designed to," "foreseeable future," "believe," "believes," and "scheduled" and similar terms and phrases. 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. 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 the following: Changes in Consumer Demand and Prices. Demand for Tenneco Automotive original equipment products is subject to the level of consumer demand for new vehicles which are equipped with Tenneco Automotive parts. The level of new car purchases is cyclical, affected by such factors as interest rates, consumer confidence, patterns of consumer spending and the automobile replacement cycle. Demand for Tenneco Automotive aftermarket products varies based upon such factors as the level of new vehicle purchases, which initially displaces demand for aftermarket products, the severity of winter weather, which increases the demand for aftermarket products, and other factors including the average useful life of parts and number of miles driven. Demand for certain Tenneco Packaging products is also cyclical. For example, demand for protective packaging is driven by trends in the building, construction, automotive and durable goods markets. Demand for packaging products is also subject to changes in consumer preferences. Demand and pricing of Tenneco Automotive and Tenneco Packaging products is subject to economic conditions and other factors present in the various domestic and international markets where the products are sold. For example, lower containerboard prices in Tenneco Packaging's markets had an adverse influence on its results of operations in 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Years 1996 and 1995--Tenneco Packaging." Changes in Prices of Raw Materials. Significant increases in the cost of certain raw materials used in the Company's products, to the extent not timely reflected in the Company's prices or mitigated through long term supply contracts, could adversely impact the Company's results. For example, the cost of plastic resin and paper materials in Tenneco Packaging products can be volatile. Possible Labor Interruptions. Substantially all of the hourly employees of North American original equipment manufacturers are represented by the United Automobile, Aerospace and Agricultural Implement Workers of America (the "UAW") under similar collective bargaining agreements. Original equipment manufacturers in other countries are also subject to labor agreements. A work stoppage or strike at the production facilities of a significant customer, at the Company's facilities, or at a supplier of a customer or the Company could have an adverse impact on the Company. Risks Associated with International Operations. Both Tenneco Packaging and Tenneco Automotive operate facilities and sell products in countries throughout the world. As a result, the Company is subject to risks associated with operating in foreign countries, including devaluations and fluctuations in currency i exchange rates, imposition of limitations on conversion of foreign currencies into U.S. dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in certain foreign countries, and imposition or increase of investment and other restrictions by foreign governments. Other Factors. In addition to the factors described above, the Company may be adversely impacted by a number of other matters and uncertainties, including: (i) potential legislation or regulatory changes; (ii) material substitution; (iii) new technologies; (iv) changes in distribution channels or competitive conditions in the markets and countries where the Company operates; (v) changes in capital availability or costs, such as changes in interest rates, market perceptions of the industries in which the Company operates or ratings of securities; (vi) increases in the cost of compliance with regulations, including environmental regulations, and environmental liabilities in excess of the amount reserved; and (vii) changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies. ii TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.............................................................................. 1 Tenneco Inc.......................................................................... 1 Contributions of Major Businesses.................................................... 1 Tenneco Automotive................................................................... 2 Tenneco Packaging.................................................................... 9 Tenneco Business Services............................................................ 15 Environmental Matters................................................................ 16 Certain Reorganization Agreements.................................................... 16 Item 2. Properties............................................................................ 17 Item 3. Legal Proceedings..................................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders................................... 19 Item 4.1. Executive Officers of the Registrant.................................................. 20 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 21 Item 6. Selected Financial Data............................................................... 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 25 Item 8. Financial Statements and Supplementary Data........................................... 37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 73 PART III Item 10. Directors and Executive Officers of the Registrant.................................... 73 Item 11. Executive Compensation................................................................ 73 Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 73 Item 13. Certain Relationships and Related Transactions........................................ 73 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 73
iii PART I ITEM 1. BUSINESS. TENNECO INC. Tenneco Inc., a Delaware corporation, is a global manufacturing company with operations in automotive parts ("Tenneco Automotive") and packaging ("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 Packaging is among the world's leading and most diversified packaging companies, manufacturing packaging products for consumer, institutional and industrial markets. As used herein, the term "Tenneco" or the "Company" refers to Tenneco Inc. and its consolidated subsidiaries. The Company was incorporated August 26, 1996 under the name "New Tenneco Inc." as a wholly owned subsidiary of the company then known as Tenneco Inc. ("Old Tenneco"). The Company was formed to facilitate Old Tenneco's corporate transformation from a highly diversified industrial corporation to a global manufacturing company focused on its automotive and packaging businesses. As part of this transformation, Old Tenneco undertook a series of transactions during the latter portion of 1996 whereby the businesses and assets of Old Tenneco were restructured so that the assets, liabilities and operations of Tenneco Automotive, Tenneco Packaging and Old Tenneco's administrative services businesses were owned and operated by the Company and the assets, liabilities and operations of Old Tenneco's shipbuilding business were owned and operated by Newport News Shipbuilding Inc., another wholly owned subsidiary of Old Tenneco ("Newport News"). Following this internal restructuring, on December 11, 1996 Old Tenneco spun-off the Company and Newport News by distributing all of the common stock of each company to Old Tenneco's common stockholders (the "Distributions"). Following the Distributions, on December 12, 1996 a subsidiary of El Paso Natural Gas Company ("El Paso") was merged (the "Merger") into Old Tenneco (which then consisted solely of Old Tenneco's remaining active businesses and certain discontinued operations), with Old Tenneco surviving the Merger as a subsidiary of El Paso, and with the Company succeeding to the name "Tenneco Inc." Unless the context otherwise requires, references to "Tenneco" and the "Company" for periods prior to the Distributions are to Old Tenneco. The separation of the Company from the remainder of the businesses, operations and companies then constituting Old Tenneco was structured as a spin-off of the Company for legal, tax and other reasons. However, the Company succeeded to certain important aspects of the Old Tenneco business, organization and affairs, namely: (i) the Company succeeded to the name "Tenneco Inc.;" (ii) the business conducted by the Company principally consists of Tenneco Automotive and Tenneco Packaging, which combined represented over half of the assets, revenues, and operating income of the businesses, operations, and companies previously constituting Old Tenneco; (iii) the Company's Board of Directors consists of those individuals comprising the Old Tenneco Board of Directors immediately prior to the Distribution; (iv) the Company's executive management consists substantially of those individuals comprising Old Tenneco's executive management; and (v) the Company retained as its headquarters the former headquarters of Old Tenneco in Greenwich, Connecticut. CONTRIBUTIONS OF MAJOR BUSINESSES Information concerning Tenneco's principal industry segments and geographic areas is set forth in Note 13 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries. The following tables summarize for each of the major business groups of Tenneco for the periods indicated: (i) net sales and operating revenues from continuing operations; (ii) income from continuing operations before interest expense, income taxes and minority interest; and (iii) capital expenditures for continuing operations. 1 NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS:
1996 1995 1994 ----------- ----------- ----------- (DOLLAR AMOUNTS IN MILLIONS) Automotive............................... $2,980 45% $2,479 47% $1,989 48% Packaging................................ 3,602 55 2,752 53 2,184 52 Intergroup sales and other............... (10) -- (10) -- (7) -- ------ --- ------ --- ------ --- Total.................................. $6,572 100% $5,221 100% $4,166 100% ====== === ====== === ====== ===
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST:
1996 1995 1994 ---- ---- ---- (MILLIONS) Automotive...................................................... $249 $240 $223 Packaging....................................................... 401 430 209 Other........................................................... (22) 2 24 ---- ---- ---- Total......................................................... $628 $672 $456 ==== ==== ====
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS:
1996 1995 1994 -------- -------- -------- (DOLLAR AMOUNTS IN MILLIONS) Automotive........................................ $177 31% $208 37% $113 40% Packaging......................................... 341 60 316 56 166 59 Other............................................. 55 9 38 7 1 1 ---- --- ---- --- ---- --- Total........................................... $573 100% $562 100% $280 100% ==== === ==== === ==== ===
The total amount of interest expense, income taxes and minority interest from continuing operations that was not allocated to the major business groups of Tenneco during the relevant periods is as follows:
1995 1996 1994 ---- ---- ---- (MILLIONS) Interest expense (net of interest capitalized).................. $195 $160 $104 Income tax expense.............................................. 194 231 114 Minority interest............................................... 21 23 --
TENNECO AUTOMOTIVE Tenneco Automotive is one of the world's largest manufacturers and marketers of automotive exhaust and ride control systems for the original equipment ("OE") 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. Tenneco Automotive is headquartered in Deerfield, Illinois. OVERVIEW OF AUTOMOTIVE PARTS INDUSTRY The global market for automotive parts was estimated at approximately $435.3 billion in 1995, the most recent year for which industry data is available. This market was comprised of approximately $352 billion in OE sales and approximately $83.3 billion in aftermarket sales. With the North American and Western European 2 automotive markets becoming relatively mature, OE manufacturers 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 as original equipment in large quantities directly to the vehicle manufacturers; and (ii) aftermarket sales, in which replacement parts are sold as replacement parts in varying quantities to a wide range of wholesalers, retailers and repair shops. 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. Demand for aftermarket products varies based upon such factors as the level of new automobile purchases, which initially displaces demand for aftermarket products, the severity of winter weather, which increases the demand for aftermarket products, and other factors including the average useful life of parts and number of miles driven. 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. ANALYSIS OF TENNECO AUTOMOTIVE'S REVENUES The following table sets forth for each of the years 1994 through 1996 certain information relating to the net sales of Tenneco Automotive, the two primary businesses of Tenneco Automotive and the aftermarket and OE market within each primary business:
NET SALES (MILLIONS) ---------------------- YEAR ENDED DECEMBER 31, ---------------------- 1996 1995 1994 ------ ------ ------ EXHAUST SYSTEMS BUSINESS Aftermarket........................................... $ 710 $ 637 $ 609 OE Market............................................. 989 829 465 ------ ------ ------ 1,699 1,466 1,074 ------ ------ ------ RIDE CONTROL BUSINESS Aftermarket........................................... 768 687 644 OE Market............................................. 513 326 271 ------ ------ ------ 1,281 1,013 915 ------ ------ ------ Total Tenneco Automotive............................ $2,980 $2,479 $1,989 ====== ====== ====== PERCENTAGE OF NET SALES ---------------------- YEAR ENDED DECEMBER 31, ---------------------- 1996 1995 1994 ------ ------ ------ EXHAUST SYSTEMS BUSINESS Aftermarket........................................... 42% 43% 57% OE Market............................................. 58 57 43 ------ ------ ------ 100% 100% 100% ====== ====== ====== RIDE CONTROL BUSINESS Aftermarket........................................... 60% 68% 70% OE Market............................................. 40 32 30 ------ ------ ------ 100% 100% 100% ====== ====== ======
3 Brands Tenneco Automotive manufactures and markets leading brand names. 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 anticipated that they will be incorporated within these existing Monroe(R) and Walker(R) brand name families. Customers Tenneco Automotive has developed long-standing business relationships with many of its customers around the world, working together 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 priorities has been recognized by numerous customers who awarded Tenneco Automotive 48 supplier quality awards in 1996. Tenneco Automotive serves both the OE market and the aftermarket. Tenneco Automotive serves over 25 different OE customers on a global basis, including the following: NORTH AMERICA EUROPE INDIA CAMI BMW Chrysler Chrysler Maruti Suzuki Ford DAF General Motors Daihatsu AUSTRALIA Honda Fiat Mazda Ford Ford Mitsubishi Jaguar General Motors/Holden Nissan Lada Mitsubishi NUMMI Leyland Toyota Toyota Mercedes-Benz Mitsubishi JAPAN SOUTH AMERICA Nissan Chrysler Opel Mazda Fiat Peugeot/Citroen Nissan Ford Porsche Suzuki General Motors Renault/Matra Toyota Renault Rover/Land Rover Toyota Saab/Scania OTHER ASIA Volkswagen Toyota Volkswagen/Audi/SEAT/Skoda Chrysler Volvo Citroen 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 Automotive 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, reduced pollutants and optimized engine performance. 4 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, pipes, exhaust accessories and electronic noise cancellation products. Founded in 1888 and a division of Tenneco since 1967, Walker is the aftermarket 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 seven of the 10 top-selling 1996 new car models in the U.S. and 9 of the 10 top-selling light trucks in the U.S. Walker has long been the European aftermarket leader for exhaust systems, and with the acquisition of Heinrich Gillet GmbH & Co. ("Gillet") in 1994, Walker became Europe's leading OE exhaust systems supplier. Manufacturing and Engineering Walker operates 26 manufacturing facilities outside the U.S. In the U.S., Walker operates 10 manufacturing facilities and seven distribution centers. See Item 2, "Properties." Walker locates its manufacturing facilities in close proximity to its OE customers to provide just-in-time delivery opportunities. 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 recast Tenneco Automotive as a market leader in exhaust systems for the OE market in Europe and brought many new OE customers to the Walker business. In 1995, Walker acquired ownership of Manufacturas Fonos, S.L. ("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 and expanded its North American heavy duty truck aftermarket business through the acquisition of Stemco Inc. The following table sets forth for each of the years 1994 through 1996 information relating to Tenneco Automotive's sales of exhaust systems:
PERCENTAGE OF SALES --------------------------- YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ------- ------- ------- United States Sales Aftermarket..................................... 46% 46% 48% OE Market....................................... 54 54 52 ------- ------- ------- 100% 100% 100% ======= ======= ======= Foreign Sales Aftermarket..................................... 38% 42% 68% OE Market....................................... 62 58 32 ------- ------- ------- 100% 100% 100% ======= ======= ======= Total Sales by Geographic Area(a) United States................................... 44% 42% 58% European Union.................................. 43 45 24 Canada.......................................... 6 7 10 Other areas..................................... 7 6 8 ------- ------- ------- 100% 100% 100% ======= ======= =======
- -------- (a) See Note 13 to the Tenneco Inc. and Consolidated Subsidiaries Financial Statements for certain information about foreign and domestic operations and export sales. 5 RIDE CONTROL PRODUCTS Tenneco Automotive designs, manufactures and distributes ride control products primarily under the Monroe(R) brand name. Tenneco Automotive's ride control products consist of hydraulic shock absorbers, air adjustable shock absorbers, gas charged shock absorbers and struts, electronically adjustable suspension systems, vibration control components, bushings, springs and modular assembles. Tenneco Automotive manufactures and markets replacement shock absorbers for virtually all North American, European and Asian makes of automobiles. In addition, Tenneco Automotive manufactures and markets shock absorbers and struts for use on passenger cars and trucks, as well as for other uses such as exercise and other recreational equipment. Founded in 1916, Monroe introduced the world's first automotive shock absorber in 1926 and became part of Tenneco 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. 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 contact between the vehicle's tires and the road. Adhesion is directly influenced by shock absorber and strut performance. Worn shocks and struts can allow weight to transfer from side to side (roll), from front to rear (sway) and up and down (bounce). Shocks are designed to maintain vertical loads placed on tires by providing resistance to vehicle roll, sway and bounce. Variations in tire to road contact can affect a vehicle's handling and braking performance and the safe operation of a vehicle; thus, by maintaining the tire-to-road contact, Monroe's ride control products are actually designed to function as safety components of a vehicle rather than merely providing a comfortable ride. Manufacturing and Engineering Monroe has 10 manufacturing facilities in the United States and 16 foreign manufacturing operations. Monroe also has controlling interests in joint ventures that own manufacturing operations in China and India as described below. See also Item 2, "Properties." In designing its shock absorbers and struts, Monroe uses advanced engineering and test capabilities to provide product reliability, endurance and performance. Monroe's engineering capabilities feature 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 and semi-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 grooved-tube, gas-charged shocks and struts provide 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 units become overheated (fade). This technology 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 OE manufacturers a more complete modular ride control system, in July 1996 Tenneco Automotive acquired The Pullman Company and its Clevite products division ("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 OE manufacturers. 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. 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. 6 The following table sets forth information relating to Tenneco Automotive's sales of ride control equipment:
PERCENTAGE OF SALES --------------------------- YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ------- ------- ------- United States Sales Aftermarket..................................... 62% 70% 72% OE Market....................................... 38 30 28 ------- ------- ------- 100% 100% 100% ======= ======= ======= Foreign Sales Aftermarket..................................... 59% 66% 69% OE Market....................................... 41 34 31 ------- ------- ------- 100% 100% 100% ======= ======= ======= Total Sales by Geographic Area(a) United States................................... 48% 48% 49% European Union.................................. 34 36 32 Canada.......................................... 3 3 5 Other areas..................................... 15 13 14 ======= ======= ======= 100% 100% 100% ======= ======= =======
- -------- (a) See Note 13 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements for certain information about foreign and domestic operations and export sales. SALES AND MARKETING Both the exhaust and ride control businesses utilize similar sales and marketing systems to distribute Tenneco Automotive products. Both businesses 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 exceeding 95%. Tenneco Automotive sells its OE 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 programmed marketing groups. STRATEGY Tenneco Automotive's primary goal is to grow and enhance its position as a global leader in the manufacture 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 OE supplier base, (ii) increased outsourcing by OE manufacturers, particularly of more complex components, assemblies, modules and complete systems to sophisticated, independent suppliers, and (iii) growth of emerging markets for both OE 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(R) and Walker(R) brand names and their market shares, intends to emphasize product differentiation to give consumers added reasons for specifying their brands. For example, Monroe(R) introduced a premium grade shock and strut called Sensa-Trac(R) in 1994, which helped it gain its technological leadership in the ride control market, while Rancho(R) is the leading ride control brand in the high performance light truck market. Walker Advantage(R) and 7 DynoMaxTM brands are the leaders in their product categories. Tenneco Automotive is also 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 solidify 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 the OE manufacturers' 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 Value-Added Products Tenneco Automotive, a first tier supplier to many customers, intends to continue to manufacture value-added products and to develop strategic alliances with other suppliers to OE customers in order to facilitate development of these products, including the development of highly engineered or complex assemblies or modular 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 supplied 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 OE manufacturers 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 to pursue appropriate strategic acquisitions, joint ventures and strategic alliances in order to increase Tenneco Automotive's ability to deliver such full-system capabilities. For example, its recent acquisition of Clevite now gives Tenneco Automotive the ability to deliver more complete suspension systems to OE manufacturers. 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 international 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 Turkey. In September 1996, Tenneco Automotive acquired full ownership of a shock absorber company in Turkey in which it previously held a 16.7% ownership interest. In December 1996, Tenneco Automotive acquired 94% of the voting stock of Fric-Rot S.A.I.C., the leading producer and marketer of ride control products in Argentina for approximately $52 million. In 1996 Tenneco Automotive also expanded its presence in Australia's ride control product market with the acquisition of National Springs. The recent international acquisitions complement the November 1994 acquisition of Gillet, Europe's largest supplier of automotive exhaust equipment for the OE 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, 8 gain access to new customers and achieve leadership positions within new geographic markets, while drawing on the strengths of existing distribution channels and OE customer relationships. Tenneco Automotive has developed comprehensive plans to integrate quickly 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 lower 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 efficiency through employee training, invests in more efficient machinery and enhances the global coordination of purchasing, costing and quoting procedures. OTHER As of January 1, 1997, Tenneco Automotive had approximately 23,000 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. 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 manufactures corrugated containers, folding cartons and containerboard, has a joint venture in recycled paperboard, and offers value-added products such as enhanced graphics packaging and displays and kraft honeycomb products. Its specialty products business 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), Hefty OneZip(R), and E-Z Foil(R). Tenneco Packaging is headquartered in Evanston, Illinois. OVERVIEW OF PACKAGING INDUSTRY The global packaging market is estimated at nearly $400 billion, with nearly one-third of the market in North America, slightly less in Europe and the balance spread throughout the rest of the world. Packaging as an industry remains one of the most fragmented major industries, with the top five companies comprising only a 10% worldwide market share. Tenneco Packaging now ranks by sales as the fourth largest packaging manufacturer in North America and the tenth largest in the world. Within packaging material categories, Tenneco Packaging participates in the three growing categories of paper, plastic and aluminum, with substantial or leading market shares in virtually all of its product categories. 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. 9 BUSINESS STRATEGY Tenneco Packaging has embarked upon an aggressive growth plan to be the leading specialty packaging company offering a broad line of products to provide customers with the best packaging solutions. In the past two years, Tenneco Packaging has nearly doubled its size to $3.6 billion in revenues through internal growth in its base businesses, productivity gains and 12 acquisitions. 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 packaging (including the full year impact of the Amoco Foam Products Company ("Amoco Foam Products") purchase completed in August, 1996), 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 its sensitivity to raw material prices and offer greater opportunities to add value. Currently, nearly 25% 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 intends to continue to pursue value-added, non-cyclical growth opportunities, maintain market leadership positions in its primary businesses and leverage its new product development expertise. As with other manufacturing companies whose results of operations are subject to general economic and market conditions and other factors, Tenneco Packaging's business results may be adversely impacted by raw material cost fluctuations, changes in consumer preferences and other matters. See "Cautionary Statement for Purposes of "Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995." However, Tenneco Packaging believes it 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 designed to meet stringent customer quality requirements and service needs. Tenneco Packaging intends to spend approximately $97 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. ANALYSIS OF TENNECO PACKAGING'S REVENUES 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. 10 The following tables set forth information relating to the net sales of both of Tenneco Packaging's primary businesses, in dollars and by percentages:
NET SALES (MILLIONS) ----------------------- YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 ------- ------- ------- PAPERBOARD BUSINESS Corrugated shipping containers and containerboard products............................................ $ 1,432 $ 1,589 $ 1,214 Folding cartons and recycled paperboard mill products............................................ 149 204 196 Paper stock and other................................ 119 135 119 ------- ------- ------- 1,700 1,928 1,529 ------- ------- ------- SPECIALTY BUSINESS Disposable plastic and aluminum packaging products... 1,669 593 434 Molded fiber products................................ 193 191 186 Other................................................ 40 40 35 ------- ------- ------- 1,902 824 655 ------- ------- ------- Total Tenneco Packaging............................ $ 3,602 $ 2,752 $ 2,184 ======= ======= =======
PERCENTAGE OF NET SALES --------------------------- YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ------- ------- ------- PAPERBOARD BUSINESS Corrugated shipping containers and containerboard products......................................... 40% 58% 56% Folding cartons and recycled paperboard mill products......................................... 4 7 9 Paper stock and other............................. 3 5 5 ------- ------- ------- 47 70 70 ------- ------- ------- SPECIALTY BUSINESS Disposable plastic and aluminum packaging products......................................... 47% 22% 20% Molded fiber products............................. 5 7 9 Other............................................. 1 1 1 ------- ------- ------- 53 30 30 ------- ------- ------- Total Tenneco Packaging......................... 100% 100% 100% ======= ======= ======= SALES BY GEOGRAPHIC AREA(A) United States..................................... 91% 91% 90% European Union.................................... 5 5 6 Canada............................................ 2 1 1 Other areas....................................... 2 3 3 ------- ------- ------- 100% 100% 100% ======= ======= =======
- -------- (a) See Note 13 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements for certain information about foreign and domestic operations and export sales. PAPERBOARD PRODUCTS The paperboard business manufactures and sells corrugated containers, folding cartons, containerboard, lumber and building products, and has a joint venture in recycled paperboard. The business' product line includes value- added products such as enhanced graphics packaging and displays and kraft honeycomb products. The paperboard business produces over two million tons of containerboard annually that is converted by its 11 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 mills operated by Tenneco Packaging or supplied through trade partnerships for other grades in exchange for product produced at mills operated by Tenneco Packaging. This helps assure a secure supply of containerboard in a wide variety of grades to meet the requirements of its customers. The paperboard business 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 one million acres of timberland in the United States through both owned and leased properties. Sales and Marketing and New Product Development Tenneco Packaging's paperboard business maintains a direct sales and marketing organization of over 400 sales personnel serving both local and national accounts. The sales organization consists primarily of sales representatives and a sales manager at each facility serving local and regional accounts, while corporate account managers are located to correspond to customer requirements. Division marketing support is maintained at corporate headquarters. Tenneco Packaging's paperboard business 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 six 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 collectively accounted for 6% of the industry's annual U.S. production, or 2.1 million tons, in 1996. Over the last three years, Tenneco Packaging has invested $75.7 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 65 geographically dispersed plants that, based on 1996 revenue, manufacture approximately 6% of the industry's total annual U.S. corrugated shipments, as well as eight kraft paper honeycomb product plants, making Tenneco Packaging one of the top six integrated producers. Tenneco Packaging also operates six folding carton plants located primarily in the Midwest. One folding carton plant is expected to be closed in 1997. As of January 1, 1997, Tenneco Packaging owned approximately 190,000 acres of timberland in Alabama, 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 1996, 1995 and 1994, approximately 32%, 30% and 28%, respectively, of the virgin fiber used by Tenneco Packaging in its mill operations was obtained from timberlands owned or utilized by Tenneco Packaging. The balance of virgin fiber was purchased from numerous open market wood sellers. To maximize the value of the timber harvested or purchased, Tenneco Packaging operates a wood drying facility and three wood products operations which produce hardwood and pine lumber. Tenneco Packaging is also a party to a joint venture in a chip mill. Tenneco Packaging's paperboard business 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 has a design organization which includes more than 60 structural, graphic and package engineering specialists for its corrugated and folding carton converting operations. 12 Strategic Acquisitions/Joint Ventures As part of Tenneco Packaging's value-added growth strategy, eight acquisitions were made during 1995 in the paperboard business. Tenneco Packaging expanded its graphics and printing capabilities to that of a full service supplier of point-of-purchase displays and point-of-sale packaging by acquiring four facilities with expertise in high impact graphics and design. The addition of Lux Packaging, in Waco, Texas; the United Group in Los Angeles, California; Menasha Corporation's South Brunswick, New Jersey plant; and DeLine Box in Windsor, Colorado have broadened Tenneco Packaging's offering of products and services to include permanent point-of-purchase displays, rotogravure preprint, litho-lamination and advanced graphics design. In 1995 Tenneco Packaging also added to its network of specialty sheet plants by acquiring 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 into 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Years 1996 and 1995--Results of Operations." SPECIALTY PRODUCTS Tenneco Packaging's specialty business 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 as Hefty(R), Baggies(R), Hefty OneZip(R) 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 business products are marketed to five primary market categories: food service, supermarkets, institutional, packer processor and industrial users. The specialty business maintains a sales and marketing organization of nearly 270 sales personnel. The sales organization is specialized by market category and its teams work in alliance with strategic customers to build sales. Approximately 85% of the specialty business' products are sold to its distributors, while the remainder are sold directly to retailers. Tenneco Packaging markets consumer products primarily through three classes of retailers or channels of trade: (i) grocery (supermarkets and convenience stores); (ii) non-food (mass merchandisers, drug stores, hardware stores, home centers); and (iii) warehouse clubs. Tenneco Packaging's approximately 75 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. Manufacturing and Engineering In North America, Tenneco Packaging operates 31 specialty business facilities. With the acquisition of the Mobil Plastics Division of Mobil Oil Corporation ("Mobil Plastics") and Amoco Foam Products, Tenneco 13 Packaging now has polystyrene production in 18 locations in 13 states. The plastics business 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; a seventh location manufactures tooling for the molded fiber plants. 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 business 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 business' polyethylene processes are in-line. Polystyrene plants make foam products including consumer tableware, foodservice disposables, meat trays and clear containers. With multiple production lines, each plant is generally capable of making several product types. Polystyrene pellets are marketed and extruded and subsequently thermoformed and converted into finished products. Strategic Acquisitions Tenneco Packaging acquired Mobil Plastics in late 1995, which more than doubled the size of its specialty business and added new technologies and product development capabilities. The acquisition provided strong consumer branded products such as Hefty(R) trash bags, Baggies(R) food bags, and Hefty OneZip(R) food storage bags. The plastics division acquired from Mobil also 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 approximately $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 1996 revenue base of approximately $228 million and an additional $80 million in export sales to approximately 40 countries, manufacturing products that serve a wide range of packaging needs. Tenneco Packaging 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 14 international manufacturing operations. 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 plastics, 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, paperboard honeycomb products operations in Israel and Japan, and a corrugated converting facility in Zhejiang, China. 14 Acquisitions/Business Development In 1995, Tenneco Packaging purchased Penlea and Delyn, two plastic thermoforming operations in the United Kingdom. In Romania, Tenneco Packaging is negotiating for harvesting rights in excess of 1.8 million cubic meters of timber and is constructing a wood processing plant for value-added furniture components, to be supported by a full sawmill operation. OTHER As of January 1, 1997, Tenneco Packaging had approximately 21,000 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. TENNECO BUSINESS SERVICES Tenneco Business Services ("TBS") designs, implements and administers shared administrative service programs for Tenneco's businesses as well as on an "as requested" basis for former Tenneco business entities and affiliates. 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 and affiliates such as Case Corporation, Newport News and Old Tenneco. However, TBS is in the process of investigating opportunities to provide similar services to outside businesses. 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 January, 1997, TBS had approximately 362 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. 15 ENVIRONMENTAL MATTERS The Company estimates that its subsidiaries will make capital expenditures for environmental matters of approximately $18 million in 1997 and that capital expenditures for environmental matters will be approximately $76 million in the aggregate for the years 1997 through 2007. For information regarding environmental matters, see Item 3, "Legal Proceedings," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 14 to the Financial Statements of the Tenneco Inc. and Consolidated Subsidiaries. CERTAIN REORGANIZATION AGREEMENTS In connection with the Distributions, described on page 1 of this Annual Report, Tenneco, Old Tenneco and Newport News entered into certain agreements, described below, governing their relationship following the Distributions and providing for the allocation of tax and certain other liabilities and obligations arising from periods prior to the Distributions. Tenneco, Old Tenneco and Newport News entered into a Distribution Agreement, dated November 1, 1996, pursuant to which the Distributions and certain corporate transactions required to effect the Distributions were accomplished. The Distribution Agreement provides for, among other things, the assumption of liabilities and cross indemnities designed to allocate generally, effective as of the date of the Distributions, financial responsibility for the liabilities of Old Tenneco arising out of or in connection with (i) Tenneco Automotive, Tenneco Packaging and TBS to the Company, (ii) Old Tenneco's shipbuilding businesses to Newport News and its subsidiaries, and (iii) Old Tenneco's remaining active businesses (consisting primarily of the transportation and marketing of natural gas) and certain discontinued operations to Old Tenneco and its subsidiaries. In addition, as contemplated by the Distribution Agreement, the Company entered into certain ancillary agreements (collectively, the "Ancillary Agreements") with Old Tenneco and/or Newport News prior to the consummation of the Distributions which further effectuated the restructuring of Old Tenneco and govern various aspects of the post-Distributions relationship among the parties. The Ancillary Agreements include: (i) the Benefits Agreement, which provided for allocations of responsibilities among the Company, Old Tenneco and Newport News with respect to employee compensation, benefit and labor matters; (ii) the Tax Sharing Agreement, pursuant to which the Company, Old Tenneco and Newport News will allocate liabilities for taxes arising prior to, as a result of, and subsequent to the Distributions; (iii) the Debt and Cash Allocation Agreement which provided 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 the funds provided by) the Company, Old Tenneco and Newport News; (iv) the TBS Services Agreement pursuant to which TBS will continue to provide certain administrative and other services to Newport News until December 31, 1998; (v) the Transition Services Agreement pursuant to which TBS will continue to provide certain administration and other services to Old Tenneco until June 30, 1997; (vi) Trademark Transition License Agreements allowing Old Tenneco and Newport News to use certain of the trademarks and tradenames of Tenneco for certain specified periods of time for certain purposes; and (vii) the Insurance Agreement, which provides for the continuing rights and obligations of the Company, Old Tenneco and Newport News with respect to various pre- Distributions insurance programs. With respect to certain obligations under the Benefits Agreement, see Item 3, "Legal Proceedings--Other Proceedings" and Note 14 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries. 16 ITEM 2. PROPERTIES. Corporate Headquarters The Company's executive offices are located at 1275 King Street, Greenwich, Connecticut 06831, and its telephone number at that address is (203) 863-1000. Tenneco Automotive In the United States, Walker operates ten manufacturing facilities and seven distribution centers, three of which are located at manufacturing facilities, and also has two engineering and technical facilities. In addition, Walker operates 26 manufacturing facilities located in Argentina, Australia, Brazil, Canada, China, the Czech Republic, Denmark, France, Germany, Mexico, Portugal, South Africa, Spain, Sweden, and the United Kingdom. Walker also has engineering and technical centers in Australia and Germany. In the United States, Monroe has 10 manufacturing facilities and one research and development facility and three distribution centers. In addition, Monroe has 20 foreign manufacturing operations in Argentina, Australia, Belgium, Brazil, Canada, China, the Czech Republic, India, Mexico, New Zealand, Spain, Turkey and the United Kingdom. Tenneco Automotive also has a sales office in Japan. Of the 78 properties described above, 50 are owned, 23 are leased, and five are held through joint ventures. Tenneco Packaging In North America, Tenneco Packaging operates a total of 125 facilities, of which 75 are owned, 46 are leased, and four are held through joint ventures.. The paperboard business group has 73 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 pine lumber plant, one air drying facility for wood, and a joint venture in a chip mill. Two recycled paperstock facilities provide raw materials for the mills. Tenneco Packaging also has a minority equity position in two recycled paperboard mills and one recycling center and brokerage operation. In January 1997, Tenneco Packaging reached an agreement pursuant to which another lessor acquired the two mills located in Georgia and Wisconsin discussed above directly from Tenneco's original lessor and entered into a new lease with Tenneco Packaging. Tenneco Packaging's specialty business 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 14 facilities, of which four are owned, five are leased, and five are held through joint ventures. These include three folding carton operations, two paperboard honeycomb products 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, and molded fiber products 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 properties utilized by TBS are leased. 17 General Tenneco 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. Tenneco also believes that 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. ITEM 3. LEGAL PROCEEDINGS. (1) Environmental Proceedings. On August 2, 1993, the U.S. Department of Justice filed suit for $1 million against Tenneco Packaging 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, published for public notice and comment, and submitted to the court for approval. The Consent Decree will require the Company to pay a civil penalty to the United States of $200,000 and a civil penalty of $50,000 to the State of Indiana. The Consent Decree also will require the Company to install up to $250,000 of equipment to reduce the plant's raw water usage and its wastewater discharge. 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 and the EPA have entered into a Consent Agreement and Consent Order resolving this administrative proceedings. The Consent Agreement and Consent Order, which was signed on January 17, 1997, required the Company to pay a penalty of $95,000. (2) Potential Superfund Liability. At February 20, 1997, the Company had been designated as a potentially responsible party in 4 "Superfund" sites. The Company has estimated its share of the remediation costs for these sites to be between $6 million and $9 million in the aggregate and has established 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 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 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 sites referenced above will not be material to its consolidated financial position or results of operations. For additional information concerning environmental matters, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," Item 1. "Business and Properties" and the caption "Environmental Matters" under Note 14, to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries. 18 (3) Other Proceedings. The Company and Newport News have received letters from the Defense Contract Audit Agency (the "DCAA"), inquiring about certain aspects of the Distributions, including the disposition of the Tenneco Inc. Retirement Plan (the "TRP"). The DCAA has been advised that (i) the TRP will retain the liability for all benefits accrued by the Newport News salaried employees through December 31, 1996, (ii) the Newport News salaried employees will not accrue additional benefits under the TRP after December 31, 1996, and (iii) no liabilities or assets of the TRP will be transferred from the TRP to any plan maintained by Newport News. A determination of the ratio of assets to liabilities of the TRP attributable to Newport News will be based on facts, assumptions and legal issues which are complicated and uncertain; however, it is likely that the U.S. Government will assert a claim against Newport News with respect to the amount, if any, by which the assets of the TRP attributable to its employees are alleged to exceed the liabilities. The Company, with the full cooperation of Newport News, will defend against any claim by the U.S. Government, and in the event there is a determination that an amount is due to the U.S. Government, the Company and Newport News will share the obligation for such amount plus the amount of related defense expenses, in the ratio of 80% and 20%, respectively. At this preliminary stage, it is impossible to predict with certainty any eventual outcome regarding this matter; however, the Company does not believe that this matter will have a material adverse effect on its consolidated financial position or results of operations. 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 not have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Prior to the consummation of the Distributions on December 11, 1996, Old Tenneco indirectly owned 100% of the capital stock of the Company. Pursuant to four consents dated as of December 11, 1996, the following matters were submitted to a vote of, and were approved by, the Company's sole stockholder at the time, Old Tenneco: (i) the authorization to take the actions necessary to consummate: (x) the Agreement and Plan of Merger dated as of June 19, 1996 between El Paso Natural Gas Company, El Paso Merger Company and Old Tenneco, (y) the Distribution Agreement dated as of November 1, 1996 among Old Tenneco, the Company and Newport News and (z) the Debt and Cash Allocation Agreement among Old Tenneco, the Company and Newport News; (ii) the transfer of debt obligations of Old Tenneco acquired by the Company to Old Tenneco for funds equal to the fair market value of the debt issued by the Company to acquire such debt obligations; (iii) the declaration and payment of a cash dividend on December 11, 1996 equal to (x) the funds received by the Company from Old Tenneco in exchange for the debt obligations of Old Tenneco acquired by the Company and (y) the proceeds of the draw under the Company's new credit facility; (iv) the adoption of the Restated Certificate of Incorporation of the Company; (v) the distribution of Common Stock, par value $0.01 per share, of the Company equal to the number of shares of Common Stock, par value $5.00 per share, of Old Tenneco as of the close of business on December 11, 1996, less 600; (vi) the amendment of the Restated Certificate of Incorporation upon consummation of the merger between Old Tenneco and El Paso Merger Company to change the name of the Company to "Tenneco Inc."; (vii) the adoption of the Amended and Restated By-Laws of the Company; (viii) the election of (x) Mark Andrews, W. Michael Blumenthal, Belton K. Johnson, and William L. Weiss as Class I Directors, (y) M. Kathryn Eickhoff, Peter T. Flawn, John B. McCoy, and Dana G. Mead as Class II Directors, and (z) Henry U. Harris, Jr., Sir David Plastow, and Clifton R. Wharton, Jr. as Class III Directors; (ix) the distribution on December 11, 1996 of shares of Common Stock, par value $0.01 per share, of the Company consisting of the net intercompany receivable owed to the Company by Old Tenneco; and (x) the adoption of the following plans: (t) 1996 Tenneco Inc. Stock Ownership Plan, (u) Tenneco Inc. 1997 Employee Stock Purchase Plan, (v) Tenneco Thrift Plan, (w) Tenneco Thrift Plan for Hourly Employees, (x) Tenneco Inc. Board of Directors Restricted Stock and Restricted Unit Program, (y) Tenneco Inc. Board of Directors Restricted Stock Program, and (z) Tenneco 401(k) Savings Plan for Chippewa Falls. 19 ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is a list of the executive officers of Tenneco Inc. at March 1, 1997. Each of such officers has served in the capacities indicated below with Tenneco Inc. (or, for periods prior to the Distributions, with Old Tenneco) since the dates indicated below:
NAME (AND AGE AT DECEMBER 31, 1996) OFFICES HELD* EFFECTIVE DATE OF TERM - ----------------------------------- ------------- ---------------------- 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 Paul T. Stecko (52)..... Chief Operating Officer January 1997 Theodore R. Tetzlaff (52)................... General Counsel July 1992 Stacy S. Dick (40)...... Executive Vice President January 1996 Robert T. Blakely (55).. Executive Vice President May 1996 Chief Financial Officer July 1981 John J. Castellani (45). Executive Vice President January 1997 Barry R. Schuman (55)... Senior Vice President--Human Resources March 1993 Kenneth D. Allen (57)... Vice President March 1987 Theodore Austell, III (40)................... Vice President--Government Relations January 1997 Ilene S. Gordon (43).... Vice President--Operations May 1994 John L. Howard (39)..... Vice President--Law December 1996 Jack Lascar (42)........ Vice President--Investor Relations July 1994 Mark A. McCollum (37)... Vice President and Controller May 1995 Robert S. McKinney (55). 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
- -------- * Unless otherwise indicated, all offices held are with Tenneco Inc. (or, for periods prior to (i) the Distributions, Old Tenneco, and (ii) December 1987, the Company which at the time was known as Tenneco Inc.). 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 in the positions indicated 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; he has served as an executive officer of Tenneco since March 1992, when he joined Tenneco as Chief Operating Officer and was elected President one month later; (ii) since 1993 Paul T. Stecko has also been serving as the President and Chief Executive Officer of Tenneco Packaging; from 1977 to 1993, he was employed by International Paper Co., last serving as Vice President and General Manager of Publications Papers, Bristols and Converting Papers; (iii) Theodore R. Tetzlaff has been a partner in the law firm of Jenner & Block, Chicago, for more than five years; (iv) from 1985 to 1992, Stacy S. Dick was employed by The First Boston Corporation, last serving in the capacity of Managing Director; from August 1992 to January 1996 he served as Senior Vice President--Strategy of Tenneco; (v) from 1980 to 1992, John J. Castellani was employed by TRW Inc., last serving in the capacity of Vice President of Government Relations; from August 1992 to March 1995 he served as Vice President--Government Relations of Tenneco and from March 1995 to January 1997 he served as Senior Vice President--Government Relations of Tenneco; (vi) from 1988 until his employment by Tenneco in 1992, Barry R. Schuman was employed by Union Pacific Railroad Company, last 20 serving in the capacity of Vice President of Human Resources; (vii) Theodore Austell III joined Tenneco in 1992 as Director of Federal Relations, and from 1996 to 1997 he served as Executive Director of Government Relations; (viii) from 1988 to 1990 John L. Howard served as Associate Deputy Attorney General at the United States Department of Justice, and from 1990 to 1993 he served as Counsel to the Vice President of the United States and General Counsel and Ethics Advisor for the Office of the Vice President and for the President's Council on Competitiveness; from 1993 to 1995 he served as Senior Corporate Counsel, and from 1995 to 1996 he served as Assistant General Counsel, of Tenneco; (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; (x) from 1990 to May 1996 Robert S. McKinney was chief information officer and a member of the board of directors of Paine Webber, and (xi) 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. For purposes of the preceding sentence, "Tenneco" refers to Old Tenneco for periods prior to the Distributions and to Tenneco Inc. for periods after the Distributions. Tenneco Inc.'s Board of Directors is divided into three classes of directors serving staggered three-year terms, with a minimum of eight directors and a maximum of sixteen directors. At each annual meeting of stockholders, successors to the directors whose terms expire at such meeting are elected. Officers are elected at the annual meeting of directors held immediately following the annual meeting of stockholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The outstanding shares of Common Stock, par value $.01 per share, of Tenneco Inc. (the "Common Stock") are listed on the New York, Chicago, Pacific and London Stock Exchanges. The Common Stock began "regular way" trading on the New York Stock Exchange on December 12, 1996 (the business day immediately following the Distributions). See "Business--Tenneco Inc." The following table sets forth the high and low sales prices of Common Stock on the New York Stock Exchange Composite Transactions Tape, and the dividends paid per share of Common Stock: (i) for the Company after the Distributions and Merger and (ii) for Old Tenneco prior to the Distributions and Merger.
SALE PRICES ------------- DIVIDENDS QUARTER HIGH LOW PAID ------- ------ ------ --------- 1996 1st 57 7/8 47 5/8 .45 2nd 57 5/8 49 5/8 .45 3rd 51 7/8 45 5/8 .45 4th (thru 12/11) 52 5/8 46 1/2 .45 4th (after 12/11) 47 1/2 43 3/8 -- 1995 1st 47 3/8 42 1/4 .40 2nd 48 5/8 45 1/8 .40 3rd 50 1/4 44 7/8 .40 4th 50 3/8 41 7/8 .40
As of January 31, 1997, there were approximately 95,570 holders of record, including brokers and other nominees. The declaration of dividends on Tenneco capital stock is at the discretion of its Board of Directors. The Board has not adopted a dividend policy as such; subject to legal and contractual restrictions, its decisions regarding dividends are based on all considerations that in its business judgment are relevant at the time, 21 including past and projected earnings, cash flows, economic, business and securities market conditions and anticipated developments concerning Tenneco's business and operations. For additional information concerning the payment of dividends by Tenneco, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Under applicable corporate law, dividends may be paid by Tenneco out of "surplus" (as defined under the law) or, if there is not a surplus, out of net profits for the year in which the dividends are declared or the preceding fiscal year. At December 31, 1996, Tenneco had surplus of approximately $2.6 billion for the payment of dividends, and Tenneco will also be able to pay dividends out of any net profits for the current and prior fiscal year. 22 ITEM 6. SELECTED FINANCIAL DATA. TENNECO INC. AND CONSOLIDATED SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------ 1996(A) 1995(A) 1994(A) 1993 1992 ----------- ----------- ----------- ----------- ----------- (MILLIONS EXCEPT SHARE AMOUNTS) STATEMENTS OF INCOME (LOSS) DATA(B): Net sales and operating revenues from continuing operations-- Automotive............ $ 2,980 $ 2,479 $ 1,989 $ 1,785 $ 1,763 Packaging............. 3,602 2,752 2,184 2,042 2,078 Intergroup sales and other................ (10) (10) (7) (7) (5) ----------- ----------- ----------- ----------- ----------- Total................. $ 6,572 $ 5,221 $ 4,166 $ 3,820 $ 3,836 =========== =========== =========== =========== =========== Income from continuing operations before interest expense, income taxes and minority interest-- Automotive............ $ 249 $ 240 $ 223 $ 222 $ 237 Packaging............. 401 430 209 139 221 Other................. (22) 2 24 20 7 ----------- ----------- ----------- ----------- ----------- Total................. 628 672 456 381 465 Interest expense (net of interest capitalized).......... 195 160 104 101 102 Income tax expense..... 194 231 114 115 154 Minority interest...... 21 23 -- -- -- ----------- ----------- ----------- ----------- ----------- Income from continuing operations............ 218 258 238 165 209 Income (loss) from discontinued operations, net of income tax(d)......... 428 477 214 (c) 286 (c) (821)(c) Extraordinary loss, net of income tax......... (236)(e) -- (5) (25) (12) Cumulative effect of changes in accounting principles, net of income tax............ -- -- (39)(f) -- (699)(f) ----------- ----------- ----------- ----------- ----------- Net income (loss)...... 410 735 408 426 (1,323) Preferred stock dividends............. 12 12 12 14 16 ----------- ----------- ----------- ----------- ----------- Net income (loss) to common stock.......... $ 398 $ 723 $ 396 $ 412 $ (1,339) =========== =========== =========== =========== =========== Average number of shares of common stock outstanding........... 170,635,277 173,995,941 180,084,909 168,772,852 144,110,151 Earnings (loss) per average share of common stock-- Continuing operations. $ 1.28 $ 1.48 $ 1.32 $ .98 $ 1.45 Discontinued operations........... 2.43 2.68 1.13 1.61 (5.80) Extraordinary loss.... (1.38) -- (.03) (.15) (.08) Cumulative effect of changes in accounting principles........... -- -- (.22) -- (4.86) ----------- ----------- ----------- ----------- ----------- Net earnings (loss)... $ 2.33 $ 4.16 $ 2.20 (h) $ 2.44 (h) $ (9.29)(h) =========== =========== =========== =========== =========== Cash dividends per common share.......... $ 1.80 $ 1.60 $ 1.60 $ 1.60 $ 1.60 BALANCE SHEET DATA(B): Net assets of discontinued operations............ $ -- $ 1,045 $ 1,858 $ 2,008 $ 1,329 Total assets........... 7,587 7,413 5,853 5,097 4,229 Short-term debt(g)..... 236 384 108 94 182 Long-term debt(g)...... 2,067 1,648 1,039 1,178 1,675 Minority interest...... 304 301 301 1 1 Shareowners' equity.... 2,646 3,148 2,900 2,601 1,330 STATEMENT OF CASH FLOWS DATA(B): Net cash provided (used) by operating activities............ $ 253 $ 1,443 $ 450 $ 1,615 $ 929 Net cash provided (used) by investing activities............ (693) (1,146) (117) (338) 105 Net cash provided (used) by financing activities............ 147 (356) (151) (1,166) (1,136) Capital expenditures for continuing operations............ (573) (562) (280) (217) (159)
23 - -------- (a) For a discussion of the significant items affecting comparability of the financial information for 1996, 1995 and 1994, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." See also Note 1 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries for a discussion of the Merger and Distributions transactions. (b) During the years presented, Tenneco completed numerous acquisitions, the most significant of which were Tenneco Packaging's acquisition of Mobil Plastics for $1.3 billion in late 1995 and Amoco Foam Products for $310 million in August 1996, and Tenneco Automotive's acquisition of Clevite for approximately $328 million in July 1996. See Note 3 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries. (c) Includes a restructuring charge of $920 million related to the discontinued farm and construction equipment business in 1992 reduced by $20 million in 1993 and $16 million in 1994. (d) Discontinued operations reflected in the above periods includes Tenneco's energy and shipbuilding operations, which, as a result of the Merger and Distributions, respectively, were treated as discontinued in December 1996, its farm and construction equipment operations, which were discontinued in March 1996, its chemicals and brakes operations, which were discontinued during 1994, and its minerals and pulp chemicals operations, which were discontinued in 1992. (e) Represents the extraordinary loss recognized in the realignment of Tenneco's consolidated indebtedness preceding the Merger and Distributions. See Notes 4 and 5 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries. (f) In 1994, Tenneco adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits". In 1992, Tenneco adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and FAS No. 109, "Accounting for Income Taxes." (g) Amounts for 1995 and prior years are net of allocations for corporate debt to the net assets of the discontinued energy and shipbuilding operations. The allocation is based on the proportion of Tenneco's investment in the energy operations' and shipbuilding operations' net assets to Tenneco consolidated net assets plus debt. See Note 5 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries. (h) For purposes of computing earnings per share, Series A preferred stock was included in average common shares outstanding until its conversion into common stock in December 1994; therefore, the preferred dividends paid were not deducted from net income (loss) to determine net income (loss) to common stock. The inclusion of Series A preferred stock in the computation of earnings per share was antidilutive for the years and certain quarters in 1994, 1993 and 1992. Other convertible securities and common stock equivalents outstanding during each of the five years ended December 31, 1996, 1995, 1994, 1993, and 1992 were not materially dilutive. 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following review of Tenneco's financial condition and results of operations should be read in conjunction with the financial statements and related notes of Tenneco Inc. and Consolidated Subsidiaries presented on pages 39 to 72. THE MERGER AND DISTRIBUTIONS The Company was incorporated August 26, 1996 under the name of "New Tenneco Inc." as a wholly-owned subsidiary of the company then known as Tenneco Inc. ("Old Tenneco"). The Company was formed to facilitate Old Tenneco's corporate transformation from a highly diversified industrial corporation to a global manufacturing company focused on its automotive and packaging businesses. As part of this transformation, Old Tenneco undertook a series of transactions during 1996 to reorganize its historical businesses (the "Transaction") such that the assets, liabilities, and operations of its automotive ("Tenneco Automotive"), packaging ("Tenneco Packaging"), and administrative services businesses, (individually, "Tenneco Business Services" and collectively with Tenneco Automotive and Tenneco Packaging, the "Industrial Business") were owned and operated by the Company and the assets, liabilities, and operations of its shipbuilding business (the "Shipbuilding Business") were owned and operated by Newport News Shipbuilding Inc. ("Newport News"), another wholly- owned subsidiary of Old Tenneco. On December 11, 1996, Old Tenneco spun-off the Company and Newport News by distributing all of the common stock of each company to Old Tenneco's shareowners (the "Distributions"). Following the Distributions, on December 12, 1996, an indirect subsidiary of El Paso Natural Gas Company ("El Paso") was merged (the "Merger") into Old Tenneco, which then consisted solely of Old Tenneco's remaining active businesses, principally in the energy industry, and certain discontinued operations (the "Energy Business"), with Old Tenneco surviving the Merger as a subsidiary of El Paso. Immediately subsequent to the Merger, Old Tenneco was renamed "El Paso Tennessee Pipeline Co.", and New Tenneco was renamed "Tenneco Inc." In preparation for the Merger and Distributions, Old Tenneco realigned $3.8 billion of indebtedness (the "Debt Realignment") through various cash tender offers, debt exchanges, defeasances, and other retirements. The cash funding required to consummate the Debt Realignment was financed through internally generated cash, borrowings under new credit facilities of both Old Tenneco and New Tenneco, borrowings under a new credit facility and other financings at Newport News, and proceeds from the issuance by Old Tenneco of its 8% cumulative junior preferred stock ("NPS Preferred Stock"). See Note 5 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. In connection with the Distributions, one share of New Tenneco common stock ($.01 par value) was issued for each share of Old Tenneco common stock ($5.00 par value) and one share of Newport News common stock was issued for each five shares of Old Tenneco common stock. Also, in connection with the Merger, Old Tenneco shareowners received shares of El Paso common stock valued at approximately $914 million in the aggregate in exchange for their shares of Old Tenneco common and preferred stock. See Notes 8 and 9 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. New Tenneco principally consists of Tenneco Automotive and Tenneco Packaging, which combined represented over half of the assets, revenues, and operating income of the businesses, operations, and companies previously constituting Old Tenneco. Consequently, the following Management's Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements included elsewhere herein present the net assets and results of operations of the Shipbuilding Business and the Energy Business as discontinued operations of New Tenneco. See Note 4 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. Unless the context otherwise requires, references to "Tenneco" or the "Company" are to (i) Old Tenneco and its consolidated subsidiaries (treating, however, the Shipbuilding Business and Energy Business as discontinued operations) for all periods prior to the close of business on December 11, 1996, the effective date 25 of the Distributions and (ii) Tenneco Inc. (formerly known as New Tenneco Inc.) and its consolidated subsidiaries for all periods subsequent to December 11, 1996. YEARS 1996 AND 1995 RESULTS OF OPERATIONS Tenneco's income from continuing operations for 1996 was $218 million, compared with $258 million in 1995. Record results from Tenneco Automotive and Tenneco Packaging's specialty business were offset by declines in results at Tenneco Packaging's paperboard business, due largely to significantly weaker containerboard prices, and charges related to realignment actions at Tenneco Automotive and Tenneco Packaging and costs associated with the Transaction. Earnings per share from continuing operations were $1.28 per average common share in 1996, compared with $1.48 per average common share in 1995. Average common shares outstanding for 1996 were 171 million, a 2 percent decrease from the prior year, resulting primarily from Tenneco's share repurchase programs. See Note 8 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. In 1996, Tenneco recorded income from discontinued operations of $428 million, or $2.43 per average common share, compared with $477 million, or $2.68 per average common share, in 1995 related to the discontinued operations of the Energy Business, the Shipbuilding Business, and the farm and construction equipment business. An extraordinary loss for 1996 of $236 million, or $1.38 per average common share, was incurred in connection with the Debt Realignment. Net income to common stock for 1996 was $398 million, or $2.33 per average common share, compared with net income to common stock of $723 million, or $4.16 per average common share, for 1995. NET SALES AND OPERATING REVENUES
% 1996 1995 CHANGE ------- ------ ------ (MILLIONS) Tenneco Automotive ..................................... $ 2,980 $2,479 20% Tenneco Packaging....................................... 3,602 2,752 31% Intergroup sales and other.............................. (10) (10) -- ------- ------ --- $ 6,572 $5,221 26% ======= ====== ===
Net sales and operating revenues for 1996 increased $1,351 million to $6,572 million, compared with $5,221 million in 1995. This increase was due primarily to strong market conditions in the automotive parts industry and revenues from businesses acquired in late 1995 and 1996. Record revenues were reported at Tenneco Automotive and by the specialty business of Tenneco Packaging. INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST (OPERATING INCOME)
% 1996 1995 CHANGE ---- ---- ------ (MILLIONS) Tenneco Automotive............................................ $249 $240 4% Tenneco Packaging............................................. 401 430 (7%) Other......................................................... (22) 2 NM ---- ---- --- $628 $672 (7%) ==== ==== ===
Operating income for 1996 decreased $44 million to $628 million, compared with $672 million in 1995. Tenneco Packaging's specialty business reported record results due primarily to the results of the recent 26 acquisitions of the foam products and plastics businesses. See Note 3 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. Tenneco Automotive reported record operating income as a result of strong volumes, recent acquisitions, and operating cost initiatives in both the ride control and exhaust systems businesses. Also, Tenneco realized gains on sales of assets and businesses in 1996 that were in excess of amounts earned in 1995. These increases were offset by lower operating income at Tenneco Packaging's paperboard business due to lower containerboard prices, costs related to the realignment actions at Tenneco Automotive and Tenneco Packaging, and costs related to the acceleration of certain employee benefits in connection with the Transaction. The results of Tenneco Automotive and Tenneco Packaging are separately discussed below. Significant transactions affecting the comparability of operating income between 1996 and 1995 are: . Pre-tax gains on sales of assets and businesses of $64 million in 1996 (primarily the sale of two recycled paperboard mills and a recycling center and brokerage operation), compared with gains of $15 million in 1995 (primarily from the sale of a recycled medium mill in North Carolina); . A pre-tax charge of $17 million in 1996 related to the acceleration of certain employee benefits in connection with the Transaction; . A pre-tax charge of $64 million in 1996 to (i) streamline the original equipment and aftermarket manufacturing operations of the exhaust systems business in Europe and the aftermarket operations of the exhaust systems business in North America; and (ii) realign Tenneco Automotive's ride control product line; . A pre-tax charge of $6 million in 1996 to reorganize Tenneco Packaging's folding carton operations; . A pre-tax charge of $30 million in 1995 to reorganize Tenneco Packaging's molded fiber and aluminum foil packaging operations; and . A pre-tax charge of $10 million in 1995 for start-up costs associated with Tenneco Automotive's hydroforming process in connection with new product launches. TENNECO AUTOMOTIVE
% 1996 1995 CHANGE ------ ------ ------ (MILLIONS) Revenues .................................................. $2,980 $2,479 20% Operating Income........................................... $ 249 $ 240 4%
Revenues in 1996 from Tenneco Automotive's exhaust systems business increased $233 million to $1,699 million, compared with $1,466 million in 1995. Revenues generated by the exhaust systems business in North America increased $140 million in 1996. Approximately $92 million of this increase was due to increased sales in the North American original equipment ("OE") market, as Tenneco Automotive initiated a significant number of new product launches in 1996. The $48 million, or 14 percent, increase in North American aftermarket exhaust systems revenues resulted primarily from gains in overall market share. In Europe, exhaust systems revenues increased $82 million due to increased sales to manufacturers, such as Mercedes, Porsche and Volkswagen. European aftermarket exhaust systems revenues increased $25 million over 1995 revenues primarily in Spain as a result of a 1995 third quarter acquisition. Operating income for the exhaust systems business in 1996 increased $6 million to $120 million, compared with $114 million in 1995. The 1996 results included a charge of $40 million to streamline the OE market and aftermarket manufacturing operations in Europe and the aftermarket operations in North America. Excluding the 1996 realignment charge and the $10 million of higher than usual 1995 start up costs, 1996 operating income increased $36 million to $160 million. This 29 percent increase resulted primarily from increased volumes and manufacturing and distribution efficiencies achieved through streamlining distribution and product consolidations. 27 Revenues in 1996 from Tenneco Automotive's ride control business increased by $268 million to $1,281 million, compared with $1,013 million in 1995. Sixty percent, or $161 million, of this increase resulted from higher sales volume in the North American and European OE markets, driven by both new contracts and the mid-year acquisition of The Pullman Company and its Clevite products division ("Clevite"). Clevite contributed $96 million of revenues in the North American OE market. See Note 3 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. Worldwide aftermarket revenues increased $81 million, or 12 percent, due mainly to aggressive Sensa-Trac(R) marketing programs. In Europe, the success of ride control's premium product strategy resulted in the near-quadrupling of the Sensa-Trac(R) sales mix from 1995. Revenues in Mexico nearly tripled in 1996, and Canada reported an increase of 25 percent, compared with 1995. Operating income for the ride control business in 1996 increased $3 million to $129 million, compared with $126 million in 1995. These results included a charge of $24 million to realign the ride control product line. Excluding the realignment charge, operating income increased $27 million to $153 million. This higher operating income resulted from increased revenues from volumes, better product mix driven by Sensa-Trac(R) and continued focus on operating cost leadership. Tenneco Automotive's margins decreased to 8.4 percent in 1996, compared with 9.7 percent in 1995 due to the 1996 realignment charges. Excluding the realignment charges, margins improved to 10.5 percent in 1996. TENNECO AUTOMOTIVE'S DISTRIBUTION OF REVENUES
1996 1995 ---- ---- Aftermarket........................................................... 50% 53% OE Market............................................................. 50% 47%
OUTLOOK In 1997, both the exhaust systems business and ride control business are expected to continue to gain new supply contracts for OE platforms in the United States, primarily in sport utility vehicles and light trucks. This should allow Tenneco Automotive to show continued improvement in the OE market. In the aftermarket, the exhaust systems business should continue to benefit from industry consolidation and thereby gain market share in 1997 through new contracts and product introductions, as well as continued penetration of niche markets, such as heavy duty exhausts, high performance products and catalytic converters. The 1997 outlook for the ride control business is also positive. The base business continues to benefit from the growing popularity and demand for Sensa-Trac(R) products. In 1997, new European product launches are scheduled for six additional vehicles, including the Volkswagen platform (Golf successor) and GM's Opel T- Car (Astra successor). In the European aftermarket, improved sales mix, combined with penetration from new product introductions and continued operating cost reductions, should allow Tenneco Automotive to post increased earnings in 1997. This "Outlook" section contains forward-looking statements. See "Cautionary Statement for Purposes of "Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" for a description of certain factors that could cause actual results to differ from anticipated results and other matters. TENNECO PACKAGING
% 1996 1995 CHANGE ------ ------ ------ (MILLIONS) Revenues .................................................. $3,602 $2,752 31% Operating Income........................................... $ 401 $ 430 (7%)
28 Tenneco Packaging's specialty business reported record results in 1996 as revenues increased $1,078 million to $1,902 million, compared with $824 million in 1995. This increase was driven by the recently acquired plastics and foam products businesses which combined contributed revenues of $1,164 million in 1996, compared with $106 million of revenues contributed by the plastics business in 1995. See Note 3 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. The specialty business earned $237 million in operating income for 1996, an increase of $176 million, excluding a 1995 restructuring charge of $30 million for molded fiber and aluminum foil packaging operations. The plastics and foam products businesses contributed operating income of $150 million in 1996, compared with only $15 million contributed by the plastics business in 1995. Excluding the 1995 restructuring charge, operating margins improved 5 percentage points to 12.5 percent as a result of three major factors: volume growth, primarily through acquisitions, enriched product mix, and reduced costs by combining acquired businesses with pre-existing operations. The major contributors to reduced operating costs were lower prices for both polystyrene and aluminum. The paperboard business reported revenues in 1996 of $1,700 million, compared with $1,928 million in 1995. Revenues were lower as a result of weaker containerboard prices, which averaged 27 percent less compared with 1995. As a result, 1996 operating income declined $265 million to $120 million, compared with $385 million in 1995, excluding gains on asset sales and a $6 million realignment charge for the folding carton operations. Including asset sales and the 1996 realignment charge, operating income was $164 million in 1996, compared with $399 million in 1995. Volume increases of 2 percent and a better mix of higher value added and enhanced graphics business partially offset the softness in containerboard prices. The paperboard business reported a $50 million pre-tax gain in 1996 from the sale of the two recycled paperboard mills and a recycling center and brokerage operation to a joint venture with Caraustar Industries, while 1995 included a $14 million pre-tax gain from the sale of a recycled medium mill in North Carolina. TENNECO PACKAGING'S DISTRIBUTION OF REVENUES
1996 1995 ---- ---- Paperboard Business................................................... 47% 70% Specialty Business.................................................... 53% 30%
OUTLOOK As a result of acquisitions and operational changes made in 1995 and 1996, Tenneco Packaging has a much higher margin product base and expects continued strong revenues and operating income in the specialty business in 1997, as well as continued margin expansion. Profitability of the specialty business is expected to continue to improve in 1997 due primarily to volume growth, product mix management and cost leverage. Continued consumer shifts toward convenience packaging are expected to generate strong market growth in Tenneco Packaging's key market segments. Volume growth in the consumer market is expected to continue to come from product innovations such as Hefty OneZip(R) food storage bags, further reinforcing Tenneco Packaging's increasingly strong position in that market. Additionally, the specialty business is expected to benefit from a full year of ownership of the foam products business along with acquisition integration actions and synergies. In the paperboard business, the industry outlook for containerboard remains uncertain. Industry fundamentals show signs of improvement. Box demand continues to strengthen, increasing nearly 5 percent in the fourth quarter over 1995, while containerboard exports surged 80 percent in the same period. Sustained economic growth coupled with slower capacity expansion should contribute to market improvements. 29 Looking forward, Tenneco Packaging remains committed to further reducing cyclicality by entering select new markets or expanding existing operations in value-added packaging while improving internal operating efficiencies. This "Outlook" section contains forward looking statements. See "Cautionary Statement for Purposes of "Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" for a description of certain factors that could cause actual results to differ from anticipated results and other matters. OTHER Tenneco reported other operating loss of $22 million for 1996, compared with $2 million of operating income in 1995. The 1996 loss included a $17 million charge related to the acceleration of certain employee benefits in connection with the Transaction. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) Tenneco's 1996 interest expense was $195 million, compared with $160 million in 1995. This increase resulted primarily from the funding of acquisitions, including Clevite and the foam products business in 1996 and the plastics business in late 1995. Interest capitalized was $6 million in 1996, compared with $5 million in 1995. INCOME TAXES The 1996 effective tax rate was 44.8 percent, compared with 45.1 percent in 1995. The 1996 effective tax rate was higher than the federal statutory tax rate due primarily to the realignment costs incurred in the European operations of Tenneco Automotive's exhaust systems business, which were not fully tax benefited, nondeductible goodwill, and state income taxes. MINORITY INTEREST Minority interest was $21 million in 1996, compared with $23 million in 1995, which related to dividends on preferred stock of a U.S. subsidiary for both years. See Note 10 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS Income from discontinued operations in 1996 of $428 million, net of income tax expense of $129 million, or $2.43 per average common share, reflected the net income of the Energy Business and the Shipbuilding Business through December 11, 1996, prior to the consummation of the Merger and the Distributions, respectively. Income from discontinued operations for 1996 also included Tenneco's share of the net loss of the farm and construction equipment business. Additionally, income from discontinued operations included a $340 million gain, net of income tax expense of $83 million, on the sale of Tenneco's remaining investment in Case Corporation ("Case"), and transaction costs--consisting primarily of financial advisory, legal, accounting, printing, and other costs--of $108 million, net of an income tax benefit of $17 million, that were incurred in connection with the Transaction. Income from discontinued operations for the Energy Business in 1996 was $127 million, net of income tax expense of $32 million. Income from discontinued operations for the Shipbuilding Business in 1996 was $70 million, net of income tax expense of $32 million. Loss from discontinued operations for the farm and construction equipment business was $1 million for 1996, net of an income tax benefit of $1 million. Income from discontinued operations in 1995 was $477 million, net of income tax expense of $30 million, or $2.68 per average common share, and was attributable to the operations of the Energy Business, the 30 Shipbuilding Business, and the farm and construction equipment business. The 1995 discontinued operations also included a gain from the sale of Case stock of $101 million and a $32 million gain from the sale of a Case subordinated note, net of income tax expense of $2 million. Income from discontinued operations for the Energy Business in 1995 was $158 million, net of an income tax benefit of $11 million. Income from discontinued operations for the Shipbuilding Business in 1995 was $73 million, net of income tax expense of $58 million. Income from discontinued operations for the farm and construction equipment business in 1995 was $113 million, net of an income tax benefit of $19 million. Extraordinary loss for 1996 was $236 million, net of income tax benefit of $126 million, or $1.38 per average common share. The extraordinary loss was incurred as a result of the Debt Realignment and consists principally of the fair value paid in the cash tender offers and the fair value of debt exchanged in the debt exchange offers in excess of the historical net carrying value for the debt tendered and exchanged. See Note 4 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements for additional information. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS
1996 1995 ---- ------ (MILLIONS) Cash provided (used) by: Operating activities............................................ $253 $1,443 Investing activities............................................ (693) (1,146) Financing activities............................................ 147 (356)
OPERATING ACTIVITIES Operating cash flows from continuing operations for 1996 increased $113 million, compared with 1995. This increase was due primarily to improvements in the working capital of continuing businesses which contributed $131 million to the higher operating cash flows. Inventory growth declined in 1996 at both Tenneco Automotive and Tenneco Packaging from streamlining product distribution and implementing new programs to minimize inventory levels. Operating cash flows from discontinued operations declined $1,303 million in 1996, compared with 1995, due to tax payments for the settlement of tax liabilities, lower sales of trade accounts receivable and gas contract settlements at the Energy Business of $318 million. INVESTING ACTIVITIES Cash used for acquisitions of businesses during 1996 of $789 million resulted primarily from the acquisitions of Amoco Foam Products for $310 million and Clevite for $328 million. Tenneco also invested $573 million in capital expenditures in its continuing businesses and $357 million in its discontinued operations during 1996. Capital expenditures in continuing businesses included $177 million for Tenneco Automotive, $341 million for Tenneco Packaging, and $55 million for Tenneco Business Services and other operations. For Tenneco Packaging, these expenditures included $14 million for a sawmill and wood products business in Romania, $36 million to expand production capacity of polystyrene foam products for the foodservice disposables and consumer plate businesses, $12 million for the customer-linked manufacturing system of the specialty business and $10 million to complete improvements to a paper machine at the Counce, Tennessee, mill. Tenneco Automotive's capital spending included $22 million related to new OE business and $32 million for systems integration and automation projects. In addition, Tenneco Automotive's spending also included $8 million to expand capacity and take advantage of synergies related to recent acquisitions. 31 Net proceeds related to the sale of discontinued operations of $1,051 million in 1996 resulted primarily from the sale of the remaining Case common stock for $788 million along with proceeds from the sale of a pipeline interest. Net proceeds related to the sale of discontinued operations in 1995 resulted from the sale of Albright & Wilson chemicals operations, the sale of Case common stock, and the sale of a Case subordinated note. Net proceeds from sales of businesses and assets during 1996 were $149 million, which included $115 million from the sale of two recycled paperboard mills and a recycling center and brokerage operation to a joint venture with Caraustar Industries. FINANCING ACTIVITIES Cash flows from financing activities were $147 million in 1996, which included the issuance of $2.8 billion of long-term debt, issuance of the NPS Preferred Stock of $296 million, repayment of net short-term debt of $221 million, and the early retirement of $2.3 billion of long-term debt in connection with the consummation of the Debt Realignment and the other components of the Transaction. Tenneco also used cash flows during 1996 to reacquire its common stock for $172 million and to pay $313 million in dividends on its common and preferred stock. In 1995, Tenneco had a net increase of $503 million in debt (primarily related to the funding of acquisitions), reacquired common stock of $655 million, and paid dividends on its common and preferred stock of $286 million. CHANGE IN ACCOUNTING PRINCIPLES In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1 "Environmental Remediation Liabilities," which establishes new accounting and reporting standards for the recognition and disclosure of environmental remediation liabilities. The provisions of the statement are effective for fiscal years beginning after December 15, 1996. 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 these new standards is not expected to have a significant effect on Tenneco's financial position or results of operations. LIQUIDITY At December 31, 1996, Tenneco's principal credit facility was a $1.75 billion committed financing arrangement with a syndicate of banks and other financial institutions which expires in 2001. Committed borrowings under this credit facility bear interest at an annual rate equal to, at the borrower'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 based on the credit rating of Tenneco's long-term debt; or (iii) a rate based on money market rates pursuant to competitive bids by the syndicate banks. The credit facility requires that Tenneco's ratio of debt to total capitalization not exceed 70%. Compliance with this requirement is a condition for any incremental borrowings under the credit facility and failure to meet the requirement enables the syndicate banks to require repayment of any outstanding loans after a 30-day cure period. In addition, the credit facility imposes certain other restrictions, none of which are expected to limit Tenneco's ability to operate its businesses in the ordinary course. 32 CAPITAL COMMITMENTS Tenneco estimates that expenditures of approximately $350 million will be required after December 31, 1996, to complete facilities and projects authorized at such date, and substantial commitments have been made in connection therewith. This amount includes approximately $97 million which Tenneco Packaging intends to spend 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. Also included in capital commitments is $40 million which Tenneco Automotive anticipates that it will spend on expansion of businesses acquired in 1995 and 1996, and $24 million to complete systems development and implementation effects at Tenneco Business Services supporting the consolidation of common administrative transactions. Tenneco believes it has adequate resources available to finance its future requirements, including capital expenditures for existing operations plus potential strategic acquisitions. CAPITALIZATION
% 1996 1995 CHANGE ------ ------ ------ (MILLIONS) Short-term debt and current maturities..................... $ 236 $ 384 (39%) Long-term debt............................................. 2,067 1,648 25% Minority interest.......................................... 304 301 1% Common shareowners' equity................................. 2,646 3,148 (16%) ------ ------ ---- Total capitalization..................................... $5,253 $5,481 (4%) ====== ====== ====
The primary reason for the increase in debt is the issuance of debt for the Amoco Foam Products and Clevite acquisitions. Tenneco's ratio of debt to total capitalization was 43.8 percent at December 31, 1996, compared with 37.1 percent at December 31, 1995. Tenneco's shareowners' equity decreased during 1996 primarily as a result of the Transaction. DIVIDENDS ON COMMON STOCK Tenneco Inc. declared dividends on its common shares of $.45 per share for each quarter in 1996. Following the Merger and Distributions, in December 1996, the Board of Directors declared a dividend of $.30 per share for the first quarter of 1997. Declaration of dividends is at the discretion of the Board of Directors. The Board has not adopted a dividend policy as such. Subject to legal and contractual restrictions, its decisions regarding dividends are 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 Tenneco's business and operations. ENVIRONMENTAL MATTERS Tenneco 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 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 33 new information. These liabilities are included in the balance sheet at their undiscounted amounts. Recoveries are evaluated separately from the liability and, when assured, are recorded and reported separately from the associated liability in the financial statements. At February 20, 1997, Tenneco had been designated as a potentially responsible party in 4 "Superfund" sites. Tenneco has estimated its share of the remediation costs for these sites to be between $6 million and $9 million in the aggregate and has established 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, Tenneco's estimate of its remediation costs could change. Moreover, liability under the Comprehensive Environmental Response, Compensation and Liability Act is joint and several, meaning that Tenneco could be required to pay in excess of its share of remediation costs. Tenneco's understanding of the financial strength of other potentially responsible parties has been considered, where appropriate, in Tenneco's determination of its estimated liability. Tenneco believes that the costs associated with its current status as a potentially responsible party in the Superfund sites referenced above will not be material to its consolidated financial position or results of operations. YEARS 1995 AND 1994 RESULTS OF OPERATIONS NET SALES AND OPERATING REVENUES Revenues for 1995 were $5.22 billion, up from $4.17 billion in 1994. Tenneco Automotive's revenues were $2,479 million, up $490 million, a 25 percent increase, compared with 1994. The increase in 1995 revenues was due primarily to revenues from recent acquisitions, increased new vehicle production in North America and an improving European economy. Aftermarket revenues in Europe also benefited from volume increases and a recent acquisition. Tenneco Packaging's revenues increased $568 million, or 26 percent, to $2.75 billion in 1995, as a result of strong improvements in linerboard prices during 1995 that began in late 1994 and continued until the end of 1995. INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING INCOME) Operating income was $672 million for 1995, an improvement of $216 million, compared with 1994's operating income of $456 million. Excluding gains from asset sales and other special charges discussed below, 1995 operating income increased $220 million, or 46 percent, compared with 1994. This increase was due primarily to improved pricing in Tenneco Packaging's paperboard business. Tenneco Automotive's operating income for 1995 was $240 million, compared with $223 million in 1994. Operating income for the exhaust systems business increased in 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. Tenneco Automotive's exhaust systems 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 start-up costs of $10 million in 1995 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. Operating income for the ride control business 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. Tenneco Automotive's margins were 9.7 percent in 1995, compared with 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 operating margins improved to 8.1 percent from 7.8 percent as a result of improved economic conditions. 34 Tenneco Packaging's operating income for 1995 was $430 million, compared with $209 million in 1994. The 1995 operating income included a gain of $14 million on the sale of a recycled medium mill in North Carolina and a restructuring charge of $30 million for its molded fiber and aluminum foil packaging operations. Tenneco Packaging's paperboard business earned $399 million, up $260 million, compared with 1994. 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. The specialty business earned $31 million in operating income in 1995, a $39 million decrease, compared with 1994 results. The specialty business recorded a restructuring charge of $30 million in 1995 for its molded fiber and aluminum foil packaging operations and recognized operating income of $15 million from the recently acquired plastics business. Excluding these two items, the decline in operating income for specialty 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. Tenneco reported other operating income of $2 million for 1995, compared with $24 million for 1994. This decrease in other operating income resulted from lower interest income on temporary cash investments. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) Tenneco's interest expense in 1995 was $160 million, compared with $104 million in 1994. The higher interest expense in 1995, compared with 1994, is principally due to higher levels of debt resulting from recent acquisitions. Interest capitalized was $5 million in 1995 compared with $2 million in 1994 due to higher levels of capital spending in 1995. INCOME TAXES Income tax expense for 1995 was $231 million, compared with $114 million in 1994. Tenneco's effective tax rate was 45.1 percent in 1995, compared with 32.4 percent in 1994. The increased 1995 tax expense resulted primarily from higher pre-tax income and higher foreign tax expense. In 1994, Tenneco recorded tax benefits from the realization of deferred tax assets resulting from consolidation of Tenneco's German operations. MINORITY INTEREST Minority interest of $23 million for 1995 related to dividends on preferred stock of a U.S. subsidiary which was issued in December 1994. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS Income from discontinued operations in 1995 of $477 million, net of income tax expense of $30 million, or $2.68 per average common share, reflected the net income of the Energy Business, the Shipbuilding Business, and the farm and construction equipment business. The 1995 discontinued operations also included a gain from the sale of Case stock of $101 million and a gain from the sale of a Case subordinated note of $32 million, net of income tax expense of $2 million. Income from discontinued operations for the Energy Business in 1995 was $158 million, net of an income tax benefit of $11 million. Income from discontinued operations for the Shipbuilding Business in 1995 was $73 35 million, net of income tax expense of $58 million. Income from discontinued operations for the farm and construction equipment business in 1995 was $113 million, net of an income tax benefit of $19 million. Income from discontinued operations in 1994 of $214 million, net of income tax expense of $265 million, or $1.13 per average common share, reflected the net income of the Energy Business, the Shipbuilding Business, the farm and construction equipment business, and the chemicals and brakes businesses. Extraordinary loss for 1994 was $5 million, net of an income tax benefit of $2 million, or $.03 per average common share. The loss resulted from redemption premiums from prepaying high interest-bearing long-term debt. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE Effective January 1, 1994, Tenneco 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 $39 million was recorded in 1994. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS
1995 1994 ------- ----- (MILLIONS) Cash provided (used) by: Operating activities.......................................... $ 1,443 $ 450 Investing activities.......................................... (1,146) (117) Financing activities.......................................... (356) (151)
OPERATING ACTIVITIES Operating cash flows from continuing operations for 1995 declined compared with 1994. This decline was due primarily 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. Operating cash flows from discontinued operations for 1995 improved as Tenneco generated $858 million from the collection and sale of customer receivables, compared with cash used in 1994 of $417 million. This increase was due primarily to trade receivables sold to Asset Securitization Cooperative Corporation, which were $783 million higher in 1995, compared with 1994. The increase in collections of receivables was also due in part to the collection of approximately $300 million of Case retail receivables in 1995. Operating cash flows in 1995 also benefited from lower interest and tax payments, compared with 1994. INVESTING ACTIVITIES Net proceeds from the sale of discontinued operations, primarily the Albright & Wilson chemicals operations, 16.1 million shares of Case stock and the Case subordinated note, provided $1,539 million of cash in 1995. Net proceeds from sales of businesses and assets for 1995 were $56 million, which included the $30 million proceeds from the sale of a recycled medium mill in North Carolina. Cash used for business acquisitions for 1995 totaled $1,702 million. The largest single transaction in 1995 was the acquisition of the plastics business from Mobil by Tenneco Packaging for $1.3 billion. In addition, the Energy Business and Tenneco Automotive also made acquisitions during the year. 36 During 1994, Tenneco's cash sources included $843 million in proceeds from sale of discontinued operations and sales of businesses and assets (primarily the Case initial and secondary public offerings for $694 million). Further, Tenneco invested $562 million in capital expenditures in its continuing businesses during 1995. Capital expenditures included $208 million for Tenneco Automotive, $316 million for Tenneco Packaging, and $38 million related to Tenneco's other operations. 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 in cash, and $24 million for expanding a key exhaust plant and distribution center. 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. Capital expenditures increased in 1995, compared with the prior year in all businesses. FINANCING ACTIVITIES Tenneco accessed its credit facilities, the commercial paper market and the long-term debt markets during 1995 for $1,016 million. Included in the $1,016 million of debt funding obtained during the year was $600 million in long-term debt issued in December 1995, $300 million issued at an interest rate of 7 1/4 percent due in 2025 and $300 million issued at an interest rate of 6 1/2 percent due in 2005. Besides business expansion, Tenneco used its cash flow during 1995 for the scheduled retirement of $513 million in long-term debt, to reacquire Tenneco Inc. common stock for $655 million and to pay $286 million in dividends on its common and preferred stock. In December 1994, Tenneco sold a 25 percent preferred stock interest in a subsidiary, which resulted in net cash proceeds of $296 million. This was included in the balance sheet as minority interest at December 31, 1994. Furthermore, in 1994 Tenneco had a net reduction of $111 million in debt (primarily as a result of the Case offerings and deconsolidation of Case), and paid dividends on its common and preferred stock of $318 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS OF TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
PAGE ---- Report of independent public accountants.................................. 38 Statements of income for each of the three years in the period ended December 31, 1996........................................................ 39 Balance sheets--December 31, 1996 and 1995................................ 40 Statements of cash flows for each of the three years in the period ended December 31, 1996........................................................ 41 Statements of changes in shareowners' equity for each of the three years in the period ended December 31, 1996........................................................ 42 Notes to financial statements............................................. 43
37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Tenneco Inc.: We have audited the accompanying balance sheets of Tenneco Inc. (a Delaware corporation) and consolidated subsidiaries (see Note 1) as of December 31, 1996 and 1995, and the related statements of income, cash flows and changes in shareowners' equity for each of the three years in the period ended December 31, 1996. These financial statements and the schedule referred to below are the responsibility of Tenneco Inc.'s management. Our responsibility is to express an opinion on these 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 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tenneco Inc. and consolidated subsidiaries as of December 31, 1996 and 1995, and the results of their operations, cash flows and changes in shareowners' equity for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, effective January 1, 1994, Tenneco changed its method of accounting for postemployment benefits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule listed in the index to Part IV, Item 14 relating to Tenneco Inc. and consolidated subsidiaries is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic 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 financial statements of Tenneco Inc. and consolidated subsidiaries taken as a whole. Arthur Andersen LLP Houston, Texas February 17, 1997 38 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (MILLIONS EXCEPT SHARE AMOUNTS) REVENUES Net sales and operating revenues-- Automotive.......................... $ 2,980 $ 2,479 $ 1,989 Packaging........................... 3,602 2,752 2,184 Intergroup sales and other.......... (10) (10) (7) ----------- ----------- ----------- 6,572 5,221 4,166 Other income, net..................... 76 39 (2) ----------- ----------- ----------- 6,648 5,260 4,164 ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)............ 4,762 3,737 3,050 Engineering, research and development. 92 67 43 Selling, general and administrative... 857 588 473 Depreciation, depletion and amortization......................... 309 196 142 ----------- ----------- ----------- 6,020 4,588 3,708 ----------- ----------- ----------- INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST............ 628 672 456 Interest expense (net of interest capitalized)......................... 195 160 104 Income tax expense.................... 194 231 114 Minority interest..................... 21 23 -- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS....... 218 258 238 Income from discontinued operations, net of income tax.......................... 428 477 214 ----------- ----------- ----------- Income before extraordinary loss........ 646 735 452 Extraordinary loss, net of income tax... (236) -- (5) ----------- ----------- ----------- Income before cumulative effect of change in accounting principle......... 410 735 447 Cumulative effect of change in accounting principle, net of income tax.................................... -- -- (39) ----------- ----------- ----------- NET INCOME.............................. 410 735 408 Preferred stock dividends............... 12 12 12 ----------- ----------- ----------- NET INCOME TO COMMON STOCK.............. $ 398 $ 723 $ 396 =========== =========== =========== PER SHARE Average number of shares of common stock outstanding............................ 170,635,277 173,995,941 180,084,909 Earnings (loss) per average share of common stock-- Continuing operations................. $ 1.28 $ 1.48 $ 1.32 Discontinued operations............... 2.43 2.68 1.13 Extraordinary loss.................... (1.38) -- (.03) Cumulative effect of change of accounting principle................. -- -- (.22) ----------- ----------- ----------- $ 2.33 $ 4.16 $ 2.20 =========== =========== =========== Cash dividends per share of common stock.................................. $ 1.80 $ 1.60 $ 1.60 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements of income. 39 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS
DECEMBER 31, -------------- ASSETS 1996 1995 ------ ------ ------ (MILLIONS) Current assets: Cash and temporary cash investments.............................. $ 62 $ 354 Receivables-- Customer notes and accounts, net............................... 561 351 Affiliated companies........................................... -- 117 Income taxes................................................... -- 41 Other.......................................................... 138 54 Inventories...................................................... 878 838 Deferred income taxes............................................ 95 23 Prepayments and other............................................ 189 168 ------ ------ 1,923 1,946 ------ ------ Other assets: Long-term notes receivable....................................... 20 16 Goodwill and intangibles, net.................................... 1,341 1,024 Deferred income taxes............................................ 60 52 Pension assets................................................... 547 433 Other............................................................ 444 239 ------ ------ 2,412 1,764 ------ ------ Plant, property and equipment, at cost............................. 4,870 4,138 Less--Reserves for depreciation, depletion and amortization...... 1,618 1,480 ------ ------ 3,252 2,658 ------ ------ Net assets of discontinued operations.............................. -- 1,045 ------ ------ $7,587 $7,413 ====== ====== LIABILITIES AND SHAREOWNERS' EQUITY ----------------------------------- Current liabilities: Short-term debt (including current maturities on long-term debt). $ 236 $ 384 Payables-- Trade.......................................................... 651 589 Affiliated companies........................................... -- 47 Taxes accrued.................................................... 91 45 Accrued liabilities.............................................. 308 237 Other............................................................ 335 257 ------ ------ 1,621 1,559 ------ ------ Long-term debt..................................................... 2,067 1,648 ------ ------ Deferred income taxes.............................................. 476 435 ------ ------ Postretirement benefits............................................ 168 156 ------ ------ Deferred credits and other liabilities............................. 305 166 ------ ------ Commitments and contingencies Minority interest.................................................. 304 301 ------ ------ Shareowners' equity: Common stock..................................................... 2 957 Stock Employee Compensation Trust (common stock held in trust)... -- (215) Premium on common stock and other capital surplus................ 2,642 3,602 Cumulative translation adjustments............................... 23 26 Retained earnings (accumulated deficit).......................... (21) (469) ------ ------ 2,646 3,901 Less--Shares held as treasury stock, at cost..................... -- 753 ------ ------ 2,646 3,148 ------ ------ $7,587 $7,413 ====== ======
The accompanying notes to financial statements are an integral part of these balance sheets. 40 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------- 1996 1995 1994 ------ ------ ------ (MILLIONS) OPERATING ACTIVITIES Income from continuing operations..................... $ 218 $ 258 $ 238 Adjustments to reconcile income from continuing operations to cash provided (used) by continuing operations-- Depreciation, depletion and amortization............ 309 196 142 Deferred income taxes............................... 23 75 19 Gain on sale of businesses and assets, net.......... (64) (15) (5) Changes in components of working capital-- (Increase) decrease in receivables................ 104 30 87 (Increase) decrease in inventories................ 18 (102) (57) (Increase) decrease in prepayments and other current assets................................... 45 (39) 8 Increase (decrease) in payables................... (70) 7 69 Increase (decrease) in taxes accrued.............. 31 23 (17) Increase (decrease) in other current liabilities.. (93) (15) (3) Other............................................... (18) (28) 20 ------ ------ ------ Cash provided (used) by continuing operations......... 503 390 501 Cash provided (used) by discontinued operations....... (250) 1,053 (51) ------ ------ ------ Net cash provided (used) by operating activities...... 253 1,443 450 ------ ------ ------ INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations........................................... 1,051 1,539 827 Net proceeds from sale of businesses and assets....... 149 56 16 Expenditures for plant, property and equipment-- Continuing operations............................... (573) (562) (280) Discontinued operations............................. (357) (418) (524) Acquisitions of businesses............................ (789) (1,702) (51) Investments and other................................. (174) (59) (105) ------ ------ ------ Net cash provided (used) by investing activities...... (693) (1,146) (117) ------ ------ ------ FINANCING ACTIVITIES Issuance of common, treasury and SECT shares.......... 164 102 188 Purchase of common stock.............................. (172) (655) (26) Issuance of NPS Preferred Stock....................... 296 -- -- Issuance of equity securities by a subsidiary......... -- -- 296 Redemption of equity securities by a subsidiary....... -- -- (160) Redemption of preferred stock......................... (20) (20) (20) Issuance of long-term debt............................ 2,800 595 980 Retirement of long-term debt.......................... (2,288) (513) (1,466) Net increase (decrease) in short-term debt excluding current maturities on long-term debt................. (221) 421 375 Cash transferred in Merger and Distributions.......... (99) -- -- Dividends (common and preferred)...................... (313) (286) (318) ------ ------ ------ Net cash provided (used) by financing activities...... 147 (356) (151) ------ ------ ------ Effect of foreign exchange rate changes on cash and temporary cash investments........................... 1 8 5 ------ ------ ------ Increase (decrease) in cash and temporary cash investments.......................................... (292) (51) 187 Cash and temporary cash investments, January 1........ 354 405 218 ------ ------ ------ Cash and temporary cash investments, December 31 (Note)............................................... $ 62 $ 354 $ 405 ====== ====== ====== Cash paid during the year for interest................ $ 489 $ 459 $ 613 Cash paid during the year for income taxes (net of refunds)............................................. $ 685 $ 168 $ 240
- -------- 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 financial statements are an integral part of these statements of cash flows. 41 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 ------------------- ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------ ----------- ------ ----------- ------ (MILLIONS EXCEPT SHARE AMOUNTS) PREFERRED STOCK Balance January 1....... -- $ -- -- $ -- 8,935,175 $ 9 Series A preferred stock converted....... -- -- -- -- (8,935,175) (9) Issuance of NPS Preferred Stock....... 6,000,000 296 -- -- -- -- Merger of Energy Business.............. (6,000,000) (296) -- -- -- -- ----------- ------ ----------- ------ ----------- ------ Balance December 31..... -- -- -- -- -- -- =========== ------ =========== ------ =========== ------ COMMON STOCK Balance January 1....... 191,351,615 957 191,335,193 957 173,953,012 870 Issued to convert Series A preferred stock................. -- -- -- -- 17,342,763 87 Issued pursuant to benefit plans......... 84,796 -- 3,761 -- 37,996 -- Recapitalization of New Tenneco........... (19,868,753) (955) -- -- -- -- Other.................. -- -- 12,661 -- 1,422 -- ----------- ------ ----------- ------ ----------- ------ Balance December 31..... 171,567,658 2 191,351,615 957 191,335,193 957 =========== ------ =========== ------ =========== ------ STOCK EMPLOYEE COMPENSATION TRUST (SECT) Balance January 1....... (215) (298) (499) Shares issued.......... 216 118 115 Adjustment to market value................. (1) (35) 86 ------ ------ ------ Balance December 31..... -- (215) (298) ------ ------ ------ PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS Balance January 1....... 3,602 3,553 3,714 Premium on common stock issued pursuant to benefit plans...... 28 -- 2 Conversion of Series A preferred stock....... -- -- (78) Adjustment of SECT to market value.......... 1 35 (86) Merger of Energy Business.............. (372) -- -- Distribution of Shipbuilding Business.............. (270) -- -- Recapitalization of New Tenneco........... (348) -- -- Other.................. 1 14 1 ------ ------ ------ Balance December 31..... 2,642 3,602 3,553 ------ ------ ------ CUMULATIVE TRANSLATION ADJUSTMENTS Balance January 1....... 26 (237) (303) Translation of foreign currency statements... 39 25 68 Disposition of investments in foreign subsidiaries.. (11) 235 -- Hedges of net investment in foreign subsidiaries (net of income taxes)......... (31) 3 (2) ------ ------ ------ Balance December 31..... 23 26 (237) ------ ------ ------ RETAINED EARNINGS (ACCUMULATED DEFICIT) Balance January 1....... (469) (905) (980) Net income............. 410 735 408 Dividends-- Preferred stock...... (9) (9) (8) Series A preferred stock............... -- -- (48) Common stock......... (312) (287) (273) Accretion of excess of redemption value of preferred stock over fair value at date of issue................. (3) (3) (4) Recapitalization of New Tenneco........... 362 -- -- ------ ------ ------ Balance December 31..... (21) (469) (905) ------ ------ ------ LESS--COMMON STOCK HELD AS TREASURY STOCK, AT COST Balance January 1....... 16,422,619 753 3,617,510 170 4,166,835 210 Shares acquired........ 5,118,904 267 14,066,214 641 1,731,263 75 Shares issued to acquire businesses.... -- -- (1,229,614) (56) -- -- Shares issued pursuant to benefit and dividend reinvestment plans.... (1,672,770) (79) (31,491) (2) (2,280,588) (115) Recapitalization of New Tenneco........... (19,868,753) (941) -- -- -- -- ----------- ------ ----------- ------ ----------- ------ Balance December 31..... -- -- 16,422,619 753 3,617,510 170 =========== ------ =========== ------ =========== ------ Total.................. $2,646 $3,148 $2,900 ====== ====== ======
The accompanying notes to financial statements are an integral part of these statements of changes in shareowners' equity. 42 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. MERGER AND DISTRIBUTIONS During 1996, Tenneco Inc. ("Old Tenneco") undertook a series of transactions to reorganize its historical businesses (the "Transaction"). Prior to the Transaction, Old Tenneco restructured its businesses such that the assets, liabilities, and operations of its automotive ("Tenneco Automotive"), packaging ("Tenneco Packaging"), and administrative services businesses (collectively, the "Industrial Business") were owned and operated by New Tenneco Inc. ("New Tenneco"), a new wholly-owned subsidiary of Old Tenneco, and the assets, liabilities, and operations of its shipbuilding business (the "Shipbuilding Business") were owned and operated by Newport News Shipbuilding Inc. ("Newport News"), another wholly-owned subsidiary of Old Tenneco. On December 11, 1996, Old Tenneco spun-off New Tenneco and Newport News by distributing all of the common stock of each company to Old Tenneco's shareowners (the "Distributions"). Following the Distributions, on December 12, 1996, a subsidiary of El Paso Natural Gas Company ("El Paso") was merged (the "Merger") into Old Tenneco, which then consisted solely of Old Tenneco's remaining active businesses, principally in the energy industry, and certain discontinued operations (the "Energy Business"), with Old Tenneco surviving the Merger as a subsidiary of El Paso. Immediately subsequent to the Merger, Old Tenneco was renamed "El Paso Tennessee Pipeline Co.", and New Tenneco was renamed "Tenneco Inc." In preparation for the Merger and Distributions, Old Tenneco realigned $3.8 billion of indebtedness (the "Debt Realignment") through various cash tender offers, debt exchanges, defeasances, and other retirements. The cash funding required to consummate the Debt Realignment was financed through internally generated cash, borrowings under new credit facilities of both Old Tenneco and New Tenneco, borrowings under a new credit facility and other financings at Newport News, and proceeds from the issuance of the 8 1/4% cumulative junior preferred stock ("NPS Preferred Stock"), which was retained by Old Tenneco in the Merger. See Note 5, "Long-Term Debt, Short-Term Debt, and Financing Arrangements," for further discussion of the Debt Realignment. Although the separation of the Industrial Business from the remainder of the businesses, operations, and companies constituting Old Tenneco was structured as a "spin-off" of New Tenneco for legal, tax, and other reasons, New Tenneco succeeded to certain important aspects of the Old Tenneco business, organization, and affairs, namely: (i) New Tenneco was renamed "Tenneco Inc." upon the consummation of the Merger; (ii) the Industrial Business conducted by New Tenneco principally consists of Tenneco Automotive and Tenneco Packaging, which combined represented over half of the assets, revenues, and operating income of the businesses, operations, and companies previously constituting Old Tenneco; (iii) New Tenneco's Board of Directors consists of those persons previously comprising Old Tenneco's Board of Directors; (iv) New Tenneco's executive management consists substantially of Old Tenneco's executive management; and (v) New Tenneco retained as its headquarters the former headquarters of Old Tenneco in Greenwich, Connecticut. Consequently, the consolidated financial statements present the net assets and results of operations of the Shipbuilding Business and the Energy Business as discontinued operations. Shareowner approval of the Transaction was received in a special meeting on December 10, 1996. Reference is made to Note 4, "Discontinued Operations, Disposition of Assets, and Extraordinary Loss." In connection with the Distributions, one share of New Tenneco common stock ($.01 par value) was issued for each share of Old Tenneco common stock ($5.00 par value) and one share of Newport News common stock was issued for each five shares of Old Tenneco common stock. Also, in connection with the Merger, Old Tenneco shareowners received shares of El Paso common stock valued at approximately $914 million in the aggregate in exchange for their shares of Old Tenneco common and preferred stock. The treasury shares held by Old Tenneco did not participate in the Merger and Distributions and such shares were retained by Old Tenneco in the Merger. Subsequent to the Transaction, the common equity of Tenneco Inc. relates solely to the shares of New Tenneco (renamed Tenneco Inc.) common stock issued in the Distributions. In connection with the Transaction, the accumulated retained earnings (deficit) of Old Tenneco was eliminated. Retained earnings 43 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) shown on the December 31, 1996 balance sheet represents net earnings (losses) accumulated after the date of the Transaction. The effects of the issuance of New Tenneco common stock in the Distributions, the retention of treasury shares by Old Tenneco, and the elimination of Old Tenneco's retained earnings (deficit) have been reflected in the statements of changes in shareowners' equity as "Recapitalization of New Tenneco." For purposes of these financial statements, "Tenneco" or the "Company" refers to Old Tenneco and its subsidiaries prior to the Transaction, and to Tenneco Inc., formerly known as New Tenneco Inc., and its subsidiaries subsequent to the Transaction. 2. SUMMARY OF ACCOUNTING POLICIES Consolidation and Presentation The financial statements of the Company include all majority-owned subsidiaries. Investments in 20% to 50% owned companies where Tenneco has the ability to exert significant influence over operating and financial policies are carried at cost plus equity in undistributed earnings since the date of acquisition and cumulative translation adjustments. All significant intercompany transactions have been eliminated. Income Taxes Tenneco 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 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. Tenneco 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 $610 million at December 31, 1996. 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, Tenneco entered into a tax sharing agreement with Newport News, Old Tenneco, and El Paso. The tax sharing agreement provides, among other things, for the allocation among the parties of tax liabilities arising prior to, as a result of, and subsequent to the Distributions. For periods subsequent to the Distributions, Tenneco will be liable for taxes imposed on the Industrial Business, Old Tenneco will be liable for taxes imposed on the Energy Business, and Newport News will be liable for taxes imposed on the Shipbuilding Business. In the case of federal income taxes imposed on the activities of the Old Tenneco consolidated group prior to the Distributions, Tenneco and Newport News are generally liable to Old Tenneco for federal income taxes attributable to the Industrial Business and Shipbuilding Business, respectively, and those entities have been allocated an agreed-upon share of estimated tax payments made by Old Tenneco. Changes in Accounting Principles In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities," which establishes new accounting and reporting standards for the recognition and disclosure of environmental remediation liabilities. The provisions of the statement are effective for fiscal years beginning after December 15, 1996. The impact of this new standard is not expected to have a significant effect on Tenneco's financial position or results of operations. 44 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 is not expected to have a significant effect on Tenneco's financial position or results of operations. Tenneco 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 Tenneco's financial position or results of operations. Effective January 1, 1994, Tenneco adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits." This 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. Tenneco recorded an after-tax charge in 1994 of $39 million ($.22 per average common share), which was reported as a cumulative effect of change in accounting principle. Inventories At December 31, 1996 and 1995, inventory by major classification was as follows:
1996 1995 ----- ----- (MILLIONS) Finished goods................................................ $ 408 $ 396 Work in process............................................... 118 102 Raw materials................................................. 245 253 Materials and supplies........................................ 107 87 ----- ----- $878 $ 838 ===== =====
Inventories are stated at the lower of cost or market. A portion of total inventories (46% and 47% at December 31, 1996 and 1995, respectively) is valued using the "last-in, first-out" method. 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 Tenneco for all inventories, inventories would have been $54 million, $48 million, and $46 million higher at December 31, 1996, 1995, and 1994, respectively. Goodwill and Intangibles At December 31, 1996 and 1995, goodwill and intangibles by major category were as follows:
1996 1995 ------ ------ (MILLIONS) Goodwill.................................................... $ 963 $ 632 Trademarks.................................................. 187 194 Patents..................................................... 156 160 Other....................................................... 35 38 ------ ------ $1,341 $1,024 ====== ======
45 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Goodwill is being amortized on a straight-line basis over periods ranging from 25 years to 40 years. Such amortization amounted to $21 million, $10 million, and $8 million for 1996, 1995, and 1994, respectively, and is included in the statements of income caption, "Depreciation, depletion and amortization." Tenneco has capitalized certain intangible assets, primarily trademarks and patents, based on their estimated fair value at date of acquisition. Amortization is provided on these intangible assets on a straight-line basis over periods ranging from 5 to 40 years. Such amortization amounted to $26 million in 1996 and was not significant during 1995 and 1994, and is included in the statements of income caption, "Depreciation, depletion and amortization." The majority of goodwill and intangibles at December 31, 1996, resulted from the acquisition of the plastics division of Mobil Corporation in November 1995 and the 1996 acquisitions of The Pullman Company and its Clevite products division ("Clevite") and Amoco Foam Products Company, a unit of Amoco Chemical Company ("Amoco Foam Products"). See Note 3, "Acquisitions," for further information on these acquisitions. Plant, Property, and Equipment, at Cost At December 31, 1996 and 1995, plant, property, and equipment, at cost, by major category was as follows:
1996 1995 ------ ------ (MILLIONS) Land, buildings, and improvements.......................... $1,339 $1,125 Machinery and equipment.................................... 2,956 2,446 Other, including construction in progress.................. 575 567 ------ ------ $4,870 $4,138 ====== ======
Depreciation of Tenneco's properties is provided on a straight-line basis over the estimated useful lives of the assets. Useful lives range from 10 to 40 years for buildings and improvements and from 3 to 25 years for machinery and equipment. 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 $45 million and $53 million were outstanding at December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, the allowance for doubtful accounts and notes receivable was $32 million and $24 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 46 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) based on actual costs or new information. These liabilities are included in the balance sheet at their undiscounted amounts. Recoveries are evaluated separately from the liability and, when assured, are recorded and reported separately from the associated liability in the financial statements. For further information on this subject, reference is made to Note 14, "Commitments and Contingencies." Earnings Per Share Earnings per share of common stock are based on the average number of shares of common stock outstanding during each period. For purposes of computing earnings per share, Series A preferred stock was included in average common shares outstanding until its conversion into common stock in December 1994; therefore, the preferred dividends paid were not deducted from net income to determine net income to common stock. The inclusion of Series A preferred stock in the computation of earnings per share was antidilutive for the year and certain quarters in 1994. Other convertible securities and common stock equivalents outstanding during each of the three years ended December 31, 1996, 1995, and 1994, were not materially dilutive. Tenneco's preferred stock was converted into El Paso common stock as part of the Merger; therefore, preferred stock dividends have been deducted from income from discontinued operations in determining earnings per share. In 1992, 12,000,000 shares of common stock were issued to the Stock Employee Compensation Trust ("SECT"). Shares of common stock issued to a related trust are not considered to be outstanding in the computation of average shares of common stock outstanding until the shares are utilized to fund the obligations for which the trust was established. During the years ended December 31, 1996, 1995, and 1994, the SECT issued 4,358,084, 2,697,770, and 2,464,721 shares, respectively. All of the remaining shares held by the SECT were issued during the first nine months of 1996 to fund employee benefits and other obligations of the trust. Under Tenneco's stock repurchase programs, a total of approximately 17 million shares of Tenneco Inc. common stock have been acquired since December 1994. All treasury shares were retained by Old Tenneco in connection with the Merger. For further information, reference is made to Note 8, "Common Stock." Allocation of Corporate Debt and Interest Expense 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, prior to the Transaction, has been allocated to the discontinued Energy Business and the discontinued Shipbuilding Business based upon the ratio of the Energy Business and Shipbuilding Business net assets to Tenneco's consolidated net assets plus debt. Interest expense, net of tax, has been allocated to Tenneco's discontinued operations (see Note 4) based on the same allocation methodology. Research and Development Research and development costs are expensed as incurred. Research and development expenses were $60 million, $42 million, and $27 million for 1996, 1995, and 1994, respectively, and were charged to "Engineering, research, and development expenses." Realignment Charges In 1996, the Company recorded charges of approximately $70 million in connection with the reorganization of Tenneco Packaging's folding carton operations and the realignment of Tenneco Automotive's: (i) Walker exhaust system original equipment and aftermarket manufacturing operations in Europe, (ii) Walker aftermarket operations in North America, and (iii) Monroe's ride control product line. 47 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) In 1995, Tenneco Packaging recorded charges of approximately $30 million in connection with the realignment of molded fiber and aluminum foil operations. In 1994, Tenneco Automotive recorded charges of approximately $17 million in connection with plant consolidations in Europe associated with the acquisition of Gillet and approximately $5 million associated with the closing of a plant in Ohio. 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, "Cumulative translation adjustments." Risk Management Activities Tenneco is currently a party to financial instruments to mitigate 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 Tenneco's net investments in foreign subsidiaries are recognized in the balance sheet caption, "Cumulative translation adjustments." Net gains or losses on 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 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. 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 Tenneco'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 Tenneco's financial statements. Reclassifications Prior years' financial statements have been reclassified where appropriate to conform to 1996 presentations. 3. ACQUISITIONS In June 1996, Tenneco entered into agreements to acquire Clevite for approximately $328 million and 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. Tenneco closed the acquisition of Amoco Foam Products in August 1996, and Amoco Foam Products became part of Tenneco Packaging. Also during 1996, Tenneco completed the acquisitions of or investments in various other businesses and joint ventures, principally in the automotive parts industry, for total consideration of approximately $110 million. A preliminary allocation of the purchase price has been made for these acquisitions. A final determination of the purchase price allocation will be made upon the completion of certain ongoing appraisals; however, 48 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) management does not believe that any adjustments to the preliminary purchase price allocation will be material to Tenneco's financial position or results of operations. 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. The following unaudited pro forma information of Tenneco 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 purchase price allocation related to the acquisition, together with estimates of the related income tax effects.
