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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
NOVEMBER 4, 1999
(DATE OF EARLIEST EVENT REPORTED)
TENNECO AUTOMOTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-12387 76-0515284
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION IDENTIFICATION NUMBER)
OF INCORPORATION)
500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(847) 482-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
TENNECO INC.
1275 KING STREET, GREENWICH, CONNECTICUT 06831
(FORMER NAME AND ADDRESS IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
GENERAL
On November 4, 1999, Tenneco Automotive Inc. (formerly known as Tenneco
Inc. and hereinafter referred to either as "Tenneco" or the "Registrant")
distributed (the "spin-off") pro rata to the holders of Tenneco's common stock
all the outstanding common stock of its wholly-owned subsidiary, Tenneco
Packaging Inc. (now known as Pactiv Corporation and referred to herein as
"Packaging"). The spin-off was effected pursuant to a distribution agreement
dated as of November 3, 1999 between Tenneco and Packaging, which distribution
agreement is filed as an exhibit to this Current Report on Form 8-K and
incorporated herein by reference. As a result of the spin-off, the remaining
operations of Tenneco consist primarily of those operations related to the
designing, manufacturing and marketing of automotive ride control and emissions
control products and systems for the automotive original equipment market and
aftermarket (collectively, "Automotive" or the "Automotive Business").
THE SPIN-OFF
The details of the spin-off and the other transactions consummated in
connection therewith are described below.
MANNER OF THE SPIN-OFF
To effect the spin-off, Tenneco's Board of Directors declared a special
distribution consisting of all of the capital stock of Packaging. The shares of
common stock of Packaging were distributed to holders of record of Tenneco's
outstanding common stock at the close of business on October 29, 1999, without
any consideration being paid by such holders, on the basis of one share of
common stock of Packaging for every share of common stock of Tenneco. The
spin-off became effective after the close of business on November 4, 1999.
CORPORATE RESTRUCTURING TRANSACTIONS
Before the spin-off, Tenneco effected various corporate restructuring
transactions (collectively, the "corporate restructuring transactions") which
restructured, divided and separated its existing businesses so that, in general,
the assets, liabilities and operations of its packaging business and
administrative services operations (collectively, the "Packaging Business") were
directly or indirectly owned by Packaging and would, therefore, be spun-off to
Tenneco's then existing stockholders. As a result of the spin-off, the remaining
assets, liabilities and operations of Tenneco consist primarily of those assets,
liabilities and operations related to the Automotive Business.
Upon completion of the corporate restructuring transactions and spin-off,
Tenneco's assets at the time of the spin-off were allocated as follows:
- Tenneco received or retained all of Tenneco's assets at the time not
expressly allocated to Packaging or its subsidiaries as described below;
and
- Packaging received or retained (1) those assets related to the conduct of
Tenneco's past and current packaging businesses and administrative
services operation and (2) all rights expressly allocated to Packaging
and its subsidiaries under the distribution agreement or any of the
related agreements.
Upon completion of the corporate restructuring transactions and spin-off,
Tenneco's liabilities at the time of the spin-off were allocated as follows:
- Tenneco assumed or retained responsibility for (1) those liabilities
related to the Automotive assets described above and the current and past
conduct of Tenneco's automotive business, (2) liabilities for possible
violations of securities laws in connection with the spin-off related to
disclosures or
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omissions regarding Automotive's business, results of operations,
prospects or management, (3) those liabilities expressly allocated to
Tenneco or its subsidiaries under the distribution agreement or any
related agreement, and (4) all other liabilities of Tenneco or any of its
subsidiaries which do not constitute Packaging liabilities, as described
below; and
- Packaging assumed or retained responsibility for: (1) those liabilities
related to the Packaging assets described above and the current and past
conduct of Tenneco's packaging businesses and administrative services
operations, (2) liabilities for possible violations of securities laws in
connection with the spin-off related to disclosures or omissions
regarding Packaging's business, results of operations, prospects or
management, and (3) those other liabilities expressly allocated to
Packaging or its subsidiaries under the distribution agreement or any
related agreement.
In addition, Packaging and Tenneco each agreed to be responsible for
one-half of any third-party liability imposed on either party that is both (1)
related to the transactions undertaken as part of the spin-off, such as the debt
realignment described below, and (2) based on a claim (a) under Delaware
corporate law, such as a claim for a breach of fiduciary duties, or (b) under
applicable securities laws, but only to the extent the alleged violation is not
specifically related to disclosures or omissions about either party's business
operations as provided by such party.