(UNAUDITED) YEARS ENDED DECEMBER 31, ------------- 1995 1994 ------ ------ (MILLIONS EXCEPT SHARE AMOUNTS) Net sales and operating revenues........................... $6,217 $5,203 Income from continuing operations.......................... $ 268 $ 181 Earnings per average share of common stock from continuing operations................................................ $ 1.54 $ 1.01
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 that may be attained in the future. Also during 1995, Tenneco Packaging completed additional acquisitions of eight paperboard packaging businesses and two specialty packaging businesses for a total purchase price of approximately $196 million. In addition, Tenneco Automotive completed four acquisitions in 1995 for a total purchase price of approximately $54 million. All of the acquisitions discussed above have been accounted for as purchases; accordingly, the purchase price has been allocated to the assets purchased, and the liabilities assumed based on their fair values. The excess of the purchase price over the fair value of the net assets acquired is included in the balance sheet caption, "Goodwill and intangibles, net." 4. DISCONTINUED OPERATIONS, DISPOSITION OF ASSETS, AND EXTRAORDINARY LOSS Discontinued Operations The Energy Business and Shipbuilding Business As a result of the Merger, El Paso indirectly acquired the net assets of the Energy Business, including approximately $2.8 billion of debt and preferred stock obligations, as well as certain liabilities related to operations previously discontinued by Old Tenneco. See Note 1, "Merger and Distributions," for additional information. 49 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Net assets as of December 31, 1995 and 1994, and results of operations for the years ended December 31, 1996, 1995, and 1994, for the Energy Business are as follows:
1996 1995 1994 ------ ------ ------ (MILLIONS) Net assets at December 31 (Note)....................... $ -- $ 452 $ 334 ====== ====== ====== Net sales and operating revenues....................... $2,512 $1,921 $2,381 ====== ====== ====== Income before income taxes and interest allocation..... $ 291 $ 269 $ 384 Income tax expense..................................... (78) (32) (122) ------ ------ ------ Income before interest allocation...................... 213 237 262 Allocated interest expense, net of income tax (Note)... (86) (79) (92) ------ ------ ------ Income from discontinued operations before transaction costs................................................. $ 127 $ 158 $ 170 ====== ====== ======
- -------- Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation of Corporate Debt and Interest Expense," for a discussion of the allocation of corporate debt and interest expense to discontinued operations. On December 11, 1996, one day prior to the Merger, Old Tenneco completed the distribution of the common stock of Newport News to the holders of Old Tenneco common stock. As part of the Distributions, Newport News retained the net assets of the Shipbuilding Business, including approximately $600 million of debt which had been issued during November 1996 in connection with the Debt Realignment. See Note 1, "Merger and Distributions," for additional information. Net assets as of December 31, 1995 and 1994, and results of operations for the years ended December 31, 1996, 1995, and 1994, for the Shipbuilding Business are as follows:
1996 1995 1994 ------ ------ ------ (MILLIONS) Net assets at December 31 (Note)....................... $ -- $ 270 $ 198 ====== ====== ====== Net sales and operating revenues....................... $1,822 $1,756 $1,753 ====== ====== ====== Income before income taxes and interest allocation..... $ 133 $ 160 $ 200 Income tax expense..................................... (43) (68) (85) ------ ------ ------ Income before interest allocation...................... 90 92 115 Allocated interest expense, net of income tax (Note)... (20) (19) (20) ------ ------ ------ Income from discontinued operations before transaction costs................................................. $ 70 $ 73 $ 95 ====== ====== ======
- -------- Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation of Corporate Debt and Interest Expense," for a discussion of the allocation of corporate debt and interest expense to discontinued operations. The costs incurred to complete the Transaction, consisting primarily of financial advisory, legal, accounting, printing and other costs, of approximately $108 million, net of a $17 million income tax benefit, have been recorded as a component of 1996 income from discontinued operations. 50 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Farm and Construction Equipment Operations In June 1994, Tenneco completed an initial public offering ("IPO") of approximately 29% of the common stock of Case Corporation ("Case"), the holder of Tenneco's farm and construction equipment segment. In November 1994, a secondary offering of Case common stock reduced Tenneco's ownership interest in Case to approximately 44%. Combined proceeds from the two transactions was $694 million, net of commissions and offering expenses. The combined gain on the transactions was $36 million, including a $7 million tax benefit. In an August 1995 public offering, Tenneco sold an additional 16.1 million shares of Case common stock for net proceeds of approximately $540 million. The sale resulted in a gain of $101 million and reduced Tenneco's ownership in Case from 44% to 21%. In December 1995, Tenneco sold to a third party a subordinated note receivable due from Case, which was received as part of the reorganization preceding the Case IPO, for net proceeds of $298 million and recognized a gain of $32 million. In March 1996, Tenneco sold its remaining 15.2 million shares of common stock of Case in a public offering. Net proceeds of approximately $788 million were received, resulting in a gain of $340 million, net of $83 million in income tax expense. Net assets as of December 31, 1995 and 1994, and results of operations for the years ended December 31, 1996, 1995, and 1994, for the farm and construction equipment segment are as follows:
1996 1995 1994 ----- ---- ------ (MILLIONS) Net assets at December 31.................................. $ -- $323 $ 794 ===== ==== ====== Net sales and operating revenues........................... $ -- $ -- $3,881 ===== ==== ====== Income before income taxes and interest allocation......... $ 1 $126 $ 210 Income tax (expense) benefit............................... -- 8 (59) ----- ---- ------ Income before interest allocation ......................... 1 134 151 Allocated interest expense, net of income tax (Note)....... (2) (21) (49) ----- ---- ------ Income (loss) from operations.............................. (1) 113 102 ----- ---- ------ Gains on dispositions ..................................... 423 135 29 Income tax (expense) benefit from disposition.............. (83) (2) 7 ----- ---- ------ Net gains on dispositions.................................. 340 133 36 ----- ---- ------ Income from discontinued operations........................ $ 339 $246 $ 138 ===== ==== ======
- -------- Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation of Corporate Debt and Interest Expense," for a discussion of the allocation of corporate debt and interest expense to discontinued operations. Chemicals and Brakes Operations In March 1995, Tenneco completed an IPO of 100% of its Albright & Wilson chemicals segment. The offering was underwritten in the United Kingdom and was offered primarily in the United Kingdom. Also in 1994, Tenneco sold its brakes operation. Net proceeds from sales of the chemicals and the brakes operations were approximately $700 million and $18 million, respectively. 51 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Net assets and results from the chemicals and brakes operations as of and for the year ended December 31, 1994, are as follows:
1994 ---------------- CHEMICALS BRAKES --------- ------ (MILLIONS) Net assets at December 31...................................... $ 633 $ -- ===== ==== Net sales and operating revenues............................... $ 986 $ 62 ===== ==== Income (loss) before income taxes and interest allocation...... $ 40 $ (8) Income tax (expense) benefit................................... (9) 5 ----- ---- Income (loss) before interest allocation....................... 31 (3) Allocated interest expense, net of income tax (Note)........... (19) (2) ----- ---- Income (loss) from operations.................................. 12 (5) ----- ---- Loss on disposition............................................ (55) (41) Income tax (expense) benefit from disposition.................. (115) 15 ----- ---- Net loss on disposition........................................ (170) (26) ----- ---- Loss from discontinued operations.............................. $(158) $(31) ===== ====
- -------- Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation of Corporate Debt and Interest Expense," for a discussion of the allocation of corporate debt and interest expense to discontinued operations. 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 a fiber recycling operation and brokerage business to the joint venture in return for cash and an equity interest in the joint venture. Proceeds from the sale were approximately $115 million and the Company recognized a $50 million pre-tax gain in the second quarter of 1996. In 1995, Tenneco sold certain facilities and assets, principally at its Tenneco Packaging segment. Proceeds from these dispositions totaled approximately $56 million, resulting in a pre-tax gain of $15 million. During 1994, Tenneco 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. Gains and losses on the sale of businesses and assets have been included in "Other income, net" for the accompanying statements of income. Extraordinary Loss As discussed further in Note 5, "Long-Term Debt, Short-Term Debt and Financing Arrangements," Tenneco completed the Debt Realignment to realign and divide its consolidated indebtedness in contemplation of the Merger and Distributions. As a result of the Debt Realignment, Tenneco recognized an extraordinary loss of approximately $236 million, net of a tax benefit of approximately $126 million. This extraordinary loss consists principally of the fair value paid in the cash tender offers and the fair value of debt exchanged in the debt exchange offers in excess of the historical net carrying value for the debt tendered and exchanged. 52 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) In June 1994, an extraordinary loss of $5 million was recorded, net of an income tax benefit of approximately $2 million, for the redemption premium resulting from the prepayment of debt. 5. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS In contemplation of the Merger and Distributions, Tenneco initiated the Debt Realignment to restructure, realign, and divide its consolidated indebtedness. As part of the Debt Realignment, Tenneco completed certain cash tender offers for approximately $1.5 billion aggregate principal amount of outstanding notes and debentures (the "Cash Tender Offers"). In addition, approximately $1.9 billion aggregate principal amount of Old Tenneco notes and debentures were exchanged, in a noncash transaction, into notes and debentures of New Tenneco and were recorded by New Tenneco based on the fair value of such debt on the date of exchange (the "Exchange Offers"). Certain other components of Tenneco's historical consolidated short-term and long-term debt were defeased, redeemed or retired in the Debt Realignment. The cash funding requirements of the Debt Realignment were financed with internally generated cash, new borrowings by Old Tenneco, Newport News and New Tenneco and proceeds from the issuance of the NPS Preferred Stock by Old Tenneco. All obligations relating to the NPS Preferred Stock and all borrowings under the Old Tenneco credit facility and the other remaining debt of the Energy Business, including the debt which was not tendered or exchanged in the Debt Realignment, were retained by Old Tenneco in the Merger. Similarly, all borrowings made by New Tenneco and Newport News in connection with the Debt Realignment were retained by Tenneco and Newport News, respectively, after the Distribution. Subsequent to the Merger and Distributions, the majority of Tenneco's long- term debt consists of the notes and debentures exchanged pursuant to the Exchange Offers and the majority of its short-term debt consists of commercial paper borrowings. The summary of long-term and short-term debt amounts at December 31, 1995, presented below represents the historical consolidated indebtedness of Tenneco, the majority of which was subject to the Debt Realignment, and includes a reduction for the amount of corporate debt allocated to the net assets of the discontinued Energy Business and Shipbuilding Business. See Note 2, "Summary of Significant Accounting Policies--Allocation of Corporate Debt and Interest Expense." 53 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Long-Term Debt A summary of long-term debt obligations of Tenneco at December 31, 1996 and 1995, is set forth in the following table:
1996 1995 ------ ------ (MILLIONS) Tenneco Inc.-- Debentures due 2008 through 2025, average effective interest rate 7.3% in 1996 and 8.7% in 1995 (including $76 million in 1996 of unamortized premium and net of $2 million in 1995 of unamortized discount).......................................... $ 725 $ 698 Notes due 1999 through 2012, average effective interest rate 6.7% in 1996 and 8.8% in 1995 (including $60 million in 1996 of unamortized premium and net of $5 million in 1995 of unamortized discount).......................................... 1,271 1,962 Tennessee Gas Pipeline Company-- Debentures due 2011, effective interest rate 15.1% (net of $216 million of unamortized discount)............................... -- 184 Notes due 1996 through 1997, average effective interest rate 9.7% (net of $5 million of unamortized discount)............... -- 573 Tenneco Credit Corporation-- Senior notes due 1996 through 2001, average effective interest rate 9.7% (net of $1 million of unamortized discount).......... -- 549 Medium-term notes due 1996 through 2002, average interest rate 9.0%........................................................... -- 38 Subordinated notes due 1998 through 2001, average interest rate 9.9%........................................................... -- 92 Other subsidiaries-- Notes due 1997 through 2016, average effective interest rate 7.2% in 1996 and 10.1% in 1995 (net of $23 million in 1996 and $46 million in 1995 of unamortized discount)................... 79 75 ------ ------ 2,075 4,171 Less--current maturities......................................... 8 420 ------ ------ Total long-term debt............................................. 2,067 3,751 Less--long-term corporate debt allocated to net assets of discontinued operations......................................... -- 2,103 ------ ------ Total long-term debt, net of allocation to net assets of discontinued operations......................................... $2,067 $1,648 ====== ======
At December 31, 1996 and 1995, approximately $70 million and $72 million, respectively, of gross plant, property and equipment was pledged as collateral to secure $25 million and $30 million, respectively, principal amounts of long-term debt. The aggregate maturities and sinking fund requirements applicable to the issues outstanding at December 31, 1996 are $8 million, $9 million, $255 million, $9 million, and $186 million for 1997, 1998, 1999, 2000, and 2001, respectively. 54 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Short-Term Debt Tenneco uses commercial paper, lines of credit and overnight borrowings to finance its short-term capital requirements. Information regarding short-term debt as of and for the years ended December 31, 1996 and 1995 are as follows:
1996 1995 ---------------------- ---------------------- COMMERCIAL CREDIT COMMERCIAL CREDIT PAPER AGREEMENTS* PAPER AGREEMENTS* ---------- ----------- ---------- ----------- (DOLLARS IN MILLIONS) Outstanding borrowings at end of year............................ $219 $ 9 $346 $101 Weighted average interest rate on outstanding borrowings at end of year............................ 5.6% 6.5% 6.2% 7.2% Approximate maximum month-end outstanding borrowings during year............................ $336 $2,580 $615 $486 Approximate average month-end outstanding borrowings during year............................ $108 $ 800 $109 $103 Weighted average interest rate on approximate average month-end outstanding borrowings during year............................ 5.7% 6.5% 6.2% 8.6%
- -------- * Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements. Tenneco had other short-term borrowings outstanding of $41 million at December 31, 1995. Short-Term Corporate Debt Allocation
1996 1995 ----- ----- (MILLIONS) Current maturities on long-term debt............................... $ 8 $ 420 Commercial paper................................................... 219 346 Credit agreements.................................................. 9 101 Other.............................................................. -- 41 ----- ----- Total short-term debt.............................................. 236 908 Less-short-term corporate debt allocated to net assets of discontinued operations........................................... -- 524 ----- ----- Total short-term debt, net of allocation to discontinued operations........................................................ $ 236 $ 384 ===== =====
Financing Arrangements
COMMITTED CREDIT FACILITIES(A) ------------------------------- TERM COMMITMENTS UTILIZED AVAILABLE ------- ----------- -------- --------- (MILLIONS) Tenneco Inc. credit agreements.......... 2001 $1,750 $219(b) $1,531 Subsidiaries' credit agreements......... Various 49 5 44 ------ ---- ------ $1,799 $224 $1,575 ====== ==== ======
- -------- Notes: (a) Tenneco and its subsidiaries generally are required to pay commitment fees on the unused portion of the total commitment and facility fees on the total commitment. (b) Tenneco's committed long-term credit facilities support its commercial paper borrowings; consequently, the amount available under the committed long-term credit facilities is reduced by outstanding commercial paper borrowings. 55 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996, Tenneco's principal credit facility was a $1.75 billion committed financing arrangement with a syndicate of banks and other financial institutions which expires in 2001. Committed borrowings under this credit facility bear interest at an annual rate equal to, at the borrower'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 based on the credit rating of Tenneco's long-term debt; or (iii) a rate based on money market rates pursuant to competitive bids by the syndicate banks. The credit facility requires that the Company's consolidated ratio of debt to total capitalization not exceed 70%. Compliance with this requirement is a condition for any incremental borrowings under the credit facility and failure to meet the requirement enables the syndicate banks to require repayment of any outstanding loans after a 30-day cure period. In addition, the credit facility imposes certain other restrictions, none of which are expected to limit the Company's ability to operate its business in the ordinary course. 6. FINANCIAL INSTRUMENTS The carrying and estimated fair values of Tenneco's financial instruments by class at December 31, 1996 and 1995, were as follows:
1996 1995 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ------- (MILLIONS) ASSETS (LIABILITIES) Long-term debt (including current maturities) (Note)........................ $(2,075) $(2,069) $(4,171) $(4,759) Instruments With Off-Balance-Sheet Risk Foreign currency contracts............... 1 1 5 4 Financial guarantees..................... -- (15) -- (15)
- -------- Note: The carrying amount and estimated fair value of long-term debt for 1995 includes amounts allocated to net assets of discontinued operations. Asset and Liability Instruments The fair value of cash and temporary cash investments, receivables, accounts payable, and short-term debt was considered to be the same as or was not determined to be materially different from the carrying amount. At December 31, 1996 and 1995, respectively, Tenneco's aggregate customer and long-term receivable balance was concentrated by industry segment as follows: Tenneco Automotive, 69% and 77%, respectively, and Tenneco Packaging, 31% and 23%, 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 Foreign Currency Contracts--Tenneco utilizes foreign exchange forward contracts to hedge the translation effects of Tenneco's investment in net assets in certain foreign subsidiaries. Pursuant to these arrangements, Tenneco recognized aggregate after-tax translation gains (losses) of $(31) million, $3 million and $(2) million for 1996, 1995, and 1994, respectively, which have been included in the balance sheet caption, "Cumulative translation adjustments." In the normal course of business, Tenneco and its foreign subsidiaries also routinely enter into various foreign currency forward purchase and sale contracts to hedge the transaction effect of exchange rate movements 56 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) on receivables and payables denominated in foreign currencies. These foreign currency contracts generally mature in one year or less. In managing its foreign currency exposures, Tenneco identifies naturally occurring offsetting positions and then hedges residual exposures. The following table summarizes by major currency the contractual amounts of foreign currency contracts utilized by Tenneco:
NOTIONAL AMOUNT ---------------------------------------- DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- -------------------- PURCHASE SELL PURCHASE SELL ---------- -------- ---------- --------- (MILLIONS) Foreign currency contracts (in US$): Australian Dollars.................. $ 6 $ 34 $ 1 $ 202 British Pounds...................... 344 153 81 125 Canadian Dollars.................... 128 120 23 50 French Francs....................... 47 22 44 16 German Marks........................ 73 110 -- 11 U.S. Dollars........................ 65 304 240 81 Other............................... 118 37 127 72 -------- -------- -------- --------- $ 781 $ 780 $ 516 $ 557 ======== ======== ======== =========
Based on exchange rates at December 31, 1996 and 1995, the cost of replacing these contracts in the event of non-performance by the counterparties would not have been material. Guarantees--At December 31, 1996 and 1995, Tenneco had guaranteed payment and performance of approximately $15 million, primarily with respect to letters of credit and other guarantees supporting various financing and operating activities. 7. INCOME TAXES The domestic and foreign components of income from continuing operations before income taxes are as follows:
YEARS ENDED DECEMBER 31, -------------- 1996 1995 1994 ---- ---- ---- (MILLIONS) U.S. income before income taxes................................. $248 $361 $242 Foreign income before income taxes.............................. 185 151 110 ---- ---- ---- Income before income taxes...................................... $433 $512 $352 ==== ==== ====
57 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Following is a comparative analysis of the components of income tax expense applicable to continuing operations:
YEARS ENDED DECEMBER 31, ---------------- 1996 1995 1994 ---- ----- ----- (MILLIONS) Current-- U.S......................................................... $ 92 $ 54 $ 42 State and local............................................. 23 38 23 Foreign..................................................... 56 64 30 ---- ----- ----- 171 156 95 ==== ===== ===== Deferred-- U.S......................................................... 15 61 31 Foreign and other........................................... 8 14 (12) ---- ----- ----- 23 75 19 ==== ===== ===== Income tax expense............................................ $194 $ 231 $ 114 ==== ===== =====
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 statements of income:
YEARS ENDED DECEMBER 31, --------------- 1996 1995 1994 ---- ----- ---- (MILLIONS) Tax expense computed at the statutory U.S. federal income tax rate......................................................... $152 $ 179 $123 Increases (reductions) in income tax expense resulting from: Foreign income taxed at different rates and foreign losses with no tax benefit........................................ 7 17 (12) State and local taxes on income, net of U.S. federal income tax benefit................................................ 15 25 16 Amortization of nondeductible goodwill...................... 7 4 3 Recognition of previously unbenefited foreign loss carryforwards.............................................. -- -- (12) Other....................................................... 13 6 (4) ---- ----- ---- Income tax expense............................................ $194 $ 231 $114 ==== ===== ====
The components of Tenneco's net deferred tax liability at December 31, 1996 and 1995, were as follows:
1996 1995 ---- ----- (MILLIONS) Deferred tax assets-- Tax loss carryforwards........................................... $114 $ 83 Postretirement benefits other than pensions...................... 51 41 Other............................................................ 56 31 Valuation allowance.............................................. (119) (83) ---- ----- Net deferred tax asset......................................... 102 72 ---- ----- Deferred tax liabilities-- Tax over book depreciation....................................... 238 204 Pension.......................................................... 184 158 Book versus tax gains and losses on asset disposals.............. -- 63 Other............................................................ 1 7 ---- ----- Total deferred tax liability................................... 423 432 ---- ----- Net deferred tax liability....................................... $321 $ 360 ==== =====
58 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) As reflected by the valuation allowance in the table above, Tenneco had potential tax benefits of $119 million and $83 million at December 31, 1996 and 1995, respectively, which were not recognized in the 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, 1996, Tenneco had tax benefits of $114 million from foreign net operating loss carryforwards which do not expire. 8. COMMON STOCK At December 31, 1996, Tenneco had authorized 350,000,000 shares ($ .01 par value) of common stock of which 171,567,658 shares were issued. At December 31, 1995, Old Tenneco had authorized 350,000,000 shares ($5.00 par value) of common stock of which 191,351,615 shares were issued. The SECT held no shares at December 31, 1996. At December 31, 1995, the SECT held 4,358,084 shares, which are included in the issued shares quoted above. Tenneco Inc. held no shares of treasury stock at December 31, 1996. The 16,422,619 shares of treasury stock held at December 31, 1995, were retained by Old Tenneco in the Merger. See Note 1, "Merger and Distributions." Stock Repurchase Plans In 1996, Tenneco completed the $500 million common stock repurchase program initiated in December 1994. In 1995, Tenneco announced two additional repurchase programs, one for up to 3 million shares and another for 2.5 million shares. Purchases executed through the programs were made in the open market or in negotiated purchases. Under these programs, approximately 17 million shares have been acquired at a total cost of over $750 million. All treasury stock purchased under these programs became the treasury stock of Old Tenneco. Reserved The total number of shares of Tenneco Inc. common stock reserved for issuance at December 31, 1996 and 1995 were as follows:
DECEMBER 31, -------------------- ORIGINAL ISSUE SHARES 1996 1995 --------------------- ---------- --------- Thrift Plan.......................................... 476,372 -- Restricted Stock Plans............................... 62,000 323,706 Stock Ownership Plan................................. 17,000,000 3,241,573 Employee Stock Purchase Plan......................... 2,500,000 -- Performance Unit Plan................................ -- 1,654,494 Other................................................ -- 35,820 ---------- --------- 20,038,372 5,255,593 ========== =========
Stock Plans Tenneco Inc. Stock Ownership Plan--In May 1994 Tenneco adopted the 1994 Tenneco Inc. Stock Ownership Plan (the "1994 Stock Ownership Plan"), effective as of December 8, 1993. This plan provided Tenneco the latitude to grant a variety of awards, such as common stock, performance units, and stock options, to officers and key employees of the Tenneco companies. In conjunction with the Merger, all options held by employees of the Energy Business were vested and any unexercised options were cancelled as of December 11, 1996. In connection with the Distributions, options held by employees of the Shipbuilding Business were cancelled as of December 11, 1996, and were subsequently replaced with options granted under a new stock 59 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ownership plan adopted by Newport News. All Old Tenneco stock options granted to New Tenneco employees prior to the Distributions were, in connection with the Distributions, cancelled and replaced with options to purchase New Tenneco common stock pursuant to a new stock ownership plan adopted by New Tenneco in December 1996 (the "1996 Stock Ownership Plan"). The options were replaced with the appropriate number of New Tenneco options so that the aggregate option value thereof immediately after the Distributions equaled the aggregate value thereof immediately before the Distributions. The 1994 Stock Ownership Plan was terminated effective as of December 11, 1996. The 1996 Stock Ownership Plan permits the granting of a variety of awards, including common stock, restricted stock, performance units, stock appreciation rights, and stock options to officers and employees of Tenneco. Tenneco can issue up to 17,000,000 shares of common stock under the 1996 Stock Ownership Plan, which will terminate December 31, 2001. Key Employee Restricted Stock and Performance Shares--Tenneco has granted restricted stock and restricted units under various employee restricted stock plans to certain key employees. These awards generally require, among other things, that the employee remain an employee of Tenneco during the restriction period. Tenneco has also granted performance shares to certain key employees which will vest based upon the attainment of specified goals within four years from the date of grant. During 1996, 1995, and 1994, Tenneco granted 465,075, 481,625 and 395,840 shares and units, respectively, with a weighted average fair value based on the price of Tenneco's stock on the grant date of $48.54, $43.62, and $52.91 per share, respectively. Any restricted stock and performance shares awarded after the Distributions will be issued under the 1996 Stock Ownership Plan. At December 31, 1996, no restricted shares or performance shares were outstanding. Under another arrangement, restricted stock or restricted units are issued annually to each member of the Board of Directors who is not also an officer of Tenneco. During 1996, 1995, and 1994, 3,300, 3,000, and 2,500 restricted shares were issued at a weighted average fair value of Tenneco Inc.'s stock on the grant date of $48.25, $42.88, and $53.94 per share, respectively. In December 1996, Tenneco adopted a new restricted stock and unit plan for each member of the Board of Directors who is not also an officer of Tenneco. At December 31, 1996, 23,464 restricted shares were outstanding under the new plan. In conjunction with the Transaction, all outstanding restricted shares and performance shares as of November 1, 1996, were vested and Tenneco recognized an after-tax compensation expense of $18 million, of which approximately $7 million related to restricted stock and performance shares awarded to employees of the Energy Business and Shipbuilding Business. Employee Stock Purchase Plan--In June 1992 Tenneco initiated an Employee Stock Purchase Plan (the "ESPP"). The ESPP allows U.S. and Canadian Tenneco employees to purchase Tenneco Inc. common stock at a 15% discount. Each year employees participating in the ESPP may purchase shares with a discounted value not to exceed $21,250. Under the ESPP, Tenneco sold 657,936, 633,495, and 588,325 shares to employees in 1996, 1995, and 1994, respectively. The weighted average fair value of the employee purchase right, which was estimated using the Black-Scholes option pricing model and the assumptions described below except that the average life of each purchase right was assumed to be 90 days, was $10.84 and $9.39 in 1996 and 1995, respectively. The ESPP was terminated as of the date of the Distributions. The Company adopted a new employee stock purchase plan effective April 1, 1997. At December 31, 1996, Tenneco had reserved 2,500,000 shares to be issued pursuant to the new employee stock purchase plan. 60 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table reflects the status and activity for all stock options issued by Tenneco Inc., including those outside the option plans discussed above, for the periods indicated:
1996 1995 1994 ------------------- ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED SHARES AVG. SHARES AVG. SHARES AVG. UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE STOCK OPTIONS OPTION PRICES OPTION PRICES OPTION PRICES ------------- ---------- -------- --------- -------- --------- -------- Outstanding, beginning of year................ 3,019,116 $46.99 2,084,942 $51.08 434,114 $40.57 Granted--Options...... 8,178,600 46.17 1,493,505 43.01 1,718,320 53.84 Exercised--Options.... 817,212 45.29 2,700 41.30 2,250 40.54 --SARs............ 25,741 36.23 45,215 40.47 28,832 41.10 Issuance of New Tenneco options...... 5,015,258 41.19 -- -- -- -- Cancelled............. 4,492,263 46.01 511,416 52.63 36,410 53.88 ---------- ------ --------- ------ --------- ------ Outstanding, end of year................... 10,877,758 $43.41 3,019,116 $46.99 2,084,942 $51.08 ========== ====== ========= ====== ========= ====== Options exercisable at end of year............ 1,809,596 $41.67 846,889 $47.80 471,732 $42.21 ========== ====== ========= ====== ========= ====== Weighted average fair value of options granted during the year................... $ 11.37 $ 11.82 ========== =========
The fair value of each option granted during 1996 and 1995 is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions for grants in 1996 and 1995, respectively: (i) risk-free interest rates of 5.9% and 7.1%; (ii) expected lives of 5.0 years and 5.0 years; (iii) expected volatility 25.1% and 28.9%; and (iv) dividend yield of 3.4% and 3.6%. The following table reflects summarized information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------- -------------------- WEIGHTED AVG. WEIGHTED WEIGHTED RANGE OF NUMBER REMAINING AVG. NUMBER AVG. EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE PRICE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE -------- ----------- ----------- -------- ----------- -------- $31 to $37................ 1,440,642 7.3 years $35.81 669,442 $34.52 37 to 43................ 2,246,527 8.9 41.54 138,157 41.43 43 to 50................ 7,190,589 13.8 45.52 1,001,997 46.46 ---------- --------- 10,877,758 1,809,596 ========== =========
Tenneco applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," to its stock-based compensation plans. Tenneco recognized after-tax stock-based compensation expense in 1996 of $27 million, of which $9 million related to restricted stock and performance shares awarded to employees of the Energy Business and the Shipbuilding Business. Stock-based compensation expense recognized in 1995 and 1994 was not material. Had compensation costs for Tenneco's stock-based compensation plans been determined in accordance with FAS No. 123, "Accounting for Stock-Based Compensation," based on the fair value at the grant dates for the awards under those plans, Tenneco's pro forma net income to common stock and earnings per average common share for the years ended December 31, 1996 and 1995, would have been lower by $14 million, or $.08 per average common share, and $7 million, or $.05 per average common share, respectively. 61 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Stock Employee Compensation Trust (SECT) In November 1992, Tenneco established the SECT to fund a portion of its obligations arising from its various employee compensation and benefit plans. Tenneco issued 12,000,000 shares of treasury stock to the SECT in exchange for a promissory note of $432 million that accrued interest at the rate of 7.8% per annum. At December 31, 1996, all shares have been utilized. Shareholder Rights Plan In connection with the Distributions, New Tenneco Inc. adopted a Shareholder Rights Plan ("the Plan"), which is substantially the same as the provisions of the Old Tenneco Shareholder Rights Plan adopted in 1988. The Plan was adopted to deter coercive takeover tactics and to prevent a potential acquiror from gaining control of Tenneco without offering a fair price to all Tenneco Inc. shareholders. Under the Plan, each outstanding share of Tenneco Inc. common stock receives one Right, exercisable at $130, subject to adjustment. In the event a person or group acquires 20% or more of the outstanding Tenneco Inc. common stock other than pursuant to an offer for all shares of such common stock that is fair and in the best interests of Tenneco Inc. and its shareholders, or has in the judgment of the Tenneco Inc. Board of Directors acquired a substantial amount of common stock under certain motives deemed adverse to Tenneco's best interests, each Right entitles the holder to purchase shares of common stock or other securities of Tenneco Inc. or, under certain circumstances, of the acquiring person, having a value of twice the exercise price. The Rights, under certain circumstances, are redeemable by Tenneco Inc. at a price of $.02 per Right. The Plan is scheduled to terminate in 1998. Dividend Reinvestment and Stock Purchase Plan Under the Tenneco Inc. Dividend Reinvestment and Stock Purchase Plan, holders of Tenneco Inc. common stock may apply their cash dividends and optional cash investments to the purchase of additional shares of Tenneco Inc. common stock. 9. PREFERRED STOCK Tenneco had 50,000,000 shares of preferred stock ($.01 par value) authorized at December 31, 1996, and had 15,000,000 shares of preferred stock authorized at December 31, 1995. No shares of preferred stock were outstanding at December 31, 1996. Tenneco has designated and reserved 3,500,000 shares of the preferred stock as junior preferred stock for the Shareholder Rights Plan. In connection with the Transaction and as part of the Debt Realignment, Old Tenneco issued the NPS Preferred Stock in November 1996 for proceeds of approximately $296 million. The proceeds from the issuance were used to fund a portion of the cash tender offers made in connection with the Debt Realignment and other cash requirements preceding the Merger. As a result of the Merger, the obligations relating to the NPS Preferred Stock remained with Old Tenneco. In December 1991, Tenneco issued 17,870,350 Depositary Shares, each representing one-half of a share of a new series of cumulative preferred stock designated as Series A preferred stock. On December 16, 1994, Tenneco exercised its option to call all of the outstanding shares, which were converted into shares of Tenneco Inc. common stock. In addition, $11 million was paid for dividends on the Series A preferred stock that were accrued but unpaid at the conversion date. Tenneco's $7.40 and $4.50 preferred stock (the "Preferred Stock"), issues had a mandatory redemption value of $100 per share (an aggregate of $139 million at December 31, 1995). Tenneco recorded these preferred stocks at their fair value at the date of original issue (an aggregate of $250 million) and made periodic accretions 62 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) of the excess of the redemption value over the fair value at the date of issue. Such accretions are included in the statements of income caption, "Preferred stock dividends" as a reduction of net income to arrive at net income to common stock. As part of the Merger, the Preferred Stock was acquired by El Paso in exchange for El Paso common stock. Consequently, the Preferred Stock has been included in the net assets of discontinued operations in the accompanying balance sheet. Changes in Preferred Stock with Mandatory Redemption Provisions
1996 1995 1994 ------------------ ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------ --------- ------ --------- ------ (MILLIONS EXCEPT SHARE AMOUNTS) Balance January 1....... 1,390,993 $130 1,586,764 $147 1,782,508 $163 Shares redeemed........ (195,751) (20) (195,771) (20) (195,744) (20) Merger of Energy Business.............. (1,195,242) (113) -- -- -- -- Accretion of excess of redemption value over fair value at date of issue................. -- 3 -- 3 -- 4 ---------- ---- --------- ---- --------- ---- Balance December 31..... -- $ -- 1,390,993 $130 1,586,764 $147 ========== ==== ========= ==== ========= ====
10. MINORITY INTEREST At December 31, 1996 and 1995, Tenneco reported minority interest in the balance sheet of $304 million and $301 million, respectively. At December 31, 1996, $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 consolidated in Tenneco's financial statements, and the investor's preferred stock interest has been recorded as "Minority interest" in the balance sheet. 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. The weighted average rate paid on TIHC preferred stock was 6.83% and 7.30% for 1996 and 1995, respectively. Additionally, beginning in 1996, the holder of the 12,000,000 shares of preferred stock is 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 Tenneco's statements of income as "Minority interest." 11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Postretirement Benefits Tenneco has postretirement health care and life insurance plans that cover substantially all of its domestic employees. For salaried employees, the plans cover employees retiring from Tenneco on or after attaining age 55 who have had at least 10 years service with Tenneco after attaining age 45. For hourly employees, the postretirement benefit plans generally cover employees who retire pursuant to one of Tenneco's hourly employee retirement plans. All of these benefits may be subject to deductibles, copayment provisions, and other limitations, and Tenneco has reserved the right to change these benefits. Tenneco's postretirement benefit plans are not funded. 63 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Accrued postretirement benefits costs related to employees of the Energy Business, and certain retirees of previously discontinued operations, were retained by Old Tenneco in the Merger. In addition, accrued postretirement benefit costs related to employees of the Shipbuilding Business were retained by Newport News in the Distributions. Consequently, the accrued postretirement benefit amounts for those discontinued businesses are excluded from the disclosures presented herein for all periods. The funded status of the postretirement benefit plans reconciles with amounts recognized in the balance sheet at December 31, 1996 and 1995, as follows (Note):
1996 1995 ------ ----- (MILLIONS) Actuarial present value of accumulated postretirement benefit obligation at September 30: Retirees...................................................... $ 98 $ 82 Fully eligible active plan participants....................... 28 19 Other active plan participants................................ 41 33 ------ ----- Total accumulated postretirement benefit obligation............. 167 134 Plan assets at fair value at September 30....................... -- -- ------ ----- Accumulated postretirement benefit obligation in excess of plan assets at September 30......................................... (167) (134) Claims paid during the fourth quarter........................... 3 2 Unrecognized reduction of prior service obligations resulting from plan amendments .......................................... (10) (12) Unrecognized net loss resulting from plan experience and changes in actuarial assumptions....................................... 29 30 ------ ----- Accrued postretirement benefit cost at December 31.............. $ (145) $(114) ====== =====
- -------- 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. The net periodic postretirement benefit cost from continuing operations for the years 1996, 1995, and 1994 consist of the following components:
1996 1995 1994 ---- ---- ---- (MILLIONS) Service cost for benefits earned during the year................ $ 4 $ 3 $ 4 Interest cost on accumulated postretirement benefit obligation.. 11 10 10 Net amortization of unrecognized amounts........................ (1) (1) (1) --- --- --- Net periodic postretirement benefit cost........................ $14 $12 $13 === === ===
The initial weighted average assumed health care cost trend rate used in determining the 1996, 1995, and 1994 accumulated postretirement benefit obligation was 6%, 7%, and 8%, 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 1996, 1995, and 1994 accumulated postretirement benefit obligations by approximately $13 million, $12 million, and $10 million, respectively, and would increase the aggregate of the service cost and interest cost components of the net postretirement benefit cost for 1996, 1995, and 1994 by approximately $2 million, $1 million, and $1 million, respectively. The discount rates (which are based on long-term market rates) used in determining the 1996, 1995, and 1994 accumulated postretirement benefit obligations were 7.75%, 7.75%, and 8.25%, respectively. 64 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Postemployment Benefits Tenneco adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits," in the first quarter of 1994. This 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 rule reduced 1994 net income by $39 million, net of income tax benefits of $26 million, which was reported as the cumulative effect of a change in accounting principle. 12. PENSION PLANS Tenneco has retirement plans that cover substantially all of its employees. Benefits are based on years of service and, for most salaried employees, on final average compensation. Tenneco's funding policies are to contribute to the plans amounts necessary to satisfy the funding requirement of federal laws and regulations. Plan assets consist principally of listed equity and fixed income securities. Also included in the table below are pension obligations and assets retained by Tenneco related to certain former employees of Tenneco's discontinued operations. As part of the Transaction, Tenneco retained the liabilities and related assets for pension benefits under the Tenneco Inc. Retirement Plan (the "TRP"), including amounts related to employees of the Energy Business and Shipbuilding Business accrued through the last day of the month in which Merger and Distributions were consummated. Consequently, the disclosures below as of December 31, 1996, include all TRP pension obligations and assets retained by Tenneco subsequent to the Transaction. Certain other pension plans, principally related to hourly personnel of the Shipbuilding Business, were retained by Newport News in the Distributions, and are excluded from the disclosures herein for all periods. 65 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The funded status of the plans reconcile with amounts on the balance sheet at December 31, 1996 and 1995, as follows:
PLANS IN PLANS IN WHICH WHICH ASSETS ACCUMULATED EXCEED BENEFITS ACCUMULATED EXCEED ALL PLANS BENEFITS ASSETS (NOTE) -------------- ------------ -------------- 1996 1995 1996 1995 1996 1995 ------ ------ ----- ----- ------ ------ (MILLIONS) Actuarial present value of benefits based on service to date and present pay levels at September 30: Vested benefit obligation..... $2,555 $1,793 $ 92 $ 35 $2,647 $1,828 Non-vested benefit obligation. 41 38 9 4 50 42 ------ ------ ----- ----- ------ ------ Accumulated benefit obligation................... 2,596 1,831 101 39 2,697 1,870 Additional amounts related to projected salary increases..... 104 72 4 3 108 75 ------ ------ ----- ----- ------ ------ Total projected benefit obligation at September 30..... 2,700 1,903 105 42 2,805 1,945 Plan assets at fair value at September 30................... 3,402 2,233 57 8 3,459 2,241 ------ ------ ----- ----- ------ ------ Plan assets in excess of (less than) total projected benefit obligation at September 30..... 702 330 (48) (34) 654 296 Contributions during the fourth quarter........................ 1 4 -- -- 1 4 Unrecognized net (gain) loss resulting from plan experience and changes in actuarial assumptions.................... (87) 142 2 2 (85) 144 Unrecognized prior service obligations resulting from plan amendments..................... 70 75 4 1 74 76 Remaining unrecognized net obligation (asset) at initial application.................... (94) (80) -- 1 (94) (79) Adjustment recorded to recognize minimum liability.............. -- -- (5) (2) (5) (2) ------ ------ ----- ----- ------ ------ Prepaid (accrued) pension cost at December 31................. $ 592 $ 471 $ (47) $ (32) $ 545 $ 439 ====== ====== ===== ===== ====== ======
- -------- 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 1996, 1995, and 1994 consist of the following components:
1996 1995 1994 ----------- ---------- ---------- (MILLIONS) Service cost--benefits earned during the year..................................... $ 31 $ 23 $ 29 Interest accrued on prior years projected benefit obligation....................... 148 144 110 Expected return on plan assets-- Actual (return) loss.................... (349) (387) 16 Unrecognized excess (deficiency) of actual return over expected return..... 141 188 (175) ---- ---- ---- (208) (199) (159) Net amortization of unrecognized amounts.. -- (3) 1 ----- ---- ---- Net pension income........................ $ (29) $(35) $(19) ===== ==== ====
66 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The weighted average discount rates (which are based on long-term market rates) used in determining the 1996, 1995, and 1994 actuarial present value of the benefit obligations were 7.8%, 7.8%, and 8.3%, respectively. The rate of increase in future compensation was 5.0%, 5.1%, and 5.1% for 1996, 1995, and 1994, respectively. The weighted average expected long-term rate of return on plan assets was 10% for 1996, 1995, and 1994. 13. SEGMENT AND GEOGRAPHIC AREA INFORMATION Tenneco is a global manufacturer with the following major 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, institutional, and industrial markets. For a discussion of the discontinued operations of Tenneco's energy, shipbuilding, farm and construction equipment, and chemicals segments, see Note 4, "Discontinued Operations, Disposition of Assets and Extraordinary Loss." 67 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following tables summarize certain segment and geographic information of Tenneco's businesses:
SEGMENT RECLASS. ------------------------------------------- AND DISCONTINUED ELIMINA- CONSOL- AUTOMOTIVE PACKAGING OPERATIONS(C) OTHER(D) TION IDATED ---------- --------- ------------- -------- -------- ------- (MILLIONS) AT DECEMBER 31, 1996, AND FOR THE YEAR THEN ENDED Net sales and operating revenues............... $2,980 $3,602 $ -- $ -- $ (10) $6,572 ====== ====== ===== ===== ===== ====== Operating profit........ 262 415 -- 23 -- 700 Equity in net income of affiliated companies... -- -- -- -- -- -- General corporate expenses............... (13) (14) -- (45) -- (72) ------ ------ ----- ----- ----- ------ Income before interest expense, income taxes and minority interest.. 249 401 -- (22) -- 628 ====== ====== ===== ===== ===== ====== Identifiable assets..... 2,555 3,878 -- 1,235 (108) 7,560 Investment in affiliated companies.............. 2 24 -- 1 -- 27 ------ ------ ----- ----- ----- ------ Total assets........... 2,557 3,902 -- 1,236 (108) 7,587 ====== ====== ===== ===== ===== ====== Depreciation, depletion and amortization....... 94 205 -- 10 -- 309 ====== ====== ===== ===== ===== ====== Capital expenditures for continuing operations.. 177 341 -- 55 -- 573 ====== ====== ===== ===== ===== ====== 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 -- 1,176 (94) 6,361 Investment in affiliated companies.............. 3 4 -- -- -- 7 Identifiable net assets related to discontinued operations............. -- -- 433 -- -- 433 Investment in affiliated companies related to discontinued operations............. -- -- 612 -- -- 612 ------ ------ ----- ----- ----- ------ Total assets........... 1,877 3,409 1,045 1,176 (94) 7,413 ====== ====== ===== ===== ===== ====== 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 -- 1,137 (156) 3,990 Investment in affiliated companies.............. 2 3 -- -- -- 5 Identifiable net assets related to discontinued operations............. -- -- 967 -- (101) 866 Investment in affiliated companies related to discontinued operations............. -- -- 992 -- -- 992 ------ ------ ----- ----- ----- ------ Total assets........... 1,474 1,540 1,959 1,137 (257) 5,853 ====== ====== ===== ===== ===== ====== Depreciation, depletion and amortization....... 51 89 -- 2 -- 142 ====== ====== ===== ===== ===== ====== Capital expenditures for continuing operations.. 113 166 -- 1 -- 280 ====== ====== ===== ===== ===== ======
See Notes on page 70. 68 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHIC AREA(B)(C) ------------------------------- RECLASS. UNITED EUROPEAN OTHER AND STATES CANADA UNION FOREIGN ELIMINATION CONSOLIDATED ------ ------ -------- ------- ----------- ------------ (MILLIONS) AT DECEMBER 31, 1996, AND FOR THE YEAR THEN ENDED Net sales and operating revenues: Sales to unaffiliated customers............. $4,708 $194 $1,295 $375 $ -- $6,572 Transfers among geographic areas(a)... 99 49 29 36 (213) -- ------ ---- ------ ---- ----- ------ Total................ 4,807 243 1,324 411 (213) 6,572 ====== ==== ====== ==== ===== ====== Operating profit........ 513 30 121 36 -- 700 Equity in net income (loss) of affiliated companies.............. 1 -- -- (1) -- -- General corporate expenses............... (72) -- -- -- -- (72) ------ ---- ------ ---- ----- ------ Income before interest expense, income taxes and minority interest.. 442 30 121 35 -- 628 ====== ==== ====== ==== ===== ====== Identifiable assets..... 5,960 173 1,079 449 (101) 7,560 Investment in affiliated companies.............. 17 -- 2 8 -- 27 ------ ---- ------ ---- ----- ------ Total assets......... 5,977 173 1,081 457 (101) 7,587 ====== ==== ====== ==== ===== ====== AT DECEMBER 31, 1995, AND FOR THE YEAR THEN ENDED Net sales and operating revenues: Sales to unaffiliated customers............. $3,683 $149 $1,140 $249 $ -- $5,221 Transfers among geographic areas(a)... 75 43 27 21 (166) -- ------ ---- ------ ---- ----- ------ Total................ 3,758 192 1,167 270 (166) 5,221 ====== ==== ====== ==== ===== ====== Operating profit........ 585 20 102 25 -- 732 Equity in net income (loss) of affiliatedcompanies.... 1 -- 1 (1) -- 1 General corporate expenses............... (61) -- -- -- -- (61) ------ ---- ------ ---- ----- ------ Income before interest expense, income taxes and minority interest.. 525 20 103 24 -- 672 ====== ==== ====== ==== ===== ====== Identifiable assets..... 4,915 207 1,077 241 (79) 6,361 Investment in affiliated companies.............. 3 -- 2 2 -- 7 Identifiable net assets related to discontinued operations............. 168 -- -- 265 -- 433 Investment in affiliated companies related to discontinued operations............. 574 2 -- 36 -- 612 ------ ---- ------ ---- ----- ------ Total assets......... 5,660 209 1,079 544 (79) 7,413 ====== ==== ====== ==== ===== ====== AT DECEMBER 31, 1994, AND FOR THE YEAR THEN ENDED Net sales and operating revenues: Sales to unaffiliated customers............. $3,143 $165 $ 624 $234 $ -- $4,166 Transfers among geographic areas(a)... 72 36 39 30 (177) -- ------ ---- ------ ---- ----- ------ Total................ 3,215 201 663 264 (177) 4,166 ====== ==== ====== ==== ===== ====== Operating profit........ 376 31 47 29 -- 483 Equity in net income (loss) of affiliated companies.............. 1 -- -- (1) -- -- General corporate expenses............... (27) -- -- -- -- (27) ------ ---- ------ ---- ----- ------ Income before interest expense, income taxes and minority interest.. 350 31 47 28 -- 456 ====== ==== ====== ==== ===== ====== Identifiable assets..... 2,784 141 1,149 17 (101) 3,990 Investment in affiliated companies.............. 4 -- -- 1 -- 5 Identifiable net assets related to discontinued operations............. 433 -- 403 30 -- 866 Investment in affiliated companies related to discontinued operations............. 915 -- 3 74 -- 992 ------ ---- ------ ---- ----- ------ Total assets......... 4,136 141 1,555 122 (101) 5,853 ====== ==== ====== ==== ===== ======
See Notes on following page. 69 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) - -------- 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, Tenneco's segments principally market their products and services in the United States, with significant sales in the European Union and other foreign countries. (c) Tenneco's Energy Business, Shipbuilding Business, farm and construction equipment and chemicals operations have been reflected as discontinued operations in the accompanying financial statements. Reference is made to Note 4, "Discontinued Operations, Disposition of Assets, and Extraordinary Loss," for further information. (d) Included in "Other" are the operations of Tenneco Business Services ("TBS"). TBS designs, implements, and administers shared administrative service programs for Tenneco as well as certain other former Tenneco businesses. Tenneco is engaged in the sale of products for export from the United States. Such sales are reflected in the table below:
GEOGRAPHIC AREA PRINCIPAL PRODUCTS 1996 1995 1994 --------------- --------------------------------------------- ---- ---- ---- (MILLIONS) Canada......... Ride control systems, paperboard products, molded and pressed pulp goods, corrugated boxes, aluminum, and plastics $119 $ 72 $ 75 European Union. Molded and pressed pulp goods, paperboard products, corrugated boxes, aluminum, and plastics 24 23 21 Other Foreign.. Ride control systems, molded and pressed pulp goods, paperboard products, corrugated boxes, aluminum, and plastics 124 69 49 ---- ---- ---- Total Export Sales............................................ $267 $164 $145 ==== ==== ====
14. COMMITMENTS AND CONTINGENCIES Capital Commitments Tenneco estimates that expenditures aggregating approximately $350 million will be required after December 31, 1996, to complete facilities and projects authorized at such date, and substantial commitments have been made in connection therewith. Lease Commitments Tenneco holds certain of its facilities, equipment and other assets under long-term leases. The minimum rental commitments under non-cancelable operating leases with lease terms in excess of one year are $167 million, $133 million, $119 million, $112 million, and $109 million for the years 1997, 1998, 1999, 2000, and 2001, respectively, and $243 million for subsequent years. Of these amounts, $100 million for 1997, $79 million for 1998, $79 million for 1999, $79 million for 2000, $79 million for 2001, and $23 million for subsequent years are lease payment commitments to financial investors (the "Lessor") for certain mill and timberlands assets. Following the initial lease period, Tenneco may, under the provisions of the lease agreements, extend the leases on terms mutually negotiated with the Lessor or purchase the leased assets under conditions specified in the lease agreements. If the purchase options are not exercised or the leases are not extended, Tenneco will make a residual guarantee payment to the Lessor of approximately $650 million, which will be refunded up to the total amount of the residual guarantee payment based on the Lessor's subsequent sales price for the leased assets. Throughout the lease period, Tenneco is required to maintain the leased properties. Commitments under capital leases were not significant to the accompanying financial statements. Total rental expense for continuing operations for the years 1996, 1995, and 1994, was $179 million, $171 million, and $161 million, respectively, including minimum rentals under non-cancelable operating leases of $151 million, $148 million, and $143 million for the corresponding periods. 70 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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, 1996. Tenneco Packaging was in compliance with all of its covenants at December 31, 1996. Litigation Tenneco and Newport News have received letters from the Defense Contract Audit Agency (the "DCAA"), inquiring about certain aspects of the Distributions, including the disposition of the TRP. The DCAA has been advised that (i) the TRP will retain the liability for all benefits accrued by the Newport News salaried employees through December 31, 1996, (ii) the Newport News salaried employees will not accrue additional benefits under the TRP after December 31, 1996, and (iii) no liabilities or assets of the TRP will be transferred from the TRP to any plan maintained by Newport News. A determination of the ratio of assets to liabilities of the TRP attributable to Newport News will be based on facts, assumptions and legal issues which are complicated and uncertain; however, it is likely that the U.S. Government will assert a claim against Newport News with respect to the amount, if any, by which the assets of the TRP attributable to its employees are alleged to exceed the liabilities. Tenneco, with the full cooperation of Newport News, will defend against any claim by the U.S. Government, and in the event there is a determination that an amount is due to the U.S. Government, Tenneco and Newport News will share the obligation for such amount plus the amount of related defense expenses, in the ratio of 80% and 20%, respectively. At this preliminary stage, it is impossible to predict with certainty any eventual outcome regarding this matter; however, Tenneco does not believe that this matter will have a material adverse effect on its consolidated financial position or results of operations. Tenneco and its subsidiaries are parties to various other legal proceedings arising from their operations. Tenneco 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 Tenneco Inc. and its subsidiaries. Environmental Matters Tenneco and its subsidiaries are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which they operate. Tenneco has provided reserves for compliance with these laws and regulations where it is probable that a liability exists and where Tenneco can make a reasonable estimate of the liability. The estimated liabilities recorded are subject to change as more information becomes available regarding the magnitude of possible clean up costs and the timing, varying costs, and effectiveness of alternative clean up technologies. However, Tenneco believes that any additional costs which arise as more information becomes available will not have a material effect on the financial condition or results of operations of Tenneco. 71 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
INCOME BEFORE INCOME (LOSS) INTEREST FROM NET SALES EXPENSE, INCOME (LOSS) DISCONTINUED AND INCOME TAXES FROM OPERATIONS, EXTRAORDINARY NET OPERATING AND MINORITY CONTINUING NET OF LOSS, NET OF INCOME QUARTER REVENUES INTEREST OPERATIONS INCOME TAX INCOME TAX (LOSS) ------- --------- ------------- ------------- ------------ ------------- ------ (MILLIONS) 1996 1st................ $ 1,539 $161 $ 60 $435 $ -- $495 2nd................... 1,694 253 118 43 -- 161 3rd................... 1,653 171 76 40 (1) 115 4th................... 1,686 43 (36) (90) (235) (361) ------- ---- ---- ---- ----- ---- $ 6,572 $628 $218 $428 $(236) $410 ======= ==== ==== ==== ===== ==== 1995 1st................ $ 1,237 $177 $ 76 $ 77 $ -- $153 2nd................... 1,340 201 92 93 -- 185 3rd................... 1,263 173 73 141 -- 214 4th................... 1,381 121 17 166 -- 183 ------- ---- ---- ---- ----- ---- $ 5,221 $672 $258 $477 $ -- $735 ======= ==== ==== ==== ===== ====
EARNINGS (LOSS) PER AVERAGE SHARE OF COMMON STOCK ------------------------------------------------ CONTINUING DISCONTINUED EXTRAORDINARY NET INCOME QUARTER OPERATIONS OPERATIONS LOSS (LOSS) ------- ---------- ------------ ------------- ---------- 1996 1st...................... $ .34 $2.55 $ -- $2.89 2nd......................... .70 .23 -- .93 3rd......................... .45 .22 (.01) .66 4th......................... (.21) (.57) (1.37) (2.15) ----- ----- ------ ----- $1.28 $2.43 $(1.38) $2.33 ===== ===== ====== ===== 1995 1st...................... $ .43 $ .41 $ -- $ .84 2nd......................... .53 .52 -- 1.05 3rd......................... .42 .81 -- 1.23 4th......................... .10 .95 -- 1.05 ----- ----- ------ ----- $1.48 $2.68 $ -- $4.16 ===== ===== ====== =====
- -------- Notes: Reference is made to Notes 3, 4 and 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for items affecting quarterly results. The sum of the quarters may not equal the total of the respective year's earnings per share due to changes in the weighted average shares outstanding throughout the year. (The preceding notes are an integral part of the foregoing financial statements.) 72 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There has been no change in accountants, nor has there been any disagreement on any matter of accounting principles or practices or financial disclosure, which in either case is required to be reported pursuant to this Item 9. PART III Item 10, "Directors and Executive Officers of the Registrant," Item 11, "Executive Compensation," Item 12, "Security Ownership of Certain Beneficial Owners and Management," and Item 13, "Certain Relationships and Related Transactions," have been omitted from this report inasmuch as Tenneco Inc. will file with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report a definitive Proxy Statement for the Annual Meeting of Shareowners of Tenneco Inc. to be held on May 13, 1997, at which meeting the shareowners will vote upon the election of directors. The information under the caption "Election of Directors" in such Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. FINANCIAL STATEMENTS INCLUDED IN ITEM 8 See "Index to Financial Statements of Tenneco Inc. and Consolidated Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary Data." INDEX TO FINANCIAL STATEMENTS AND SCHEDULES INCLUDED IN ITEM 14
PAGE ---- Schedules of Tenneco Inc. and Consolidated Subsidiaries--Schedule II-- Valuation and qualifying accounts--three years ended December 31, 1996.. 74
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE Schedule I-- Condensed financial information of registrant Schedule III-- Real estate and accumulated depreciation Schedule IV-- Mortgage loans on real estate Schedule V-- Supplemental Information Concerning Property--Casualty Insurance Operations 73 SCHEDULE II TENNECO INC. AND CONSOLIDATED SUBSIDIARIES 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, 1996.................. $24 $12 $-- $ 4 $32 === === === === === Year Ended December 31, 1995.................. $15 $20 $-- $11 $24 === === === === === Year Ended December 31, 1994.................. $15 $ 5 $-- $ 5 $15 === === === === ===
74 REPORTS ON FORM 8-K On December 26, 1996, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission reporting pursuant to Items 2 and 5 thereof the Distribution and related transactions. On February 24, 1997, the Company filed a Current Report on Form 8-K/A, amending the initial filing to include therein the pro forma financial information required by Form 8-K and omitted from the initial filing in reliance on Item 7 thereof. EXHIBITS The following exhibits are filed with Tenneco Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, or incorporated therein by reference (exhibits designated by an asterisk are filed with the Report; all other exhibits are incorporated by reference): INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION -------- ----------- 2 --None. *3.1 --Restated Certificate of Incorporation of Tenneco Inc. *3.2 --Amended and Restated By-laws of Tenneco Inc. 4.1 --Form of Specimen Stock Certificate of Tenneco Inc. Common Stock (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Form 10, File No. 1-12387). *4.2 --Rights Agreement, dated as of December 11, 1996, by and between Tenneco Inc. (formerly New Tenneco Inc.) and First Chicago Trust Company of New York, as Rights Agent. 4.3(a) --Indenture, dated as of November 1, 1996, between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Form S-4, Registration No. 333-14003). *4.3(b) --First Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. *4.3(c) --Second Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. *4.3(d) --Third Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. *4.3(e) --Fourth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. *4.3(f) --Fifth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. *4.3(g) --Sixth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. *4.3(h) --Seventh Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee. 9 --None.
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 --Distribution Agreement, dated November 1, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 2 of Tenneco Inc.'s Form 10, File No. 1-12387). *10.2 --Amendment No. 1 to Distribution Agreement, dated as of December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (following New Tenneco Inc.), and Newport News Shipbuilding Inc. *10.3 --Debt and Cash Allocation Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. *10.4 --Benefits Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. *10.5 --Insurance Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. *10.6 --Tax Sharing Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Newport News Shipbuilding Inc., Tenneco Inc. (formerly New Tenneco Inc.), and El Paso Natural Gas Company. *10.7 --First Amendment to Tax Sharing Agreement, dated as of December 11, 1996 among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.) and Newport News Shipbuilding Inc. *10.8 --Transition Services Agreement, dated June 19, 1996, by and among, Tenneco Business Services, Inc., El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.) and El Paso Natural Gas Company. *10.9 --Trademark Transition License Agreement, dated December 11, 1996, by and between Newport News Shipbuilding Inc. and Tenneco Inc. (formerly New Tenneco Inc.). *10.10 --Trademark Transition License Agreement, dated December 11, 1996, by and between Tenneco Inc. (formerly New Tenneco Inc.) and El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.). 10.11 --Amended and Restated Tenneco Inc. Board of Directors Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.8 of Tenneco's Form 10, File No. 1-12387). 10.12 --Amended and Restated Tenneco Inc. Executive Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.9 of Tenneco's Form 10, File No. 1-12387). 10.13 --Tenneco Inc. Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.10 of Tenneco's Form 10, File No. 1-12387). 10.14 --Tenneco Inc. 1996 Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.11 of Tenneco's Form 10, File No. 1-12387). 10.15 --Amended and Restated Tenneco Inc. Supplemental Executive Retirement Plan (incorporated herein by reference from Exhibit 10.12 of Tenneco's Form 10, File No. 1-12387). 10.16 --Amended and Restated Tenneco Inc. Benefit Equalization Plan (incorporated herein by reference from Exhibit 10.13 of Tenneco's Form 10, File No. 1-12387). 10.17 --Amended and Restated Tenneco Inc. Outside Directors Retirement Plan (incorporated herein by reference from Exhibit 10.14 of Tenneco's Form 10, File No. 1-12387). 10.18 --Amended and Restated Supplemental Pension Agreement, dated September 12, 1995 between Dana G. Mead and Tenneco Inc (incorporated herein by reference from Exhibit 10.15 of Tenneco's Form 10, File No. 1-12387). 10.19 --Amended and Restated Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives (incorporated herein by reference from Exhibit 10.16 of Tenneco's Form 10, File No. 1-12387). 10.20 --Amended and Restated Tenneco Benefits Protection Trust (incorporated herein by reference from Exhibit 10.17 of Tenneco's Form 10, File No. 1-12387). 10.21 --Employment Agreement, dated June 29, 1992 between Stacy S. Dick and Tenneco Inc (incorporated herein by reference from Exhibit 10.18 of Tenneco's Form 10, File No. 1-12387).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.22 --Employment Agreement, dated March 12, 1992 between Dana G. Mead and Tenneco Inc (incorporated herein by reference from Exhibit 10.19 of Tenneco's Form 10, File No. 1-12387). 10.23 --Employment Agreement, dated December 3, 1993 between Paul T. Stecko and Tenneco Packaging Inc (incorporated herein by reference from Exhibit 10.20 of Tenneco's Form 10, File No. 1-12387). 10.24 --Agreement, dated September 9, 1992 between Theodore R. Tetzlaff and Tenneco Inc (incorporated herein by reference from Exhibit 10.21 of Tenneco's Form 10, File No. 1-12387). 10.25 --Tenneco Inc. Directors Restricted Stock Program (incorporated herein by reference from Exhibit 10.22 of Tenneco's Form 10, File No. 1- 12387). 10.26 --Tenneco Inc. Directors Restricted Stock and Restricted Unit Program (incorporated herein by reference from Exhibit 10.23 of Tenneco's Form 10, File No. 1-12387). 10.27 --1996 Tenneco Inc. Stock Ownership Plan (incorporated herein by reference from Exhibit 10.24 of Tenneco's Form 10, File No. 1-12387). *10.28 --Amended and Restated Mill I Lease, dated as of November 4, 1996, between Credit Suisse Leasing 92A, L.P. and Tenneco Packaging Inc. *10.29 --Amended and Restated Mill II Lease, dated as of November 4, 1996, between Credit Suisse Leasing 92A, L.P., and Tenneco Packaging Inc. 10.30 --Timberland Lease, dated January 31, 1991, by and between Four States Timber Venture and Packaging Corporation of America (incorporated herein by reference from Exhibit 10.27 of Tenneco Inc.'s Form 10, File No. 1-12387). 10.31 --Professional Services Agreement, dated August 22, 1996, by and between Tenneco Business Services Inc. and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.28 of Tenneco Inc.'s Form 10, File No. 1-12387). *11 --Computation of Earnings (Loss) Per Share of Common Stock. *12 --Computation of Ratio of Earnings to Fixed Charges. 13 --None. 16 --None. 18 --None. *21 --Subsidiaries of Tenneco Inc. 22 --None. *23 --Consent of Arthur Andersen LLP *24 --Powers of Attorney of the following directors of Tenneco Inc.: Mark Andrews W. Michael Blumenthal M. Kathryn Eickhoff Peter T. Flawn Henry U. Harris, Jr. Belton K. Johnson John B. McCoy Sir David Plastow William L. Weiss Clifton R. Wharton, Jr. *27.1 --Financial Data Schedule, FYE 12/31/96 *27.2 --Financial Data Schedule, FYE 12/31/95 28 --None. 99 --None.
77 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Tenneco Inc. /s/ Dana G. Mead By___________________________________ Dana G. Mead Chairman and Chief Executive Officer Date: March 11, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Dana G. Mead Principal Executive Officer March 11, 1997 ____________________________________ and Director Dana G. Mead /s/ Robert T. Blakely Principal Financial and March 11, 1997 ____________________________________ Accounting Officer Robert T. Blakely Mark Andrews, W. Michael Blumenthal, Directors M. Kathryn Eickhoff, Peter T. Flawn, Henry U. Harris, Jr., Belton K. Johnson, John B. McCoy, Sir David Plastow, William L. Weiss, Clifton R. Wharton, Jr.
/s/ Theodore R. Tetzlaff By ____________________________ March 11, 1997 Attorney-in-fact 78 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF NEW TENNECO INC. New Tenneco Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: 1. The Restated Certificate of Incorporation of the Corporation is hereby amended by deleting Article FIRST thereof and inserting the following in lieu thereof: "FIRST: The name of the corporation is Tenneco Inc." 2. The foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and by written consent of the then sole stockholder of the Corporation in accordance with 228 of the General Corporation Law of the State of Delaware. 3. The foregoing amendment to the Restated Certificate of Incorporation of the Corporation shall be effective at 8:00 a.m. Eastern Standard Time on December 12, 1996. IN WITNESS WHEREOF, said New Tenneco Inc. has caused this Certificate to be signed as of the 11th day of December, 1996. NEW TENNECO INC. By: /s/ Karl A. Stewart ---------------------------------- Name: Karl A. Stewart Office: Vice President and Secretary 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. 1 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 2 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 3 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 4 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. 5 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 November 1, 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 December 11, 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 December 11, 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 6 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. 7 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 11th day of December, 1996. NEW TENNECO INC. By: /s/ Dana G. Mead __________________________________ Name: Dana G. Mead Office: Chairman and Chief Executive Officer 8 EX-3.2 3 AMENDED & RESTATED BY-LAWS OF TENNECO, INC. BY-LAWS OF TENNECO INC. AMENDED AND RESTATED AS OF DECEMBER 11, 1996 ARTICLE I PLACE OF STOCKHOLDER MEETINGS Section 1. All meetings of the stockholders of the corporation shall be held at such place or places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors of the corporation (the "Board"), or as shall be specified or fixed in the respective notices or waivers of notice thereof. ANNUAL MEETING Section 2. The Annual Meeting of Stockholders shall be held on such date and at such time as may be fixed by the Board and stated in the notice thereof, for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these By-Laws. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before the Annual Meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be transacted at the Annual Meeting except in accordance with the procedures set forth in this Section, provided, however, that nothing in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the Annual Meeting. The Chairman of the Annual Meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SPECIAL MEETING Section 3. Subject to the rights of the holders of any series of preferred stock, par value $.01 per share, of the corporation (the "Preferred Stock") to elect additional directors under specified circumstances, special 1 meetings of the stockholders shall be called by the Board. The business transacted at a special meeting shall be confined to the purposes specified in the notice thereof. Special meetings shall be held at such date and at such time as the Board may designate. NOTICE OF MEETING Section 4. Written notice of each meeting of stockholders, stating the place, date and hour of the meeting, and the purpose or purposes thereof, shall be mailed not less than ten nor more than sixty days before the date of such meeting to each stockholder entitled to vote thereat. QUORUM Section 5. Unless otherwise provided by statute, the holders of shares of stock entitled to cast a majority of votes at a meeting, present either in person or by proxy, shall constitute a quorum at such meeting. The Secretary of the corporation or in his absence an Assistant Secretary or an appointee of the presiding officer of the meeting, shall act as the Secretary of the meeting. VOTING Section 6. Except as otherwise provided by law or the Restated Certificate of Incorporation, each stockholder entitled to vote at any meeting shall be entitled to one vote, in person or by written proxy, for each share held of record on the record date fixed as provided in Section 4 of Article V of these By-Laws for determining the stockholders entitled to vote at such meeting. Except as otherwise provided by law, the Restated Certificate of Incorporation or these By-Laws, the vote of a majority of any quorum shall be sufficient to elect directors and to pass any resolution within the power of the holders of all the outstanding shares. Elections of directors need not be by written ballot; provided, however, that by resolution duly adopted, a vote by written ballot may be required. PROXIES Section 7. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the corporation. In order to be exercised at a meeting of stockholders, proxies shall be delivered to the Secretary of the corporation or his representative at or before the time of such meeting. INSPECTORS Section 8. At each meeting of the stockholders the polls shall be opened and closed; the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by three Inspectors, two of whom shall have power to make a decision. Such Inspectors shall be appointed by the Board before the meeting, or in default thereof by the presiding officer at the meeting, and shall be sworn to the faithful performance of their duties. If 2 any of the Inspectors previously appointed shall fail to attend or refuse or be unable to serve, substitutes shall be appointed by the presiding officer. CONDUCT OF MEETINGS Section 9. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE II BOARD OF DIRECTORS NUMBER; METHOD OF ELECTION; TERMS OF OFFICE AND QUALIFICATION Section 1. The business and affairs of the corporation shall be managed under the direction of the Board. The number of directors which shall constitute the entire Board shall not be less than eight nor more than sixteen and shall be determined from time to time by resolution adopted by a majority of the entire Board. Nominations of persons for election to the Board of the corporation at the Annual Meeting of Stockholders may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article II. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Securities Exchange Act of 1934 as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed 3 nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation at the Annual Meeting of Stockholders unless nominated in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Any director may resign his office at any time by delivering his resignation in writing to the corporation, and the acceptance of such resignation unless required by the terms thereof shall not be necessary to make such resignation effective. No person who shall have attained the age of 72 shall be eligible for election or reelection, as the case may be, as a director of the corporation. MEETINGS Section 2. The Board may hold its meetings and have an office in such place or places within or without the State of Delaware as the Board by resolution from time to time may determine. The Board may in its discretion provide for regular or stated meetings of the Board. Notice of regular or stated meetings need not be given. Special meetings of the Board shall be held whenever called by direction of the Chief Executive Officer, the President or any two of the directors. Notice of any special meeting shall be given by the Secretary to each director either by mail or by telegram, facsimile, telephone or other electronic communication or transmission. If mailed, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least three days before such meeting. If by telegram, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph corporation at least twenty-four hours before such meeting. If by facsimile, telephone or other electronic communication or transmission, such notice shall be transmitted at least twenty-four hours before such meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Except as otherwise provided by applicable law, at any meeting at which every director shall be present, even though without notice, any business may be transacted. No notice of any adjourned meeting need be given. The Board shall meet immediately after election, following the Annual Meeting of Stockholders, for the purpose of organizing, for the election of corporate officers as hereinafter specified, and for the transaction of any other business which may come before it. No notice of such meeting shall be necessary. QUORUM Section 3. Except as otherwise expressly required by these By-Laws or by statute, a majority of the directors then in office (but not less than one- third of the total number of directors constituting the entire Board) shall be present at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of the directors present at any such meeting at which quorum is present shall be necessary for the passage of any resolution or for an act to be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn such meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. 4 COMPENSATION OF BOARD OF DIRECTORS Section 4. Each director (other than a director who is a salaried officer of the corporation or of any subsidiary of the corporation), in consideration of his serving as such, shall be entitled to receive from the corporation such amount per annum and such fees for attendance at meetings of the Board or of any committee of the Board (a "Committee"), or both, as the Board shall from time to time determine. The Board may likewise provide that the corporation shall reimburse each director or member of a Committee for any expenses incurred by him on account of his attendance at any such meeting. Nothing contained in this Section shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE III COMMITTEES OF THE BOARD COMMITTEES Section 1. The Board shall elect from the directors an Executive Committee, a Compensation Committee, an Audit Committee, a Nominating and Business Development Committee and any other Committee which the Board may by resolution prescribe. Any such other Committee shall be comprised of such persons and shall possess such authority as shall be set forth in such resolution. PROCEDURE Section 2. (1) Each Committee shall fix its own rules of procedure and shall meet where and as provided by such rules. Unless otherwise stated in these By- Laws, a majority of a Committee shall constitute a quorum. (2) In the absence or disqualification of a member of any Committee, the members of such Committee present at any meeting, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Fees in connection with such appointments shall be established by the Board. REPORTS TO THE BOARD Section 3. All completed actions by the Executive, Audit and Compensation Committees shall be reported to the Board at the next succeeding Board meeting and shall be subject to revision or alteration by the Board, provided, that no acts or rights of third parties shall be affected by any such revision or alteration. EXECUTIVE COMMITTEE Section 4. The Board shall elect an Executive Committee comprised of the Chief Executive Officer and not less than four additional members of the Board. During the interval between the meetings of the Board, the Executive Committee shall possess and may exercise all the powers of the Board in the management and direction of all the business and affairs of the corporation (except the matters hereinafter assigned to the Compensation Committee) including, without limitation, the power and authority to declare dividends and to authorize the issuance of stock, in such manner as the Executive Committee shall deem best for the interests of the corporation in all cases in which specific directions shall not have been given by the Board. COMPENSATION COMMITTEE Section 5. The Board shall elect a Compensation Committee consisting of at least four members of the Board, none of whom shall be officers or employees of the corporation or of any subsidiary corporation. The 5 Board shall appoint a chairman of such Committee who shall be one of its members. The Compensation Committee shall have such authority and duties as the Board by resolution shall prescribe. AUDIT COMMITTEE Section 6. The Board shall elect from among its members an Audit Committee consisting of at least three members. The Board shall appoint a chairman of said Committee who shall be one of its members. The Audit Committee shall have such authority and duties as the Board by resolution shall prescribe. In no event shall a director who is also an officer or employee of the corporation or any of its subsidiary companies serve as a member of such Committee. The Chief Executive Officer shall have the right to attend (but not vote at) each meeting of such Committee. NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE Section 7. The Board shall elect from among its members a Nominating and Management Development Committee consisting of at least three members. The Board shall appoint a chairman of said Committee who shall be one of its members. The Nominating and Management Development Committee shall have such authority and duties as the Board by resolution shall prescribe. In no event shall a director who is also an officer or employee of the corporation or any of its subsidiary companies serve as a member of such Committee. The Chief Executive Officer shall have the right to attend (but not vote at) each meeting of such Committee. ARTICLE IV OFFICERS GENERAL PROVISIONS Section 1. The corporate officers of the corporation shall consist of the following: a Chairman and/or a President, one of whom shall be designated Chief Executive Officer and each of whom shall be chosen from the Board; one or more Vice Chairman, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant Vice Presidents; a General Counsel, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller, and such other officers as the Board may from time to time designate. Insofar as permitted by statute, the same person may hold two or more offices. All officers chosen by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. The Chairman and/or President, each Vice Chairman, Executive Vice President, Senior Vice President and Vice President, the General Counsel, the Secretary and any Assistant Secretary, the Treasurer and any Assistant Treasurer, and the Controller shall be elected by the Board. Each such officer shall hold office until his successor is elected or appointed and qualified or until his earlier death, resignation or removal. Any officer may be removed, with or without cause, at any time by the Board. A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided in these By-Laws for election or appointment to such office. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER Section 2. The Chief Executive Officer shall have general charge and management of the affairs, property and business of the corporation, subject to the Board, the Executive Committee and the provisions of these By-Laws. The Chief Executive Officer or in his absence such other individual as the Board may select, shall preside at all meetings of the stockholders. He shall also preside at meetings of the Board and the Executive Committee, 6 and in his absence the Board or the Executive Committee, as the case may be, shall appoint one of their number to preside. The Chief Executive Officer shall perform all duties assigned to him in these By-Laws and such other duties as may from time to time be assigned to him by the Board. He shall have the power to appoint and remove, with or without cause, such officers, other than those elected by the Board as provided for in these By-Laws, as in his judgment may be necessary or proper for the transaction of the business of the corporation, and shall determine their duties, all subject to ratification by the Board. POWERS AND DUTIES OF OTHER OFFICERS Section 3. The Chairman shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 4. Each Vice Chairman shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 5. The President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 6. Each Executive Vice President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 7. Each Senior Vice President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 8. Each Vice President and Assistant Vice President shall perform such duties as may from time to time be assigned to him by the Board, the Executive Committee, the Chief Executive Officer or an Executive Vice President. Section 9. The General Counsel shall have general supervision and control of all of the corporation's legal business. He shall perform such other duties as may be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. Section 10. The Secretary or an Assistant Secretary shall record the proceedings of all meetings of the Board, the Executive Committee of the Board and the stockholders, in books kept for that purpose. The Secretary shall be the custodian of the corporate seal, and he or an Assistant Secretary shall affix the same to and countersign papers requiring such acts; and he and the Assistant Secretaries shall perform such other duties as may be required by the Board, the Executive Committee or the Chief Executive Officer. Section 11. The Treasurer and Assistant Treasurers shall have care and custody of all funds of the corporation and disburse and administer the same under the direction of the Board, the Executive Committee or the Chief Executive Officer and shall perform such other duties as the Board, the Executive Committee or the Chief Executive Officer shall assign to them. Section 12. The Controller shall maintain adequate records of all assets, liabilities and transactions of the corporation and see that audits thereof are currently and regularly made; and he shall perform such other duties as may be required by the Board, the Executive Committee or the Chief Executive Officer. 7 SALARIES AND APPOINTMENTS Section 13. The salaries of corporate officers shall be fixed by the Compensation Committee provided for in Section 5 of Article III hereof, except that the fixing of salaries below certain levels, determinable from time to time by the Compensation Committee, may in the discretion of the Committee be delegated to the Chief Executive Officer, subject to the approval of the Board. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 14. (1) The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise provided in paragraph (3) of this Section 14, the corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board. (2) The corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Section 14 or otherwise. (3) If a claim for indemnification or payment of expenses under this Section 14 is not paid in full within thirty days after a written claim therefor by the Indemnitee has been received by the corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law. (4) The rights conferred on any Indemnitee by this Section 14 shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. (5) The corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise. (6) Any repeal or modification of the foregoing provisions of this Section 14 shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. (7) This Section 14 shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action. 8 ARTICLE V CAPITAL STOCK CERTIFICATES OF STOCK Section 1. Certificates of stock certifying the number of shares owned shall be issued to each stockholder in such form not inconsistent with the Restated Certificate of Incorporation as shall be approved by the Board. Such certificates of stock shall be numbered and registered in the order in which they are issued and shall be signed by the Chairman, the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any and all the signatures on the certificates may be a facsimile. TRANSFER OF SHARES Section 2. Transfers of shares shall be made only upon the books of the corporation by the holder, in person, or by power of attorney duly executed and filed with the Secretary of the corporation, and on the surrender of the certificate or certificates of such shares, properly assigned. The corporation may, if and whenever the Board shall so determine, maintain one or more offices or agencies, each in charge of an agent designated by the Board, where the shares of the capital stock of the corporation shall be transferred and/or registered. The Board may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. LOST, STOLEN OR DESTROYED CERTIFICATES Section 3. The corporation may issue a new certificate of capital stock of the corporation in place of any certificate theretofore issued by the corporation, alleged to have been lost, stolen or destroyed, and the corporation may, but shall not be obligated to, require the owner of the alleged lost, stolen or destroyed certificate, or his legal representatives, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate, as the officers of the corporation may, in their discretion, require. FIXING OF RECORD DATE Section 4. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed by the Board: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be determined in accordance with Article VI of these By-Laws; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to 9 notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VI CONSENTS TO CORPORATE ACTION RECORD DATE Section 1. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be as fixed by the Board or as otherwise established under this Section. Any person seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall by written notice addressed to the Secretary and delivered to the corporation, request that a record date be fixed for such purpose. The Board may fix a record date for such purpose which shall be no more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board and shall not precede the date such resolution is adopted. If the Board fails within 10 days after the corporation receives such notice to fix a record date for such purpose, the record date shall be the day on which the first written consent is delivered to the corporation in the manner described in Section 2 below unless prior action by the Board is required under the General Corporation Law of Delaware, in which event the record date shall be at the close of business on the day on which the Board adopts the resolution taking such prior action. PROCEDURES Section 2. Every written consent purporting to take or authorizing the taking of corporate action and/or related revocations (each such written consent and related revocation is referred to in this Article VI as a "Consent") shall bear the date of signature of each stockholder who signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated Consent delivered in the manner required by this Section 2, Consents signed by a sufficient number of stockholders to take such action are delivered to the corporation. A Consent shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery to the corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. In the event of the delivery to the corporation of a Consent, the Secretary of the corporation shall provide for the safe-keeping of such Consent and shall promptly conduct such ministerial review of the sufficiency of the Consents and of the validity of the action to be taken by shareholder consent as he deems necessary or appropriate, including, without limitation, whether the holders of a number of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent; provided, however, that if the corporate action to which the Consent relates is the removal or replacement of one or more members of the Board, the Secretary of the corporation shall promptly designate two persons, who shall not be members of the Board, to serve as Inspectors with respect to such Consent and such Inspectors shall discharge the functions of the Secretary of the corporation under this Section 2. If after such investigation the Secretary or the Inspectors (as the case may be) shall determine that the Consent is valid and that the action therein specified has been validly authorized, that fact shall forthwith be certified on the records of the corporation kept for the purpose of recording the proceedings of meetings of stockholders, and the Consent shall be filed in such records, at which time the Consent shall become effective as stockholder action. In conducting the investigation required by this Section 2, the Secretary or the Inspectors (as the case may be) may, at the expense of the corporation, retain special legal counsel and any other necessary or appropriate professional advisors, and such other personnel as they may deem necessary or appropriate to assist them, and shall be fully protected in relying in good faith upon the opinion of such counsel or advisors. 10 ARTICLE VII MISCELLANEOUS DIVIDENDS AND RESERVES Section 1. Dividends upon the capital stock of the corporation may be declared as permitted by law by the Board or the Executive Committee at any regular or special meeting. Before payment of any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the corporation such sum or sums as the Board or the Executive Committee, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for such other purposes as the Board or Executive Committee shall think conducive to the interests of the corporation, and any reserve so established may be abolished and restored to the surplus account by like action of the Board or the Executive Committee. SEAL Section 2. The seal of the corporation shall bear the corporate name of the corporation, the year of its incorporation and the words "Corporate Seal, Delaware". WAIVER Section 3. Whenever any notice whatever is required to be given by statute or under the provisions of the Restated Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board, as the case may be, need be specified in any waiver of notice of such meeting. FISCAL YEAR Section 4. The fiscal year of the corporation shall begin with January first and end with December thirty-first. CONTRACTS Section 5. Except as otherwise required by law, the Restated Certificate of Incorporation or these By-Laws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the corporation by such officer or officers of the corporation as the Board may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. The Chairman of the Board, the President or any Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the corporation. Subject to any restrictions imposed by the Board, the Chairman of the Board, the President or any Vice President of the corporation may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power. PROXIES Section 6. Unless otherwise provided by resolution adopted by the Board, the Chairman of the Board, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the corporation, in the name and on behalf of the corporation, to cast the votes which the corporation may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or 11 other securities may be held by the corporation, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the corporation as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. AMENDMENTS Section 7. The Board from time to time shall have the power to make, alter, amend or repeal any and all of these By-Laws, but any By-Laws so made, altered or repealed by the Board may be amended, altered or repealed by the stockholders. CERTIFICATION The undersigned hereby certifies that he is the duly elected and acting Secretary of Tenneco Inc., a Delaware corporation, and the keeper of its corporate records and minutes. The undersigned further hereby certifies that the above and foregoing is a true and correct copy of the By-Laws of said corporation, as in force at the date hereof. WITNESS the hand of the undersigned and the seal of said corporation, this day of , 19 . _____________________________________ ___________________________ Secretary 12 EX-4.2 4 RIGHTS AGREEMENT Exhibit 4.2 ________________________ NEW TENNECO INC. and FIRST CHICAGO TRUST COMPANY OF NEW YORK Rights Agent RIGHTS AGREEMENT Dated as of December 11, 1996 ________________________ Table of Contents -----------------
Section Page - ------- ---- 1 Certain Definitions................................................ 1 2 Appointment of Rights Agent........................................ 5 3 Issue of Rights Certificates....................................... 5 4 Form of Rights Certificates........................................ 7 5 Countersignature and Registration.................................. 8 6 Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates........... 9 7 Exercise of Rights; Purchase Price; Expiration Date of Rights...... 9 8 Cancellation and Destruction of Rights Certificates................ 11 9 Reservation and Availability of Capital Stock...................... 11 10 Preferred Stock Record Date........................................ 13 11 Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights................................................... 13 12 Certificate of Adjusted Purchase Price or Number of Shares......... 21 13 Consolidation, Merger or Sale or Transfer of Assets or Earning Power.............................................................. 22 14 Fractional Rights and Fractional Shares............................ 24 15 Rights of Action................................................... 25 16 Agreement of Rights Holders........................................ 25 17 Rights Certificate Holder Not Deemed a Stockholder................. 26 18 Concerning the Rights Agent........................................ 27 19 Merger or Consolidation or Change of Name of Rights Agent.......... 27 20 Duties of Rights Agent............................................. 28
-ii- 21 Change of Rights Agent.............................................. 29 22 Issuance of New Rights Certificates................................. 30 23 Redemption and Termination.......................................... 31 24 Notice of Certain Events............................................ 31 25 Notices............................................................. 32 26 Supplements and Amendments.......................................... 33 27 Successors.......................................................... 33 28 Determinations and Actions by the Board of Directors, etc........... 33 29 Benefits of this Agreement.......................................... 34 30 Severability........................................................ 34 31 Governing Law....................................................... 34 32 Counterparts........................................................ 34 33 Descriptive Headings................................................ 34
Exhibit A -- Certificate of Designation, Preferences and Rights Exhibit B -- Form of Rights Certificate Exhibit C -- Form of Summary of Rights -iii- RIGHTS AGREEMENT ---------------- RIGHTS AGREEMENT, dated as of December 11, 1996 (the "Agreement"), between New Tenneco Inc., a Delaware corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"). W I T N E S S E T H - - - - - - - - - - WHEREAS, on December 11, 1996 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company authorized and declared a dividend distribution of one preferred share purchase right (a "Right") for each share of common stock, par value $.01 per share, of the Company outstanding immediately prior to the Industrial Distribution (as hereinafter defined) (the "Record Date"), and has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock (as hereinafter defined) of the Company issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date (as hereinafter defined), each Right initially representing the right to purchase one one-hundredth of a share of Series A Participating Junior Preferred Stock of the Company having the rights, powers and preferences set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the ------------------- following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or (ii) until immediately following the Industrial Distribution, the corporation known as of the date hereof as Tenneco Inc., a Delaware corporation ("Old Tenneco"), or any subsidiary of Old Tenneco. (b) "Act" shall mean the Securities Act of 1933. (c) "Adverse Person" shall mean any Person declared to be an Adverse Person by the Board of Directors upon a determination that the criteria set forth in Section 11(a)(ii)(B) apply to such Person. -1- (d) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on the dates of this Agreement (the "Exchange Act"). (e) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the -------- ------- "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a -------- ------- Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (e)) or disposing of any voting securities of the -2- Company; provided, however, that nothing in this paragraph (e) shall -------- ------- cause a person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. (f) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (g) "Close of business" on any given date shall mean 5:00 P.M., Greenwich, Connecticut time, on such date; provided, however, that if such -------- ------- date is not a Business Day it shall mean 5:00 P.M., Greenwich, Connecticut time, on the next succeeding Business Day. (h) "Common Stock" shall mean the common stock, par value $.01 per share, of the Company, except that "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. (i) "Common stock equivalents" shall have the meaning set forth in Section 11(a)(iii) hereof. (j) "Current market price" shall have the meaning set forth in Section 11(d)(i) hereof. (k) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. (l) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (m) "Exchange Act" shall have the meaning set forth in Section 1(d) hereof. (n) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (o) "Final Expiration Date" shall mean the close of business on June 10, 1998. (p) "Industrial Distribution" shall have the meaning set forth in the Distribution Agreement among Old Tenneco, the Company and Newport News Shipbuilding Inc., a Delaware corporation, dated as of November 1, 1996. -3- (q) "Person" shall mean any individual, firm, corporation, partnership or other entity. (r) "Preferred Stock" shall mean shares of Series A Participating Junior Preferred Stock, par value $.01 per share, of the Company, and, to the extent that there are not a sufficient number of shares of Series A Participating Junior Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock, par value $.01 per share, of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Participating Junior Preferred Stock. (s) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (t) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof. (u) "Record Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (v) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (w) "Rights" shall have the meaning set forth in the WHEREAS clause at the beginning of the Agreement. (x) "Rights Agent" shall have the meaning set forth in the parties clause at the beginning of this Agreement. (y) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof. (z) "Rights Dividend Declaration Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (aa) "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii) (A) or (B) hereof. (bb) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. (cc) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof. (dd) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof. -4- (ee) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or any Acquiring Person that an Acquiring Person has become such. (ff) "Subsidiary" shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person. (gg) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (hh) "Summary of Rights" shall have the meaning set forth in Section 3(b) hereof. (ii) "Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof. (jj) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event. Section 2. Appointment of Rights Agent. The Company hereby appoints --------------------------- the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Rights Certificates. ---------------------------- (a) Until the earlier of (i) the close of business on the tenth business day after the Stock Acquisition Date, (ii) the close of business on the tenth business day (or such later date as may be determined by the Board of Directors) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the -5- Beneficial Owner of 20% or more of the shares of Common Stock then outstanding; or (iii) the close of business on the tenth business day after the Board of Directors of the Company determines, pursuant to the criteria set forth in Section 11(a)(ii)(B) hereof, that a Person is an Adverse Person (the earliest of (i), (ii) or (iii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first- class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more right certificates, in substantially the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Rights for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Right Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) The Company will deliver a copy of the Summary of Rights, in substantially the form attached hereto as Exhibit C (the "Summary of Rights"), to the record holder of the Common Stock as of the Record Date. With respect to outstanding certificates for the Common Stock as of the Record Date, until the Distribution Date the Rights will be evidenced by such certificates together with the Summary of Rights, and, until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7 hereof), the transfer of any such certificate (with or without the Summary of Rights) shall also constitute the transfer of the Rights associated with the shares of Common Stock represented thereby. (c) Rights shall be issued in respect of all shares of Common Stock that are issued (whether originally issued or from the Company's treasury) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates issued for Common Stock (including, without limitation, upon transfer of outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date (including, without limitation, all such certificates issued pursuant to the Industrial Distribution) shall also be deemed to be certificates for Rights, and shall bear the following legend: -6- This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Tenneco Inc. (the "Company") and First Chicago Trust Company of New York (the "Rights Agent") dated as of December 11, 1996 as amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person, an Adverse Person or any Affiliate or Associates thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. With respect to such certificates bearing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Section 4. Form of Rights Certificates. --------------------------- (a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-hundredths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-hundredth of a share, the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or an Adverse Person or any Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee after such Acquiring Person or Adverse Person becomes such, or (iii) -7- a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Adverse Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Adverse Person to holders of equity interests in such Acquiring Person or Adverse Person or to any Person with whom such Acquiring Person or Adverse Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend modified as applicable to apply to such Person: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an [Acquiring Person] [Adverse Person] or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement. Section 5. Countersignature and Registration. --------------------------------- (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof, which shall be attested by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Company, either manually or by facsimile signature. The Rights Certificates shall be manually countersigned (or by facsimile if permitted by law) by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before counter- signature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be counter- signed by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates. -8- Section 6. Transfer, Split Up, Combination and Exchange of Rights ------------------------------------------------------ Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a) - ---------------------------------------------------------------------- Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of ------------------------------------------------------ Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights - ------ Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a share (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) the close of business on June 10, 1998 (the "Final Expiration Date"), or (ii) the time -9- at which the Rights are redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as the "Expiration Date"). (b) The Purchase Price for each one one-hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $130.00, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-hundredth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-hundredths of a share of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by check (certified bank check or money order) payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. -10- (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person, an Adverse Person, or an Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person or Adverse Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Adverse Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Adverse Person to holders of equity interests in such Acquiring Person or Adverse Person or to any Person with whom the Acquiring Person or Adverse Person has any continuing agreement, arrangement of understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or an Adverse Person or any of their respective Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All --------------------------------------------------- Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Capital Stock. (a) The --------------------------------------------- Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its -11- authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement has been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all one one-hundredths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one- -12- hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each person in whose name --------------------------- any certificate for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the -------- ------- date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares ------------------------------------------------------- or Number of Rights. The Purchase Price, the number and kind of shares covered - ------------------- by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, -13- subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event: (A) any Person, alone or together with its Affiliates and Associates, shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price that is fair to stockholders (taking into account all factors that the members of the Board deem relevant including, without limitation, prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders, or (B) the Board of Directors of the Company shall declare any Person to be an Adverse Person, upon a determination that such Person, alone or together with its Affiliates and Associates, has, at any time after the Rights Dividend Declaration Date, become the Beneficial Owner of an amount of Common Stock that the Board of Directors determines to be substantial (which amount shall in no event be less than 10% of the shares of Common Stock then outstanding) and a determination by at least a majority of the members of the Board of Directors who are not officers of the Company, after reasonable inquiry and investigation, including consultation with such persons as the directors shall deem appropriate, that (a) such Beneficial Ownership by such Person is intended to cause the Company to repurchase the Common Stock beneficially owned by such Person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such Person with short-term financial gain under circumstances where the Board of Directors determines that the best long-term interests of the Company and its stockholders would not be served by taking such action or entering into such transactions or series of transactions at that time or (b) such Beneficial Ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company, -14- then, promptly following the first occurrence of any Section 11(a)(ii) Event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-hundredths of a share of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the date of such first occurrence (such number of shares, the "Adjustment Shares"). (iii) In the event that the number of shares of Common Stock that are authorized by the Company's certificate of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of the Preferred Stock that the Board of Directors of the Company has deemed to have the same value as shares of Common Stock (such shares of Preferred Stock, "common stock equivalents")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, -------- ------- if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject -15- to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of the Common Stock on the Section 11(a)(ii) Trigger Date and the value of any "common stock equivalent" shall be deemed to have the same value as the Common Stock on such date. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("equivalent preferred stock")) or securities convertible into Preferred Stock or equivalent preferred stock at a price per share of Preferred Stock or per share of equivalent preferred stock (or having a conversion price per share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock that the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or equivalent preferred stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price that would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained -16- earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock and the denominator of which shall be such current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price that would have been in effect if such record date had not been fixed. (d)(i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided, -------- however, that in the event that the current market price per share of the ------- Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day Period, as set forth above, after the ex-dividend date for such divided or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market ("NASDAQ") or such other system then in use, or, if on any such date the shares -17- of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the "current market price" per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the current market price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the "current market price" per share of Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the Record Date) multiplied by the current market price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, "current market price" per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the "current market price" of one one-hundredth of a share of Preferred Stock shall be equal to the "current market price" of one share of Preferred Stock divided by 100. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section -------- ------- 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction that mandates such adjustment, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such -18- other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-hundredths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the -19- Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-hundredth of a share and the number of one one-hundredths of a share that were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the number of one one- hundredths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action that may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable such number of one one-hundredths of a share of Preferred Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, -------- however, that the Company shall deliver to such holder a due bill or other - ------- appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the current market price, (iii) issuance wholly for cash of shares of Preferred Stock or securities that by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to -20- any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Record Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. (q) The failure by Board of Directors to declare a Person to be an Adverse Person following such Person becoming the Beneficial Owner of 10% or more of the outstanding Common Stock shall not imply that such Person is not an Adverse Person or limit the Board of Directors' right at any time in the future to declare such Person to be an Adverse Person. Section 12. Certificate of Adjusted Purchase Price or Number of --------------------------------------------------- Shares. Whenever an adjustment is made as provided in Section 11 and Section 13 - ------ hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. -21- Section 13. Consolidation, Merger or Sale or Transfer of Assets or ------------------------------------------------------ Earning Power. - ------------- (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof, then, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event multiplying the number of such one one- hundredths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. -22- (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person - -------- ------- is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock that have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and (ii) will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates that comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights that have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). -23- (d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a tender or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Section 11(a)(ii)(A) hereof (or a wholly owned subsidiary of any such Person or Persons) (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender or exchange offer and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. Fractional Rights and Fractional Shares. --------------------------------------- (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Date immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than, except as provided in Section 7(c) hereof, fractions that are integral multiples of one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates that evidence fractional shares of Preferred Stock (other than fractions that are integral multiples of one one-hundredth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-hundredth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time -24- such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-hundredth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-hundredth of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. Rights of Action. All rights of action in respect of ---------------- this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by --------------------------- accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; -25- (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best -------- ------- efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Stockholder. No -------------------------------------------------- holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one- hundredths of a share of Preferred Stock or any other securities of the Company that may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. -26- Section 18. Concerning the Rights Agent. --------------------------- (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights --------------------------------------------------- Agent. ----- (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation -------- ------- would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its -27- prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the ---------------------- duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of "current market price") be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation of warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. -28- (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the -------- ------- selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor ---------------------- Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first- class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by -29- registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the States of New York or Connecticut (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the States of New York or Connecticut), in good standing, having a principal office in the States of New York or Connecticut, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any ----------------------------------- of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement outstanding, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such -------- ------- Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and -30- to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. Redemption and Termination. -------------------------- (a) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the close of business on the tenth business day following the Stock Acquisition Date, or (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.02 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). Notwithstanding the foregoing, the Board of Directors may not redeem any Rights following its declaration that any Person is an Adverse Person. Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption hereunder has expired. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the "current market price", as defined in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. Notice of Certain Events. ------------------------ (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in -31- one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock whichever shall be the earlier. (b) In case any Section 11(a)(ii) Event hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities. Section 25. Notices. Notices or demands authorized by this Agreement ------- to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: New Tenneco Inc. 1275 King Street Greenwich, Connecticut 06831 Attention: Corporate Secretary Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First Chicago Trust Company of New York P.O. Box 2500 Jersey City, New Jersey 07303-2500 Attention: President -32- Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first- class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. Supplements and Amendments. Prior to the Distribution -------------------------- Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner that the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates; provided, this Agreement may not be supplemented -------- or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company that states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, unless approved by a vote of the stockholders of the Company, no supplement or amendment shall be made that changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable. Section 27. Successors. All the covenants and provisions of this ---------- Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. Determinations and Actions by the Board of Directors, ----------------------------------------------------- etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company (or as set forth herein, certain specified members thereof) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations -33- (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board (with, where specifically provided for herein, the concurrence of the Continuing Directors) in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights. Section 29. Benefits of this Agreement. Nothing in this Agreement -------------------------- shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 30. Severability. If any term, provision, covenant or ------------ restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the - -------- ------- contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors. Section 31. Governing Law. This Agreement, each Right and each ------------- Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. Section 32. Counterparts. This Agreement may be executed in any ------------ number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the -------------------- several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. -34- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: NEW TENNECO INC. By /s/ Karl A. Stewart By /s/ Dana G. Mead ----------------------------------- -------------------------------- Name: Karl A. Stewart Name: Dana G. Mead Title: Vice President and Secretary Title: Chairman and Chief Executive Officer Attest: FIRST CHICAGO TRUST COMPANY OF NEW YORK By /s/ Charles D. Keryc By /s/ Kathleen D. Whelply ----------------------------------- -------------------------------- Name: Charles D. Keryc Name: Kathleen D. Whelply Title: Vice President Title: Assistant Vice President -35- Exhibit A --------- FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PARTICIPATING JUNIOR PREFERRED STOCK NEW TENNECO INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned, Chairman of the Board and Secretary of New Tenneco Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on December 11, 1996, adopted the following resolution creating a series of 3,500,000 shares of Preferred Stock designated as Series A Participating Junior Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be ---------------------- designated as "Series A Participating Junior Preferred Stock" and the number of shares constituting such series shall be 3,500,000. Section 2. Dividends and Distributions. --------------------------- (A) The dividend rate on the shares of Series A Participating Junior Preferred Stock for each quarterly dividend period (hereinafter referred to as a "quarterly dividend period"), which quarterly dividend periods shall commence on January 1, April 1, July 1 and October 1 in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") (or in the case of original issuance, from the date of original issuance) and shall end on and include the day next preceding the first date of the next quarterly dividend period, shall be equal (rounded to the nearest cent) to the greater of (a) $5.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in cash, based upon the fair market value -1- at the time the non-cash dividend or other distribution is declared as determined in good faith by the Board of Directors) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared (but not withdrawn) on the common stock, par value $.01 per share, of this Corporation (the "Common Stock") during the immediately preceding quarterly dividend period, or, with respect to the first quarterly dividend period, since the first issuance of any share or fraction of a share of Series A Participating Junior Preferred Stock. In the event the Corporation shall at any time after December 11, 1996 (the "Record Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in each of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share- by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 45 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Participating ------------- Junior Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Junior Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation and will vote together with the shares of Common Stock as one class on all such matters. In the event the Corporation shall at any time after the Record Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Participating Junior Preferred Stock were entitled -2- immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) (i) If at any time dividends on any Series A Participating Junior Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the holders of the Series A Participating Junior Preferred Stock, voting as a separate series from all other series of Preferred Stock and classes of capital stock, shall be entitled to elect two members of the Board of Directors in addition to any Directors elected by any other series, class or classes of securities and the authorized number of Directors will automatically be increased by two. Promptly thereafter, the Board of Directors of this Corporation shall, as soon as may be practicable, call a special meeting of holders of Series A Participating Junior Preferred Stock for the purpose of electing such members of the Board of Directors. Said special meeting shall in any event be held within 45 days of the occurrence of such arrearage. (ii) During any period when the holders of Series A Participating Junior Preferred Stock, voting as a separate series, shall be entitled and shall have exercised their right to elect two Directors, then and during such time as such right continues (a) the then authorized number of Directors shall be increased by two, and the holders of Series A Participating Junior Preferred Stock, voting as a separate series, shall be entitled to elect the additional Directors so provided for, and (b) each such additional Director shall not be a member of Class I, Class II or Class III of the Board of Directors, but shall serve until the next annual meeting of stockholders for the election of Directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3B. (iii) A Director elected pursuant to the terms hereof may be removed without cause by the holders of Series A Participating Junior Preferred Stock entitled to vote in an election of such Director. (iv) If, during any interval between annual meetings of stockholders for the election of Directors and while the holders of Series A Participating Junior Preferred Stock shall be entitled to elect two Directors, there is no such Director in office by reason of resignation, death or removal, then, promptly thereafter, the Board of Directors shall cause a special meeting of the holders of Series A Participating Junior Preferred Stock for the purpose of filling such vacancy and such vacancy shall be filled at such special meeting. Such special meeting shall in any event be held within 45 days of the occurrence of such vacancy. (v) At such time as the arrearage is fully cured, and all dividends accumulated and unpaid on any shares of Series A Participating Junior Preferred Stock outstanding are paid, and, in addition thereto, at least one regular dividend has been paid subsequent to curing such arrearage, the term of office of any Director elected pursuant hereto, or his successor, shall automatically terminate, and the authorized number of Directors shall automatically decrease by two, the rights of the holders of the shares of the Series A Participating Junior Preferred Stock to vote as provided in this Section 3(B) shall cease, subject to renewal from time to time upon the -3- same terms and conditions, and the holders of shares of the Series A Participating Junior Preferred Stock shall have only the voting rights elsewhere herein set forth. Section 4. Reacquired Shares. Any shares of Series A Participating Junior ----------------- Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 5. Liquidation, Dissolution or Winding Up. In the event of any -------------------------------------- voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series A Participating Junior Preferred Stock shall be entitled to receive the greater of (a) $100.00 per share, plus accrued dividends to the date of distribution, whether or not earned or declared, or (b) an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock. In the event the Corporation shall at any time after the Record Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Junior Preferred Stock were entitled immediately prior to such event pursuant to clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction of the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 6. Optional Redemption. (a) The Company shall have the option to ------------------- redeem the whole or any part of the Series A Participating Junior Preferred Stock at any time at a redemption price equal to, subject to the provision for adjustment hereinafter set forth, 100 times the "current per share market price" of the Common Stock on the date of the mailing of the notice of redemption, together with unpaid accumulated dividends to the date of such redemption. In the event the Company shall at any time after the Record Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Junior Preferred Stock were otherwise entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. The "current per share market price" on any date shall be deemed to be the average of the closing price per share of such Common Stock for the 10 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common -4- Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted the average of the high bid and low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market ("NASDAQ") or such other system then in use or, if on any such date, the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on such date no such market maker is making a market in the Common Stock, the fair value of the Common Stock on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by law or executive order to close. (b) Notice of any such redemption shall be given by mailing to the holders of the Series A Participating Junior Preferred Stock a notice of such redemption, first class postage prepaid, not later than the thirtieth day and not earlier than the sixtieth day before the date fixed for redemption, at their last address as the same shall appear upon the books of the Company. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the shareholder received such notice, and failure duly to give such notice by mail, or any defect in such notice, to any holder of Series A Participating Junior Preferred Stock shall not affect the validity of the proceedings for the redemption of such Series A Participating Junior Preferred Stock. If less than all the outstanding shares of Series A Participating Junior Preferred Stock are to be redeemed, the redemption shall be made by lot as determined by the Board of Directors. (c) The notice of redemption to each holder of Series A Participating Junior Preferred Stock shall specify (a) the number of shares of Series A Participating Junior Preferred Stock of such holder to be redeemed, (b) the date fixed for redemption, (c) the redemption price and (d) the place of payment of the redemption price. (d) If any such notice of redemption shall have been duly given or if the Company shall have given to the bank or trust company hereinafter referred to irrevocable written authorization promptly to give or complete such notice, and if on or before the redemption date specified therein the funds necessary for such redemption shall have been deposited by the Company with the bank or trust company designated in such notice, doing business in Greenwich, Connecticut, and having a capital, surplus and undivided profits aggregating at least $25,000,000 according to its last published statement of condition, in trust for the benefit of the holders of Series A Participating Junior Preferred Stock called for redemption, then, notwithstanding that any certificate for such shares so called for redemption shall not have been surrendered for cancellation, from and after the time of such deposit all such shares called for redemption shall no longer be deemed outstanding and all rights with respect to -5- such shares shall no longer be deemed outstanding and shall forthwith cease and terminate, except the right of the holders thereof to receive from such bank or trust company at any time after the time of such deposit the funds so deposited, without interest, and the right to exercise, up to the close of business on the fifth day before the date fixed for redemption. In case less than all the shares represented by any surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. Any interest accrued on such funds shall be paid to the Company from time to time. Any funds so deposited and unclaimed at the end of six years from such redemption date shall be repaid to the Company, after which the holders of shares of Series A Participating Junior Preferred Stock called for redemption shall look only to the Company for payment thereof. Section 7. Fractional Shares. Series A Participating Junior Preferred ----------------- Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Junior Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury as of the 11th day of December, 1996. NEW TENNECO INC. _______________________ [Name] Chairman of the Board Attest: ___________________ [Name] Secretary -6- Exhibit B --------- [Form of Rights Certificate] Certificate No. R-___________ Rights NOT EXERCISABLE AFTER JUNE 10, 1998 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.02 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN [ACQUIRING] [ADVERSE] PERSON OR AN AFFILIATE OR ASSOCIATE OF AN [ACQUIRING] [ADVERSE] PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]* Rights Certificate TENNECO INC. This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of December 11, 1996, as amended from time to time (the "Rights Agreement"), between Tenneco Inc., a Delaware corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M. (Greenwich, Connecticut time) on June 10, * The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. -1- 1998 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, non- assessable share of Series A Participating Junior Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of $130.00 per one one- hundredth of a share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares that may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of December 11, 1996, based on the Preferred Stock as constituted at such date. The Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that a number of Rights be exercised so that only whole shares of Preferred Stock will be issued. Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Adverse Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, an Adverse Person, or an Affiliate or Associate of any such Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities that may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Company. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-hundredths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. -2- Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may (unless the Board of Directors shall have made a determination that a Person is an Adverse Person) be redeemed by the Company at its option at a redemption price of $.02 per Right at any time prior to the earlier of the close of business on (i) the tenth business day following the Stock Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), and (ii) June 10, 1998. No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions that are integral multiples of one one-hundredth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of __________ __, 19__ ATTEST: TENNECO INC. ____________________________ By____________________________ Secretary Title: -3- Countersigned: FIRST CHICAGO TRUST COMPANY OF NEW YORK By___________________________ Authorized Signature -4- [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED ____________________________________________ hereby sells, assigns and transfers unto______________________________________________________ (Please print name and address of transferee) ______________________________ this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _____________________, 19__ ____________________________________________ Signature Signature Guaranteed: -1- Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person. Dated: _______________, 19__ _______________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. -1- FORM OF ELECTION TO PURCHASE ---------------------------- (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: TENNECO INC.: The undersigned hereby irrevocably elects to exercise ____________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ ________________________________________________________________________________ Dated: ______________, 19__ _______________________________________________________ Signature Signature Guaranteed: -1- Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person. Dated: _______________, 19__ _______________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. -1- Exhibit C --------- SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On December 11, 1996, the Board of Directors of New Tenneco Inc. (the "Company") declared a dividend distribution of one Right for each outstanding share of Tenneco Common Stock to stockholders of record at the close of business on December 11, 1996. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Participating Junior Preferred Stock, par value $.01 per share (the "Preferred Stock"), at a Purchase Price of $130.00 per Unit, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement, as amended from time to time (the "Rights Agreement"), between the Company and First Chicago Trust Company of New York, as Rights Agent. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), (ii) 10 business days (or such later date as may be determined by the Board of Directors) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Common Stock or (iii) 10 business days after the Board of Directors of the Company determines any person, alone or together with its affiliates and associates, has become the Beneficial Owner of an amount of Common Stock which the Board of Directors determines to be substantial (which amount shall in no event be less than 10% of the shares of Common Stock outstanding) and at least a majority of the Board of Directors who are not officers of the Company, after reasonable inquiry and investigation, including consultation with such persons as such directors shall deem appropriate, shall determine that (a) such beneficial ownership by such person is intended to cause the Company to repurchase the Common Stock beneficially owned by such person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such person with short-term financial gain under circumstances where the Board of Directors determines that the best long-term interests of the Company and its stockholders would not be served by taking such action or entering into such transactions or series of transactions at that time or (b) such beneficial ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company (any such person being referred to herein and in the Rights Agreement as an "Adverse Person"). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new -2- Common Stock certificates issued after December 11, 1996 will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on June 10, 1998, unless earlier redeemed by the Company as described below. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event (a "Flip-In Event") that (i) a Person becomes the beneficial owner of 20% or more of the then outstanding shares of Common Stock (except pursuant to an offer for all outstanding shares of Common Stock that the independent directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), or (ii) the Board of Directors determines that a person is an Adverse Person, each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of a Flip-In Event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person or Adverse Person will be null and void. However, Rights are not exercisable following the occurrence of a Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below. For example, at an exercise price of $130.00 per Right, each Right not owned by an Acquiring Person or by an Adverse Person (or by certain related parties) following a Flip-In Event would entitle its holder to purchase $260.00 worth of Common Stock (or other consideration, as noted above) for $130.00. Assuming that the Common Stock had a per share value of $50.00 at such time, the holder of each valid Right would be entitled to purchase 5.2 shares of Common Stock for $130.00. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction (other than a merger that follows an offer described in the second preceding paragraph), or (ii) more than 50% of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights that previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain -3- rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise. In general, at any time until ten business days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.02 per Right. The Company may not redeem the Rights if the Board of Directors has previously declared a person to be an Adverse Person. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.02 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights became exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company as set forth above. Other than those provisions relating to the duration of the Rights Agreement and the principal economic terms of the Rights (which may be amended only with stockholder approval), any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement (other than those described in the preceding sentence) may be amended by the Board in order to cure any ambiguity, to make changes that do not adversely affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment -------- ------- to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. A copy of the Rights Agreement is being filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 10. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference. -4- EX-4.3(B) 5 FIRST SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ FIRST SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 10.20% DEBENTURES DUE 2008 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- First Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $250,000,000 to be designated the "10.20% Debentures due 2008" (the "Debentures"), and all action on the part of the Company necessary to authorize the issuance of the Debentures under the Original Indenture and this First Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Debentures, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Debentures issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 10.20% Debentures Due 2008 Section 1.1. Issue of Debentures. A series of Securities which shall be designated the "10.20% Debentures due 2008" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this First Supplemental Indenture (including the form of Debentures set forth in Section 1.2 hereof). The aggregate principal amount of Debentures which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $250,000,000. The entire amount of Debentures may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Debentures and Authentication Certificate. The forms of the Debentures and the Trustee's certificate of authentication shall be substantially as follows: [form of face of debenture] NEW TENNECO INC. 10.20% DEBENTURE DUE 2008 No. $ New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on March 15, 2008, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from the September 15 or the March 15 next preceding the date hereof to which interest has been paid, unless the date hereof is a September 15 or March 15 2 to which interest on the Debentures has been paid, in which case from the date hereof, or unless no interest has been paid on the Debentures since the original issue date (hereinafter referred to) of this Debenture, in which case from the original issue date, semi-annually on September 15 and March 15 in each year, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 10.20% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Debentures, if the date hereof is after August 31 or February 28 (or 29) and prior to the following September 15 or March 15, as the case may be, this Debenture shall bear interest from such September 15 or March 15 or, if no interest has been paid on the Debentures since the original issue date of this Debenture, from the original issue date; provided, however, that if the Company shall default in the payment of interest due on such September 15 or March 15, then this Debenture shall bear interest from the September 15 or March 15 to which interest has been paid or, if no interest has been paid on the Debentures since the original issue date of this Debenture, from the original issue date. The interest so payable on any September 15 or March 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Debenture is registered at the close of business on the August 31 or February 28 (or 29), as the case may be, next preceding such September 15 or March 15, or if such August 31 or February 28 (or 29) is not a business day, the business day next preceding such August 31 or February 28 (or 29). Interest on this Debenture shall be computed on the basis of a 360-day year of twelve 30- day months. Both principal of and interest on this Debenture are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Debenture register. The original issue date in respect of the Debentures is December 11, 1996. ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Debenture shall not be entitled to any benefit under the Indenture hereafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. 3 In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary. [form of reverse of debenture] NEW TENNECO INC. 10.20% DEBENTURE DUE 2008 This Debenture is one of a duly authorized issue of Debentures of the Company known as its 10.20% Debentures due 2008 (herein called the "Debentures"), limited to the aggregate principal amount of $250,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the 4 "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Debentures and of the duties thereunder of the Trustee and the Company. The Debentures are not subject to redemption by the Company prior to maturity. The Debentures are subject to repayment on March 15, 1998, in whole or in part, in increments of $1,000 or integral multiples of $1,000 in excess of $1,000, provided that the portion of the principal amount of any Debenture not being repaid shall be at least $1,000, at the option of the holders thereof at a repayment price equal to the principal amount thereof to be repaid, together with interest payable thereon to the repayment date. For this Debenture to be repaid at the option of the holder, the Company must receive at the corporate trust office of the Trustee in the Borough of Manhattan, The City of New York, during the period from and including January 15, 1998 to and including February 15, 1998 or, if February 15, 1998 is not a Business Day, the next succeeding Business Day, (i) this Debenture with the form entitled "Option to Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States of America setting forth the name of the holder of the Debenture, the principal amount of the Debenture, the amount of such Debenture to be repaid, a statement that the option to elect repayment is being made thereby and a guarantee that the Debenture to be repaid with the form entitled "Option to Elect Repayment" on the reverse thereof duly completed will be received by the Company no later than five Business days after the date of such telegram, telex, facsimile transmission or letter, and such Debenture and form duly completed are received by the Company by such fifth Business Day. Either form of notice duly received during the period from and including January 15, 1998 to and including February 15, 1998 shall be irrevocable. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Debentures for repayment will be determined by the Company, whose determination shall be final and binding. The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. 5 To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Debentures may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Debenture. In case a default, as defined in the Indenture, shall occur, the principal of all the Debentures at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Debentures outstanding in the case of payment defaults on the Debentures and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Debenture may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Debentures in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as a single class, which are affected thereby) and the offer to the Trustee of security and indemnity satisfactory to it; provided, however, that such provision shall not prevent the holder hereof from enforcing payment of the principal of or interest on this Debenture. The transfer of this Debenture is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Debenture and on presentation of a duly executed written instrument of transfer, and thereupon a new Debenture or Debentures, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange herefor; and this Debenture, with or without other Debentures, may in like manner be exchanged for one 6 or more new Debentures of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Debentures may deem and treat the person in whose name this Debenture is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Debentures shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Debenture, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Debenture and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 7 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Company to repay the within Debenture (or portion thereof specified below) pursuant to its terms at a price equal to the principal amount thereof, together with interest to the repayment date, to the undersigned, at - ------------------------------------------------------------------------------- Tax I.D. No. - ------------------------------------------------------------------------------- (Please Print or Typewrite Name, Address and Tax Identification Number of the Undersigned) For this Debenture to be repaid the Company must receive at the corporate trust office of the Trustee in the Borough of Manhattan, The City of New York or at such additional place or places of which the Company shall from time to time notify the holder of the within Debenture during the period from and including January 15, 1998 to and including February 15, 1998 or, if February 15, 1998 is not a Business Day, the next succeeding Business Day, (i) this Debenture with this "Option to Elect Repayment" form duly completed or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States of America setting forth the name of the holder of the Debenture, the principal amount of the Debenture, the amount of the Debenture to be repaid, a statement that the option to elect repayment is being made thereby and a guarantee that the Debenture to be repaid with the form entitled "Option to Elect Repayment" on the reverse of the Debenture duly completed will be received by the Company not later than five Business Days after the date of such telegram, telex, facsimile transmission or letter, and such Debenture and form duly completed are received by the Company by such fifth Business Day. If less than the entire principal amount of the within Debenture is to be repaid, specify the portion thereof (which shall be $1,000 or an integral multiple of $1,000 in excess of $1,000) which the holder elects to have repaid: $ ; and specify the denomination or denominations (which shall be $1,000 or an integral multiple of $1,000 in excess of $1,000) of the Debenture or Debentures to be issued to the holder for the amount of the portion of the 8 within Debenture not being repaid (in the absence of any such specification, one such Debenture will be issued for the portion not being repaid: $ ). Dated: ------------------------------------- NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of this instrument in every particular without alteration or enlargement or any other change whatsoever. [form of trustee's certificate of authentication] This Debenture is one of the 10.20% Debentures due 2008 described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By _________________________________________ Authorized Officer. ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This First Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this First Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Debentures (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of the Debentures or of the proceeds thereof. 9 Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this First Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. Section 2.4. New York Contract. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE. Section 2.5. Execution and Counterparts. This First Supplemental Indenture may be executed in any number of courterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said New Tenneco Inc. has caused this First Supplemental Indenture to be executed in its corporate name by its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture to be executed in its Corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 10 EX-4.3(C) 6 SECOND SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ SECOND SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 6.70% NOTES DUE 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Second Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $300,000,000 to be designated the "6.70% Notes due 2005" (the "Notes"), and all action on the part of the Company necessary to authorize the issuance of the Notes under the Original Indenture and this Second Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Notes, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Notes issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 6.70% Notes Due 2005 Section 1.1. Issue of Notes. A series of Securities which shall be designated the "6.70% Notes due 2005" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this Second Supplemental Indenture (including the form of Notes set forth in Section 1.2 hereof). The aggregate principal amount of Notes which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $300,000,000. The entire amount of Notes may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Notes and Authentication Certificate. The forms of the Notes and the Trustee's certificate of authentication shall be substantially as follows: [form of face of note] NEW TENNECO INC. 6.70% NOTE DUE 2005 No. $ CUSIP New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on December 15, 2005, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from the June 15 or December 15 next preceding the date hereof to which interest has been paid, 2 unless the date hereof is a June 15 or December 15 to which interest on the Notes has been paid, in which case from the date hereof, or unless no interest has been paid on the Notes since the original issue date (hereinafter referred to) of this Note, in which case from the original issue date, semi-annually on June 15 and December 15 in each year commencing June 15, 1997, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 6.70% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Notes, if the date hereof is after May 31 or November 30 and prior to the following June 15 or December 15, as the case may be, this Note shall bear interest from such June 15 or December 15, or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date; provided, however, that if the Company shall default in the payment of interest due on such June 15 or December 15, then this Note shall bear interest from the June 15 or December 15 to which interest has been paid or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date. The interest so payable on any June 15 or December 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on the May 31 or November 30, as the case may be, next preceding such June 15 or December 15, or if such May 31 or November 30 is not a business day, the business day next preceding such May 31 or November 30. Interest on this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Both principal of and interest on this Note are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Note register. The original issue date in respect of the Notes is December 11, 1996. ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Note shall not be entitled to any benefit under the Indenture hereinafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. 3 In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary [form of reverse of note] NEW TENNECO INC. 6.70% NOTE DUE 2005 This Note is one of a duly authorized issue of Notes of the Company known as its 6.70% Notes due 2005 (herein called the "Notes"), limited to the aggregate principal amount of $300,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Notes and of the duties thereunder of the Trustee and the Company. The Notes will be redeemable as a whole or in part, at the option of the Company at any time, at a redemption price equal to the greater of (i) 100% of their principal amount and (ii) the sum of the present values of the 4 remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield plus 10 basis points, plus in each case accrued interest to the date of redemption. "Treasury Yield" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes. "Independent Investment Banker" means Morgan Stanley & Co. Incorporated or, if such firm is unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:00 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. "Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated, CS First Boston Corporation, Lehman Brothers Inc. and 5 Salomon Brothers Inc and their respective successors; provided however, that if any of the foregoing cease to be a primary U.S. Government Securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. Holders of Notes to be redeemed will receive notice thereof by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption. The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Notes may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Note. In case a default, as defined in the Indenture, shall occur, the principal of all the Notes at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Notes outstanding in the case of payment defaults on the Notes and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Note may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Notes in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as a single class, which are affected thereby) and the offer to the Trustee of security and indemnity satisfactory to it; provided, however, that such provision shall not 6 prevent the holder hereof from enforcing payment of the principal of or interest on this Note. The transfer of this Note is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Note and on presentation of a duly executed written instrument of transfer, and thereupon a new Note or Notes, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange herefor; and this Note, with or without other Notes, may in like manner be exchanged for one or more new Notes of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Notes may deem and treat the person in whose name this Note is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Notes shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Note, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Note and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 7 [form of trustee's certificate of authentication] This Note is one of the 6.70% Notes due 2005 described in the within- mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By........................................ Authorized Officer. ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This Second Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Second Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of the Notes or of the proceeds thereof. Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Second Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. SECTION 2.4. NEW YORK CONTRACT. THIS SECOND SUPPLEMENTAL INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 8 Section 2.5. Execution and Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said New Tenneco Inc. has caused this Second Supplemental Indenture to be executed in its corporate name by its Chairman of the Board or its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Second Supplemental Indenture to be executed in its corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 9 EX-4.3(D) 7 THIRD SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ THIRD SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 7.45% DEBENTURES DUE 2025 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Third Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $300,000,000 to be designated the "7.45% Debentures due 2025" (the "Debentures"), and all action on the part of the Company necessary to authorize the issuance of the Debentures under the Original Indenture and this Third Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Debentures, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Debentures issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 7.45% Debentures Due 2025 Section 1.1. Issue of Debentures. A series of Securities which shall be designated the "7.45% Debentures due 2025" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this Third Supplemental Indenture (including the form of Debentures set forth in Section 1.2 hereof). The aggregate principal amount of Debentures which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $300,000,000. The entire amount of Debentures may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Debentures and Authentication Certificate. The forms of the Debentures and the Trustee's certificate of authentication shall be substantially as follows: [form of face of debenture] NEW TENNECO INC. 7.45% DEBENTURE DUE 2025 No. $ New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on December 15, 2025, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from 2 the June 15 or December 15 next preceding the date hereof to which interest has been paid, unless the date hereof is a June 15 or December 15 to which interest on the Debentures has been paid, in which case from the date hereof, or unless no interest has been paid on the Debentures since the original issue date (hereinafter referred to) of this Debenture, in which case from the original issue date, semi-annually on June 15 and December 15 in each year commencing June 15, 1997, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 7.45% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Debentures, if the date hereof is after May 31 or November 30 and prior to the following June 15 or December 15, as the case may be, this Debenture shall bear interest from such June 15 or December 15, or, if no interest has been paid on the Debentures since the original issue date of this Debenture, from the original issue date; provided, however, that if the Company shall default in the payment of interest due on such June 15 or December 15, then this Debenture shall bear interest from the June 15 or December 15 to which interest has been paid or, if no interest has been paid on the Debentures since the original issue date of this Debenture, from the original issue date. The interest so payable on any June 15 or December 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Debenture is registered at the close of business on the May 31 or November 30, as the case may be, next preceding such June 15 or December 15, or if such May 31 or November 30 is not a business day, the business day next preceding such May 31 or November 30. Interest on this Debenture shall be computed on the basis of a 360-day year of twelve 30-day months. Both principal of and interest on this Debenture are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Debenture register. The original issue date in respect of the Debentures is December 11, 1996. ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Debenture shall not be entitled to any benefit under the Indenture hereafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. 3 In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary [form of reverse of debenture] NEW TENNECO INC. 7.45% DEBENTURE DUE 2025 This Debenture is one of a duly authorized issue of Debentures of the Company known as its 7.45% Debentures due 2025 (herein called the "Debentures"), limited to the aggregate principal amount of $300,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the 4 "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Debentures and of the duties thereunder of the Trustee and the Company. The Debentures will not be redeemable prior to maturity. The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Debentures may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Debenture. In case a default, as defined in the Indenture, shall occur, the principal of all the Debentures at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Debentures outstanding in the case of payment defaults on the Debentures and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Debenture may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Debentures in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as a single class, which are affected thereby) and the offer to the Trustee of 5 security and indemnity satisfactory to it; provided, however, that such provision shall not prevent the holder hereof from enforcing payment of the principal of or interest on this Debenture. The transfer of this Debenture is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Debenture and on presentation of a duly executed written instrument of transfer, and thereupon a new Debenture or Debentures, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange herefor; and this Debenture, with or without other Debentures, may in like manner be exchanged for one or more new Debentures of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Debentures may deem and treat the person in whose name this Debenture is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Debentures shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Debenture, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Debenture and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 6 [form of trustee's certificate of authentication] This Debenture is one of the 7.45% Debentures due 2025 described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By _________________________________________ Authorized Officer. ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This Third Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Third Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Debentures (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Third Supplemental Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of the Debentures or of the proceeds thereof. Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Third Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. Section 2.4. New York Contract. THIS THIRD SUPPLEMENTAL INDENTURE AND EACH DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE. 7 Section 2.5. Execution and Counterparts. This Third Supplemental Indenture may be executed in any number of courterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said New Tenneco Inc. has caused this Third Supplemental Indenture to be executed in its corporate name by its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture to be executed in its Corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 8 EX-4.3(E) 8 FOURTH SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ FOURTH SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 9.20% DEBENTURES DUE 2012 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fourth Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $150,000,000 to be designated the "9.20% Debentures due 2012" (the "Debentures"), and all action on the part of the Company necessary to authorize the issuance of the Debentures under the Original Indenture and this Fourth Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Debentures, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Debentures issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 9.20% Debentures Due 2012 Section 1.1. Issue of Debentures. A series of Securities which shall be designated the "9.20% Debentures due 2012" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this Fourth Supplemental Indenture (including the form of Debentures set forth in Section 1.2 hereof). The aggregate principal amount of Debentures which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $150,000,000. The entire amount of Debentures may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Debentures and Authentication Certificate. The forms of the Debentures and the Trustee's certificate of authentication shall be substantially as follows: [form of face of debenture] NEW TENNECO INC. 9.20% DEBENTURE DUE 2012 No. $ New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on November 15, 2012, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from 2 the May 15 or November 15 next preceding the date hereof to which interest has been paid, unless the date hereof is a May 15 or November 15 to which interest on the Debentures has been paid, in which case from the date hereof, or unless no interest has been paid on the Debentures since the original issue date (hereinafter referred to) of this Debenture, in which case from the original issue date, semi-annually on May 15 and November 15 in each year, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 9.20% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Debentures, if the date hereof is after April 30 or October 31 and prior to the following May 15 or November 15, as the case may be, this Debenture shall bear interest from such May 15 or November 15 or, if no interest has been paid on the Debentures since the original issue date of this Debenture, from the original issue date; provided, however, that if the Company shall default in the payment of interest due on such May 15 or November 15, then this Debenture shall bear interest from the May 15 or November 15 to which interest has been paid or, if no interest has been paid on the Debentures since the original issue date of this Debenture, from the original issue date. The interest so payable on any May 15 or November 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Debenture is registered at the close of business on the April 30 or October 31, as the case may be, next preceding such May 15 or November 15, or if such April 30 or October 31 is not a business day, the business day next preceding such April 30 or October 31. Interest on this Debenture shall be computed on the basis of a 360-day year of twelve 30-day months. Both principal of and interest on this Debenture are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Debenture register. The original issue date in respect of the Debentures is December 11, 1996. ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Debenture shall not be entitled to any benefit under the Indenture hereafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. 3 In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary [form of reverse of debenture] NEW TENNECO INC. 9.20% DEBENTURE DUE 2012 This Debenture is one of a duly authorized issue of Debentures of the Company known as its 9.20% Debentures due 2012 (herein called the "Debentures"), limited to the aggregate principal amount of $150,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the 4 "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Debentures and of the duties thereunder of the Trustee and the Company. The Debentures are not subject to redemption by the Company prior to maturity. The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Debentures may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Debenture. In case a default, as defined in the Indenture, shall occur, the principal of all the Debentures at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Debentures outstanding in the case of payment defaults on the Debentures and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Debenture may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Debentures in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as 5 a single class, which are affected thereby) and the offer to the Trustee of security and indemnity satisfactory to it; provided, however, that such provision shall not prevent the holder hereof from enforcing payment of the principal of or interest on this Debenture. The transfer of this Debenture is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Debenture and on presentation of a duly executed written instrument of transfer, and thereupon a new Debenture or Debentures, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange herefor; and this Debenture, with or without other Debentures, may in like manner be exchanged for one or more new Debentures of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Debentures may deem and treat the person in whose name this Debenture is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Debentures shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Debenture, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Debenture and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 6 [form of trustee's certificate of authentication] This Debenture is one of the 9.20% Debentures due 2012 described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By _________________________________________ Authorized Officer. ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This Fourth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Fourth Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Debentures (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Fourth Supplemental Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of the Debentures or of the proceeds thereof. Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Fourth Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. Section 2.4. New York Contract. THIS FOURTH SUPPLEMENTAL INDENTURE AND EACH DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE. 7 Section 2.5. Execution and Counterparts. This Fourth Supplemental Indenture may be executed in any number of courterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. In Witness Whereof, said New Tenneco Inc. has caused this Fourth Supplemental Indenture to be executed in its corporate name by its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture to be executed in its Corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 8 EX-4.3(F) 9 FIFTH SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ FIFTH SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 8.075% NOTES DUE 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fifth Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $500,000,000 to be designated the "8.075% Notes due 2002" (the "Notes"), and all action on the part of the Company necessary to authorize the issuance of the Notes under the Original Indenture and this Fifth Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Notes, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Notes issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 8.075% Notes Due 2002 Section 1.1. Issue of Notes. A series of Securities which shall be designated the "8.075% Notes due 2002" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this Fifth Supplemental Indenture (including the form of Notes set forth in Section 1.2 hereof). The aggregate principal amount of Notes which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $500,000,000. The entire amount of Notes may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Notes and Authentication Certificate. The forms of the Notes and the Trustee's certificate of authentication shall be substantially as follows: [form of face of note] NEW TENNECO INC. 8.075% NOTE DUE 2002 No. $ CUSIP New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on October 1, 2002, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from the April 1 or October 1 next preceding the date hereof to which interest has been paid, unless the date hereof 2 is a April 1 or October 1 to which interest on the Notes has been paid, in which case from the date hereof, or unless no interest has been paid on the Notes since the original issue date (hereinafter referred to) of this Note, in which case from the original issue date, semi-annually on April 1 and October 1 in each year, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 8.075% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Notes, if the date hereof is after March 16 or September 16 and prior to the following April 1 or October 1, as the case may be, this Note shall bear interest from such April 1 or October 1, or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date; provided however, that if the Company shall default in the payment of interest due on such April 1 or October 1, then this Note shall bear interest from the April 1 or October 1 to which interest has been paid or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date. The interest so payable on any April 1 or October 1 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on the March 16 or September 16, as the case may be, next preceding such April 1 or October 1, or if such March 16 or September 16 is not a business day, the business day next preceding such March 16 or September 16. Interest on this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Both principal of and interest on this Note are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Note register. The original issue date in respect of the Notes is December 11, 1996. ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Note shall not be entitled to any benefit under the Indenture hereinafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. 3 In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary [form of reverse of note] NEW TENNECO INC. 8.075% NOTE DUE 2002 This Note is one of a duly authorized issue of Notes of the Company known as its 8.075% Notes due 2002 (herein called the "Notes"), limited to the aggregate principal amount of $500,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Notes and of the duties thereunder of the Trustee and the Company. The Notes are not subject to redemption prior to maturity. 4 The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Notes may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Note. In case a default, as defined in the Indenture, shall occur, the principal of all the Notes at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Notes outstanding in the case of payment defaults on the Notes and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Note may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Notes in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as a single class, which are affected thereby) and the offer to the Trustee of security and indemnity satisfactory to it; provided, however, that such provision shall not prevent the holder hereof from enforcing payment of the principal of or interest on this Note. The transfer of this Note is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Note and on presentation of a duly executed written instrument of transfer, and thereupon a new Note or Notes, of the same aggregate principal amount and in authorized denominations, will be issued to the 5 transferee or transferees in exchange herefor; and this Note, with or without other Notes, may in like manner be exchanged for one or more new Notes of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Notes may deem and treat the person in whose name this Note is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Notes shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Note, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Note and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. [form of trustee's certificate of authentication] This Note is one of the 8.075% Notes due 2002 described in the within- mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By........................................ Authorized Officer. 6 ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This Fifth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Fifth Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Fifth Supplemental Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of the Notes or of the proceeds thereof. Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Fifth Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. SECTION 2.4. NEW YORK CONTRACT. THIS FIFTH SUPPLEMENTAL INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Section 2.5. Execution and Counterparts. This Fifth Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. 7 In Witness Whereof, said New Tenneco Inc. has caused this Fifth Supplemental Indenture to be executed in its corporate name by its Chairman of the Board or its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Fifth Supplemental Indenture to be executed in its corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 8 EX-4.3(G) 10 SIXTH SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ SIXTH SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 8.20% NOTES DUE 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Sixth Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $250,000,000 to be designated the "8.20% Notes due 1999" (the "Notes"), and all action on the part of the Company necessary to authorize the issuance of the Notes under the Original Indenture and this Sixth Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Notes, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Notes issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 8.20% Notes Due 1999 Section 1.1. Issue of Notes. A series of Securities which shall be designated the "8.20 Notes due 1999" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this Sixth Supplemental Indenture (including the form of Notes set forth in Section 1.2 hereof). The aggregate principal amount of Notes which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $250,000,000. The entire amount of Notes may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Notes and Authentication Certificate. The forms of the Notes and the Trustee's certificate of authentication shall be substantially as follows: [form of face of note] NEW TENNECO INC. 8.20% NOTE DUE 2002 No. $ CUSIP New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on November 15, 1999, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from the May 15 or November 15 next preceding the date hereof to which interest has been paid, 2 unless the date hereof is a May 15 or November 15 to which interest on the Notes has been paid, in which case from the date hereof, or unless no interest has been paid on the Notes since the original issue date (hereinafter referred to) of this Note, in which case from the original issue date, semi-annually on May 15 and November 15 in each year, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 8.20% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Notes, if the date hereof is after April 30 or October 31 and prior to the following May 15 or November 15, as the case may be, this Note shall bear interest from such May 15 or November 15, or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date; provided, however, that if the Company shall default in the payment of interest due on such May 15 or November 15, then this Note shall bear interest from the May 15 or November 15 to which interest has been paid or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date. The interest so payable on any May 15 or November 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on the April 30 or October 31, as the case may be, next preceding such May 15 or November 15, or if such April 30 or October 31 is not a business day, the business day next preceding such April 30 or October 31. Interest on this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Both principal of and interest on this Note are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Note register. The original issue date in respect of the Notes is December 11, 1996. ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Note shall not be entitled to any benefit under the Indenture hereinafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice 3 President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary [form of reverse of note] NEW TENNECO INC. 8.20% NOTE DUE 1999 This Note is one of a duly authorized issue of Notes of the Company known as its 8.20% Notes due 1999 (herein called the "Notes"), limited to the aggregate principal amount of $250,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Notes and of the duties thereunder of the Trustee and the Company. The Notes are not subject to redemption prior to maturity. The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up 4 to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Notes may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Note. In case a default, as defined in the Indenture, shall occur, the principal of all the Notes at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Notes outstanding in the case of payment defaults on the Notes and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Note may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Notes in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as a single class, which are affected thereby) and the offer to the Trustee of security and indemnity satisfactory to it; provided, however, that such provision shall not prevent the holder hereof from enforcing payment of the principal of or interest on this Note. The transfer of this Note is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Note and on presentation of a duly executed written instrument of transfer, and thereupon a new Note or Notes, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange herefor; and this Note, with or without other Notes, may in like manner be exchanged for one or more new Notes of other 5 authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Notes may deem and treat the person in whose name this Note is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Notes shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Note, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Note and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. [form of trustee's certificate of authentication] This Note is one of the 8.20% Notes due 1999 described in the within- mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By........................................ Authorized Officer. 6 ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This Sixth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Sixth Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Sixth Supplemental Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of the Notes or of the proceeds thereof. Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Sixth Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. SECTION 2.4. NEW YORK CONTRACT. THIS SIXTH SUPPLEMENTAL INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Section 2.5. Execution and Counterparts. This Sixth Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. 7 In Witness Whereof, said New Tenneco Inc. has caused this Sixth Supplemental Indenture to be executed in its corporate name by its Chairman of the Board or its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Sixth Supplemental Indenture to be executed in its corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 8 EX-4.3(H) 11 SEVENTH SUPPLEMENTAL INDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW TENNECO INC. AND THE CHASE MANHATTAN BANK, AS TRUSTEE ------------------ SEVENTH SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 11, 1996 TO INDENTURE DATED AS OF NOVEMBER 1, 1996 ------------------ PROVIDING FOR THE ISSUANCE OF 10.075% NOTES DUE 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Seventh Supplemental Indenture dated as of December 11, 1996 between New Tenneco Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Whereas, the Company has heretofore executed and delivered to the Trustee an indenture dated as of November 1, 1996 (hereinafter called the "Original Indenture"), to provide for the issue of an unlimited amount of debentures, notes and/or other debt obligations of the Company (hereinafter referred to as the "Securities"), the terms of which are to be determined as set forth in Section 2.3 of the Original Indenture; and Whereas, Section 8.1 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of setting forth the terms of Securities of any series; and Whereas, the Company desires to create a series of the Securities in an aggregate principal amount of $200,000,000 to be designated the "10.075% Notes due 2001" (the "Notes"), and all action on the part of the Company necessary to authorize the issuance of the Notes under the Original Indenture and this Seventh Supplemental Indenture has been duly taken; and Whereas, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in the Original Indenture provided, the valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; Now, therefore, in consideration of the premises and of the mutual covenants herein contained, and of the acceptance of this trust by the Trustee, and of the sum of one dollar to the Company duly paid by the Trustee at the execution and delivery of these presents, and of other valuable consideration the receipt whereof is hereby acknowledged and in order to authorize the authentication and delivery of and to set forth the terms of the Notes, It is hereby covenanted, declared and agreed by and between the parties hereto, for the benefit of holders of the Notes issued under the Original Indenture, as follows: ARTICLE 1. Terms and Issuance of 10.075% Notes Due 2001 Section 1.1. Issue of Notes. A series of Securities which shall be designated the "10.075% Notes due 2001" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture, including without limitation the terms set forth in this Seventh Supplemental Indenture (including the form of Notes set forth in Section 1.2 hereof). The aggregate principal amount of Notes which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $200,000,000. The entire amount of Notes may forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company pursuant to Section 2.4 of the Indenture. Section 1.2. Forms of Notes and Authentication Certificate. The forms of the Notes and the Trustee's certificate of authentication shall be substantially as follows: [form of face of note] NEW TENNECO INC. 10.075% NOTE DUE 2001 No. $ CUSIP New Tenneco Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the sum of Dollars on February 1, 2001, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof as hereinafter provided interest thereon at the rate per annum specified in the title hereof in like coin or currency, from the February 1 or August 1 next preceding the date hereof to which interest has been paid, unless the date hereof 2 is a February 1 or August 1 to which interest on the Notes has been paid, in which case from the date hereof, or unless no interest has been paid on the Notes since the original issue date (hereinafter referred to) of this Note, in which case from the original issue date, semi-annually on February 1 or August 1 in each year, until payment of said principal sum has been made or duly provided for, and to pay interest on any overdue principal and (to the extent permitted by law) on any overdue installment of interest at the rate of 10.075% per annum. Notwithstanding the foregoing, when there is no existing default in the payment of interest on the Notes, if the date hereof is after January 16 or July 16 and prior to the following February 1 or August 1, as the case may be, this Note shall bear interest from such February 1 or August 1, or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date; provided, however, that if the Company shall default in the payment of interest due on such February 1 or August 1, then this Note shall bear interest from the February 1 or August 1 to which interest has been paid or, if no interest has been paid on the Notes since the original issue date of this Note, from the original issue date. The interest so payable on any February 1 or August 1 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on the January 16 or July 16, as the case may be, next preceding such February 1 or August 1, or if such January 16 or July 16 is not a business day, the business day next preceding such January 16 or July 16. Interest on this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Both principal of and interest on this Note are payable at the principal office of the Trustee in the Borough of Manhattan, The City of New York, New York; provided, however, that payment of interest may be made, at the option of the Company, by check mailed to the address of the person entitled thereto as such address shall appear on the Note register. The original issue date in respect of the Notes is December 11, 1996. ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Note shall not be entitled to any benefit under the Indenture hereinafter referred to, or become valid or obligatory for any purpose, until the Trustee under the Indenture shall have signed the form of certificate of authentication endorsed hereon. In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed in its name by its Chairman of the Board or its President or a Vice 3 President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary. Dated .......................... New Tenneco Inc. By ....................................... Chairman of the Board Attest: ................................ Secretary [form of reverse of note] NEW TENNECO INC. 10.075% NOTE DUE 2001 This Note is one of a duly authorized issue of Notes of the Company known as its 10.075% Notes due 2001 (herein called the "Notes"), limited to the aggregate principal amount of $200,000,000, all issued under and equally entitled to the benefits of an Indenture (herein, together with any amendments and supplements thereto, including without limitation the form and terms of Securities issued pursuant thereto, called the "Indenture"), dated as of November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein, together with any successor thereto, called the "Trustee"), as Trustee, to which Indenture reference is hereby made for a statement of the rights thereunder of the Trustee and of the registered holders of the Notes and of the duties thereunder of the Trustee and the Company. The Notes are not subject to redemption prior to maturity. The Indenture permits the Company to issue unsecured debentures, notes and/or other evidences of indebtedness in one or more series ("Securities") up 4 to such principal amount or amounts as may be authorized in accordance with the terms of the Indenture. To the extent permitted by, and as provided in, the Indenture, modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Notes may be made with the consent of the Company and with the consent of the holders of not less than a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected by the modification or amendment thereto; provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will affect the terms of payment of the principal of or interest on this Note. In case a default, as defined in the Indenture, shall occur, the principal of all the Notes at any such time outstanding under the Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Notes outstanding in the case of payment defaults on the Notes and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture (treated as a single class) which are affected thereby. The Indenture provides that no holder of any Note may enforce any remedy under the Indenture except in the case of refusal or neglect of the Trustee to act after notice of default and after request by the holders of a majority in principal amount of the outstanding Notes in certain events (and in certain other events by the holders of a majority in principal amount of the Securities of all series then outstanding under the Indenture, treated as a single class, which are affected thereby) and the offer to the Trustee of security and indemnity satisfactory to it; provided, however, that such provision shall not prevent the holder hereof from enforcing payment of the principal of or interest on this Note. The transfer of this Note is registrable by the registered holder hereof, in person or by duly authorized attorney, at the agency of the Company in the Borough of Manhattan, The City of New York, New York, on books of the Company to be kept for that purpose at said agency, upon surrender and cancellation of this Note and on presentation of a duly executed written instrument of transfer, and thereupon a new Note or Notes, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange herefor; and this Note, with or without other Notes, may in like manner be exchanged for one or more new Notes of other 5 authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture. The Company, the Trustee, any paying agent and any Registrar of the Notes may deem and treat the person in whose name this Note is registered as the absolute owner hereof for all purposes whatsoever, and neither the Company nor the Trustee nor any paying agent nor any Registrar of the Notes shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on, this Note, or for any claim based hereon or on the Indenture, against any incorporator, or against any stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Note and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any stockholder or subscriber to capital stock of the Company upon or in respect of shares of capital stock not fully paid up. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. [form of trustee's certificate of authentication] This Note is one of the 10.075% Notes due 2001 described in the within- mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee, By........................................ Authorized Officer. 6 ARTICLE 2. Miscellaneous Section 2.1. Execution as Supplemental Indenture. This Seventh Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Seventh Supplemental Indenture forms a part thereof. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture. Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Seventh Supplemental Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of the Notes or of the proceeds thereof. Section 2.3. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Seventh Supplemental Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. SECTION 2.4. NEW YORK CONTRACT. THIS SEVENTH SUPPLEMENTAL INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE. Section 2.5. Execution and Counterparts. This Seventh Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. 7 In Witness Whereof, said New Tenneco Inc. has caused this Seventh Supplemental Indenture to be executed in its corporate name by its Chairman of the Board or its President or one of its Vice Presidents, and said The Chase Manhattan Bank has caused this Seventh Supplemental Indenture to be executed in its corporate name by one of its Vice Presidents as of December 11, 1996. New Tenneco Inc. /s/ Karen A. Osar By _________________________________________ Karen A. Osar Vice President and Treasurer The Chase Manhattan Bank /s/ Ronald J. Halleran By _________________________________________ Ronald J. Halleran Second Vice President 8 EX-10.2 12 AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT EXHIBIT 10.2 AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT THIS AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT (this "Amendment") is made and entered into as of this 11th day of December, 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 A. Tenneco, Industrial Company and Shipbuilding Company previously entered into a Distribution Agreement, dated as of November 1, 1996 (the "Distribution Agreement"), pursuant to which, among other things, Tenneco will separate and divide its existing business so that (i) its automotive, packaging and business services businesses (the "Industrial Business") shall be owned directly and indirectly by Industrial Company and (ii) the shipbuilding business (the "Shipbuilding Business") shall be owned directly and indirectly Shipbuilding Company. B. Tenneco, Industrial Company and Shipbuilding Company desire to amend the Distribution Agreement as specifically permitted thereunder. NOW, THEREFORE, in consideration of the mutual promises and agreements of the parties set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: A G R E E M E N T S 1. Terms. Unless otherwise defined herein, terms used herein shall have the meaning ascribed thereto as set forth in the Distribution Agreement. 2. Amendments. Tenneco, Industrial Company and Shipbuilding Company have determined pursuant to Section 2.01 of the Distribution Agreement that: (a) it is necessary to amend, supplement, modify and, in certain respects, eliminate certain of the Corporate Restructuring Transactions to properly divide the existing businesses of Tenneco so that (i) the Industrial Business shall be owned directly and indirectly by Industrial Company and (ii) the Shipbuilding Business shall be owned directly and indirectly by the Shipbuilding Company, and (b) that such amendments, modifications, supplements and eliminations neither individually or in the aggregate, adversely affect the Energy Business nor materially delay or prevent the consummation of the Merger. Accordingly, pursuant to Section 2.01 and Section 8.08 of the Distribution Agreement, the Distribution Agreement is hereby amended as follows: a. Section 5.04(c) of the Distribution Agreement is hereby amended by deleting the term "Shipbuilding Subsidiary" in the first line and inserting the term "Shipbuilding Company" in lieu thereof. b. Exhibit B to the Distribution Agreement is hereby deleted in its entirety and the Exhibit B attached hereto is substituted in lieu thereof. c. Exhibit E to the Distribution Agreement is hereby deleted in its entirety and the Exhibit E attached hereto is substituted in lieu thereof. d. Exhibit G to the Distribution Agreement is hereby deleted in its entirety and the Exhibit G attached hereto is substituted in lieu thereof. e. Exhibit J to the Distribution Agreement is hereby deleted in its entirety and the Exhibit J attached hereto is substituted in lieu thereof. 3. Distribution Agreement in Full Force. Except as herein amended or modified, the Distribution Agreement shall remain unchanged and in full force and effect and is hereby ratified, approved and confirmed in all respects. 4. References. After the date hereof, all references in the Distribution Agreement to "Agreement," "hereof" or similar terms shall refer to the Distribution Agreement as hereby amended. 5. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Tenneco, Industrial Company and Shipbuilding Company and their respective successors and assigns. 6. Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws, and not the laws of conflict, of the State of Delaware. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. TENNECO INC. By: /s/ Karl A. Stewart ------------------------- Name: Karl A. Stewart ------------------ Title: Vice President ------------------ NEW TENNECO INC. By: /s/ Robert G. Simpson ------------------------- Name: Robert G. Simpson ------------------ Title: Vice President ------------------ NEWPORT NEWS SHIPBUILDING INC. By: /s/ Stephen B. Clarkson -------------------------- Name: Stephen B. Clarkson ------------------- Title: Vice President ------------------- Exhibit B to the Distribution Agreement PROJECT LIZA TRANSACTION STEPS Set forth below are the transactions that, as applicable, the members of each of the Energy Group, Industrial Group, and Shipbuilding Group will consummate in connection with the Distributions and Merger. Capitalized terms used but not otherwise defined herein have the meaning ascribed to them under the Distribution Agreement. A. REALIGNMENT OF INTERCOMPANY ACCOUNTS Except as otherwise provided in Section B below, the following transactions will be effected as of October 31, 1996 to realign the intercompany accounts of the Groups. As a result of these transactions, Tenneco will have one net intercompany account receivable or payable with New Tenneco Inc. ("Industrial Company") and one net intercompany account receivable or payable with Newport News Shipbuilding Inc. ("Shipbuilding Company"), and all other intercompany accounts payable or receivable of members of each Group (other than trade accounts) will be exclusively between members of that Group. Following completion of these transactions, there will be no further transfers of funds between members of the different Groups other than pursuant to transactions occurring in the ordinary course of business (trade accounts), transfers from or to Tenneco and either Industrial Company or Shipbuilding Company, and transfers required or otherwise permitted pursuant to these Corporate Restructuring Transactions. 1. Realignment of Industrial Group Intercompany Accounts. Each member of the Industrial Group having a net intercompany receivable from a member of the Energy Group or the Shipbuilding Group (excluding trade accounts receivable) will transfer such net intercompany receivable to Industrial Company in exchange for an intercompany advance receivable from Industrial Company in an amount equal to the amount of the net intercompany receivable transferred. Industrial Company will assume the net intercompany payable of each member of the Industrial Group having a net intercompany payable to a member of the Energy Group or the Shipbuilding Group (excluding trade accounts payable) in exchange for the issuance by each such Industrial Group member of an intercompany advance payable to Industrial Company in an amount equal to the amount of the net intercompany payable assumed. Industrial Company will consent to the assumption of other net intercompany payables by Shipbuilding Company or Tenneco as provided in this Section A. 2. Realignment of Shipbuilding Group Intercompany Accounts. Shipbuilding Company will cause each member of the Shipbuilding Group having a net intercompany receivable from a member of the Industrial Group or the Energy Group to transfer such net intercompany receivable to Shipbuilding Company in exchange for an intercompany advance receivable from Shipbuilding Company in an amount equal to the amount of the net intercompany receivable transferred. Shipbuilding Company will assume the net intercompany payable of each member of the Shipbuilding Group having a net intercompany payable to a member of the Industrial Group or the Energy Group (excluding trade accounts payable) in exchange for the issuance by each such Shipbuilding Group member of an intercompany advance payable to Shipbuilding Company in an amount equal to the amount of the net intercompany payable assumed. Shipbuilding Company will Project Liza Transaction Steps Page 2 consent to the assumption of other net intercompany payables by Industrial Company or Tenneco as provided in this section A. 3. Realignment of Energy Group Intercompany Accounts. Tenneco will cause each member of the Energy Group having a net intercompany receivable from a member of the Industrial Group or the Shipbuilding Group to transfer such net intercompany receivable to Tenneco in exchange for an intercompany advance receivable from Tenneco in an amount equal to the amount of the net intercompany receivable transferred. Tenneco will assume the net intercompany payable of each member of the Energy Group having a net intercompany payable to a member of the Industrial Group or the Shipbuilding Group (excluding trade accounts payable) in exchange for the issuance by each such Energy Group member of an intercompany advance payable to Tenneco in an amount equal to the amount of the net intercompany payable assumed. Tenneco will consent to the assumption of other net intercompany payables by Industrial Company or Shipbuilding Company as provided in this section A. 4. Realignment of Intercompany Accounts Between Industrial Company and Shipbuilding Company. If after the completion of steps A(1) through A(3), Industrial Company has a net intercompany receivable from Shipbuilding Company (excluding trade accounts), Tenneco will assume Shipbuilding Company's net payable to Industrial Company in exchange for the issuance by Shipbuilding Company of an intercompany advance payable to Tenneco in an amount equal to the amount of the net intercompany payable assumed. If after the completion of steps A(1) through A(3), Shipbuilding Company has a net intercompany receivable from Industrial Company, Tenneco will assume Industrial Company's net payable to Shipbuilding Company in exchange for the issuance by Industrial Company of an intercompany advance payable to Tenneco having a face amount equal to the face amount of the net intercompany payable assumed. B. Preliminary Debt Realignment Transactions 1. Capitalization or Liquidation of Subsidiaries. The following transactions will be effected to increase the capitalization of various subsidiaries and to liquidate other subsidiaries. Except as otherwise noted, the transfers are effective as of 10/31/96. Transfers of funds will be accomplished by daylight overdrafts. a. Newport News Shipbuilding and Dry Dock Company ("Newport News") will transfer to Newport News Industrial Corporation ("NNIC") as a contribution to capital $1,700,000. NNIC will transfer the funds to Newport News as an intercompany advance. b. NNIC will transfer to Newport News Industrial Corporation of Ohio ("NNICO") as a contribution to capital $200,000. NNICO will transfer the funds to NNIC as an intercompany advance. c. TGP will transfer to TII as a contribution to capital the intercompany account payable owed by Tenneco Automotive Trading Company ("TATC") to TGP as of August 31, 1996 ($___________). Project Liza Transaction Steps Page 3 d. TII will transfer to TATC as a contribution to capital the intercompany account payable received by TII in step B(1)(c). e. TGP will transfer to Tenneco Brake Inc. as a contribution to capital $15,000,000. Tenneco Brake Inc. will transfer the funds to TGP as an intercompany advance. The intercompany advance will be settled as provided in Section A above. f. TGP will transfer to Walker Electronic Silencing Inc. as a contribution to capital $10,000,000. Walker Electronic Silencing Inc. will transfer the funds to TGP as a intercompany advance. The intercompany advance will be settled as provided in Section A above. g. TGP will transfer to TII as a contribution to capital the intercompany account payable owed by Walker Europe Inc. to TGP as of October 31, 1996 ($_____________). TII will transfer to Walker Europe Inc. as a contribution to capital (1) the intercompany account payable received pursuant to the previous sentence, and (2) $10,000,000. Walker Europe Inc. will transfer $10,000,000 to TII as an intercompany advance. The intercompany advance will be settled as provided in Section A above. h. Effective as of October 30, 1996, Tenneco will transfer to Tenneco Liquidation Company (f/k/a Tenneco Business Services Inc.) ("TBS") as a contribution to capital $60,000,000. TBS will transfer the funds to Tenneco as an intercompany advance. The intercompany advance will be settled as provided in Section A above. Effective as of October 31, 1996, Tenneco will transfer to TBS as a contribution to capital the intercompany account payable owed by TBS to Tenneco as of August 31, 1996 ($___________). i. Tenneco Corporation will transfer to Tenneco Independent Power I Company as a contribution to capital $5,000,000. Tenneco Independent Power I Company will transfer the funds to Tenneco Corporation as an intercompany advance. j. Tenneco Corporation will transfer to Tenneco Independent Power II Company as a contribution to capital $1,000,000. Tenneco Independent Power II Company will transfer the funds to Tenneco Corporation as an intercompany advance. k. Tenneco Corporation will transfer to Tenneco Minerals Company - Nevada as a contribution to capital $5,000,000. Tenneco Minerals Company - Nevada will transfer the funds to Tenneco Corporation as an intercompany advance. l. Tenneco Corporation will transfer to Tenneco Oil Company as a contribution to capital $700,000,000. Tenneco Oil Company will transfer the funds to Tenneco Corporation as a intercompany advance. m. Tenneco Corporation will transfer to Tenneco Power Generation Company as a contribution to capital $5,000,000. Tenneco Power Generation Company will transfer the funds to Tenneco Corporation as an intercompany advance. Project Liza Transaction Steps Page 4 n. Tenneco Power Generation Company will transfer to Tenneco Ethanol Company as a contribution to capital $10,000,000. Tenneco Ethanol Company will transfer the funds to Tenneco Power Generation Company as an intercompany advance. o. The following subsidiaries will merge into their respective parent corporations as indicated below: Subsidiary Parent - ------------------------------------- ----------------------------------- Holmes Machinery Company The Pullman Company Pullman RSC Company The Pullman Company Pullman Aircraft Products Inc. Pullman Aerospace, Inc. Pullman Aerospace Inc. The Pullman Company Peabody Instruments, Inc. Peabody International Corporation Peabody Noise Control Inc. Peabody International Corporation Holmes Blowers Inc. Peabody International Corporation Peabody Solid Wastes Management Inc.- Peabody International Corporation DeWald Peabody ABC Corp. Peabody International Corporation Peabody Pumps, Inc. Peabody International Corporation Galco Inc. Peabody International Corporation 2. Refinancing of TIHC Liquidity Facility and TIHC Loans to Tenneco. Effective as of November 1, 1996, Tenneco International Holding Corp. (Delaware) ("TIHC") will restructure its credit facility with Tenneco Credit corporation ("TCC") and its loans to Tenneco as follows: a. Tenneco will transfer to Industrial Company as an intercompany advance an amount of funds equal to $25,000,000. b. Industrial Company will transfer the funds received in step B(2)(a) to Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company; see step C(13)) ("TAI") as an intercompany advance. c. TAI will enter into a credit facility with TIHC on terms identical to the terms of the credit facility currently existing between TIHC and TCC. TAI will transfer the funds received in step B(2)(b) to TIHC as an advance of funds under the terms of the TAI/TIHC credit facility. d. Tenneco will transfer to TIHC an amount of funds equal to the accrued balance through October 31, 1996 on TIHC's net intercompany loan to Tenneco, and the loan shall be canceled. e. From the funds received in steps B(2)(c) and B(2)(d), TIHC will transfer to TCC an amount of funds equal to the accrued balance through October 31, 1996 under TIHC's credit facility with TCC, and the credit facility will be terminated. f. TCC will transfer the funds received in step B(2)(e) to Tenneco as an intercomapny loan. Project Liza Transaction Steps Page 5 g. TIHC will transfer any funds remaining after the transfer described in step B(2)(e) to Industrial Company as an intercompany loan (on terms substantively identical to the terms of the prior loan to Tenneco). h. Industrial Company will transfer the funds received in step B(2)(g) to Tenneco as an intercompany advance. There will be no actual transfers of funds in step B(2); the intercompany transfers will be accomplished though journal entries. 3. Purchase of Diamond Notes. Sara Lee Corporation currently holds a note issued by Tenneco Packaging Inc. to Diamond International Inc. (the "TPI Diamond Note") and two notes issued by Tenneco International Inc. ("TII") to Diamond International Inc. (the "TII Diamond Note"). Tenneco Corporation's distribution of the stock of Shipbuilding Company and Industrial Company in step C(16) may violate certain provisions of a guarantee agreement executed by Tenneco Corporation in connection with the issuance of the Diamond Note. To eliminate the possibility of a violation of the agreement, the Diamond Notes will be purchased from Sara Lee on November 15, 1996 as follows: a. Tenneco will transfer to Industrial Company as an intercompany advance an amount of funds equal to the purchase price of the TPI Diamond Note ($1,365,000). b. Industrial Company will transfer the funds received in Step B(3)(a) to Tenneco Packaging Inc. as an intercompany advance. c. Tenneco will transfer to TII as an intercompany advance an amount of funds equal to the fair market value of the TII Diamond Notes ($3,769,000 plus $673,000). d. Tenneco Packaging Inc. and TII will transfer the funds received in steps B(3)(b) and B(3)(c) to Sara Lee Corporation in exchange for the TPI Diamond Note and the TII Diamond Note, respectively. Step B(3) will be accomplished by a direct transfer of funds ($5,807,000) from Tenneco to Sara Lee Corporation. The intercompany transfers will be accomplished through Journal entries. 4. TCC Sale of Case Receivables. Effective as of December 5, 1996, TCC will sell all of its interest in the receivables relating to the business of Case Corporation (the "Case Receivables") to a newly formed wholly owned Industrial Company subsidiary ("Tenneco Retail Receivables Company") as follows: a. Tenneco will transfer to Industrial Company as an intercompany advance an amount of funds equal to the fair market value of the Case Receivables (approximately $160,000,000). Project Liza Transaction Steps Page 6 b. Industrial Company will transfer the funds received in step B(4)(a) to Tenneco Retail Receivables Company as an intercompany advance. c. Tenneco Retail Receivables Company will transfer the funds received in step B(4)(b) to TCC in exchange for the Case Receivables. d. TCC will transfer the funds received in step B(4)(c) to Tenneco as an intercompany loan. e. Tenneco Retail Receivables Company will sell all or a portion of the Case Receivables to a third party for cash. f. Tenneco Retail Receivables Company will transfer the funds received in step B(4)(e) to Industrial Company as a repayment of the intercompany advance received from Industrial Company in step B(4)(b). g. Industrial Company will transfer the funds received in step B(4)(e) to Tenneco as a repayment of the intercompany advance received from Tenneco in step B(4)(a). Tenneco will use the funds to repay short-term borrowings under its credit facility or for other corporate purposes. The funds to be received in step B(4)(e) will be transferred directly from the third party's bank to Tenneco's credit facility administrative agent for credit to Tenneco's account. No other funds transfers will be required in step B(4). 5. TCC Transfer of Interest in Industrial Group Receivables. Effective as of December 9, 1996, TCC will transfer all of its interest and obligations associated with the receivables relating to the Industrial Business (the "Industrial Receivables"), including TCC's rights and obligations under agreements with ASCC to the extent related to the Industrial Receivables, to a newly formed wholly owned Industrial Company subsidiary ("TMC Texas Inc.") as follows: a. Tenneco will transfer to Industrial Company as an intercompany advance an amount of funds equal to the fair market value of the Industrial Receivables ($_________________). b. Industrial Company will transfer the funds received in step B(5)(a) to TMC Texas Inc. as an intercompany advance. c. TMC Texas Inc. will transfer the funds received in step B(5)(b) to TCC in exchange for the Industrial Receivables. d. TCC will transfer the funds received in step B(5)(c) to Tenneco as an intercompany loan. 6. Sale of Hvide Van Ommeren Interest. Intentionally omitted. Project Liza Transaction Steps Page 7 7. Termination of Eastern Insurance Company Non-Energy Business a. On June 21, 1996, Eastern Insurance Company Limited ("Eastern") paid a dividend of $20,118,711 out of its earned surplus to TGP. TGP transferred the funds to Tenneco as an intercompany advance. b. On September 23, 1996, Eastern transferred funds to Tenneco Management Company in the amount of $34,200,289 representing the amount described in Section 4.3(c)(i) of the Insurance Agreement attached as Exhibit H to the Distribution Agreement (i.e., "all amounts which appear as reserves on the books and records of the Eastern Insurance Provider as of the Termination Time in respect of claims relating to any Industrial Covered Person which have been reported prior to the Termination Time"). c. Effective as of [October 31, 1996], Eastern will transfer funds to Industrial Company in the amount of $2,181,014 representing the amount described in Section 4.3(c)(iii) of the Insurance Agreement attached as Exhibit H to the Distribution Agreement (i.e., "50% of 'incurred but not reported' reserve appearing on the books and records of the Eastern Insurance Provider as of the Termination Time under the excess liability programs of the Eastern Policies with respect to Industrial and Energy"). 8. Consents of Lessors and Creditors. As soon as practical, the following consents will be obtained to permit the transactions contemplated by the Corporate Restructuring Transactions: a. Counce. The lenders under loan agreements with Counce Finance Corporation (the "Counce Noteholders") must consent to the distribution by Tenneco Corporation of substantially all of its assets as contemplated by paragraph 16 of the Corporate Restructuring Transactions and to the transfer of the Counce Limited Partnership partnership interests as contemplated by steps C(6), C(9), and C(15A). b. GECC Leases. The lenders, equity holder, and trustee under the Tenneco Packaging Inc. mill leases must consent to Tenneco Packaging Inc. ceasing to be an affiliate of Tenneco as contemplated by step D(1). c. Tenneco International Holding Corp. MW Investors L.L.C., as holder of the Variable Rate Voting Participating Preferred Stock of Tenneco International Holding Corp., must consent to Tenneco International Holding Corp. ceasing to be an affiliate of Tenneco as contemplated by step D(1). 9. Execution of Underwriting Agreement. On November 12, 1996, Tenneco will enter into a firm commitment underwriting agreement with a group of underwriters relating to the issuance by Tenneco to the underwriter of shares of voting junior preferred stock of Industrial Company ("New Preferred Stock") for $300,000,000 cash less underwriting discount. 10. NPS Issuance. On November 18, 1996, Tenneco will issue the New Preferred Stock to the underwriters in exchange for cash of $300,000,000 less underwriting discount. Tenneco will use the funds to pay down existing credit facilities. Project Liza Transaction Steps Page 8 11. Defeasance of a Portion of Tenneco's Consolidated Debt. On December 6, 1996, Tenneco will defease a portion of the debt of TGP and TCC as follows: a. Tenneco will borrow $283,369,921.01 under Tenneco's existing credit facilities to effect a defeasance of the following debt obligations: ---------------------------------------------------------------------- Interest Issuer Face Amount Coupon Maturity at Maturity ---------------------------------------------------------------------- TGP $250,000,000 9.00% 01/15/97 $11,250,000 TCC $ 7,500,000 8.50% 01/30/97 $ 318,750 TCC $ 500,000 8.50% 03/17/97 $ 21,250 TCC $ 3,000,000 8.50% 03/24/97 $ 127,500 TCC $ 5,000,000 8.52% 03/28/97 $ 213,000 TCC $ 6,600,000 8.57% 03/18/97 $ 282,810 ------------ ----------- Total $272,600,000 $12,213,310 ============= =========== b. Tenneco will transfer $23,237,635.59 to TCC from the funds described in step B(11)(a) to defease the TCC debt identified in step B(11)(a). The transfer will be treated as a payment by Tenneco against its intercompany loan payable to TCC. c. Tenneco will transfer $260,132,285.42 to TGP as an intercompany advance from the funds described in step B(11)(a) to defease the TGP debt identified in step B(11)(a). d. TCC will transfer the funds received in step B(11)(b) to JP Morgan, which will use such funds to purchase U.S. Treasury securities and will transfer such securities to the indenture trustee in accordance with the terms of the indenture relating to TCC's debt obligations identified in step B(11)(a) to effect a legal defeasance of such obligations under the terms of the indenture. e. TGP will transfer the funds received in step B(11)(c) to JP Morgan, which will use such funds to purchase U.S. Treasury securities and will transfer such securities to the indenture trustee in accordance with the terms of the indenture relating to TGP's debt obligations identified in step B(11)(a) to effect a legal defeasance of such obligations under the terms of the indenture. f. The indenture trustee will transfer to Industrial Company any proceeds from the defeasance portfolio (including investment of such proceeds) in excess of the amounts necessary to pay the defeased debt at maturity. 12. Consent of $4.50 Preferred. Approval of the Transaction requires the affirmative vote of holders of a majority of the outstanding shares of Tenneco's $4.50 Preferred Stock and $7.40 Preferred Stock voting as a class. To ensure that the holders of Tenneco's $4.50 Preferred Stock vote in favor of the transaction, Tenneco will obtain an irrevocable proxy from the holders in exchange for amending the Merger Agreement to fix the formula for determining the number of shares of Acquiror Parent voting common stock to be paid to the holders in the Merger. 13. Declaration of Accrued Dividends. Dividends on $4.50 Preferred Stock otherwise due on March 12, 1997 will be declared on December 4, 1996, payable to holders of record on December Project Liza Transaction Steps Page 9 9, 1996, and payable on December 12, 1996. Dividends on $7.40 Preferred Stock otherwise due on December 31, 1996 will declared on October 8, 1996, payable to holders of record on November 22, 1996, and payable on December 31, 1996. C. IMPLEMENTATION OF CORPORATE RESTRUCTURING TRANSACTIONS The following transactions will be effected following the receipt of the IRS Ruling Letter and on or before the Distribution Date (December 11, 1996) pursuant to the requirement in Section 2.01 of the Distribution Agreement that the parties and their affiliates "take such action or actions as is necessary to cause, effect and consummate the Corporate Restructuring Transactions." Transactions occurring on the same day shall be deemed to have occurred in the order listed herein regardless of the order in which the documentation is executed, filed, or accepted, and regardless of the order in which the funds or other assets are transferred. 1. Effective as of October 31, 1996, TGP will transfer all of the assets and associated liabilities of and relating to the Walker muffler shop distribution center operation located in Carson, California (the "MSDC BUSINESS") to Tenneco Corporation as a contribution to capital. 2. Effective as of October 31, 1996, Tenneco Corporation will transfer the MSDC Business to Industrial Company as a contribution to capital. Any title transfer documents required for steps C(1) and C(2) should reflect the transfer of the assets directly from TGP to Industrial Company. 3. The following transactions will be effected implement the requirement that Tenneco Corporation satisfy the active business requirements of I.R.C.(S) 355(b): a. Effective as of October 31, 1996, TGP will transfer all of the stock of Midwestern Gas Transmission Company (Delaware) ("MIDWESTERN") to Tenneco Corporation as a contribution to capital. b. Effective as of October 31, 1996, Tenneco Energy Resources Corporation (Delaware)("TERC") will merge into Channel Industries Gas Company (Delaware)("CIGC"), a wholly owned subsidiary of TERC, with CIGC as the surviving corporation. In the merger, all of the shares of TERC stock held by Tenneco Corporation will be canceled, and Tenneco Corporation will become the owner of all of the shares of CIGC stock formerly held by TERC. As a result of the merger, CIGC will become a wholly owned direct subsidiary of Tenneco Corporation, and all of TERC's assets other than the stock of CIGC will become assets of CIGC. c. Effective as of October 31, 1996, Tenneco Corporation will transfer to New Midwestern Inc., a newly formed wholly owned subsidiary of Tenneco Corporation, as a contribution to capital all of Tenneco Corporation's Energy Business assets other than stock of subsidiaries, and all of its liabilities other than liabilities for accrued taxes. d. Effective as of October 31, 1996, Tenneco Corporation will transfer to Midwestern as a contribution to capital all of the stock of the following companies: Entrade Engine Company (Kentucky) Project Liza Transaction Steps Page 10 H.T. Gathering Company (Texas) (50%)/1/ Petro-Tex Chemical Corporation (Delaware) (in dissolution) SWL Security Corp. (Texas) TGP Corporation (Delaware) Tenneco Minerals Company - California (Delaware) Tenneco Minerals Company - Nevada (Delaware) Tenneco OCS Company, Inc. (Delaware) Tenneco Oil Company (Delaware) Tenneco Polymers, Inc. (Delaware) Tennessee Overthrust Gas Company (Delaware) New Midwestern Inc. e. Effective as of October 31, 1996, Tenneco Corporation will transfer to CIGC as a contribution to capital all of the stock owned by Tenneco Corporation in the following companies: Deepsea Ventures, Inc. (Delaware) Tenneco Independent Power I Company (Delaware) Tenneco Independent Power II Company (Delaware) Tenneco Insurance Ventures (Delaware) Tenneco Power Generation Company (Delaware) Following step C(3), Tenneco Corporation will have no assets other than the stock of the following companies: Autopartes Walker, S.A. de C.V. (Mexico) (0.02%) Channel Industries Gas Company (Delaware) Midwestern Gas Transmission Company (Delaware) Newport News Shipbuilding Inc. (Delaware) New Tenneco Inc. (Delaware) Tenneco Deutschland Holdinggesellschaft mbH (Germany) (99.97%) Walker Deutschland GmbH (Germany) (1%) Tenneco International Holding Corp. (7.82% interest in Common Stock) 4. Effective as of October 31, 1996, Tenneco will transfer to TGP as a contribution to capital all of its assets other than cash, the interest rate swap contracts entered into in August 1996 relating to the Consolidated Debt, the note receivable from I.C.H. Corporation, the stock to be transferred in step C(12), and the stock of TGP, and all of its liabilities other than the Consolidated Debt issued by Tenneco, accrued taxes, unpaid dividends, and the intercompany payables due to Industrial Company and Shipbuilding Company. The assets to be transferred to TGP include stock of the following companies: - ----------- /1/ Tenneco Corporation owns 50% of the issued and outstanding Class A Voting Stock and 20% of the Class B Nonvoting Stock, 29% of the total equity; and Houston Pipe Line Company, an unaffiliated company, owns 50% of the issued and outstanding Class A Voting Stock and 80% of the Class B Nonvoting Stock, 71% of the total equity. Project Liza Transaction Steps Page 11 Greater Houston Small Business Equity Fund, Inc. (Texas) Kern County Land Company (Delaware) MESBIC Financial Corporation of Houston (Texas) Tenneco Credit Corporation (Delaware) Tenneco MLP Inc. (Delaware) 5. Effective as of October 31, 1996, Newport News Industrial Corporation (Virginia) will transfer all of its assets and trade accounts payable to Shipbuilding Company in exchange for a Shipbuilding Company $4,000,000 promissory note. 6. Subject to receipt of the consent of the Counce Noteholders referred to in step B(8)(a), effective as of November 30, 1996 TCC will transfer all of its interest as a limited partner in Counce Limited Partnership, a Texas Limited Partnership ("Counce"), to Tenneco Corporation in exchange for Voting Preferred Stock of Tenneco Corporation having a fair market value equal to the aggregate appraised value of the partnership interest transferred by TCC. 7. Effective as of November 30, 1996, Tenneco Equipment Corporation ("TEC") will transfer (a) all of TEC's interest in the shares of the Common Stock of TIHC, and (b) all of TEC's interest in the shares of $8.00 Junior Preferred Stock of TIHC to Tenneco Corporation in exchange for Voting Preferred Stock of Tenneco Corporation having a fair market value equal to the aggregate appraised value of the stock transferred by TEC. 8. Effective as of November 30, 1996, TII will transfer all of its ownership interest (100% unless otherwise indicated) in the following companies to Tenneco Corporation in exchange for (a) a $50,000 promissory note issued by Tenneco Corporation and (b) Voting Preferred Stock of Tenneco Corporation. The consideration issued by Tenneco Corporation will have an aggregate fair market value equal to the aggregate appraised value of the stock transferred by TII. Autopartes Walker, S.A. de C.V. (Mexico) (0.02%) Omni-Pac GmbH (Germany) (1%) Omni-Pac S.A.R.L. (France) (97%) Tenneco Automotive Trading Company Tenneco International Holding Corp. (71.84% interest in Common Stock and 50% interest in $8.00 Junior Preferred Stock) Tenneco United Kingdom Holdings Limited Walker Europe, Inc. Walker Norge A/S (Norway) 9. Subject to receipt of the consent of the Counce Noteholders referred to in step B(8)(a), effective as of November 30, 1996 Shipbuilding Company will transfer its interest as general partner in Counce Limited Partnership to PCA Leasing Company as a contribution to capital. 10A. On or shortly before the Distribution Date, Shipbuilding Company will issue $400,000,000 principal amount of high-yield notes, the proceeds of which (after payment of issuance expenses) will be placed in an escrow account until the Distribution Date, at which time the funds Project Liza Transaction Steps Page 12 will be transferred to Shipbuilding Company account number 910-2-780 609 at The Chase Manhattan Bank. 10B. On the Distribution Date, Shipbuilding Company will borrow $215,000,000 under its credit facility. The funds will be deposited in Shipbuilding Company account number 910-2-780 609 at The Chase Manhattan Bank. From the proceeds of the credit facility borrowing and the proceeds of the high- yield notes released from the escrow described in step C(10A), Shipbuilding Company will transfer $600,000,000 to NNS Delaware Management Company as a contribution to capital. NNS Delaware Management Company will loan the funds to Newport News Shipbuilding and Dry Dock Company. Newport News Shipbuilding and Dry Dock Company will transfer the proceeds of the loan, plus Shipbuilding Company's net intercompany receivable from Tenneco, to Tenneco Corporation as a dividend. Tenneco Corporation will loan the funds received from Shipbuilding Company to Tenneco. Tenneco will use all of the funds to retire existing TGP debt as contemplated by the tender offers described in step C(16B), and to retire existing Tenneco and TCC debt as contemplated by step C(20). To document that the funds received by Tenneco were used to retire debt, the funds will be transferred directly from Shipbuilding Company account number 910-2-780 609 at The Chase Manhattan Bank to the account to be used by The Chase Manhattan Bank as Depositary for the offers to purchase debt of TGP, TCC, and Tenneco as contemplated by steps C(16B) and C(20) (account number 910-2-758 084). 11. On the Distribution Date following consummation of step C(10B), Shipbuilding Company will transfer all of its stock in Tenneco Packaging Inc. to Tenneco Corporation as a distribution with respect to stock (i.e., return on contributed surplus), and will transfer all of its stock of PCA Leasing Company as a dividend. 12. Effective as of October 31, 1996, Tenneco will transfer all of its ownership interest (100% unless otherwise indicated) in the following companies to TGP as a contribution to capital and in exchange and consideration for additional shares of stock of TGP. Autopartes Walker, S.A. de C.V. (Mexico) (0.02%) Tenneco Windsor Box & Display Inc. (f/k/a/ DeLine Box & Display, Inc.) Tenneco Asia Inc. Tenneco Brazil Ltda. (Brazil) Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business Services Inc.) Tenneco Foam Products Company (f/k/a Amoco Foam Products Company) Tenneco Management Company (f/k/a 1275, Inc.) Tenneco Moorhead Acquisition Inc. Tenneco Packaging Hungary Holdings Inc. Tenneco Romania Holdings Inc. 13. Effective as of October 31, 1996, Monroe Auto Equipment Company will change its name to Tenneco Automotive Inc., and will create three divisions: Monroe Auto Equipment Company division Walker Manufacturing Company division Tenneco Automotive Headquarters division Project Liza Transaction Steps Page 13 Effective as of October 31, 1996 following the name change referred to in the previous sentence. TGP will transfer all of the assets and related liabilities of the Walker Manufacturing Company division of TGP (other than the MSDC Business transferred in step C(1) and (2)) to the Walker Manufacturing Company Division of Tenneco Automotive Inc., and will transfer all of the assets and liabilities of the Tenneco Automotive Headquarters Division to the Tenneco Automotive Headquarters division of Tenneco Automotive Inc., in each case as a contribution to capital. For purposes of this transfer, TGP's Asheville, N.C. plant shall not be treated as part of the Walker Manufacturing Company division's assets nor as part of the Tenneco Automotive Headquarters Division's Assets. See Step 21 for the transfer of the Asheville, N.C. property. 14. Effective as of October 31, 1996 following consummation of step C(12) TGP will transfer all of its ownership interest (100% unless otherwise indicated) in the following assets to Tenneco Corporation as a contribution to capital and in exchange and consideration for additional shares of common stock of Tenneco Corporation. Autopartes Walker, S.A. de C.V. (Mexico) (99.94)/2/ Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) Monroe-Mexico S.A. de C.V. (Mexico) (0.01%) Proveedora Walker S.A. de C.V. (Mexico) (99.99%)/3/ Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica) (1%) Tenneco Brake, Inc. Walker Electronic Silencing, Inc. Walker Manufacturing Company Stock Received in Step (12) above --------------------------------- Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display, Inc.) Tenneco Asia Inc. Tenneco Brazil Ltda (Brazil) Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business Services Inc.) Tenneco Foam Products Company (f/k/a Amoco Foam Products Company) Tenneco Management Company (f/k/a/ 1275, Inc.) Tenneco Moorhead Acquisition Inc. Tenneco Packaging Hungary Holdings Inc. Tenneco Romania Holdings Inc. - ---------------------- /2/ Includes 0.02% interest acquired from Tenneco in step 12 above. /3/ TGP owns 49,999 shares, and Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) owns 1 share. Project Liza Transaction Steps Page 14 15A. Effective as of October 31, 1996 following the consummation of step C(14), Tenneco Corporation will transfer all of its ownership interest (100% unless otherwise indicated) in the following entities to Industrial Company as a contribution to capital and in exchange and consideration for additional shares of stock of Industrial Company. Stock Owned at October 30, 1996 ------------------------------- Tenneco Deutschland Holdinggesellschaft mbH (Germany) Tenneco Inc. (Nevada) Walker Deutschland GmbH (Germany) (1%) Stock and Assets Received in Step (14) -------------------------------------- Autopartes Walker, S.A. de C.V. (Mexico) (99.96%)/4/ Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) Monroe-Mexico S.A. de C.V. (Mexico) (0.01%) Proveedora Walker S.A. de C.V. (Mexico) (99.99%) Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica) (1%) Tenneco Brake, Inc. Walker Electronic Silencing, Inc. Walker Manufacturing Company Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display, Inc.) Tenneco Asia Inc. Tenneco Brazil Ltda. (Brazil) Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business Services Inc.) Tenneco Foam Products Company (f/k/a Amoco Foam Products Company) Tenneco Management Company (f/k/a 1275, Inc.) Tenneco Moorhead Acquisition Inc. Tenneco Packaging Hungary Holdings Inc. Tenneco Romania Holdings Inc. 15B. Effective as of December 5, 1996 or December 6, 1996, TGP will transfer to Tenneco Management Company as a contribution to capital the following assets: a. All trademarks, trade names, service marks, company or operating unit names containing the word "Tenneco" or any variation of the name "Tenneco", such as those names with a "Tenn" or "Ten" syllable and respective applications or registrations therefor wherever used or registered, except that Tenneco and the other members of the Energy Group shall retain the right to use the name "Tennessee" in their respective corporate names or otherwise in respect of the Energy Business. - ------------------------- /4/ Includes: 0.02% interest owned by Tenneco Corporation at 12/31/95; and 99.94% interest acquired from TGP. Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) continues to own 0.02% of the stock. Project Liza Transaction Steps Page 15 b. All other intellectual property that does not solely and directly relate to the Energy Business and/or the Shipbuilding Business, including but not limited to patents, copyrights, trademarks, service marks, tradenames, know-how, trade secrets, licenses and rights therein. 15C. Effective as of November 30, 1996 following the consummation of steps C(6) through C(8), Tenneco Corporation will transfer all of its ownership interest (100% unless otherwise indicated) in the following entities to Industrial Company as a contribution to capital and in exchange and consideration for additional shares of stock of Industrial Company. The transfer of the Counce Limited Partnership interest is subject to receipt of the consent of the Counce Noteholders referred to in step B(8)(a). Stock and Partnership Interest Received in Steps (6)-(8) -------------------------------------------------------- Counce Limited Partnership (95% limited partner interest) Tenneco International Holding Corp. (100% interest in Common Stock and 100% interest in $8.00 Junior Preferred Stock Autopartes Walker, S.A. de C.V. (Mexico) (0.02%) Omni-Pac Gmbh (Germany (1%) Omni-Pac S.A.R.L. (France) (97%) Tenneco Automotive Trading Company Tenneco United Kingdom Holdings Limited Walker Europe, Inc. Walker Norge A/S (Norway) 15D. Effective as of December 1, 1996, TGP will transfer to Tenneco Corporation as a contribution to capital the assets listed on Schedule 1. Tenneco Corporation will transfer the assets to Industrial Company as a contribution to capital. Industrial Company will transfer the assets to Tenneco Management Company as a contribution to capital./5/ 15E. On the Distribution Date following the consummation of step C(11), Tenneco Corporation will transfer the stock of the following entities to Industrial Company as a contribution to capital: Stock Received in Step (11) -------------------------- Tenneco Packaging Inc. PCA Leasing Company 15F. On the Distribution Date following the consummation of steps C(1) through C(15E), Tenneco Corporation will transfer all of its assets (excluding the stock of Industrial Company, Shipbuilding Company, Midwestern, and CIGC, but including the intercompany receivable from Tenneco received in step C(10B) and all of its liabilities (excluding liabilities for accrued taxes) to Midwestern as a contribution to capital. Midwestern will transfer such assets and liabilities to New - ----------------------------- /5/ These transfers are being effected as of December 1, 1996 because the transfer of the partnership interest in Waukegan Corporate Aviation Facilities cannot become effective earlier than the first day of the month following the month in which the transfer is approved by the partnership. Project Liza Transaction Steps Page 16 Midwestern as a contribution to capital. Tenneco Corporation shall not acquire any assets following the consummation of step C(15F) and Tenneco Corporation and Midwestern will enter into an agreement pursuant to which any assets inadvertently acquired by Tenneco Corporation following the consummation in step C(15F) will be deemed contributed to the capital of Midwestern immediately upon acquisition without any further action by the parties. 16A. On the Distribution Date following the consummation of steps C(1) through C(15F), Tenneco Corporation will transfer all of the stock of Shipbuilding Company and Industrial Company to TGP as a distribution with respect to stock (i.e., return of contributed surplus). 16B. On the Distribution Date following the consummation of step C(16A) and prior to the consummation of step C(17), Tenneco will purchase the debt of TGP as follows: a. Pursuant to a tender offer made on November 8, 1996, Tenneco will purchase the debt of TGP validly tendered by the holders (and not withdrawn) at or prior to 5:00 p.m. New York City Time on December 10, 1996 (the "Expiration Time")./6/ Using the funds received by Tenneco in step C(10B) (which are being held by The Chase Manhattan Bank as Depositary for the offers to purchase TGP, TCC, and Tenneco debt), on the Distribution Date Tenneco will purchase the tendered TGP debt, excluding interest to be paid by TGP. Also on the Distribution Date, TGP will transfer to The Chase Manhattan Bank as Depositary for the tender offers an amount of funds equal to the interest to be paid by TGP pursuant to the terms of the tender offer. To document TGP's payment of interest on the tendered debt, on the Distribution Date Tenneco will make an actual transfer of funds into a TGP account (as an intercompany advance), and TGP will transfer funds from that account to Chase's Depositary account. b. Tenneco will transfer the TGP debt acquired in step C(16B)(a) to TGP in exchange for cash equal to Tenneco's cost of acquiring the debt (including fees and expenses paid by Tenneco in connection with the purchase of the TGP debt, but excluding accrued interest paid by TGP), thereby extinguishing the debt. c. Tenneco will transfer the cash received in step C(16B)(b) to TGP as an intercompany advance. The transfers of cash described in steps C(16B)(b) and C(16B)(c) will be accomplished using a daylight overdraft. 17. On the Distribution Date following the consummation of steps C(16A) and C(16B), TGP will transfer all of the stock of Shipbuilding Company and Industrial Company to Tenneco as a distribution with respect to stock (i.e., return of contributed surplus). 18. On the Distribution Date following the consummation of step C(17), Industrial Company will transfer to Tenneco as a dividend the net intercompany account payable owed by Tenneco to Industrial Company. - -------------------------- /6/ These Transaction Steps assume that the tender offer will not be extended or earlier terminated. Project Liza Transaction Steps Page 17 19. On the Distribution Date following the consummation of step C(17), Industrial Company will participate in the Debt Realignment as follows: a. Industrial Company will borrow $347,000,000 under a new credit facility an amount equal to the amount necessary to fund, after payment of credit facility expenses, a dividend to Tenneco (see step C(19)(d)) which, when used by Tenneco to fund the retirement of debt pursuant to the Tenneco debt tender offer, will cause the Actual Energy Debt Amount to be equal to the Base Amount, as estimated on the Distribution Date. b. Industrial Company's offer to exchange up to $1,950,000,000 face amount of Industrial Company debt for certain Tenneco debt will expire at 5:00 p.m. New York City time on December 10, 1996 (the "expiration time")./7/ Pursuant to the exchange offer, Industrial Company will accept for exchange Tenneco debt validly tendered and not withdrawn as of the expiration time, and will acquire such Tenneco debt by issuing new debt in exchange therefor on the first NYSE trading day following the expiration time (the "issuance date," which is also the Distribution Date). On the Distribution Date, Industrial Company will deliver the new debt certificates to The Chase Manhattan Bank as exchange agent for the holders of Tenneco debt participating in the exchange. The exchange agent will deliver the new debt certificates to such holders on the third trading day following the expiration time (the "exchange date"). Also on the Distribution Date, Industrial Company will transfer cash (from the funds received in step C(19)(a)) to the exchange agent equal to the amount of interest accrued on the exchanged Tenneco debt up to but excluding the issuance date; provided that Tenneco, and not Industrial Company, will pay accrued interest up to the issuance date on exchanged Tenneco debt for which the record date for any interest payment is prior to the Distribution Date and for which the payment date for such interest payment is after the issuance date. Interest on the new debt will accrue from and including the issuance date ("straddle interest"). To document Tenneco's payment of straddle interest on the exchange debt as required by the exchange offer, Tenneco will transfer funds equal to the required payment of straddle interest from a Tenneco Inc. account to the account to be used by The Chase Manhattan Bank as exchange agent for the payment of such interest pursuant to the exchange offer. c. Tenneco will transfer to Industrial Company in exchange for the Tenneco debt acquired by Industrial Company in step C(19)(b) an amount of funds equal to the fair market value of the debt issued by Industrial Company to acquire the Tenneco debt in step C(19)(b), plus the accrued interest to be paid by Industrial Company on the Tenneco debt, plus any fees and expenses incurred by Industrial Company in connection with the exchange. d. Industrial Company will transfer to Tenneco as a dividend the funds received in steps C(19)(a) and C(19)(c) remaining after payment of accrued interest on the tendered Tenneco debt and expenses related to the credit facility and debt exchange. To document that the funds received in step C(19)(a) and transferred to Tenneco in step C(19)(d) were used by Tenneco to retire debt, the funds will be transferred directly from Morgan Guaranty - --------------------- /7/ These Transaction Steps assume that the exchange offer will not be extended or earlier terminated. Project Liza Transaction Steps Page 18 Trust Company of New York as administrative agent for the lenders under the Industrial Company credit facility to The Chase Manhattan Bank as Depositary for the Tenneco debt tender offer (see step C(20)(b)). The funds to be received by Industrial Company in step C(19)(c) and then transferred to Tenneco in step C(19)(d) will be arranged under a daylight overdraft facility. 20. On the Distribution Date following the consummation of step C(17), Tenneco will participate in the Debt Realignment as follows: a. Tenneco will borrow $2,164,000,000 under a new credit facility (the "Tenneco Credit Facility") an amount equal to the amount necessary to cause the Actual Energy Debt Amount to be equal to the Base Amount, as estimated on the Distribution Date, taking into account funds utilized in the Debt Realignment. b. Pursuant to a tender offer made on November 8, 1996, Tenneco will purchase the debt of Tenneco and TCC validly tendered by the holders (and not withdrawn) at or prior to 5:00 p.m. New York City Time on December 10, 1996 (the "Expiration Time")./8/ From the funds received in step C(20)(a), on the Distribution Date Tenneco will transfer to The Chase Manhattan Bank as Depositary for the tender offers an amount of funds sufficient to fund the purchases of the tendered Tenneco and TCC debt, taking into account the funds deposited with Chase as Depositary as described in steps C(10B) and C(19)(d) and the utilization of a portion of such funds as contemplated by step C(16B)(a). Chase will use such funds to effect the purchases of the tendered Tenneco and TCC debt on behalf of Tenneco. c. Tenneco will transfer to TCC the debt of TCC acquired in step C(20)(b) in exchange for cash equal to Tenneco's cost of acquiring the TCC debt, including accrued interest plus any fees and expenses incurred by Tenneco in connection with the acquisition of the TCC debt. Tenneco will use the cash to repay its intercompany loan from TCC or to make an intercompany advance to TCC. Step C(20)(c) will be accomplished using a daylight overdraft. d. Tenneco will repay all of its outstanding bank debt and commercial paper, pay transaction expenses, transfer funds to Shipbuilding Company and TGP as necessary to fund the Guaranteed Shipbuilding Cash Amount and the Guaranteed Energy Cash Amount, respectively (as defined in the Debt and Cash Allocation Agreement), and fund cash expenditures of Tenneco and its affiliates for the Distribution Date. To the extent the Shipbuilding Group cash and cash equivalents on the Distribution Date (taking into account all of the foregoing transactions) exceeds the Guaranteed Shipbuilding Cash Amount, the excess shall be transferred by Shipbuilding Company to Tenneco as a dividend. To the extent the Energy Group cash and cash equivalents on the Distribution Date (taking into account all of the foregoing transactions, and including the dividend described in the previous sentence) exceeds the Guaranteed Energy Cash Amount, Tenneco shall transfer such excess to Industrial Company as a contribution to capital. e. Tenneco will transfer to TGP as a contribution to capital all of its assets other than the stock of TGP and the note receivable from I.C.H. Corporation, and all of its liabilities other than - ---------------- /8/ These Transaction Steps assume that the tender offer will not be extended or earlier terminated. Project Liza Transaction Steps Page 19 the Consolidated Debt issued by Tenneco (as defined in the Debt Realignment Plan attached as Exhibit C to the Merger Agreement, including the untendered portions of Tenneco public debt and the Tenneco Revolving Debt incurred under the Tenneco Credit Facility), accrued taxes, and unpaid dividends. Following step 20, Tenneco should have no assets other than the stock of TGP and the note receivable from I.C.H. Corporation, and no liabilities other than the Tenneco Credit Facility, the untendered portion of the Tenneco Consolidated Debt, accrued taxes, and unpaid dividends. Tenneco shall not acquire any assets following the consummation of step 20, and Tenneco and TGP will enter into an agreement pursuant to which any assets inadvertently acquired by Tenneco following the consummation of step 20 will be deemed contributed to the capital of TGP immediately upon acquisition without any further action by the parties. 21. Effective as of November 30, 1996, TGP will transfer to Tenneco Asheville Inc., a newly formed wholly owned subsidiary of TGP, as a contribution to capital the assets and liabilities associated with the Walker Manufacturing property located in Asheville, NC. TGP will then transfer the stock of Tenneco Asheville Inc. to Tenneco Corporation as a contribution to capital, and Tenneco Corporation will transfer the stock of Tenneco Asheville Inc. to Industrial Company as a contribution to capital. 22. Effective as of November 1, 1996, Tenneco Liquidation Company (formerly Tenneco Business Services Inc.) will transfer all of its assets and liabilities to Tenneco Business Services Inc. (formerly Tenneco Technology Services Inc.). Tenneco Liquidation Company will change its name to Tenneco Business Services Holdings Inc. 23. On the Distribution Date immediately before the Distributions, Industrial Company and Shipbuilding Company will issue a stock dividend to Tenneco as provided in Section 2.02 of the Distribution Agreement. D. Distributions and Merger 1. On the Distribution Date following the consummation of steps C(1) through C(23), Tenneco will distribute all of the stock of Industrial Company and Shipbuilding Company to Tenneco shareholders as a distribution with respect to stock (i.e., return of contributed surplus) pro rata on the basis of one share of Industrial Company stock for one share of Tenneco common stock outstanding and on the basis of one share of Shipbuilding Company stock for five shares of Tenneco common stock outstanding. Cash will be paid in lieu of issuing fractional shares of Shipbuilding Company stock. Each share of stock of Industrial Company and Shipbuilding Company will have attached to it stock purchase rights (the "Rights") which will entitle the holder to purchase certain stock of Industrial Company or Shipbuilding Company, as the case may be, upon the occurrence of certain triggering events. 2. Effective as of the Distribution Date, the account of the employees of the Shipbuilding Business in the Tenneco Thrift Plan will be transferred to a Shipbuilding Company qualified plan (the "Shipbuilding Company Thrift Plan") as of the distribution date. The Shipbuilding Company Thrift Plan will include an employee stock ownership plan ("ESOP"), and Shipbuilding Company Project Liza Transaction Steps Page 20 stock received with respect to Tenneco stock on their accounts will held subject to the terms of the ESOP. 3. Effective as of 8:00 a.m. EST on the day following the Distribution Date, Industrial Company, Acquiror, Acquiror Sub A1, and Acquiror Parent will consummate the merger of Acquiror Sub A1 into Tenneco (the "Merger"). E. Post-Merger Transactions 1. [Describe transfers of 401(k) accounts and communication of opportunity to sell shares of non-employer stock.] 2. [Describe settlement of cash under Debt and Cash Allocation Agreement. If there is a transfer of excess cash from Shipbuilding Company to Industrial Company, the transfer should be treated as dividend by Shipbuilding Company to Tenneco and a contribution by Tenneco to the capital of Industrial Company immediately prior to step D(1). If there is a transfer of cash from Industrial Company to Shipbuilding Company, the transfer should be treated as dividend by Industrial Company to Tenneco and a contribution by Tenneco to the capital of Shipbuilding Company immediately prior to step D(1). Any transfer of cash from Tenneco to Industrial Company should be treated as a contribution by Tenneco to the capital Industrial Company immediately prior to step D(1), and any transfer of cash from Industrial Company to Tenneco should be treated as a dividend by Industrial Company to Tenneco immediately prior to step D(1).] 3. Effective as of December 12, 1996, Tenneco will make arrangements for the funding of the Energy Business cash requirements without flowing cash through Tenneco and without creating any intercompany receivables held by Tenneco. As soon as practical after the Effective Time, Tenneco will close all of its bank accounts. Project Liza Transaction Steps Page 21 Schedule 1 Pursuant to the Corporate Restructuring Transactions, the following assets owned by TGP shall be transferred to Tenneco Management Company. 1. Aviation Assets. a. All fixed wing corporate aircraft (except the Gulfstream G-II, serial number 248, and Rolls Royce Spey Model 511-8 engines, manufacturer's Serial Numbers 9816 and 9844), and spare parts for the aircraft which as of the Effective Time will not have a net book value in excess of $1 million. b. Limited partner interest in the Waukegan Corporate Aviation Facilities, an Illinois limited partnership (which owns the Waukegan, Illinois airport hangar facility and common facilities), the furniture, fixtures, and equipment owned by TGP located at the Waukegan aviation facilities, the stock of Corporate Hangar Services, Inc., an Illinois corporation (which is the corporate general partner of Waukegan Corporate Aviation Facility), and TGP's sublease of the aviation facilities from Waukegan Corporate Aviation Facilities. c. Certain furniture, fixtures, and equipment located in the Houston, Texas airport hangar facilities associated with the fixed-wing aircraft described in clause (a), which at the Effective Time will not have a net book value in excess of $1 million. 2. Furniture, Fixtures, and Equipment. Furniture, fixtures, and equipment (including furnishings and computer equipment) which as of the Effective Time will not have a net book value in excess of $2 million located in: a. Greenwich, CT Management Center. b. Washington, D.C. office. c. Houston, Texas office. 3. Albright & Wilson Note. The long-term note receivable from Albright & Wilson Americas Inc. in the amount of $6,936,384 as of October 31, 1996. Exhibit E to the Distribution Agreement ENERGY SUBSIDIARIES Subsidiaries of Tenneco Inc. (Delaware) Tennessee Gas Pipeline Company (Delaware)............................ 100% Altamont Service Corporation (Delaware)............................ 100 Altamont Gas Transmission Canada Limited (Canada)................ 100 (Altamont Service Corporation is the registered holder of all of the issued and outstanding shares of Altamont Gas Transmission Canada Limited, as Trustee for Altamont Gas Transmission Company, a Joint Venture) Border Gas Inc. (Delaware) (a close corp.)......................... 37.5 (Tennessee Gas Pipeline Company owns 100% of the Class A Common Stock, 37.5% of the total equity, and 37.5% of the total voting stock; unaffiliated companies (Texas Eastern Transmission Corporation, El Paso Natural Gas Company, Transcontinental Gas Pipe Line Corporation, Southern Natural Gas Company, and Florida Gas Transmission Company) own the remaining stock and equity. Eastern Insurance Company Limited (Bermuda)........................ 100 East Tennessee Natural Gas Company (Tennessee)..................... 100 Tenneco East Natural Gas L.P. (Delaware Limited Partnership)..... 1 (East Tennessee Natural Gas Company, as General Partner, owns 1%; and Tenneco East Corporation, as Limited Partner, owns 99%.) Energy TRACS, Inc. (Delaware)...................................... 100 Greater Houston Small Business Equity Fund, Inc. (Texas)........... ?? ------------------------------------------------------------------------ Kern County Land Company (Delaware)................................ 100 Tenneco Equipment Corporation (Delaware)......................... 100 Marlin Drilling Co., Inc. (Delaware) Bluefin Supply Company (Delaware)............................ 100 Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)......... 0.16 (in dissolution) Bluefin Supply Company owns 0.16%; and Marlin Drilling Co., Inc. owns 99.84%) Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)........ 99.84 (in dissolution) Marlin Drilling Co., Inc. owns 99.84%; and Bluefin Supply Company owns 0.16%) Tenneco Equipment Holding I Company (Delaware)................. 100 Tenneco Equipment Holding II Company (Delaware)................ 100 Tenneco Equipment Holding III Company (Delaware)............... 100 Tenneco Equipment Holding V Company (North Dakota)............. 100 Tenneco Equipment Holding IV Company (Wisconsin)............... 100 Tenneco Equipment Holding VI Company (Illinois)................ 100 Tenneco West, Inc. (Delaware).................................... 100 Kern County Land Company, Inc. (California).................... 100 Kern River Corporation (Delaware).................................. 0.01 Land Ventures, Inc. (Delaware)..................................... 100 MESBIC Financial Corporation of Houston (Texas).................... ?? ------------------------------------------------------------------------ Midwestern Gas Marketing Company (Delaware)........................ 100 Mont Belvieu Land Company (Delaware)............................... 100 1
ENERGY SUBSIDIARIES Subsidiaries of Tenneco Inc. Subsidiaries of Tennessee Gas Pipeline Company New Tenn Company (Delaware)............................................ 100 (New Tenn Company and New Tennessee Gas Pipeline are in the process of being merged into Tennessee Gas Pipeline Company.) New Tennessee Gas Pipeline Company (Delaware).......................... 100 (New Tenn Company and New Tennessee Gas Pipeline are in the process of being merged into Tennessee Gas Pipeline Company.) S.K. Petroleum Company (Delaware)...................................... 100 Sandbar Petroleum Company (Delaware)................................... 100 Tennchase Inc. (Texas)................................................. 100 Tenneco Alaska, Inc. (Alaska).......................................... 100 Tenneco-Altamont Corporation (Delaware)................................ 100 Altamont Gas Transmission Company (Delaware Joint Venture)........... 53.34 (Tenneco-Altamont Corporation owns 53 1/3%; Amoco Altamont Company, an unaffiliated company, owns 33 1/3%; and Entech Altamont, Inc., an unaffiliated company, owns 13 1/3%.) Tenneco Argentina Corporation (Delaware)............................... 100 Tenneco Baja California Corporation (Delaware)......................... 100 Tenneco Communications Corporation (Delaware).......................... 100 Tenneco Corporation (Delaware)......................................... 100 (Tennessee Gas Pipeline Company owns 100% of the Common Stock; Tenneco Credit Corporation owns ___% of the Second Preferred Stock; Tenneco Equipment Corporation owns ___% of the Second Preferred Stock; and Tenneco International Inc. owns ___% of the Second Preferred Stock.) Channel Industries Gas Company (Delaware)............................ 100 Tenneco Energy Marketing Company (Kentucky)........................ 100 Creole Gas Pipeline Corporation (Louisiana)...................... 100 Entrade Pipeline Company (Kentucky).............................. 100 Channel Gas Marketing Company (Delaware)........................... 100 Oasis Pipe Line Company (Delaware)............................... 30 (Channel Gas Marketing Company owns 100% of the issued and outstanding Series B Preference Stock and 30% of the Common Stock, 30% of total equity; Dow Chemical Company, an unaffiliated company owns 100% of the issued and outstanding Series A Preference Stock and 70% of the Common Stock, 70% of total equity.) Tenneco Gas Processing Company (Delaware).......................... 100 Tenneco Independent Power I Company (Delaware)..................... 100 Tenneco Independent Power II Company (Delaware).................... 100 Tenneco Insurance Ventures (Delaware).............................. 100 Tenneco Offshore Gathering Company (Delaware)...................... 100 Tennessee Gas Marketing Company (Delaware)......................... 100
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ENERGY SUBSIDIARIES Subsidiaries of Tenneco Inc. Subsidiaries of Tennessee Gas Pipeline Company Subsidiaries of Tenneco Corporation Subsidiaries of Channel Industries Gas Company Tenneco Power Generation Company (Delaware)........................ 100 Orange Acquisition, Inc. (Delaware).............................. 100 Orange Cogeneration Limited Partnership (Delaware Limited Partnership)................................................... 49.5 (Orange Acquisition, Inc. owns 49.5% as a Limited Partner; CSW Orange, Inc., an unaffiliated company, owns ___% as a Limited Partner; and Orange Cogeneration GP, Inc. owns ---% as General Partner.) Orange Cogeneration GP II, Inc. (Delaware)..................... 50 (Tenneco Power Generation Company owns 50%; and CSW Development-I, Inc., an unaffiliated company, owns 50%.) Orange Cogeneration G.P., Inc. (Delaware)...................... 100 Polk Power GP II, Inc. (Delaware)................................ 50 (Tenneco Power Generation Company owns 50% and CSW Development-I, Inc., an unaffiliated company, owns 50%.) Polk Power GP, Inc............................................. 100 Tenneco Ethanol Company (Delaware)............................... 100 Tenneco Ethanol Services Company (Delaware)...................... 100 West Campus Cogeneration Company (Delaware)...................... 100 Midwestern Gas Transmission Company (Delaware)....................... 100 Deepsea Ventures, Inc. (Delaware).................................. ?? Entrade Engine Company (Kentucky).................................. 100 H.T. Gathering Company (Texas)..................................... 50 (Midwestern Gas Transmission Company owns 50% of the issued and outstanding Class A Voting Stock and 20% of the Class B Nonvoting Stock, 29% of the total equity; and Houston Pipe Line Company, an unaffiliated company, owns 50% of the issued and outstanding Class A Voting Stock and 80% of the Class B Nonvoting Stock, 71% of the total equity.) New Midwestern Inc. (Delaware)..................................... 100 Petro-Tex Chemical Corporation (Delaware) (in dissolution)......... 100 (Certificate of Dissolution was filed in Delaware on January 18, 1995, Final dissolution date will be January 18, 1998, subject to settlement of any other outstanding business.) SWL Security Corp. (Texas)......................................... 100 Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership).... 1 (Midwestern Gas Transmission Company, as General Partner, owns 1%; and Tenneco Midwest Corporation, as Limited Partner owns 99%.) Tenneco Minerals Company - California (Delaware)................... 100 Tenneco Minerals Company - Nevada (Delaware)....................... 100 Tenneco OCS Company, Inc. (Delaware)............................... 100 Tenneco Oil Company (Delaware)..................................... 100
3 ENERGY SUBSIDIARIES Subsidiaries of Tenneco Inc. Subsidiaries of Tennessee Gas Pipeline Company Subsidiaries of Tenneco Corporation Subsidiaries of Midwestern Gas Transmission Company Tenneco Polymers, Inc. (Delaware) ................................. 100 Tenneco Eastern Realty, Inc. (New Jersey) ......................... 100 Tennessee Overthrust Gas Company (Delaware) ....................... 100 Overthrust Pipeline Company (Delaware General Partner) .......... 18 (Tennessee Overthrust Gas Company owns an 18% general partnership interest; unaffiliated parties own 82% partnership interest) TCP Corporation (Delaware) ........................................ 100 Tenneco Credit Corporation (Delaware) ................................. 100 TenFac Corporation (Delaware) ....................................... 100 Tenneco Deepwater Gathering Company (Delaware) ........................ 100 Tenneco Delta XII Gas Co., Inc. (Delaware) ............................ 100 Tenneco East Corporation (Delaware) ................................... 100 Tenneco East Natural Gas L.P. (Delaware Limited Partnership) ........ 99 (Tenneco East Corporation, as Limited Partner, owns 99%; and East Tennessee Natural Gas Company, as General Partner, owns 1%.) Tenneco Energy Europe Inc. (Delaware) ................................. 100 Tenneco Energy Hungary Inc. (Delaware) .............................. 99 [Tenneco Energy Hungary B.V. (Netherlands) ......................... ??] Tenneco Energy Ltd. (Canada) .......................................... 100 Tenneco Energy Services Company (Delaware) ............................ 100 GreyStar Corporation (Texas) ........................................ 50 (Tenneco Energy Services Company owns 50%, and unaffiliated parties own 50%. Tenneco Energy Services Company owns 1,135,294 shares of Series B Preferred Stock, $0.01 par value per share.) Tenneco Energy AIRCO Inc. (Delaware) ............................... 100 Tenneco Energy OGS Inc. (Delaware) ................................. 100 Tenneco Energy TEPSCO Inc. (Delaware) .............................. 100 Tenneco Energy Inc. (Delaware) ....................................... 100 Tenneco EIS Company (Delaware) ..................................... 100 Tenneco EIS Canada Ltd. (Alberta) ................................ 100 Tenneco Gas Transporation Company (Delaware) ....................... 100 Tenneco Gas Canada, Ltd. (Ontario) ................................... 100 Tenneco Gas International Inc. (Delaware) ............................ 100 Tenneco Energy China Inc. (Delaware) ............................... 100 Tenneco Gas Brazil Corporation (Delaware) .......................... 100 Tenneco Gas International Servicos do Brasil Ltda (Brazil) ....... 100 Tenneco Gas Chile Corporation (Delaware) ........................... 100 Tenneco Energy International (East Asia/Pacific) Inc. (Delaware) ... 100 Tenneco Gas Services (Chile) Corporation (Delaware) ................ 100 Tenneco Gas Transportes S.A. (Chile) ............................. 100 Tenneco Gas Latin America Inc. (Delaware) .......................... 100 4
ENERGY SUBSIDIARIES Subsidiaries of Tenneco Inc. Subsidiaries of Tennessee Gas Pipeline Company Tenneco Gas Louisiana Inc. (Delaware).................................... 100 Martin Exploration Company (Delaware).................................. 100 Tenneco Gas Production Corporation (Delaware)............................ 100 Tenneco Gas Properties Inc. (Delaware)................................... 100 Tenneco Gas Services, Inc. (Delaware).................................... 100 Tenneco Gas Supply Corporation (Delaware)................................ 100 Tenneco Gas Australia Inc. (Delaware).................................... 100 Tenneco Holdings Pty. Ltd. (Australia)................................. 100 Sulawesi Energy Pty Ltd. (Australia)................................. 50 (Upon the acquisition of the Energy Equity subsidiaries contemplated for the South Sulawesi Project, Tenneco Holdings Pty. Ltd. will own 50%, and an unaffiliated company will own 50%.) PT Energi Sengkang (Indonesia)..................................... 95 (Upon the acquisition of the Energy Equity subsidiaries contemplated for the South Sulawesi Project, Sulawesi Energy Pty. Ltd. will own 95% and an unaffiliated company will own 5%.) Tenneco Energy Australia Pty. Limited (Australia).................... 100 Tenneco Energy Queensland Pty. Limited (Australia)................. 100 Tenneco Energy South Australia Pty. Limited (Australia)............ 100 Tenneco Energy Operations and Maintenance Pty. Ltd. (Australia)...... 100 Energy Management Technical Systems Pty. Ltd. (Australia).......... 50 (Upon the acquisition of the Energy Equity subsidiaries contemplated for the South Sulawesi Project, Tenneco Energy Operations and Maintenance Pty. Ltd. will own 50%, and an Unaffiliated company will own 50%.) Tenneco Sulawesi Gas Pty. Ltd. (Australia)........................... 100 Energy Equity (Sengkang) Pty. Ltd. (Australia)..................... 50 (Upon the acquisition of the Energy Equity subsidiaries contemplated For the South Sulawesi Project, Tenneco Sulawesi Gas Pty. Ltd. will own 50%, and an unaffiliated company will own 50%.) Galtee Limited (Cayman Islands)........................................ 100 Tenneco International Inc. (Delaware)..................................... 100 Tenneco Nederland B.V. (Netherlands)................................... 100 Tenneco Offshore Netherlands Company (Delaware)........................ 100 Tenneco Liquids Corporation (Delaware)................................... 100 Tenneco Marketing Services Company (Delaware)............................ 100 Tenneco MLP Inc. (Delaware).............................................. 100 Polk Power Partners, L.P. (Delaware Limited Partnership)............. 100 (Tenneco MLP Inc. owns ____% as a Limited Partner; CSW Mulberry, Inc., an unaffiliated company, owns ____% as a Limited Partner; GPSF-A Inc., an Unaffiliated company owns ____% as Preferred Limited Partner; and Polk Power GP, Inc. owns _____% as the General Partner.) Tenneco MTBE, Inc. (Delaware)............................................ 100
5 ENERGY SUBSIDIARIES Subsidiaries of Tenneco Inc. Subsidiaries of Tennessee Gas Pipeline Company Tenneco Midwest Corporation (Delaware) ................................ 100 Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership ...... 99 (Tenneco Midwest Corporation, as Limited Partner, owns 99%; and Midwestern Gas Transmission Company, as General Partner, owns 1%.) Tenneco Pittsfield Corporation (Delaware) ............................. 100 Tenneco Portland Corporation (Delaware) ............................... 100 Tenneco Realty, Inc. (Delaware) ....................................... 100 Tenneco SNG Inc. (Delaware) ........................................... 100 Tenneco Texas Acquisition Inc. (Delaware) ............................. 100 Tenneco Trinidad LNG, Inc. (Delaware) ................................. 100 Tenneco Ventures Bolivia Corporation (Delaware) ....................... 100 Tenneco Ventures Corporation (Delaware) ............................... 100 Tenneco Ventures Poland Corporation (Delaware) ........................ 100 Tenneco Western Market Center Corporation (Delaware) .................. 100 The Western Market Center Joint Venture (Joint Venture) ............. 50 (Tenneco Western Market Center Corporation owns 50%; Entech Gas Ventures, Inc., an unaffiliated company, owns 15%; Questar WMC Corporation, an unaffiliated company, owns 25%; and Fuels WMC Corporation, an unaffiliated company, owns 10%.) Tenneco Western Market Center Service Corporation (Delaware) ......... 100 TennEcon Services, Inc. (Delaware) ................................... 100 Tenneco Energy Technology Consulting Services Inc. (Delaware)....... 100 Tennessee Gas Transmission Company (Delaware) ........................ 100 Tennessee Storage Company (Delaware) ................................. 100 Tennessee Trailblazer Gas Company (Delaware) ......................... 100 Ten Ten Parking Garage Inc. (Delaware) ............................... 100 The Fontanelle Corporation (Louisiana)................................ 100 The F and E Oyster Partnership (Louisiana Partnership).............. 64 (The Fontanelle Corporation owns 64% as General Partner; and Expedite Oyster, Inc., an unaffiliated company, owns 36% as General Partner.) The LaChute Corporation (Louisiana) .................................. 100 6 Exhibit G to the Distribution Agreement
INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Autopartes Walker, S.A. de C.V. (Mexico)................................ 99.98% (Industrial Company owns 99.98% and Tenneco Automotive Inc. owns .02%) Counce Limited Partnership (Texas Limited Partnership).................. 95 (Industrial Company owns 95%, as Limited Partner; and PCA Leasing Company owns 5%, as General Partner) Counce Finance Corporation (Delaware)................................. 100 Monroe-Mexico S.A. de C.V. (Mexico)..................................... 0.01 (Industrial Company owns 0.01%; and Tenneco Automotive Inc. owns 99.99%) Omni-Pac GmbH (Germany)................................................. 1 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Industrial Company owns 1%) Omni-Pac S.A.R.L. (France).............................................. 97 (Omni-Pac GmbH owns 3%; and Industrial Company owns 97%) PCA Leasing Company (Delaware).......................................... 100 Counce Limited Partnership (Texas Limited Partnership)................ 5 (Industrial Company owns 95%, as Limited Partner; and PCA Leasing Company owns 5%, as General Partner) Counce Finance Corporation (Delaware)............................... 100 Proveedora Walker S.A. de C.V. (Mexico)................................. 99.99 (Industrial Company owns 49,999 shares, and Tenneco Automotive Inc. owns 1 share) Tenneco Asia Inc. (Delaware)............................................ 100 Tenneco Asheville Inc. (Delaware)....................................... 100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).......... 1 (Industrial Company owns 1%; and Tenneco Automotive Inc. owns 99%) Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) (Delaware) 100 Autopartes Walker, S.A. de C.V. (Mexico).............................. 0.02 (Industrial Company owns 99.98%; Tenneco Automotive Inc. owns 0.02%) Beijing Monroe Automotive Shock Absorber Company Ltd (China).......... 51 (Tenneco Automotive Inc. owns 51%; and Beijing Automotive Industry Corporation, ana unaffiliated company, owns 49%) Consorcio Terranova S.A. de C.V. (Mexico) Tenneco Automotive Inc. owns 99.99%; and Josan Latinamericana S.A. de C.V., an unaffiliated company, owns 0.01% McPherson Strut Company Inc. (Delaware)............................... 100 Monroe Auto Equipement France, S.A. (France).......................... 100 Monroe Europe Coordination Center N.V. (Belgium).................... 0.1 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Monroe Packaging N.V. (Belgium)..................................... 0.1 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%)
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INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Subsidiaries of Tenneco Automotive Inc. Tenneco Automotive Italia S.r.l. (Italy)............................. 15 (Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement France, S.A. owns 15%) Monroe Auto Pecas S.A. (Brazil)........................................ 2.82 (Tenneco Automotive Inc. owns 2.82%; Monroe do Brasil Industria e Comercio Ltda. Owns 82.71%; and Monteiro Aranha S/A, an unaffiliated company, owns 14.47%) Monroe-Mexico S.A. de C.V. (Mexico).................................... 99.99 (Tenneco Automotive Inc. owns 99.99%; and Industrial Company owns 0.01%) Precision Modular Assembly Corp. (Delaware)............................ 100 Rancho Industries Europe B.V. (Netherlands)............................ 100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)......... 99 (Tenneco Automotive Inc. owns 99%; and Industrial Company owns 1%) Tenneco Automotive International Sales Corporation (DE-In Dissolution). 100 Tenneco Automotive Italia S.r.l. (Italy)............................... 85 (Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement France, S.A. owns 15%) Tenneco Automotive Japan Ltd. (Japan).................................. 100 The Pullman Company (Delaware)......................................... 100 Axios Produtos de Elastomeros Limitada (Brazil)...................... 99 (99% The Pullman Company; 1% Peabody International Corporation) Clevite Industries Inc. (Delaware)................................... 100 Peabody International Corporation (Delaware)......................... 100 Axios Produtos de Elastomeros Limitada (Brazil).................... 1 (99% The Pullman Company; 1% Peabody International Corporation) Barasset Corporation (Ohio)........................................ 100 Peabody Galion Corporation (Delaware).............................. 100 Peabody Gordon-Piatt, Inc. (Delaware).............................. 100 Peabody N.E., Inc. (Delaware)...................................... 100 Peabody World Trade Corporation (Delaware)......................... 100 Pullmex, S.A. de C.V. (Mexico)................................... 0.1 (99% The Pullman Company; 0.1% Peabody World Trade Corporation) Peabody-Myers Corporation (Illinois)............................... 100 Pullman Canada Ltd. (Canada)....................................... 61 (61% Peabody International Corporation; 39% The Pullman Company) Pullman Canada Ltd. (Canada)......................................... 39 (61% Peabody International Corporation; 39% The Pullman Company) Pullman Standard, Inc. (Delaware).................................... 100
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INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Pullmex, S.A. de C.V. (Mexico)....................................... 99.9 (99.9% The Pullman Company; 0.1% Peabody World Trade Corporation) Tenneco Automotive Trading Company (Delaware)............................ 100 Tenneco Brake, Inc. (Delaware)......................................... 100 Tenneco Brazil Ltda. (Brazil)............................................ 100 Monroe do Brazil Industria e Comercio Ltda. (Brazil)................... 100 Monroe Auto Pecas S.A. (Brazil)...................................... 82.71 (Monroe do Brazil Industria e Comercio Ltda. Owns 82.71%; Tenneco Automotive Inc. owns 2.82%; and Monteiro Aranha S/A, an unaffiliated company owns 14.47%) Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business Services Inc.).................................................................. 100 Tenneco Business Services Inc. (f/k/a Tenneco Technology Services Inc.) 100 Tenneco Deutschland Holdinggesellschaft mbH (Germany)................... 99.97 (Industrial Company owns 99.97%; and Atlas Bermoegensverwaltung, an unaffiliated company, owns 0.03%) GILLET Unternehmesverwaltungs (Germany)................................ 100 Heinrich Gillet GmbH & Co. KG (Germany).............................. 0.1 (GILLET Unternehmesverwaltungs GmbH owns 0.1%; and Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%) Heinrich Gillet GmbH & Co. KG (Germany)................................ 99.9 (Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and GILLET Unternehmesverwaltungs, mbH owns 0.1%) Gillet-Abgassysteme Zwickau Gmbh (Germany)............................ 100 Mastra-Gillet Industria e Comercio Ltda. (Brazil)..................... 50 (Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria e Comercio Ltda., an unaffiliated company, owns 50%) Omni-Pac Ekco GmbH Verpackungsmittel (Germany)......................... 100 Omni-Pac Poland Sp. z o.o. (Poland).................................. 100 PCA Embalajes Espana, S.L. (Spain).................................. 1 (Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and PCA Verpackungsmittel GmbH owns 99%) Omni-Pack GmbH (Germany)............................................... 99 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Industrial Company owns 1%) Omni-Pac ApS (Denmark).............................................. 100 Omni-Pac A.B. (Sweden)............................................... 100 Omni-Pack S.A.R.L. (France).......................................... 3 (Omni-Pac GmbH owns 3%; and Industrial Company owns 97%) Walker Deutschland GmbH (Germany)...................................... 99 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Industrial Company owns 1% Walker Gillet (Europe) GmbH (Germany).................................. 100 Tenneco Foam Products Company............................................ 100 Tenneco Inc. (Nevada).................................................... 100 3
INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Tenneco International Holding Corp. (Delaware)........................... 100 Monroe Australia Pty. Limited (Australia).............................. 100 Monroe Springs (Australia) Pty. Ltd. Australia)...................... 100 Monroe Superannuation Pty. Ltd. (Australia).......................... 100 Walker Australia Pty. Limited (Australia)................................ 100 S.A. Monroe Europe N.V. (Belgium)...................................... 100 Borusan Amortisor Imalat Ve Ticaret A.S. (Turkey).................... 16.67 (S.A. Monroe Europe N.V. owns 16.67%; Borusan Holding AS, an unaffiliated company, owns 83.03%; and various unaffiliated individual stockholders own 0.3%) Monroe Europe Coordination Center N.V. (Belgium)..................... 99.9 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Monroe Europe (UK) Limited (United Kingdom).......................... 18 (S.A. Monroe Europe N.V. owns 18%; and Tenneco United Kingdom Holdings Limited owns 82%) Monroe Packaging N.V. (Belgium)...................................... 99.9 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Tenneco Canada Inc. (Ontario).......................................... 51.28 (Tenneco International Holding Corp. owns 100% of the issued and outstanding Common Stock, 51.28% of total equity; and Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity) 98174 Ontario Limited (Ontario)...................................... 100 Tenneco Canada Wholesale Finance Company (Alberta)................... 100 Tenneco Credit Canada Corporation (Alberta).......................... 100 Tenneco Espana Holdings, Inc. (Delaware)............................... 100 Louis Minuzzi E. Hijos S.A.I.C. (Argentina)........................ 100?? Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)................. 100 Monroe Spain, S.A. (f/k/a Tenneco Espana, S.A.) (Spain)............ 100 Gillet Iberica, S.A. (Spain)....................................... 100 Manufacturas Fonos, S.L. (Spain)................................... 100 Omni-Pac Embalajes S.A. (Spain).................................... 100 Reknowned Automotive Products Manufacturers Ltd. (India)............. 51 Thibault Investments Limited (Mauritius)............................. 100 Hydraulics Limited (India)......................................... 51 (Thibault Investments Limited owns 51% and Bangalore Union Services Limited, an unaffiliated company, owns 49%) Tenneco Holdings Denmark A/S (Denmark)................................. 100 Gillet Exhaust Technologie (Proprietary) Limited (South Africa)...... 100 Gillet Lazne Belohrad, s.r.o. (Republic of Czechoslovakia)........... 100 Heinrich Gillet Portuguesa - Sistemas de Escape, Lda. (Portugal)..... 100 Walker Denmark A/S (Denmark)......................................... 100
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INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Subsidiaries of Tenneco International Holding Corp. (Delaware) Subsidiaries of Tenneco Holdings Danmark A/S (Denmark) Walker Inapal Escapes, S.A. (Portugal)............................... 90 (Tenneco Holdings Danmark A/S owns 90%; Inapal, Industria Nacional de Acessorios Para Automoveis, SA, an unaffiliated company, owns 9.99%; and Walker Danmark A/S owns 0.01%) Walker France S.A. (France)............................................ 100 Constructions Metallurgiques de Wissembourg - Wimetal (France)....... 100 Societe Europeenne des Ensembles-Montes (France)................... 100 Gillet Tubes Technologies G.T.T. (France)............................ 100 Walker Sverige A.B. (Sweden)........................................... 100 Tenneco Management Company (Delaware).................................... 100 Tenneco Moorhead Acquisition Inc. (Delaware)............................. 100 Tenneco Packaging Hungary Holdings Inc. (Delaware)....................... 100 Tenneco Packaging Inc. (Delaware)........................................ 100 A&E Plastics, Inc. (Delaware).......................................... 100 Alupak A.G. (Switzerland).............................................. 100 American Cellulose Corporation (Delaware).............................. 50 (Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an unaffiliated individual, owns 50%) The Corinth and Counce Railroad Company (Mississippi).................. 100 Marinette, Tomahawk & Western Railroad Company (Wisconsin)........... 100 Valdosta Southern Railroad Company (Florida)......................... 100 Dahlonega Packaging Corporation (Delaware)............................. 100 Dixie Container Corporation (Virginia)................................. 100 Dixie Convoy Corporation (North Carolina).............................. 100 Dongguan PCA Packaging Co., Ltd. (Peoples Republic of China)........... 50 (Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color Printing & Packaging Factory, an unaffiliated company, owns 50%) EKCO Products, Inc. (Illinois)......................................... 100 E-Z Por Corporation (Delaware)......................................... 100 Hexacomb Corporation (Illinois)........................................ 100 Hexacomb International Sales Corporation (U.S. Virgin Islands)....... 100 Packaging Corporation of America (Nevada).............................. 100 PCA Box Company (Delaware)............................................. 100 PCA-Budafok (Kartongyar) Kft. (Hungary)................................ 100 PCA Hydro, Inc. (Delaware)............................................. 100 PCA Romania Srl (Romania).............................................. 50 (Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated company owns 50%) PCA Tomahawk Corporation (Delaware).................................... 100 PCA Valdosta Corporation (Delaware).................................... 100
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INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Subsidiaries of Tenneco Packaging Inc. PCA Verpackungsmittel GmbH (Germany).................................... 100 PCA Embalajes Espana S.L. (Spain).................................... 99 (PCA Verpackungsmittel GmbH owns 99%; and Omni-Pac Ekco GmbH Verpackungsmittel owns 1%) PCA West Inc. (Delaware)............................................... 100 Coast-Packaging Company (California General Partnership)............. 50 (PCA West Inc. owns 50%, as General Partner; and J.G. Haddy Sales Company, an unaffiliated Company, owns 50%, as General Partner) Pressware International, Inc. (Delaware)............................... 100 Revere Foil Containers, Inc. (Delaware)................................ 100 Tenneco Packaging-Romania S.R.L. (Romania)............................. 100 Tenneco Plastics Company (Delaware).................................... 100 798795 Ontario Limited (Ontario)....................................... 100 PCA Canada Inc. (Ontario)............................................ 100 Tenneco Retail Receivables Company (Delaware)............................ 100 Tenneco Romania Holdings Inc. (Delaware)................................. 100 Tenneco United Kingdom Holdings Limited (Delaware)....................... 100 Monroe Europe (UK) Limited (United Kingdom)............................ 82 (Tenneco United Holdings Limited owns 82%; and S.A. Monroe Europe N.V. owns 18%) Omni-Pac U.K. Limited (United Kingdom)................................. 100 Packaging Corporation of America (UK) Limited (Scotland)............... 100 Alpha Products (Bristol Limited (United Kingdom)..................... 100 Calendered Plastics Limited (United Kingdom)......................... 100 Delyn Packaging Limited (United Kingdom)............................. 100 Penlea Plastics Limited (United Kingdom)............................. 100 Polbeth Packaging Limited (Scotland)................................. 100 Brucefield Plastics Limited (Scotland)............................. 100 Polbeth Packaging (Corby) Limited (Scotland)....................... 100 Tenneco Canada Inc.(Ontario)........................................... 48.72 (Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity; and Tenneco International Holding Corporation owns 100% of the issued and outstanding common stock, 51.28% of total equity) Tenneco Europe Limited (Delaware)....................................... 100 Tenneco Asia Limited (United Kingdom)................................ 100 Tenneco International Finance Limited (United Kingdom)................. 100 Tenneco International Finance B.V. (Netherlands)..................... 100 Tenneco Management (Europe) Limited (United Kingdom)................... 100 Tenneco Packaging (UK) Limited (United Kingdom)........................ 100 Tenneco West Limited (United Kingdom).................................. 100 Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)....... 100 Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)....... 100 6
INDUSTRIAL SUBSIDIARIES Subsidiaries of Industrial Company Subsidiaries of Tenneco United Kingdom Holdings Limited (Delaware) Thompson and Stammers Dunmow (Number 8) Limited (United Kingdom) 100 Walker Limited (United Kingdom)................................. 100 Gillet Exhaust Manufacturing Limited (United Kingdom)......... 100 Gillet Pressings Cardiff Limited (United Kingdom)............. 100 Gillet Torsmaskiner UK Limited (United Kingdom)............... 50 (Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and AB Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares, 50% of total equity) Exhaust Systems Technology Limited (United Kingdom).......99.99 (Gillet Torsmaskiner UK Limited owns 99.99%; and Heinrich Gillet Gmbh & Co. KG & AB Torsmaskiner, an unaffiliated company owns 0.01%) Walker UK Ltd. (United Kingdom).............................. 100 J.W. Hartley (Motor Trade) Limited (United Kingdom)........ 100 Tenneco - Walker (UK) Limited (United Kingdom)............. 100 Tenneco Windsor Box & Display, Inc. (f/k/a Deline Box & Display) (Delaware)..................................................... 100 TMC Texas Inc. (Delaware)........................................ 100 Walker Deutschland GmbH (Germany) ............................... 1 (Industrial Company owns 1%; and Tenneco Deutschland Holdinggesellsschaft mbH owns 99%) Walker Europe, Inc. (Delaware)................................... 100 Walker Electronic Silencing Inc. (f/k/a Walker Electronic Mufflers) (Delaware)........................................... 100 Walker Noise Cancellation Technologies (New York Partnership).. 100 (Walker Electronic Silencing Inc. owns 50% as General Partner; and Expedite Oyster, Inc., an unaffiliated company, owns 50% as General Partner) Walker Manufacturing Company (Delaware).......................... 100 Ced's Inc. (Illinois).......................................... 100 Walker Norge A/S (Norway)........................................ 100 7 Exhibit J to the Distribution Agreement SHIPBUILDING SUBSIDIARIES Subsidiaries of Newport News Shipbuilding Inc. (Delaware) formerly known as Tenneco InterAmerica Inc.) Newport News Shipbuilding and Dry Dock Company (Virginia ............ 100% Asheville Industries Inc. (North Carolina) ........................ 100 Greeneville Industries Inc. (Virginia)............................. 100 Newport News Global Corporation (U.S. Virgin Islands).............. 100 Newport News Industrial Corporation (Virginia)..................... 100 Newport News Industrial Corporation of Ohio (Ohio)............... 100 Newport News Reactor Services, Inc. (Virginia)..................... 100 Tenneco Tanker Holding Corporation (Delaware)...................... 100 The James River Oyster Corporation (Virginia)...................... 100 NNS Delaware Management Company (Delaware).......................... 100 EX-10.3 13 DEBT & CASH ALLOCATION AGREEMENT DEBT AND CASH ALLOCATION AGREEMENT THIS DEBT AND CASH ALLOCATION AGREEMENT (this "Agreement") is made and entered into as of this 11 day of December, 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 November 1, 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 (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 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. 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. 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 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 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. 7 8. Miscellaneous Provisions. (a) Termination. This Agreement may not be terminated except upon the written agreement of each of the parties hereto. (b) Best Efforts. If at any time after the Merger Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall, on the written request of any of them, take (or cause the appropriate member of its Group over which it has direct or indirect legal or effective control to take) all such reasonably necessary or desirable action. (c) Cooperation. The parties hereto agree to use their reasonable best efforts to cooperate with respect to the various matters contemplated by this Agreement. (d) Successors and Assigns. Except as otherwise expressly provided herein, no party hereto may assign or delegate, whether by operation of law or otherwise, any of such party's rights or obligations under or in connection with this Agreement without the written consent of each other party hereto. No assignment will, however, release the assignor of any of its obligations under this Agreement or waive or release any right or remedy the other parties may have against such assignor hereunder. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will be binding upon and enforceable against the respective successors and assigns of such party and will be enforceable by and will inure to the benefit of the respective successors and permitted assigns of such party. (e) Modification; Waiver; Severability. This Agreement may not be amended or modified except in a writing executed by each of the parties hereto. The failure by any party to exercise or a delay in exercising any right provided for herein shall not be deemed a waiver of any right hereunder. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement. (g) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (h) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally or five business days after mailing by certified or registered mail, return receipt requested and postage prepaid, to the recipient at such recipient's address as indicated in the Distribution Agreement or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. (i) Survival. Each of the agreements of the parties herein shall survive the Merger Closing Date. (j) No Third Party Beneficiaries. This Agreement is made solely for the benefit of the parties hereto and the other members of their respective Groups, and shall not give rise to any rights of any kind to any other third parties. (k) Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TENNECO INC. By /s/ Mark A. McCullum ------------------------------------- Name: Mark A. McCullum Title: Vice President NEW TENNECO INC. By /s/ Karen R. Osar ------------------------------------- Name: Karen R. Osar Title: Vice President NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.) By /s/ Stephen B. Clarkson ------------------------------------- Name: Stephen B. Clarkson Title: Vice President, General Counsel 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 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