DEBT REALIGNMENT
Prior to the spin-off, Tenneco realigned its debt (including transaction
fees and certain preferred stock obligations) through a combination of tender
offers, exchange offers, prepayments and other refinancings. As part of the debt
realignment, Tenneco (1) offered to purchase for cash approximately $1,283
million aggregate principal amount of various series of its outstanding public
debt securities (the "Tender Offers"), (2) offered to exchange up to
approximately $1,176 million aggregate principal amount of newly issued debt
securities of Packaging for its remaining series of outstanding public debt
securities (the "Exchange Offers"), (3) repaid approximately $934 million of
other non-public debt and (4) repurchased $400 million of outstanding subsidiary
preferred stock.
The Tender and Exchange Offers were completed on November 4, 1999, with
Tenneco retiring approximately $2,376 million aggregate principal amount of its
outstanding public debt. Approximately $84 million aggregate principal amount of
Tenneco's public debt remains outstanding after completion of the Tender and
Exchange Offers, including approximately $63 million of 8.20% Notes due on
November 15, 1999. These notes will be repaid with a combination of cash on hand
and funds to be borrowed under a new senior secured credit facility, described
below. As part of the Tender and Exchange Offers, Tenneco solicited consents
from the holders of its public debt to amendments to the indenture under which
the debt was issued. The required consents were received, and the indenture was
amended to eliminate all of the operating restrictions imposed on Tenneco that
were formerly contained in the indenture.
To fund the cash portions of the debt realignment, Tenneco (1) borrowed
$1,072 million under a new senior secured credit facility, described below under
"Description of Senior Credit Facility", and (2) issued $500 million of Senior
Subordinated Notes due 2009 (the "Senior Subordinated Notes"), described below
under "Description of Senior Subordinated Notes". Also as part of the debt
realignment, Packaging (1) made borrowings under new credit facilities entered
into in connection with the spin-off and remitted the proceeds to Tenneco and
(2) issued new public debt pursuant to the Exchange Offers described above.
Now that the debt realignment is complete, Tenneco is responsible for all
of Tenneco's existing public debt that was not retired in the Tender or Exchange
Offers, borrowings under the new senior secured credit facility and the Senior
Subordinated Notes. Packaging is responsible for its new public debt securities
issued in the Exchange Offers and the borrowings under the new Packaging credit
facilities described above.
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RELATIONSHIP BETWEEN TENNECO AND PACKAGING AFTER THE SPIN-OFF
The distribution agreement and principal ancillary agreements that Tenneco
and Packaging entered into in connection with the spin-off are described below.
DISTRIBUTION AGREEMENT
In addition to providing for the terms of the spin-off and the various
actions that were required to be taken before the spin-off, the distribution
agreement contains other provisions governing the relationship between Tenneco
and Packaging after the spin-off.
Responsibility for Liabilities. The distribution agreement provides that
after the spin-off date: (1) Tenneco is responsible for paying, performing and
discharging its allocated liabilities according to their terms, and (2)
Packaging is responsible for paying, performing and discharging its allocated
liabilities according to their terms. See "-- Corporate Restructuring
Transactions." The distribution agreement provides for cross-indemnities so
that: (1) Tenneco must indemnify Packaging (and its respective subsidiaries,
directors, officers, employees and agents, and other related parties) against
all losses arising out of or in connection with Tenneco's allocated liabilities
or the breach of the distribution agreement or any ancillary agreement by
Tenneco; and (2) Packaging must indemnify Tenneco (and its respective
subsidiaries, directors, officers, employees and agents, and other related
parties) against all losses arising out of or in connection with Packaging's
allocated liabilities or the breach of the distribution agreement or any
ancillary agreement by Packaging.
Further Assurances. Tenneco and Packaging have each agreed to use all
reasonable efforts to take all action (following the spin-off) that is
reasonably necessary or advisable to consummate the transactions contemplated by
and carry out the purposes of the distribution agreement.
Information Sharing. The distribution agreement provides for the transfer
and sharing of books and records between Tenneco and Packaging and grants each
party access to specified information in the other's possession, subject to
confidentiality requirements and legal privilege issues.
Intercompany Accounts. According to the distribution agreement, in general
all intercompany receivables, payables and loans between Tenneco's Automotive
business, on the one hand, and its Packaging business and administrative
services operations, on the other hand, that did not arise from ordinary trading
transactions were settled, capitalized or converted into ordinary trade
obligations as of the close of business on the spin-off date. Further, all
intercompany agreements between these businesses, other than those contemplated
in connection with the spin-off and specified trade supply agreements, were
terminated.
Expenses. Tenneco used a portion of the funds borrowed by Tenneco and
Packaging as part of the debt realignment to fund the payment of fees, costs and
expenses associated with the spin-off. Under the distribution agreement, other
specified fees, costs and expenses related to the spin-off but not funded in
connection with the debt realignment will be shared equally by Tenneco and
Packaging. All other fees, costs and expenses will be paid by the party
incurring such fees, costs or expenses.