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. 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. 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: 2 (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. 3 EX-10.4 14 BENEFITS AGREEMENT BENEFITS AGREEMENT THIS BENEFITS AGREEMENT is made and entered into as of this 11 day of December, 1996, by and among TENNECO INC., a Delaware corporation ("TENNECO"), NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"), and NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation ("SHIPBUILDING COMPANY"). WHEREAS, pursuant to the terms of that certain Distribution Agreement by and among the parties hereto and dated as of November 1, 1996 (the "Distribution Agreement") the parties have entered into this Agreement regarding certain labor, employment, compensation and benefit matters occasioned by the Distributions. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement and the Distribution Agreement, each of the parties hereto, on behalf of itself and each other member of its Group over which it has direct or indirect legal or effective control, hereby agrees as follows: SECTION 1. DEFINITIONS. The following terms, when capitalized herein, shall have the meanings set forth below in this Section 1. All other capitalized terms which are used but are not otherwise defined herein shall have the meanings ascribed to them in the Distribution Agreement. "ACTIVE EMPLOYEES" means, with respect to each Group, all employees regularly engaged in the performance of services to, for or on behalf of any member of such Group as of the close of business on the Distribution Date. "FORMER EMPLOYEES" means, with respect to each Group, all former employees of Tenneco and/or its Subsidiaries (including, but not limited to, such employees who, as of the close of business on the Distribution Date, are on leave of absence, long-term disability or layoff with recall rights and the dependents of those persons) who, if they were regularly engaged in the performance of services to, for or on behalf of Tenneco or any of its Subsidiaries at the close of business on the Distribution Date, would be an Active Employee of such Group, determined on a basis consistent with the determination of the Active Employees of such Group. "PENSION MATTERS" means, collectively, (a) Tenneco's 1986 pension plan asset valuation and its cost accounting treatment, as described in the DCAA Audit Report dated November 28, 1995, and (b) any claim which the DCAA or any other agency of the DOD may assert that (or based on any allegation that) the aggregate amount of assets of the TRP attributable to the Active Employees and Former Employees of the Shipbuilding Group exceeds the aggregate amount of the liabilities under the TRP attributable to Active and Former Employees of the Shipbuilding Group. "TENNECO SALARIED WELFARE PLANS" means, collectively, the Tenneco Inc. Health Care Plan, the Tenneco Inc. Group Life Insurance Plan, the Tenneco Inc. Long Term Disability Plan, the Tenneco Inc. Travel Accident Insurance Plan, the Tenneco Inc. Health Care Flexible Spending Account Program and the Tenneco Inc. Dependent Day Care Flexible Spending Account Plan. SECTION 2. GENERAL EMPLOYMENT MATTERS. 2.01. GENERAL OBLIGATIONS. From and after the Distribution Date, each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall, as applicable, cause each of the other members of its respective Group over which it has direct or indirect legal or effective control to) (a) continue the employment of all of the Active Employees of its respective Group, subject, however to the terms of SECTION 2.03 below and (b) except as otherwise specifically provided herein, pay, perform and discharge any and all labor, employment, compensation and benefit liabilities, whether arising prior to, on or after the Distribution Date, with respect to all such Active Employees and all Former Employees of its respective Group. Except as specifically provided herein, each of Tenneco, Industrial Company and Shipbuilding Company shall be solely responsible for the Former Employees of its respective Group. 2.02. INITIAL COMPENSATION OF ACTIVE EMPLOYEES. The initial compensation (base salary or wage level) of each Active Employee of each Group shall be the same as the compensation (base salary or wage level) of such Active Employee immediately prior to the Distribution Date. 2.03. NO ADDITIONAL EMPLOYMENT RIGHTS CREATED. Nothing in this Agreement shall give any Active Employee of any Group any right to continued employment by any member of that Group or any other Group beyond the Distribution Date, which is in addition to or supplemental to any such right he or she may have arising under contract or otherwise. SECTION 3. COLLECTIVE BARGAINING. 3.01. CONTINUATION OF EXISTING COLLECTIVE BARGAINING AGREEMENTS. Each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause, as applicable, each other member of its Group over which it has direct or indirect legal or effective control to) continue to honor all collective bargaining agreements covering the Active Employees of its respective Group which are in effect as of the close of business on the Distribution Date, in accordance with and subject to the terms of each such collective bargaining agreement. Each of the parties hereto hereby agrees and acknowledges, however, that nothing herein, including its obligation to continue its applicable collective bargaining agreements, shall be construed to restrict any right it, or any other member of its respective Group, may have to terminate, renegotiate, reopen or otherwise seek changes in any of its collective bargaining agreements. 3.02. RECOGNITION OF INCUMBENT LABOR ORGANIZATIONS. Each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause, as applicable, each other member of its Group over which it has direct or indirect legal or effective control to) continue to recognize all incumbent labor organizations which, as of the close of business on the Distribution Date, have established collective bargaining relationships in respect of the Active Employees of its respective Group. 3.03. CONTINUED SPONSORSHIP OF HOURLY EMPLOYEE BENEFIT PLANS. Each of Tenneco, Industrial Company and Shipbuilding Company shall continue (and shall, as applicable, cause each other member of its respective Group over which it has direct or indirect legal or effective control to continue) to sponsor all hourly employee benefit plans which, as of the close of business on the Distribution Date, are in existence and relate to the Active Employees of its respective Group, subject to its rights under such plans to amend or terminate such plans. 3.04. PROVISION OF WAGES, RIGHTS AND OTHER EMPLOYMENT BENEFITS REQUIRED UNDER EXISTING COLLECTIVE BARGAINING AGREEMENTS. Without limiting the generality of the foregoing, each of Tenneco, Industrial Company and Shipbuilding Company shall provide those of its Active Employees whose employment is subject to collective bargaining agreements and/or established collective bargaining relationships with the wages, benefits, and terms and conditions of employment required by such agreements or relationships, except that (i) participation in the Tenneco Inc. Employee Stock Purchase Plan will cease as of September 30, 1996, and (ii) no additional amounts may be invested in any shares of the common stock, par value $5.00 per share, of Tenneco ("TENNECO COMMON STOCK") in any defined contribution plan from and after the Effective Time. SECTION 4. UNITED STATES SALARIED PENSION AND THRIFT BENEFITS. 4.01 TENNECO INC. RETIREMENT PLAN. Effective as of the Distribution Date, Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco Inc. Retirement Plan (the "TRP"), and Industrial Company shall become the sponsor of the TRP. The TRP shall retain liability for all pension benefits accrued by the Active and Former Employees of the Energy Group and Shipbuilding Group who are or were formerly participants in the TRP through the last day of the calendar month in which the Distribution Date occurs (the "Impact Date"). 4.02 AMENDMENT OF TRP. After Industrial Company has become the sponsor of the TRP, it shall amend the TRP to (a) "freeze" the benefit accruals of the Active Employees of the Energy Group and Shipbuilding Group as of the Impact Date, and (b) provide that all benefits accrued as of the Impact Date by the Active Employees of either the Energy Group or the Shipbuilding Group will be fully vested and non-forfeitable, and Industrial Company shall inform, in writing, each such Active Employee of his or her accrued benefits under the TRP as of the Distribution Date; provided, however, that if the Distribution Date occurs on the Impact Date, Industrial Company shall in any event (i) first become the sponsor of the TRP as provided under SECTION 4.01 above, and (ii) immediately thereafter amend the TRP as provided in this SECTION 4.02. 2 4.03 NO CREDIT FOR POST-DISTRIBUTION DATE SERVICE. Except as may be required by law, the TRP shall not be required to count service with any entity other than Industrial Company after the Distribution Date for any purpose. 4.04 NO LIABILITY TO ENERGY GROUP. Following the Distribution Date, the Energy Group will have no liability, contingent or otherwise, with respect to the TRP or any other defined benefit pension plan that is subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended, including any liability for benefits accrued prior to the Distribution Date (including early retirement benefits and related subsidies) for employees of the Energy Group, and Industrial Company shall assume or retain, as the case may be, all such liabilities. 4.05 SHIPBUILDING COMPANY LIABILITIES. (a) GENERAL INDEMNIFICATION OF INDUSTRIAL COMPANY. Except as specifically provided in this SECTION 4.05, Shipbuilding Company shall retain, and shall indemnify and hold the Industrial Company harmless from, any liability incurred or accrued at any time (whether before on or after the date hereof), which has been, or may in the future be, asserted by any of (i) the Defense Contract Audit Agency ("DCAA"), (ii) the United States Navy, or (iii) any and all other agencies of, within or affiliated with the United States Department of Defense (the "DOD"), that arise or arose out of, or in connection with either (A) the participation of Active Employees or Former Employees of the Shipbuilding Group in the TRP, (B) payments made by any agency of the DOD with respect to benefits accrued under the TRP, (C) any claim by any agency of the DOD relating to the assets of the TRP, and (D) any other related matters. (b) SHARING OF CERTAIN SHIPBUILDING COMPANY LIABILITIES. Notwithstanding the foregoing, Industrial Company and Shipbuilding Company have agreed to share the cost, if any, of certain specified liabilities described in SUBSECTION 4.05(A) above on the terms and conditions set forth in the remaining Subsections of this SECTION 4.05. The liabilities which Industrial Company and Shipbuilding Company have agreed to share are only those arising from a Pension Matter. (c) INDEMNIFICATION PERCENTAGES FOR PENSION MATTERS. Industrial Company shall indemnify Shipbuilding Company from 80%, and Shipbuilding Company shall retain and indemnify Industrial Company from 20%, of the following: (i) all amounts paid in satisfaction of a Government claim for Pension Matters; and (ii) all costs incurred, including attorneys' and actuaries' fees, in defending against the Government's claims in the Pension Matters, as described in SUBSECTION 4.05(F) below. Any indemnity amount owed by Industrial Company to Shipbuilding Company pursuant to this Subsection 4.05(c) shall be computed and paid by Industrial Company on a pre-tax basis, i.e. not taking into account any tax benefits realized by Shipbuilding Company with respect to payments made by Shipbuilding Company and to which such indemnity relates; subject, however to the following: (1) The parties intend that any payments made by Shipbuilding Company which are indemnified by Industrial Company pursuant to this Subsection 4.05(c) will be deductible by Shipbuilding Company for federal income tax purposes, and that any indemnity payment made by Industrial Company to Shipbuilding Company pursuant to this Subsection 4.05(c) will be treated for federal income tax purposes as a contribution to the capital of Shipbuilding Company immediately prior to the Distribution Date (collectively, the "INTENDED TAX TREATMENT"); (2) Shipbuilding Company will report on its applicable state and federal income tax returns any indemnity amount received from Industrial Company pursuant to this Subsection 4.05(c), and any payment made by Shipbuilding Company to which such indemnity payment relates, in a manner that is consistent with the Intended Tax Treatment; (3) Upon the filing by Shipbuilding Company or its affiliates of any state or federal income tax return claiming a deduction, loss, credit or similar item with respect to payments made by Shipbuilding Company 3 for which Shipbuilding Company has been indemnified pursuant to this Subsection 4.05(c), Shipbuilding Company shall pay to Industrial Company the amount of any tax benefit realized by Shipbuilding Company with respect to such payments; (4) Notwithstanding anything to the contrary in the Tax Sharing Agreement, in the event the IRS challenges the Intended Tax Treatment the parties agree that (1) Industrial Company shall have the exclusive right to control the defense or prosecution of the portion of any tax contest relating to such tax treatment, including settlement of any item relating to such tax treatment and (2) Industrial Company shall be liable for, and shall indemnify and hold Shipbuilding Company harmless from, any tax liability resulting from any adjustment to the Intended Tax Treatment. Notwithstanding anything to the contrary in the preceding sentence, if the parties determine in good faith that filing a return based on the Intended Tax Treatment would not properly report the items in question, then the timing and amount of payments made pursuant to the preceding sentence shall be modified to take into account the revised tax treatment of such items. (d) CONTROL OVER PENSION MATTERS. Industrial Company shall have total and exclusive control of and over all aspects of the defense by Industrial Company and Shipbuilding Company against the Government's claims in the Pension Matters. Without limiting the generality of the foregoing, Industrial Company shall have the exclusive right to: (i) engage and dismiss any and all law firms, actuarial firms and other service providers; (ii) settle, compromise or otherwise dispose of either Pension Matter; (iii) determine to not appeal any adverse determination with respect to either Pension Matter; and (iv) negotiate and determine the terms of a deferral agreement described in item (iv) of SUBSECTION 4.05(E) below. (e) COOPERATION OF SHIPBUILDING COMPANY. Shipbuilding Company shall cooperate fully with Industrial Company and its attorneys, actuaries and other advisors and representatives in defending against the Government's claims in the Pension Matters. Without limiting the generality of the foregoing, Shipbuilding Company shall: (i) advise Industrial Company in writing of any and all claims made by the Government which may be included in the Pension Matters promptly after Shipbuilding Company receives notice or otherwise becomes aware of such claims; (ii) provide Industrial Company copies of any and all correspondence, pleadings or other papers it has or receives with respect to the Pension Matters promptly upon receipt; (iii) give Industrial Company at least 10 days written notice of and afford Industrial Company an opportunity to be present at any and all meetings, conferences or hearings relating to such issues; and (iv) diligently seek an agreement to defer collection of any Government claim for Pension Matters. (f) BILLING FOR PAYMENT TO GOVERNMENT. Whenever the Shipbuilding Company or Industrial Company makes a payment to the Government for a claim related to Pension Matters or incurs a cost in defending against the Government's claims in Pension Matters, it may bill the other party for that party's share of said claim or cost. A payment to the Government for a claim related to Pension Matters shall include (i) amounts paid directly to Government to satisfy the claim; (ii) progress payments withheld to satisfy the Government claim; and (iii) pension costs disallowed under Shipbuilding Company's new salaried pension plan to satisfy the Government claim. Costs incurred in defending against the Government's claims in the Pension Matters shall include outside attorneys' fees, accounting fees and actuary fees and all other out-of-pocket costs incurred in defending against the Government's claims. Neither Industrial Company nor Shipbuilding Company shall charge the other any amounts for the services of its employees. A bill for the other party's share of a claim or cost shall be accompanied by adequate documentation and shall be paid promptly upon receipt. However, any amounts so 4 billed shall be subject to set-off for amounts owed by the presenter to recipient whether relating to matters covered by this SECTION 4.05 or otherwise. (g) ADVANCES BY INDUSTRIAL COMPANY. Any amounts which Industrial Company may advance to Shipbuilding Company to satisfy a Government Claim pending appeal (regardless of whether the Government claim is satisfied by (i) direct payment to the Government; (ii) progress payments withheld; or (iii) pension costs disallowed under the Shipbuilding Company's new salaried pension plan) shall be deducted from any amount due from Industrial Company to Shipbuilding Company upon the ultimate resolution of the appeal of the Government's claim. To the extent that the amounts advanced to Shipbuilding Company by Industrial Company exceed the amount due upon the ultimate resolution of the appeal, Shipbuilding Company shall, within 5 days after the date of such ultimate resolution, reimburse such excess to Industrial Company with interest charged from the date the amount was advanced at the interest rate established by the Secretary of the Treasury under Public Law 92-41. (h) PROHIBITION AGAINST CERTAIN ACTION OF SHIPBUILDING COMPANY. Shipbuilding Company shall not take any action or permit or suffer any act or omission within its control that is, or is likely to be, in any way detrimental to the defense against the Government's claims under the Pension Matters. Without limiting the generality of the preceding sentence, Shipbuilding Company will not, without the express written consent of Industrial Company, which consent may be withheld in Industrial Company's sole discretion, link either of the Pension Matters to any other matter which it now has or may in the future have pending with the Government in terms of settlement or otherwise. (i) ASSERTION OF AFFIRMATIVE CLAIMS. If Industrial Company determines to submit an affirmative claim against the Government in connection with the Pension Matters, Industrial Company and Shipbuilding Company shall share the cost of pursuing such claim and any recovery on such claim on a percentage basis of 80% for Industrial Company and 20% for Shipbuilding Company. (j) NO LIABILITY OF ENERGY BUSINESS. It is expressly acknowledged and agreed that any liabilities described in this SECTION 4.05 are solely liabilities of Shipbuilding Company and Industrial Company, in accordance with the terms of the other provisions of this SECTION 4.05, and the Energy Business has no obligation with respect to any of such liabilities. 4.06. TENNECO INC. THRIFT PLAN. The active participation in the Tenneco Inc. Thrift Plan (the "Tenneco DC Plan") by persons other than the Active Employees of the Industrial Group shall cease effective as of the Distribution Date. In addition, each of Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco DC Plan as of the Distribution Date and Industrial Company shall become the sponsor of the Tenneco DC Plan from and after the Distribution Date. 4.07. ESTABLISHMENT OF ENERGY AND SHIPBUILDING DC PLANS. (a) ENERGY DC PLAN. Tenneco shall establish or make available on or with effect from the Distribution Date a defined contribution plan for the benefit of the Active Employees of the Energy Group (the "Energy DC Plan"). (b) SHIPBUILDING DC PLAN. Shipbuilding Company shall establish on or with effect from the Distribution Date a defined contribution plan for the benefit of the Active Employees of the Shipbuilding Group (the "Shipbuilding DC Plan"). (c) TRANSFER OF ACCOUNT BALANCES TO ENERGY AND SHIPBUILDING DC PLANS. Industrial Company shall cause the Tenneco DC Plan to transfer: (i) to the Shipbuilding DC Plan, the account balances of each Active Employee of the Shipbuilding Group and each Former Employee of the Shipbuilding Group with respect to whom the Tenneco DC Plan maintains an account as of the close of business on the Distribution Date, and (ii) to the Energy DC Plan, the account balances of each Active Employee of the Energy Group and each Former Employee of the Energy Group with respect to whom the Tenneco DC Plan maintains an account as of the close of business on the Distribution Date. Such transfers shall be in cash, except that the Energy 5 DC Plan and the Shipbuilding DC Plan will accept the following: (i) Tenneco Common Stock (or stock of the Acquiror, as defined in the Merger Agreement) for the Tenneco Common Stock fund portion of such account balances (together with any and all of the shares of the common stock of Industrial Company and/or Shipbuilding Company distributed in connection with the Distributions); and (ii) amounts credited to the Tenneco DC Plan which are held in mutual funds which are also investment media in the Energy DC Plan or the Shipbuilding DC Plan, as the case may be. 4.08. NO TENNECO COMMON STOCK. No Tenneco Common Stock shall be offered as an investment option with respect to contributions made after the Distribution Date by any of the Tenneco DC Plan, Energy DC Plan or Shipbuilding DC Plan. The sponsor of each of the foregoing plans shall cause the plan to afford each participant therein an election to sell the stock of any entity held in the Tenneco stock fund in the Tenneco DC Plan which does not employ him or her immediately following the Distribution Date. Shipbuilding Company shall administer each defined contribution plan which it maintains consistent with any and all representations which Tenneco made to the Internal Revenue Service at any time prior to the Distribution Date. No further contributions shall be made under the Tenneco Inc. Employee Stock Purchase Plan after September 30, 1996. SECTION 5. PENSION MATTERS OUTSIDE THE UNITED STATES. With respect to the business and operations of each Group in jurisdictions outside the United States, each of the parties hereto shall (and, as applicable, shall cause each other member of its Group over which it has direct or indirect legal or effective control to) retain any and all pension liabilities and attendant plans and their assets related to its Active Employees and Former Employees. SECTION 6. EXECUTIVE COMPENSATION. 6.01. TENNECO BENEFIT EQUALIZATION PLAN AND SUPPLEMENT EXECUTIVE RETIREMENT PLAN. None of the Active Employees of either the Shipbuilding Group or the Energy Group shall accrue any benefits under the Tenneco Benefit Equalization Plan (the "BEP") or the Supplement Executive Retirement Plan (the "SERP") from and after the Distribution Date. Industrial Company shall assume all liabilities under the BEP and the SERP and shall cause the BEP and the SERP to continue to cover the Active Employees and Former Employees of the Energy Group and Shipbuilding Group after the Distribution Date who have accrued benefits under either or both of such plans as of the close of business on the Distribution Date, and the accrued benefits of such Active Employees under such plans as of the close of business on the Distribution Date shall be fully vested and non-forfeitable. Each of Tenneco and Shipbuilding Company shall reimburse Industrial Company for any payments Industrial Company may make from time to time under the BEP or the SERP to Mr. Edward J. Casey, Jr. in the case of the Energy Group and any Active Employee or Former Employee of the Shipbuilding Group, in the case of the Shipbuilding Group. Such charges shall be made by written notice thereof to, and shall be promptly paid by, the Energy Group and/or Shipbuilding Group, as the case may be. Tenneco shall retain and assume any and all supplemental pension obligations (and any related assets) which are in addition to benefits under the TRP, BEP and SERP under the contract with Mr. Edward J. Casey, Jr. 6.02. TENNECO INC. DEFERRED COMPENSATION PLAN. The participation of the Active Employees and Former Employees of the Energy Group and the Shipbuilding Group in the Tenneco Inc. Deferred Compensation Plan (the "DC Plan") and 1993 Deferred Compensation Plan (the "1993 Plan") shall cease as of the Distribution Date. As of the Distribution Date, Shipbuilding Company shall assume the liability for the accounts of its Active Employees and Former Employees in the DC Plan and the 1993 Plan, Tenneco shall assume the liability for the accounts of the Active Employees and Former Employees of the Energy Group in the DC Plan and the 1993 Plan, and Industrial Company shall succeed to sponsorship of the 1993 Plan and the DC Plan and shall assume the liability for the accounts of the Active Employees and Former Employees of the Industrial Group in the DC Plan and the 1993 Plan. The total of each such Active Employee's or Former Employee's account in the DC Plan and the 1993 Plan as of the Distribution Date shall become the opening balance of such Active Employee's or Former Employee's account in a Nonqualified Deferred Compensation Plan created, as of the Distribution Date by either, (i) Tenneco, in the case of Active Employees and Former Employees of the Energy Group, or (ii) Shipbuilding Company, in the case of Active Employees or Former Employees of the Shipbuilding Group. Such opening balances shall become fully vested as of the close of business on the Distribution Date. 6 6.03. TENNECO BENEFITS PROTECTION PROGRAM. Effective upon the Distribution Date, Shipbuilding Company and Tenneco shall each be released from any obligations which it may have under the Tenneco Benefits Protection Program. Neither Shipbuilding Company nor Tenneco shall be entitled to any portion of the Tenneco Inc. Benefit Protection Trust (the "Trust"), other than to the assets, if any, of the Trust allocable to the respective liabilities retained or assumed by them pursuant to this Agreement. Industrial Company shall continue to sponsor and maintain the Trust. SECTION 6.04. TENNECO OPTIONS AND RESTRICTED STOCK. Prior to the Distribution Date, Tenneco shall cause all outstanding restricted stock and performance share equivalent unit awards to become fully vested. Except as provided in the last sentence of this paragraph, the parties hereto shall cause all outstanding Tenneco stock options to be converted to options to acquire stock of Tenneco, Industrial Company or Shipbuilding Company in amounts and with exercise prices adjusted so that as to each grant the excess of the aggregate fair market value of the shares subject to the option immediately after the Distributions over the aggregate option price of such shares is not more than the excess of the aggregate fair market value of the shares subject to the option immediately before the Distributions over the aggregate option price of such shares. In all other respects, the options shall remain subject to the terms and conditions of the grants under which they were issued, conforming changes excepted. Except to the extent determined by the Compensation and Benefits Committee of Tenneco's Board of Directors, each grantee shall receive options with respect to the stock of the entity which employs him (or with which he is otherwise affiliated) immediately after the Distributions. If Tenneco has entered into a definitive agreement for a third-party to acquire Tenneco, the Tenneco stock options held by employees of the Energy Group shall not be treated as provided in the preceding portion of this SECTION 6.04; rather such options shall be made fully exercisable no less than 30 days prior to the closing date of such acquisition, and if such options are not exercised prior to the closing date, they will be cancelled effective as of the closing date. SECTION 6.05. EMPLOYMENT CONTRACTS. Tenneco shall retain and assume any and all contractual obligations to Messrs. Casey, Menikoff and Sinclair. Tenneco shall retain and assume any and all obligations to provide office space and secretarial help to Messrs. Ketelsen and Scott. Industrial Company shall assume and discharge all supplemental pension obligations to Mr. Ketelsen. SECTION 7. WELFARE BENEFITS. 7.01. TENNECO SALARIED WELFARE PLANS. Effective on the Distribution Date, Tenneco and Shipbuilding Company shall each cease to be a sponsor of the Tenneco Salaried Welfare Plans, and Industrial Company shall serve as the sponsor of the Tenneco Salaried Welfare Plans from and after the Distribution Date. If the Energy Group or the Shipbuilding Group adopt one or more welfare plans which is (are) identical to the comparable Tenneco Salaried Welfare Plan, the Industrial Company shall use its best efforts to administer such plan on behalf of the Energy Group or the Shipbuilding Group, as the case may be, for a period ending not later thanDecember 31, 1997. Each of Shipbuilding Company and Tenneco hereby agrees to reimburse Industrial Company for all costs incurred by it with respect thereto. 7.02. ALLOCATION AND DISCHARGE OF WELFARE PLAN LIABILITIES. Shipbuilding Company shall retain and discharge all welfare plan liabilities with respect to Active Employees and Former Employees of the Shipbuilding Group and their dependents. Industrial Company shall retain and discharge all welfare plan liabilities with respect to Active Employees and Former Employees of the Industrial Group and their dependents. Tenneco shall retain and discharge all other welfare plan liabilities which remain after allocation of liabilities to Shipbuilding Company and Industrial Company under the two immediately preceding sentences, including, without limitation, all such liabilities relating to the Active Employees and Former Employees of the Energy Group and their dependents, and shall retain or have transferred to it all related assets allocable to such liabilities, including without limitation, the Tennessee Gas Pipeline Company Health Care Plan VEBA. 7 SECTION 8. GENERAL. 8.01. POST-DISTRIBUTION ADMINISTRATION OF PLANS. The parties hereto agree to administer all plans consistently herewith, and to the extent necessary to amend plans accordingly. 8.02. COST AND EXPENSES. Each party shall bear all costs and expenses, including but not limited to legal and actuarial fees, incurred in the design, drafting and implementation of any and all plans and compensation structures which it enables or creates and the amendment of its existing plans or compensation structures. SECTION 9. MISCELLANEOUS. 9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Distribution Agreement, shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. Notwithstanding any other provisions in this Agreement or the Distribution Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement or any other Ancillary Agreement, this Agreement shall control. 9.02. OTHER ANCILLARY AGREEMENTS. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by any of the other Ancillary Agreements. 9.03. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. 9.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided herein, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. 9.05. NOTICES. All notices and other communications to a party hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to such party (and will be deemed given on the date on which the notice is received by such party) at the address for such party set forth below (or at such other address for the party as the party shall, from time to time, specify by like notice to the other parties): If to Tenneco, at:1010 Milam Street Houston, Texas 77002 Attention: Corporate Secretary If to Industrial Company, at:1275 King Street Greenwich, CT 06831 Attention: Corporate Secretary If to Shipbuilding Company, at:4101 Washington Avenue Newport News, Virginia 23607 Attention: Corporate Secretary 9.06. WAIVERS. The failure of any party hereto to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. 9.07. AMENDMENTS. This Agreement may not be modified or amended except by an agreement in writing signed by the parties hereto. 9.08. ASSIGNMENT. This Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a party hereto so long as the resulting, surviving 8 or transferee entity assumes all the obligations of the relevant party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other parties to this Agreement. Otherwise this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the others, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. 9.09. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective permitted successors and permitted assigns. 9.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties hereto and the members of their respective Groups and Affiliates, after giving effect to the Distributions, and should not be deemed to confer upon third parties any remedy, claim, liability, right of reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. 9.11. ATTORNEY FEES. A party in breach of this Agreement shall, on demand, indemnify and hold harmless the other parties hereto for and against all out- of-pocket expenses, including, without limitation, reasonable legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement. The payment of such expenses is in addition to any other relief to which such other party may be entitled hereunder or otherwise. 9.12. TITLE AND HEADINGS. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.13. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE. 9.14. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 9.15. SUBSIDIARIES. Each of the parties hereto shall cause to be performed, and hereby guarantee the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date. 9.16. RELEASE FROM POST EMPLOYMENT LIABILITY. Tenneco hereby agrees that in the event it intends to request of any Energy Employee at any time on or within 5 years subsequent to the Effective Time any release of liability and further obligation on the part of Tenneco that it will promptly notify New Tenneco in writing of such intent and, if so requested by New Tenneco, in connection with such request also request from such Energy Employee a release of liability and further obligation on the part of New Tenneco either, at New Tenneco's election, (a) in the form provided to Tenneco by New Tenneco prior to the Effective Time, with such changes 9 thereto as may subsequently be reasonably requested from time to time by New Tenneco, or (b) in substantially the same form as the release obtained from such Energy Employee by Tenneco. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TENNECO INC. By: /s/ Karl A. Stewart ---------------------------------- Name: Karl A. Stewart ------------------------------- Title: Vice President ------------------------------- NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.) By: /s/ Stephen B. Clarkson ---------------------------------- Name: Stephen B. Clarkson ------------------------------- Title: Vice President ------------------------------- NEW TENNECO INC. By: /s/ Robert G. Simpsen ---------------------------------- Name: Robert G. Simpsen ------------------------------- Title: Vice President ------------------------------- 10 EX-10.5 15 INSURANCE AGREEMENT INSURANCE AGREEMENT This Insurance Agreement (the "AGREEMENT") is made and entered into as of this 11th day of December, 1996, by and among Tenneco Inc., a Delaware corporation ("TENNECO"), New Tenneco Inc., a Delaware corporation ("INDUSTRIAL COMPANY"), and Newport News Shipbuilding Inc., a Delaware corporation ("SHIPBUILDING COMPANY"). WHEREAS, Tenneco, Industrial Company and Shipbuilding Company have entered into that certain Distribution Agreement, dated as of November 1, 1996 (the "DISTRIBUTION AGREEMENT"), pursuant to which (i) Tenneco and its Subsidiaries shall cause to be consummated the Corporate Restructuring Transactions in order to restructure, divide and separate their existing businesses and assets so that (a) the Industrial Assets and Industrial Business shall be owned, controlled and operated, directly or indirectly, by the Industrial Company, and (b) the Shipbuilding Assets and Shipbuilding Business shall be owned, controlled and operated, directly or indirectly, by the Shipbuilding Company, and (ii) Tenneco shall distribute (the "Distributions") on the Distribution Date all of the outstanding capital stock of Industrial Company and Shipbuilding Company as a dividend to the holders of shares of the common stock, par value $5.00 per share, of Tenneco upon the terms and subject to the conditions set forth in the Distribution Agreement; WHEREAS, Tenneco, its Subsidiaries and their respective predecessors have historically maintained various Policies for the benefit or protection of one or more of the Energy Covered Persons, Industrial Covered Persons and Shipbuilding Covered Persons; WHEREAS, in connection with the transactions contemplated by the Distribution Agreement, Tenneco, Industrial Company and Shipbuilding Company have determined that it is necessary and desirable to provide for the respective continuing rights and obligations in respect of said Policies from and after the Distribution Date; and WHEREAS, pursuant to the Distribution Agreement the parties hereto have agreed to enter into this Agreement. NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement and the Distribution Agreement, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 General. Unless otherwise defined herein or unless the context otherwise requires, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). "AGREEMENT" shall mean this Insurance Agreement, dated as of December 11, 1996, by and among Tenneco, Industrial Company and Shipbuilding Company, including any amendments hereto and each Schedule attached hereto. "CLAIMS ADMINISTRATION" shall mean, with respect to any Policy, the processing of claims made under such Policy, including, without limitation, the reporting of losses or claims to insurance carriers and the management, defense and settlement of claims. "CLAIMS DEPOSIT" shall mean the amount of funds, as of the Distribution Date, maintained by Tenneco on deposit for the benefit of the insurance carriers under the Retained Policies. "CLAIMS-MADE" shall mean, with respect to any Policy, coverage provided by such Policy for claims made during a period specified therein. 1 "CLAIMS-MADE POLICIES" shall mean those current and past Policies which are Claims-Made in nature, including but not limited to those Policies identified on SCHEDULE A hereto, which show Tenneco or any of its predecessors (or such entity and its subsidiaries and/or affiliates) as the named insured, but excluding (i) any directors' and officers' liability insurance policies which are or were maintained by or on behalf of Tenneco, (ii) the Exclusive Policies, and (iii) the Retained Policies. "COMMON POLICIES" shall mean the Claims-Made Policies, Occurrence-Based Policies, Eastern Policies and Retained Policies. "CONSENT" shall have the meaning set forth in Section 2.3 hereof. "CORPORATE RESTRUCTURING TRANSACTIONS" shall have the meaning set forth in the Distribution Agreement. "COVERED PERSONS" shall mean (i) with respect to Tenneco, the Energy Covered Persons, (ii) with respect to Industrial Company, the Industrial Covered Persons, and (iii) with respect to Shipbuilding Company, the Shipbuilding Covered Persons. "CURRENT CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies in effect as of the Distribution Date, which Policies are set forth on SCHEDULE A hereto. "CURRENT OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies in effect as of the Distribution Date, which Policies are set forth on SCHEDULE B hereto. "DISTRIBUTION AGREEMENT" shall mean that certain Distribution Agreement, dated as of November 1, 1996, by and among Tenneco, Industrial Company and Shipbuilding Company, including any amendments, exhibits and schedules thereto. "DISTRIBUTION DATE" shall have the meaning set forth in the Distribution Agreement. "DISTRIBUTION TIME" shall mean the time at which the Distributions become effective. "EASTERN POLICIES" shall mean the Policies identified on SCHEDULE C hereto, which Policies show a member of the Energy Group as the named insured, together with any predecessor policies thereto. "ENERGY" shall mean, when unqualified, the Energy Assets, Energy Liabilities and/or Energy Business. "ENERGY ASSETS" shall have the meaning set forth in the Distribution Agreement. "ENERGY BUSINESS" shall have the meaning set forth in the Distribution Agreement. "ENERGY COVERED PERSON" shall mean each member of the Energy Group and any other Person, in each case to the extent any Policy addressed herein purports to provide insurance coverage in respect of any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred by such Person arising out of, in connection with or otherwise related to Energy. "ENERGY GROUP" shall have the meaning set forth in the Distribution Agreement. "ENERGY LIABILITIES" shall have the meaning set forth in the Distribution Agreement. "EXCLUSIVE POLICIES" shall mean the Tenneco Exclusive Policies, Industrial Exclusive Policies and Shipbuilding Exclusive Policies. "GROUP" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL" shall mean, when unqualified, the Industrial Assets, Industrial Liabilities, Prior Industrial Businesses and/or Industrial Business. 2 "INDUSTRIAL ASSETS" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL BUSINESS" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL COVERED PERSON" shall mean each member of the Industrial Group and any other Person, in each case to the extent any Policy addressed herein purports to provide insurance coverage in respect of any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred by such Person arising out of, in connection with or otherwise related to Industrial. "INDUSTRIAL EXCLUSIVE POLICIES" shall mean all current and past Policies which show Industrial Company, any other member of the Industrial Group or any of their respective predecessors (or such entity and its subsidiaries and/or affiliates) as the named insured and do not purport to relate to Energy or Shipbuilding or to cover any Energy Covered Person or Shipbuilding Covered Person, but excluding any Retained Policy. "INDUSTRIAL GROUP" shall have the meaning set forth in the Distribution Agreement. "INDUSTRIAL LIABILITIES" shall have the meaning set forth in the Distribution Agreement. "INSURANCE ADMINISTRATION" shall mean, with respect to any Policy, the accounting for premiums, defense costs, indemnity payments, deductibles and retentions, as appropriate, under the terms and conditions of such Policy, and the distribution of Insurance Proceeds. "INSURANCE PROCEEDS" shall mean those monies, net of any applicable premium adjustment, deductible, retention or similar cost paid or held by or for the benefit of an insured party which are either (i) received by an insured from an insurance carrier, or (ii) paid by an insurance carrier on behalf of an insured. "LETTERS OF CREDIT" shall have the meaning set forth in Section 7.1 hereof. "MERGER" shall have the meaning set forth in the Distribution Agreement. "MERGER AGREEMENT" shall have the meaning set forth in the Distribution Agreement. "MERGER TIME" shall mean the time at which the Merger becomes effective. "OCCURRENCE-BASED" shall mean, with respect to any Policy, coverage provided by such Policy for acts, omissions, damages or injuries which occur or are alleged to have occurred during a period specified in such Policy. "OCCURRENCE-BASED POLICIES" shall mean those current and past Policies which are Occurrence-Based in nature, including but not limited to those policies identified on SCHEDULE B hereto, which show Tenneco or any of its predecessors (or such entity and its subsidiaries and/or affiliates) as the named insured, but excluding (i) any directors' and officers' liability policies which are or were maintained by or on behalf of Tenneco, (ii) the Exclusive Policies, (iii) the Retained Policies, and (iv) the Eastern Policies. "OTHER CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies other than the Transferred Claims-Made Policies. "OTHER OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies other than the Transferred Occurrence-Based Policies. "PERSON" shall have the meaning set forth in the Distribution Agreement. "POLICIES" means insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including, without limitation, primary, excess and umbrella policies, commercial general liability policies, fiduciary liability, automobile, aircraft, property and casualty, workers' compensation and employee dishonesty insurance policies, bond and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder. 3 "PRIOR INDUSTRIAL BUSINESSES" shall have the meaning set forth in the Distribution Agreement. "PRIOR SHIPBUILDING BUSINESSES" shall have the meaning set forth in the Distribution Agreement. "RETAINED POLICIES" shall mean the Policies identified on SCHEDULE D hereto, together with all other current and past primary, workers' compensation, automobile liability and general liability (including products liability) Policies showing Tenneco, any other member of the Energy Group or any of their respective predecessors (or such entity and its subsidiaries and/or affiliates) as the insured party and which are cost plus, fronting, high deductible or retrospective premium programs but excluding the Eastern Policies. "SHIPBUILDING" shall mean, when unqualified, the Shipbuilding Assets, Shipbuilding Liabilities, Prior Shipbuilding Businesses and/or Shipbuilding Business. "SHIPBUILDING ASSETS" shall have the meaning set forth in the Distribution Agreement. "SHIPBUILDING BUSINESS" shall have the meaning set forth in the Distribution Agreement. "SHIPBUILDING COVERED PERSON" shall mean each member of the Shipbuilding Group and any other Person, in each case to the extent any Policy addressed herein purports to provide insurance coverage in respect of any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred by such Person arising out of, in connection with or otherwise related to Shipbuilding. "SHIPBUILDING EXCLUSIVE POLICIES" shall mean all current and past Policies which show Shipbuilding Company, any other member of the Shipbuilding Group or any of their respective predecessors (or such entity and its subsidiaries and/or affiliates) as the named insured and do not purport to relate to Energy or Industrial or to cover any Energy Covered Person or Industrial Covered Person, but excluding any Retained Policy. "SHIPBUILDING GROUP" shall have the meaning set forth in the Distribution Agreement. "SHIPBUILDING LIABILITIES" shall have the meaning set forth in the Distribution Agreement. "SUBSIDIARY" shall have the meaning set forth in the Distribution Agreement. "TENNECO EXCLUSIVE POLICIES" shall mean all current and past Policies, including but not limited to the current Policies set forth on SCHEDULE E hereto, which show Tenneco, any other member of the Energy Group or any of their respective predecessors (or such entity and its subsidiaries and/or affiliates) as the named insured and do not purport to relate to Shipbuilding or Industrial or to cover any Shipbuilding Covered Person or Industrial Covered Person, excluding (i) any directors' and officers' liability policies which are or were maintained by or on behalf of Tenneco, and (ii) any Retained Policy. "TERMINATION TIME" shall mean with respect to coverage under any Policy for any Covered Person, the time as of which coverage under said Policy is to be cancelled with respect to that Covered Person pursuant to the terms hereof. "TRANSFERRED CLAIMS-MADE POLICIES" shall have the meaning set forth in Section 2.2 hereof. "TRANSFERRED OCCURRENCE-BASED POLICIES" shall have the meaning set forth in Section 2.1 hereof. "TRANSFERRED POLICIES" shall have the meaning set forth in Section 2.3 hereof. 1.2 References. References herein to a "Schedule" are, unless otherwise specified, to one of the Schedules attached to this Agreement, and references to an "Article" or a "Section" are, unless otherwise specified, to one of the Articles or Sections, respectively, of this Agreement. 4 ARTICLE II SUBSTITUTION OF NAMED INSUREDS AND CANCELLATION OF POLICIES 2.1 Current Occurrence-Based Policies. On or prior to the Distribution Date, Tenneco shall take or cause to be taken all necessary or appropriate action (i) so that the Industrial Company (and, at the option of Industrial Company, its subsidiaries and affiliates after giving effect to the Distributions) is added as a named insured under those Current Occurrence-Based Policies identified on SCHEDULE 2.1-A hereto (the "TRANSFERRED OCCURRENCE-BASED POLICIES"), effective as of the Distribution Time, and (ii) to cause the Current Occurrence-Based Policies identified on SCHEDULE 2.1-B hereto to be cancelled as of, and to afford no further coverage to the insureds thereunder except as otherwise contemplated by this Agreement from and after, (A) the Distribution Time, with respect to any Industrial Covered Person or Shipbuilding Covered Person, and (B) the Merger Time, with respect to any Energy Covered Person. Industrial Company agrees to be added as a named insured under the Transferred Occurrence-Based Policies and to execute such further documents as Tenneco may reasonably request in connection therewith. 2.2 Current Claims-Made Policies. On or prior to the Distribution Date, Tenneco shall take or cause to be taken all necessary or appropriate action (i) so that the Industrial Company (and, at the option of Industrial Company, its subsidiaries and affiliates after giving effect to the Distributions) is added as a named insured under those Current Claims-Made Policies identified on SCHEDULE 2.2-A hereto (the "TRANSFERRED CLAIMS-MADE POLICIES"), effective as of the Distribution Time, and (ii) to cause the Current Claims-Made Policies identified on SCHEDULE 2.2-B hereto to be cancelled as of, and to afford no further coverage to the insureds thereunder except as otherwise contemplated by this Agreement from and after, (A) the Distribution Time, with respect to any Industrial Covered Person or Shipbuilding Covered Person, and (B) the Merger Time, with respect to any Energy Covered Person. Industrial Company agrees to be added as a named insured under the Transferred Claims- Made Policies and to execute such further documents as Tenneco may reasonably request in connection therewith. 2.3 Consent. Tenneco and Industrial Company shall each use its best efforts to obtain prior to the Distribution Date the consent of each insurance carrier under the Transferred Occurrence-Based Policies and the Transferred Claims- Made Policies (collectively, the "TRANSFERRED POLICIES") that is required to consummate the transactions contemplated by Sections 2.1 and 2.2 hereof (each, a "CONSENT"), it being understood that if Consent to such transactions is not received as contemplated by this Section 2.3 with respect to any Policy, such Policy shall nonetheless be considered and treated as a Transferred Claims- Made Policy or Transferred Occurrence-Based Policy, as the case may be, for purposes of this Agreement. 2.4 No Transfer of Certain Policies. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to add Industrial Company as a named insured under any Transferred Policy without Consent thereto if such addition without such Consent would constitute a breach of such Transferred Policy. If Consent to such addition is not obtained prior to the Distribution Date, Tenneco and Industrial Company agree to negotiate in good faith an arrangement which shall place the Industrial Company, insofar as reasonably possible, in the same position as would have existed had such Consent to addition been obtained prior to the Distribution Date. ARTICLE III COVERAGE 3.1 Maintenance of Coverage Through Merger Time. From the date hereof up to the Merger Time, the parties hereto agree to use their best efforts to maintain (and to cause each member of their respective Groups over which they have legal or effective direct or indirect control to maintain) in full force and effect the Occurrence-Based Policies, Claims-Made Policies, Eastern Policies and Retained Policies for the benefit of any Energy Covered Person, Industrial Covered Person and Shipbuilding Covered Person to which such Policies by 5 their terms relate except to the extent coverage under any such Policy is to be terminated hereunder prior to the Merger Time (it being understood that there shall be no obligation hereunder to maintain in full force and effect coverage under any such Policy which, by operation of the terms of such Policy, is terminated as to any Covered Person as a result of the Distributions). 3.2 Coverage Under Occurrence-Based Policies. (a) Termination of Coverage Under Transferred Occurrence-Based Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Transferred Occurrence-Based Policy, coverage under the Transferred Occurrence-Based Policies shall be terminated (it being understood that such Transferred Occurrence-Based Policies shall nonetheless remain in full force and effect) so that none of the Transferred Occurrence-Based Policies shall afford any further coverage to any Energy Covered Person or Shipbuilding Covered Person for occurrences which take place or are alleged to have taken place on or after the (A) Merger Time, with respect to any Energy Covered Person and (B) Distribution Time, with respect to any Shipbuilding Covered Person. From and after the Distribution Time and Merger Time, coverage under any Transferred Occurrence-Based Policy may, at the option of Industrial Company and subject to the rights of the insurers thereunder, continue for any Industrial Covered Person upon the terms and conditions of such Transferred Occurrence-Based Policy. (b) Termination of Coverage Under Other Occurrence-Based Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Other Occurrence-Based Policy, coverage under the Other Occurrence-Based Policies shall be terminated so that none of the Other Occurrence-Based Policies shall afford any further coverage to any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person for occurrences which take place or are alleged to have taken place on or after the (A) Merger Time, with respect to any Energy Covered Person, and (B) Distribution Time, with respect to any Shipbuilding Covered Person or Industrial Covered Person. (c) Access to Policies Following Termination Time. Notwithstanding the provisions of Sections 3.2(a) and 3.2(b) hereof, from and after their respective Termination Time under any Occurrence-Based Policy each Energy Covered Person, Industrial Covered Person and Shipbuilding Covered Person shall have the right to coverage and to make or pursue a claim for coverage under such Occurrence-Based Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses incurred or claimed to have been incurred prior to such Termination Time by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Energy, with respect to any Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case subject to the terms, conditions and limitations of such Occurrence-Based Policy, provided, however, that nothing in this Section 3.2(c) shall be deemed to constitute or reflect an assignment of any such Occurrence-Based Policy. (d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person entitled hereunder to make or pursue a claim for insurance coverage under an Occurrence-Based Policy may claim for such insurance as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under such Occurrence-Based Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and Shipbuilding Company shall, to the extent any of its respective Covered Persons shall have exhausted all or any portion of the limits of liability, if any, under any Occurrence-Based Policy, use its best efforts to either (i) obtain and comply in full with the conditions required to effect the reinstatement of the full limits of liability under such Occurrence-Based Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims) and be responsible for and pay all costs and expenses, including the amount of any resultant increase in the premium charged in respect of such Occurrence-Based Policy or any renewal thereof, in connection therewith, or (ii) obtain and maintain in full force and effect a Policy in replacement of the limits of liability exhausted under such Occurrence-Based Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims), and be responsible for and pay all costs and expenses in connection therewith, which Policy shall provide at least the same coverage, 6 and contain terms and provisions which are no less favorable to the insured parties, as existed under the Occurrence-Based Policy in respect of which such replacement is obtained, provided, however, that no party hereto shall be required to expend more than an amount equal to 350% of the original premium paid with respect to the portion of the limits of liability under such Occurrence-Based Policy (determined on a pro rata basis) exhausted by such party's respective Covered Persons to obtain reinstatement or a replacement Policy as contemplated hereby, it being understood that each party hereto shall nonetheless be required to obtain the maximum amount of reinstatement or replacement coverage available for such 350% premium amount in accordance with the terms and provisions of clauses (i) or (ii) hereof, as applicable. If at any time a party (an "Impairing Party") hereto becomes aware (such party being deemed to be aware whenever any of the directors or executive officers of such party or any other member of its respective Group become aware) of a claim or potential claim against any of such Impairing Party's respective Covered Persons which claim is reasonably likely to exhaust (but has not yet exhausted) all or any portion of the aggregate limits of liability, if any, under any Occurrence-Based Policy (a "Potential Impairment"), such Impairing Party shall promptly provide notice of such Potential Impairment to the other parties hereto. Such Impairing Party shall have five business days after providing such notice to elect to, at that time, either secure reinstatement of the limits of liability under such Occurrence-Based Policy (to the extent provided for therein) or purchase a Policy in replacement of such limits of liability (in each case in accordance with the terms and provisions of the second preceding sentence) in respect of such Potential Impairment (but shall not be required to so elect at such time). If such Impairing Party does not timely elect to secure reinstatement or replacement coverage, then either or both of the other parties hereto may elect to reinstate the limits of liability under such Occurrence-Based Policy (to the extent provided for therein) and pay all expenses incurred in connection therewith, provided, however, that if such Potential Impairment actually occurs, the Impairing Party shall reimburse the other parties for any fees and expenses incurred by such parties in connection with such reinstatement. 3.3 Coverage Under Claims-Made Policies. (a) Termination of Coverage Under Transferred Claims-Made Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Transferred Claims-Made Policy, coverage under the Transferred Claims-Made Policies shall be terminated (it being understood that such Transferred Claims-Made Policies shall nonetheless remain in full force and effect) so that none of the Transferred Claims-Made Policies shall afford any further coverage to any Energy Covered Person or Shipbuilding Covered Person for claims which have not been reported or made as provided by the terms of such Transferred Claims-Made Policy prior to (A) the Merger Time, with respect to any Energy Covered Person, and (B) the Distribution Time, with respect to any Shipbuilding Covered Person. From and after the Distribution Time and Merger Time, coverage under any Transferred Claims-Made Policy may, at the option of Industrial Company and subject to the rights of the insurers thereunder, continue for any Industrial Covered Person upon the terms and conditions of such Transferred Claims-Made Policy. (b) Termination of Coverage Under Other Claims-Made Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Other Claims-Made Policy, coverage under the Other Claims-Made Policies shall be terminated so that no Other Claims-Made Policy shall afford any further coverage to any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person for claims which have not been reported or made as provided by the terms of such Other Claims-Made Policy prior to (A) the Merger Time, with respect to any Energy Covered Person, and (B) the Distribution Time, with respect to any Shipbuilding Covered Person or Industrial Covered Person. (c) Access to Policies Following Termination Time. Notwithstanding the provisions of Sections 3.3(a) and 3.3(b) hereof, from and after their respective Termination Time under any Claims-Made Policy each Energy Covered Person, Industrial Covered Person and Shipbuilding Covered Person shall have the right to coverage and to make or pursue a claim for coverage under such Claims-Made Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses which are reported in accordance with the terms of such Claims-Made Policy prior to such Termination Time and which are incurred 7 or claimed to be incurred by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Energy, with respect to any Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case subject to the terms, conditions and limitations of such Claims-Made Policy, provided, however, that nothing in this Section 3.3(c) shall be deemed to constitute or reflect an assignment of any such Claims-Made Policy. (d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person entitled hereunder to make or pursue a claim for insurance coverage under a Claims-Made Policy may claim for such insurance as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under such Claims-Made Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and Shipbuilding Company shall, to the extent any of its respective Covered Persons shall have exhausted all or any portion of the limits of liability, if any, under any Claims-Made Policy, use its best efforts to either (i) obtain and comply in full with the conditions required to effect the reinstatement of the full limits of liability under such Claims-Made Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims) and be responsible for and pay all costs and expenses, including the amount of any resultant increase in the premium charged in respect of such Claims-Made Policy or any renewal thereof, in connection therewith, or (ii) obtain and maintain in full force and effect at its own cost a Policy in replacement of the limits of liability exhausted under such Claims-Made Policy for all claims which would be covered thereby absent such exhaustion (including any pending or known claims), and be responsible for and pay all costs and expenses in connection therewith, which Policy shall provide at least the same coverage, and contain terms and provisions which are no less favorable to the insured parties, as existed under the Claims-Made Policy in respect of which such replacement is obtained, provided, however, that no party hereto shall be required to expend more than an amount equal to 350% of the original premium paid with respect to the portion of the limits of liability under such Claims-Made Policy (determined on a pro rata basis) exhausted by such party's respective Covered Persons to obtain reinstatement or a replacement Policy as contemplated hereby, it being understood that each party hereto shall nonetheless be required to obtain the maximum amount of reinstatement or replacement coverage available for such 350% premium amount in accordance with the terms and provisions of clauses (i) or (ii) hereof, as applicable. If at any time an Impairing Party becomes aware (such party being deemed to be aware whenever any of the directors or executive officers of such party or any other member of its respective Group become aware) of a claim or potential claim against any of such Impairing Party's respective Covered Persons which claim is reasonably likely to exhaust (but has not yet exhausted) all or any portion of the aggregate limits of liability, if any, under any Claims-Made Policy (a "Potential Impairment"), such Impairing Party shall promptly provide notice of such Potential Impairment to the other parties hereto. Such Impairing Party shall have five business days after providing such notice to elect to, at that time, either secure reinstatement of the limits of liability under such Claims-Made Policy (to the extent provided for therein) or purchase a Policy in replacement of such limits of liability (in each case in accordance with the terms and provisions of the second preceding sentence) in respect of such Potential Impairment (but shall not be required to so elect at such time). If such Impairing Party does not timely elect to secure reinstatement or replacement coverage, then either or both of the other parties hereto may elect to reinstate the limits of liability under such Claims-Made Policy (to the extent provided for therein) and pay all expenses incurred in connection therewith, provided, however, that if such Potential Impairment actually occurs, the Impairing Party shall reimburse the other parties for any fees and expenses incurred by such parties in connection with such reinstatement. 3.4 Coverage Under Retained Policies. (a) Termination of Coverage at Distribution Time. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, except as otherwise contemplated by the terms of this Agreement and notwithstanding anything to the contrary contained in any Retained Policy, effective as of the Distribution Time any and all coverage of any Industrial Covered Person or Shipbuilding Covered Person under the Retained Policies shall be terminated (it being understood that such Retained Policies shall nonetheless remain in full force and effect). From and after the Distribution Time, coverage under any of the Retained Policies may, at the option of Tenneco and subject to the rights of the insurers thereunder, continue for any Energy Covered Person upon the terms and conditions of such Retained Policies (it being understood that the insurer under the Retained Policies currently in effect has expressed its intention to cancel coverage thereunder as of the Merger Time). 8 (b) Access to Policies and Policy Limits. Notwithstanding the provisions of Section 3.4(a) hereof, from and after the Distribution Time each Industrial Covered Person and Shipbuilding Covered Person shall have the right to coverage and to make or pursue a claim for coverage under any Retained Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses incurred or claimed to have been incurred prior to the Distribution Time by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Industrial, with respect to any Industrial Covered Person, or (ii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case subject to the terms, conditions and limitations of such Retained Policy, provided, however, that nothing in this Section 3.4(b) shall be deemed to constitute or reflect an assignment of any such Retained Policy. Any Industrial Covered Person or Shipbuilding Covered Person may claim insurance coverage under a Retained Policy as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under such Retained Policy. 3.5 Coverage Under Eastern Policies. (a) Termination of Coverage Under Eastern Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate action so that, notwithstanding anything to the contrary contained in any Eastern Policies, effective as of the Distribution Time coverage under the Eastern Policies shall be terminated (it being understood that such Eastern Policies in full force and effect as of the Distribution Time shall nonetheless remain in full force and effect) so that the Eastern Policies do not afford any further coverage to any Industrial Covered Person or Shipbuilding Covered Person for occurrences which take place or are alleged to have taken place on or after the Distribution Time. From and after the Distribution Time, coverage under the Eastern Policies may, at the option of Tenneco and subject to the rights of the insurers thereunder, continue for any Energy Covered Person upon the terms and conditions of the Eastern Policies. (b) Access to Eastern Policies Following Distribution Time. Notwithstanding the provisions of Sections 3.5(a) hereof, from and after the Distribution Time each Energy Covered Person, Industrial Covered Person (to the extent (but only to that extent and subject to the last sentence of this Section 3.5(b) and Section 3.5(d)) payment under any Eastern Policy is a condition precedent to the provision of coverage by any insurer providing coverage in the same layer as, or a layer excess to that of, such Eastern Policy) and Shipbuilding Covered Person (to the extent (but only to the extent and subject to the last sentence of this Section 3.5(b)) necessary to access reinsurance policies) shall have the right to coverage and to make or pursue a claim for coverage under any Eastern Policy with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages and expenses incurred or claimed to have been incurred prior to the Distribution Time by such Covered Person in or in connection with the operation of, or otherwise related to, (i) Energy, with respect to any Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered Person, in each case, subject to the terms, conditions and limitations of such Eastern Policy, provided, however, that nothing in this Section 3.5(b) shall be deemed to constitute or reflect an assignment of the Eastern Policies. The parties hereto agree to take or cause to be taken all necessary or appropriate actions so that, from and after the Distribution Time, no Industrial Covered Person or Shipbuilding Covered Person shall be entitled to coverage or to make or pursue a claim for coverage under the Eastern Policies except to the extent expressly provided for herein and in no event shall the Eastern Insurance Provider (as defined below) or any of its subsidiaries have any obligation or liability to any Shipbuilding Covered Person or Industrial Covered Person under any Eastern Policy which is not either as a conduit with respect to third party reinsurance or subject to reimbursement by Industrial Company pursuant to Section 3.5(d). (c) Policy Limits. Any Energy Covered Person, Industrial Covered Person or Shipbuilding Covered Person entitled hereunder to make or pursue a claim for insurance coverage under the Eastern Policies may claim for such insurance as and to the extent that such insurance is available up to the full extent of the applicable limits of liability under the Eastern Policies, subject to the provisions of Section 3.5(b). (d) Reimbursement Obligation of Industrial Company. Industrial Company agrees to reimburse to the insurer under each Eastern Policy (the "EASTERN INSURANCE PROVIDER") the full amount of any claim for insurance coverage for an Industrial Covered Person under such Eastern Policy made pursuant to the terms of Section 3.5(b) hereof which is actually paid by said Eastern Insurance Provider after the Distribution Time. 9 3.6 Coverage Under Exclusive Policies. From and after the Distribution Time, coverage under any Exclusive Policy may (at the option of the party or parties shown as the named insured thereunder, and subject to the rights of the insurers thereunder) continue with respect to any claims, suits, actions, proceedings, injuries, losses, liabilities, occurrences, damages or expenses incurred or claimed to have been incurred prior to, on or after the Distribution Date, subject to the terms, conditions and limitations of such Exclusive Policy, provided, however, that (i) no member of the Energy Group shall have any liability or obligation with respect to any of the Industrial Exclusive Policies or Shipbuilding Exclusive Policies, (ii) no member of the Industrial Group shall have any liability or obligation with respect to any of the Tenneco Exclusive Policies or Shipbuilding Exclusive Policies, and (iii) no member of the Shipbuilding Group shall have any liability or obligation with respect to any of the Tenneco Exclusive Policies or Industrial Exclusive Policies. 3.7 Assistance in Obtaining Additional Coverage. Each of the parties hereto agrees to use its reasonable best efforts to assist the other parties in the transition to separate insurance coverage for the Energy Group, Industrial Group and Shipbuilding Group from and after the Distribution Date which assistance shall include, but shall not be limited to, the identification of potential insurance carriers. 3.8 Discovery Periods. Except with respect to any Industrial Covered Person and except as the parties hereto may otherwise agree, the parties hereto acknowledge and agree that when this Agreement calls for the termination of insurance coverage under a Claims-Made Policy such insurance coverage shall be terminated as of the time specified and that no discovery period of coverage in respect of such Policy shall be provided thereunder, notwithstanding anything to the contrary contained herein or in any such Policy. Notwithstanding the foregoing, if requested to do so by Tenneco, Industrial Company shall use its reasonable efforts to procure that the relevant insurers under the Claims-Made Policies offer to Tenneco a discovery period of coverage under said Claims-Made Policies for Energy Covered Persons with an aggregate limitation of liability separate from the limitation of liability under said Claims-Made Policies for coverage afforded Industrial Covered Persons. All premiums, costs and other charges with respect to any discovery period of coverage provided under any Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with respect to coverage for Energy Covered Persons, and (ii) Industrial Company, with respect to coverage for Industrial Covered Persons. Each party hereto shall not (and shall not permit any of its respective Covered Persons over which it has legal or effective direct or indirect control to) take any action contrary to the provisions of this Section 3.8. 3.9 Further Assurances. Each of Tenneco, Industrial Company and Shipbuilding Company agree to take (and to cause each of its respective Covered Persons over which it has direct or indirect legal or effective control to take) all such actions as are necessary or appropriate, including the provision of notice to all relevant insurance carriers and cooperation with respect to the obtaining of any reinstatement of limitations on liability as contemplated hereby, to effectuate the purposes of this Article III. ARTICLE IV PREMIUMS, DEDUCTIBLES AND RELATED MATTERS 4.1 Occurrence-Based and Claims-Made Policies. (a) Premiums in Respect of Occurrence-Based and Claims-Made Policies. From and after the Distribution Time, all premiums, costs and other charges with respect to any Occurrence-Based Policy or Claims-Made Policy shall be paid by Industrial Company, provided, however, that (i) Tenneco shall promptly reimburse Industrial Company in full for any such premiums, costs or other charges in respect of the cover afforded under any such Occurrence-Based Policy or Claims-Made Policy to any Energy Covered Person, and (ii) Shipbuilding Company shall promptly reimburse Industrial Company in full for any such premiums, costs or other charges in respect of the cover afforded under any such Occurrence-Based Policy or Claims-Made Policy to any Shipbuilding Covered Person, in each case determined in accordance with Tenneco's historical practices with respect to the allocation of such premiums, costs and charges prior to the date hereof. All amounts refunded from and after the 10 Distribution Time by insurance carriers in respect of premiums previously paid under any Occurrence-Based Policy or Claims-Made Policy shall be the sole property of Industrial Company, provided, however, that Industrial Company shall promptly pay to Tenneco or the Shipbuilding Company, as applicable, upon receipt thereof from an insurance carrier, the Energy Group's or the Shipbuilding Group's respective share of any such amounts refunded (such respective share to be determined in accordance with Tenneco's historical practices with respect to the allocation of insurance premiums among its Subsidiaries and divisions prior to the date hereof). Each of Tenneco and Shipbuilding Company shall (and shall cause each member of its respective Group over which it has direct or indirect legal or effective control to) promptly pay to Industrial Company any such refunded amounts actually received by it to which Industrial Company is entitled pursuant hereto. (b) Deductibles, Retentions and Self-Insured Amounts. From and after the Distribution Time, all deductibles, retentions and self-insured amounts with respect to coverage or a claim for coverage under any Occurrence-Based Policy or Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with respect to any coverage or claim for coverage in respect of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage in respect of any Shipbuilding Covered Person. 4.2 Retained Policies. (a) Premiums, Costs and Other Charges. From and after the Distribution Time, all premiums, costs and other charges with respect to any Retained Policy, including claim payments and associated expenses under cost plus or fronting policies, shall be the sole responsibility of and be paid by Tenneco, provided, however, that (i) Industrial Company shall promptly reimburse Tenneco for all such premiums, costs and other charges paid by Tenneco (including amounts paid by Tenneco as reimbursement in respect of amounts drawn under letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in respect of coverage provided for any Industrial Covered Person to the extent such premiums, costs and other charges exceed the amount of the Claims Deposit, and (ii) Shipbuilding Company shall promptly reimburse Tenneco for all such premiums, costs and other charges paid by Tenneco (including amounts paid by Tenneco as reimbursement in respect of amounts drawn under letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in respect of coverage provided for any Shipbuilding Covered Person. All amounts refunded from and after the Distribution Time by insurance carriers in respect of premiums previously paid under any Retained Policy shall be the sole property of Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial Company, all such refunded amounts in respect of coverage provided for any Industrial Covered Person under such Retained Policy, and (ii) Shipbuilding Company, all such refunded amounts in respect of coverage provided for any Shipbuilding Covered Person under such Retained Policy. (b) Deductibles, Retentions and Self-Insured Amounts. From and after the Distribution Time, all deductibles, retentions and self-insured amounts with respect to coverage or a claim for coverage under any Retained Policy shall be the sole responsibility of (i) Tenneco, with respect to any coverage or claim for coverage in respect of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage in respect of any Shipbuilding Covered Person. 4.3 Eastern Policies. (a) Premiums in Respect of Eastern Policies. All amounts refunded from and after the Distribution Time by insurance carriers in respect of premiums previously paid under any Eastern Policy shall be the sole property of Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial Company, upon receipt thereof from an insurance carrier, the Industrial Group's respective share of any such amounts refunded, and (ii) Shipbuilding Company, upon receipt thereof from an insurance carrier, the Shipbuilding Group's respective share of any such amounts refunded, in each case determined in accordance with Tenneco's historical practices with respect to the allocation of insurance premiums among its Subsidiaries and divisions prior to the date hereof. Each party shall (and shall cause each member of its respective Group over which it has direct or indirect legal or effective control to) promptly pay to any other party any such amounts actually received by it to which such other party is entitled pursuant to this Section 4.3(a). 11 (b) Deductibles, Retentions and Self-Insured Amounts. From and after the Distribution Time, all deductibles, retentions and self-insured amounts with respect to coverage or a claim for coverage under any Eastern Policy shall be the sole responsibility of (i) Tenneco, with respect to any coverage or claim for coverage in respect of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage in respect of any Shipbuilding Covered Person. (c) Amounts to be Refunded. Tenneco shall direct and instruct the Eastern Insurance Provider to pay to Industrial Company in cash promptly after the Distribution Time, to the extent permitted by law, and to record a corresponding dollar-for-dollar reduction in all associated liabilities on its books and records for, (i) all amounts which appear as reserves on the books and records of the Eastern Insurance Provider as of the Distribution Time in respect of claims relating to any Industrial Covered Person which have been reported prior to the Distribution Time, (ii) the full amount of any "incurred but not reported" reserve and any portfolio loss transfer reserve appearing on the books and records of the Eastern Insurance Provider as of the Distribution Time under the contingent liability programs of the Eastern Policies, and (iii) 50% of the amount of any "incurred but not reported" reserve appearing on the books and records of the Eastern Insurance Provider as of the Distribution Time under the excess liability programs of the Eastern Policies with respect to Industrial and Energy. 4.4 Exclusive Policies. From and after the Distribution Time, all deductibles, retentions, self-insured amounts, premiums and other costs with respect to any Exclusive Policy or claim for coverage thereunder shall be the sole responsibility of, and all refunded premiums with respect to any Exclusive Policy shall be the sole property of, (i) Tenneco, with respect to any Tenneco Exclusive Policy, (ii) Industrial Company, with respect to any Industrial Exclusive Policy, and (iii) Shipbuilding Company, with respect to any Shipbuilding Exclusive Policy. 4.5 Excess Costs and Settlements. Each Covered Person shall be responsible for any excess costs and expenses relating to its respective claims permitted hereunder (or those of any member of its respective Group) under the Common Policies, including defense costs to the extent such defense costs are not covered under such Common Policies, and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of such claims. 4.6 Effect on Other Agreements. Notwithstanding anything to the contrary contained herein, nothing in this Article IV shall be construed to alter or in any way limit any rights to indemnity provided in the Distribution Agreement or in any other Ancillary Agreement (as such term is defined in the Distribution Agreement). ARTICLE V ADMINISTRATION 5.1 Occurrence-Based and Claims-Made Policies. (a) Administration. From and after the Distribution Date, Claims Administration and Insurance Administration with respect to the Occurrence- Based Policies and Claims-Made Policies shall be the responsibility of (i) Tenneco, with respect to any coverage or claim for coverage of any Energy Covered Person, (ii) Industrial Company, with respect to any coverage or claim for coverage of any Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any coverage or claim for coverage of any Shipbuilding Covered Person. Each of Shipbuilding Company and Tenneco shall (and shall cause each of its respective Covered Persons over which it has direct or indirect legal or effective control to) provide prompt notice to Industrial Company of all actions taken by it with respect to the Claims Administration and Insurance Administration for the Occurrence-Based Policies and Claims-Made Policies as contemplated by this Section 5.1. Each party hereto shall (and shall cause each other member of its Group over which it has direct or indirect legal or effective control to) take all necessary or appropriate action, if any, to delegate Claims Administration and Insurance Administration with respect to the Occurrence-Based Policies and Claims-Made Policies to any other party who 12 is to assume such responsibilities pursuant hereto and, to the extent such delegation is not permitted by the terms of any such policy, shall engage in Claims Administration or Insurance Administration for any such policy only upon the express authorization and direction of such other party. Each party hereto shall be responsible for its own disbursements and out-of-pocket expenses and the direct and indirect costs of its employees or agents relating to Claims Administration and Insurance Administration contemplated by this Section 5.1. Notwithstanding anything to the contrary contained herein, Industrial Company shall have the right, at its option, to undertake at its own cost and expense Claims Administration and/or Insurance Administration with respect to any coverage or claim for coverage of any Energy Covered Person or Shipbuilding Covered Person. (b) Effect of Administrative Responsibilities. Each of Tenneco, Industrial Company and Shipbuilding Company acknowledges and agrees that each other party's responsibilities under this Section 5.1 for Claims Administration and Insurance Administration shall not relieve any party submitting an insured claim under any Occurrence-Based Policy or Claims-Made Policy of (a) the primary responsibility for reporting such insured claim accurately, completely and in a timely manner, or (b) any other right or responsibility which such party may have pursuant to the terms of any Occurrence-Based Policy or Claims- Made Policy. 5.2 Eastern and Retained Policies. From and after the Distribution Time, Tenneco shall be solely responsible for Claims Administration and Insurance Administration with respect to the Retained Policies and Eastern Policies including, without limitation, the administration of all billings associated with the Retained Policies by the insurance carriers thereunder. Notwithstanding the foregoing, each of Industrial Company and Shipbuilding Company shall retain the right to, at its option, direct the management, defense, reporting and settlement of claims involving its respective Covered Persons under the Retained Policies and Eastern Policies. ARTICLE VI PROCEEDS 6.1 Occurrence-Based and Claims-Made Policies. From and after the Distribution Date, Insurance Proceeds received with respect to claims, costs and expenses under the Occurrence-Based Policies and Claims-Made Policies shall be paid to the Covered Person to which such Insurance Proceeds are due pursuant to the terms of such Policies. 6.2 Eastern and Retained Policies. From and after the Distribution Date, Insurance Proceeds received with respect to claims, costs and expenses under the Retained Policies and Eastern Policies shall be paid, as appropriate, to the Covered Person to which such Insurance Proceeds are due pursuant to the terms of such Policies. 6.3 Return of Proceeds. Each of Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause each of its respective Covered Persons over which it has direct or indirect legal or effective control to) to promptly pay to each other party any Insurance Proceeds actually received by it to which any of such other party's Covered Persons are entitled pursuant hereto, which other party shall then distribute such Insurance Proceeds to the Covered Person to which they are due pursuant hereto. ARTICLE VII LETTERS OF CREDIT AND SURETY BONDS 7.1 Maintenance. (a) Letters of Credit. From and after the Distribution Date, to secure obligations under the Retained Policies relating to periods preceding the Distribution Time, Tenneco shall, for such time as may be required by law or the terms of any Retained Policy, maintain in full force and effect the letters of credit identified on SCHEDULE 7.1-A hereto or, as necessary or appropriate, substitute therefor and maintain in full force and effect letters of credit acceptable to the insurance carriers and/or surety under the Retained Policies issued 13 by comparably rated lenders containing substantially identical terms and conditions (collectively, the "LETTERS OF CREDIT"). The parties hereto shall use reasonable commercial efforts to obtain the necessary consents and approvals, and shall thereafter negotiate in good faith an agreement, to allocate the Letters of Credit among the parties hereto such that each party becomes responsible for the maintenance of letters of credit for such time as may be required by law or the terms of any Retained Policy to secure obligations under the Retained Policies relating to periods prior to the Distribution Time in respect of coverage afforded thereunder to such party's respective Covered Persons, provided, however, that neither Industrial Company nor Shipbuilding Company shall be required to use such reasonable commercial efforts or negotiate any such agreement if such party determines that the allocation contemplated hereby cannot be accomplished without commercially unreasonable expense. (b) Surety Bonds. The parties hereto acknowledge that Tenneco is obligated to indemnify the sureties under certain performance bonds and other surety instruments that secure obligations of the Energy Business, Energy Group, Industrial Business, Prior Industrial Businesses, Industrial Group, Shipbuilding Business, Prior Shipbuilding Businesses and/or Shipbuilding Group including, but not limited to, the surety instruments identified on SCHEDULE 7.1-B hereto (the "TENNECO-PROVIDED BONDS"). From and after the Distribution Time, Tenneco shall maintain such Tenneco-Provided Bonds in place for such time as may be required by law. To the extent possible on commercially reasonable terms, each of Industrial Company and Shipbuilding Company shall use reasonable commercial efforts to obtain a replacement for each Tenneco- Provided Bond that secures obligations of the Industrial Business, Prior Industrial Businesses or Industrial Group (in the case of Industrial Company) or the Shipbuilding Business, Prior Shipbuilding Businesses or Shipbuilding Group (in the case of Shipbuilding Company) and to thereafter arrange for the release of Tenneco from the Tenneco-Provided Bond which has been so replaced. If the surety under any Tenneco-Provided Bond is required to and does in fact perform according to the terms of said Tenneco-Provided Bond and Tenneco is required to and does in fact indemnify such surety in respect thereof, (i) Industrial Company shall reimburse Tenneco for all amounts actually paid by Tenneco to such surety to the extent such amounts constitute Industrial Liabilities, and (ii) Shipbuilding Company shall reimburse Tenneco for all amounts actually paid by Tenneco to such surety to the extent such amounts constitute Shipbuilding Liabilities. 7.2 Reimbursement for Maintenance Fees. Each of Industrial Company and Shipbuilding Company hereby agrees to reimburse Tenneco annually commencing on January 31, 1998 (such date and each anniversary thereof being referred to herein as a "DUE DATE") for the actual and reasonable administrative fees and expenses paid by Tenneco (the "LC MAINTENANCE FEES") in respect of the issuance and maintenance of the Letters of Credit during the twelve-month period ended 31 days prior to such year's Due Date (each, a "YEARLY PERIOD"), to the extent such Letters of Credit secure obligations relating to any Industrial Covered Person or Shipbuilding Covered Person, respectively, under the Retained Policies. The amount of the LC Maintenance Fees for each Yearly Period which shall be the responsibility of Industrial Company and Shipbuilding Company hereunder shall be based on the total outstanding reserves showing on the books and records of CIGNA, as of February 28 during such Yearly Period, for claims by all Industrial Covered Persons, Energy Covered Persons and Shipbuilding Covered Persons under the Retained Policies relating to periods prior to the Distribution Time (the "YEARLY TOTAL RESERVES"). Industrial Company shall reimburse Tenneco hereunder for an amount equal to the LC Maintenance Fees for each Yearly Period multiplied by a fraction, (i) the numerator of which is equal to the outstanding reserves showing on the books and records of CIGNA, as of February 28 during such Yearly Period, for claims by all Industrial Covered Persons under the Retained Policies relating to periods prior to the Distribution Time, and (ii) the denominator of which is equal to the Yearly Total Reserves for such Yearly Period. Shipbuilding Company shall reimburse Tenneco hereunder for an amount equal to the LC Maintenance Fees for each Yearly Period multiplied by a fraction, (i) the numerator of which is equal to the outstanding reserves showing on the books and records of CIGNA, as of February 28 during such Yearly Period, for claims by all Shipbuilding Covered Persons under the Retained Policies relating to periods prior to the Distribution Time, and (ii) the denominator of which is equal to the Yearly Total Reserves for such Yearly Period. 14 ARTICLE VIII MISCELLANEOUS 8.1 Termination. This Agreement may not be terminated except upon the written agreement of each of the parties hereto. 8.2 Further Assurances. If at any time after the Distribution Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall, on the written request of any of them, take (or cause the appropriate member of its Group over which it has direct or indirect legal or effective control to take) all such reasonably necessary or desirable action. If subsequent to the Distribution Date any Policy showing any member of the Energy Group, Industrial Group or Shipbuilding Group, or any of their respective predecessors, as named insured is discovered which was in effect for periods prior to the Distribution Time and has not been addressed by the provisions of this Agreement or the Merger Agreement, the parties hereto agree to negotiate in good faith an arrangement with respect to such Policy which shall give, to the fullest extent possible, effect to the purposes of this Agreement and the transactions contemplated by the Distribution Agreement. 8.3 Cooperation. The parties hereto agree to use their reasonable best efforts to cooperate with respect to the various insurance matters contemplated by this Agreement. Each party hereto shall not (and shall not permit any of its respective Covered Persons over which it has legal or effective direct or indirect control to) take any action or permit any inaction that could reasonably be expected to jeopardize or otherwise interfere with the rights of any other party (or any of such other party's respective Covered Persons) hereunder or the ability of any other party (or any of such other party's respective Covered Persons) to collect any proceeds which might be available under any of the Policies addressed herein in accordance with the terms of this Agreement. 8.4 No Representations and Warranties. The parties hereto understand and agree that no representation or warranty as to the existence, applicability or extent of insurance coverage for Energy, Industrial or Shipbuilding under any Policy is herein being made. 8.5 Limitation on Liability. Except as may be otherwise expressly provided for herein, no party hereto shall be liable hereunder to another party or any of such other party's Covered Persons for claims not reimbursed by insurers for any reason not within the control of such party including, without limitation, coinsurance provisions, deductibles, quota share deductibles, exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Policy limitations or restrictions, any coverage disputes, any failure to timely claim or any defect in such claim or its processing. 8.6 Successors and Assigns. Except as otherwise expressly provided herein, no party hereto may assign or delegate, whether by operation of law or otherwise, any of such party's rights or obligations under or in connection with this Agreement without the written consent of each other party hereto. No assignment will, however, release the assignor of any of its obligations under this Agreement or waive or release any right or remedy the other parties may have against such assignor hereunder. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will be binding upon and enforceable against the respective successors and assigns of such party and will be enforceable by and will inure to the benefit of the respective successors and permitted assigns of such party. 8.7 Modification; Waiver; Severability. This Agreement may not be amended or modified except in a writing executed by each of the parties hereto. The failure by any party to exercise or a delay in exercising any right provided for herein shall not be deemed a waiver of any right hereunder. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 15 8.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement. 8.9 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8.10 Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally or five business days after mailing by certified or registered mail, return receipt requested and postage prepaid, to the recipient at such recipient's address as indicated below: TENNECO INC.:1010 Milam Street Houston, TX 77002 Attention: Corporate Secretary INDUSTRIAL COMPANY:1275 King Street Greenwich, CT 06831 Attention: Corporate Secretary SHIPBUILDING COMPANY:4101 Washington Avenue Newport News, VA 23607 Attention: Corporate Secretary or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. 8.11 Survival. Each of the agreements of the parties herein shall survive the Distribution Date. 8.12 No Third Party Beneficiaries. This Agreement is made solely for the benefit of the parties hereto and their respective Covered Persons, and shall not give rise to any rights of any kind to any other third parties. 8.13 Other. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. This Agreement, together with the Distribution Agreement and other Ancillary Agreements (as such term is defined in the Distribution Agreement), constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. 8.14 Sole Agent. In all matters relating to this Agreement, including the resolution of any disputes relating to this Agreement between any members of different Groups, (i) Tenneco shall be the sole agent for the members of the Energy Group, (ii) Industrial Company shall be the sole agent for the members of the Industrial Group, and (iii) Shipbuilding Company shall be the sole agent for members of the Shipbuilding Group. No member of any Group shall have any authority to represent itself in any such matter or to terminate such agency without the prior written consent of each party hereto. 8.15 No Double Recovery. No provision of this Agreement shall be construed to provide recovery to any Person for any costs, expenses or other amounts for which such Person has been fully compensated under any other provision of this Agreement, any other agreement or otherwise. 16 IN WITNESS WHEREOF, the parties have made and entered into this Insurance Agreement as of the date first set forth above. TENNECO INC. /S/ Karen R. Osar By:__________________________________ Karen R. Osar Name:________________________________ Vice President and Treasurer Title:_______________________________ NEW TENNECO INC. /S/ Karen R. Osar By:__________________________________ Karen R. Osar Name:________________________________ Vice President and Treasurer Title:_______________________________ NEWPORT NEWS SHIPBUILDING INC. /S/ Stephen B. Clarkson By:__________________________________ Stephen B. Clarkson Name:________________________________ Vice President Title:_______________________________ 17 SCHEDULE A TO INSURANCE AGREEMENT CURRENT CLAIMS-MADE POLICIES
OTHER POLICY SCHED. TYPE OF COVERAGE POLICY NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES - ------ ---------------- ------------- ------ ----------- ------ ----------- 2.2-A Excess Liability XLUMB 00912 9/1/96-97 XL Insurance Company- $100,000,000xs Bermuda $100,000,000 2.2-B Excess Liability UO5138609 9/1/96-97 OCIL-Bermuda $100,000,000xs $200,000,000 2.2-B Excess Liability TGT 5035/4 9/1/96-97 ACE Insurance Company- $200,000,000xs Bermuda $300,000,000 2.2-B Fiduciary Liability NIA 0120905-96 3/1/96-97 Reliance $ 50,000,000 $500,000 71FF 1010075268CM Aetna 8141-48-49-A Federal 2.2-B ERISA Bond (Crime) 483-89-89 9/1/96-97 National Union Fire $ 15,000,000 NIL Ins. Co. (AIG)
18 SCHEDULE B TO INSURANCE AGREEMENT CURRENT OCCURRENCE-BASED POLICIES
OTHER TYPE OF SCHED. COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS ------ -------- ------------- ------------ ----------- ------ 2.1-B Excess Liability DL039795/07 9/1/96-97 Gerling-Konzern $10,000,000 xs $10,000,000 2.1-B Excess Liability BE8180249RA 9/1/96-97 American $25,000,000 xs International (AIG) $20,000,000 Specialty Lines Ins. Co. 2.1-B Excess Liability DL188696/01 9/1/96-97 Gerling-Konzern $25,000,000 xs $45,000,000 2.1-B Excess Liability EU 0835533-01 9/1/96-97 Steadfast Insurance Co. $22,000,000 xs (Zurich) $70,000,000 2.1-B Excess Liability XTP 48390 9/1/96-97 United National Insur. Co. $8,000,000 xs (Front for Amer Re) $92,000,000 2.1-B Automobile--Mexico HLN 00261 1/1/96-97 Seguros Comercial BI: $30,000/ America $60,000 PD: $30,000 2.1-A Aircraft Products Lia- 46 MPP 154779 9/1/96-97 Associated Aviation $150,000,000 bility Underwriters Aggr. Cov. A $100,000,000 Aggr. Cov. B $150,000,000 Aggr. Cov. A & B 2.1-A Aviation Hull & Liabil- 46BVH-153922 7/1/94-97 Associated Aviation $100,000,000 ity Underwriters Per Occurrence 2.1-B Ocean Cargo EIPH1008 7/1/96-97 ESIS International, Inc. $10,000,000 One Conveyance 2.1-A All Risk Property Dam- YMM800856 6/1/96-97 Royal Insurance $2,000,000,000 age/ Blanket Per Occur. Business Interruption (Global) 2.1-B Comprehensive Boiler & BMI-SA-9138264-20 11/1/96-97 Hartford Steam Boiler $100,000,000 Machinery Per Accident Property Damage/Business Interruption 2.1-B Foreign Public & Prod- 62/99102/D 9/1/96-97 Gerling-Konzern $2,000,000 ucts Liability Per Occurrence Insurance (Primary Cov- er) 2.1-B Umbrella Excess Liabil- W51010 9/1/96-97 Winterthur (Front for $8,000,000 ity Eastern Insurance Co.) Any One Occurrence xs $2,000,000 2.1-B Employer's Liability 054/095/6000 Not avail. Eagle Star Not avail. 5626/1 Insurance Company Limited 2.1-B Personal Accident--Eu- 5.011.926 7/1/92 until CIGNA 600,000 Pounds rope cancelled Sterling per person 2,500,000 Pounds Sterling per acc. 2.1-B Nuclear Energy Liability NS-0379 1/1/96- Nuclear Energy Liability $20,000,000 Insurance 12/31/96 Insurance Association DEDUCTIBLES ------ ----------- $10,000,000 Per Occurrence $5,000,000 Per Occ.-USA/Can. $250,000 Per Occ.- Rest of World $5,000,000 Any One Accident $5,000 per Claim $50,000 Pollution
19 SCHEDULE C TO INSURANCE AGREEMENT EASTERN POLICIES
TYPE OF POLICY POLICY COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES -------- ------ ------ ----------- ------ ----------- Excess Li- 96ED2501 9/1/96-97 Eastern Insurance Company $8,000,000xs ability Limited-Bermuda $2,000,000 Contingent 96ED2801 1/1/96-97 Eastern Insurance Company Liability Limited-Bermuda
20 SCHEDULE D TO INSURANCE AGREEMENT CURRENT RETAINED POLICIES
POLICY POLICY TYPE OF COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES ---------------- ------ ------ ----------- ------ ----------- Workers' Compensation WLRC 9/1/96-97 Bankers Standard $2,000,000 $2,000,000 Texas-Ded. 42203063 Ins. Co. Workers' Compensation WLRC 9/1/96-97 Pacific Employers $2,000,000 $2,000,000 Other States-Ded. 42203051 Ins. Co. Workers' Compensation CCSC 9/1/96-97 Pacific Employers $2,000,000 $2,000,000 Retro 42203087 Ins. Co. Workers' Compensation 1810017884 9/1/96-97 Maine Employers' $100,000/$500,000 $5,000 Maine Mutual $100,000 General Liability HDOG 9/1/96-97 CIGNA Property & $2,000,000 $2,000,000 18967248 Casualty Ins. Co. Automobile Liability ISAH 9/1/96-97 CIGNA Property & $2,000,000 $2,000,000 007131641 Casualty Ins. Co. Environmental HDCG 9/1/96-97 CIGNA Property & $1,000,000 $1,000,000 18967285 Casualty Ins. Co. Automobile Liability - CAC391021 9/1/96-97 CIGNA Ins. Co. of $2,000,000 $2,000,000 Canada Canada General Liability - CGLO23835 9/1/96-97 CIGNA Ins. Co. of $2,000,000 $2,000,000 Canada Canada Railroad Protective- ORPG 8/1/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/ Besemer 18968617 North America (CIGNA) $6,000,000 $6,000,000 & Lake Erie RR Co. Railroad Protective- ORPG 8/1/96-97 CIGNA Property & $2,000,000/ $2,000,000/ Boston 18968575 Casualty Insur. Co. $6,000,000 $6,000,000 & Maine Corp. Railroad Protective- ORPG 4/8/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/ AMTRAK 18967923 North America (CIGNA) $6,000,000 $6,000,000 Railroad Protective- ORPG 4/8/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/ Mass. 18967881 North America (CIGNA) $6,000,000 $6,000,000 Bay Transp. New York State OCPG 10/10/96-97 CIGNA $500,000/ $500,000/ Owners & Contractors 18968629 $500,000 $500,000 Protective Liability
21 SCHEDULE E TO INSURANCE AGREEMENT CURRENT TENNECO EXCLUSIVE POLICIES
POLICY POLICY TYPE OF COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES - ---------------------------- ----------- ---------- ----------------------------- ------------------------- ------------------ Tenneco Gas Production SWO5505896 6/19/96-97 St. Paul Surplus $1,000,000 $2,500 General Liability Lines Ins. Co. Each Occurrence $1,000,000 Prod/CO Agg. Tenneco Gas Production SPO5511912 6/19/96-97 St. Paul Surplus $10,000,000 $10,000 Umbrella Liability Lines Ins. Co. Each Occurrence, $10,000,000 Prod/CO Agg. Tenneco Gas South America 82/900194/D 7/24/95- Gerling-Konzern $2,000,000 $10,000 Construction Risk Liability 1/24/97 Tenneco Gas Australia CXC 042840 7/24/95- CIGNA $8,000,000 xs Construction Risk Liability 1/24/97 $2,000,000 Excess Liability BE 9320742 4/26/96-97 National Union $10,000,000 $500,000 Michigan Production Fire Ins. Co. (AIG) Each Occurrence SIR Company Gen. Agg. & Prod/CO Agg. Offshore Property/OEE Pkg. MMA 96-134 7/27/96-97 UNI 17.0%; Sec. IA Sec. IA Sec. IA&B - Offshore Prop. Gjensidige 14.0%; -- Per Schedule -- $5,000,000 Sec. II - OEE Vesta 15.0%; (100%) AOO Sec. III - Protector 8.0%; Sec. IB Sec. IB Charterer's Liab. Commonwealth 13.0%; -- Per Schedule -- $1,000,000 Hull & Co. 5.0%; (100%) AOO All American Sec. II Sec. II Marine Slip. 5.0%; OEE $50,000,000 -- $200,000 Reliance 5.0%; OCSLA $35,000,000 (100%) AOO C.T. Bowring 18.0% CCC $5,000,000 OCSLA $200,000 (100%) Per Occ. CCC $50,000 (100%) Per Occ. Sec. III Sec. III -- $50,000 --$1,000,000 (100%) AOO Construction All Risk HG 015595 10/5/95- National Vulcan Cornhill Ins. Aus. $209,032,000 Aus. $30,000 12/31/96 SR International All Perils except: Royal Insurance Global Aus. $250,000 Generali Windstorm, Flood, SCOR and Earth Movement Worker's Compensation-- E 13344308 Ongoing (Placed with Government) TBD South Australia Employer Cost Control 03P002771 7/31/96-97 CIGNA Maximum Weekly Insurance Benefit: $500 Professional Indemnity 9617VK18625 7/28/96-97 HIH Casualty & General TBD $20,000 each and Insurance Ltd. every claim Motor Vehicle MV 452743 7/31/96-97 CIC Insurance Own Damage: $24,000 Primary GL/AL/EL CXC 042960 8/13/96-97 CIGNA International $1,000,000 Mexico - Scada/Pemex Ea. Occurrence, Gen Agg. & Prod/CO Agg. (Contingent Auto) $2,000,000 BI by Accident $2,000,000 BI by disease (Each Employee) $2,000,000 BI by disease (Policy Limit) Follow Form Excess CXC 042962 8/26/96-97 CIGNA International $19,000,000 Any One Mexico - Scada/Pemex Occur. & Aggregate Foreign Workers' Comp. CXC 042979 11/1/96-97 CIGNA International $2,000,000 EPIP 8190265/ 11/1/96-97 American International $10,000,000 8190266 Specialty Lines Ins. Co. (AIG) Crime 4843124 11/1/96- AIG $1,000,000 11/1/97
22 SCHEDULE 2.1-A TO INSURANCE AGREEMENT TRANSFERRED OCCURRENCE-BASED POLICIES
OTHER POLICY SCHED. TYPE OF COVERAGE POLICY NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES - ------ ---------------- ------------- ------ ----------- ------ ----------- B All Risk Property YMM800856 6/1/96-97 Royal Insurance $2,000,000,000 $5,000,000 Damage/Business Blanket per Occur. Per Occ.-USA/Can. Interruption (Global) $250,000, Per Occ.-Rest of World B Aircraft Products Liability 46 MPP 154779 9/1/96-97 Associated Aviation $150,000,000 Underwriters Aggr. Cov. A $100,000,000 Aggr. Cov. B $150,000,000 Aggr. Cov. A & B B Aviation Hull & Liability 46BVH-153922 7/1/94-97 Associated Aviation $100,000,000 Underwriters Per Occurrence
23 SCHEDULE 2.1-B TO INSURANCE AGREEMENT CANCELLED OCCURRENCE-BASED POLICIES
OTHER SCHED. TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS - ------ ---------------- ------------- ------------ ----------- ------ B Excess Liability DL039795/07 9/1/96-97 Gerling-Konzern $10,000,000xs $10,000,000 B Excess Liability BE8180249RA 9/1/96-97 American International (AIG) $25,000,000xs Specialty Lines Ins. Co. $20,000,000 B Excess Liability DL188696/01 9/1/96-97 Gerling-Konzern $25,000,000xs $45,000,000 B Excess Liability EU 0835533-01 9/1/96-97 Steadfast Insurance Co. (Zurich) $22,000,000xs $70,000,000 B Excess Liability XTP 48390 9/1/96-97 United National Insur. Co. $8,000,000xs (Front for Amer Re) $92,000,000 B Automobile-Mexico HLN 00261 1/1/96-97 Seguros Comercial America BI: $30,000/$60,000 PD: $30,000 B Ocean Cargo EIPH1006 7/1/96-97 ESIS International, Inc. $10,000,000 One Conveyance B Comprehensive Boiler & BMI-SA- 11/1/96-97 Hartford Steam Boiler $100,000,000 Machinery Property 9138264-20 Per Accident Damage/Business Interruption B Foreign Public & Products 62/99102/D 9/1/96-97 Gerling-Konzern $2,000,000 Liability Insurance Per Occurrence (Primary Cover) B Umbrella Excess Liability W51010 9/1/96-97 Winterthur (Front for $8,000,000 Eastern Insurance Co.) Any One Occurrence xs $2,000,000 B Employer's Liability 054/950/ Not avail. Eagle Star Not avail. 60005626/1 Insurance Company Limited B Personal Accident-Europe 5.011.926 7/1/92 until CIGNA 800,000 Pounds cancelled Sterling per person 2,500,000 Pounds Sterling per acc. B Nuclear Energy NS-0379 1/1/96- Nuclear Energy $20,000,000 Liability Insurance 12/31/96 Liability Insurance Association OTHER SCHED. DEDUCTIBLES - ------ ----------- B B B B B B B $10,000,000 Per Occurrence B $5,000,000 Any One Accident B $5,000 per Claim $50,000 Pollution B B B B
24 SCHEDULE 2.2-A TO INSURANCE AGREEMENT TRANSFERRED CLAIMS-MADE POLICIES
OTHER POLICY SCHED. TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES ------ ---------------- ------ ------------ ----------- ------ ----------- A Excess Liability XLUMB 00912 9/1/96-97 XL Insurance Company $100,000,000 xs -Bermuda $100,000,000
25 SCHEDULE 2.2-B TO INSURANCE AGREEMENT CANCELLED CLAIMS-MADE POLICIES
OTHER SCHED. TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES ------ ---------------- ------------- ------------ ----------- ------ ----------- A Excess Liability UO5138609 9/1/96-97 OCIL-Bermuda $100,000,000 xs $200,000,000 A Excess Liability TGT 5035/4 9/1/96-97 ACE Insurance Company $200,000,000 xs -Bermuda $300,000,000 A Fiduciary Liability NIA 0120995-96 3/1/96-97 Reliance $50,000,000 $500,000 71FF 101007525BCM Aetna 8141-48-49-A Federal A ERISA Bond (Crime) 483-89-89 9/1/96-97 National Union Fire $15,000,000 NIL Ins. Co. (AIG)
26 SCHEDULE 7.1-A TO INSURANCE AGREEMENT LETTERS OF CREDIT CURRENTLY IN PLACE
LOC BANK LOC# AMOUNT --- ---- ---- ------ CIGNA Program NationsBank 130995 $22,000,000 CIGNA Program Texas Commerce I-422502 18,000,000 CA Self Insurance Bank of America LASB-119266 1,147,981
27 SCHEDULE 7.1-B TO INSURANCE AGREEMENT SURETY BONDS CURRENTLY IN PLACE See attached schedule. 28 EX-10.6 16 TAX SHARING AGREEMENT TAX SHARING AGREEMENT This Agreement is entered into as of December 11, 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. "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 Amended and Restated 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: /s/ Robert G. Simpson _________________________________ Its: Vice President, Tax _________________________________ Newport News Shipbuilding Inc. By: /s/ Stephen B. Clarkson _________________________________ Its: Vice President, General Counsel ________________________________ New Tenneco Inc. By: /s/ Robert G. Simpson _________________________________ Robert G. Simpson Vice President, Taxes El Paso Natural Gas Company By: /s/ Britton White, Jr. _________________________________ Its: Senior Vice President _________________________________ 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) 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. 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 EX-10.7 17 FIRST AMENDMENT TO TAX SHARING AGREEMENT FIRST AMENDMENT TO THE TAX SHARING AGREEMENT -------------------------------------------- This FIRST AMENDMENT (the "Amendment") to the TAX SHARING AGREEMENT, dated as of December 11, 1996 (the "Agreement"), among Tenneco Inc., a Delaware corporation ("Tenneco"), New Tenneco Inc., a Delaware corporation ("Industrial Company"), Newport News Shipbuilding Inc. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation ("Shipbuilding Company"), and El Paso Natural Gas Company, a Delaware corporation, is entered into as of December 11, 1996. Unless otherwise defined herein, capitalized terms used in this Amendment shall have the meaning assigned to such terms in the Agreement. WHEREAS, the parties have executed the Agreement; and WHEREAS, the parties hereto wish to amend the Agreement to provide for the allocation between the parties of State Income Taxes for 1996, including any estimated tax payments with respect to 1996 State Income Taxes and State Income Tax overpayments for 1995 which are carried forward and applied as payments on 1996 State Income Tax liabilities, together with refunds (when received) in connection with State Tax Returns as originally filed for 1996 or prior years; NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Companies hereby agree as follows: Section 1. Total 1996 State Income Tax Liabilities. The total 1996 --------------------------------------- State Income Tax liability allocated to each Group (the "separate State Tax Liability") shall be the sum of: (a) in the case of any State Income Tax which is a Separate Company Tax, the amount of Separate Company Tax imposed on any members of such Group; and (b) in the case of any Consolidated or Combined State Income Tax, the product of (I) the actual State Income Tax liability shown on the relevant Tax Returns (before application of estimated tax payments and other such credits) and (II) a fraction, the numerator of which is the State Income Tax liability of such Group, computed as if all the members of such Group included in the computation of such Tax had filed a consolidated or combined Tax Return for such Group's members based on the income, apportionment factors, and other items of such members (the "Hypothetical State Tax Liability"), and the denominator of which is the sum of the Hypothetical State Tax Liabilities of all of the Groups, such that the sum of the Separate State Tax Liabilities of the three Groups is equal to the total 1996 State Income Tax liabilities shown on the Tax Returns of all of the Groups (the "Total 1996 State Tax Liability"). The determination of the Separate Company Tax, the actual State Income Tax liability shown on the relevant Tax Returns and the Hypothetical State Tax Liability shall be made without regard to Base Amount Adjustment Items and Debt Discharge Items. Section 2. 1996 Estimated Tax Payments. "1996 Estimated Tax --------------------------- Payments" shall mean any estimated tax payments made with respect to the first three quarters of 1996 in connection with all Tax Returns filed in all States (including any overpayments of State Income Tax for 1995 which are carried forward and applied as payments on 1996 State Tax Returns). In the event that the 1996 Estimated Tax Payments exceed, or are less than, the Total 1996 State Tax Liability, such excess or deficit, as the case may be, shall be shared by the three Groups. Each Group's share shall be determined by multiplying such excess or deficit by a fraction, (a) the numerator of which is the Separate State Tax Liability determined for such Group, and (b) the denominator of which is the Total 1996 State Tax Liability, with appropriate payments being made by Industrial Company or Shipbuilding Company, to achieve the appropriate sharing of the 1996 Estimated Tax Payments. Section 3. Fourth Quarter Estimated Tax Payments. Industrial ------------------------------------- Company shall pay to the appropriate State taxing authorities the estimated taxes due with respect to the fourth quarter of 1996 (which shall not include any payment on a normal due date of a 1996 Tax Return in connection with obtaining an extension for the filing of such Tax Return). Industrial Company shall be reimbursed, without interest, after all of the allocations for the 1996 Estimated Tax Payments have been made. Shipbuilding Company shall reimburse Industrial Company for the portion of such fourth quarter payments relating to Separate Company Tax of the Shipbuilding Group (if any), and Tenneco shall reimburse Industrial Company for the portion of such fourth quarter payments relating to Separate Company Tax of the Tenneco Group (if any) and for the portion of such fourth quarter payments relating to Consolidated or Combined State Income Tax. -2- Section 4. Refunds. ------- (a) With respect to refunds received after the Distribution Date in connection with State Tax Returns as originally filed for 1995 or prior years, (i) in the case of any Tax Return relating to a Separate company Tax, such refunds shall be allocated to the Group whose members are included in such Tax Return, and (ii) in the case of any Tax Return relating to a Consolidated or combined State Income Tax, such refund shall be allocated to each Group based upon its respective share of the Tax liability, as shown in such Tax Return and, as was previously billed out to members of the Group by Tenneco. (b) Any refunds received in connection with Tax Returns for Consolidated or Combined State Income Tax for 1996 shall be for the account of Tenneco, subject to the allocation provided in Sections 1 and 2 of this Amendment. Section 5. Coordination With Agreement. This Amendment constitutes --------------------------- the entire agreement among the parties pertaining to the subject matter of this Amendment and supersedes anything to the contrary relating to State Income Taxes in the Agreement, but is specifically subject to Sections 2.03(b)(ii), 6.02 and 6.03 of the Agreement. To the extent that a Tax liability is allocated under this Amendment, such liability shall not be secondarily allocated under the Agreement. Section 6. Right to Review Tax Returns. The Responsible Company --------------------------- with respect to any 1996 State Tax Return shall make such Tax Return and related workpapers available for review by the other Companies, as requested. Section 7. Binding Effect. This Amendment shall be binding upon -------------- and inure to the benefit of the parties hereto and their successors and assigns. Section 8. No Other Amendments. This Amendment is limited as ------------------- specified and shall not constitute a modification, acceptance or waiver of any other provision of the Agreement. Section 9. Counterparts. This Amendment 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. Section 10. Governing Law. This Amendment and the rights and ------------- obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of Delaware. -3- IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by the respective officers as of the date set forth above. TENNECO INC. By /s/ Robert G. Simpson --------------------------------- Title: Vice President NEWPORT NEWS SHIPBUILDING INC. By /s/ Stephen B. Clarkson --------------------------------- Title: Vice President NEW TENNECO INC. By /s/ Robert G. Simpson --------------------------------- Title: Vice President EL PASO NATURAL GAS COMPANY By /s/ Britton White, Jr. --------------------------------- Title: Senior Vice President EX-10.8 18 TRANSITION SERVICES AGREEMENT DATED 6/19/1996 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 /s/ Matthew Appel __________________________________ TENNECO INC. By /s/ Michael W. Meyer __________________________________ EL PASO NATURAL GAS COMPANY By /s/ Britton White, Jr. __________________________________ 2 EX-10.9 19 TRADEMARK TRANSITION LICENSE AGREEMENT TRADEMARK TRANSITION LICENSE AGREEMENT Agreement made as of this 11th day of December, 1996, ("Effective Date") by and between Tenneco Management Company, a corporation organized and existing under the laws of the State of Delaware, whose principal place of business is located at 1275 King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and Newport News Shipbuilding Inc., a corporation organized under the laws of the State of Virginia, whose principal place of business is located at 4101 Washington Avenue, Newport News, Virginia 23607, hereinafter referred to as Licensee, Whereas, Licensor has adopted and is using the name and mark "Tenneco", alone and in combination with other terms and/or symbols and variations thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United States and elsewhere throughout the world and is the owner of the U.S. Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit A of this Agreement, from the United States Patent and Trademark Office, (hereinafter collectively referred to as the "Trademark"); and Whereas, Licensee is desirous of using said Trademark with respect to the goods and services listed on Exhibit B, to assist Licensee in its transition to a new identity and for the limited purposes more fully described below; Now, therefore, in consideration of the foregoing Recitals which are hereby incorporated into the operative terms hereof, the mutual promises contained in this Agreement and good and valuable consideration from the Licensee to the Licensor, the receipt and sufficiency of which is hereby acknowledged by said Licensor, the parties hereby agree as follows: 1. License. Licensor grants to Licensee and its subsidiary companies the limited, non-exclusive right to use the Trademark under the common law and under the auspices and privileges provided by any of the registrations covering the same during the term of this Agreement, and Licensee hereby undertakes to use the Trademark as follows: a. For a period of 30 days following the Effective Date of this Agreement, Licensee may use the Trademark in its corporate name. After 30 days following the Effective Date of this Agreement, Licensee shall change, if necessary, its corporate name to delete the Trademark or any other word that is confusingly similar to the Trademark (except the word "Tennessee"); b. For a period of six (6) months following the Effective Date of this Agreement, Licensee shall be entitled to use its existing supplies and documents which have imprinted thereon the Trademark to the extent that such supplies and documents were existing inventory prior to the Effective Date of this Agreement. Licensee shall not print any new supplies or documents bearing the Trademark as of the Effective Date of this Agreement. c. For a period of one year from the Effective Date of this Agreement, Licensee may use the Trademark on existing signs, displays or other identifications or advertising material (except as limited in b above). Licensee shall not prepare or install any new signs, displays or other identifications or advertising material bearing the Trademark. Licensee shall remove any and all references to the Trademark from any and all signs, displays or other identifications or advertising material by the end of the one year period. 2. Quality of Services. Licensee agrees to maintain such quality standards as shall be prescribed by Licensor in the conduct of the business operations with which the Trademark is used. Licensee shall use the Trademark only with goods and services listed in Exhibit B rendered by Licensee in accordance with the terms of this agreement and with the guidance and directions furnished to the Licensee by the Licensor, or its authorized representatives or agents, from time to time, if any; but always the quality of the goods and services shall be satisfactory to the Licensor or as specified by it. 3. Inspection. Licensee will permit duly authorized representatives of the Licensor to inspect the premises of Licensee using the Trademarks at all reasonable times, for the purpose of ascertaining or determining compliance with Paragraphs 1 and 2 hereof. 4. Use of Trademark. When using the Trademark under this Agreement, Licensee undertakes to comply substantially with all laws pertaining to the Trademark. This provision includes compliance with marking requirements. Licensee represents and warrants that all goods and services to be sold under the Trademark and the marketing, sales, and distribution of them shall meet or exceed all federal, state, and local laws, ordinances, standards, regulations, and guidelines pertaining to such products or activities, including, but not limited to, those pertaining to product safety, quality, labeling and propriety. Licensee agrees that it will not package, market, sell, or distribute any goods or services or cause or permit any goods or services to be packaged, marketed, sold, or distributed in violation of any such federal, state, or local law, ordinance, standard, regulation, or guideline. 5. Extent of License. The license granted herein is for the sole purpose of assisting Licensee in its transition to a new identity and is not assignable or transferable in any manner whatsoever. Licensee has no right to grant any sublicenses or to use the Trademark for any other purpose. 6. Indemnity. Licensee acknowledges that it will have no claims against Licensor for any damage to property or injury to persons arising out of the operation of Licensee's business. Licensee agrees to indemnify, hold harmless, and defend Licensor and its subsidiaries and its authorized representatives with legal counsel acceptable to Licensor from and against any and all demands, claims, injuries, losses, damages, actions, suits, causes of action, proceedings, judgments, liabilities and expenses, including attorneys' fees, court costs and other legal expenses, arising out of or connected with: a. Licensee's use of the Trademark; or b. any breach by Licensee of any provision of this Agreement or of any warranty made by Licensee in this Agreement. No approval by Licensor of any action by Licensee shall affect any right of Licensor to indemnification hereunder. 7. Termination. Except as otherwise provided herein, this Agreement shall remain in full force and effect for the periods stated in Paragraph 1, above. However, Licensor retains the right to immediately terminate this Agreement in the event of a material breach of any term of this Agreement by Licensee, upon written notice to the Licensee. 8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive right, title and interest in and to the Trademark and will not at any time do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part or all of such right, title and interest. In connection with the use of the Trademark, Licensee shall not in any manner represent that it has any ownership in the Trademark or registrations thereof, and acknowledges that use of the Trademark shall enure to the benefit of the Licensor. On termination of this Agreement or any portion thereof in any manner provided herein, the Licensee will destroy all signs, displays or other identifications or advertising material, supplies and documents, and any other materials bearing the Trademark and will certify to Licensor in writing that it has done so. Furthermore, Licensee will not at any time adopt or use without the Licensor's prior written consent, any word or mark which is likely to be similar to or confusing with the Trademark (except the word "Tennessee"). 9. Infringement of Trademark. If Licensee learns of any actual or threatened infringement of the Trademark or of the existence, use, or promotion of any mark or design similar to the Trademark, Licensee shall promptly notify Licensor. Licensor has the right to decide at its sole discretion what legal proceedings or other action, if any, shall be taken, by who, how such proceedings or other action shall be conducted, and in whose name such proceedings or other action shall be performed. Any legal proceedings instituted pursuant to this Section shall be for the sole benefit of Licensor and all sums recovered in such proceedings, whether by judgment, settlement, or otherwise, shall be retained solely and exclusively by Licensor. 10. Injunctive Relief. Licensee acknowledges that any breach or threatened breach of any of Licensee's covenants in this Agreement relating to the Trademark, including, without limitation, Licensee's failure to cease the manufacture, sale, marketing, or distribution of the goods bearing the Trademark at the termination or 2 expiration of this Agreement will result in immediate and irreparable damage to Licensor and to the rights of any subsequent Licensee of them. Licensee acknowledges and admits that there is no adequate remedy at law for failure to cease such activities, and Licensee agrees that in the event of such breach or threatened breach, Licensor shall be entitled to temporary and permanent injunctive relief and such other relief as any court with jurisdiction may deem just and proper. 11. Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law or any competent government or other authority, the remaining provisions shall be severable and enforceable in accordance with their terms so as this Agreement without such terms or provisions does not fail of its essential purpose or purposes. The parties will negotiate in good faith to replace any such illegal or unenforceable provision or provisions with suitable substitute provisions which maintain the economic purposes and intentions of this Agreement. 12. Notice. Any notices required or permitted to be given under this Agreement shall be deemed sufficiently given if mailed by registered mail, postage prepaid, addressed to the party to be notified at its address shown above, (followed by facsimile) or at such other address as may be furnished in writing to the notifying party. 13. Miscellaneous. a. Captions. The captions for each Section have been inserted for the sake of convenience and shall not be deemed to be binding upon the parties for the purpose of interpretation of this Agreement. b. Interpretation. The parties agree that each party and its counsel has reviewed this Agreement and the normal rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. c. Waiver. The failure of Licensor to insist in any one or more instances upon the performance of any term, obligation, or condition of this Agreement by Licensee or to exercise any right or privilege herein conferred upon Licensor shall not be construed as thereafter waiving such term, obligation, or condition, or relinquishing such right or privilege, and the acknowledged waiver or relinquishment by Licensor of any default or right shall not constitute waiver of any other default or right. No waiver shall be deemed to have been made unless expressed in writing. d. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Agreement, and Licensee shall use its best efforts to transition all existing materials, including signs and displays, bearing the Trademark to a new name and mark. e. Rights Cumulative. Except as expressly provided in this Agreement, and to the extent permitted by law, any remedies described in this Agreement are cumulative and not alternative to any other remedies available at law or in equity. f. Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. Attest: LICENSOR /s/ James Gaughan By: /s/ Mark A. McCullum - ------------------------------- ---------------------------------- Assistant Secretary Vice President Attest: LICENSEE /s/ James Gaughan By: /s/ Stephen B. Clarkson - ------------------------------- ---------------------------------- Assistant Secretary Vice President 3 EXHIBIT "A"