HUMAN RESOURCES AGREEMENT
The human resources agreement entered into between Tenneco and Packaging in
connection with the spin-off governs labor, employment, compensation and benefit
matters in connection with the spin-off. Under the human resources agreement,
each of Tenneco and Packaging agreed to:
- continue employment of each of their respective retained employees,
subject to their rights to terminate employees, with the same
compensation as before the spin-off date;
- continue to honor all related existing collective bargaining agreements
in accordance with their terms;
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- recognize related incumbent labor organizations, subject to their rights
to seek changes in their relationships with the organizations; and
- continue sponsorship of hourly employee benefit plans in accordance with
their terms.
Effective on the spin-off date, Packaging became the sponsor of the Tenneco
Retirement Plan and of the Tenneco Thrift Plan and Tenneco Thrift Plan for
Hourly Employees (collectively, the "Tenneco Thrift Plan"). Tenneco will
establish one or more thrift plans similar to the Tenneco Thrift Plan to which
the account balances of retained and former employees of the Automotive Business
in the Tenneco Thrift Plan will be transferred. The benefits accrued by
employees of the Automotive Business in the Tenneco Retirement Plan will be
frozen as of the last day of November 1999, and Packaging will amend the Tenneco
Retirement Plan to provide that all benefits accrued through that day by
employees of the Automotive Business are fully vested and non-forfeitable.
Generally, each of Tenneco and Packaging retain liabilities with respect to
benefits accrued by its current and former employees under the Tenneco Inc.
Supplemental Executive Retirement Plan and with respect to the welfare benefits
of current and former employees of its respective retained businesses and their
dependents. In addition, as of the spin-off date, participation by current and
former employees of the Automotive Business in the Tenneco Inc. Deferred
Compensation Plan was discontinued and Tenneco succeeded to those liabilities.
Under the human resources agreement, Tenneco generally caused outstanding
restricted stock and performance share equivalent unit awards to become fully
earned and vested before the spin-off. Tenneco common stock options held by
Packaging employees were replaced by options to purchase shares of Packaging
common stock on terms economically equivalent to the old Tenneco options.
Tenneco common stock options held by employees of the Automotive Business were
adjusted to maintain equivalent economic terms to the options outstanding
immediately prior to the spin-off.
TAX SHARING AGREEMENT
A tax sharing agreement was also entered into between Tenneco and Packaging
in connection with the spin-off. This agreement provides for the allocation of
tax liabilities between the parties arising before, as a result of and after the
spin-off. As a general rule, Tenneco is liable for all taxes not specifically
allocated to Packaging under the terms of the tax sharing agreement. Generally,
Packaging is liable for taxes imposed exclusively on Packaging and its
affiliates engaged in the packaging and administrative services businesses. In
the case of U.S. federal income taxes imposed on the combined activities of
Automotive and the Packaging group, Packaging is generally liable to Tenneco for
federal income taxes attributable to the activities of the Packaging group.
Liability for foreign income taxes and non-income taxes will generally be
allocated to the legal entity on which the taxes are imposed. In the case of
state income taxes imposed on the combined activities of the business groups,
Packaging will generally be liable for the tax that would be imposed if the
Packaging group had filed combined returns for its group.
In general, and except as provided below, any taxes imposed on or resulting
from any or all of the spin-off, the corporate restructuring transactions and
the debt realignment will be the responsibility of the legal entity on which the
taxes are imposed. However, if any of those transaction taxes arise due to any
action taken or permitted by Tenneco or Packaging that is inconsistent with any
representations or warranties made in connection with the IRS letter ruling
requested and received by Tenneco in connection with the spin-off, that entity,
either Tenneco or Packaging, will be responsible for the resulting tax
liability. Additionally, if any transaction taxes arise under Section 355(e) of
the Internal Revenue Code as a result of a 50% ownership shift, as defined
below, then the resulting corporate tax burden will be borne by the entity,
either Tenneco or Packaging, that experienced the 50% ownership shift. Any
income tax liability that results from the spin-off, corporate restructuring
transactions or debt realignment, but which is not due to either a 50% ownership
shift or an action that is inconsistent with the tax treatment contemplated in
the IRS letter ruling request, will be shared equally by Tenneco and Packaging.