REGISTRATION EXPIRATION TRADEMARK NO. DATE --------- ------------ ----------- Tenneco 1050475 19OC1996 Tenneco 866995 25MR2009 Tenneco 823408 31JA2007 Tenneco 786614 16MR2005 Tenneco 783055 12JA2005 Tenneco 827435 18AP2007 Tenneco 1250178 06SE2003 Tenneco 1251601 20SE2003 Tenneco 1310943 25DE2004 Tenneco 1930571 31OC2005 Tenneco 1917869 12SE2005 Tennnet 1956845 13FE2006 Tennnet 1929997 24OC2005 Tenneco & Shield 831633 14JL2007 Tenneco & Shield 857262 24SE1998 Tenneco & Shield 823409 31JA2007 Tenneco & Shield 827436 18AP2007 Tenneco & Shield 786595 16MR2005 Tenneco & Shield 786984 23MR2005 Tenneco & Shield 1250177 06SE2003 Tenneco & Shield 1236187 03MY2003 Tenneco & Shield 1310944 25DE2004 Tenneco & Shield 1614779 25SE2000 Tenn-Speed 1542283 06JU2009 Tenn-Speed 2 1841694 28JU2004 Tenn-Speed 2 1855752 27SE2004 APPLICATION APPLICATION TRADEMARK NO. DATE --------- ------------ ----------- Tenneco 731906 13SE1995 Tenneco 521074 09MY1994 Tenneco & Horizon 731464 13SE1995
EXHIBIT B Ships Custom and naval shipbuilding, drydock and ship repair services. Naval architectural design. EX-10.10 20 TRADEMARK TRANSITION LICENSE AGREEMENT TRADEMARK TRANSITION LICENSE AGREEMENT Agreement made as of this 11 day of December, 1996 ("Effective Date") by and between Tenneco Management Company, a corporation organized and existing under the laws of the State of Delaware, whose principal place of business is located at 1275 King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and Tenneco Inc. (to be renamed El Paso Tennessee Pipeline Co.), a corporation organized under the laws of the State of Delaware, whose principal place of business is located at 1010 Milam St., Houston, TX 77002, hereinafter referred to as Licensee, Whereas, Licensor has adopted and is using the name and mark "Tenneco", alone and in combination with other terms and/or symbols and variations thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United States and elsewhere throughout the world and is the owner of the U.S. Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit A of this Agreement, from the United States Patent and Trademark Office, (hereinafter collectively referred to as the "Trademark"); and Whereas, Licensee is desirous of using said Trademark with respect to the goods and services listed on Exhibit B, to assist Licensee in its transition to a new identity and for the limited purposes more fully described below; Now, therefore, in consideration of the foregoing Recitals which are hereby incorporated into the operative terms hereof, the mutual promises contained in this Agreement and good and valuable consideration from the Licensee to the Licensor, the receipt and sufficiency of which is hereby acknowledged by said Licensor, the parties hereby agree as follows: 1. License. Licensor grants to Licensee and its subsidiary companies the limited, non-exclusive right to use the Trademark under the common law and under the auspices and privileges provided by any of the registrations covering the same during the term of this Agreement, and Licensee hereby undertakes to use the Trademark as follows: a. For a period of 30 days following the Effective Date of this Agreement, Licensee may use the Trademark in its corporate name. After 30 days following the Effective Date of this Agreement, Licensee shall change, if necessary, its corporate name to delete the Trademark or any other word that is confusingly similar to the Trademark (except the word "Tennessee"); b. For a period of six (6) months following the Effective Date of this Agreement, Licensee shall be entitled to use its existing supplies and documents which have imprinted thereon the Trademark to the extent that such supplies and documents were existing inventory prior to the Effective Date of this Agreement. Licensee shall not print any new supplies or documents bearing the Trademark as of the Effective Date of this Agreement. c. For a period of two years from the Effective Date of this Agreement, Licensee may use the Trademark on existing signs, displays or other identifications or advertising material (except as limited in b above). Licensee shall not prepare or install any new signs, displays or other identifications or advertising material bearing the Trademark. Licensee shall remove any and all references to the Trademark from any and all signs, displays or other identifications or advertising material by the end of the two year period. 2. Quality of Services. Licensee agrees to maintain such quality standards as shall be prescribed by Licensor in the conduct of the business operations with which the Trademark is used. Licensee shall use the Trademark only with goods and services listed in Exhibit B rendered by Licensee in accordance with the terms of this agreement and with the guidance and directions furnished to the Licensee by the Licensor, or its authorized representatives or agents, from time to time, if any; but always the quality of the goods and services shall be satisfactory to the Licensor or as specified by it. 3. Inspection. Licensee will permit duly authorized representatives of the Licensor to inspect the premises of Licensee using the Trademarks at all reasonable times, for the purpose of ascertaining or determining compliance with Paragraphs 1 and 2 hereof. 4. Use of Trademark. When using the Trademark under this Agreement, Licensee undertakes to comply substantially with all laws pertaining to the Trademark. This provision includes compliance with marking requirements. Licensee represents and warrants that all goods and services to be sold under the Trademark and the marketing, sales, and distribution of them shall meet or exceed all federal, state, and local laws, ordinances, standards, regulations, and guidelines pertaining to such products or activities, including, but not limited to, those pertaining to product safety, quality, labeling and propriety. Licensee agrees that it will not package, market, sell, or distribute any goods or services or cause or permit any goods or services to be packaged, marketed, sold, or distributed in violation of any such federal, state, or local law, ordinance, standard, regulation, or guideline. 5. Extent of License. The license granted herein is for the sole purpose of assisting Licensee in its transition to a new identity and is not assignable or transferable in any manner whatsoever. Licensee has no right to grant any sublicenses or to use the Trademark for any other purpose. 6. Indemnity. Licensee acknowledges that it will have no claims against Licensor for any damage to property or injury to persons arising out of the operation of Licensee's business. Licensee agrees to indemnify, hold harmless, and defend Licensor and its subsidiaries and its authorized representatives with legal counsel acceptable to Licensor from and against any and all demands, claims, injuries, losses, damages, actions, suits, causes of action, proceedings, judgments, liabilities and expenses, including attorneys' fees, court costs and other legal expenses, arising out of or connected with: a. Licensee's use of the Trademark; or b. any breach by Licensee of any provision of this Agreement or of any warranty made by Licensee in this Agreement. No approval by Licensor of any action by Licensee shall affect any right of Licensor to indemnification hereunder. 7. Termination. Except as otherwise provided herein, this Agreement shall remain in full force and effect for the periods stated in Paragraph 1, above. However, Licensor retains the right to immediately terminate this Agreement in the event of a material breach of any term of this Agreement by Licensee, upon written notice to the Licensee. 8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive right, title and interest in and to the Trademark and will not at any time do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part or all of such right, title and interest. In connection with the use of the Trademark, Licensee shall not in any manner represent that it has any ownership in the Trademark or registrations thereof, and acknowledges that use of the Trademark shall enure to the benefit of the Licensor. On termination of this Agreement or any portion thereof in any manner provided herein, the Licensee will destroy all signs, displays or other identifications or advertising material, supplies and documents, and any other materials bearing the Trademark and will certify to Licensor in writing that it has done so. Furthermore, Licensee will not at any time adopt or use without the Licensor's prior written consent, any word or mark which is likely to be similar to or confusing with the Trademark (except the word "Tennessee"). 9. Infringement of Trademark. If Licensee learns of any actual or threatened infringement of the Trademark or of the existence, use, or promotion of any mark or design similar to the Trademark, Licensee shall promptly notify Licensor. Licensor has the right to decide at its sole discretion what legal proceedings or other action, if any, shall be taken, by who, how such proceedings or other action shall be conducted, and in whose name such proceedings or other action shall be performed. Any legal proceedings instituted pursuant to this Section shall be for the sole benefit of Licensor and all sums recovered in such proceedings, whether by judgment, settlement, or otherwise, shall be retained solely and exclusively by Licensor. 10. Injunctive Relief. Licensee acknowledges that any breach or threatened breach of any of Licensee's covenants in this Agreement relating to the Trademark, including, without limitation, Licensee's failure to cease the manufacture, sale, marketing, or distribution of the goods bearing the Trademark at the termination or 2 expiration of this Agreement will result in immediate and irreparable damage to Licensor and to the rights of any subsequent Licensee of them. Licensee acknowledges and admits that there is no adequate remedy at law for failure to cease such activities, and Licensee agrees that in the event of such breach or threatened breach, Licensor shall be entitled to temporary and permanent injunctive relief and such other relief as any court with jurisdiction may deem just and proper. 11. Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law or any competent government or other authority, the remaining provisions shall be severable and enforceable in accordance with their terms so as this Agreement without such terms or provisions does not fail of its essential purpose or purposes. The parties will negotiate in good faith to replace any such illegal or unenforceable provision or provisions with suitable substitute provisions which maintain the economic purposes and intentions of this Agreement. 12. Notice. Any notices required or permitted to be given under this Agreement shall be deemed sufficiently given if mailed by registered mail, postage prepaid, addressed to the party to be notified at its address shown above, (followed by facsimile) or at such other address as may be furnished in writing to the notifying party. 13. Miscellaneous. a. Captions. The captions for each Section have been inserted for the sake of convenience and shall not be deemed to be binding upon the parties for the purpose of interpretation of this Agreement. b. Interpretation. The parties agree that each party and its counsel has reviewed this Agreement and the normal rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. c. Waiver. The failure of Licensor to insist in any one or more instances upon the performance of any term, obligation, or condition of this Agreement by Licensee or to exercise any right or privilege herein conferred upon Licensor shall not be construed as thereafter waiving such term, obligation, or condition, or relinquishing such right or privilege, and the acknowledged waiver or relinquishment by Licensor of any default or right shall not constitute waiver of any other default or right. No waiver shall be deemed to have been made unless expressed in writing. d. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Agreement, and Licensee shall use its best efforts to transition all existing materials, including signs and displays, bearing the Trademark to a new name and mark. e. Rights Cumulative. Except as expressly provided in this Agreement, and to the extent permitted by law, any remedies described in this Agreement are cumulative and not alternative to any other remedies available at law or in equity. Attest: LICENSOR /s/ James Gaughon By: /s/ Mark A. McCullum - ------------------------------- ---------------------------------- Assistant Secretary Vice President Attest: LICENSEE /s/ James Gaughon By: /s/ Karen R. Osar - ------------------------------- ---------------------------------- Assistant Secretary Vice President 3 EXHIBIT "A"
REGISTRATION EXPIRATION TRADEMARK NO. DATE --------- ------------ ----------- Tenneco 1050475 19OC1996 Tenneco 866995 25MR2009 Tenneco 823408 31JA2007 Tenneco 786614 16MR2005 Tenneco 783055 12JA2005 Tenneco 827435 18AP2007 Tenneco 1250178 06SE2003 Tenneco 1251601 20SE2003 Tenneco 1310943 25DE2004 Tenneco 1930571 31OC2005 Tenneco 1917869 12SE2005 Tennnet 1956845 13FE2006 Tennnet 1929997 24OC2005 Tenneco & Shield 831633 14JL2007 Tenneco & Shield 857262 24SE1998 Tenneco & Shield 823409 31JA2007 Tenneco & Shield 827436 18AP2007 Tenneco & Shield 786595 16MR2005 Tenneco & Shield 786984 23MR2005 Tenneco & Shield 1250177 06SE2003 Tenneco & Shield 1236187 03MY2003 Tenneco & Shield 1310944 25DE2004 Tenneco & Shield 1614779 25SE2000 Tenn-Speed 1542283 06JU2009 Tenn-Speed 2 1841694 28JU2004 Tenn-Speed 2 1855752 27SE2004 APPLICATION APPLICATION TRADEMARK NO. DATE --------- ------------ ----------- --- Tenneco 731906 13SE1995 Tenneco 521074 09MY1994 Tenneco & Horizon 731464 13SE1995
EXHIBIT B Natural gas. Business management and planning services in the field of natural gas, liquefied natural gas, power generation and cogeneration projects; and economic analysis. Telephone calling card services. Computer programs for use as an interactive request system for the transportation and exchange of natural gas. Books, brochures, printed instructional materials and computer manuals in the field of computer programs which are used as an interactive request system for the transportation and exchange of natural gas. Management of construction. Telecommunications services. Transportation by pipeline and storage of natural gas, and transmission of oil or gas through pipelines. Educational services, namely conducting classes, conferences, and workshops, regarding the training of others in the operation, maintenance, and management of facilities relating to the natural gas industry, natural gas pipelines, natural gas and liquefied natural gas facilities, and cogeneration and power generation stations. Engineering and drafting services; technical consulting in the field of energy; and inspection and supervision of maintenance services provided by others. Ships Custom and naval shipbuilding, drydock and ship repair services. Naval architectural design. EX-10.28 21 AMENDED & RESTATED MILL I LEASE EXHIBIT 10.28 ------------------------------------------ AMENDED AND RESTATED MILL I LEASE ------------------------------------------- between CREDIT SUISSE LEASING 92A, L.P., as Lessor and TENNECO PACKAGING INC., as Lessee Dated: As of November 4, 1996 Location: Town of Bradley County of Lincoln State of Wisconsin THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY FROM l TO __. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN COUNTERPART NO. 1. This is Counterpart No. ____ 1 TABLE OF CONTENTS (Not a part of the Lease) Paragraph Page - --------- ---- 1. Lease of Mill I Property; Title and Condition................... 2 2. Use; Quiet Enjoyment; Ownership; Hazardous Materials............ 2 2A. Acquisition; Construction; Financing............................ 4 3. Term............................................................ 5 4. Rent............................................................ 5 5. Net Lease; Non-Terminability.................................... 6 6. Taxes and Assessments; Compliance with Law; Certain Agreements.. 7 7. Matters of Title................................................ 8 8. [Intentionally Omitted]......................................... 10 9. Maintenance and Repair; Inspection.............................. 10 i Paragraph Page - --------- ---- 10. Mill I Alterations; Removal..................................... 11 11. Lessee's Right to Contest Real Property Taxes................... 13 12. Condemnation and Casualty....................................... 14 13. Environmental Event............................................. 18 14. Offer to Purchase............................................... 23 15. Procedure Upon Purchase......................................... 24 16. Insurance....................................................... 26 17. Subletting; Assignability; Amendment of Facility Agreements..... 29 18. Permitted Contests.............................................. 30 19. Default Provisions.............................................. 32 20. Additional Rights; Mortgage..................................... 35 ii Paragraph Page - --------- ---- 21. Notices, Demands and Other Instruments.......................... 41 22. No Default Certificate.......................................... 41 23. Surrender....................................................... 42 24. Severability; Binding Effect; Governing Law; Non-Recourse....... 44 25. Headings and Table of Contents.................................. 45 26. Lessor's Right to Cure Lessee's Default......................... 45 27. Lessee's Options Upon Expiration................................ 45 28. Protective Expenditures......................................... 50 29. Limitations on Amounts Payable.................................. 51 30. No Merger of Title.............................................. 51 31. Payments to the Agent........................................... 51 iii Paragraph Page - --------- ---- 32. Remaining Moneys................................................ 51 33. Replace and Supersede........................................... 52 Schedule A - Description of the Mill I Parcel Schedule B - Fixed Rent and Additional Rent Schedule Schedule C - Environmental Disclosure Exhibit A - Performance Tests iv AMENDED AND RESTATED MILL I LEASE dated as of November 4, 1996 (this "Lease") ----- between CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership (the "Lessor"), having an address at 11 Madison Avenue, New York, New York 10010 and ------ TENNECO PACKAGING INC., a Delaware corporation (the "Lessee"), having an address ------ at 1603 Orrington Avenue, Evanston, Illinois 60201. The schedules and exhibits referred to in this Lease are hereby incorporated by reference herein. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Participation Agreement dated as of November 4, 1996, by and among NEW TENNECO INC., the Lessee, the Lessor, STATE STREET BANK AND TRUST COMPANY, as Collateral Agent, and CITIBANK, N.A., as Agent, and the Persons named therein as Note Holders (as the same may be amended, modified or supplemented from time to time, the "Participation Agreement"). ----------------------- Preliminary Statement --------------------- The Lessor and the Lessee entered into a certain Mill I Lease dated as of November 4, 1996, pursuant to which the Lessor agreed to sublease the Mill I Parcel and lease Mill I, the Mill I Improvements and the Mill I Alterations to the Lessee on the terms and subject to the provisions therein set forth (the "Original Mill I Lease"). The Lessor and the Lessee wish to modify and amend - ---------------------- certain provisions of the Original Mill I Lease and to restate, in its entirety, the provisions of the Original Mill I Lease, all in the manner hereinafter set forth. It is intended by the Lessor and the Lessee that (a) this Lease replaces in its entirety and supersedes in all respects the Original Mill I Lease and (b) that all references in the Participation Agreement and any of the Operative Documents to the "Mill I Lease" shall mean and refer to this Lease. As of the Financing Closing Date, the Lessor will have acquired a leasehold interest in the Mill I Parcel described on Schedule A hereto and fee title to Mill I located on the Mill I Parcel. The Lessor wishes to sublease the Mill I Parcel, and lease Mill I, the Mill I Improvements and the Mill I Alterations to the Lessee (for convenience of reference, such sublease of the Mill I Parcel and lease of Mill I, the Mill I Improvements, the Mill I Alterations and the balance of the Mill I Property being collectively referred to as the lease of the Mill I Property) and the Lessee wishes to lease the same from the Lessor for the Term, or the Extended Term (as defined below), as applicable, and on the terms and subject to the provisions hereafter set forth. 1 NOW, THEREFORE, the parties do hereby agree as follows: 1. Lease of Mill I Property; Title and Condition. (a) In --------------------------------------------- consideration of the rents and covenants herein stipulated to be paid and performed by the Lessee, for the Term, or the Extended Term (as applicable), and upon the terms and conditions herein specified, (i) the Lessor hereby leases to the Lessee the Mill I Property and (ii) the Lessee hereby leases and accepts from the Lessor the Mill I Property. The Mill I Property is leased to the Lessee subject to (w) the terms, covenants and provisions of the Mill I Ground Lease, (x) all applicable Legal Requirements and all of the insurance requirements set forth in paragraphs 16(a) through (c) hereof (collectively, the "Insurance Requirements") now or hereafter in effect; (y) all Permitted ---------------------- Encumbrances; and (z) the terms, covenants and provisions of this Lease. The Lessee has, as of the date hereof, examined the Mill I Property and title thereto and has found the same satisfactory for all purposes of this Lease. (b) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE MILL I PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR AS TO THE LESSOR'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY THE LESSEE. IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE MILL I PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR LESSOR'S TITLE TO ANY OF THE SAME, WHETHER PATENT OR LATENT, THE LESSOR SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS PARAGRAPH 1(b) HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO THE MILL I PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW, NOW OR HEREAFTER IN EFFECT. 2. Use; Quiet Enjoyment; Ownership; Hazardous Materials. (a) The Lessee shall ---------------------------------------------------- use the Mill I Property solely as a pulp and paper mill facility, storage facilities and related business offices, in a manner consistent with the provisions of paragraph 9. The Lessee covenants that it will cause Mill I, the Mill I Improvements and the Mill I Alterations (to the extent the same are or become an integral part of the Mill I Property) at all times to be located on the Mill I Parcel. 2 (b) During the Term or the Extended Term, the Lessor covenants that, unless a Default or an Event of Default or a Major Environmental Event has occurred and is continuing, it will not, and will not permit any party claiming by or under the Lessor (subject to the terms, covenants and provisions of the Ground Lease) to, (i) grant, create or suffer to exist any Lien upon the Mill I Property (or any part thereof or interest therein) other than the Permitted Encumbrances (excluding therefrom any Lessor's Lien); or (ii) interfere with the peaceful and quiet possession and enjoyment of the Mill I Property by the Lessee; provided, -------- however, that the Lessor, the Agent, the Collateral Agent, the Equity Investor, - ------- the Independent Engineer, the Environmental Consultant, the Appraiser and their respective successors, assigns, representatives and agents (the "Lessor Group") ------------ may, upon advance written notice to the Lessee (unless any member of the Lessor Group, each in its sole discretion, has reason to believe that a Default, an Event of Default or a Major Environmental Event has occurred and is continuing or other exigent or emergency conditions exist, in which case no such notice shall be necessary), enter upon and examine the Mill I Property or any part thereof (including all records directly related to the Mill I Property) at reasonable times in compliance with and subject to Lessee's standard safety and security procedures, in effect from time to time; provided, further, that if a -------- ------- Default, an Event of Default or a Major Environmental Event has occurred and is continuing or if the Lessee has exercised its option to terminate this Lease pursuant to clause (ii) of paragraph 27(a), then the Lessee shall give the Lessor Group such additional access to the Mill I Property and to the Lessee's books and records relating to the management, operation, use, maintenance, renovation, construction or occupancy of the Mill I Property as it may require for any purpose, including, without limitation, for marketing, selling, operating or otherwise disposing of the Mill I Property. (c) The Lessor will not, and will not permit any party claiming by, through or under the Lessor to assign, transfer, lease or convey the Mill I Property or this Lease, or any part thereof or interest therein other than to the Collateral Agent. The foregoing restriction will not apply to (i) removal of the Mill I Alterations by the Lessee to the extent permitted under this Lease or (ii) any assignment, transfer or conveyance of the Mill I Property or this Lease to the Collateral Agent or as otherwise permitted under the Interparty Agreement or under the Participation Agreement; provided that any such assignment, -------- ---- 3 transfer or conveyance (prior to the Expiration Date or when an Event of Default does not exist) is expressly subordinate to the rights of the Lessee under this Lease and (y) subject to the rights of the Lessee to purchase the Mill I Property pursuant to the Operative Documents. (d) The Lessor, at the Lessee's sole cost and expense, shall cooperate or assist with the Lessee's efforts to obtain all services, Permits and contracts necessary and useful for the renovation and construction of the Mill I Improvements and the acquisition, operation and maintenance of the Mill I Property for the intended purposes thereof, and the Lessor may, and to the extent required in paragraph 7(c) shall, execute such documents or papers as may be reasonably necessary for such purposes. The Lessee further covenants that it shall at its own cost and expense on behalf of and in the name of the Lessor, apply for, obtain and maintain all Permits required in order to permit the lawful ownership of the Mill I Property by the Lessor during the Term or the Extended Term, as the case may be. (e) Any failure by the Lessor or such other Person to comply with the foregoing provisions of this paragraph 2 or any other provisions of this Lease shall not give the Lessee any right to cancel or terminate this Lease, or to abate, reduce or make deduction from or offset against any Fixed Rent, Additional Rent or other sum payable under this Lease, or to fail to perform or observe any other covenant, agreement or obligation hereunder. (f) The Lessee shall, and it shall require and ensure that any and all sublessees, employees, contractors, subcontractors, agents, representatives, affiliates, consultants, occupants and any and all other Persons, subject to paragraph 13, (i) comply with all applicable Environmental Laws, and (ii) use, employ, process, emit, generate, store, handle, transport, dispose of and/or arrange for the disposal of any and all Hazardous Materials in, on or, directly or indirectly, related to or in connection with the Mill I Property or any part thereof in a manner consistent with prudent industry practice and in compliance with all applicable Environmental Laws, and in a manner which does not pose a significant risk to human health, safety (including occupational health and safety) or the environment. The Lessor and the Lessee hereby acknowledge and agree that the Lessee's obligations hereunder with respect to Hazardous Materials and Environmental Laws are intended to bind the Lessee with respect to matters and conditions on, in, under, beneath, from, with respect to, affecting, related to, in connection with, or involving the Mill I Property or any part thereof. 4 2A. Acquisition; Construction; Financing. (a) The Lessee has entered into the ------------------------------------ Agency Agreement with the Lessor pursuant to which the Lessee as Construction Agent has agreed to complete the renovation and construction of such Mill I Improvements as the Lessee, in its sole discretion, shall determine to construct as contemplated by the Participation Agreement. The Mill I Improvements shall, as the construction of same is completed upon the Mill I Parcel, become a part of Mill I, and title thereto shall remain in the Lessor. (b) In order to finance the acquisition by the Lessor of its leasehold interest in the Mill I Parcel and its ownership interest in the balance of the Mill I Property and to finance the cost of renovation and construction of the Mill I Improvements, if any, the Note Holders, as contemplated by the Participation Agreement, will advance to the Agent on behalf of the Lessor the Actual Project Costs up to their respective Note Commitments, and in consideration therefor, the Lessor will issue A-Notes and B-Notes to the Note Holders, and the Equity Investors, as contemplated by the Participation Agreement, will make an Equity Investment in the Mill I Property in an amount up to the Equity Investment Amount. 3. Term. The Mill I Property is leased for an initial term (the "Term") which ---- ---- shall commence on the Financing Closing Date and shall terminate on January 30, 2002 (the "Expiration Date"), or such earlier date as this Lease shall be --------------- terminated pursuant to any provision hereof; provided, however, this Lease may -------- ------- be extended for an Extended Term pursuant to paragraph 27(d) hereof. 4. Rent. (a) During the Term (or the Extended Term, as applicable), the ---- Lessee shall pay to the Agent, on behalf of the Lessor, Fixed Rent on each Payment Date in the amounts determined in accordance with Schedule B hereto and Additional Rent (as defined below) in the amounts determined in accordance with (and at the times required under) the Operative Documents. (b) All amounts that the Lessee is required to pay to the Lessor pursuant to this Lease (other than Fixed Rent), including, but not limited to, (i) unpaid Charges and all amounts set forth in paragraph 4(e)(ii) hereof, (ii) all sums, costs and expenses pursuant to paragraphs 23 and 26 hereof, (iii) all costs and expenses relating to the Mill I Property or the Lessee's use or the Lessor's ownership thereof (or leasehold interest therein), (iv) any and all amounts payable upon transfer or purchase of (or otherwise relating to) the Mill I Property, together with every fine, penalty, interest and cost that may be added for non-payment or late payment thereof, and 5 (v) all Additional Costs, shall constitute "Additional Rent". The Lessor shall --------------- give the Lessee notice of any Additional Rent due hereunder promptly after it has knowledge of such Additional Rent, and shall use reasonable efforts to notify the Lessee in advance of the due date and amount of such Additional Rent; provided that failure to give such prompt notice shall not relieve the Lessee of its obligation to pay such Additional Rent, subject to, as applicable, the Lessee's rights, if any, under paragraph 18 hereof. Additional Rent shall be payable as provided for in Section II of Schedule B or as otherwise provided in this Lease. (c) The Lessee shall pay to the Lessor, on demand, interest at the Default Rate on all amounts payable by it to the Lessor hereunder from the due date thereof until paid in full. (d) All amounts payable by the Lessee hereunder shall be paid in lawful money of the United States of America and in immediately available funds by 11:00 a.m. (New York City time) on the applicable Payment Date or on the date when due, unless any such due date is not a Business Day, in which case payment shall be due and payable on the next succeeding Business Day, at the Agent's address as set forth in Schedule I to the Participation Agreement, or at such other address or to such other person in the United States of America or in such other manner as the Lessor from time to time may designate to the Lessee by written instructions. (e) The Lessee shall perform all of its obligations under this Lease at its sole cost and expense and shall pay, when due and without notice or demand (except as otherwise provided in this Lease), all amounts due hereunder, under Section 8.13 of the Participation Agreement, or under the other Operative Documents or Securitization Documents. The Lessee agrees to pay on demand (i) all Charges (subject to Lessee's rights pursuant to paragraphs 11 and 18) and (ii) all indemnity obligations and all charges, reasonable fees, expenses and out-of- pocket costs of the Lessor, Lessor's Special Counsel, the Note Holders, the Equity Investors, the Collateral Agent and the Agent and other amounts, in accordance with the Participation Agreement. 5. Net Lease; Non-Terminability. (a) This Lease is a net lease and, except ---------------------------- as otherwise expressly provided in this Lease, any present or future Law to the contrary notwithstanding, shall not terminate, nor shall the Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Fixed Rent, Additional Rent or other sum payable hereunder. Except as otherwise expressly provided in this Lease, the obligations of the Lessee shall not 6 be affected by reason of: (i) any damage to or destruction of the Mill I Property or any part thereof by any cause whatsoever (including, without limitation, by fire, Casualty or act of God or enemy or any other force majeure event); (ii) any Condemnation, including, without limitation, a temporary Condemnation of the Mill I Property or any part thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of the Mill I Property or any part thereof by any Person; (iv) any matter affecting title to the Mill I Property or any part thereof; (v) any eviction of the Lessee from, or loss of possession by the Lessee of, the Mill I Property or any part thereof, by reason of title paramount or otherwise; (vi) any default by the Lessor hereunder or under any other Operative Document or Securitization Document; (vii) the invalidity or unenforceability of any provision hereof or in the other Operative Documents or the impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Federal, state or local governmental authority; or (ix) any other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The parties intend that the obligations of the Lessee hereunder shall continue unaffected unless such obligations shall have been modified or terminated pursuant to an express provision of this Lease. (b) The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. Except as expressly permitted in this Lease, the Lessee waives all rights to terminate or surrender this Lease, or to any abatement or deferment of Fixed Rent, Additional Rent or other sums payable hereunder or under the other Operative Documents. The Lessee shall remain obligated under this Lease in accordance with its terms, and the Lessee hereby waives any and all rights now or hereafter conferred by Law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to or for the benefit of the Lessor hereunder as required hereby shall be final, and the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. 6. Taxes and Assessments; Compliance with Law; Certain Agreements. -------------------------------------------------------------- (a) The Lessee shall pay or cause to be paid, 7 subject to paragraph 18, all Property Charges before the same become delinquent. If any Property Charge may legally be paid in installments, such Property Charge may be so paid in installments; provided that, the Lessee shall pay all such installments on or before the Expiration Date or earlier termination of this Lease. (b) Subject to paragraph 13, the Lessee shall, at the Lessee's sole expense, comply, and cause the Mill I Property to comply, in all material respects, with all Legal Requirements; provided, however, the Lessee shall not be obligated to -------- ------- comply with any Legal Requirement whose application or validity is being contested diligently and in good faith by appropriate proceedings (and provided that the failure to comply with such Legal Requirements during such contest is not reasonably likely to have a Material Adverse Effect). "Legal Requirements" ----- ------------ means (i) all Laws, foreseen or unforeseen, ordinary or extraordinary, or arising from any restriction of record or otherwise, which now or at any time hereafter may be applicable to the (A) Lessor, as holder of the leasehold estate in the Mill I Parcel and the owner of the balance of the Mill I Property; (B) the Lessee, as lessee hereunder; or (C) the Mill I Property or any part thereof, or any of the adjoining sidewalks, or the ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition of the Mill I Property or any part thereof and any other governmental rules, orders and determinations now or hereafter enacted, made or issued, and applicable to the Lessor, as lessee of the Mill I Parcel or as owner of the balance of the Mill I Property, the Lessee, as lessee hereunder, or the Mill I Property or any part thereof or the ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof whether or not presently contemplated; and (ii) all agreements (including, without limitation, all Facility Agreements), Permits, covenants, and restrictions applicable to the Mill I Property or any part thereof or the ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof. (c) The Lessee shall, and (unless a Default, an Event of Default or a Major Environmental Event has occurred and is continuing and the Lessor has revoked such authority) is hereby authorized by the Lessor to, fully and promptly keep, observe, perform and satisfy, on behalf of the Lessor, any and all obligations, conditions, covenants and restrictions of or on the Lessor under the Ground Lease and any and all Facility Agreements so that there will be no default thereunder and so 8 that the other parties thereunder shall be and remain at all times obliged to perform their obligations thereunder, and the Lessee, to the extent within its control, shall not permit to exist any condition, event or fact that could allow or serve as a basis or justification for any such Person to avoid such performance. 7. Matters of Title. (a) The Lessee shall not create or permit to be created ---------------- or exist, and shall promptly remove and discharge, any Lien upon this Lease, the Mill I Property or any other part thereof or interest therein, or upon any Fixed Rent, Additional Rent or other sum paid hereunder, which Lien arises for any reason, including, without limitation, any and all Liens which arise out of the ownership, leasing, use, condition, occupancy, construction, possession, repair or rebuilding of the Mill I Property or any part thereof (including, without limitation, by reason of construction and start-up of the Mill I Improvements) or by reason of labor or materials furnished or claimed to have been furnished to the Lessee or for the Mill I Improvements or any part thereof, but excluding Permitted Encumbrances and Liens created by the Operative Documents. Lessee's obligation to remove any of the above-described Liens arising prior to the termination of this Lease (or arising due to circumstances occurring prior to the termination of this Lease) shall survive the termination of this Lease. Nothing contained in this Lease shall be considered as constituting the consent or request of the Lessor, express or implied, to or for the performance by any contractor, laborer, materialman or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Mill I Property or any part thereof. NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING OR POSSESSING THE MILL I PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER SIMILAR STATUTORY LIENS FOR ANY LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE LESSOR'S INTEREST OR ESTATE IN THE MILL I PROPERTY OR ANY PART THEREOF. (b) The Lessee hereby acknowledges that this Lease shall at all times be subject and subordinate to the Mill I Mortgage. However, so long as no Event of Default under this Lease shall have occurred and be continuing, in the event of a Lessor Event of Default (as defined in the Interparty Agreement), the Collateral Agent will not (i) take any action to disturb the Lessee's possession and occupancy of the Mill I Property nor to 9 diminish or interfere with any of the Lessee's rights and priveleges under this Lease, and/or (ii) join the Lessee as a party defendant in any action or proceeding for the purpose of terminating the Lessee's interest and estate under this Lease. (c) The Lessor agrees that the Lessee during the Term shall have the exclusive right (so long as no Default, Event of Default or Major Environmental Event has occurred and is continuing) to secure subdivision approvals, site plan approvals, annexation or de-annexation approvals, zoning variances and Permits necessary or desirable for the development, use, operation, maintenance or condition of the Mill I Property or any part thereof; provided that the fair -------- market value, marketability or use of the Mill I Property is not lessened by any such action. The Lessor agrees to execute such documents and take all other actions as shall be reasonably requested, and otherwise cooperate with the Lessee, in connection with the matters described above; provided, however, that -------- ------- all costs and expenses incurred by the Lessor in connection therewith shall be borne by the Lessee and that the Lessor shall not be required to execute any documents which would, in the reasonable opinion of the Agent or Lessor, adversely affect the value, marketability or use of the Mill I Property or otherwise adversely affect the transactions contemplated by the Operative Documents or the interests of the Lessor, the Equity Investors or the Note Holders. 8. [Intentionally Omitted.] 9. Maintenance and Repair; Inspection. (a) Subject to paragraph 12, the ---------------------------------- Lessee, at its own cost and expense, will manage and maintain the Mill I Property in good mechanical condition and repair (ordinary wear and tear excepted), in accordance with prudent industry practice and in a manner consistent with that of other similar properties owned or operated by it or its Affiliates similarly situated, and will take all action, and will make all changes and repairs, structural and nonstructural, foreseen and unforeseen, ordinary and extraordinary, which may be required to maintain the Mill I Property in good mechanical condition and repair (ordinary wear and tear excepted), in accordance with prudent industry practice, and in compliance with all Legal Requirements (subject to paragraph 13) and Insurance Requirements at any time in effect. The Lessee shall, in accordance with prudent industry practice, repair or replace each item constituting Mill I and/or the Mill I Improvements that shall have become worn out, damaged, inoperative or obsolete in whole or in part; provided, however, that (i) the fair market value, -------- ------- marketability or use of 10 the Mill I Property shall not be lessened and (ii) such replacements shall be of a type currently used in the industry for the same purpose and having a remaining useful life at least as long as that of Mill I or the Mill I Improvements (or any part thereof), as the case may be, repaired or replaced (prior to obsolescence, loss or damage and the like). All repairs, replacements and rebuilding by the Lessee hereunder, to the extent permitted by Law, shall immediately become and shall remain part of the Mill I Property of the Lessor, subject to this Lease. The Lessor shall not be required to, and Lessee hereby waives any right to require the Lessor to, manage, maintain, replace, repair or rebuild Mill I, the Mill I Improvements or any part thereof and the Lessee waives any and all rights it may now or hereafter have to make any repairs at the cost and expense of the Lessor pursuant to any Legal Requirement, Insurance Requirement, or otherwise, at any time in effect. (b) Except for Permitted Encumbrances, in the event that all or any part of Mill I or the Mill I Improvements shall encroach upon any property or right-of-way adjoining or adjacent to the Mill I Parcel or any part thereof, or shall violate any agreements or conditions affecting the Mill I Property or any part thereof, or shall obstruct any easement or right-of-way to which the Mill I Property or any part thereof may be subject, then the Lessee shall, at its sole cost and expense, either (i) contest such matter pursuant to paragraph 18 hereof, (ii) obtain valid and effective Permits for or consents to such encroachments and/or violations (without any liability to the Lessor, the Agent, the Equity Investors or the Note Holders for which such parties are not indemnified by the Lessee) or waivers or settlements of all claims, liabilities and damages resulting therefrom, or (iii) make such changes, including alteration or removal, to Mill I or the Mill I Improvements (as the case may be) and take such other action as shall be reasonably necessary to rectify such encroachments, violations, hindrances, obstructions or impairments, subject to the Lessor's consent if and to the extent required by paragraph 10(a) hereof. (c) Within 60 days after the end of the first three quarters of each fiscal year and within 90 days after the end of the fourth fiscal quarter of each fiscal year the Lessee shall give the Lessor and the Agent prompt written notice of any mechanical problems which required non-scheduled shutdown of operations of Mill I for fifteen (15) consecutive days or an aggregate of thirty (30) days during the fiscal quarter just ended and shall state the specific reasons for such shutdown. 11 (d) The Lessor Group shall have the right (which may be delegated to its consultants and authorized representatives) to inspect the Mill I Property and records directly related to the operation of the Mill I Property and to discuss such of the affairs, finances, and accounts as are relevant to the Operative Documents with the officers of Lessee, in all cases, at reasonable times in compliance with and subject to Lessee's reasonable security and safety procedures, in effect from time to time. Any such inspection shall be made after advance written notice to the Lessee is given; provided, however, that no -------- ------- advance written notice need be given if any member of the Lessor Group, in its sole discretion, has reason to believe that a Default, Event of Default or a Major Environmental Event has occurred or other exigent or emergency conditions exist; and provided further, that all such inspections upon the occurrence and -------- ------- during the continuance of a Default, an Event of Default or a Major Environmental Event shall be at the expense of the Lessee. 10. Mill I Alterations; Removal. (a) At any time, so long as no Default, --------------------------- Major Environmental Event or Event of Default shall have occurred and be continuing, the Lessee may, at its own cost and expense, make Mill I Alterations to the Mill I Property or any part thereof; provided, however, that (i) the fair -------- ------- market value of the Mill I Property shall not be lessened by such Mill I Alterations; (ii) such Mill I Alterations shall not diminish the capacity, utility, efficiency, or remaining useful life of the Mill I Property or any part thereof; and (iii) such work shall be completed in a good and workmanlike manner free and clear of any Liens for labor, services or materials (other than Permitted Encumbrances) and in compliance with all applicable Legal Requirements and Insurance Requirements. "Mill I Alterations" means any and all additions to, ------------------ alterations of or replacements for the Mill I Property or any part thereof made by or for the Lessee, at the cost and expense of the Lessee, excluding Mill I Improvements and any replacements installed as part of scheduled maintenance procedures. (b) Title to all Mill I Alterations shall vest in the Lessor (free and clear of all Liens, except Permitted Encumbrances) subject to the right of Lessee to remove such Mill I Alterations as provided hereunder. Upon any removal of the Mill I Alterations permitted hereunder, the Lessor (at the expense of the Lessee) shall execute and deliver to the Lessee such instruments and releases as are reasonably required to transfer the Mill I Alterations to the Lessee pursuant to instruments in each case containing no representation or warranty (expressed or 12 implied) except that such Mill I Alterations are free and clear of any Lien created under the Operative Documents or any Lessor Lien. (c) So long as no Default, Major Environmental Event or Event of Default shall have occurred and be continuing, the Lessee shall be permitted at any time during, or upon the expiration or termination of, the Term or the Extended Term as applicable, and at its sole cost and expense, to remove or demolish any Mill I Alterations in accordance with prudent industry practices; provided, however, -------- ------- that, such removal shall not (i) impair the intended use or reduce the fair market value of the Mill I Property or any part thereof below its fair market value at the commencement of the Term; (ii) diminish the capacity, efficiency, utility or remaining useful life of the Mill I Property or any part thereof below the capacity, efficiency, utility or remaining useful life as of the commencement of the Term; or (iii) cause a violation of any Legal Requirement or Insurance Requirement or significantly increase any risk of liability under any Environmental Law or any risk to human health or the environment. Any damage to the Mill I Property or any part thereof caused by such removal shall promptly be repaired by the Lessee and the Mill I Property (and each and every part thereof) shall be restored to its condition (or the reasonable equivalent thereof) as it existed immediately prior to the construction of such removed Mill I Alterations, at the Lessee's sole cost and expense. The Lessee may place upon the Mill I Parcel or any part thereof any inventory, fixtures, machinery, equipment or other property belonging to the Lessee or third parties and remove the same at any time during the Term or the Extended Term, as applicable (to the extent the same are not nor become an integral part of the Mill I Property and so long as no Default, Event of Default or Major Environmental Event shall have occurred and be continuing), and Lessee may (to the extent the same are not or do not become an integral part of the Mill I Property and so long as no Default, Event of Default or Major Environmental Event shall have occurred and be continuing), and at the request of the Lessor shall, remove the same at the expiration or termination hereof unless the Lessee shall have paid the Offer Purchase Price and purchased the Mill I Property pursuant to the terms of this Lease; provided that any damage to the Mill I Property or any part thereof -------- caused by such removal shall promptly be repaired by the Lessee, and the Mill I Property (and each and every part thereof) restored to its condition (or the reasonable equivalent thereof) as it existed immediately prior to the placement of any such 13 property upon the Mill I Parcel, all at the Lessee's sole cost and expense. (d) Not less than 30 days before the beginning of each calendar year, the Lessee shall provide the Lessor and the Agent with a report of the Lessee's capital spending plans for the ensuing calendar year for Mill I Alterations and supporting details describing any single capital expenditure for a Mill I Alteration in excess of $5 million. Such report shall be accompanied by a certification from the Lessee to the effect that all such planned Mill I Alterations will comply with the standards set forth in paragraph 10(a). 11. Lessee's Right to Contest Real Property Taxes. The Lessee, at its own cost --------------------------------------------- and expense and in compliance with paragraph 18, shall have the sole right, at any time, to seek, in good faith, a reduction in the assessed valuation of the Mill I Property or any part thereof or to contest, in good faith, any real or personal property taxes for the Mill I Property or any part thereof. The Lessor shall not be required to join in any proceeding or contest brought by the Lessee unless the provisions of any Legal Requirement require that the proceeding or contest be brought by or in the name of the owner of the Mill I Property. In that case the Lessor shall join in the proceeding or contest or permit it to be brought in the Lessor's name as long as the Lessee reimburses the Lessor for any and all costs and expenses incurred by the Lessor in connection therewith. The Lessee, on a final non-appealable determination of the proceeding or contest, shall immediately pay, discharge and satisfy any decision or judgment rendered, together with all costs, interest and penalties incidental to the decision or judgment. 12. Condemnation and Casualty. (a) General. The Lessee hereby irrevocably ------------------------- ------- assigns to the Lessor any award or compensation or insurance payment or other proceeds to which the Lessee may become entitled by reason of its interest in the Mill I Property or any part thereof (other than proceeds from business interruption insurance) if (i) the Mill I Property or any part thereof is damaged or destroyed by fire or other casualty (each, a "Casualty") or (ii) -------- the use, occupancy or title of the Mill I Property or any part thereof is taken or requisitioned or sold in, or on account of any actual or threatened condemnation or eminent domain proceedings, or other action by any Person having the power of eminent domain or condemnation (each, a "Condemnation"); provided, ------------ -------- however, that the Lessee shall be entitled to any proceeds as a result of any - ------- Condemnation or Casualty affecting the Mill I Alterations to the 14 extent that the Lessee would otherwise be entitled to remove such Mill I Alterations pursuant to paragraph 10(c); and provided, further, that the Lessee -------- ------- shall be entitled to any proceeds as a result of any Condemnation or Casualty for which the award, compensation, insurance payment, or other proceeds to which the Lessee may be entitled does not exceed $100,000 (the "Excluded Proceeds"). ----------------- The Lessee shall promptly notify the Lessor in writing of any such Casualty or Condemnation and shall appear in any proceeding or action to defend, negotiate, prosecute or adjust any claim for any award or compensation or insurance payment on account of any Casualty or Condemnation and shall take all appropriate action in connection with any Casualty or Condemnation, including the employment of counsel reasonably satisfactory to the Lessor. The Lessor shall have the right to appear and participate and to employ counsel in any such proceeding or action, and the fees and expenses of such counsel shall be paid by the Lessee. If the Lessee shall elect not to appear or shall fail to prosecute diligently, the Lessor may assume the prosecution thereof and the Lessee shall pay all of the costs and expenses of the Lessor (including, but not limited to, fees and expenses of Lessor's Special Counsel) and the fees and expenses of Special Counsel. No settlement of any such proceeding or action shall be made by the Lessee or the Lessor without the written consent of the other party hereto, which consent shall not unreasonably be withheld, conditioned or delayed. Any and all amounts in excess of the self insured retention limits hereunder representing proceeds (other than proceeds from business interruption insurance, proceeds with respect to Mill I Alterations permitted to be removed pursuant to paragraph 10(c) and Excluded Proceeds) paid in connection with any such Condemnation or Casualty, as the case may be (collectively, the "Proceeds"), -------- shall be paid over to the Proceeds Trustee (as defined below) to be held in trust by such Proceeds Trustee and distributed pursuant to this paragraph 12 and paragraph 15 hereof or pursuant to the Interparty Agreement, as appropriate (all such Proceeds, less the costs and expenses incurred by the Lessor and the Lessee in collecting such amounts, but including any reimbursement by the Lessee for costs and expenses in connection therewith to which the Lessor, the Equity Investors and the Note Holders are entitled pursuant to the Operative Documents, are the "Net Proceeds"). Any and all Proceeds received by the Lessee in ------------ connection with any such proceeding or action shall be paid over to the Lessor, shall be segregated 15 from other funds of the Lessor and shall be forthwith paid over to the Proceeds Trustee. The Lessee agrees that this Lease shall control the rights of the Lessor and the Lessee in any such Proceeds, and any present or future Law to the contrary is hereby waived. Any and all reasonable charges, fees and expenses of the Proceeds Trustee shall be paid from the Net Proceeds. "Proceeds Trustee" ---------------- shall mean the Agent or such title company or other independent bank or trust company as may be designated by the Lessor. 16 (b) Condemnation or Casualty with Termination. ----------------------------------------- (i) Within ten (10) days after the amount of the Proceeds to be paid to the Lessee or the Proceeds Trustee is determined, the Lessee shall decide whether the Lessee shall rebuild, replace and repair the damage to the Mill I Property; provided, however, that the Lessee shall not be obligated to rebuild -------- ------- any Mill I Alterations to the extent that the Lessee would otherwise have been entitled to remove such Mill I Alterations pursuant to paragraph 10(c). If the Lessee decides not to rebuild, replace and repair the damage to the Mill I Property, the Lessee shall, within such ten (10) day period, deliver to the Lessor an Offer to Purchase in accordance with paragraphs 14 and 15 hereof. Prior to the Closing Date, the Lessee shall continue to pay all Fixed Rent, Additional Rent and all other amounts due hereunder. (ii) If a Casualty or Condemnation occurs during the Term (or the Extended Term, as applicable) and the Lessor has received an opinion, which shall be at the Lessee's sole cost and expense, of the Independent Engineer to the effect that the restoration of the Mill I Property could not be expected to restore and rebuild the Mill I Property to its previous capacity, efficiency and remaining useful life or such restoration and rebuilding could not be expected to be completed in full prior to the Expiration Date or that the cost of such restoration or rebuilding would exceed 25% of the fair market value of the Mill I Property immediately prior to such Casualty or Condemnation, then the Lessor may, in its sole discretion, deliver a notice ("Lessor Termination Notice") ------------------------- declaring Lessor's intention to terminate this Lease and the Lessee shall be deemed to have delivered to the Lessor as of the date of the Lessor Termination Notice an Offer to Purchase in accordance with paragraphs 14 and 15 hereof. (c) Condemnation or Casualty Without Termination. If, after a -------------------------------------------- Casualty or Condemnation, the Lessee has not given an Offer to Purchase and Lessor has not given a Lessor Termination Notice in accordance with paragraph 12(b), then this Lease shall continue in full force and effect, and the Lessee shall, at its sole cost and expense, promptly commence and diligently pursue to completion the rebuilding, replacement or repair of any damage to the Mill I Parcel, Mill I and the Mill I Improvements caused by such event in conformity with the requirements of paragraph 9 or 10, as applicable, in order to restore the Mill I Parcel, Mill I and the Mill I Improvements (in the case of a Condemnation, as nearly as practicable) to the value and operating condition thereof immediately prior to such event. In connection with such restoration the Lessee shall, before beginning such restoration, submit plans and specifications for such restoration, together with an estimate of the cost thereof, and all necessary construction contracts therefor for the Lessor's and the Independent Engineer's approval, which will not be unreasonably withheld, conditioned or delayed; provided that (i) the capacity, efficiency and utility -------- of the Mill I Parcel, Mill I and the Mill I Improvements shall not, after such restoration, be less than the capacity, efficiency and utility prior to such Casualty or 17 Condemnation; (ii) the fair market value of the Mill I Parcel, Mill I and the Mill I Improvements shall not, after such restoration, be less than its fair market value prior to such Casualty or Condemnation; and (iii) if the estimated cost to complete such restoration exceeds the amount of Net Proceeds, the Lessor is, in its sole judgment, satisfied that the Lessee shall have sufficient funds (the "Excess Funds") available to pay such excess, which Excess Funds shall be ------------ deposited by the Lessee with the Proceeds Trustee and distributed to the Lessee as hereinafter provided. If the conditions set forth in the foregoing proviso are not satisfied, the Lessee shall be deemed to have made an Offer to Purchase. Such work shall be completed in a good and workmanlike manner free and clear of all Liens for labor, services or materials (except Permitted Encumbrances) and in compliance with all applicable Legal Requirements and Insurance Requirements. Upon completion of such work, the Lessee shall cause the Independent Engineer to deliver a certificate to the effect that final completion of the work has occurred and that the operating condition of the Mill I Property, after taking into consideration the restoration, is equivalent to, or better than, the operating condition that existed immediately prior to the Casualty or Condemnation assuming compliance with paragraph 9 hereof. All fees and expenses of the Independent Engineer in connection with any rebuilding and restoration shall be at the Lessee's sole cost and expense. The Lessee shall be entitled to receive payment from the Net Proceeds or the Excess Funds, as the case may be, from time to time as such work of rebuilding, replacement or repair progresses, but only after presentation of certificates of the Independent Engineer, delivered by the Lessee to the Proceeds Trustee (with a copy to the Lessor) from time to time as such work of rebuilding, replacement or repair progresses. Each such certificate of the Independent Engineer shall describe the work for which the Lessee is requesting permission to pay or requesting payment and the cost incurred by the Lessee in connection therewith and shall state that such work has been properly completed and that the Lessee has not theretofore received payment for such work, and shall be accompanied by (i) an Officer's Certificate of the Lessee certifying that no Default, Event of Default or Major Environmental Event has occurred and is continuing and that the Net Proceeds and Excess Funds held by the Proceeds Trustee are adequate to complete such rebuilding, replacement or repair in accordance with this paragraph 12(c), and (ii) duly executed Lien waivers executed by each materialman or mechanic furnishing materials or labor for which the Lessee is requesting permission to pay or requesting payment. The Proceeds Trustee shall deliver, or cause to be 18 delivered, payment within five (5) Business Days after its receipt of the certificates required above. In connection with such payments, the Proceeds Trustee shall first apply the Excess Funds to the cost of such restoration prior to the disbursement of any Net Proceeds by the Proceeds Trustee for such purpose. Upon receipt by the Proceeds Trustee (with a copy to the Lessor) of an Officer's Certificate from the Lessee, to the effect that final payment has been made for any such work and stating that the rebuilding, replacement or repair has been completed in compliance with the terms and conditions of this Lease, the remaining amount of such Net Proceeds shall be paid to the Lessee. The Lessee shall be responsible for the cost of any such repair, rebuilding or restoration in excess of such Net Proceeds and Excess Funds, for which cost the Lessee shall make adequate provision acceptable to the Lessor. (d) Temporary Condemnation or Lease Termination. Notwithstanding any ------------------------------------------- provision to the contrary contained in this paragraph 12, in the event of any temporary Condemnation this Lease shall remain in full force and effect, and provided no Default, Event of Default or Major Environmental Event has occurred and is continuing, the Lessee shall be entitled to receive the Net Proceeds allocable to such temporary Condemnation, except that if this Lease shall expire or terminate during such temporary Condemnation, then the Lessee shall be entitled to the Net Proceeds allocable to the period after the termination or expiration of this Lease only if it has paid the Offer Purchase Price for the Mill I Property. 13. Environmental Event. (a) The Lessee shall promptly, but in any ------------------- case within five (5) Business Days after discovery thereof, notify the Lessor, the Agent, the Collateral Agent, the Equity Investors and the Note Holders of the occurrence of a Reportable Environmental Event. For purposes hereof, an "Environmental Event" shall mean (i) any environmental event, occurrence, or - -------------------- condition in, on, beneath, from or involving the Mill I Property or any part thereof (including, but not limited to, the presence, emission or release of Hazardous Materials in violation of any Environmental Law or the violation of any applicable Environmental Law) that could reasonably be expected to result in any ordered remediation or corrective action required by Environmental Laws, or other liability under Environmental Laws, or that poses a significant risk to human health or the environment or (ii) the receipt by the Lessee of notification that the Lessee, the Lessor, the Mill I Property or any part thereof is the subject of an Environmental Action in 19 connection with the Mill I Property that could reasonably be expected to result in any ordered remediation or corrective action required by Environmental Laws or other liability under Environmental Laws; provided, however, that as of the date hereof none of the matters described on Schedule C hereto shall be deemed an Environmental Event. For purposes hereof, a "Reportable Environmental Event" ------------------------------ shall mean an Environmental Event with respect to which the Remediation Costs could reasonably be expected to exceed $1 million, or, when added to the remaining Remediation Costs for all other then existing Environmental Events, could reasonably be expected to exceed $5 million. For purposes hereof, "Remediation Costs" include, but are not limited to, losses, fines, damages, ----------------- civil or criminal penalties, judgments, costs and expenses (including reasonable fees and expenses of legal counsel and consultants) incurred within a ten year period commencing with the discovery of the Environmental Event, and arising from activities to clean-up, remove, treat or in any other way respond to an Environmental Event as required by Environmental Laws or as may be necessary to avoid creating a significant risk to human health or the environment and any other damages related thereto. (b) If following the receipt of a notice of a Reportable Environmental Event pursuant to paragraph 13(a), the Lessor, the Agent, or the Holders of the Majority Interests, each in its or their sole discretion, determines that the Remediation Costs for each Reportable Environmental Event, alone or when combined with the remaining Remediation Costs for all other then existing Environmental Events, could reasonably be expected to exceed $25 million, the Lessor, the Agent, the Collateral Agent or the Holders of the Majority Interests may, at the expense of the Lessee, cause the Environmental Consultant to conduct an environmental audit of the affected portions of the Mill I Property and report the results of such audit to the Lessor, the Agent, the Equity Investors, the Note Holders and the Lessee. If the Environmental Consultant determines that the remaining Remediation Costs for all then existing Environmental Events could reasonably be expected to exceed $25 million (an "Environmental Trigger") but could not reasonably be expected to exceed $50 --------------------- million, the Lessee shall proceed diligently to prosecute the remediation or cure of such Environmental Event that gave rise to the Environmental Trigger prior to the expiration of a period of 120 days following the discovery of such Environmental Event (the "Initial Cure Period"). If, -------------------- 20 however, such Environmental Event is not capable of being fully remediated or cured within the Initial Cure Period, despite diligent efforts by the Lessee, the Initial Cure Period shall be extended at the written request of the Lessee as to such Environmental Event (i) for so long as the Lessee is proceeding diligently to remediate in full or cure such Environmental Event and, in the opinion of the Environmental Consultant the remaining Remediation Costs for all then existing Environmental Events could not reasonably be expected to exceed $50 million and (ii) for so long as the Guarantor's senior unsecured long-term debt is rated at least Baa3 by Moody's or BBB- by S&P or, if not rated by Moody's or S&P, has an implied rating of at least BBB- by S&P. (c) If, in the opinion of the Environmental Consultant, the remaining Remediation Costs for the Environmental Events contributing to the Environmental Trigger could reasonably be expected to exceed $50 million (a "Major ----- Environmental Event") but could not reasonably be expected to exceed $100 - ------------------- million, and the Environmental Event that gave rise to such Major Environmental Event is not capable of being fully remediated or cured within the Initial Cure Period, the Initial Cure Period shall be extended at the written request of the Lessee as to such Environmental Event for so long as the Lessee is proceeding diligently to remediate in full or cure such Environmental Event and all of the following conditions are satisfied: (i) As promptly as reasonably practicable and in any event not less than thirty (30) days prior to the end of the Initial Cure Period, the Lessee shall have submitted to the Agent (a) a copy of its plan of remediation, containing time and cost budgets and other supporting information, and (b) a copy of its written request for an extension specifying the date to which such extension is requested. (ii) The Lessor shall have received a report from the Environmental Consultant to the effect that the Environmental Consultant has reviewed the Lessee's plan of remediation and has found such plan to be in accordance with applicable Environmental Laws, consistent with prudent practices of the industry, and otherwise acceptable. The Lessor shall direct the Environmental Consultant to complete and submit such report before the end of the Initial Cure Period. If such report has not been completed as of the end of the Initial Cure Period, the cure period shall be deemed extended pending completion of such report, except to the extent that failure to submit such report on a timely basis is due in part or in whole to the failure or unreasonable delay of Lessee to provide cooperation and/or information reasonably required to complete such report. (iii) The Lessee shall have delivered to the Lessor an irrevocable and unconditional direct pay letter of credit, having a term coterminous with the Term (or Extended Term, as applicable), issued by a commercial bank organized under the laws of the United States or any political subdivision thereof having a combined capital and surplus of at least $500 million and having long-term unsecured debt 21 securities then rated "A" or better by S&P and "A2" or better by Moody's and in an amount equal to 125% of the amount by which the remaining Remediation Costs for such Environmental Event as estimated by the Environmental Consultant are reasonably expected to exceed $50 million. Such letter of credit shall be increased or decreased from time to time, but not less frequently than annually, by an amount equal to 125% of any increases or decreases in the remaining Remediation Costs as estimated by the Environmental Consultant. Such letter of credit shall provide that drawings may be made thereon by the Lessor upon certification by the Lessor to the issuer that an Event of Default has occurred and is continuing or the Term (or Extended Term as applicable) has expired and the Lessee has failed to purchase the Mill I Property in accordance with the terms of this Lease. (iv) The senior unsecured long-term debt of the Guarantor shall at all times be rated at least Baa3 by Moody's or BBB- or better by S&P or, if not rated by Moody's or S&P, has an implied rating of at least BBB- by S&P. (v) (a) The Lessor shall have received a legal opinion acceptable to Lessor (from counsel selected by the Lessor and the Agent and acceptable to the Lessee) to the effect that the Lessee has obtained all permits necessary to remediate the Environmental Event, or, to the extent such permits are not then required, such counsel has no reason to believe that such required permits cannot be obtained at such time as required, as well as other legal matters reasonably requested by the Lessor. (b) The Lessor and the Agent shall also have received a legal opinion acceptable to Lessor and the Agent (from counsel selected by the Lessor and the Agent and acceptable to the Lessee) addressing any change in Law after the Financing Closing Date regarding the scope of protection from liability for Remediation Costs afforded to the Lessor and the Agent under Environmental Laws. Without prejudice to the rights of the Agent or the Holders of the Majority Interests under paragraph 13(d) of this Lease, to the extent such opinion is not satisfactory to the Lessor (because of a change of law or a change in interpretation thereof) the Lessee shall have the right to find a replacement Lessor within 30 days after the Lessor notifies the Lessee that such opinion is unsatisfactory to the Lessor. Upon replacement of the Lessor hereunder, the Lessor (for the benefit of the Equity Investors) shall receive in immediately available funds from its assignee an amount equal to the stated amount of the Equity Investment then outstanding, accrued and unpaid Distributions thereon to the date of payment and all other amounts due and payable to the Lessor and each Equity Investor under the Operative Documents. (c) Such legal counsel shall be directed by the Lessor to complete and submit such opinions before the end of the Initial Cure Period. If such opinions are not completed before the end of the Initial Cure Period, the cure period shall be deemed extended pending completion of such opinions except to the extent that failure to submit such opinions on a timely basis is due in part or in whole to the failure of Lessee to timely provide available information reasonably required to complete such opinions. (vi) The Lessee shall deliver to the Lessor and the Agent monthly progress reports during the Initial Cure Period, and quarterly progress reports every three months thereafter, with respect to such curative actions or remediation, including a status report on the Remediation Costs incurred and the estimated remaining Remediation Costs, in form and substance satisfactory to the Lessor and the Agent. (vii) The Lessor and the Agent shall receive a report every three months after the end of the Initial Cure Period from the Environmental Consultant to the effect that the Lessee is complying with the remediation plan in all material respects and with all Environmental Laws applicable to the Environmental Event. (viii) Upon completion of the remediation plan, the Lessor, the Agent and the Collateral Agent shall receive a report from the Environmental Consultant to the effect that the Lessee has 22 fully implemented the plan and is in compliance with all Environmental Laws applicable to the Environmental Event. (d) If an Environmental Event has occurred that results in an Environmental Trigger or a Major Environmental Event and the Environmental Event cannot be cured through a Permitted Remediation or if the Lessee fails to satisfy any of the requirements in the last sentence of paragraph 13(b) or any of the applicable conditions in paragraph 13(c) (an "Environmental Default"), --------------------- the Lessor, the Agent, or the Holders of the Majority Interests shall have the option, each in its or their sole discretion, to require the Lessee to purchase the Mill I Property for the Offer Purchase Price by giving written notice to the Lessor, and the Lessee shall then be deemed to have delivered to the Lessor, as of the date of receipt of such notice, an Offer to Purchase in accordance with paragraphs 14 and 15. A "Permitted Remediation" means any remediation of an --------------------- Environmental Event undertaken by the Lessee in compliance with the requirements of this paragraph 13, the remaining Remediation Costs of which, when combined with the remaining Remediation Costs of all other Environmental Events then existing, are not reasonably expected to exceed $100 million, which is permitted and effected, at the cost of the Lessee, in compliance with all applicable Environmental Laws. (e) Irrespective of whether a Major Environmental Event or an Environmental Trigger has occurred, the Lessee shall immediately initiate, and diligently pursue at its sole cost and expense, such actions as may be necessary to comply in all respects with all applicable Environmental Laws and to alleviate any significant risk to human health or the environment if the same arises from a condition on or in respect of the Mill I Property or any part thereof, whether existing prior to, on or after the date of this Lease. Once the Lessee commences such actions, the Lessee shall thereafter diligently and expeditiously proceed to comply in a timely manner with all Environmental Laws and to eliminate any significant risk to human health or the environment and shall, at the reasonable request of the Lessor or the Agent, give periodic progress reports on its compliance efforts and actions. (f) In connection with the formulation and implementation of any remediation plan, or the evaluation or review thereof, the Lessor, the Agent, the Note Holders, the Equity Investors, 23 the Environmental Consultant, and their respective agents and legal counsel shall not communicate with regulatory authorities without the prior written consent of the Lessee unless an Environmental Trigger shall have occurred and be continuing. If any Environmental Trigger shall have occurred and be continuing, the Lessor, the Agent, the Note Holders, the Equity Investor, the Environmental Consultant and their respective agents and legal counsel shall first provide an opportunity to the Lessee to participate in such communications, except to the extent that such communications are required by Law. (g) A Major Environmental Event shall not be deemed to be continuing after the date upon which the remaining Remediation Costs from the Environmental Event that gave rise to such Major Environmental Event, when combined with the remaining Remediation Costs for all other Environmental Events contributing to such Major Environmental Event, could no longer reasonably be expected to exceed $50 million. An Environmental Trigger shall not be deemed to be continuing after the date upon which the remaining Remediation Costs for the Environmental Event that gave rise to such Environmental Trigger, when combined with the remaining Remediation Costs for all other Environmental Events contributing to such Environmental Trigger, could no longer reasonably be expected to exceed $25 million. 14. Offer to Purchase. (a) At any time during the Term (or the ----------------- Extended Term, as applicable), Lessee may (unless otherwise required to do so, in which case it shall) deliver to the Lessor and the Agent an irrevocable written offer to purchase the Mill I Property in its entirety (an "Offer to -------- Purchase") at least 20 days in advance of the Closing Date upon and subject to - -------- the applicable terms of this Lease. (b) Any Offer to Purchase delivered or deemed to be delivered by the Lessee hereunder shall, notwithstanding anything to the contrary set forth therein, be irrevocable and unconditional and shall set forth the Closing Date and Termination Value to be paid by Lessee. (c) The Lessor shall be deemed to have accepted such Offer to Purchase the Mill I Property on the date the Lessor receives the same. The procedure for the purchase of the Mill I Property and the purchase price therefor shall be governed by paragraph 15 hereof. 15. Procedure Upon Purchase. (a) The date of the closing of the Lessee's (or ----------------------- its designee's) purchase of the Mill I Property (the "Closing Date") shall be ------------ (i) on the Expiration Date pursuant to paragraph 27 hereof, or (ii) if the Lessee shall deliver (or shall be deemed to have delivered) an Offer to 24 Purchase pursuant to paragraph 14(a) hereof, on the next scheduled Payment Date following the date of Lessor's acceptance or deemed acceptance of such Offer to Purchase, or (iii) if the Lessee shall deliver (or be deemed to have delivered) an Offer to Purchase pursuant to paragraphs 12(b), 12(c) or 13(d), on the fifteenth day following the date of Lessor's acceptance or deemed acceptance of such Offer to Purchase, or (iv) if the Lessee shall pay the Offer Purchase Price pursuant to paragraph 19(h), on the date of the Lessor's receipt of the Offer Purchase Price. On the Closing Date, upon receipt by the Agent of the Offer Purchase Price, the Lessor shall convey, or cause to be conveyed, the Mill I Property (or, in the case of Casualty or Condemnation, the remaining portion thereof) to the Lessee or its designee by an appropriate recordable assignment of the leasehold interest in the Mill I Parcel, limited warranty deed and bill of sale to Mill I, the Mill I Improvements and the Mill I Alterations and assignment of the Facility Agreements (other than the rights of the Lessor to any indemnities thereunder), in each case containing no representation or warranty (expressed or implied) except that the Mill I Property is free and clear of Lessor Liens. (b) On the Closing Date, the Lessee shall pay, or cause to be paid, to the Agent (on behalf of the Lessor) the Termination Value for the Mill I Property, as specified in the Offer to Purchase related thereto, and all Fixed Rent, Additional Rent and other sums then due and payable hereunder and under the other Operative Documents relating to the Mill I Property up to and including such Closing Date (such amounts, plus all Closing Costs, are herein referred to as the "Offer Purchase Price"), and the Lessor shall simultaneously (i) deliver -------------------- to the Lessee or its designee the instruments referred to in paragraph 15(a) above with respect to the Mill I Property and any other instruments reasonably necessary to assign and convey to the Lessee or its designee the Mill I Property and assign all Facility Agreements related to the Mill I Property (other than any rights of the Lessor to any indemnities thereunder) and any other related property then required to be assigned pursuant hereto, and (ii) convey, or cause to be conveyed, to the Lessee or its designee any Net Proceeds related to the Mill I Property and/or the right to receive the same. Additionally, on the Closing Date, upon receipt of the Termination Value, Lessor and the Collateral Agent shall execute the releases and take the other actions described in Section 8.23(b) of the Participation Agreement. (c) Upon the completion of any purchase of the Mill I Property pursuant to this paragraph 15, but not prior thereto, this Lease shall terminate except with respect to obligations and liabilities of the Lessee, actual or contingent, which have arisen with respect to the Mill I Property or under the Operative Documents on or prior to such date of purchase, and except as elsewhere expressly provided herein or in the other Operative Documents. 25 (d) Notwithstanding any provisions of this Lease or the Participation Agreement to the contrary, the Lessee shall not be required to acquire title to the Mill I Property until such time that all necessary filings and notifications under the HSR Act or any similar Law shall have been made (including any filing or provision of required additional information or documents) and the waiting period referred to in the HSR Act applicable to such purchase shall have expired or been terminated (without any objection or prohibition of such purchase). The Lessee hereby covenants to use its best efforts to secure the prompt termination of such waiting period without objection or prohibition. Notwithstanding the foregoing, if the Lessee is precluded from acquiring the Mill I Property or any part thereof pursuant to the HSR Act or any similar Law, the Lessee shall pay the Termination Value attributable to the Mill I Property within the time and in the manner described in this paragraph 15 as a consequence of the Lessee's exercise or deemed exercise of its purchase option hereunder. However, if the Lessee pays the Termination Value in compliance with the preceding sentence, then Lessee shall be entitled to continue to lease the Mill I Property for an additional rental payment of $1 per annum under the terms and provisions of this Lease for an extended term expiring on the earlier to occur of (i) three (3) years from the date the Lessee delivers (or is deemed to have delivered) the Offer to Purchase or (ii) that date that the Lessee is no longer precluded from purchasing the Mill I Property pursuant to the HSR Act or any similar Law. If Lessee does not purchase the Mill I Property prior to the expiration of such extended term, then Lessor shall thereafter sell the Mill I Property and distribute the proceeds from such sale in accordance with the Interparty Agreement. If, prior to the voluntary exercise by the Lessee of the purchase options hereunder, the Lessee is unable to obtain a ruling that a filing under the HSR Act or any similar Law is not required in order to consummate such purchase, then the Lessor shall execute such conditional sales contracts and other documents necessary to permit the Lessee to complete such filing before irrevocably exercising its purchase option. As a condition to executing such conditional sales contracts and other documents, the Lessee shall deliver to the Lessor an agreement obligating the Lessee to fully indemnify the Lessor from all liabilities, damages, costs and expenses arising from the execution of such documents and the completion of such filing. 16. Insurance. (a) The Lessee (or the Guarantor in lieu of the Lessee) will --------- purchase and maintain, or cause to be purchased and maintained, insurance with respect to the Mill I Property of the following types and in the following amounts (or in such greater amounts as may become necessary from time to time to prevent the Lessor, the Lessee, the Collateral Agent, the Equity Investors, CXC, CXC'S Credit Enhancer, the Agent and the Note Holders from becoming co-insurers of any loss), and in no event in amounts less than those maintained by the Lessee or its Affiliates for other similar facilities owned and/or operated by them: (i) Property Insurance: Insurance against physical damage to the ------------------ Mill I Property (with sublimits and deductibles as are acceptable to Lessor and with a maximum self-insured retention allowable of $5 million) caused by perils now or hereafter embraced by or defined in an "all risks" insurance policy, including flood, earth movement, earthquake, subsidence and collapse, business interruption/extra expense and boiler and machinery coverage (which boiler and machinery coverage is currently self-insured for up to $5 million); (ii) General Liability Insurance: Comprehensive general liability --------------------------- (including contractual, completed operations and product liability) insurance against claims for bodily injury (including death), personal injury and property damage occurring on, in or in respect of the Mill I 26 Property or resulting from activities on or related to the Mill I Property and other properties of the Guarantor and its subsidiaries, in the minimum combined single limit amount of $100 million, for each occurrence for bodily injury (or death) and/or property damage with a maximum self-insured retention allowable of $10 million; (iii) Workers' Compensation Insurance: Workers' compensation ------------------------------- insurance at statutory levels and employers' liability insurance or self- insurance as permitted by Law; (iv) Builder's Risk Insurance: During the construction of any ------------------------ Mill I Improvements or Mill I Alterations, builder's "all risks" and "general risks" insurance or equivalent coverage (with sublimits and deductibles as are acceptable to Lessor and with a maximum self-insured retention allowable of $5 million), including flood, earth movement, earthquake, subsidence and collapse, business interruption/extra expense and testing and commissioning coverage with respect to the Mill I Property and any on-site and off-site work and materials related thereto protecting the Lessee, the Lessor and all contractors and subcontractors in an amount not less than the full replacement cost of such on- site and off-site work; (v) Flood Insurance: To the extent that the ALTA/ASCM surveys --------------- of the Parcels delivered pursuant to Section 2.01(g) of the Participation Agreement indicate that any portion of Mill I, the Mill I Facility, the Mill I Improvements or the Mill I Alterations may lie in a flood zone, flood insurance in amounts acceptable to the Lessor; and (vi) Other Insurance: Such other insurance, including automobile --------------- liability, in such amounts and against such risks, as is either (x) customarily carried by companies owning, operating or leasing property or conducting businesses similar and/or similarly situated to the Mill I Property and/or the Lessee, or (y) reasonably requested from time to time by Lessor to the extent available on commercially reasonable terms. Such insurance shall be written by companies (other than Lloyd's of London) that are nationally recognized (or other recognized international insurers with an ISI rating of not less than BBB); primary insurance shall be written by companies rated at least AXI in the most recent edition of Best's Key Rating Guide, or as otherwise agreed to by the Agent, the Lessor, the Collateral Agent, the Majority Interests, selected by the Lessee and, other than the insurance specified in paragraphs 16(a)(i), (iii) and (iv), shall name the Collateral Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC'S Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on behalf of the Note Holders, as additional insureds, as their interests may appear. Notwithstanding the foregoing, in no event will the Lessee be required to maintain coverage in amounts in excess of those maintained for businesses similar in size and nature to the Lessee. (b) The insurance referred to in paragraphs 16(a)(i) and (iv) for the Mill I Property (as appropriate) may be a blanket policy and shall (i) at all times be in an amount at least equal to the greater of (x) one hundred percent (100%) of the full replacement cost value of the Mill I Property (as appropriate) and the Lessee's leasehold improvements and (y) 27 $410,000,000; (ii) name the Collateral Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC's Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on behalf of the Note Holders, as additional insureds, as their interests may appear; (iii) provide that the interests of the Lessor, the Agent, the Collateral Agent, the Equity Investors and the Note Holders shall be insured regardless of any intentional or willful breach or violation by the Lessee of any warranties, declarations or conditions contained in such insurance; (iv) provide that such insurance shall not be invalidated by any act, omission or negligence of the Lessee, the Lessor, the Agent, the Collateral Agent, the Equity Investors or the Note Holders, nor by any foreclosure or other proceedings or notices thereof relating to the Mill I Property (as appropriate) or any part thereof, nor by legal title to, or ownership of the Mill I Property or any part thereof becoming vested in or by Lessor or its agents, nor by occupancy or use of the Mill I Property or any part thereof for purposes more hazardous than permitted by such policy; and (v) provide that all partial loss insurance claims pertaining to the Mill I Property (as appropriate) or any part thereof shall be adjusted by the insurers thereunder with the Lessee. All policies of insurance required to be maintained pursuant to paragraph 16(a)(ii) which cover liability for bodily injury or property damage shall provide that all provisions of such insurance, except the limits of liability (which shall be applicable to all insureds as a group) and liability premiums (which shall be solely a liability of the Lessee), and shall operate in the same manner as if there were a separate policy covering each such insured and/or additional insured, without right of contribution from any other insurance which may be carried by an insured and/or additional insured. Every policy required under paragraph 16(a) shall (i) expressly provide that it will not be canceled or terminated except upon thirty (30) days' written notice to the Lessor, the Lessee and the Collateral Agent; (ii) except for liability coverage, include a waiver of all rights of subrogation against the Lessor, the Agent, the Collateral Agent, the Equity Investors, and the Note Holders and any recourse against the Lessor, the Agent, the Collateral Agent, the Equity Investors or the Note Holders for payment of any premiums or assessments under any policy; and (iii) not contain a provision relieving the insurer thereunder of liability for any loss by reason of the existence of other policies of insurance covering the Mill I Property or any part thereof against the peril involved, whether 28 collectible or not. The Lessee shall advise the Lessor promptly of any policy cancellation or any change adversely affecting the coverage provided thereby. (c) The Lessee shall deliver to the Lessor the certificates of insurance and any other documentation required by the Lessor evidencing the existence of all insurance which is required to be maintained by the Lessee hereunder including descriptions of the previously mentioned Insurance Requirements, such delivery to be made (i) as provided in Section 2.01(k) of the Participation Agreement, (ii) within thirty (30) days after the issuance of any additional policies or amendments or supplements to any of such insurance, and (iii) at least thirty (30) days prior to the expiration date of any such insurance. The Lessee shall notify the Lessor, the Agent and the Collateral Agent of any nonrenewal of any policy required hereunder and shall cause each insurer under each policy required hereunder to give the Lessor notice of any lapse under any such policy. The Lessee shall not obtain or carry separate insurance concurrent in form, or contributing in the event of loss, with that required by this paragraph 16 unless the Collateral Agent is named as loss payee and the Lessor, CXC, the Equity Investors, CXC's Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on behalf of the Note Holders are named as additional insureds therein. The Lessee shall immediately notify the Lessor, the Agent, the Collateral Agent, the Equity Investors, and the Note Holders whenever any such separate insurance is obtained and shall deliver to the Lessor the certificates of insurance and any other documentation (other than blanket policies) required by Lessor evidencing the same as is required hereunder. (d) The requirements of this paragraph 16 shall not be construed to negate or modify the Lessee's obligations under Section 8.14 of the Participation Agreement. 17. Subletting; Assignability; Amendment of Facility Agreements. (a) ----------------------------------------------------------- The Lessee shall not sublet the Mill I Property, or any part thereof, unless (i) at the time of any such sublease, no Default, Event of Default or Major Environmental Event shall have occurred and be continuing; (ii) prior to such sublet, the Guarantor shall have confirmed that its obligations under the Guaranty shall not be affected thereby; (iii) any such sublease shall by its terms be expressly made subject and subordinate to the terms of this Lease (and the Ground Lease and the Mill I Mortgage) and shall expire on or before the last day of the Term (or the Extended Term, as the case may be) of this Lease; (iv) the Lessee shall provide the 29 Lessor with notice of such sublease sixty (60) days prior to the effective date of such sublease; (v) except with respect to Affiliates, the Lessee shall provide the Lessor ten (10) Business Days prior to the effective date of such sublease with a conformed copy of the instrument creating such sublease; (vi) except with respect to Affiliates, the Lessor has consented to such sublease; and (vii) except with respect to Affiliates, such sublease shall be made on commercially reasonable terms. (b) No sublease pursuant to this paragraph 17 shall modify or limit any right or power of the Lessor hereunder or affect or reduce any obligation of the Lessee hereunder, and all such obligations of the Lessee shall continue in full force and effect as obligations of a principal and not of a guarantor or surety, as though no subletting had been made or occupancy permitted. (c) If the Lessee shall request, in connection with any sublease, that the Lessor execute an attornment and non-disturbance agreement with respect to such sublease, the Lessor shall consider each such sublease on a case-by-case basis and may consent to its execution and delivery of an attornment and non- disturbance agreement. (d) Except as permitted in paragraph 17(a), the Lessee shall not mortgage, pledge, assign or otherwise encumber its interest in and to this Lease or in and to any sublease or the rentals payable thereunder without the prior written consent of the Lessor except that the Lessee may assign its right to purchase Mill I Property without the consent of the Lessor so long as the Lessee remains liable for the performance and payment of the purchase obligation. Any sublease made, and any mortgage, pledge or assignment of the Lessee's interest hereunder or under any such sublease granted, otherwise than as expressly permitted by this paragraph 17, shall be null and void and of no force or effect. (e) The Lessee shall have the exclusive right to amend or supplement the Facility Agreements, on the conditions that (i) the fair market value or use of the Mill I Property is not lessened thereby, and (ii) the amendment or supplement is not consummated without Lessor's consent (unless Lessee has delivered an Offer to Purchase the Mill I Property or unless such amendment or supplement could not reasonably be expected to result in a Material Adverse Effect). Except pursuant to any sublease or assignment of this Lease permitted hereunder, the Lessee may not assign its rights in the Facility Agreements without the prior written consent of Lessor. 30 18. Permitted Contests. (a) So long as (w) no Lessor Termination ------------------ Notice has been delivered, (x) no Default, Event of Default or Major Environmental Event has occurred and is continuing, (y) the Lessee shall not have notified the Lessor pursuant to paragraph 27(a)(ii) that it is terminating this Lease and abandoning the Mill I Property or (z) the Lessee shall not have otherwise surrendered or be required to surrender the Mill I Property to the Lessor for any reason (including, without limitation, pursuant to paragraph 23(a)), the Lessee shall not be required, nor shall the Lessor have the right, to pay, discharge or remove any Charges or to comply or cause the Mill I Property or any part thereof to comply with any applicable Legal Requirement or to pay any materialman's, laborer's or undischarged or unremoved Lien, as long as the Lessee shall at its sole cost and expense contest, or cause to be contested, diligently and in good faith, the existence, amount or validity thereof by appropriate proceedings, which shall (i) in the case of an unpaid Property Charge or undischarged or unremoved Lien, prevent the collection thereof from the Lessor or against the Mill I Property or any part thereof, (ii) prevent the sale, forfeiture or loss of the Mill I Property or any part thereof, and (iii) in the case of a Legal Requirement, not subject the Lessor, the Agent, the Collateral Agent, the Equity Investors, or the Note Holders to the risk of any criminal liability or civil penalties or fines for failure to comply therewith. The Lessee shall give such assurances as may be reasonably demanded by the Lessor to insure ultimate payment of such Charges or the discharge or removal of any such materialman's, laborer's or mechanic's Lien or to insure compliance with such Legal Requirement and to prevent any sale or forfeiture of the Mill I Property, or any part thereof, or any interference with or deductions from any Fixed Rent, Additional Rent or any other sum required to be paid by the Lessee hereunder by reason of such non-payment, non-discharge, non-removal or non-compliance. (b) The Lessor shall cooperate with the Lessee in any contest and shall allow the Lessee to conduct such contest (in the name of the Lessor, if necessary) at the Lessee's sole cost and expense; provided that the Lessor shall -------- ---- not be required to execute any documents which would materially adversely affect the fair market value, use or operation of the Mill I Property (or any part thereof) or subject the Lessor, the Agent, the Collateral Agent, any Equity Investor or any Note Holder to any liability or result in the admission of liability, guilt or culpability on the part of such Persons. The Lessee shall notify the Lessor of each such proceeding at least ten days 31 prior to the commencement thereof, which notice shall describe such proceeding in reasonable detail. (c) The Lessee shall, promptly after the final determination (including appeals) of any contest brought by it pursuant to this paragraph 18, pay and discharge all amounts which shall be determined to be payable therein and shall be entitled to receive and retain for its own account all amounts refunded and/or rebated as a result of any such contest and if the Lessor receives any amount as a result of such contest to which it is not otherwise entitled pursuant to this Lease, it shall promptly return such amount to the Lessee. (d) Except as otherwise specifically provided in this Lease, this paragraph 18 shall not apply in the case of Charges upon, or in respect of, any Person other than the Lessor (or the lessor under the Ground Lease) or in respect of the property or income of any such Person. 19. Default Provisions. (a) An Event of Default as defined in the ------------------ Participation Agreement shall constitute an "Event of Default" under this Lease. ---------------- (b) The Lessor may take all steps to protect and enforce the rights of the Lessor or obligations of the Lessee hereunder, whether by action, suit or proceeding at law or in equity (for the specific performance of any covenant, condition or agreement contained in this Lease, or in aid of the execution of any power herein granted or for any foreclosure, or for the enforcement of any other appropriate legal or equitable remedy) or otherwise as the Lessor shall deem necessary or advisable. (c) (i) If an Event of Default shall have occurred and be continuing, including an Event of Default arising from the breach of a covenant, condition or other provision hereof, then upon five (5) Business Days' prior written notice by the Lessor to the Lessee, in addition to all other rights, remedies or recourses available, the Lessor may either (A) terminate this Lease or (B) terminate the Lessee's right to possession of the Mill I Property or any part thereof. If the Lessor should elect to terminate this Lease as provided in clause (A) above, then this Lease and the estate hereby granted shall expire and terminate at midnight on the fifth (5th) Business Day (or such later date as may be specified therein) after the date of such notice, as fully and completely and with the same effect as if such date was the date herein fixed for the expiration of the Term and all rights of the Lessee shall terminate, but the Lessee shall remain liable as hereinafter provided. (ii) Should the Lessor elect not to terminate this Lease, this Lease shall continue in effect and the Lessor may 32 enforce all the Lessor's rights and remedies under this Lease including the right to recover the Fixed and Additional Rent as each becomes due under this Lease. For the purposes hereof, the following do not constitute a termination of this Lease: (A) Acts of maintenance or preservation of the Mill I Property or any part thereof or efforts to relet the Mill I Property or any part thereof, including, without limitation, termination of any sublease of the Mill I Property to a third party and removal of such subtenant from the Mill I Property; (B) The appointment of a receiver upon initiative of the Lessor to protect the Lessor's interest under this Lease; and/or (C) The exercise of any rights under the Mill I Mortgage. (d) If an Event of Default shall have occurred and be continuing, and the Lessor has elected to terminate this Lease or terminate the Lessee's right to possession of the Mill I Property or part thereof, upon five (5) Business Days' notice, the Lessor shall have (i) the right, whether or not this Lease shall have been terminated pursuant to paragraph 19(c) hereof, to re-enter and repossess the Mill I Property or any part thereof, as the Lessor may elect, by summary proceedings, ejectment, any other legal action or in any other lawful manner the Lessor determines to be necessary or desirable and (ii) the right to remove all Persons and property therefrom. The Lessor shall be under no liability by reason of any such re-entry, repossession or removal. No such re- entry or repossession of the Mill I Property or any part thereof shall be construed as an election by the Lessor to terminate this Lease unless a notice of such termination is given to the Lessee pursuant to paragraph 19(c) hereof, or unless such termination is decreed by a court or other governmental tribunal of competent jurisdiction. Should the Lessor elect to re-enter the Mill I Property as herein provided or should the Lessor take possession pursuant to legal proceedings or pursuant to any notice provided for by Law or upon termination of this Lease of the Lessee's right to possession of the Mill I Property or any part thereof pursuant to paragraph 19(c) hereof or otherwise as permitted by Law, the Lessee shall peaceably quit and surrender the Mill I Property or any part thereof to the Lessor. In any such event, neither the Lessee nor any Person claiming through or under the Lessee, by virtue of any Law, shall be entitled to possession or to remain in possession of the Mill I Property or any such part thereof, 33 but shall forthwith quit and surrender the Mill I Property to the Lessor. (e) At any time or from time to time after the re-entry or repossession of the Mill I Property or any part thereof pursuant to paragraph 19(d) hereof, whether or not this Lease shall have been terminated pursuant to paragraph 19(c) hereof, the Lessor may (but shall be under no obligation to) relet the Mill I Property or any part thereof, for the account of the Lessee, without notice to the Lessee, for such term or terms and on such conditions and for such uses as the Lessor, in its sole and absolute discretion, may determine. The Lessor may collect and receive any rents or other proceeds payable by reason of such reletting. The Lessor shall not be liable for any failure to relet the Mill I Property or any part thereof or for any failure to collect any rent due upon any such reletting. (f) No termination of this Lease or of the Lessee's right to possession of the Mill I Property or any part thereof pursuant to paragraph 19(c) hereof, or by operation of Law, and no re-entry or repossession of the Mill I Property or any part thereof, pursuant to paragraph 19(d) hereof, and no reletting of the Mill I Property or any part thereof pursuant to paragraph 19(e) hereof, shall relieve the Lessee of its liabilities and obligations hereunder, all of which shall survive such termination, re-entry, repossession or reletting. (g) In the event of any termination of this Lease or of the Lessee's right to possession of the Mill I Property or any part thereof by reason of the occurrence of any Event of Default, the Lessee shall pay to the Lessor all Fixed Rent, Additional Rent and other sums required to be paid to and including the date of such termination of this Lease or of the Lessee's right to possession; and thereafter, until the end of the Term or the Extended Term, as applicable, whether or not the Mill I Property or any part thereof shall have been relet, the Lessee to the extent permitted by applicable Law shall be liable to the Lessor for, and shall pay to the Agent (on behalf of the Lessor), on the days on which such amounts would be payable under this Lease in the absence of such termination, re-entry or repossession, as agreed current damages and not as a penalty: all Fixed Rent, Additional Rent and other sums which would be payable under this Lease by the Lessee, in the absence of such termination, re-entry or repossession, and all costs (including attorneys' fees and expenses) incurred by the Lessor hereunder (payable on demand) and all costs of any environmental remediation pursuant to paragraph 13. To the extent permitted by Law, at such time after the termination or expiration of this 34 Lease as the Lessee shall have paid all amounts required to be paid by it under this Lease and the other Operative Documents and the Lessee shall have discharged any and all obligations to the Lessor, the Equity Investors and the Note Holders, then the Lessor shall pay and assign to the Lessee, when received, the net proceeds, if any, of any reletting effected for the account of the Lessee pursuant to paragraph 19(e), and any residual interest in the Mill I Property after deducting from such proceeds all of the Lessor's expenses in connection with such reletting (including, but not limited to, all repossession costs, brokerage commissions, attorneys' fees and expenses, employees' expenses, alteration costs and expenses of preparation for such reletting and all costs of any environmental remediation pursuant to paragraph 13). (h) Notwithstanding the foregoing, if an Event of Default shall have occurred, the Lessee may within 5 Business Days after the earliest of the Lessor's or Agent's notice of such occurrence thereafter pay to the Agent, on behalf of the Lessor, an amount equal to the Offer Purchase Price in which event the Lessor shall be obligated to convey the Mill I Property to the Lessee in compliance with paragraph 15. (i) At any time after such termination of the Term (or the Extended Term) of this Lease or re-entry or repossession of the Mill I Property by reason of the occurrence of an Event of Default, the Lessor shall be entitled to recover from the Lessee, and the Lessee will pay to the Agent (on behalf of the Lessor) on demand, in lieu of all liquidated damages in respect of Fixed Rent beyond the date of such demand (but in addition to any claim for current damages in respect of Fixed Rent or Additional Rent prior to the date of such demand), an amount equal to the Termination Value, in which event the Lessor shall be obligated to convey the Mill I Property to the Lessee in compliance with paragraph 15. 20. Additional Rights; Mortgage. (a) No right or remedy hereunder --------------------------- shall be exclusive of any other right or remedy, but shall be cumulative and in addition to any other right or remedy hereunder or under the other Operative Documents or now or hereafter existing at Law or in equity and the exercise by the Lessor or the Collateral Agent of any one or more of such rights, powers or remedies shall not preclude the simultaneous exercise of any or all of such other rights, powers or remedies. Failure to insist upon the strict performance of any provision hereof or to exercise any option, right, power or remedy contained herein shall not constitute a waiver or relinquishment thereof for the future. Receipt by the Lessor 35 (or by the Agent on behalf of the Lessor) of any Fixed Rent, Additional Rent, Residual Guaranty, Termination Value or other sum payable hereunder or under any other Operative Document with knowledge of the breach by the Lessee of any provision hereof shall not constitute a waiver of such breach, and no waiver by the Lessor of any provision hereof shall be deemed to have been made unless made in writing. The Lessor shall be entitled to injunctive relief in case of the violation or attempted or threatened violation of any of the provisions hereof, a decree compelling performance of any of the provisions hereof or any other remedy allowed to the Lessor at law or in equity. (b) Except as otherwise provided in Section 19(h), the Lessee hereby waives and surrenders for itself and all those claiming under it, including creditors of all kinds, (i) any right and privilege which they may have under any applicable law or otherwise to redeem the Mill I Property or any part thereof or to have a continuance of this Lease after termination of the Lessee's right of occupancy by Law or by any legal process or writ, or under the terms of this Lease, or after the termination of the Term (or Extended Term, as the case may be) of this Lease as herein provided and (ii) the benefits of any Law which exempts property from liability for debt or for distress for rent. (c) If an Event of Default exists hereunder, the Lessee shall pay to the Agent (on behalf of the Lessor) on demand all fees and out-of-pocket expenses incurred by the Lessor in enforcing its rights under this Lease, including attorneys' fees and expenses. (d) The Lessor and the Lessee intend that the Lessee shall treat this Lease, for accounting purposes, as an operating lease. Notwithstanding the intent of the parties, if a court of competent jurisdiction determines that the transaction represented by this Lease and the other Operative Documents will be treated as a financing transaction, then the parties hereto intend that (i) this Lease be treated as the repayment and security provisions of a loan by Lessor to Lessee in a principal amount equal to the sum of (x) the Acquisition Costs of the Mill I Property plus (y) the aggregate of all Advances made with respect to the Mill I Property, plus any other amounts owing to the Lessor or the Collateral Agent, Note Holders or Equity Investors (collectively, the "Secured ------- Party") under the Operative Documents including, without limitation, Fixed Rent, - ----- Additional Rent, the Offer Purchase Price and the Termination Value (collectively, the "Mill I Loan Amount"), but not to exceed the principal sum of ------------------ Eight Hundred Eighty Seven Million 36 Five Hundred Thousand Dollars ($887,500,000), (ii) all payments of Fixed Rent, Additional Rent, the Offer Purchase Price and the Termination Value be treated as payments of principal, interest and other amounts owing with respect to such Mill I Loan Amount, respectively, (iii) the Lessee should be treated as entitled to all benefits of ownership of the Mill I Property or any part thereof, and (iv) this Lease be treated (aa) as a mortgage from Lessee, as mortgagor, to the Lessor, as mortgagee, for the benefit of Secured Party securing the Mill I Loan Amount, encumbering that portion of the Mill I Property constituting real property, and is made under those provisions of the existing laws of the State of Wisconsin relating to mortgages and that the Lessee, as mortgagor hereby does, effective as of the date of this Lease, mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm and assign unto Lessor, as mortgagee, or any successor thereto, for the benefit of the Secured Party, Lessee's right, title and interest in and to any real property of any kind or character comprising the Mill I Property, whether now owned or hereafter acquired, and all proceeds therefrom, to have and to hold said real property and all parts, rights, members and appurtenances thereof to the use, benefit and behoof of the Lessor, for the use and benefit of the Secured Party, and as part of this mortgage conveyance, as additional security for the Mill I Loan Amount, Lessee does hereby, effective as of the date of this Lease, sell, assign, transfer, demise and set over unto Lessor all of Lessee's right, title and interest in and to the Mill I Ground Lease, all other leases, the Mill I Property, the possession thereof, and all the rents now due and which may hereafter become due under or by virtue of the leases, whether written or verbal, or any letting of, or any agreement for the use or occupancy of any part of the Mill I Property, it being the intention to hereby establish a present and absolute transfer and assignment of all such leases and agreements and all the avails thereunder unto Lessor. This assignment shall run with the land and be good and valid as against Lessee and those claiming by, under or through Lessee from the date of the execution of this Lease. This assignment shall continue and remain in full force and effect during any foreclosure proceedings relating to the Mill I Wisconsin Tenneco Mortgage and the period of redemption, if any, and until the Mill I Loan Amount shall have been paid in full. This assignment shall not be exercised unless and until an Event of Default shall occur and be continuing and in such event (i) it shall not be necessary for Lessor to take any action for Lessor to be 37 entitled to all rents, issues, profits and leases, (ii) Lessor may, at its sole option without any prior notice to or approval of Lessee, take any action to enforce this assignment including without limitation, by notifying any or all tenants to pay directly to Lessor all rent, issues, and profits arising out of the Mill I Property, and all payments required to be made pursuant to or by virtue of any lease agreements, and (iii) Lessor shall be entitled to all rents, issues, profits and leases pertaining to the Mill I Property and to enforce this assignment without seeking the appointment of a receiver, commencing a foreclosure action, obtaining possession of the Mill I Property or making demand. Lessee hereby grants Lessor a power of attorney and does hereby irrevocably appoint Lessor its agent (effective upon the occurrence and during the continuance of an Event of Default) for the management of the Mill I Property and Lessor may let and re-let the Mill I Property or any part thereof according to its own discretion and may make such repairs to the Mill I Property as it considers expedient and may do anything in and about the Mill I Property that Lessee might do, Lessee hereby ratifying and confirming anything and everything that Lessor may do. This assignment and power of attorney shall continue until the Mill I Loan Amount has been fully paid, satisfied and performed; and (bb) as a security agreement from the Lessee, as debtor, to the Lessor, as secured party, for the benefit of Secured Party securing the Mill I Loan Amount, encumbering all personal property comprising the Mill I Property, whether now owned or hereafter acquired and all proceeds therefrom. (this Lease, in its capacity as such mortgage, assignment and security agreement, the "Mill I Wisconsin Tenneco Mortgage"), and that the Lessee, as --------------------------------- debtor, hereby, effective as of the date of this Lease, grants to the Lessor, for the use and benefit of the Secured Party, a lien on and security interest in the equipment, fixtures and all other personal property of any kind or character comprising the Mill I Property and all proceeds therefrom. The Lessor shall have all of the rights, powers and remedies of a mortgagee and a secured party available under applicable law, including, without limitation, judicial foreclosure. The filing of this Lease (or a memorandum hereof) shall be deemed to constitute the filing of a mortgage and the filing of any financing statement in connection with this Lease shall be deemed to constitute the filing of a financing statement to perfect the security interest in the Mill I Property aforesaid to secure the payment of all amounts due from 38 time to time from the Lessee to the Lessor under this Lease and the other Operative Documents. (e) The Mill I Wisconsin Tenneco Mortgage secures and shall be security for the entire Mill I Loan Amount if a court of competent jurisdication determines that the transaction represented by this Lease and the other Operative Documents will be treated as a financing transaction. Secured Party shall not be obligated to make any future advances, except in accordance with the Participation Agreement and the other Operative Documents and (notwithstanding any language to the contrary contained herein, in the Participation Agreement or in any of the other Operative Documents) if all subsequent lien holders of record (other then the holder of any Lien which is a Permitted Encumbrance) execute subordination agreements satisfactory to Secured Party in form and content. In order to preserve the mortgage and security interest provided for herein, each of the Lessor and the Lessee agrees to abide by the following provisions with regard to the Mill I Property (for purposes of this paragraph, hereinafter referred to as "Mill I Collateral"): ----------------- (1) Change in Location of Mill I Collateral or the Lessee's Name, ------------------------------------------------------------- Structure or Location. The Lessee (i) will notify the Secured Party on or - --------------------- before the date of any change in (A) the location of the Mill I Collateral (B) the location of Lessee's chief executive office or address, (C) the name of the Lessee and (D) the corporate structure of the Lessee, and (ii) will, on or before the date of any such change, prepare and file new or amended financing statements as necessary so that the Secured Party shall continue to have a perfected Lien (subject only to Permitted Encumbrances) in the Mill I Collateral after any such change. (2) Documents; Mill I Collateral in Possession of Third Parties. If ----------------------------------------------------------- certificates of title or other documents evidencing ownership or possession of the Mill I Collateral are issued or outstanding, the Lessee will cause the interest of the Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to the Secured Party. If any Mill I Collateral is at any time in the possession or control of any warehouseman, bailee, agent or independent contractor, the Lessee shall notify such Person of the Secured Party's security interest in such Mill I Collateral. Upon the Secured Party's request, the Lessee shall instruct any such Person to hold all such Mill I Collateral for the Secured Party's account subject to the Lessee's instructions, or, if an Event of Default shall have occurred and be continuing, subject to the Secured Party's instructions. 39 (3) Sale, Disposition or Encumbrance of Mill I Collateral. Except for ----------------------------------------------------- Permitted Encumbrances and contests permitted under Paragraph 18, as permitted by this Lease or any of the other Operative Documents or with the Secured Party's prior written consent, the Lessee will not in any way encumber any of the Mill I Collateral (or permit or suffer any of the Mill I Collateral to be encumbered) or sell, assign, lend, rent, lease or otherwise dispose of or transfer any of the Mill I Collateral to or in favor of any Person other than the Secured Party. (4) Proceeds of Mill I Collateral. Except as permitted by this Lease ----------------------------- or any of the other Operative Documents, the Lessee will deliver to the Secured Party promptly upon receipt all proceeds delivered to the Lessee from the sale or disposition of any Mill I Collateral. This paragraph shall not be construed to permit sales or dispositions of the Mill I Collateral except as may be elsewhere expressly permitted by this Lease or the other Operative Documents. (5) Further Assurances. Upon the request of the Secured Party, Lessee ------------------ shall (at Lessee's expense) execute and deliver all such mortgages, assignments, security agreements, certificates, financing statements, memoranda, or other documents and give further assurances and do all other acts and things as the Secured Party may reasonably request to perfect the Secured Party's interest in the Mill I Collateral or to protect, enforce or otherwise effect the Secured Party's rights and remedies hereunder, all in form and substance satisfactory to the Secured Party. (6) Mill I Collateral Attached to other Property. In the event that -------------------------------------------- the Mill I Collateral is to be attached or affixed to any real property, the Lessee hereby agrees that a financing statement which is a fixture filing may be filed for record in any appropriate real estate records. If the Lessee is not the record owner of such real property, other than the Mill I Property, it will provide the Secured Party with any additional security documents or financing statements necessary for the perfection of the Secured Party's Lien and mortgage in the Mill I Collateral, as requested by the Secured Party. (7) Mill I Loan Amount. Should the Mill I Loan Amount be paid ------------------ according to the tenor and effect thereof when the same becomes due and payable hereunder, and should Lessee perform all covenants contained in the Operative Documents in a timely manner, then the Mill I Wisconsin Tenneco Mortgage shall be cancelled and surrendered. 40 (8) Mortgage Remedies. If an Event of Default shall have occurred ----------------- and be continuing, the Lessor, at the direction of the Agent and in accordance with the Interparty Agreement, shall have the right (i) to exercise any and all remedies available to a mortgagee under Wisconsin law (and without prejudice to the rights of the Secured Party to exercise any remedies described in the Participation Agreement, the Interparty Agreement or any other Operative Documents). (ii) to declare the Mill I Loan Amount and all other obligations of Lessee secured by the Mill I Wisconsin Tenneco Mortgage immediately due and payable without further notice. If Secured Party exercises its option to accelerate the Mill I Loan Amount and all other obligations of Lessee secured by the Mill I Wisconsin Tenneco Mortgage, such amounts shall be collectible in a suit at law or by foreclosure action, or both, or by exercise of any other remedy available in law or equity. (iii) in any action to foreclose the Mill I Wisconsin Tenneco Mortgage, Lessor shall be at liberty, without notice, to apply for the appointment of a receiver of the rents, and shall be entitled to the appointment of such receiver as a matter of right, without regard to the value of the Mill I Property as security for the Mill I Loan Amount, or the solvency or insolvency of any person then liable for the payment of the Mill I Loan Amount. Under such circumstances, Lessee agrees that the court may appoint a receiver of the Mill I Property without bond, and may empower the receiver to take possession of the Mill I Property and collect the rents, issues and profits of the Mill I Property, and exercise such other powers as the court may grant until the confirmation of sale, and may order the rents, issues and profits, when so collected, to be held and applied as provided under subclause (iv) hereof, unless the court directs otherwise. (iv) (a) to grant, bargain, sell, release and convey the Mill I Property at public auction or venue and on such sale, to execute and deliver to the purchaser or purchasers, their heirs, successors and assigns, good, ample and sufficient deed or deeds of conveyance in law, pursuant to the statute in such case made and provided and to apply the proceeds of such sale in the manner hereinafter provided. (b) Lessee agrees to the provisions of (S)846.103, Wis. Stats., and as the same may be amended or renumbered from time to time, permitting Lessor, upon an express allegation in a complaint, filed in a mortgage foreclosure action, waiving the 41 right to judgment for deficiency, to hold the foreclosure sale of real estate three months after a foreclosure judgment is entered. Lessor is also entitled to all other or additional remedies permitted by law to mortgagees existing on the date this Lease is signed and/or existing at the time of default. (c) Upon a foreclosure sale of the Mill I Property or any part thereof, the proceeds of such sale shall be applied in the following order: (x) to the payment of all costs of the suit or foreclosure, including reasonable attorney's fees and the cost of title evidence; (y) to the payment of all other expenses of Lessor; and (z) then in accordance with the Interparty Agreement. 21. Notices, Demands and Other Instruments. All notices, demands, -------------------------------------- offers, consents and other instruments given pursuant to this Lease shall be sent to the parties hereto at the addresses set forth on Schedule I to the Participation Agreement and shall be given in the manner and shall be effective at the times and under the terms set forth in Section 8.02 of the Participation Agreement. The Lessee shall send to the Agent copies of all notices, demands, offers, consents, advices and other instruments hereunder sent to the Lessor. 22. No Default Certificate. Each party hereto shall, at the ---------------------- reasonable request of the other party hereto, deliver to such other party a certificate stating whether such first party has knowledge that, or has received notice from any person that, any Casualty, Condemnation, Default, Major Environmental Event, Environmental Default, Environmental Trigger or Event of Default has occurred and is continuing. 23. Surrender. (a) If upon the expiration or termination of the --------- Term (or the Extended Term, as the case may be) or the termination of Lessee's possession of the Mill I Property, Lessee or its designee has not purchased the Mill I Property as provided hereunder, the Lessee shall surrender (i) the Mill I Parcel to the Lessor in the condition in which the Mill I Parcel was upon the commencement of the Term hereof (together with all easements, rights of way or other rights as Lessor may require to assure unrestricted access to the Mill I Parcel), (ii) Mill I in the operating condition, efficiency, utility and with the remaining useful life, it had upon the commencement of the Term, except as repaired, rebuilt, renovated, altered, added to or built as permitted or required hereby and except for ordinary wear and tear, and (iii) the Mill I Improvements and the Mill I Alterations in good operating 42 condition, in substantially the condition the same were in when constructed or installed on the Mill I Parcel, except for ordinary wear and tear. To the extent that the Mill I Property is not in compliance with the above upon such expiration or termination (except as a consequence of a Casualty or Condemnation, as to which paragraph 12 applies), the Lessee shall pay to the Agent (on behalf of the Lessor) such additional amounts as are required to place it in compliance therewith. (b) The Lessee shall also surrender the Mill I Property to the Lessor free and clear of all Liens, easements, consents and restrictive covenants and agreements affecting the Mill I Property (other than (i) rights reserved to or vested in any municipality or public authority, by the terms of any franchise, grant, license, Permit or provision of Law, to purchase, condemn, appropriate or recapture, or designate a purchaser of the Mill I Property, (ii) rights reserved to or vested in any municipality or public authority to control or regulate the use of the Mill I Property or to use the Mill I Property in any manner, (iii) easements, rights-of-way, servitudes, restrictions, encroachments and other minor defects, encumbrances and irregularities in title to the Mill I Property which do not, individually or in the aggregate, materially and adversely affect the value, condition, marketability or operation of the Mill I Property or the Lessor's ownership thereof, (iv) the Ground Leases and the Mortgages, (v) Liens existing on the Financing Closing Date and set forth in the Title Policy, and (vi) Lessor Liens. (c) The Lessee shall also surrender the Mill I Property in a condition such that it is in compliance with all applicable Environmental Laws then enacted or then proposed by any governmental agency (irrespective of whether the deadline for such compliance would otherwise expire after the end of the Term or the Extended Term, as applicable). Nothing contained in this paragraph 23 shall relieve or discharge or in any way affect the obligation of the Lessee to cure promptly pursuant to this Lease any violations of Legal Requirements referred to in this Lease, or to pay and discharge any Liens and Impositions against the Mill I Property, subject, however, to the right of the Lessee to contest the same pursuant to the provisions of paragraphs 11 and 18. Lessee shall cooperate, to the fullest extent permitted by Law, with the Lessor, its subsequent lessees, operators or purchasers to effect the transfer of all of Lessee's Applicable Permits for the Mill I Property to such Persons. 43 (d) The Lessee, at its sole cost and expense, shall remove from the Mill I Property on or prior to such expiration or termination, all property situated thereon which is not owned by the Lessor and shall repair any damage caused by such removal and shall restore the Mill I Property to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation of such property, except for ordinary wear and tear. Lessee shall indemnify and hold harmless the Lessor, its successors and assigns against any loss, liability, cost, expense, penalty or claim arising out of the Lessee's removal of such property from the Mill I Property including, without limitation, any environmental liability arising therefrom. Any such property of the Lessee not so removed shall become the property of the Lessor, and the Lessor may cause such property to be removed from the Mill I Property and disposed of, and the cost of any such removal and disposition of the Lessee's property and of repairing any damage caused by such removal and of the restoration of the Mill I Property to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation of such property, ordinary wear and tear excepted, shall be borne by the Lessee. (e) The Lessee shall comply with the conditions set forth in paragraph 27(b) of this Lease in addition to those set forth in this paragraph 23. (f) The obligations of the Lessee under this paragraph 23 shall survive the expiration or any termination of the Term (or the Extended Term, as the case may be) of this Lease (whether by operation of Law or otherwise) for all matters described in this paragraph 23 which occur or arise prior to such expiration or termination or arise out of or result from facts, events, claims, liabilities, actions or conditions occurring, arising or existing on or before such expiration or termination. 24. Severability; Binding Effect; Governing Law; Non-Recourse. (a) --------------------------------------------------------- Except as expressly provided otherwise in this Lease, each provision hereof shall be separate and independent and the breach of any such provision by the Lessee, or a breach of any obligation hereunder by the Lessor, shall not discharge or relieve the Lessee from its obligations to perform each and every covenant to be performed by the Lessee hereunder. If any provision hereof or the application thereof to any Person or circumstance shall be invalid or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances other than those as to which it is 44 invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforceable to the extent permitted by Law. (b) All provisions contained in this Lease shall be binding upon, inure to the benefit of and be enforceable by, the respective permitted successors and assigns of the Lessor and the Lessee to the same extent as if each successor and assignee were named as a party hereto. Except for subleases and assignments permitted or created in accordance with paragraph l7 hereof, the Lessee may not assign its rights hereunder or any interest herein without the prior written consent of the Lessor. Subject to the provisions of Section 2(c) of this Lease and the other Operative Documents, the Lessor may assign all or any part of the Mill I Property and/or its rights under this Lease. All amendments, waivers, consents or approvals arising pursuant to this Lease shall be consummated in accordance with the Participation Agreement. Any amendment, waiver, consent or approval made otherwise than as expressly permitted by this paragraph 24 shall be null and void. (c) THIS LEASE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WISCONSIN WITHOUT REGARD TO CONFLICTS OF LAWS PROVISIONS. (d) The parties may sign this Lease in any number of counterparts and on separate counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument, except that, if this Lease constitutes "chattel paper" within the meaning of the UCC only one counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER l" shall constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. (e) No recourse shall be had against the Lessor, the Agent, the Collateral Agent, the Equity Investor or any Note Holder or their respective successors, assigns, directors, officers, partners, employees, agents or shareholders, for any claim based on any failure by the Lessor in the performance or observance of any of the agreements, covenants or provisions contained in this Lease and in the event of any such failure, recourse shall be had solely against the Mill I Property; provided, however, that nothing -------- ------- contained in this Lease shall be taken to prevent enforcement of any claim against the Lessor or any other Person arising out of or in connection with this Lease based on fraud, gross negligence or willful misconduct of the Lessor or such other Person and nothing shall prevent 45 enforcement against any other Person to which any part thereof shall have been transferred, or obligations undertaken or assumed in writing by such Person. 25. Headings and Table of Contents. The table of contents and the ------------------------------ headings of the various paragraphs and schedules of this Lease are for convenience only and shall not affect the meaning of the terms and conditions of this Lease. 26. Lessor's Right to Cure Lessee's Default. If the Lessee shall --------------------------------------- fail to make any payment or perform any act required to be made or performed under this Lease, the Lessor, without waiving any default or releasing Lessee from any obligation, may (but shall be under no obligation to) make such payment or perform such act for the account and at the cost and expense of the Lessee, and may enter upon the Mill I Property for such purpose and take all such action thereon as, at the Lessor's sole discretion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of the Lessee or a breach of the Lessor's covenant for quiet possession pursuant to paragraph 2(b). All sums so paid by the Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses so incurred, together with interest thereon at the Default Rate to the extent permitted by Law) shall be paid by the Lessee to the Lessor on demand as Additional Rent. 27. Lessee's Options Upon Expiration. (a) In addition to its rights -------------------------------- under paragraphs l2 and 14 hereof, Lessee shall elect either to (i) by written notice given at least three (3) months prior to the Expiration Date (or later if permitted or required under paragraph 27(d)) deliver an Offer to Purchase the Mill I Property in its entirety and purchase the Mill I Property on the Expiration Date upon payment of an amount equal to the Offer Purchase Price, in which case the transfer of the Mill I Property shall be governed by the terms of paragraphs 14 and 15 (and in which case, this Lease (with the exception of any provision hereof or under the other Operative Documents under which the Lessee indemnifies the Lessor or others from liability in connection with this Lease, or otherwise specifies that such provision survives termination hereof or under the other Operative Documents) shall terminate on the Closing Date); (ii) so long as no Default, Event of Default or Major Environmental Event has occurred and is continuing by written notice given at least twelve (12) months prior to the Expiration Date, and subject to the satisfaction of the conditions set forth in paragraphs 27(b) and 27(c) hereof, terminate this Lease, abandon the Mill I Property as of the Expiration Date and 46 pay to the Agent, on behalf of the Lessor on the Expiration Date, in addition to any Fixed Rent, Additional Rent and any other amounts then due and payable to the Lessor hereunder, an amount equal to the Series A Portion of the Adjusted Capitalized Cost of the Mill I Property (the "Residual Guaranty"); or (iii) by ----------------- written notice given at least three (3) months prior to the Expiration Date, and subject to the conditions set forth in paragraph 27(d), extend this Lease for the Extended Term. (b) Upon the election of the Lessee to terminate this Lease pursuant to paragraph 27(a)(ii) hereof, the Lessee shall provide, or cause to be provided or accomplished, at the sole cost and expense of the Lessee, to or for the benefit of the Lessor and the holders of the Instruments, at least thirty (30) days but not more than sixty (60) days prior to the Expiration Date or date of such other termination of this Lease each of the following (other than the documentation contemplated under clause (b)(ii)(F) which must be delivered five days prior to the Expiration Date) (collectively, the "Return Conditions"): ----------------- (i) an environmental audit of the Mill I Property, performed by environmental consultants selected by the Lessor, satisfactory in scope and content to the Agent, the Lessor, the Collateral Agent, each Equity Investor and each Note Holder, each in its sole discretion. (ii) a report of the Appraiser and/or the Independent Engineer, satisfactory in scope and content to the Lessor, the Collateral Agent, the Agent, the Equity Investors and the Note Holders, each in their sole discretion, to the effect that (A) the Mill I Improvements, if any, have been completed; (B) the Mill I Property has been constructed or maintained in accordance with the terms and conditions of the Lease and the other Operative Documents and the requirements of all Legal Requirements, Applicable Permits and prudent industry standards for pulp and paper mills in Wisconsin; (C) the Lessee shall not be rebuilding or restoring or required to rebuild or restore the Mill I Property or any part thereof pursuant to paragraph 12(c) of this Lease; (D) the Mill I Property meets or exceeds the performance tests specified on Exhibit A hereto (the "Performance Tests") taking into account any modifications to the ------------------ Performance Tests necessitated by the Mill I Improvements (as determined by the Independent Engineer) which will insure that, at a minimum, the Mill I Property (including the Mill I Improvements, if any,) can operate at the required capacity, efficiency, utility and reliability required to meet the terms of any existing contracts involving the Mill I Property (including the Mill I Improvements) on the Expiration Date (or date of such other termination of the Lease); (E) all mechanical, electrical, security, plumbing, fire safety, telecommunications, structural and other building systems in the Mill I Property are operating properly in accordance with standards and specifications for such systems not less than those in effect on the date hereof, subject to the provisions of paragraph 23 hereof (and such other standards and specifications as may be required by applicable Legal Requirements); and (F) no Condemnation or Casualty has occurred which has not been remedied in accordance with the terms of the Operative Documents; (iii) delivery of a services agreement to the Lessor (in form and substance satisfactory to the Agent, the Lessor, the Equity Investors and the Note Holders each in their sole and absolute discretion), containing among other things, evidence that the Lessee has made arrangements satisfactory to the Agent in its sole and absolute discretion for the provision of all services necessary to 47 maintain, own, operate or sell the Mill I Property (including obtaining all necessary intellectual property, surveys, permits, rights of way, manuals and contracts specifically associated with the Mill I Property and required for the operation of the Mill I Property as then being operated); (iv) an endorsement to the previously delivered ALTA extended coverage owner's title insurance policy issued by the Title Company, marked "premium paid" and increasing the coverage of such policy to an aggregate amount equal to the lesser of (i) the maximum insurable amount or (ii) the Adjusted Capitalized Cost of the Mill I Property, subject only to Permitted Encumbrances and otherwise in form and substance satisfactory to the Note Holders, the Equity Investors, the Lessor and Special Counsel, to be delivered to the Note Holders, the Equity Investors, the Lessor and Special Counsel, together with copies of all documents relating to the Permitted Encumbrances referred to therein, showing record title of the Lessor in the (leasehold estate in and to the) Mill I Property, and in and to Mill I, the Mill I Improvements and the Mill I Alterations; (v) all Fixed Rent and Additional Rent shall have been paid in full through such expiration or termination of the Term (or the Extended Term, as applicable); (vi) the Lessee shall remove, or cause the removal of, at the Lessee's sole expense, any inventory, fixtures, machinery, equipment or other property belonging to the Lessee or third parties in compliance with paragraph 10(b) and 23(d) of this Lease; and (vii) if directed to do so by the Lessor, the Lessee (at its expense) shall execute and deliver any and all further instruments, agreements and documents as may, in the reasonable opinion of the Lessor, be necessary to confirm the termination and expiration of this Lease and to acknowledge that the Lessee, from the date of termination and expiration, ceases to have any interest in the Mill I Property under this Lease and to confirm the Lessor's ownership of the Mill I Property. (c) Upon the Lessee's election to terminate this Lease pursuant to and in compliance with paragraph 27(a)(ii) the Lessee shall use reasonable efforts during the twelve-month period prior to the Expiration Date ("Remarketing Period") to obtain bids from unrelated third parties for the Mill ------------------ I Property. All bids received by the Lessee shall immediately be copied to the Lessor and the Agent in writing, setting forth the amount of such bid and the name and address of the person submitting such bid. The Lessor, the Agent, the Equity Investors and each Note Holder shall have the right, but not the obligation, to seek bids for the Mill I Property during the Remarketing Period or at any time thereafter. On the Expiration Date or at any time thereafter, provided that all conditions of this paragraph 27 have been met, the Collateral Agent may (but is not obligated to) sell the Mill I Property for cash to the bidder, if any, who shall have submitted the highest bid during the Remarketing Period or any time thereafter on an as-is basis and without recourse or warranty, subject to the provisions of Section 3.01 of the Interparty Agreement. The Lessor shall be entitled to keep the proceeds of such sale after payment of Closing Costs (the "Net Sale Proceeds"), and Lessee shall have no further claim ----------------- thereto except to the extent such Net Sale 48 Proceeds exceed the outstanding obligations of the Lessee under the Operative Documents. (d) So long as no Default, Event of Default or Major Environmental Event exists, the Lessee may request (in its sole discretion), by written notice given to the Agent at least 3 months prior to the Expiration Date an extension of this Lease for one additional period of up to five years (the "Extended -------- Term"). The Lessor and the Lessee shall determine the Applicable Rate for the - ---- Extended Term, consistent with the terms outlined below in this paragraph 27(d), and the Lessee shall undertake to enter into all amendments and supplements to the Operative Documents and such other agreements as the Lessor in its sole discretion determines to be necessary and appropriate in connection therewith including, without limitation, delivery to Agent of an appraisal of the Mill I Property (satisfactory in form and substance to the Agent in its sole discretion). If the Lease is extended for the Extended Term, the Lessee shall pay the Agent a remarketing fee, the amount of which shall be determined one month prior to the commencement of the Extended Term. Fixed Rent during the Extended Term shall be paid monthly in arrears, and include an annual amount (payable annually in arrears) to be applied (i) to the outstanding principal amount of the Notes, and (ii) to the outstanding stated amount of the Equity Investment, such annual amount to be based on an amortization schedule (determined by reference to the appraisal described in this paragraph 27(d) and agreed to by the Note Holders and the Equity Investors in their sole discretion). (e) The Applicable Rate, the principal amount of the commitments to be agreed upon by each Note Holder and each Equity Investor and Commitment Fees payable during the Extended Term shall be determined as follows: (i) Within ten (10) days after receipt of Lessee's request to extend this Lease pursuant to this paragraph 27(d), the Agent shall, in accordance with provisions of the letter agreement of even date herewith (the "Extension Letter") among the Lessee and each APA Purchaser, the manager under ---------------- the Management Agreement, CNAI, the Equity Investor, the Lessor and the Collateral Agent, consult with each party to the Extension Letter to determine (A) the amount of the Applicable Rate, the Fixed Rent and the Commitment Fees, if any, for the Extended Term at which the Note Holders, the Equity Investors and other applicable Persons are willing to continue their respective interests for the Extended Term (the "Proposed Extension Rates"), or (B) whether any such ------------------------ Person is unwilling to continue its interest during the Extended Term; and the Agent shall promptly thereafter notify the Lessee thereof. (ii) If the Agent notifies the Lessee of the Proposed Extension Rates, the Lessee shall, within five Business Days after such notice, notify the Agent whether the Lessee is willing to accept the Proposed Extension Rates for the Extended Term and, if not, at what Applicable Rate, Fixed Rent and Commitment Fees the Lessee is willing to accept for the Extended Term (the "Lessee's Extension Rates"); provided, however, that in the event that the ------------------------ -------- ------- Equity Investor and the Lessor are the same person, the 49 Lessee agrees that any extension of this Lease agreed to by the Lessee with either the Equity Investor or the Lessor shall also include such other Person. (iii) If any party to the Extension Letter notifies the Agent that it is unwilling to extend this Lease in accordance with clause (i)(B) above or if the Lessee notifies the Agent that it is unwilling to accept the Proposed Extension Rates and advises the Agent of the Lessee's Extension Rates as set forth above, the Agent shall use reasonable efforts to locate replacement lenders, investors and other Persons as necessary to extend this Lease for the Extended Term on Lessee's Extension Rates. (iv) If the Lessee fails to give the Agent the notice described in clause (ii) of this paragraph 27(e), or, if within one month after Lessee's request to extend this Lease pursuant to paragraph 27(d), the Agent has been unable to locate replacement lenders, investors or other Persons as necessary to extend this Lease for the Extended Term on Lessee's Extension Rates, the Agent shall notify the Lessee and the Lessee, within five Business Days after such notice shall give the Agent notice of either (x) the Lessee's agreement to extend this Lease for the Extended Term at the Proposed Extension Rates, if any, or (y) in all other cases, the Lessee's election pursuant to paragraph 27(a)(i) hereof; provided, that if the Lessee fails to give the Agent such notice, the Lessee shall be deemed to have given notice of its election pursuant to paragraph 27(a)(i) hereof. (e) If Lessee is unable to satisfy one or more of the conditions set forth in paragraphs 27(b) and 27(c) hereof, or fails to elect either (i) or (ii) under paragraph 27(a) hereof, the Lessee shall be deemed to have elected to proceed under paragraph 27(a)(i) hereof, in which case Lessee shall purchase the Mill I Property pursuant to and in accordance with said paragraph 27(a)(i). 28. Protective Expenditures. At any time after the expiration or ----------------------- other termination of this Lease, if the Lessee has not purchased the Mill I Property pursuant to the terms of this Lease, any Note Holder, any Equity Investor or the Lessor shall have the right to pay, or to fund the Collateral Agent's payment of, (i) real estate Taxes due and owing with respect to the Mill I Property or (ii) insurance premiums required to maintain the coverage required during the Term of this Lease pursuant to Section 5.01(o) of the Participation Agreement (each a "Protective Expenditure"). Reimbursement of Protective ---------------------- Expenditures made by any Note Holder, any Equity Investor or the Lessor in accordance with this paragraph 28 shall be made upon a sale of the Mill I Property pursuant to the provisions set forth in the Interparty Agreement. 29. Limitations on Amounts Payable. Notwithstanding anything to the ------------------------------ contrary contained in this Lease or any of the other Operative Documents, the amounts which the Lessee is obliged to pay, as Fixed Rent pursuant to this Lease and the other Operative Documents, and the amounts which Lessor, Agent, the Equity Investors and the Note Holders are entitled to receive as Fixed Rent pursuant to this Lease and other Operative 50 Documents, are subject to limitations pursuant to Section 8.17 of the Participation Agreement. 30. No Merger of Title. There shall be no merger of this Lease nor ------------------ of the leasehold estate created by this Lease with the ownership of the Mill I Parcel, Mill I, the Mill I Improvements or the Mill I Alterations by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Lease or the leasehold estate created by this Lease or any interest in this Lease or interest in the fee or leasehold ownership of the Mill I Parcel, Mill I, the Mill I Improvements or the Mill I Alterations and no such merger shall occur unless and until all Persons having any interest in (x) the leasehold estate created by this Lease and (y) the ownership of the Mill I Parcel, Mill I, the Mill I Improvements or the Mill I Alterations, or any part thereof shall join in a written instrument effecting such merger and shall duly record the same. 31. Payments to the Agent. The Lessee hereby acknowledges, and the --------------------- Lessor hereby directs, that all payments of Fixed Rent, Additional Rent and other sums due to the Lessor hereunder shall be made to the Agent, on behalf of the Lessor, to the account specified for the Agent in Schedule I to the Participation Agreement. 32. Remaining Moneys. Except as otherwise provided for herein or in ---------------- the Interparty Agreement, any and all moneys remaining, and all residual interests in the Mill I Property after all payments of interest on and principal of the Notes, and all payments of current yield on and the stated amount of the Equity Investment and all payments of other sums due to the parties entitled thereto under the Operative Documents, have been made in accordance with the Operative Documents, shall be paid and assigned to the Lessee. 33. Replace and Supersede. This Lease replaces and supersedes in all --------------------- respects the Original Mill I Lease, which Original Mill I Lease shall, from and after the date hereof, be of no further force or effect. IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly executed by their respective Officers thereunto duly authorized as of the date hereof. LESSOR: CREDIT SUISSE LEASING 92A, L.P. By: CREDIT SUISSE FIRST BOSTON, its general partner By: /s/ Richard P. O'Day ------------------------ Name: Richard P. O'Day Title: Associate By: /s/ Rita A. Santelli ------------------------ Name: Rita A. Santelli Title: Associate 51 STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 31st day of January, 1997, by Richard O'Day, as Associate of CREDIT SUISSE FIRST BOSTON, the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership, in his capacity as Associate of such general partner and on behalf of said limited partnership. He is personally known to me or has produced ___________________ as identification. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in New York, New York the day and year last above written. (SEAL) /s/ Daniel E. Carroll ------------------------------- Printed Name: Daniel E. Carroll Notary Public in and for said State Commissioned in New York County My Commission Expires: August 31, 1997 STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 31st day of January, 1997, by Rita A. Santelli as Associate of CREDIT SUISSE FIRST BOSTON, the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership, in his capacity as Associate of such general partner and on behalf of said limited partnership. He is personally known to me or has produced ___________________ as identification. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in New York, New York the day and year last above written. (SEAL) /s/ Daniel E. Carroll ------------------------------- Printed Name: Daniel E. Carroll Notary Public in and for said State Commissioned in New York County My Commission Expires: August 31, 1997 LESSEE: TENNECO PACKAGING INC. Attest:/s/ James D. Gaughan By:/s/ Karen R. Osar -------------------- ----------------- Name: James D. Gaughan Name: Karen R. Osar Title: Assistant Secretary Title: Vice President [Seal] Agreed to and Accepted: CITIBANK, N.A., as Agent By:/s/ Carolyn R. Bodner ---------------------- Name: Carolyn R. Bodner Title: Vice President STATE OF New York ) : ss.: COUNTY OF New York ) On this 31st day of January, 1997, before me personally appeared Karen R. Osar, to me personally known, who being by me duly sworn, did say that [he/she] is the Vice President of TENNECO PACKAGING, INC., a Delaware corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said general partner and that said instrument was signed and sealed on behalf of said general partner by authority of its Board of Directors, and said Vice President acknowledged said instrument to be the free act and deed of said general partner. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in Westchester County the day and year last above written. /s/ Nancy Mangano ------------------------------ P r i n t e d Name: Nancy Mangano ----------------- Notary Public in and for said State Commissioned in Westchester County My Commission Expires: May 31, 1997 -1- SCHEDULE A ---------- Description of the Mill I Parcel -------------------------------- LAND IN THE CITY OF ________, ________ COUNTY, ________, legally described as follows: A-1 SCHEDULE B ---------- Fixed Rent and Additional Rent Schedule --------------------------------------- Capitalized terms used herein and not defined herein shall have the meanings - -------------------------------------------------------------------------------- assigned to them in the Lease (including terms defined by reference in the Lease - -------------------------------------------------------------------------------- to the other Operative Documents). - ---------------------------------- I. Fixed Rent ---------- A. The "Adjusted Capitalized Cost" of the Mill I Property as a whole ------------------------- at any time during the Term (or the Extended Term, as applicable) is (i) the sum of each of the aggregate unpaid principal amounts of the A-Notes and the B-Notes (without taking into account any prepayment pursuant to the last sentence of Section 2.04 of the Loan Agreement) at such time and the unpaid stated amount of the Equity Investment at such time times (ii) the Mill I Percentage. B. "Fixed Securitization Costs" shall mean, without duplication of -------------------------- any of the following fixed securitization costs and without duplication of any other fixed costs related to the Operative Documents or the Securitization Documents payable by the Lessee, the fee of the Managing Agent pursuant to the Management Agreement or any related fee letter, the fee of the Servicing Agent pursuant to the Servicing Agreement or any related fee letter, and the monthly commitment fee payable to CXC's Credit Enhancer pursuant to the Securitization Fee Letter. C. The "Mill I Percentage" means initially the updated appraised ----------------- fair market value of the Mill I Property divided by the Acquisition Costs and thereafter the percentage calculated by dividing (i) the Actual Project Costs actually expended on the Mill I Property (on and as of the date of such calculation) by (ii) the sum of the Actual Project Costs actually expended on the Mill I Property (on and as of the date of such calculation) plus the Actual Project Costs actually expended on the Mill II Property (on and as of the date of such calculation). B-1 D. Fixed Rent during the Term (or the Extended Term, as applicable) shall be due and payable in arrears on each Payment Date (subject, in the case of Fixed Securitization Costs, to the rights of Lessee under, and the limitations on such payments contained in, the Operative Documents). "Fixed Rent" for each Payment Date during the Term shall ----- ---- be equal to the product of (i) the portion of Adjusted Capitalized Cost represented by each Instrument multiplied by (ii) the Applicable ------------- Rate for each Instrument in effect prior to such Payment Date; plus ---- Fixed Securitization Costs. B-2 II. Additional Rent --------------- A. In addition to such Additional Rent as may otherwise be payable under the Lease, Lessee shall pay, without duplication, within five (5) days after a demand therefor (but subject in all cases to the rights of Lessee under, and the limitations on such payments contained in, the Operative Documents) as Additional Rent, without duplication, all Additional Costs. Promptly after the Lessor receives notice from any Note Holder, Equity Investor or such other Persons requesting payment of any Additional Costs to be payable as Additional Rent the Lessor shall notify Lessee of the same. The failure to provide such notice as to any Additional Costs shall not affect the right of any Equity Investor, Note Holder or such other Person to recover Additional Rent for the same. B. "Additional Costs" shall mean all Break Costs, Funding Costs, ---------------- Reserve Costs, Increased Costs, Charges, Other Taxes, Variable Securitization Fees, Illegality Costs and other amounts required to be paid (or indemnified against) by the Lessee pursuant to Article V of the Participation Agreement. C. Upon requesting that Lessee pay Additional Rent pursuant to paragraph II. A. above, the Lessor shall deliver to Lessee a certificate in reasonable detail executed by the Equity Investors, Note Holders or such other Persons requesting payment of Additional Costs, as the case may be, charging such Additional Rent and (i) setting forth the basis for and the Amount of such Additional Rent, and (ii) in the case of Increased Costs, stating that such Increased Costs are generally being charged by such Equity Investor or Note Holder to other similarly situated Persons under similar arrangements. Such certificate shall be conclusive and binding for all purposes, absent manifest error, unless such certificate fails to set forth the information required above. B-3 Exhibit A --------- Performance Tests ----------------- A-1 STATE OF ) - -------------------- : ss.: COUNTY OF __________) The foregoing instrument was acknowledged before me this ____ day of __________, 1997, by _______________, as _____________ of CREDIT SUISSE FIRST BOSTON, the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership, in his capacity as _________________ of such general partner and on behalf of said limited partnership. He is personally known to me or has produced ___________________ as identification. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in _______________________ the day and year last (SEAL) above written. Printed Name: Notary Public in and for said State Commissioned in ___________ County My Commission Expires: -1- EX-10.29 22 AMENDED & RESTATED MILL II LEASE AMENDED AND RESTATED MILL II LEASE ------------------------------------------- between CREDIT SUISSE LEASING 92A, L.P., as Lessor and TENNECO PACKAGING INC., as Lessee Dated: As of November 4, 1996 Location: City of Valdosta County of Lowndes State of Georgia and County of Hamilton State of Florida NOTE TO TAX EXAMINER IN ACCORDANCE WITH TECHNICAL ASSISTANCE ADVISEMENT #96-M- 002 ISSUED BY THE DEPARTMENT OF REVENUE, DOCUMENTARY STAMP TAXES ARE DUE AND PAYABLE UPON RECORDATION OF THIS LEASE. THE CALCULATION OF THE DOCUMENTARY STAMP TAXES IS BASED ON THE ASSUMPTION THAT THE VALUE OF THE COLLATERAL LOCATED IN FLORIDA IS MORE THAN THE PRORATA AMOUNT OF THE LOAN IN ACCORDANCE WITH RULE 12B-4.053(32)(c), FLORIDA ADMINISTRATIVE CODE. THE AMOUNT OF THE NOTES MADE, EXECUTED AND DELIVERED OUTSIDE OF THE STATE OF FLORIDA IS IN THE AGGREGATE PRINCIPAL AMOUNT OF $860,875,000.00 AND THE VALUE OF THE COLLATERAL LOCATED IN FLORIDA IS $260,000.00. THE VALUE OF THE COLLATERAL LOCATED OUTSIDE OF THE STATE OF FLORIDA IS $860,615,000.00. THIS LEASE DOES NOT ENCUMBER ANY REAL PROPERTY; THEREFORE, THE INTANGIBLE TAX UNDER SECTION 199.133, FLORIDA STATUTES, IS NOT DUE. THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY FROM l TO __. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN COUNTERPART NO. 1. This is Counterpart No. ____ 2 TABLE OF CONTENTS (Not a part of the Lease)
Paragraph Page - --------- ---- 1. Lease of Mill II Property; Title and Condition........ 2 2. Use; Quiet Enjoyment; Ownership; Hazardous Materials................................... 2 2A. Acquisition; Construction; Financing.................. 4 3. Term.................................................. 5 4. Rent.................................................. 5 5. Net Lease; Non-Terminability.......................... 6 6. Taxes and Assessments; Compliance with Law; Certain Agreements.................................... 7 7. Matters of Title...................................... 8 8. [Intentionally Omitted]............................... 10
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Paragraph Page - --------- ---- 9 Maintenance and Repair; Inspection.................... 10 10. Mill II Alterations; Removal.......................... 12 11. Lessee's Right to Contest Real Property Taxes......... 13 12. Condemnation and Casualty............................. 14 13. Environmental Event................................... 18 14. Offer to Purchase..................................... 23 15. Procedure Upon Purchase............................... 24 16. Insurance............................................. 26 17. Subletting; Assignability; Amendment of Facility Agreements................................ 29
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Paragraph Page - --------- ---- 18. Permitted Contests.................................... 30 19. Default Provisions.................................... 32 20. Additional Rights; Mortgage........................... 35 21. Notices, Demands and Other Instruments................ 44 22. No Default Certificate................................ 44 23. Surrender............................................. 44 24. Severability; Binding Effect; Governing Law; Non-Recourse........................................ 46 25. Headings and Table of Contents........................ 47 26. Lessor's Right to Cure Lessee's Default............... 47
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Paragraph Page - --------- ---- 27. Lessee's Options Upon Expiration...................... 48 28. Protective Expenditures............................... 53 29. Limitations on Amounts Payable........................ 53 30. No Merger of Title.................................... 53 31. Payments to the Agent................................. 54 32. Remaining Moneys...................................... 54 33. Replace and Supersede................................. 54 Schedule A - Description of the Mill II Parcel Schedule B - Fixed Rent and Additional Rent Schedule Schedule C - Environmental Disclosure Exhibit A - Performance Tests
iv AMENDED AND RESTATED MILL II LEASE dated as of November 4, 1996 (this "Lease") between CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership (the "Lessor"), having an address at 11 Madison Avenue, New York, New York 10010 and ------ TENNECO PACKAGING INC., a Delaware corporation (the "Lessee"), having an address ------ at 1603 Orrington Avenue, Evanston, Illinois 60201. The schedules and exhibits referred to in this Lease are hereby incorporated by reference herein. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Participation Agreement dated as of November 4, 1996, by and among NEW TENNECO INC., the Lessee, the Lessor, STATE STREET BANK AND TRUST COMPANY, as Collateral Agent, and CITIBANK, N.A., as Agent, and the Persons named therein as Note Holders (as the same may be amended, modified or supplemented from time to time, the "Participation Agreement"). ----------------------- Preliminary Statement --------------------- The Lessor and the Lessee entered into a certain Mill II Lease dated as of November 4, 1996, pursuant to which the Lessor agreed to sublease the Mill II Parcel and lease Mill II, the Mill II Improvements and the Mill II Alterations to the Lessee on the terms and subject to the provisions therein set forth (the "Original Mill II Lease"). The Lessor and the Lessee wish to modify ---------------------- and amend certain provisions of the Original Mill II Lease and to restate, in its entirety, the provisions of the Original Mill II Lease, all in the manner hereinafter set forth. It is intended by the Lessor and the Lessee that (a) this Lease replaces in its entirety and supersedes in all respects the Original Mill II Lease and (b) that all references in the Participation Agreement and any of the Operative Documents to the "Mill II Lease" shall mean and refer to this Lease. As of the Financing Closing Date, the Lessor will have acquired a leasehold interest in the Mill II Parcel described on Schedule A hereto and fee title to Mill II located on the Mill II Parcel. The Lessor wishes to sublease the Mill II Parcel, and lease Mill II, the Mill II Improvements and the Mill II Alterations to the Lessee (for convenience of reference, such sublease of the Mill II Parcel and lease of Mill II, the Mill II Improvements, the Mill II Alterations and the balance of the Mill II Property being collectively referred to as the lease of the Mill II Property) and the Lessee wishes to lease the same from the Lessor for the Term, or the Extended Term (as defined 1 below), as applicable, and on the terms and subject to the provisions hereinafter set forth. NOW, THEREFORE, the parties do hereby agree as follows: 1. Lease of Mill II Property; Title and Condition. (a) In ---------------------------------------------- consideration of the rents and covenants herein stipulated to be paid and performed by the Lessee for the Term, or the Extended Term (as applicable) and upon the terms and conditions herein specified, (i) the Lessor hereby leases to the Lessee the Mill II Property and (ii) the Lessee hereby leases and accepts from the Lessor the Mill II Property. The Mill II Property is leased to the Lessee subject to (w) the terms, covenants and provisions of the Mill II Ground Lease, (x) all applicable Legal Requirements and all of the insurance requirements set forth in paragraphs 16(a) through (c) hereof (collectively, the "Insurance Requirements") now or hereafter in effect; (y) all Permitted ---------------------- Encumbrances; and (z) the terms, covenants and provisions of this Lease. The Lessee has as of the date hereof, examined the Mill II Property and title thereto and has found the same satisfactory for all purposes of this Lease. (b) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE MILL II PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR AS TO THE LESSOR'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY THE LESSEE. IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE MILL II PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR LESSOR'S TITLE TO ANY OF THE SAME, WHETHER PATENT OR LATENT, THE LESSOR SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS PARAGRAPH 1(b) HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO THE MILL II PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW, NOW OR HEREAFTER IN EFFECT. 2. Use; Quiet Enjoyment; Ownership; Hazardous Materials. (a) The ---------------------------------------------------- Lessee shall use the Mill II Property solely as a pulp 2 and paper mill facility, storage facilities and related business offices, in a manner consistent with the provisions of paragraph 9. The Lessee covenants that it will cause Mill II, the Mill II Improvements and the Mill II Alterations (to the extent the same are or become an integral part of the Mill II Property) at all times to be located on the Mill II Parcel. (b) During the Term or the Extended Term, the Lessor covenants that, unless a Default or an Event of Default or a Major Environmental Event has occurred and is continuing, it will not, and will not permit any party claiming by or under the Lessor (subject to the terms, covenants and provisions of the Ground Lease) to, (i) grant, create or suffer to exist any Lien upon the Mill II Property (or any part thereof or interest therein) other than the Permitted Encumbrances (excluding therefrom any Lessor's Lien); or (ii) interfere with the peaceful and quiet possession and enjoyment of the Mill II Property by the Lessee; provided, however, that the Lessor, the Agent, the Collateral Agent, the -------- ------- Equity Investor, the Independent Engineer, the Environmental Consultant, the Appraiser and their respective successors, assigns, representatives and agents (the "Lessor Group") may, upon advance written notice to the Lessee (unless any ------------ member of the Lessor Group, each in its sole discretion, has reason to believe that a Default, an Event of Default or a Major Environmental Event has occurred and is continuing or other exigent or emergency conditions exist, in which case no such notice shall be necessary), enter upon and examine the Mill II Property or any part thereof (including all records directly related to the Mill II Property) at reasonable times in compliance with and subject to Lessee's standard safety and security procedures, in effect from time to time; provided, -------- further, that if a Default, an Event of Default or a Major Environmental Event - ------- has occurred and is continuing or if the Lessee has exercised its option to terminate this Lease pursuant to clause (ii) of paragraph 27(a), then the Lessee shall give the Lessor Group such additional access to the Mill II Property and to the Lessee's books and records relating to the management, operation, use, maintenance, renovation, construction or occupancy of the Mill II Property as it may require for any purpose, including, without limitation, for marketing, selling, operating or otherwise disposing of the Mill II Property. 3 (c) The Lessor will not, and will not permit any party claiming by, through or under the Lessor to assign, transfer, lease or convey the Mill II Property or this Lease, or any part thereof or interest therein other than to the Collateral Agent. The foregoing restriction will not apply to (i) removal of the Mill II Alterations by the Lessee to the extent permitted under this Lease or (ii) any assignment, transfer or conveyance of the Mill II Property or this Lease to the Collateral Agent or as otherwise permitted under the Interparty Agreement or under the Participation Agreement; provided that any -------- ---- such assignment, transfer or conveyance (prior to the Expiration Date or when an Event of Default does not exist) is expressly subordinate to the rights of the Lessee under this Lease and (y) subject to the rights of the Lessee to purchase the Mill II Property pursuant to the Operative Documents. (d) The Lessor, at the Lessee's sole cost and expense, shall cooperate or assist with the Lessee's efforts to obtain all services, Permits and contracts necessary and useful for the renovation and construction of the Mill II Improvements and the acquisition, operation and maintenance of the Mill II Property for the intended purposes thereof, and the Lessor may, and to the extent required in paragraph 7(c) shall, execute such documents or papers as may be reasonably necessary for such purposes. The Lessee further covenants that it shall at its own cost and expense on behalf of and in the name of the Lessor, apply for, obtain and maintain all Permits required in order to permit the lawful ownership of the Mill II Property by the Lessor during the Term or the Extended Term, as the case may be. (e) Any failure by the Lessor or such other Person to comply with the foregoing provisions of this paragraph 2 or any other provisions of this Lease shall not give the Lessee any right to cancel or terminate this Lease, or to abate, reduce or make deduction from or offset against any Fixed Rent, Additional Rent or other sum payable under this Lease, or to fail to perform or observe any other covenant, agreement or obligation hereunder. (f) The Lessee shall, and it shall require and ensure that any and all sublessees, employees, contractors, subcontractors, agents, representatives, affiliates, consultants, occupants and any and all other Persons, subject to paragraph 13, (i) comply with all applicable Environmental Laws, and (ii) use, employ, 4 process, emit, generate, store, handle, transport, dispose of and/or arrange for the disposal of any and all Hazardous Materials in, on or, directly or indirectly, related to or in connection with the Mill II Property or any part thereof in a manner consistent with prudent industry practice and in compliance with all applicable Environmental Laws, and in a manner which does not pose a significant risk to human health, safety (including occupational health and safety) or the environment. The Lessor and the Lessee hereby acknowledge and agree that the Lessee's obligations hereunder with respect to Hazardous Materials and Environmental Laws are intended to bind the Lessee with respect to matters and conditions on, in, under, beneath, from, with respect to, affecting, related to, in connection with, or involving the Mill II Property or any part thereof. 2A. Acquisition; Construction; Financing. (a) The Lessee has entered ------------------------------------ into the Agency Agreement with the Lessor pursuant to which the Lessee as Construction Agent has agreed to complete the renovation and construction of such Mill II Improvements as the Lessee, in its sole discretion, shall determine to construct as contemplated by the Participation Agreement. The Mill II Improvements shall, as the construction of same is completed upon the Mill II Parcel, become a part of Mill II, and title thereto shall remain in the Lessor. (b) In order to finance the acquisition by the Lessor of its leasehold interest in the Mill II Parcel and its ownership interest in the balance of the Mill II Property and to finance the cost of renovation and construction of the Mill II Improvements, if any, the Note Holders, as contemplated by the Participation Agreement, will advance to the Agent on behalf of the Lessor the Actual Project Costs up to their respective Note Commitments, and in consideration therefor, the Lessor will issue A-Notes and B-Notes to the Note Holders, and the Equity Investors, as contemplated by the Participation Agreement, will make an Equity Investment in the Mill II Property in an amount up to the Equity Investment Amount. 3. Term. The Mill II Property is leased for an initial term (the ---- "Term") which shall commence on the Financing Closing Date and shall terminate - ----- on January 30, 2002 (the "Expiration Date"), or such earlier date as this Lease --------------- shall be terminated pursuant to any provision hereof; provided, however, this -------- ------- Lease may be 5 extended for an Extended Term pursuant to paragraph 27(d) hereof. 4. Rent. (a) During the Term (or the Extended Term, as ---- applicable), the Lessee shall pay to the Agent, on behalf of the Lessor, Fixed Rent on each Payment Date in the amounts determined in accordance with Schedule B hereto and Additional Rent (as defined below) in the amounts determined in accordance with (and at the times required under) the Operative Documents. (b) All amounts that the Lessee is required to pay to the Lessor pursuant to this Lease (other than Fixed Rent), including, but not limited to, (i) unpaid Charges and all amounts set forth in paragraph 4(e)(ii) hereof, (ii) all sums, costs and expenses pursuant to paragraphs 23 and 26 hereof, (iii) all costs and expenses relating to the Mill II Property or the Lessee's use or the Lessor's ownership thereof (or leasehold interest therein), (iv) any and all amounts payable upon transfer or purchase of (or otherwise relating to) the Mill II Property, together with every fine, penalty, interest and cost that may be added for non-payment or late payment thereof, and (v) all Additional Costs, shall constitute "Additional Rent". The Lessor shall give the Lessee notice of --------------- any Additional Rent due hereunder promptly after it has knowledge of such Additional Rent, and shall use reasonable efforts to notify the Lessee in advance of the due date and amount of such Additional Rent; provided that failure to give such prompt notice shall not relieve the Lessee of its obligation to pay such Additional Rent, subject to, as applicable, the Lessee's rights, if any, under paragraph 18 hereof. Additional Rent shall be payable as provided for in Section II of Schedule B or as otherwise provided in this Lease. (c) The Lessee shall pay to the Lessor, on demand, interest at the Default Rate on all amounts payable by it to the Lessor hereunder from the due date thereof until paid in full. (d) All amounts payable by the Lessee hereunder shall be paid in lawful money of the United States of America and in immediately available funds by 11:00 a.m. (New York City time) on the applicable Payment Date or on the date when due, unless any such due date is not a Business Day, in which case payment shall be due and payable on the next succeeding Business Day, at the Agent's address as set forth in Schedule I to the 6 Participation Agreement, or at such other address or to such other person in the United States of America or in such other manner as the Lessor from time to time may designate to the Lessee by written instructions. (e) The Lessee shall perform all of its obligations under this Lease at its sole cost and expense and shall pay, when due and without notice or demand (except as otherwise provided in this Lease), all amounts due hereunder, under Section 8.13 of the Participation Agreement, or under the other Operative Documents or Securitization Documents. The Lessee agrees to pay on demand (i) all Charges (subject to Lessee's rights pursuant to paragraphs 11 and 18) and (ii) all indemnity obligations and all charges, reasonable fees, expenses and out-of-pocket costs of the Lessor, Lessor's Special Counsel, the Note Holders, the Equity Investors, the Collateral Agent and the Agent and other amounts, in accordance with the Participation Agreement. 5. Net Lease; Non-Terminability. (a) This Lease is a net lease ---------------------------- and, except as otherwise expressly provided in this Lease, any present or future Law to the contrary notwithstanding, shall not terminate, nor shall the Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Fixed Rent, Additional Rent or other sum payable hereunder. Except as otherwise expressly provided in this Lease, the obligations of the Lessee shall not be affected by reason of: (i) any damage to or destruction of the Mill II Property or any part thereof by any cause whatsoever (including, without limitation, by fire, Casualty or act of God or enemy or any other force majeure event); (ii) any Condemnation, including, without limitation, a temporary Condemnation of the Mill II Property or any part thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of the Mill II Property or any part thereof by any Person; (iv) any matter affecting title to the Mill II Property or any part thereof; (v) any eviction of the Lessee from, or loss of possession by the Lessee of, the Mill II Property or any part thereof, by reason of title paramount or otherwise; (vi) any default by the Lessor hereunder or under any other Operative Document or Securitization Document; (vii) the invalidity or unenforceability of any provision hereof or in the other Operative Documents or the impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Federal, state or local 7 governmental authority; or (ix) any other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The parties intend that the obligations of the Lessee hereunder shall continue unaffected unless such obligations shall have been modified or terminated pursuant to an express provision of this Lease. (b) The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. Except as expressly permitted in this Lease, the Lessee waives all rights to terminate or surrender this Lease, or to any abatement or deferment of Fixed Rent, Additional Rent or other sums payable hereunder or under the other Operative Documents. The Lessee shall remain obligated under this Lease in accordance with its terms, and the Lessee hereby waives any and all rights now or hereafter conferred by Law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to or for the benefit of the Lessor hereunder as required hereby shall be final, and the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. 6. Taxes and Assessments; Compliance with Law; Certain Agreements. -------------------------------------------------------------- (a) The Lessee shall pay or cause to be paid, subject to paragraph 18, all Property Charges before the same become delinquent. If any Property Charge may legally be paid in installments, such Property Charge may be so paid in installments; provided that, the Lessee shall pay all such installments on or before the Expiration Date or earlier termination of this Lease. (b) Subject to paragraph 13, the Lessee shall, at the Lessee's sole expense, comply, and cause the Mill II Property to comply, in all material respects, with all Legal Requirements; provided, however, the Lessee shall not -------- ------- be obligated to comply with any Legal Requirement whose application or validity is being contested diligently and in good faith by appropriate proceedings (and provided that the failure to comply with such 8 Legal Requirements during such contest is not reasonably likely to have a Material Adverse Effect). "Legal Requirements" means (i) all Laws, foreseen or ----- ------------ unforeseen, ordinary or extraordinary, or arising from any restriction of record or otherwise, which now or at any time hereafter may be applicable to the (A) Lessor, as holder of the leasehold estate in the Mill II Parcel and the owner of the balance of the Mill II Property; (B) the Lessee, as lessee hereunder; or (C) the Mill II Property or any part thereof, or any of the adjoining sidewalks, or the ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition of the Mill II Property or any part thereof and any other governmental rules, orders and determinations now or hereafter enacted, made or issued, and applicable to the Lessor, as lessee of the Mill II Parcel or as owner of the balance of the Mill II Property, the Lessee, as lessee hereunder, or the Mill II Property or any part thereof or the ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof whether or not presently contemplated; and (ii) all agreements (including, without limitation, all Facility Agreements), Permits, covenants, and restrictions applicable to the Mill II Property or any part thereof or the ownership, construction, operation, mortgaging, occupancy, possession, use, non- use or condition thereof. (c) The Lessee shall, and (unless a Default, an Event of Default or a Major Environmental Event has occurred and is continuing and the Lessor has revoked such authority) is hereby authorized by the Lessor to, fully and promptly keep, observe, perform and satisfy, on behalf of the Lessor, any and all obligations, conditions, covenants and restrictions of or on the Lessor under the Ground Lease and any and all Facility Agreements so that there will be no default thereunder and so that the other parties thereunder shall be and remain at all times obliged to perform their obligations thereunder, and the Lessee, to the extent within its control, shall not permit to exist any condition, event or fact that could allow or serve as a basis or justification for any such Person to avoid such performance. 7. Matters of Title. (a) The Lessee shall not create or permit to ---------------- be created or exist, and shall promptly remove and discharge, any Lien upon this Lease, the Mill II Property or any other part thereof or interest therein, or upon any Fixed Rent, 9 Additional Rent or other sum paid hereunder, which Lien arises for any reason, including, without limitation, any and all Liens which arise out of the ownership, leasing, use, condition, occupancy, construction, possession, repair or rebuilding of the Mill II Property or any part thereof (including, without limitation, by reason of construction and start-up of the Mill II Improvements) or by reason of labor or materials furnished or claimed to have been furnished to the Lessee or for the Mill II Improvements or any part thereof, but excluding Permitted Encumbrances and Liens created by the Operative Documents. Lessee's obligation to remove any of the above-described Liens arising prior to the termination of this Lease (or arising due to circumstances occurring prior to the termination of this Lease) shall survive the termination of this Lease. Nothing contained in this Lease shall be considered as constituting the consent or request of the Lessor, express or implied, to or for the performance by any contractor, laborer, materialman or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Mill II Property or any part thereof. NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING OR POSSESSING THE MILL II PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER SIMILAR STATUTORY LIENS FOR ANY LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE LESSOR'S INTEREST OR ESTATE IN THE MILL II PROPERTY OR ANY PART THEREOF. (b) The Lessee hereby acknowledges that this Lease shall at all times be subject and subordinate to the Deed of Trust and the Florida Mortgage. However, so long as no Event of Default under this Lease shall have occurred and be continuing, in the event of a Lessor Event of Default (as defined in the Interparty Agreement), the Collateral Agent will not (i) take any action to disturb the Lessee's possession and occupancy of the Mill II Property nor to diminish or interfere with any of the Lessee's rights and priveleges under this Lease, and/or (ii) join the Lessee as a party defendant in any action or proceeding for the purpose of terminating the Lessee's interest and estate under this Lease. 10 (c) The Lessor agrees that the Lessee during the Term shall have the exclusive right (so long as no Default, Event of Default or Major Environmental Event has occurred and is continuing) to secure subdivision approvals, site plan approvals, annexation or de-annexation approvals, zoning variances and Permits necessary or desirable for the development, use, operation, maintenance or condition of the Mill II Property or any part thereof; provided that the fair -------- market value, marketability or use of the Mill II Property is not lessened by any such action. The Lessor agrees to execute such documents and take all other actions as shall be reasonably requested, and otherwise cooperate with the Lessee, in connection with the matters described above; provided, however, that -------- ------- all costs and expenses incurred by the Lessor in connection therewith shall be borne by the Lessee and that the Lessor shall not be required to execute any documents which would, in the reasonable opinion of the Agent or Lessor, adversely affect the value, marketability or use of the Mill II Property or otherwise adversely affect the transactions contemplated by the Operative Documents or the interests of the Lessor, the Equity Investors or the Note Holders. 8. [Intentionally Omitted.] 9. Maintenance and Repair; Inspection. (a) Subject to paragraph ---------------------------------- 12, the Lessee, at its own cost and expense, will manage and maintain the Mill II Property in good mechanical condition and repair (ordinary wear and tear excepted), in accordance with prudent industry practice and in a manner consistent with that of other similar properties owned or operated by it or its Affiliates similarly situated, and will take all action, and will make all changes and repairs, structural and nonstructural, foreseen and unforeseen, ordinary and extraordinary, which may be required to maintain the Mill II Property in good mechanical condition and repair (ordinary wear and tear excepted), in accordance with prudent industry practice, and in compliance with all Legal Requirements (subject to paragraph 13) and Insurance Requirements at any time in effect. The Lessee shall, in accordance with prudent industry practice, repair or replace each item constituting Mill II and/or the Mill II Improvements that shall have become worn out, damaged, inoperative or obsolete in whole or in part; provided, however, that (i) the fair market value, -------- ------- marketability or use of the Mill II Property shall not be lessened and (ii) such 11 replacements shall be of a type currently used in the industry for the same purpose and having a remaining useful life at least as long as that of Mill II or the Mill II Improvements (or any part thereof), as the case may be, repaired or replaced (prior to obsolescence, loss or damage and the like). All repairs, replacements and rebuilding by the Lessee hereunder, to the extent permitted by Law, shall immediately become and shall remain part of the Mill II Property of the Lessor, subject to this Lease. The Lessor shall not be required to, and Lessee hereby waives any right to require the Lessor to, manage, maintain, replace, repair or rebuild Mill II, the Mill II Improvements or any part thereof and the Lessee waives any and all rights it may now or hereafter have to make any repairs at the cost and expense of the Lessor pursuant to any Legal Requirement, Insurance Requirement, or otherwise, at any time in effect. (b) Except for Permitted Encumbrances, in the event that all or any part of Mill II or the Mill II Improvements shall encroach upon any property or right-of-way adjoining or adjacent to the Mill II Parcel or any part thereof, or shall violate any agreements or conditions affecting the Mill II Property or any part thereof, or shall obstruct any easement or right-of-way to which the Mill II Property or any part thereof may be subject, then the Lessee shall, at its sole cost and expense, either (i) contest such matter pursuant to paragraph 18 hereof, (ii) obtain valid and effective Permits for or consents to such encroachments and/or violations (without any liability to the Lessor, the Agent, the Equity Investors or the Note Holders for which such parties are not indemnified by the Lessee) or waivers or settlements of all claims, liabilities and damages resulting therefrom, or (iii) make such changes, including alteration or removal, to Mill II or the Mill II Improvements (as the case may be) and take such other action as shall be reasonably necessary to rectify such encroachments, violations, hindrances, obstructions or impairments, subject to the Lessor's consent if and to the extent required by paragraph 10(a) hereof. (c) Within 60 days after the end of the first three quarters of each fiscal year and within 90 days after the end of the fourth fiscal quarter of each fiscal year the Lessee shall give the Lessor and the Agent prompt written notice of any mechanical 12 problems which required non-scheduled shutdown of operations of Mill II for fifteen (15) consecutive days or an aggregate of thirty (30) days during the fiscal quarter just ended and shall state the specific reasons for such shutdown. (d) The Lessor Group shall have the right (which may be delegated to its consultants and authorized representatives) to inspect the Mill II Property and records directly related to the operation of the Mill II Property and to discuss such of the affairs, finances, and accounts as are relevant to the Operative Documents with the officers of Lessee, in all cases, at reasonable times in compliance with and subject to Lessee's reasonable security and safety procedures, in effect from time to time. Any such inspection shall be made after advance written notice to the Lessee is given; provided, however, that no -------- ------- advance written notice need be given if any member of the Lessor Group, in its sole discretion, has reason to believe that a Default, Event of Default or a Major Environmental Event has occurred or other exigent or emergency conditions exist; and provided further, that all such inspections upon the occurrence and -------- ------- during the continuance of a Default, an Event of Default or a Major Environmental Event shall be at the expense of the Lessee. 10. Mill II Alterations; Removal. (a) At any time, so long as no ---------------------------- Default, Major Environmental Event or Event of Default shall have occurred and be continuing, the Lessee may, at its own cost and expense, make Mill II Alterations to the Mill II Property or any part thereof; provided, however, that -------- ------- (i) the fair market value of the Mill II Property shall not be lessened by such Mill II Alterations; (ii) such Mill II Alterations shall not diminish the capacity, utility, efficiency, or remaining useful life of the Mill II Property or any part thereof; and (iii) such work shall be completed in a good and workmanlike manner free and clear of any Liens for labor, services or materials (other than Permitted Encumbrances) and in compliance with all applicable Legal Requirements and Insurance Requirements. "Mill II Alterations" means any and ------------------- all additions to, alterations of or replacements for the Mill II Property or any part thereof made by or for the Lessee, at the cost and expense of the Lessee, excluding Mill II Improvements and any replacements installed as part of scheduled maintenance procedures. (b) Title to all Mill II Alterations shall vest in the Lessor (free and clear of all Liens, except Permitted Encumbrances) 13 subject to the right of Lessee to remove such Mill II Alterations as provided hereunder. Upon any removal of the Mill II Alterations permitted hereunder, the Lessor (at the expense of the Lessee) shall execute and deliver to the Lessee such instruments and releases as are reasonably required to transfer the Mill II Alterations to the Lessee pursuant to instruments in each case containing no representation or warranty (expressed or implied) except that such Mill II Alterations are free and clear of any Lien created under the Operative Documents or any Lessor Lien or other adverse interest of any kind created or caused by the Lessor or any person claiming by, through or under the Lessor. (c) So long as no Default, Major Environmental Event or Event of Default shall have occurred and be continuing, the Lessee shall be permitted at any time during, or upon the expiration or termination of, the Term or the Extended Term as applicable, and at its sole cost and expense, to remove or demolish any Mill II Alterations in accordance with prudent industry practices; provided, however, that, such removal shall not (i) impair the intended use or - -------- ------- reduce the fair market value of the Mill II Property or any part thereof below its fair market value at the commencement of the Term; (ii) diminish the capacity, efficiency, utility or remaining useful life of the Mill II Property or any part thereof below the capacity, efficiency, utility or remaining useful life as of the commencement of the Term; or (iii) cause a violation of any Legal Requirement or Insurance Requirement or significantly increase any risk of liability under any Environmental Law or any risk to human health or the environment. Any damage to the Mill II Property or any part thereof caused by such removal shall promptly be repaired by the Lessee and the Mill II Property (and each and every part thereof) shall be restored to its condition (or the reasonable equivalent thereof) as it existed immediately prior to the construction of such removed Mill II Alterations, at the Lessee's sole cost and expense. The Lessee may place upon the Mill II Parcel or any part thereof any inventory, fixtures, machinery, equipment or other property belonging to the Lessee or third parties and remove the same at any time during the Term or the Extended Term, as applicable (to the extent the same are not nor become an integral part of the Mill II Property and so 14 long as no Default, Event of Default or Major Environmental Event shall have occurred and be continuing), and Lessee may (to the extent the same are not or do not become an integral part of the Mill II Property and so long as no Default, Event of Default or Major Environmental Event shall have occurred and be continuing), and at the request of the Lessor shall, remove the same at the expiration or termination hereof unless the Lessee shall have paid the Offer Purchase Price and purchased the Mill II Property pursuant to the terms of this Lease; provided that any damage to the Mill II Property or any part thereof caused by such removal shall promptly be repaired by the Lessee, and the Mill II Property (and each and every part thereof) restored to its condition (or the reasonable equivalent thereof) as it existed immediately prior to the placement of any such property upon the Mill II Parcel, all at the Lessee's sole cost and expense. (d) Not less than 30 days before the beginning of each calendar year, the Lessee shall provide the Lessor and the Agent with a report of the Lessee's capital spending plans for the ensuing calendar year for Mill II Alterations and supporting details describing any single capital expenditure for a Mill II Alteration in excess of $5 million. Such report shall be accompanied by a certification from the Lessee to the effect that all such planned Mill II Alterations will comply with the standards set forth in paragraph 10(a). 11. Lessee's Right to Contest Real Property Taxes. The Lessee, at --------------------------------------------- its own cost and expense and in compliance with paragraph 18, shall have the sole right, at any time, to seek, in good faith, a reduction in the assessed valuation of the Mill II Property or any part thereof or to contest, in good faith, any real or personal property taxes for the Mill II Property or any part thereof. The Lessor shall not be required to join in any proceeding or contest brought by the Lessee unless the provisions of any Legal Requirement require that the proceeding or contest be brought by or in the name of the owner of the Mill II Property. In that case the Lessor shall join in the proceeding or contest or permit it to be brought in the Lessor's name as long as the Lessee reimburses the Lessor for any and all costs and expenses incurred by the Lessor in connection therewith. The Lessee, on a final non-appealable determination of the proceeding or contest, shall immediately pay, discharge and satisfy any decision or judgment rendered, together with all 15 costs, interest and penalties incidental to the decision or judgment. 12. Condemnation and Casualty. (a) General. The Lessee hereby ------------------------- ------- irrevocably assigns to the Lessor any award or compensation or insurance payment or other proceeds to which the Lessee may become entitled by reason of its interest in the Mill II Property or any part thereof (other than proceeds from business interruption insurance) if (i) the Mill II Property or any part thereof is damaged or destroyed by fire or other casualty (each, a "Casualty") or (ii) -------- the use, occupancy or title of the Mill II Property or any part thereof is taken or requisitioned or sold in, or on account of any actual or threatened condemnation or eminent domain proceedings, or other action by any Person having the power of eminent domain or condemnation (each, a "Condemnation"); provided, ------------ -------- however, that the Lessee shall be entitled to any proceeds as a result of any - ------- Condemnation or Casualty affecting the Mill II Alterations to the extent that the Lessee would otherwise be entitled to remove such Mill II Alterations pursuant to paragraph 10(c); and provided, further, that the Lessee shall be -------- ------- entitled to any proceeds as a result of any Condemnation or Casualty for which the award, compensation, insurance payment, or other proceeds to which the Lessee may be entitled does not exceed $100,000 (the "Excluded Proceeds"). ----------------- The Lessee shall promptly notify the Lessor in writing of any such Casualty or Condemnation and shall appear in any proceeding or action to defend, negotiate, prosecute or adjust any claim for any award or compensation or insurance payment on account of any Casualty or Condemnation and shall take all appropriate action in connection with any Casualty or Condemnation, including the employment of counsel reasonably satisfactory to the Lessor. The Lessor shall have the right to appear and participate and to employ counsel in any such proceeding or action, and the fees and expenses of such counsel shall be paid by the Lessee. If the Lessee shall elect not to appear or shall fail to prosecute diligently, the Lessor may assume the prosecution thereof and the Lessee shall pay all of the costs and expenses of the Lessor (including, but not limited to, fees and expenses of Lessor's Special Counsel) and the fees and expenses of Special Counsel. No settlement of any such 16 proceeding or action shall be made by the Lessee or the Lessor without the written consent of the other party hereto, which consent shall not unreasonably be withheld, conditioned or delayed. Any and all amounts in excess of the self insured retention limits hereunder representing proceeds (other than proceeds from business interruption insurance, proceeds with respect to Mill II Alterations permitted to be removed pursuant to paragraph 10(c) and Excluded Proceeds) paid in connection with any such Condemnation or Casualty, as the case may be (collectively, the "Proceeds"), shall be paid over to the Proceeds Trustee (as defined below) to be -------- held in trust by such Proceeds Trustee and distributed pursuant to this paragraph 12 and paragraph 15 hereof or pursuant to the Interparty Agreement, as appropriate (all such Proceeds, less the costs and expenses incurred by the Lessor and the Lessee in collecting such amounts, but including any reimbursement by the Lessee for costs and expenses in connection therewith to which the Lessor, the Equity Investors and the Note Holders are entitled pursuant to the Operative Documents, are the "Net Proceeds"). Any and all ------------ Proceeds received by the Lessee in connection with any such proceeding or action shall be paid over to the Lessor, shall be segregated from other funds of the Lessor and shall be forthwith paid over to the Proceeds Trustee. The Lessee agrees that this Lease shall control the rights of the Lessor and the Lessee in any such Proceeds, and any present or future Law to the contrary is hereby waived. Any and all reasonable charges, fees and expenses of the Proceeds Trustee shall be paid from the Net Proceeds. "Proceeds Trustee" shall mean the ---------------- Agent or such title company or other independent bank or trust company as may be designated by the Lessor. 17 (b) Condemnation or Casualty with Termination. ----------------------------------------- (i) Within ten (10) days after the amount of the Proceeds to be paid to the Lessee or the Proceeds Trustee is determined, the Lessee shall decide whether the Lessee shall rebuild, replace and repair the damage to the Mill II Property; provided, however, that the Lessee shall not be obligated to -------- ------- rebuild any Mill II Alterations to the extent that the Lessee would otherwise have been entitled to remove such Mill II Alterations pursuant to paragraph 10(c). If the Lessee decides not to rebuild, replace and repair the damage to the Mill II Property, the Lessee shall, within such ten (10) day period, deliver to the Lessor an Offer to Purchase in accordance with paragraphs 14 and 15 hereof. Prior to the Closing Date, the Lessee shall continue to pay all Fixed Rent, Additional Rent and all other amounts due hereunder. (ii) If a Casualty or Condemnation occurs during the Term (or the Extended Term, as applicable) and the Lessor has received an opinion, which shall be at the Lessee's sole cost and expense, of the Independent Engineer to the effect that the restoration of the Mill II Property could not be expected to restore and rebuild the Mill II Property to its previous capacity, efficiency and remaining useful life or such restoration and rebuilding could not be expected to be completed in full prior to the Expiration Date or that the cost of such restoration or rebuilding would exceed 25% of the fair market value of the Mill II Property immediately prior to such Casualty or Condemnation, then the Lessor may, in its sole discretion, deliver a notice ("Lessor Termination ------------------ Notice") declaring Lessor's intention to terminate this Lease and the Lessee - ------ shall be deemed to have delivered to the Lessor as of the date of the Lessor Termination Notice an Offer to Purchase in accordance with paragraphs 14 and 15 hereof. (c) Condemnation or Casualty Without Termination. If, after a -------------------------------------------- Casualty or Condemnation, the Lessee has not given an Offer to Purchase and Lessor has not given a Lessor Termination Notice in accordance with paragraph 12(b), then this Lease shall continue in full force and effect, and the Lessee shall, at its sole cost and expense, promptly commence and diligently pursue to completion the rebuilding, replacement or repair of any damage to the Mill II Parcel, Mill II and the Mill II Improvements caused by such event in conformity with the requirements of paragraph 9 or 10, as applicable, in order to restore the Mill II Parcel, Mill II and the Mill II Improvements (in the case of a Condemnation, as nearly as practicable) to the value and operating condition thereof immediately prior to such event. In connection with such restoration the Lessee shall, before beginning such restoration, submit plans and specifications for such restoration, together with an estimate of the cost thereof, and all necessary construction contracts therefor for the Lessor's and the Independent Engineer's approval, which will not be unreasonably withheld, conditioned or delayed; provided that (i) the capacity, efficiency and utility -------- of the Mill II Parcel, Mill II and the Mill II 18 Improvements shall not, after such restoration, be less than the capacity, efficiency and utility prior to such Casualty or Condemnation; (ii) the fair market value of the Mill II Parcel, Mill II and the Mill II Improvements shall not, after such restoration, be less than its fair market value prior to such Casualty or Condemnation; and (iii) if the estimated cost to complete such restoration exceeds the amount of Net Proceeds, the Lessor is, in its sole judgment, satisfied that the Lessee shall have sufficient funds (the "Excess ------ Funds") available to pay such excess, which Excess Funds shall be deposited by - ----- the Lessee with the Proceeds Trustee and distributed to the Lessee as hereinafter provided. If the conditions set forth in the foregoing proviso are not satisfied, the Lessee shall be deemed to have made an Offer to Purchase. Such work shall be completed in a good and workmanlike manner free and clear of all Liens for labor, services or materials (except Permitted Encumbrances) and in compliance with all applicable Legal Requirements and Insurance Requirements. Upon completion of such work, the Lessee shall cause the Independent Engineer to deliver a certificate to the effect that final completion of the work has occurred and that the operating condition of the Mill II Property, after taking into consideration the restoration, is equivalent to, or better than, the operating condition that existed immediately prior to the Casualty or Condemnation assuming compliance with paragraph 9 hereof. All fees and expenses of the Independent Engineer in connection with any rebuilding and restoration shall be at the Lessee's sole cost and expense. The Lessee shall be entitled to receive payment from the Net Proceeds or the Excess Funds, as the case may be, from time to time as such work of rebuilding, replacement or repair progresses, but only after presentation of certificates of the Independent Engineer, delivered by the Lessee to the Proceeds Trustee (with a copy to the Lessor) from time to time as such work of rebuilding, replacement or repair progresses. Each such certificate of the Independent Engineer shall describe the work for which the Lessee is requesting permission to pay or requesting payment and the cost incurred by the Lessee in connection therewith and shall state that such work has been properly completed and that the Lessee has not theretofore received payment for such work, and shall be accompanied by (i) an Officer's Certificate of the Lessee certifying that no 19 Default, Event of Default or Major Environmental Event has occurred and is continuing and that the Net Proceeds and Excess Funds held by the Proceeds Trustee are adequate to complete such rebuilding, replacement or repair in accordance with this paragraph 12(c), and (ii) duly executed Lien waivers executed by each materialman or mechanic furnishing materials or labor for which the Lessee is requesting permission to pay or requesting payment. The Proceeds Trustee shall deliver, or cause to be delivered, payment within five (5) Business Days after its receipt of the certificates required above. In connection with such payments, the Proceeds Trustee shall first apply the Excess Funds to the cost of such restoration prior to the disbursement of any Net Proceeds by the Proceeds Trustee for such purpose. Upon receipt by the Proceeds Trustee (with a copy to the Lessor) of an Officer's Certificate from the Lessee, to the effect that final payment has been made for any such work and stating that the rebuilding, replacement or repair has been completed in compliance with the terms and conditions of this Lease, the remaining amount of such Net Proceeds shall be paid to the Lessee. The Lessee shall be responsible for the cost of any such repair, rebuilding or restoration in excess of such Net Proceeds and Excess Funds, for which cost the Lessee shall make adequate provision acceptable to the Lessor. (d) Temporary Condemnation or Lease Termination. Notwithstanding any ------------------------------------------- provision to the contrary contained in this paragraph 12, in the event of any temporary Condemnation this Lease shall remain in full force and effect, and provided no Default, Event of Default or Major Environmental Event has occurred and is continuing, the Lessee shall be entitled to receive the Net Proceeds allocable to such temporary Condemnation, except that if this Lease shall expire or terminate during such temporary Condemnation, then the Lessee shall be entitled to the Net Proceeds allocable to the period after the termination or expiration of this Lease only if it has paid the Offer Purchase Price for the Mill II Property. 13. Environmental Event. (a) The Lessee shall promptly, but in any ------------------- case within five (5) Business Days after discovery thereof, notify the Lessor, the Agent, the Collateral Agent, the Equity Investors and the Note Holders of the occurrence of a Reportable Environmental Event. For 20 purposes hereof, an "Environmental Event" shall mean (i) any environmental ------------------- event, occurrence, or condition in, on, beneath, from or involving the Mill II Property or any part thereof (including, but not limited to, the presence, emission or release of Hazardous Materials in violation of any Environmental Law or the violation of any applicable Environmental Law) that could reasonably be expected to result in any ordered remediation or corrective action required by Environmental Laws, or other liability under Environmental Laws, or that poses a significant risk to human health or the environment or (ii) the receipt by the Lessee of notification that the Lessee, the Lessor, the Mill II Property or any part thereof is the subject of an Environmental Action in connection with the Mill II Property that could reasonably be expected to result in any ordered remediation or corrective action required by Environmental Laws or other liability under Environmental Laws; provided, however, that as of the date hereof none of the matters described on Schedule C hereto shall be deemed an Environmental Event. For purposes hereof, a "Reportable Environmental Event" ------------------------------ shall mean an Environmental Event with respect to which the Remediation Costs could reasonably be expected to exceed $1 million, or, when added to the remaining Remediation Costs for all other then existing Environmental Events, could reasonably be expected to exceed $5 million. For purposes hereof, "Remediation Costs" include, but are not limited to, losses, fines, damages, ----------------- civil or criminal penalties, judgments, costs and expenses (including reasonable fees and expenses of legal counsel and consultants) incurred within a ten year period commencing with the discovery of the Environmental Event, and arising from activities to clean-up, remove, treat or in any other way respond to an Environmental Event as required by Environmental Laws or as may be necessary to avoid creating a significant risk to human health or the environment and any other damages related thereto. (b) If following the receipt of a notice of a Reportable Environmental Event pursuant to paragraph 13(a), the Lessor, the Agent, or the Holders of the Majority Interests, each in its or their sole discretion, determines that the Remediation Costs for each Reportable Environmental Event, alone or when combined with the remaining Remediation Costs for all other then existing Environmental Events, could 21 reasonably be expected to exceed $25 million, the Lessor, the Agent, the Collateral Agent or the Holders of the Majority Interests may, at the expense of the Lessee, cause the Environmental Consultant to conduct an environmental audit of the affected portions of the Mill II Property and report the results of such audit to the Lessor, the Agent, the Equity Investors, the Note Holders and the Lessee. If the Environmental Consultant determines that the remaining Remediation Costs for all then existing Environmental Events could reasonably be expected to exceed $25 million (an "Environmental Trigger") but could not --------------------- reasonably be expected to exceed $50 million, the Lessee shall proceed diligently to prosecute the remediation or cure of such Environmental Event that gave rise to the Environmental Trigger prior to the expiration of a period of 120 days following the discovery of such Environmental Event (the "Initial Cure ------------ Period"). If, however, such Environmental Event is not capable of being fully - ------ remediated or cured within the Initial Cure Period, despite diligent efforts by the Lessee, the Initial Cure Period shall be extended at the written request of the Lessee as to such Environmental Event (i) for so long as the Lessee is proceeding diligently to remediate in full or cure such Environmental Event and, in the opinion of the Environmental Consultant the remaining Remediation Costs for all then existing Environmental Events could not reasonably be expected to exceed $50 million and (ii) for so long as the Guarantor's senior unsecured long-term debt is rated at least Baa3 by Moody's or BBB- by S&P or, if not rated by Moody's or S&P, has an implied rating of at least BBB- by S&P. (c) If, in the opinion of the Environmental Consultant, the remaining Remediation Costs for the Environmental Events contributing to the Environmental Trigger could reasonably be expected to exceed $50 million (a "Major ----- Environmental Event") but could not reasonably be expected to exceed $100 - ------------------- million, and the Environmental Event that gave rise to such Major Environmental Event is not capable of being fully remediated or cured within the Initial Cure Period, the Initial Cure Period shall be extended at the written request of the Lessee as to such Environmental Event for so long as 22 the Lessee is proceeding diligently to remediate in full or cure such Environmental Event and all of the following conditions are satisfied: (i) As promptly as reasonably practicable and in any event not less than thirty (30) days prior to the end of the Initial Cure Period, the Lessee shall have submitted to the Agent (a) a copy of its plan of remediation, containing time and cost budgets and other supporting information, and (b) a copy of its written request for an extension specifying the date to which such extension is requested. (ii) The Lessor shall have received a report from the Environmental Consultant to the effect that the Environmental Consultant has reviewed the Lessee's plan of remediation and has found such plan to be in accordance with applicable Environmental Laws, consistent with prudent practices of the industry, and otherwise acceptable. The Lessor shall direct the Environmental Consultant to complete and submit such report before the end of the Initial Cure Period. If such report has not been completed as of the end of the Initial Cure Period, the cure period shall be deemed extended pending completion of such report, except to the extent that failure to submit such report on a timely basis is due in part or in whole to the failure or unreasonable delay of Lessee to provide cooperation and/or information reasonably required to complete such report. (iii) The Lessee shall have delivered to the Lessor an irrevocable and unconditional direct pay letter of credit, having a term coterminous with the Term (or Extended Term, as applicable), issued by a commercial bank organized under the laws of the United States or any political subdivision thereof having a combined capital and surplus of at least $500 million and having long-term unsecured debt securities then rated "A" or better by S&P and "A2" or better by Moody's and in an amount equal to 125% of the amount by which the remaining Remediation Costs for such Environmental Event as estimated by the Environmental Consultant are reasonably expected to exceed $50 million. Such letter of credit shall be increased or decreased from time to time, but not less frequently than annually, by an amount equal to 125% of any increases or decreases in the remaining Remediation Costs as estimated by the Environmental Consultant. Such letter of credit shall provide that drawings may be made thereon by the Lessor upon certification by the Lessor to the issuer that an Event of Default has occurred and is continuing or the Term (or Extended Term as applicable) has expired and the Lessee has failed to purchase the Mill II Property in accordance with the terms of this Lease. (iv) The senior unsecured long-term debt of the Guarantor shall at all times be rated at least Baa3 by Moody's or BBB- or better by S&P or, if not rated by Moody's or S&P, has an implied rating of at least BBB- by S&P. (v) (a) The Lessor shall have received a legal opinion acceptable to Lessor (from counsel selected by the Lessor and the Agent and acceptable to the Lessee) to the effect that the Lessee has obtained all permits necessary to remediate the Environmental Event, or, to the extent such permits are not then required, such counsel has no reason to believe that such required permits cannot be obtained at such time as required, as well as other legal matters reasonably requested by the Lessor. (b) The Lessor and the Agent shall also have received a legal opinion acceptable to Lessor and the Agent (from counsel selected by the Lessor and the Agent and acceptable to the Lessee) addressing any change in Law after the Financing Closing Date regarding the scope of protection from liability for Remediation Costs afforded to the Lessor and the Agent under Environmental Laws. Without prejudice to the rights of the Agent or the 23 Holders of the Majority Interests under paragraph 13(d) of this Lease, to the extent such opinion is not satisfactory to the Lessor (because of a change of law or a change in interpretation thereof) the Lessee shall have the right to find a replacement Lessor within 30 days after the Lessor notifies the Lessee that such opinion is unsatisfactory to the Lessor. Upon replacement of the Lessor hereunder, the Lessor (for the benefit of the Equity Investors) shall receive in immediately available funds from its assignee an amount equal to the stated amount of the Equity Investment then outstanding, accrued yield thereon to the date of payment and all other amounts due and payable to the Lessor and each Equity Investor under the Operative Documents. (c) Such legal counsel shall be directed by the Lessor to complete and submit such opinions before the end of the Initial Cure Period. If such opinions are not completed before the end of the Initial Cure Period, the cure period shall be deemed extended pending completion of such opinions except to the extent that failure to submit such opinions on a timely basis is due in part or in whole to the failure of Lessee to timely provide available information reasonably required to complete such opinions. (vi) The Lessee shall deliver to the Lessor and the Agent monthly progress reports during the Initial Cure Period, and quarterly progress reports every three months thereafter, with respect to such curative actions or remediation, including a status report on the Remediation Costs incurred and the estimated remaining Remediation Costs, in form and substance satisfactory to the Lessor and the Agent. (vii) The Lessor and the Agent shall receive a report every three months after the end of the Initial Cure Period from the Environmental Consultant to the effect that the Lessee is complying with the remediation plan in all material respects and with all Environmental Laws applicable to the Environmental Event. (viii) Upon completion of the remediation plan, the Lessor, the Agent and the Collateral Agent shall receive a report from the Environmental Consultant to the effect that the Lessee has fully implemented the plan and is in compliance with all Environmental Laws applicable to the Environmental Event. (d) If an Environmental Event has occurred that results in an Environmental Trigger or a Major Environmental Event and the Environmental Event cannot be cured through a Permitted Remediation or if the Lessee fails to satisfy any of the requirements in the last sentence of paragraph 13(b) or any of the applicable conditions in paragraph 13(c) (an "Environmental Default"), --------------------- the Lessor, the Agent, or the Holders of the Majority Interests shall have the option, each in its or their sole discretion, to require the Lessee to purchase the Mill II Property for the Offer Purchase Price by giving written notice to the Lessor, and the Lessee shall then be deemed to have delivered to the Lessor, as of the date of receipt of such notice, an Offer to Purchase in accordance with paragraphs 14 and 15. A "Permitted Remediation" means any remediation of an --------------------- Environmental Event undertaken by the Lessee in compliance with the requirements of this paragraph 24 13, the remaining Remediation Costs of which, when combined with the remaining Remediation Costs of all other Environmental Events then existing, are not reasonably expected to exceed $100 million, which is permitted and effected, at the cost of the Lessee, in compliance with all applicable Environmental Laws. (e) Irrespective of whether a Major Environmental Event or an Environmental Trigger has occurred, the Lessee shall immediately initiate, and diligently pursue at its sole cost and expense, such actions as may be necessary to comply in all respects with all applicable Environmental Laws and to alleviate any significant risk to human health or the environment if the same arises from a condition on or in respect of the Mill II Property or any part thereof, whether existing prior to, on or after the date of this Lease. Once the Lessee commences such actions, the Lessee shall thereafter diligently and expeditiously proceed to comply in a timely manner with all Environmental Laws and to eliminate any significant risk to human health or the environment and shall, at the reasonable request of the Lessor or the Agent, give periodic progress reports on its compliance efforts and actions. (f) In connection with the formulation and implementation of any remediation plan, or the evaluation or review thereof, the Lessor, the Agent, the Note Holders, the Equity Investors, the Environmental Consultant, and their respective agents and legal counsel shall not communicate with regulatory authorities without the prior written consent of the Lessee unless an Environmental Trigger shall have occurred and be continuing. If any Environmental Trigger shall have occurred and be continuing, the Lessor, the Agent, the Note Holders, the Equity Investor, the Environmental Consultant and their respective agents and legal counsel shall first provide an opportunity to the Lessee to participate in such communications, except to the extent that such communications are required by Law. (g) A Major Environmental Event shall not be deemed to be continuing after the date upon which the remaining Remediation Costs from the Environmental Event that 25 gave rise to such Major Environmental Event, when combined with the remaining Remediation Costs for all other Environmental Events contributing to such Major Environmental Event, could no longer reasonably be expected to exceed $50 million. An Environmental Trigger shall not be deemed to be continuing after the date upon which the remaining Remediation Costs for the Environmental Event that gave rise to such Environmental Trigger, when combined with the remaining Remediation Costs for all other Environmental Events contributing to such Environmental Trigger, could no longer reasonably be expected to exceed $25 million. 14. Offer to Purchase. (a) At any time during the Term (or the Extended Term, ----------------- as applicable), Lessee may (unless otherwise required to do so, in which case it shall) deliver to the Lessor and the Agent an irrevocable written offer to purchase the Mill II Property in its entirety (an "Offer to Purchase") at least ----------------- 20 days in advance of the Closing Date upon and subject to the applicable terms of this Lease. (b) Any Offer to Purchase delivered or deemed to be delivered by the Lessee hereunder shall, notwithstanding anything to the contrary set forth therein, be irrevocable and unconditional and shall set forth the Closing Date and Termination Value to be paid by Lessee. (c) The Lessor shall be deemed to have accepted such Offer to Purchase the Mill II Property on the date the Lessor receives the same. The procedure for the purchase of the Mill II Property and the purchase price therefor shall be governed by paragraph 15 hereof. 15. Procedure Upon Purchase. (a) The date of the closing of the Lessee's (or ----------------------- its designee's) purchase of the Mill II Property (the "Closing Date") shall be ------------ (i) on the Expiration Date pursuant to paragraph 27 hereof, or (ii) if the Lessee shall deliver (or shall be deemed to have delivered) an Offer to Purchase pursuant to paragraph 14(a) hereof, on the next scheduled Payment Date following the date of Lessor's acceptance or deemed acceptance of such Offer to Purchase, or (iii) if the Lessee shall deliver (or be deemed to have delivered) an Offer to Purchase pursuant to paragraphs 12(b), 12(c) or 13(d), on the fifteenth day following the date of Lessor's acceptance or deemed acceptance of such Offer to Purchase, or (iv) if the Lessee shall pay the Offer Purchase 26 Price pursuant to paragraph 19(h), on the date of the Lessor's receipt of the Offer Purchase Price. On the Closing Date, upon receipt by the Agent of the Offer Purchase Price, the Lessor shall convey, or cause to be conveyed, the Mill II Property (or, in the case of Casualty or Condemnation, the remaining portion thereof) to the Lessee or its designee by an appropriate recordable assignment of the leasehold interest in the Mill II Parcel, limited warranty deed and bill of sale to Mill II, the Mill II Improvements and the Mill II Alterations and assignment of the Facility Agreements (other than the rights of the Lessor to any indemnities thereunder), in each case containing no representation or warranty (expressed or implied) except that the Mill II Property is free and clear of Lessor Liens. (b) On the Closing Date, the Lessee shall pay, or cause to be paid, to the Agent (on behalf of the Lessor) the Termination Value for the Mill II Property, as specified in the Offer to Purchase related thereto, and all Fixed Rent, Additional Rent and other sums then due and payable hereunder and under the other Operative Documents relating to the Mill II Property up to and including such Closing Date (such amounts, plus all Closing Costs, are herein referred to as the "Offer Purchase Price"), and the Lessor shall simultaneously (i) deliver -------------------- to the Lessee or its designee the instruments referred to in paragraph 15(a) above with respect to the Mill II Property and any other instruments reasonably necessary to assign and convey to the Lessee or its designee the Mill II Property and assign all Facility Agreements related to the Mill II Property (other than any rights of the Lessor to any indemnities thereunder) and any other related property then required to be assigned pursuant hereto, and (ii) convey, or cause to be conveyed, to the Lessee or its designee any Net Proceeds related to the Mill II Property and/or the right to receive the same. Additionally, on the Closing Date, upon receipt of the Termination Value, Lessor and the Collateral Agent shall execute the releases and take the other actions described in Section 8.23(b) of the Participation Agreement. (c) Upon the completion of any purchase of the Mill II Property pursuant to this paragraph 15, but not prior thereto, this Lease shall terminate except with respect to obligations and liabilities of the Lessee, actual or contingent, which have arisen with respect to the Mill II Property or under the Operative Documents on or prior to such date of purchase, and except as elsewhere expressly provided herein or in the other Operative Documents. (d) Notwithstanding any provisions of this Lease or the Participation Agreement to the contrary, the Lessee shall not be required to acquire title to the Mill II Property until such time that all necessary filings and notifications under the HSR Act or any similar Law shall have been made (including any filing or provision of required additional information or documents) and the waiting period referred to in the HSR Act applicable to such purchase shall have expired or been terminated (without any objection or prohibition of such purchase). The Lessee hereby covenants to use its best efforts to secure the prompt termination of such waiting period 27 without objection or prohibition. Notwithstanding the foregoing, if the Lessee is precluded from acquiring the Mill II Property or any part thereof pursuant to the HSR Act or any similar Law, the Lessee shall pay the Termination Value attributable to the Mill II Property within the time and in the manner described in this paragraph 15 as a consequence of the Lessee's exercise or deemed exercise of its purchase option hereunder. However, if the Lessee pays the Termination Value in compliance with the preceding sentence, then Lessee shall be entitled to continue to lease the Mill II Property for an additional rental payment of $1 per annum under the terms and provisions of this Lease for an extended term expiring on the earlier to occur of (i) three (3) years from the date the Lessee delivers (or is deemed to have delivered) the Offer to Purchase or (ii) that date that the Lessee is no longer precluded from purchasing the Mill II Property pursuant to the HSR Act or any similar Law. If Lessee does not purchase the Mill II Property prior to the expiration of such extended term, then Lessor shall thereafter sell the Mill II Property and distribute the proceeds from such sale in accordance with the Interparty Agreement. If, prior to the voluntary exercise by the Lessee of the purchase options hereunder, the Lessee is unable to obtain a ruling that a filing under the HSR Act or any similar Law is not required in order to consummate such purchase, then the Lessor shall execute such conditional sales contracts and other documents necessary to permit the Lessee to complete such filing before irrevocably exercising its purchase option. As a condition to executing such conditional sales contracts and other documents, the Lessee shall deliver to the Lessor an agreement obligating the Lessee to fully indemnify the Lessor from all liabilities, damages, costs and expenses arising from the execution of such documents and the completion of such filing. 16. Insurance. (a) The Lessee (or the Guarantor in lieu of the Lessee) will --------- purchase and maintain, or cause to be purchased and maintained, insurance with respect to the Mill II Property of the following types and in the following amounts (or in such greater amounts as may become necessary from time to time to prevent the Lessor, the Lessee, the Collateral Agent, the Equity Investors, CXC, CXC'S Credit Enhancer, the Agent and the Note Holders from becoming co-insurers of any loss), and in no event in amounts less than those maintained by the Lessee or its Affiliates for other similar facilities owned and/or operated by them: (i) Property Insurance: Insurance against physical damage to the ------------------ Mill II Property (with sublimits and deductibles as are acceptable to Lessor and with a maximum self-insured retention allowable of $5 million) caused by perils now or hereafter embraced by or defined in an "all risks" insurance policy, including flood, earth movement, earthquake, subsidence and collapse, business interruption/extra expense and boiler and machinery coverage (which boiler and machinery coverage is currently self-insured for up to $5 million); (ii) General Liability Insurance: Comprehensive general liability --------------------------- (including contractual, completed operations and product liability) insurance against claims for bodily injury (including death), personal injury and property damage occurring on, in or in respect of the Mill II Property or resulting from activities on or related to the Mill II Property and other properties of the 28 Guarantor and its subsidiaries, in the minimum combined single limit amount of $100 million, for each occurrence for bodily injury (or death) and/or property damage with a maximum self-insured retention allowable of $10 million; (iii) Workers' Compensation Insurance: Workers' compensation ------------------------------- insurance at statutory levels and employers' liability insurance or self- insurance as permitted by Law; (iv) Builder's Risk Insurance: During the construction of any ------------------------ Mill II Improvements or Mill II Alterations, builder's "all risks" and "general risks" insurance or equivalent coverage (with sublimits and deductibles as are acceptable to Lessor and with a maximum self-insured retention allowable of $5 million), including flood, earth movement, earthquake, subsidence and collapse, business interruption/extra expense and testing and commissioning coverage with respect to the Mill II Property and any on-site and off-site work and materials related thereto protecting the Lessee, the Lessor and all contractors and subcontractors in an amount not less than the full replacement cost of such on- site and off-site work; (v) Flood Insurance: To the extent that the ALTA/ASCM surveys --------------- of the Parcels delivered pursuant to Section 2.01(g) of the Participation Agreement indicate that any portion of Mill II, the Mill II Facility, the Mill II Improvements or the Mill II Alterations may lie in a flood zone, flood insurance in amounts acceptable to the Lessor; and (vi) Other Insurance: Such other insurance, including --------------- automobile liability, in such amounts and against such risks, as is either (x) customarily carried by companies owning, operating or leasing property or conducting businesses similar and/or similarly situated to the Mill II Property and/or the Lessee, or (y) reasonably requested from time to time by Lessor to the extent available on commercially reasonable terms. Such insurance shall be written by companies (other than Lloyd's of London) that are nationally recognized (or other recognized international insurers with an ISI rating of not less than BBB); primary insurance shall be written by companies rated at least AXI in the most recent edition of Best's Key Rating Guide, or as otherwise agreed to by the Agent, the Lessor, the Collateral Agent, the Majority Interests, selected by the Lessee and, other than the insurance specified in paragraphs 16(a)(i), (iii) and (iv), shall name the Collateral Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC'S Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on behalf of the Note Holders, as additional insureds, as their interests may appear. Notwithstanding the foregoing, in no event will the Lessee be required to maintain coverage in amounts in excess of those maintained for businesses similar in size and nature to the Lessee. (b) The insurance referred to in paragraphs 16(a)(i) and (iv) for the Mill II Property (as appropriate) may be a blanket policy and shall (i) at all times be in an amount at least equal to the greater of (x) one hundred percent (100%) of 29 the full replacement cost value of the Mill II Property (as appropriate) and the Lessee's leasehold improvements and (y) $350,000,000; (ii) name the Collateral Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC's Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on behalf of the Note Holders, as additional insureds, as their interests may appear; (iii) provide that the interests of the Lessor, the Agent, the Collateral Agent, the Equity Investors and the Note Holders shall be insured regardless of any intentional or willful breach or violation by the Lessee of any warranties, declarations or conditions contained in such insurance; (iv) provide that such insurance shall not be invalidated by any act, omission or negligence of the Lessee, the Lessor, the Agent, the Collateral Agent, the Equity Investors or the Note Holders, nor by any foreclosure or other proceedings or notices thereof relating to the Mill II Property (as appropriate) or any part thereof, nor by legal title to, or ownership of the Mill II Property or any part thereof becoming vested in or by Lessor or its agents, nor by occupancy or use of the Mill II Property or any part thereof for purposes more hazardous than permitted by such policy; and (v) provide that all partial loss insurance claims pertaining to the Mill II Property (as appropriate) or any part thereof shall be adjusted by the insurers thereunder with the Lessee. All policies of insurance required to be maintained pursuant to paragraph 16(a)(ii) which cover liability for bodily injury or property damage shall provide that all provisions of such insurance, except the limits of liability (which shall be applicable to all insureds as a group) and liability premiums (which shall be solely a liability of the Lessee), and shall operate in the same manner as if there were a separate policy covering each such insured and/or additional insured, without right of contribution from any other insurance which may be carried by an insured and/or additional insured. Every policy required under paragraph 16(a) shall (i) expressly provide that it will not be canceled or terminated except upon thirty (30) days' written notice to the Lessor, the Lessee and the Collateral Agent; (ii) except for liability coverage, include a waiver of all rights of subrogation against the Lessor, the Agent, the Collateral Agent, the Equity 30 Investors, and the Note Holders and any recourse against the Lessor, the Agent, the Collateral Agent, the Equity Investors or the Note Holders for payment of any premiums or assessments under any policy; and (iii) not contain a provision relieving the insurer thereunder of liability for any loss by reason of the existence of other policies of insurance covering the Mill II Property or any part thereof against the peril involved, whether collectible or not. The Lessee shall advise the Lessor promptly of any policy cancellation or any change adversely affecting the coverage provided thereby. (c) The Lessee shall deliver to the Lessor the certificates of insurance and any other documentation required by the Lessor evidencing the existence of all insurance which is required to be maintained by the Lessee hereunder including descriptions of the previously mentioned Insurance Requirements, such delivery to be made (i) as provided in Section 2.01(k) of the Participation Agreement, (ii) within thirty (30) days after the issuance of any additional policies or amendments or supplements to any of such insurance, and (iii) at least thirty (30) days prior to the expiration date of any such insurance. The Lessee shall notify the Lessor, the Agent and the Collateral Agent of any nonrenewal of any policy required hereunder and shall cause each insurer under each policy required hereunder to give the Lessor notice of any lapse under any such policy. The Lessee shall not obtain or carry separate insurance concurrent in form, or contributing in the event of loss, with that required by this paragraph 16 unless the Collateral Agent is named as loss payee and the Lessor, CXC, the Equity Investors, CXC's Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on behalf of the Note Holders are named as additional insureds therein. The Lessee shall immediately notify the Lessor, the Agent, the Collateral Agent, the Equity Investors, and the Note Holders whenever any such separate insurance is obtained and shall deliver to the Lessor the certificates of insurance and any other documentation (other than blanket policies) required by Lessor evidencing the same as is required hereunder. (d) The requirements of this paragraph 16 shall not be construed to negate or modify the Lessee's obligations under Section 8.14 of the Participation Agreement. 17. Subletting; Assignability; Amendment of Facility Agreements. (a) ----------------------------------------------------------- The Lessee shall not sublet the Mill II 31 Property, or any part thereof, unless (i) at the time of any such sublease, no Default, Event of Default or Major Environmental Event shall have occurred and be continuing; (ii) prior to such sublet, the Guarantor shall have confirmed that its obligations under the Guaranty shall not be affected thereby; (iii) any such sublease shall by its terms be expressly made subject and subordinate to the terms of this Lease (and the Ground Lease, the Florida Mortgage and the Deed of Trust) and shall expire on or before the last day of the Term (or the Extended Term, as the case may be) of this Lease; (iv) the Lessee shall provide the Lessor with notice of such sublease sixty (60) days prior to the effective date of such sublease; (v) except with respect to Affiliates, the Lessee shall provide the Lessor ten (10) Business Days prior to the effective date of such sublease with a conformed copy of the instrument creating such sublease; (vi) except with respect to Affiliates, the Lessor has consented to such sublease; and (vii) except with respect to Affiliates, such sublease shall be made on commercially reasonable terms. (b) No sublease pursuant to this paragraph 17 shall modify or limit any right or power of the Lessor hereunder or affect or reduce any obligation of the Lessee hereunder, and all such obligations of the Lessee shall continue in full force and effect as obligations of a principal and not of a guarantor or surety, as though no subletting had been made or occupancy permitted. (c) If the Lessee shall request, in connection with any sublease, that the Lessor execute an attornment and non-disturbance agreement with respect to such sublease, the Lessor shall consider each such sublease on a case-by-case basis and may consent to its execution and delivery of an attornment and non- disturbance agreement. (d) Except as permitted in paragraph 17(a), the Lessee shall not mortgage, pledge, assign or otherwise encumber its interest in and to this Lease or in and to any sublease or the rentals payable thereunder without the prior written consent of the Lessor except that the Lessee may assign its right to purchase Mill II Property without the consent of the Lessor so long as the Lessee remains liable for the performance and payment of the purchase obligation. Any sublease made, and any 32 mortgage, pledge or assignment of the Lessee's interest hereunder or under any such sublease granted, otherwise than as expressly permitted by this paragraph 17, shall be null and void and of no force or effect. (e) The Lessee shall have the exclusive right to amend or supplement the Facility Agreements, on the conditions that (i) the fair market value or use of the Mill II Property is not lessened thereby, and (ii) the amendment or supplement is not consummated without Lessor's consent (unless Lessee has delivered an Offer to Purchase the Mill II Property) or unless such amendment or supplement could not reasonably be expected to result in a Material Adverse Effect. Except pursuant to any sublease or assignment of this Lease permitted hereunder, the Lessee may not assign its rights in the Facility Agreements without the prior written consent of Lessor. 18. Permitted Contests. (a) So long as (w) no Lessor Termination ------------------ Notice has been delivered, (x) no Default, Event of Default or Major Environmental Event has occurred and is continuing, (y) the Lessee shall not have notified the Lessor pursuant to paragraph 27(a)(ii) that it is terminating this Lease and abandoning the Mill II Property or (z) the Lessee shall not have otherwise surrendered or be required to surrender the Mill II Property to the Lessor for any reason (including, without limitation, pursuant to paragraph 23(a)), the Lessee shall not be required, nor shall the Lessor have the right, to pay, discharge or remove any Charges or to comply or cause the Mill II Property or any part thereof to comply with any applicable Legal Requirement or to pay any materialman's, laborer's or undischarged or unremoved Lien, as long as the Lessee shall at its sole cost and expense contest, or cause to be contested, diligently and in good faith, the existence, amount or validity thereof by appropriate proceedings, which shall (i) in the case of an unpaid Property Charge or undischarged or unremoved Lien, prevent the collection thereof from the Lessor or against the Mill II Property or any part thereof, (ii) prevent the sale, forfeiture or loss of the Mill II Property or any part thereof, and (iii) in the case of a Legal Requirement, not subject the Lessor, the Agent, the Collateral Agent, the Equity Investors, or the Note Holders to the risk of any criminal liability or civil penalties or fines for failure to comply therewith. The Lessee shall give such assurances as may be reasonably demanded by the Lessor to insure 33 ultimate payment of such Charges or the discharge or removal of any such materialman's, laborer's or mechanic's Lien or to insure compliance with such Legal Requirement and to prevent any sale or forfeiture of the Mill II Property, or any part thereof, or any interference with or deductions from any Fixed Rent, Additional Rent or any other sum required to be paid by the Lessee hereunder by reason of such non-payment, non-discharge, non-removal or non-compliance. (b) The Lessor shall cooperate with the Lessee in any contest and shall allow the Lessee to conduct such contest (in the name of the Lessor, if necessary) at the Lessee's sole cost and expense; provided that the Lessor shall -------- ---- not be required to execute any documents which would materially adversely affect the fair market value, use or operation of the Mill II Property (or any part thereof) or subject the Lessor, the Agent, the Collateral Agent, any Equity Investor or any Note Holder to any liability or result in the admission of liability, guilt or culpability on the part of such Persons. The Lessee shall notify the Lessor of each such proceeding at least ten days prior to the commencement thereof, which notice shall describe such proceeding in reasonable detail. (c) The Lessee shall, promptly after the final determination (including appeals) of any contest brought by it pursuant to this paragraph 18, pay and discharge all amounts which shall be determined to be payable therein and shall be entitled to receive and retain for its own account all amounts refunded and/or rebated as a result of any such contest and if the Lessor receives any amount as a result of such contest to which it is not otherwise entitled pursuant to this Lease, it shall promptly return such amount to the Lessee. (d) Except as otherwise specifically provided in this Lease, this paragraph 18 shall not apply in the case of Charges upon, or in respect of, any Person other than the Lessor (or the lessor under the Ground Lease) or in respect of the property or income of any such Person. 19. Default Provisions. (a) An Event of Default as defined in the ------------------ Participation Agreement shall constitute an "Event of Default" under this Lease. ---------------- (b) The Lessor may take all steps to protect and enforce the rights of the Lessor or obligations of the Lessee 34 hereunder, whether by action, suit or proceeding at law or in equity (for the specific performance of any covenant, condition or agreement contained in this Lease, or in aid of the execution of any power herein granted or for any foreclosure, or for the enforcement of any other appropriate legal or equitable remedy) or otherwise as the Lessor shall deem necessary or advisable. (c) (i) If an Event of Default shall have occurred and be continuing, including an Event of Default arising from the breach of a covenant, condition or other provision hereof, then upon five (5) Business Days' prior written notice by the Lessor to the Lessee, in addition to all other rights, remedies or recourses available, the Lessor may either (A) terminate this Lease or (B) terminate the Lessee's right to possession of the Mill II Property or any part thereof. If the Lessor should elect to terminate this Lease as provided in clause (A) above, then this Lease and the estate hereby granted shall expire and terminate at midnight on the fifth (5th) Business Day (or such later date as may be specified therein) after the date of such notice, as fully and completely and with the same effect as if such date was the date herein fixed for the expiration of the Term and all rights of the Lessee shall terminate, but the Lessee shall remain liable as hereinafter provided. (ii) Should the Lessor elect not to terminate this Lease, this Lease shall continue in effect and the Lessor may enforce all the Lessor's rights and remedies under this Lease including the right to recover the Fixed and Additional Rent as each becomes due under this Lease. For the purposes hereof, the following do not constitute a termination of this Lease: (A) Acts of maintenance or preservation of the Mill II Property or any part thereof or efforts to relet the Mill II Property or any part thereof, including, without limitation, termination of any sublease of the Mill II Property to a third party and removal of such subtenant from the Mill II Property; (B) The appointment of a receiver upon initiative of the Lessor to protect the Lessor's interest under this Lease; and/or (C) The exercise of any rights under the Florida Mortgage or the Deed of Trust. (d) If an Event of Default shall have occurred and be continuing, and the Lessor has elected to terminate this Lease or terminate the Lessee's right to possession of the Mill II Property or part thereof, upon five (5) Business Days' notice, the Lessor shall have (i) the right, whether or not this Lease 35 shall have been terminated pursuant to paragraph 19(c) hereof, to re-enter and repossess the Mill II Property or any part thereof, as the Lessor may elect, by summary proceedings, ejectment, any other legal action or in any other lawful manner the Lessor determines to be necessary or desirable and (ii) the right to remove all Persons and property therefrom. The Lessor shall be under no liability by reason of any such re-entry, repossession or removal. No such re- entry or repossession of the Mill II Property or any part thereof shall be construed as an election by the Lessor to terminate this Lease unless a notice of such termination is given to the Lessee pursuant to paragraph 19(c) hereof, or unless such termination is decreed by a court or other governmental tribunal of competent jurisdiction. Should the Lessor elect to re-enter the Mill II Property as herein provided or should the Lessor take possession pursuant to legal proceedings or pursuant to any notice provided for by Law or upon termination of this Lease of the Lessee's right to possession of the Mill II Property or any part thereof pursuant to paragraph 19(c) hereof or otherwise as permitted by Law, the Lessee shall peaceably quit and surrender the Mill II Property or any part thereof to the Lessor. In any such event, neither the Lessee nor any Person claiming through or under the Lessee, by virtue of any Law, shall be entitled to possession or to remain in possession of the Mill II Property or any such part thereof, but shall forthwith quit and surrender the Mill II Property to the Lessor. (e) At any time or from time to time after the re-entry or repossession of the Mill II Property or any part thereof pursuant to paragraph 19(d) hereof, whether or not this Lease shall have been terminated pursuant to paragraph 19(c) hereof, the Lessor may (but shall be under no obligation to) relet the Mill II Property or any part thereof, for the account of the Lessee, without notice to the Lessee, for such term or terms and on such conditions and for such uses as the Lessor, in its sole and absolute discretion, may determine. The Lessor may collect and receive any rents or other proceeds payable by reason of such reletting. The Lessor shall not be liable for any failure to relet the Mill II Property or any part thereof or for any failure to collect any rent due upon any such reletting. 36 (f) No termination of this Lease or of the Lessee's right to possession of the Mill II Property or any part thereof pursuant to paragraph 19(c) hereof, or by operation of Law, and no re-entry or repossession of the Mill II Property or any part thereof, pursuant to paragraph 19(d) hereof, and no reletting of the Mill II Property or any part thereof pursuant to paragraph 19(e) hereof, shall relieve the Lessee of its liabilities and obligations hereunder, all of which shall survive such termination, re-entry, repossession or reletting. (g) In the event of any termination of this Lease or of the Lessee's right to possession of the Mill II Property or any part thereof by reason of the occurrence of any Event of Default, the Lessee shall pay to the Lessor all Fixed Rent, Additional Rent and other sums required to be paid to and including the date of such termination of this Lease or of the Lessee's right to possession; and thereafter, until the end of the Term or the Extended Term, as applicable, whether or not the Mill II Property or any part thereof shall have been relet, the Lessee to the extent permitted by applicable Law shall be liable to the Lessor for, and shall pay to the Agent (on behalf of the Lessor), on the days on which such amounts would be payable under this Lease in the absence of such termination, re-entry or repossession, as agreed current damages and not as a penalty: all Fixed Rent, Additional Rent and other sums which would be payable under this Lease by the Lessee, in the absence of such termination, re-entry or repossession, and all costs (including attorneys' fees and expenses) incurred by the Lessor hereunder (payable on demand) and all costs of any environmental remediation pursuant to paragraph 13. To the extent permitted by Law, at such time after the termination or expiration of this Lease as the Lessee shall have paid all amounts required to be paid by it under this Lease and the other Operative Documents and the Lessee shall have discharged any and all obligations to the Lessor, the Equity Investors and the Note Holders, then the Lessor shall pay and assign to the Lessee, when received, the net proceeds, if any, of any reletting effected for the account of the Lessee pursuant to paragraph 19(e), and any residual interest in the Mill II Property after deducting from such proceeds all of the Lessor's expenses in connection with such reletting (including, but not limited to, all repossession costs, brokerage commissions, attorneys' fees and expenses, employees' expenses, alteration costs and expenses of 37 preparation for such reletting and all costs of any environmental remediation pursuant to paragraph 13). (h) Notwithstanding the foregoing, if an Event of Default shall have occurred, the Lessee may within 5 Business Days after the earliest of the Lessor's or Agent's notice of such occurrence thereafter pay to the Agent, on behalf of the Lessor, an amount equal to the Offer Purchase Price in which event the Lessor shall be obligated to convey the Mill II Property to the Lessee in compliance with paragraph 15. (i) At any time after such termination of the Term (or the Extended Term) of this Lease or re-entry or repossession of the Mill II Property by reason of the occurrence of an Event of Default, the Lessor shall be entitled to recover from the Lessee, and the Lessee will pay to the Agent (on behalf of the Lessor) on demand, in lieu of all liquidated damages in respect of Fixed Rent beyond the date of such demand (but in addition to any claim for current damages in respect of Fixed Rent or Additional Rent prior to the date of such demand), an amount equal to the Termination Value, in which event the Lessor shall be obligated to convey the Mill II Property to the Lessee in compliance with paragraph 15. 20. Additional Rights; Mortgage. (a) No right or remedy hereunder --------------------------- shall be exclusive of any other right or remedy, but shall be cumulative and in addition to any other right or remedy hereunder or under the other Operative Documents or now or hereafter existing at Law or in equity and the exercise by the Lessor or the Collateral Agent of any one or more of such rights, powers or remedies shall not preclude the simultaneous exercise of any or all of such other rights, powers or remedies. Failure to insist upon the strict performance of any provision hereof or to exercise any option, right, power or remedy contained herein shall not constitute a waiver or relinquishment thereof for the future. Receipt by the Lessor (or by the Agent on behalf of the Lessor) of any Fixed Rent, Additional Rent, Residual Guaranty, Termination Value or other sum payable hereunder or under any other Operative Document with knowledge of the breach by the Lessee of any provision hereof shall not constitute a waiver of such breach, and no waiver by the Lessor of any provision hereof shall be deemed to have been made unless made in writing. The Lessor shall be entitled to 38 injunctive relief in case of the violation or attempted or threatened violation of any of the provisions hereof, a decree compelling performance of any of the provisions hereof or any other remedy allowed to the Lessor at law or in equity. (b) Except as otherwise provided in Section 19(h), the Lessee hereby waives and surrenders for itself and all those claiming under it, including creditors of all kinds, (i) any right and privilege which they may have under any applicable law or otherwise to redeem the Mill II Property or any part thereof or to have a continuance of this Lease after termination of the Lessee's right of occupancy by Law or by any legal process or writ, or under the terms of this Lease, or after the termination of the Term (or Extended Term, as the case may be) of this Lease as herein provided and (ii) the benefits of any Law which exempts property from liability for debt or for distress for rent. (c) If an Event of Default exists hereunder, the Lessee shall pay to the Agent (on behalf of the Lessor) on demand all fees and out-of-pocket expenses incurred by the Lessor in enforcing its rights under this Lease, including attorneys' fees and expenses. (d) The Lessor and the Lessee intend that the Lessee shall treat this Lease, for accounting purposes, as an operating lease. Notwithstanding the intent of the parties, if a court of competent jurisdiction determines that the transaction represented by this Lease and the other Operative Documents will be treated as a financing transaction, then the parties hereto intend that (i) this Lease be treated as the repayment and security provisions of a loan by Lessor to Lessee in a principal amount equal to the sum of (x) the Acquisition Costs of the Mill II Property plus (y) the aggregate of all Advances made with respect to the Mill II Property plus any other amounts owing to the Lessor or the Collateral Agent, Note Holders or Equity Investors (collectively, the "Secured ------- Party") under the Operative Documents, including, without limitation, Fixed - ----- Rent, Additional Rent, the Offer Purchase Price and the Termination Value (collectively, the "Mill II Loan Amount"), but not to exceed the principal ------------------- amount of Eight Hundred Eighty Seven Million Five Hundred Thousand Dollars ($887,500,000), (ii) all payments of Fixed Rent, Additional Rent, the Offer Purchase Price and the Termination Value be treated as payments of principal, interest and other amounts owing with respect to such 39 Mill II Loan Amount, respectively, (iii) the Lessee should be treated as entitled to all benefits of ownership of the Mill II Property or any part thereof, (iv) this Lease be treated (A) with respect to the portion of the Mill II Property situate in the State of Georgia (a) as a deed to secure debt and security agreement from Lessee, as Grantor, to the Lessor, as Grantee, passing title to that portion of the Mill II Property (situate in the State of Georgia) constituting real property, and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage and that the Lessee, as Grantor, hereby grants, bargains, sells, conveys, assigns, transfers and sets over unto the Lessor, as Grantee, for the use and benefit of the Secured Party, Lessee's right, title and interest in and to any real property of any kind or character comprising the Mill II Property, whether now owned or hereafter acquired, and all proceeds therefrom, to have and to hold said real property and all parts, rights, members and appurtenances thereof to the use, benefit and behoof of the Lessor, for the use and benefit of the Secured Party; and (b) as a security agreement from the Lessee, as debtor, to the Lessor, as secured party, encumbering all personal property (situate in the State of Georgia) comprising the Mill II Property whether now owned or hereafter acquired, and all proceeds therefrom (this Lease, in its capacity as such deed to secure debt and security agreement, the "Mill II Georgia Tenneco ----------------------- Mortgage"), and that the Lessee, hereby grants to the Lessor for the use and - -------- benefit of the Secured Party, a Lien on and security interest in the equipment, fixtures, and any and all other personal property of any kind or character comprising the Mill II Property (situate in the State of Georgia) whether now owned or hereafter acquired, and all proceeds therefrom, in each case being effective as of the date of this Lease, and (B) with respect to the portion of the Mill II Property situate in the State of Florida, (a) as a mortgage from Lessee, as mortgagor, to the Lessor, as mortgagee, encumbering that portion of the Mill II Property (situate in the State of Florida) constituting real property, and is made under those provisions of the existing laws of the State of Florida relating to mortgages and that the Lessee, as mortgagor hereby does, effective as of the date of this Lease, mortgage, give, grant, 40 bargain, sell, alien, enfeoff, convey, confirm and assign unto Lessor, as mortgagee, for the benefit of the Secured Party, Lessee's right, title and interest in and to any real property of any kind or character comprising the Mill II Property, whether now owned or hereafter acquired, and all proceeds therefrom, to have and to hold said real property and all parts, rights, members and appurtenances thereof to the use, benefit and behoof of the Lessor, for the use and benefit of the Secured Party, and (b) as a security agreement from the Lessee, as debtor, to the Lessor, as secured party, encumbering all personal property (situate in the State of Florida) comprising the Mill II Property whether now owned or hereafter acquired, and all proceeds therefrom (this Lease, in its capacity as such mortgage and security agreement, the "Mill II Florida --------------- Tenneco Mortgage"), and that the Lessee, as debtor, hereby grants to the Lessor, - ---------------- for the use and benefit of the Secured Party a Lien on and security interest in the equipment, fixtures and all other personal property of any kind or character comprising the Mill II Property (situate in the State of Florida) whether now owned or hereafter acquired, and all proceeds therefrom, in each case being effective as of the date of this Lease. In such event, the Lessor shall have all of the rights, powers and remedies of (I) (with respect to the portion of the Mill II Property situate in the State of Georgia) a grantee and a secured party available under applicable law, including, without limitation, judicial or nonjudicial foreclosure or power of sale, as and to the extent available under applicable law, and (II) (with respect to the portion of the Mill II Property situate in the State of Florida) a mortgagee and a secured party available under applicable law, including, without limitation, judicial foreclosure as and to the extent available under applicable law, and the amounts secured by the liens and security interests described above shall be the Mill II Loan Amount, plus any other amounts owing to the Lessor or the Secured Party under the Operative Documents. The filing of this Lease (or a memorandum hereof) shall be deemed to constitute the filing (x) with respect to the portion of the Mill II Property situate in the State of Georgia, of a deed to secure debt and the filing of any financing statement in connection with this Lease shall be deemed to constitute the filing of a financing statement to perfect the deed to secure debt security title and security interests in the Mill II Property as aforesaid to secure the payment of all 41 amounts due from time to time from the Lessee to the Lessor under this Lease and the other Operative Documents, and (y) with respect to the portion of the Mill II Property situate in the State of Florida, a mortgage and the filing of any financing statement in connection with this Lease shall be deemed to constitute the filing of a financing statement to perfect the security interest in the Mill II Property aforesaid to secure the payment of all amounts due from time to time from the Lessee to the Lessor under this Lease and the other Operative Documents. (the "Mill II Georgia Tenneco Mortgage" and the "Mill II Florida -------------------------------- --------------- Tenneco Mortgage" shall, collectively, be referred to as the "Mill II Tenneco - --------------- --------------- Mortgage"). - -------- (e) In addition, if a court of competent jurisdication determines that the transaction represented by this Lease and the other Operative Documents will be treated as a financing transaction, then as additional security for the payment of the Mill II Loan Amount and the observance and performance by Lessee of this Lease and the Mill II Tenneco Mortgage, Lessee does hereby, effective as of the date of this Lease, sell, assign, transfer and set over unto Lessor all of Lessee's right, title and interest in and to the Mill II Ground Lease, all other leases, the Mill II Property, the possession thereof, and all the rents now due and which may hereafter become due under or by virtue of any other leases, whether written or verbal, or any letting of, or any agreement for the use or occupancy of any part of the Mill II Property, it being the intention to hereby establish a present and absolute transfer and assignment of all such leases and agreements and all the avails thereunder unto Lessor. This assignment shall run with the land and be good and valid as against Lessee and those claiming by, under or through Lessee from the date of the execution of this Lease. This assignment shall not be exercised unless and until an Event of Default shall occur and be continuing and shall continue and remain in full force and effect during any foreclosure proceedings relating to this Mill II Tenneco Mortgage and the period of redemption, if any, and until the Mill II Loan Amount shall have been paid in full. (f) The Mill II Tenneco Mortgage secures and shall be security for the entire Mill II Loan Amount if a court of competent jurisdiction determines that the transaction 42 represented by this Lease and the other Operative Documents will be treated as a financing transaction. Nothing contained herein shall be deemed an obligation on the part of the Secured Party to make any further advances, except in accordance with the Participation Agreement and the other Operative Documents. In order to preserve the Lien, security interest and security title (as appropriate with respect to the portion of the Mill II Property situate in the State of Florida or Georgia) provided for herein, each of the Lessor and the Lessee agrees to abide by the following provisions with regard to the Mill II Property (for purposes of this paragraph, hereinafter referred to as "Mill II Collateral"): ------------------ (1) Change in Location of Mill II Collateral or the Lessee's Name, -------------------------------------------------------------- Structure or Location. The Lessee (i) will notify the Secured Party on or - --------------------- before the date of any change in (A) the location of the Mill II Collateral (B) the location of Lessee's chief executive office or address, (C) the name of the Lessee and (D) the corporate structure of the Lessee, and (ii) will, on or before the date of any such change, prepare and file new or amended financing statements as necessary so that the Secured Party shall continue to have a perfected Lien (subject only to Permitted Encumbrances) in the Collateral after any such change. (2) Documents; Mill II Collateral in Possession of Third Parties. If ------------------------------------------------------------ certificates of title or other documents evidencing ownership or possession of the Mill II Collateral are issued or outstanding, the Lessee will cause the interest of the Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to the Secured Party. If any Mill II Collateral is at any time in the possession or control of any warehouseman, bailee, agent or independent contractor, the Lessee shall notify such Person of the Secured Party's security interest in such Mill II Collateral. Upon the Secured Party's request, the Lessee shall instruct any such Person to hold all such Mill II Collateral for the Secured Party's account subject to the Lessee's instructions, or, if an Event of Default shall have occurred and be continuing, subject to the Secured Party's instructions. (3) Sale, Disposition or Encumbrance of Mill II Collateral. Except ------------------------------------------------------ for Permitted Encumbrances and contests permitted under paragraph 18, as permitted by this Lease or any of the other Operative Documents or with the Secured Party's 43 prior written consent, the Lessee will not in any way encumber any of the Mill II Collateral (or permit or suffer any of the Mill II Collateral to be encumbered) or sell, assign, lend, rent, lease or otherwise dispose of or transfer any of the Mill II Collateral to or in favor of any Person other than the Secured Party. (4) Proceeds of Mill II Collateral. Except as permitted by this Lease ------------------------------ or any of the other Operative Documents, the Lessee will deliver to the Secured Party promptly upon receipt all proceeds delivered to the Lessee from the sale or disposition of any Mill II Collateral. This paragraph shall not be construed to permit sales or dispositions of the Mill II Collateral except as may be elsewhere expressly permitted by this Lease or the other Operative Documents. (5) Further Assurances. Upon the request of the Secured Party, the ------------------ Lessee shall (at the Lessee's expense) execute and deliver all such mortgages, deeds of trust, deeds to secure debt, assignments, certificates, financing statements or other documents and give further assurances and do all other acts and things as the Secured Party may reasonably request to perfect the Secured Party's interest in the Mill II Collateral or to protect, enforce or otherwise effect the Secured Party's rights and remedies hereunder, all in form and substance satisfactory to the Secured Party. (6) Mill II Collateral Attached to other Property. In the event that --------------------------------------------- the Mill II Collateral is to be attached or affixed to any real property, the Lessee hereby agrees that a financing statement which is a fixture filing may be filed for record in any appropriate real estate records. If the Lessee is not the record owner of such real property, it will provide the Secured Party with any additional security documents or financing statements necessary for the perfection of the Secured Party's Lien in the Mill II Collateral, as requested by the Secured Party. (7) Mill II Loan Amount. Should the Mill II Loan Amount be paid ------------------- according to the tenor and effect thereof when the same becomes due and payable hereunder, and should Lessee perform all covenants contained in the Operative Documents in a timely manner, then the Mill II Tenneco Mortgage shall be cancelled and surrendered. 44 (8) Mortgage Remedies. (a) With respect to the Mill II Georgia ----------------- Tenneco Mortgage, if an Event of Default shall have occurred and be continuing, the Lessor, at the direction of Agent and in accordance with the Interparty Agreement, may sell the portion of the Mill II Property situated in the State of Georgia or any part thereof, at one or more public sale or sales before the door of the courthouse of the county in which the Mill II Property is situated, to the highest bidder for cash, in order to satisfy the Mill II Loan Amount and all expenses of sale and of all proceedings in connection therewith, including reasonable attorneys' fees, after advertising the same, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriffs' Sales are advertised in said county. At any such public sale, the Lessor, as Grantee, may execute and deliver to the purchaser a conveyance of Lessee' interests in the Mill II Property situate in the State of Georgia and to this end, Lessee, as Grantor, hereby constitutes and appoints Lessor the agent and attorney-in-fact of Lessee to make such sale and conveyance, and thereby to divest Lessee of all right, title and equity that Lessee may have in and to the portion of the Mill II Property situate in the State of Georgia and to vest the same in the purchaser or purchasers at such sale or sales and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Lessee. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Mill II Loan Amount and shall not be exhausted by one exercise thereof but may be exercised until full payment or the Mill II Loan Amount and performance of all the obligations under the Operative Documents. In the event of any sale under this subparagraph 8(a) by virtue of the exercise of the powers herein granted, pursuant to any order and any judicial proceeding or otherwise, the portion of the Mill II Property situate in the State of Georgia may be sold as an entirety or in separate parcels and in such manner or order as Lessor, upon direction by Agent, in its sole discretion may elect, and if Lessor so elects, until the entire portion of the Mill II Property situate in the State of Georgia is sold or the Mill II Loan Amount is 45 paid and the obligations under the Operative Documents performed in full. If the Mill II Loan Amount is now or hereafter further secured by any chattel mortgages, pledges, guarantees, assignments of lease or security instruments, Lessor, as Grantee, may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Lessor, as Grantee, may determine. Upon any foreclosure sale pursuant to the power herein granted or otherwise, Lessor, as Grantee, may bid for and purchase the portion of the Mill II Property situate in the State of Georgia and shall be entitled to apply all or any part of the Mill II Loan Amount secured hereby as a credit to the purchase price. (b) With respect to the Mill II Florida Tenneco Mortgage, if an Event of Default shall have occurred and be continuing, the Lessor, at the direction of the Agent and in accordance with the Interparty Agreement, shall have the right (i) to exercise any and all remedies available to a mortgagee under Florida law (and without prejudice to the rights of the Secured Party to exercise any remedies described in the Participation Agreement, the Interparty Agreement or the other Operative Documents). (ii) to declare the Mill II Loan Amount and all other obligations of Lessee secured by the Mill II Florida Tenneco Mortgage immediately due and payable without further notice. (iii) to the extent permitted by law, to take immediate possession of the Mill II Property situate in the State of Florida or any part thereof (which Lessee agrees to surrender to Lessor) and manage, control or lease same to such person or persons and exercise all other rights granted to a mortgagee under applicable Florida law. The taking of possession under this paragraph shall not prevent concurrent or later proceedings for the foreclosure sale of the portion of the Mill II Property situated in the State of Florida as provided elsewhere herein. (iv) to apply, on ex parte motion to any court of competent jurisdiction, for the appointment of a receiver and shall be entitled to the appointment of such receiver as a matter of right, without regard to the value of the Mill II 46 Property (situate in the State of Florida) as security for the Mill II Loan Amount, or the solvency or insolvency of any person then liable for the payment of the Mill II Loan Amount. In addition to the rights of protection afforded to Lessor by Section 697.07, Florida Statutes (1995), as amended (and not as an election of remedies), Lessor shall be entitled, as a matter of strict right and without regard to the value or occupancy of any security for the obligations secured by the Mill II Florida Tenneco Mortgage, to have a receiver appointed by a court, without notice to Lessee, to enter upon and take possession of the portion of the Mill II Collateral situated in the State of Florida, collect the rents therefrom and thereof and apply the same as the court may direct, such receiver to have all the rights and powers permitted under the laws of Florida. The expenses, including receiver's fees, reasonable attorneys' fees (including any incurred in appeals), costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by the Mill II Florida Tenneco Mortgage. The right to enter and take possession of the Mill II Property (situate in the State of Florida), to manage and operate the same, to collect the rents therefrom and thereof, whether by a receiver or otherwise, shall be cumulative to any other right or remedy hereunder or afforded by law, and may be exercised concurrently therewith or independently thereof. Lessor shall be liable to account only for such rents actually received by Lessor, whether received pursuant to this paragraph or otherwise. The Lessee hereby specifically waives the right to object to the appointment of a receiver as aforesaid and hereby consents that such appointment shall be made as an admitted equity and as a matter of absolute right to the Lessor and that the same may be done without notice to the Lessee or any other defendant to such suit. (v) to foreclose on the Mill II Florida Tenneco Mortgage and in case of sale in an action or proceeding to foreclose the Lessor shall have the right to sell the Mill II Property situate in the State of Florida in parts or as an entirety. It is intended hereby to give to Lessor the widest possible discretion permitted by law with respect to all aspects of any such sale or sales. (vi) to exercise all other remedies available, whether at law or equity, in such order as Lessor may elect. 47 It shall also not be necessary that Lessor pay any Impositions, premiums or other Charges regarding which Lessee is in default before Lessor may invoke its rights hereunder. All such other rights and remedies available to Lessor with respect to the Mill II Florida Tenneco Mortgage shall be cumulative and may be pursued concurrently or successively. The failure or omission on the part of Lessor to exercise the option for acceleration of maturity and/or foreclosure or to timely exercise any other option, right, or remedy conferred upon the Lessor herein, or the acceptance by Lessor of partial payments hereunder, shall not constitute a waiver of any default or the right to exercise any such option, but such option shall remain continuously in force. Acceleration of maturity, once claimed hereunder by Lessor, at the option of Lessor, may be rescinded by written acknowledgment to that effect by Lessor, but the tender and acceptance of partial payments alone shall not, in any way, effect or rescind such acceleration of maturity. The obtaining of a judgment or decree on the Mill II Loan Amount, whether in the State of Florida or elsewhere, shall not in anyway affect the lien of the Mill II Florida Tenneco Mortgage upon the Mill II Property situate in the State of Florida covered hereby, and any judgment or decree so obtained shall be secured hereby to the same extent as said Mill II Loan Amount is now secured. 21. Notices, Demands and Other Instruments. All notices, demands, -------------------------------------- offers, consents and other instruments given pursuant to this Lease shall be sent to the parties hereto at the addresses set forth on Schedule I to the Participation Agreement and shall be given in the manner and shall be effective at the times and under the terms set forth in Section 8.02 of the Participation Agreement. The Lessee shall send to the Agent copies of all notices, demands, offers, consents, advices and other instruments hereunder sent to the Lessor. 22. No Default Certificate. Each party hereto shall, at the ---------------------- reasonable request of the other party hereto, deliver to such other party a certificate stating whether such first party has knowledge that, or has received notice from any person that, any Casualty, Condemnation, Default, Major Environmental Event, 48 Environmental Default, Environmental Trigger or Event of Default has occurred and is continuing. 23. Surrender. (a) If upon the expiration or termination of the --------- Term (or the Extended Term, as the case may be) or the termination of Lessee's possession of the Mill II Property, Lessee or its designee has not purchased the Mill II Property as provided hereunder, the Lessee shall surrender (i) the Mill II Parcel to the Lessor in the condition in which the Mill II Parcel was upon the commencement of the Term hereof (together with all easements, rights of way or other rights as Lessor may require to assure unrestricted access to the Mill II Parcel), (ii) Mill II in the operating condition, efficiency, utility and with the remaining useful life, it had upon the commencement of the Term, except as repaired, rebuilt, renovated, altered, added to or built as permitted or required hereby and except for ordinary wear and tear, and (iii) the Mill II Improvements and the Mill II Alterations in good operating condition, in substantially the condition the same were in when constructed or installed on the Mill II Parcel, except for ordinary wear and tear. To the extent that the Mill II Property is not in compliance with the above upon such expiration or termination (except as a consequence of a Casualty or Condemnation, as to which paragraph 12 applies), the Lessee shall pay to the Agent (on behalf of the Lessor) such additional amounts as are required to place it in compliance therewith. (b) The Lessee shall also surrender the Mill II Property to the Lessor free and clear of all Liens, easements, consents and restrictive covenants and agreements affecting the Mill II Property (other than (i) rights reserved to or vested in any municipality or public authority, by the terms of any franchise, grant, license, Permit or provision of Law, to purchase, condemn, appropriate or recapture, or designate a purchaser of the Mill II Property, (ii) rights reserved to or vested in any municipality or public authority to control or regulate the use of the Mill II Property or to use the Mill II Property in any manner, (iii) easements, rights-of-way, servitudes, restrictions, encroachments and other minor defects, encumbrances and irregularities in title to the Mill II Property which do not, individually or in the aggregate, materially and adversely affect the value, condition, marketability or operation of the Mill II Property or the Lessor's ownership thereof, (iv) the Ground Leases and the Mortgages, (v) Liens 49 existing on the Financing Closing Date and set forth in the Title Policy, and (vi) Lessor Liens. (c) The Lessee shall also surrender the Mill II Property in a condition such that it is in compliance with all applicable Environmental Laws then enacted or then proposed by any governmental agency (irrespective of whether the deadline for such compliance would otherwise expire after the end of the Term or the Extended Term, as applicable). Nothing contained in this paragraph 23 shall relieve or discharge or in any way affect the obligation of the Lessee to cure promptly pursuant to this Lease any violations of Legal Requirements referred to in this Lease, or to pay and discharge any Liens and Impositions against the Mill II Property, subject, however, to the right of the Lessee to contest the same pursuant to the provisions of paragraphs 11 and 18. Lessee shall cooperate, to the fullest extent permitted by Law, with the Lessor, its subsequent lessees, operators or purchasers to effect the transfer of all of Lessee's Applicable Permits for the Mill II Property to such Persons. (d) The Lessee, at its sole cost and expense, shall remove from the Mill II Property on or prior to such expiration or termination, all property situated thereon which is not owned by the Lessor and shall repair any damage caused by such removal and shall restore the Mill II Property to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation of such property, except for ordinary wear and tear. Lessee shall indemnify and hold harmless the Lessor, its successors and assigns against any loss, liability, cost, expense, penalty or claim arising out of the Lessee's removal of such property from the Mill II Property including, without limitation, any environmental liability arising therefrom. Any such property of the Lessee not so removed shall become the property of the Lessor, and the Lessor may cause such property to be removed from the Mill II Property and disposed of, and the cost of any such removal and disposition of the Lessee's property and of repairing any damage caused by such removal and of the restoration of the Mill II Property to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the 50 installation of such property, ordinary wear and tear excepted, shall be borne by the Lessee. (e) The Lessee shall comply with the conditions set forth in paragraph 27(b) of this Lease in addition to those set forth in this paragraph 23. (f) The obligations of the Lessee under this paragraph 23 shall survive the expiration or any termination of the Term (or the Extended Term, as the case may be) of this Lease (whether by operation of Law or otherwise) for all matters described in this paragraph 23 which occur or arise prior to such expiration or termination or arise out of or result from facts, events, claims, liabilities, actions or conditions occurring, arising or existing on or before such expiration or termination. 24. Severability; Binding Effect; Governing Law; Non-Recourse. (a) --------------------------------------------------------- Except as expressly provided otherwise in this Lease, each provision hereof shall be separate and independent and the breach of any such provision by the Lessee, or a breach of any obligation hereunder by the Lessor, shall not discharge or relieve the Lessee from its obligations to perform each and every covenant to be performed by the Lessee hereunder. If any provision hereof or the application thereof to any Person or circumstance shall be invalid or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforceable to the extent permitted by Law. (b) All provisions contained in this Lease shall be binding upon, inure to the benefit of and be enforceable by, the respective permitted successors and assigns of the Lessor and the Lessee to the same extent as if each successor and assignee were named as a party hereto. Except for subleases and assignments permitted or created in accordance with paragraph l7 hereof, the Lessee may not assign its rights hereunder or any interest herein without the prior written consent of the Lessor. Subject to the provisions of Section 2(c) of this Lease and the other Operative Documents, the Lessor may assign all or any part of the Mill II Property and/or its rights under this Lease. All amendments, waivers, consents or approvals arising pursuant to this Lease shall be consummated in accordance with the Participation Agreement. Any amendment, waiver, consent or 51 approval made otherwise than as expressly permitted by this paragraph 24 shall be null and void. (c) THIS LEASE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATES OF GEORGIA AND FLORIDA, AS APPLICABLE, WITHOUT REGARD TO CONFLICTS OF LAWS PROVISIONS. (d) The parties may sign this Lease in any number of counterparts and on separate counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument, except that, if this Lease constitutes "chattel paper" within the meaning of the UCC only one counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER l" shall constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. (e) No recourse shall be had against the Lessor, the Agent, the Collateral Agent, the Equity Investor or any Note Holder or their respective successors, assigns, directors, officers, partners, employees, agents or shareholders, for any claim based on any failure by the Lessor in the performance or observance of any of the agreements, covenants or provisions contained in this Lease and in the event of any such failure, recourse shall be had solely against the Mill II Property; provided, however, that nothing -------- ------- contained in this Lease shall be taken to prevent enforcement of any claim against the Lessor or any other Person arising out of or in connection with this Lease based on fraud, gross negligence or willful misconduct of the Lessor or such other Person and nothing shall prevent enforcement against any other Person to which any part thereof shall have been transferred, or obligations undertaken or assumed in writing by such Person. 25. Headings and Table of Contents. The table of contents and the ------------------------------ headings of the various paragraphs and schedules of this Lease are for convenience only and shall not affect the meaning of the terms and conditions of this Lease. 26. Lessor's Right to Cure Lessee's Default. If the Lessee shall --------------------------------------- fail to make any payment or perform any act required to be made or performed under this Lease, the Lessor, without waiving any default or releasing Lessee from any 52 obligation, may (but shall be under no obligation to) make such payment or perform such act for the account and at the cost and expense of the Lessee, and may enter upon the Mill II Property for such purpose and take all such action thereon as, at the Lessor's sole discretion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of the Lessee or a breach of the Lessor's covenant for quiet possession pursuant to paragraph 2(b). All sums so paid by the Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses so incurred, together with interest thereon at the Default Rate to the extent permitted by Law) shall be paid by the Lessee to the Lessor on demand as Additional Rent. 27. Lessee's Options Upon Expiration. (a) In addition to its rights -------------------------------- under paragraphs l2 and 14 hereof, Lessee shall elect either to (i) by written notice given at least three (3) months prior to the Expiration Date (or later if permitted or required under paragraph 27(d)) deliver an Offer to Purchase the Mill II Property in its entirety and purchase the Mill II Property on the Expiration Date upon payment of an amount equal to the Offer Purchase Price, in which case the transfer of the Mill II Property shall be governed by the terms of paragraphs 14 and 15 (and in which case, this Lease (with the exception of any provision hereof or under the other Operative Documents under which the Lessee indemnifies the Lessor or others from liability in connection with this Lease, or otherwise specifies that such provision survives termination hereof or under the other Operative Documents) shall terminate on the Closing Date); (ii) so long as no Default, Event of Default or Major Environmental Event has occurred and is continuing by written notice given at least twelve (12) months prior to the Expiration Date, and subject to the satisfaction of the conditions set forth in paragraphs 27(b) and 27(c) hereof, terminate this Lease, abandon the Mill II Property as of the Expiration Date and pay to the Agent, on behalf of the Lessor on the Expiration Date, in addition to any Fixed Rent, Additional Rent and any other amounts then due and payable to the Lessor hereunder, an amount equal to the Series A Portion of the Adjusted Capitalized Cost of the Mill II Property (the "Residual Guaranty"); or (iii) by written notice given at ----------------- least three (3) months prior to the Expiration Date, and subject to the conditions set forth in paragraph 27(d), extend this Lease for the Extended Term. 53 (b) Upon the election of the Lessee to terminate this Lease pursuant to paragraph 27(a)(ii) hereof, the Lessee shall provide, or cause to be provided or accomplished, at the sole cost and expense of the Lessee, to or for the benefit of the Lessor and the holders of the Instruments, at least thirty (30) days but not more than sixty (60) days prior to the Expiration Date or date of such other termination of this Lease each of the following (other than the documentation contemplated under clause (b)(ii)(F) which must be delivered five days prior to the Expiration Date) (collectively, the "Return Conditions"): ----------------- (i) an environmental audit of the Mill II Property, performed by environmental consultants selected by the Lessor, satisfactory in scope and content to the Agent, the Lessor, the Collateral Agent, each Equity Investor and each Note Holder, each in its sole discretion. (ii) a report of the Appraiser and/or the Independent Engineer, satisfactory in scope and content to the Lessor, the Collateral Agent, the Agent, the Equity Investors and the Note Holders, each in their sole discretion, to the effect that (A) the Mill II Improvements, if any, have been completed; (B) the Mill II Property has been constructed or maintained in accordance with the terms and conditions of the Lease and the other Operative Documents and the requirements of all Legal Requirements, Applicable Permits and prudent industry standards for pulp and paper mills in Wisconsin; (C) the Lessee shall not be rebuilding or restoring or required to rebuild or restore the Mill II Property or any part thereof pursuant to paragraph 12(c) of this Lease; (D) the Mill II Property meets or exceeds the performance tests specified on Exhibit A hereto (the "Performance Tests") taking into account any modifications to the ----------------- Performance Tests necessitated by the Mill II Improvements (as determined by the Independent Engineer) which will insure that, at a minimum, the Mill II Property (including the Mill II Improvements, if any,) can operate at the required capacity, efficiency, utility and reliability required to meet the terms of any existing contracts involving the Mill II Property (including the Mill II Improvements) on the Expiration Date (or date of such other termination of the Lease); (E) all mechanical, electrical, security, plumbing, fire safety, telecommunications, structural and other building systems in the Mill II Property are operating properly in accordance with standards and specifications for such systems not less than those in effect on the date hereof, subject to the provisions of paragraph 23 hereof (and such other standards and specifications as may be required by applicable Legal Requirements); and (F) no Condemnation or Casualty has occurred which has not been remedied in accordance with the terms of the Operative Documents; (iii) delivery of a services agreement to the Lessor (in form and substance satisfactory to the Agent, the Lessor, the Equity Investors and the Note Holders each in their sole and absolute discretion), containing among other things, evidence that the Lessee has made arrangements satisfactory to the Agent in its sole and absolute discretion for the provision of all services necessary to maintain, own, operate or sell the Mill II Property (including obtaining all necessary intellectual property, surveys, permits, rights of way, manuals and contracts specifically associated with the Mill II Property and required for the operation of the Mill II Property as then being operated); 54 (iv) an endorsement to the previously delivered ALTA extended coverage owner's title insurance policy issued by the Title Company, marked "premium paid" and increasing the coverage of such policy to an aggregate amount equal to the lesser of (i) the maximum insurable amount or (ii) the Adjusted Capitalized Cost of the Mill II Property, subject only to Permitted Encumbrances and otherwise in form and substance satisfactory to the Note Holders, the Equity Investors, the Lessor and Special Counsel, to be delivered to the Note Holders, the Equity Investors, the Lessor and Special Counsel, together with copies of all documents relating to the Permitted Encumbrances referred to therein, showing record title of the Lessor in the (leasehold estate in and to the) Mill II Property, and in and to Mill II, the Mill II Improvements and the Mill II Alterations; (v) all Fixed Rent and Additional Rent shall have been paid in full through such expiration or termination of the Term (or the Extended Term, as applicable); (vi) the Lessee shall remove, or cause the removal of, at the Lessee's sole expense, any inventory, fixtures, machinery, equipment or other property belonging to the Lessee or third parties in compliance with paragraph 10(b) and 23(d) of this Lease; and (vii) if directed to do so by the Lessor, the Lessee (at its expense) shall execute and deliver any and all further instruments, agreements and documents as may, in the reasonable opinion of the Lessor, be necessary to confirm the termination and expiration of this Lease and to acknowledge that the Lessee, from the date of termination and expiration, ceases to have any interest in the Mill II Property under this Lease and to confirm the Lessor's ownership of the Mill II Property. (c) Upon the Lessee's election to terminate this Lease pursuant to and in compliance with paragraph 27(a)(ii) the Lessee shall use reasonable efforts during the twelve-month period prior to the Expiration Date ("Remarketing ----------- Period") to obtain bids from unrelated third parties for the Mill II Property. - ------ All bids received by the Lessee shall immediately be copied to the Lessor and the Agent in writing, setting forth the amount of such bid and the name and address of the person submitting such bid. The Lessor, the Agent, the Equity Investors and each Note Holder shall have the right, but not the obligation, to seek bids for the Mill II Property during the Remarketing Period or at any time thereafter. On the Expiration Date or at any time thereafter, provided that all conditions of this paragraph 27 have been met, the Collateral Agent may (but is not obligated to) sell the Mill II Property for cash to the bidder, if any, who shall have submitted the highest bid during the Remarketing Period or any time thereafter on an as-is basis and without recourse or warranty, subject to the provisions of Section 3.01 of the Interparty Agreement. The Lessor shall be entitled to keep the proceeds of such sale after payment of Closing Costs (the "Net Sale Proceeds"), and Lessee shall have no further claim thereto except to - ------------------ the extent such Net Sale 55 Proceeds exceed the outstanding obligations of the Lessee under the Operative Documents. (d) So long as no Default, Event of Default or Major Environmental Event exists, the Lessee may request (in its sole discretion), by written notice given to the Agent at least 3 months prior to the Expiration Date an extension of this Lease for one additional period of up to five years (the "Extended -------- Term"). The Lessor and the Lessee shall determine the Applicable Rate for the - ---- Extended Term, consistent with the terms outlined below in this paragraph 27(d), and the Lessee shall undertake to enter into all amendments and supplements to the Operative Documents and such other agreements as the Lessor in its sole discretion determines to be necessary and appropriate in connection therewith including, without limitation, delivery to Agent of an appraisal of the Mill II Property (satisfactory in form and substance to the Agent in its sole discretion). If the Lease is extended for the Extended Term, the Lessee shall pay the Agent a remarketing fee, the amount of which shall be determined one month prior to the commencement of the Extended Term. Fixed Rent during the Extended Term shall be paid monthly in arrears, and include an annual amount (payable annually in arrears) to be applied (i) to the outstanding principal amount of the Notes, and (ii) to the outstanding stated amount of the Equity Investment, such annual amount to be based on an amortization schedule (determined by reference to the appraisal described in this paragraph 27(d) and agreed to by the Note Holders and the Equity Investors in their sole discretion). (e) The Applicable Rate, the principal amount of the commitments to be agreed upon by each Note Holder and each Equity Investor and Commitment Fees payable during the Extended Term shall be determined as follows: (i) Within ten (10) days after receipt of Lessee's request to extend this Lease pursuant to this paragraph 27(d), the Agent shall, in accordance with provisions of the letter agreement of even date herewith (the "Extension Letter") among the Lessee and each APA Purchaser, the manager under ---------------- the Management Agreement, CNAI, the Equity Investor, the Lessor and the Collateral Agent, consult with each party to the Extension Letter to determine (A) the amount of the Applicable Rate, the Fixed Rent and the Commitment Fees, if any, for the Extended Term at which the Note Holders, the Equity Investors and other applicable Persons are willing to continue their respective interests for the Extended Term (the "Proposed Extension Rates"), or (B) whether any such ------------------------ Person is unwilling to continue its interest during the Extended Term; and the Agent shall promptly thereafter notify the Lessee thereof. 56 (ii) If the Agent notifies the Lessee of the Proposed Extension Rates, the Lessee shall, within five Business Days after such notice, notify the Agent whether the Lessee is willing to accept the Proposed Extension Rates for the Extended Term and, if not, at what Applicable Rate, Fixed Rent and Commitment Fees the Lessee is willing to accept for the Extended Term (the "Lessee's Extension Rates"); provided, however, that in the event that the ------------------------ -------- ------- Equity Investor and the Lessor are the same person, the Lessee agrees that any extension of this Lease agreed to by the Lessee with either the Equity Investor or the Lessor shall also include such other Person. (iii) If any party to the Extension Letter notifies the Agent that it is unwilling to extend this Lease in accordance with clause (i)(B) above or if the Lessee notifies the Agent that it is unwilling to accept the Proposed Extension Rates and advises the Agent of the Lessee's Extension Rates as set forth above, the Agent shall use reasonable efforts to locate replacement lenders, investors and other Persons as necessary to extend this Lease for the Extended Term on Lessee's Extension Rates. (iv) If the Lessee fails to give the Agent the notice described in clause (ii) of this paragraph 27(e), or, if within one month after Lessee's request to extend this Lease pursuant to paragraph 27(d), the Agent has been unable to locate replacement lenders, investors or other Persons as necessary to extend this Lease for the Extended Term on Lessee's Extension Rates, the Agent shall notify the Lessee and the Lessee, within five Business Days after such notice shall give the Agent notice of either (x) the Lessee's agreement to extend this Lease for the Extended Term at the Proposed Extension Rates, if any, or (y) in all other cases, the Lessee's election pursuant to paragraph 27(a)(i) hereof; provided, that if the Lessee fails to give the Agent such notice, the Lessee shall be deemed to have given notice of its election pursuant to paragraph 27(a)(i) hereof. (e) If Lessee is unable to satisfy one or more of the conditions set forth in paragraphs 27(b) and 27(c) hereof, or fails to elect either (i) or (ii) under paragraph 27(a) hereof, the Lessee shall be deemed to have elected to proceed under paragraph 27(a)(i) hereof, in which case Lessee shall purchase the Mill II Property pursuant to and in accordance with said paragraph 27(a)(i). 28. Protective Expenditures. At any time after the expiration or ----------------------- other termination of this Lease, if the Lessee has not purchased the Mill II Property pursuant to the terms of this Lease, any Note Holder, any Equity Investor or the Lessor shall have the right to pay, or to fund the Collateral Agent's payment of, (i) real estate Taxes due and owing with respect to the Mill II Property or (ii) insurance premiums required to maintain the coverage required during the Term of this Lease pursuant to Section 5.01(o) of the Participation Agreement (each a "Protective Expenditure"). Reimbursement of ---------------------- Protective Expenditures made by any Note Holder, any Equity Investor or the Lessor in accordance with this paragraph 28 shall be made upon a sale of the Mill II Property pursuant to the provisions set forth in the Interparty Agreement. 57 29. Limitations on Amounts Payable. Notwithstanding anything to the ------------------------------ contrary contained in this Lease or any of the other Operative Documents, the amounts which the Lessee is obliged to pay, as Fixed Rent pursuant to this Lease and the other Operative Documents, and the amounts which Lessor, Agent, the Equity Investors and the Note Holders are entitled to receive as Fixed Rent pursuant to this Lease and other Operative Documents, are subject to limitations pursuant to Section 8.17 of the Participation Agreement. 30. No Merger of Title. There shall be no merger of this Lease nor ------------------ of the leasehold estate created by this Lease with the ownership of the Mill II Parcel, Mill II, the Mill II Improvements or the Mill II Alterations by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Lease or the leasehold estate created by this Lease or any interest in this Lease or interest in the fee or leasehold ownership of the Mill II Parcel, Mill II, the Mill II Improvements or the Mill II Alterations and no such merger shall occur unless and until all Persons having any interest in (x) the leasehold estate created by this Lease and (y) the ownership of the Mill II Parcel, Mill II, the Mill II Improvements or the Mill II Alterations, or any part thereof shall join in a written instrument effecting such merger and shall duly record the same. 31. Payments to the Agent. The Lessee hereby acknowledges, and the --------------------- Lessor hereby directs, that all payments of Fixed Rent, Additional Rent and other sums due to the Lessor hereunder shall be made to the Agent, on behalf of the Lessor, to the account specified for the Agent in Schedule I to the Participation Agreement. 32. Remaining Moneys. Except as otherwise provided for herein or in ---------------- the Interparty Agreement, any and all moneys remaining, and all residual interests in the Mill II Property after all payments of interest on and principal of the Notes, and all payments of current yield on and the stated amount of the Equity Investment and all payments of other sums due to the parties entitled thereto under the Operative Documents, have been made in accordance with the Operative Documents, shall be paid and assigned to the Lessee. 33. Replace and Supersede. This Lease replaces and supersedes in all --------------------- respects the Original Mill II Lease, which 58 Original Mill II Lease shall, from and after the date hereof, be of no further force or effect. 59 IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly executed by their respective Officers thereunto duly authorized as of the date hereof. LESSOR: CREDIT SUISSE LEASING 92A, L.P. By: CREDIT SUISSE FIRST BOSTON, its general partner /s/ Ann E. Diaz By: /s/ Richard P. O'Day - --------------------------- --------------------------- Print Name Ann E. Diaz Name: Richard P. O'Day Title: Associate /s/ Jennifer Sequin - --------------------------- Print Name Jennifer Sequin /s/ Ann E. Diaz By: /s/ Rita A. Santelli - --------------------------- --------------------------- Print Name Ann E. Diaz Name: Rita A. Santelli Title: Associate /s/ Jennifer Sequin - --------------------------- Print Name Jennifer Sequin STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 31st day of January, 1997, by Richard P. O'Day, as Associate of CREDIT SUISSE FIRST BOSTON, the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership, in his capacity as Associate of such general partner and on behalf of said limited partnership. He is personally known to me or has produced _____________________ as identification. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in New York, New York the day and year last above written. (SEAL) /s/ Susan L. Adler ----------------------------------- Printed Name: Susan L. Adler Notary Public in and for said State Commissioned in New York County [Notary Public] My Commission Expires: November 4, 1997 STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 31st day of January, 1997, by Rita A. Santelli, as Associate of CREDIT SUISSE FIRST BOSTON, the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership, in her capacity as Associate of such general partner and on behalf of said limited partnership. She is personally known to me or has produced _____________________ as identification. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal my office in New York, New York the day and year last above written. (SEAL) /s/ Susan L. Adler ----------------------------------- Printed Name: Susan L. Adler Notary Public in and for said State Commissioned in New York County [Notary Public] My Commission Expire: November 4, 1997 LESSEE: Witness/Attest: TENNECO PACKAGING INC. Attest: /s/ James D. Gaughan By:/s/ Karen R. Osar ----------------------------- ----------------------------------- Print Name James D. Gaughan Name: Karen R. Osar Assistant Secretary Vice President /s/ Paul Novas ----------------------------- Print Name Paul Novas [CORPORATE SEAL] Witness: /s/ John Baldwin ---------------------------- Name: John Baldwin Title: Assistant Treasurer Tenneco Inc. Agreed to and Accepted: Witness/Attest: CITIBANK, N.A., as Agent /s/ Priscilla Audiffied By: /s/ Carolyn R. Bodmer ----------------------------- ---------------------------------- Print Name Priscilla Audiffied Name: Carolyn R. Bodmer Title: Vice President /s/ Lillian Bercari ----------------------------- Print Name Lillian Bercari STATE OF NEW YORK ) : ss.: COUNTY OF WESTCHESTER) On this 31st day of January, 1997, before me personally appeared Karen R. Osar, to me personally known, who being by me duly sworn, did say that she is the Vice President of TENNECO PACKAGING, INC., a Delaware corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said Vice President acknowledged said instrument to be the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in Westchester County the day and year last above written. (SEAL) /s/ Nancy Mangano ----------------------------------- Printed Name: Nancy Mangano Notary Public in and for said State Commissioned in Westchester County My Commission Expire: May 31, 1997 [Notary Public] STATE OF NEW YORK ) : ss.: COUNTY OF QUEENS ) On this 31st day of January, 1997, before me personally appeared Carolyn R. Bodmer, to me personally known, who being by me duly sworn, did say that she is the Vice President of Citibank, N.A., and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and said Vice President acknowledged said instrument to be the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in Long Island City, N.Y. the day and year last above written. (SEAL) /s/ Lillian M. Bercari ----------------------------------- Printed Name: Lillian M. Bercari Notary Public in and for said State Commissioned in Kings County [Notary Public] My Commission Expire: Oct. 11, 1998 SCHEDULE A ---------- Description of the Mill II Parcel --------------------------------- LAND IN THE CITY OF ________, ________ COUNTY, ________, legally described as follows: -55- SCHEDULE B ---------- Fixed Rent and Additional Rent Schedule --------------------------------------- Capitalized terms used herein and not defined herein shall have the meanings - ---------------------------------------------------------------------------- assigned to them in the Lease (including terms defined by reference in the Lease - -------------------------------------------------------------------------------- to the other Operative Documents). - ---------------------------------- I. Fixed Rent ---------- A. The "Adjusted Capitalized Cost" of the Mill II Property as a ------------------------- whole at any time during the Term (or the Extended Term, as applicable) is (i) the sum of each of the aggregate unpaid principal amounts of the A-Notes and the B-Notes (without taking into account any prepayment pursuant to the last sentence of Section 2.04 of the Loan Agreement) at such time and the unpaid stated amount of the Equity Investment at such time times (ii) the Mill II Percentage. B. "Fixed Securitization Costs" shall mean, without duplication of -------------------------- any of the following fixed securitization costs and without duplication of any other fixed costs related to the Operative Documents or the Securitization Documents payable by the Lessee, the fee of the Managing Agent pursuant to the Management Agreement or any related fee letter, the fee of the Servicing Agent pursuant to the Servicing Agreement or any related fee letter, and the monthly commitment fee payable to CXC's Credit Enhancer pursuant to the Securitization Fee Letter. C. The "Mill II Percentage" means initially the updated appraised ------------------ fair market value of the Mill II Property divided by the Acquisition Costs and thereafter the percentage calculated by dividing (i) the Actual Project Costs actually expended on the Mill II Property (on and as of the date of such calculation) by (ii) the sum of the Actual Project Costs actually expended on the Mill II Property (on and as of the date of such calculation) plus the B-1 Actual Project Costs actually expended on the Mill II Property (on and as of the date of such calculation). D. Fixed Rent during the Term (or the Extended Term, as applicable) shall be due and payable in arrears on each Payment Date (subject, in the case of Fixed Securitization Costs, to the rights of Lessee under, and the limitations on such payments contained in, the Operative Documents). "Fixed Rent" for each Payment Date during the Term shall ---------- be equal to the product of (i) the portion of Adjusted Capitalized Cost represented by each Instrument multiplied by (ii) the Applicable ------------- Rate for each Instrument in effect prior to such Payment Date; plus ---- Fixed Securitization Costs. B-2 II. Additional Rent --------------- A. In addition to such Additional Rent as may otherwise be payable under the Lease, Lessee shall pay, without duplication, within five (5) days after a demand therefor (but subject in all cases to the rights of Lessee under, and the limitations on such payments contained in, the Operative Documents) as Additional Rent, without duplication, all Additional Costs. Promptly after the Lessor receives notice from any Note Holder, Equity Investor or such other Persons requesting payment of any Additional Costs to be payable as Additional Rent the Lessor shall notify Lessee of the same. The failure to provide such notice as to any Additional Costs shall not affect the right of any Equity Investor, Note Holder or such other Person to recover Additional Rent for the same. B. "Additional Costs" shall mean all Break Costs, Funding Costs, ---------------- Reserve Costs, Increased Costs, Charges, Other Taxes, Variable Securitization Fees, Illegality Costs and other amounts required to be paid (or indemnified against) by the Lessee pursuant to Article V of the Participation Agreement. C. Upon requesting that Lessee pay Additional Rent pursuant to paragraph II. A. above, the Lessor shall deliver to Lessee a certificate in reasonable detail executed by the Equity Investors, Note Holders or such other Persons requesting payment of Additional Costs, as the case may be, charging such Additional Rent and (i) setting forth the basis for and the Amount of such Additional Rent, and (ii) in the case of Increased Costs, stating that such Increased Costs are generally being charged by such Equity Investor or Note Holder to other similarly situated Persons under similar arrangements. Such certificate shall be conclusive and binding for all purposes, absent manifest error, unless such certificate fails to set forth the information required above. B-3 Exhibit A --------- Performance Tests ----------------- A-1 -1- EX-11 23 COMPUTATION OF EARNINGS (LOSS) PER SHARE EXHIBIT 11 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
YEARS ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ----------- ----------- ----------- (MILLIONS EXCEPT SHARE AMOUNTS) COMPUTATION FOR STATEMENTS OF INCOME Primary Earnings Per Share (average shares outstanding): Income from continuing operations.... $ 218 $ 258 $ 238 Income from discontinued operations, net of income tax................... 428 477 214 ----------- ----------- ----------- Income before extraordinary loss..... 646 735 452 Extraordinary loss, net of income tax................................. (236) -- (5) ----------- ----------- ----------- Income before cumulative effect of change in accounting principle...... 410 735 447 Cumulative effect of change in accounting principle, net of income tax................................. -- -- (39) ----------- ----------- ----------- Net income........................... 410 735 408 Preferred stock dividends............ 12 12 12 ----------- ----------- ----------- Net income to common stock........... $ 398 $ 723 $ 396 =========== =========== =========== Average shares of common stock outstanding(a)(b)................... 170,635,277 173,995,941 180,084,909 =========== =========== =========== Earnings (loss) per average share of common stock: Continuing operations.............. $ 1.28 $ 1.48 $ 1.32 Discontinued operations............ 2.43 2.68 1.13 Extraordinary loss................. (1.38) -- (.03) Cumulative effect of change in accounting principle.............. -- -- (.22) ----------- ----------- ----------- $ 2.33 $ 4.16 $ 2.20 =========== =========== =========== ADDITIONAL COMPUTATIONS(C) Net income to common stock, per above.. $ 398 $ 723 $ 396 =========== =========== =========== Primary Earnings Per Share (including common stock equivalents): Average shares of common stock outstanding(a)(b)................... 170,635,277 173,995,941 180,084,909 Incremental common shares applicable to common stock options based on the common stock daily average market price during the year............... 400,403 64,329 74,087 Incremental common shares applicable to performance units based upon the attainment of specified goals....... -- 27,625 -- ----------- ----------- ----------- Average common shares, as adjusted... 171,035,680 174,087,895 180,158,996 =========== =========== =========== Earnings (loss) per average share of common stock (including common stock equivalents): Continuing operations.............. $ 1.28 $ 1.48 $ 1.32 Discontinued operations............ 2.43 2.68 1.13 Extraordinary loss................. (1.38) -- (.03) Cumulative effect of change in accounting principle.............. -- -- (.22) ----------- ----------- ----------- $ 2.33 $ 4.16 $ 2.20 =========== =========== ===========
(table continued on next page) (table continued from previous page) Fully Diluted Earnings Per Share: Average shares of common stock outstanding(a)(b)................... 170,635,277 173,995,941 180,084,909 Incremental common shares applicable to common stock options based on the more dilutive of the common stock ending or average market price during the year..................... 465,998 94,418 75,223 Average common shares issuable assuming conversion of Tenneco Inc. 10% loan stock...................... -- -- 41,356 Incremental common shares applicable to performance units based upon the attainment of specified goals....... -- 27,625 -- ----------- ----------- ----------- Average common shares assuming full dilution............................ 171,101,275 174,117,984 180,201,488 =========== =========== =========== Fully diluted earnings (loss) per average share, assuming conversion of all applicable securities: Continuing operations.............. $ 1.28 $ 1.48 $ 1.32 Discontinued operations............ 2.43 2.68 1.13 Extraordinary loss................. (1.38) -- (.03) Cumulative effect of change in accounting principle.............. -- -- (.22) ----------- ----------- ----------- $ 2.33 $ 4.16 $ 2.20 =========== =========== ===========
- -------- NOTES: (a) In 1992, 12,000,000 shares of common stock were issued to the Tenneco Inc. Stock Employee Compensation Trust ("SECT"). Shares of common stock issued to a related trust are not considered to be outstanding in the computation of average shares of common stock until the shares are utilized to fund the obligations for which the trust was established. During each of the years ended December 31, 1996, 1995 and 1994, the SECT utilized 4,358,084, 2,697,770 and 2,464,721 shares, respectively. (b) For purposes of computing earnings per share, Series A preferred stock was converted into common stock under the Contingent Share method. The above computation includes 8,935,175 shares of Series A preferred stock which were converted into 17,342,763 shares of common stock. In December 1994, all of the outstanding shares of Series A preferred stock were converted into Tenneco Inc. common stock. The inclusion of Series A preferred stock in the computation of earnings per share was antidilutive for the year and certain quarters in 1994. (c) These calculations are submitted in accordance with Securities and Exchange Commission requirements although not required by Accounting Principles Board Opinion No. 15 because they result in dilution of less than 3%. EX-12 24 STATEMENT RE COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) Income from continuing operations.................... $218 $258 $238 $165 $209 Add: Interest........................................... 195 160 104 101 102 Portion of rentals representative of interest factor............................................ 60 57 52 47 47 Preferred stock dividend requirements of majority- owned subsidiaries................................ 21 23 -- -- -- Income tax expense and other taxes on income....... 194 231 114 115 154 Amortization of interest capitalized............... 2 2 1 -- 1 Undistributed (earnings) losses of affiliated companies in which less than a 50% voting interest is owned.......................................... (1) -- -- -- 2 ---- ---- ---- ---- ---- Earnings as defined.............................. $689 $731 $509 $428 $515 ==== ==== ==== ==== ==== Interest............................................. $195 $160 $104 $101 $102 Interest capitalized................................. 6 5 2 1 1 Portion of rentals representative of interest factor. 60 57 52 47 47 Preferred stock dividend requirements of majority- owned subsidiaries on a pre-tax basis............... 37 42 -- -- -- ---- ---- ---- ---- ---- Fixed charges as defined......................... $298 $264 $158 $149 $150 ==== ==== ==== ==== ==== Ratio of earnings to fixed charges................... 2.31 2.77 3.22 2.87 3.43 ==== ==== ==== ==== ====
EX-21 25 SUBSIDIARIES OF TENNECO INC. TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Autopartes Walker, S.A. de C.V. (Mexico)........................................ 99.98% (Tenneco Inc. owns 99.98% and Tenneco Automotive Inc. owns .02%) Counce Limited Partnership (Texas Limited Partnership).......................... 95 (Tenneco Inc. owns 95%, as Limited Partner; and PCA Leasing Company owns 5%, as General Partner) Counce Finance Corporation (Delaware)........................................ 100 Monroe-Mexico S.A. de C.V. (Mexico)............................................. 0.01 (Tenneco Inc. owns 0.01%; and Tenneco Automotive Inc. owns 99.99%) Omni-Pac GmbH (Germany)......................................................... 1 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc. owns 1%) Omni-Pac S.A.R.L. (France)...................................................... 97 (Omni-Pac GmbH owns 3%; and Tenneco Inc. owns 97%) PCA Leasing Company (Delaware).................................................. 100 Counce Limited Partnership (Texas Limited Partnership)....................... 5 (Tenneco Inc. owns 95%, as Limited Partner; and PCA Leasing Company owns 5%, as General Partner) Counce Finance Corporation (Delaware)...................................... 100 Proveedora Walker S.A. de C.V. (Mexico)......................................... 99.99 (Tenneco Inc. owns 49,999 shares, and Tenneco Automotive Inc. owns 1 share) Tenneco Asia Inc. (Delaware).................................................... 100 Tenneco Asheville Inc. (Delaware)............................................... 100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................. 1 (Tenneco Inc. owns 1%; and Tenneco Automotive Inc. owns 99%) Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)(Delaware)......... 100 Autopartes Walker, S.A. de C.V. (Mexico)..................................... 0.02 (Tenneco Inc. owns 99.98%; Tenneco Automotive Inc. owns 0.02%) Beijing Monroe Automobile Shock Absorber Company Ltd (China)................. 51 (Tenneco Automotive Inc. owns 51%; and Beijing Automotive Industry Corporation, an unaffiliated company, owns 49%) Consorcio Terranova S.A. de C.V. (Mexico).................................... (Tenneco Automotive Inc. owns 99.99%; and Josan Latinamericana S.A. de C.V., an unaffiliated company, owns 0.01%) McPherson Strut Company Inc. (Delaware)...................................... 100 Monroe Auto Equipement France, S.A. (France)................................. 100 Monroe Europe Coordination Center N.V. (Belgium)........................... 0.1 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Monroe Packaging N.V. (Belgium)............................................ 0.1 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%)
1 TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Subsidiaries of Tenneco Automotive Inc. Tenneco Automotive Italia S.r.l. (Italy)....................................... 15 (Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement France, S.A. owns 15%) Monroe Auto Pecas S.A. (Brazil).................................................. 2.82 (Tenneco Automotive Inc. owns 2.82%; Monroe do Brasil Industria e Comercio Ltda. Owns 82.71%; and Monteiro Aranha S/A, an unaffiliated company, owns 14.47%) Monroe-Mexico S.A. de C.V. (Mexico)...................... 99.99 (Tenneco Automotive Inc. owns 99.99%; and Tenneco Inc. owns 0.01%) Precision Modular Assembly Corp. (Delaware)...................................... 100 Rancho Industries Europe B.V. (Netherlands)...................................... 100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)....................................................................... 99 (Tenneco Automotive Inc. owns 99%; and Tenneco Inc. owns 1%) Tenneco Automotive International Sales Corporation (DE-In Dissolution).................................................................... 100 Tenneco Automotive Italia S.r.l. (Italy)......................................... 85 (Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement France, S.A. owns 15%) Tenneco Automotive Japan Ltd. (Japan)............................................ 100 The Pullman Company (Delaware)................................................... 100 Axios Produtos de Elastomeros Limitada (Brazil)................................ 99 (99% The Pullman Company; 1% Peabody International Corporation) Clevite Industries Inc. (Delaware)............................................. 100 Peabody International Corporation (Delaware)................................... 100 Axios Produtos de Elastomeros Limitada (Brazil)............................. 1 (99% The Pullman Company; 1% Peabody International Corporation) Barasset Corporation (Ohio)................................................. 100 Peabody Galion Corporation (Delaware)....................................... 100 Peabody Gordon-Piatt, Inc. (Delaware)....................................... 100 Peabody N.E., Inc. (Delaware)............................................... 100 Peabody World Trade Corporation (Delaware).................................. 100 Pullmex, S.A. de C.V. (Mexico)............................................ 0.1 (99.9% The Pullman Company; 0.1% Peabody World Trade Corporation) Peabody-Myers Corporation (Illinois)........................................ 100 Pullman Canada Ltd. (Canada)................................................ 61 (61% Peabody International Corporation; 39% The Pullman Company) Pullman Canada Ltd. (Canada)................................................... 39 (61% Peabody International Corporation; 39% The Pullman Company) Pullman Standard, Inc. (Delaware).............................................. 100
2 TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Subsidiaries of Tenneco Automotive Inc. Subsidiaries of The Pullman Company Pullmex, S.A. de C.V. (Mexico).................................................. 99.9 (99.9% The Pullman Company; 0.1% Peabody World Trade Corporation) Tenneco Automotive Trading Company (Delaware)........................................ 100 Tenneco Brake, Inc. (Delaware) 100 Tenneco Brazil Ltda. (Brazil)........................................................ 100 Monroe do Brazil Industria e Comercio Ltda. (Brazil).............................. 100 Monroe Auto Pecas S.A. (Brazil)................................................. 82.71 (Monroe do Brazil Industria e Comercio Ltda. Owns 82.71%; Tenneco Automotive Inc. owns 2.82%; and Monteiro Aranha S/A, an unaffiliated company owns 14.47%) Tenneco Business Services Holdings Inc............................................... 100 Tenneco Business Services Inc........................................................ 100 Tenneco Deutschland Holdinggesellschaft mbH (Germany)................................ 99.97 (Tenneco Inc. owns 99.97%; and Atlas Bermoegensverwaltung, an unaffiliated company, owns 0.03%) GILLET Unternehmesverwaltungs (Germany)........................................... 100 Heinrich Gillet GmbH & Co. KG (Germany)......................................... 0.1 (GILLET Unternehmesverwaltungs GmbH owns 0.1%; and Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%) Heinrich Gillet GmbH & Co. KG (Germany)........................................... 99.9 (Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and GILLET Unternehmesverwaltungs GmbH owns 0.1%) Gillet-Abgassysteme Zwickau Gmbh (Germany)...................................... 100 Mastra-Gillet Industria e Comercio Ltda. (Brazil)............................... 50 (Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria e Comercio Ltda., an unaffiliated company, owns 50%) Monroe Auto Equipment GmbH (Germany).............................................. 100 Omni-Pac Ekco GmbH Verpackungsmittel (Germany).................................... 100 Omni-Pac Poland Sp. z o.o. (Poland)............................................. 100 PCA Embalajes Espana, S.L. (Spain).............................................. 1 (Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and PCA Verpackungsmittel GmbH owns 99%) Omni-Pac GmbH (Germany)........................................................... 99 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc. owns 1%) Omni-Pac ApS (Denmark).......................................................... 100 Omni-Pac A.B. (Sweden).......................................................... 100 Omni-Pac S.A.R.L. (France)...................................................... 3 (Omni-Pac GmbH owns 3%; and Tenneco Inc. owns 97%) Walker Deutschland GmbH (Germany)................................................. 99 (Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc. owns 1%)
3 TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Subsidiaries of Tenneco Deutschland Holdinnggesellschaft mbH Walker Gillet (Europe) GmbH (Germany)........................................................... 100 Tenneco Foam Products Company........................................................ 100 Tenneco Inc. (Nevada)................................................................ 100 Tenneco International Holding Corp. (Delaware)....................................... 100 Monroe Australia Pty. Limited (Australia)......................................... 100 Monroe Springs (Australia) Pty. Ltd. Australia)................................. 100 Monroe Superannuation Pty. Ltd. (Australia)..................................... 100 Walker Australia Pty. Limited (Australia)....................................... 100 S.A. Monroe Europe N.V. (Belgium)................................................. 100 Borusan Amortisor Imalat Ve Ticaret A.S. (Turkey)............................... 99.85 (S.A. Monroe Europe N.V. owns 99.85%; and various unaffiliated individual stockholders own 0.15%) Monroe Europe Coordination Center N.V. (Belgium)................................ 99.9 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Monroe Europe (UK) Limited (United Kingdom)..................................... 18 (S.A. Monroe Europe N.V. owns 18%; and Tenneco United Kingdom Holdings Limited owns 82%) Monroe Packaging N.V. (Belgium)................................................. 99.9 (S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A. owns 0.1%) Tenneco Canada Inc. (Ontario)..................................................... 51.28 (Tenneco International Holding Corp. Owns 100% of the issued and outstanding Common Stock, 51.28% of total equity; and Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity) 98174 Ontario Limited (Ontario)................................................. 100 Tenneco Canada Wholesale Finance Company (Alberta).............................. 100 Tenneco Credit Canada Corporation (Alberta)..................................... 100 Tenneco Espana Holdings, Inc. (Delaware).......................................... 100 Louis Minuzzi E. Hijos S.A.I.C. (Argentina)..................................... 100?? Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)............................ 100 Monroe Spain, S.A. (Spain)................................................... 100 Gillet Iberica, S.A. (Spain)................................................. 100 Manufacturas Fonos, S.L. (Spain)............................................. 100 Omni-Pac Embalajes S.A. (Spain).............................................. 100 Reknowned Automotive Products Manufacturers Ltd. (India)........................ 51 Monroe Czechia s.r.o. (Czech Republic).......................................... 100 Tenneco (Mauritius) Limited (Mauritius)......................................... 100 Hydraulics Limited (India)................................................... 51 (Tenneco (Mauritius) Limited owns 51% and Bangalore Union Services Limited, an unaffiliated company, owns 49%) Tenneco Holdings Danmark A/S (Denmark)............................................ 100
4 TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Subsidiaries of Tenneco International Holding Corp. (Delaware) Subsidiaries of Tenneco Holdings Danmark A/S (Denmark) Gillet Exhaust Technologie (Proprietary) Limited (South Africa)............ 100 Gillet Lazne Belohrad, s.r.o. (Czech Republic)............................. 100 Heinrich Gillet Portuguesa - Sistemas de Escape, Lda. (Portugal)........... 100 Walker Danmark A/S (Denmark)............................................... 100 Walker Inapal Escapes, S.A. (Portugal)..................................... 90 (Tenneco Holdings Danmark A/S owns 90%; Inapal, Industria Nacional de Acessorios Para Automoveis, SA, an unaffiliated company, owns 9.99%; and Walker Danmark A/S owns 0.01%) Walker France S.A. (France).......... 100 Constructions Metallurgiques de Wissembourg - Wimetal (France)............. 100 Societe Europeenne des Ensembles-Montes (France)........................ 100 Gillet Tubes Technologies G.T.T. (France).................................. 100 Walker Sverige A.B. (Sweden)................................................. 100 Tenneco Management Company (Delaware)........................................... 100 Tenneco Moorhead Acquisition Inc. (Delaware).................................... 100 Tenneco Packaging Hungary Holdings Inc. (Delaware).............................. 100 Tenneco Packaging Inc. (Delaware)............................................... 100 A&E Plastics, Inc. (Delaware)................................................ 100 Alupak A.G. (Switzerland).................................................... 100 American Cellulose Corporation (Delaware).................................... 50 (Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an unaffiliated individual, owns 50%) The Corinth and Counce Railroad Company (Mississippi)........................ 100 Marinette, Tomahawk & Western Railroad Company (Wisconsin)................. 100 Valdosta Southern Railroad Company (Florida)............................... 100 Dahlonega Packaging Corporation (Delaware)................................... 100 Dixie Container Corporation (Virginia)....................................... 100 Dixie Convoy Corporation (North Carolina).................................... 100 Dongguan PCA Packaging Co., Ltd. (Peoples Republic of China)................. 50 (Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color Printing & Packaging Factory, an unaffiliated company, owns 50%) EKCO Products, Inc. (Illinois)............................................... 100 E-Z Por Corporation (Delaware)............................................... 100 Hexacomb Corporation (Illinois).............................................. 100 Hexacomb International Sales Corporation (U.S. Virgin Islands)............. 100 Glacier-Cor US Corporation (Delaware)...................................... 100 Glacier-Cor US Holding Corporation (Delaware)........................... 100 Packaging Corporation of America (Nevada).................................... 100 PCA Box Company (Delaware)................................................... 100 PCA-Budafok (Kartongyar) Kft. (Hungary)...................................... 100 PCA Hydro, Inc. (Delaware)................................................... 100
5 TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Subsidiaries of Tenneco Packaging Inc. PCA Romania Srl (Romania)................................................... 50 (Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated company owns 50%) PCA Tomahawk Corporation (Delaware)......................................... 100 PCA Valdosta Corporation (Delaware)......................................... 100 PCA Verpackungsmittel GmbH (Germany)........................................ 100 PCA Embalajes Espana S.L. (Spain)......................................... 99 (PCA Verpackungsmittel GmbH owns 99%; and Omni-Pac Ekco GmbH Verpackungsmittel owns 1%) PCA West Inc. (Delaware).................................................... 100 Coast-Packaging Company (California General Partnership).................. 50 (PCA West Inc. owns 50%, as General Partner; and J. G. Haddy Sales Company, an unaffiliated company, owns 50%, as General Partner) Pressware International, Inc. (Delaware).................................... 100 Revere Foil Containers, Inc. (Delaware)..................................... 100 Tenneco CPI Holding Company (Delaware)...................................... 100 Tenneco Packaging Limited (Scotland)........................................ 100 Tenneco Plastics Company (Delaware)......................................... 100 798795 Ontario Limited (Ontario)............................................ 100 PCA Canada Inc. (Ontario)................................................. 100 Tenneco Retail Receivables Company (Delaware).................................. 100 Tenneco Romania Holdings Inc. (Delaware)....................................... 100 Tenneco Packaging-Romania S.R.L. (Romania).................................. 100 Tenneco United Kingdom Holdings Limited (Delaware)............................. 100 Monroe Europe (UK) Limited (United Kingdom)................................. 82 (Tenneco United Holdings Limited owns 82%; and S.A. Monroe Europe N.V. owns 18%) Omni-Pac U.K. Limited (United Kingdom)...................................... 100 Tenneco Packaging (UK) Limited (Scotland)................................... 100 Alpha Products (Bristol Limited (United Kingdom).......................... 100 Tenneco Packaging (Films) Limited (United Kingdom)........................ 100 Tenneco Packaging (Caerphilly) Limited (United Kingdom)................... 100 Tenneco Packaging (Stanley) Limited (United Kingdom)...................... 100 Tenneco Packaging (Livingston) Limited (Scotland)......................... 100 Brucefield Plastics Limited (Scotland)................................. 100 Polbeth Packaging (Corby) Limited (Scotland)........................... 100 Tenneco Canada Inc. (Ontario)............................................... 48.72 (Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity; and Tenneco International Holding Corporation owns 100% of the issued and outstanding common stock, 51.28% of total equity) Tenneco Europe Limited (Delaware)........................................... 100 Tenneco Asia Limited (United Kingdom)..................................... 100 Tenneco International Finance Limited (United Kingdom)................................................................... 100
6 TENNECO INC. SUBSIDIARIES AND AFFILIATES AS OF DECEMBER 31, 1996
Subsidiaries of Tenneco Inc. Subsidiaries of Tenneco United Kingdom Holdings Limited (Delaware) Subsidiaries of Tenneco International Finance Limited (United Kingdom) Tenneco International Finance B.V. (Netherlands)............................. 100 Tenneco Management (Europe) Limited (United Kingdom)........................... 100 Tenneco Packaging (UK) Limited (United Kingdom)................................ 100 Tenneco West Limited (United Kingdom).......................................... 100 Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom).............................................................. 100 Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom).............................................................. 100 Thompson and Stammers Dunmow (Number 8) Limited (United Kingdom)............... 100 Walker Limited (United Kingdom)................................................ 100 Gillet Exhaust Manufacturing Limited (United Kingdom)........................ 100 Gillet Pressings Cardiff Limited (United Kingdom)............................ 100 Gillet Torsmaskiner UK Limited (United Kingdom).............................. 50 (Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and AB Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares, 50% of total equity) Exhaust Systems Technology Limited (United Kingdom)....................... 99.99 (Gillet Torsmaskiner UK Limited owns 99.99%; and Heinrich Gillet Gmbh & Co. KG & AB Torsmaskiner, an unaffiliated company owns 0.01%) Tenneco - Walker UK Ltd. (United Kingdom).................................... 100 J.W. Hartley (Motor Trade) Limited (United Kingdom)....................... 100 Walker (UK) Limited (United Kingdom)...................................... 100 Tenneco Windsor Box & Display, Inc. (Delaware).................................... 100 TMC Texas Inc. (Delaware)......................................................... 100 Walker Deutschland GmbH (Germany)................................................. 1 (Tenneco Inc. owns 1%; and Tenneco Deutschland Holdinggesellsschaft mbH owns 99%) Walker Europe, Inc. (Delaware).................................................... 100 Walker Electronic Silencing Inc.(f/k/a Walker Electronic Mufflers) (Delaware)..... 100 Walker Manufacturing Company (Delaware)........................................... 100 Ced's Inc. (Illinois).......................................................... 100 Walker Norge A/S (Norway)......................................................... 100
7 EX-23 26 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 17, 1997, included in the Annual Report of Tenneco Inc. on Form 10-K for the year ended December 31, 1996, into the following Registration Statements previously filed with the Securities and Exchange Commission: 333-17485 S-8 Common Stock, par value $.01 per share, of Tenneco Inc. (formerly New Tenneco Inc.) ("Common Stock") issuable under the 1996 Tenneco Inc. Stock Ownership Plan. 333-17483 S-8 Common Stock issuable under the Tenneco Inc. Board of Directors Restricted Stock Program and Tenneco Inc. Board of Directors Restricted Stock and Restricted Unit Program. 333-17487 S-8 Common Stock issuable under the Tenneco Thrift Plan for Hourly Employees, Tenneco Packaging 401(k) Savings Plan, Tenneco Thrift Plan, and Tenneco 401(k) Savings Plan for Chippewa Falls.
ARTHUR ANDERSEN LLP Houston, Texas March 11, 1997 EX-24 27 POWERS OF ATTORNEY OF TENNECO INC. TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ MARK ANDREWS --------------------------------------------- Mark Andrews TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ W. MICHAEL BLUMENTHAL --------------------------------------------- W. Michael Blumenthal TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ CLIFTON R. WHARTON, JR. --------------------------------------------- Clifton R. Wharton, Jr. TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in her capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ M. KATHRYN EICKHOFF --------------------------------------------- M. Kathryn Eickhoff TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ PETER T. FLAWN --------------------------------------------- Peter T. Flawn TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ HENRY U. HARRIS, JR. --------------------------------------------- Henry U. Harris, Jr. TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc., (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ BELTON K. JOHNSON --------------------------------------------- Belton K. Johnson TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ JOHN B. MCCOY --------------------------------------------- John B. McCoy TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ WILLIAM L. WEISS --------------------------------------------- William L. Weiss TENNECO INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a Director of Tenneco Inc. (the "Company"), whose signature appears immediately below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and each of them, severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and the exchanges on which the Company's common stock is listed. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, each and every act and thing requisite and necessary to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day of March, 1997. /s/ SIR DAVID PLASTOW --------------------------------------------- Sir David Plastow EX-27.1 28 FINANCIAL DATA SCHEDULE, FYE 12/31/1996
5 This schedule contains summary financial information extracted from the Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is qualified in its entirety by reference to such Financial Statements. 1,000,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 62 0 699 0 878 1,923 4,870 1,618 7,587 1,621 2,067 2 0 0 2,644 7,587 6,572 6,648 4,762 4,762 1,258 0 195 433 194 218 428 (236) 0 410 2.33 2.33
EX-27.2 29 FINANCIAL DATA SCHEDULE, FYE 12/31/1995
5 This schedule contains amended summary financial information extracted from the Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is qualified in its entirety by reference to such Financial Statements. 1,000,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 354 0 563 0 838 1,946 4,138 1,480 7,413 1,559 1,648 957 0 0 2,191 7,413 5,221 5,221 3,737 3,737 851 0 160 512 231 258 477 0 0 735 4.16 4.16
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