Section 355(e) of the Internal Revenue Code, which was enacted in 1997,
generally provides that a company that distributes shares of a subsidiary in a
spin-off that is otherwise tax-free will incur federal income tax liability if
50% or more, by vote or value, of the capital stock of either the company making
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the distribution or the spun-off subsidiary is acquired by one or more persons
acting together pursuant to a plan or series of related transactions that
includes the spin-off. This provision can be triggered by some reorganizations
involving the acquisition of the assets of the company making the distribution
or the spun-off subsidiary. There is a presumption that any 50% ownership shift
that occurs within two years before or after the spin-off is pursuant to a plan
that includes the spin-off. However, the presumption may be rebutted by
establishing that the spin-off and the acquisitions are not part of a plan or
series of related transactions.
Each of Tenneco and Packaging agreed not to take or permit actions
inconsistent or partially inconsistent with the IRS letter ruling request on or
before the period ending two calendar years from the date of the spin-off,
unless the action has been consented to by the other. These agreements could
restrict the ability of Tenneco or Packaging to engage in some corporate
transactions, redeem stock, dispose of assets except in the ordinary course of
business or be the target of an acquisition transaction during that period.
TRANSITION SERVICES AGREEMENT
Prior to the spin-off, Tenneco's administrative services operations
provided a number of services to Tenneco's operating units. These services
include (1) financial accounting services; (2) employee benefits administration
for all major salaried and hourly benefit plans; (3) human resources and payroll
services; (4) mainframes and distributed systems operations; (5)
telecommunications and network operations and management; (6) help desk support;
and (7) disaster recovery support. Upon completion of the spin-off, Tenneco's
administrative services operations became a part of Packaging. Accordingly,
Tenneco and Packaging entered into a transition services agreement under which
Packaging will continue to provide Tenneco with specified administrative
services.
Specifically, Packaging will provide or cause to be provided to Tenneco the
following services:
- accounts payable, payroll processing and related services until March 31,
2001 (subject to extension for a period not beyond November 2004), for
which Tenneco will pay a fixed fee;
- financial reporting, human resource administration, cash management and
tax services for a period of up to one year following the spin-off, for
which Tenneco will pay a fixed fee; and
- telecommunication and information technology services ("ITOC Services")
until December 31, 2001, for which Tenneco will pay Packaging its direct
costs plus 50% of Packaging's unreimbursed overhead expenses related to
providing such ITOC Services.
Tenneco estimates that its fee for these services is currently
approximately $3.4 million per month. Tenneco will generally receive a rebate
equal to 25% of any overhead costs savings and 50% of any direct costs savings
that Packaging achieves in providing these services (except that Tenneco will
receive the full benefit of any direct costs savings attributable to volume
reductions).
In addition, the transition services agreement contemplates that on or
before December 31, 2001 Packaging will transfer to Tenneco, with no additional
consideration paid to Packaging, assets that will enable Tenneco to provide the
ITOC Services for itself. To the extent this transfer occurs before December 31,
2001 and Tenneco therefore assumes expenses for the provision of the related
ITOC Services, Tenneco will receive a credit against the applicable fees
described above.
Because Tenneco retained a portion of the administrative support for
Tenneco's European operations, Tenneco also agreed to provide Packaging with
specified administrative services for its European operations for an initial
period of six months beginning on the date of the spin-off. After the initial
six-month period, Packaging may elect to have Tenneco continue to provide
specified services for up to six months on a month-to-month basis. Packaging
will pay Tenneco a monthly fee for these services.
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INSURANCE AGREEMENT
The insurance agreement entered into between Tenneco and Packaging provides
for the separation and administration of Tenneco's insurance programs in effect
prior to the spin-off and the purchase of "run-off " policies for fiduciaries
and directors and officers. In general, the insurance agreement provides that
Packaging and Tenneco will obtain coverage for the period ending in December
1996 through Tenneco's pre-existing policies. For the period between December
1996 and the spin-off, Tenneco and Packaging will obtain coverage through
Tenneco's existing policies plus supplemental coverage that was purchased.
"Run-off" insurance policies were also purchased that remain in effect for seven
years and provide coverage for acts prior to the spin-off by directors, officers
and fiduciaries of benefit and pension plans. Packaging and Tenneco will each be
responsible for administering their respective insurance programs after the
spin-off and for purchasing insurance as necessary to cover their respective
losses arising after the spin-off. The insurance agreement also allocates
responsibility for the payment of premiums and deductibles, and the distribution
of insurance proceeds.
TRADEMARK TRANSITION LICENSE AGREEMENT
After the spin-off, Tenneco or one of its subsidiaries continues to hold
the rights to various trademarks, servicemarks, tradenames and similar
intellectual property, including rights in the marks "Tenneco," "Ten" and "Tenn"
alone and in combination with other terms and/or symbols and variations thereof
(collectively, the "Trademarks"), in the United States and throughout the world.
In connection with the spin-off, Packaging entered into a trademark transition
license agreement with Tenneco. Under this agreement, Tenneco granted to
Packaging and its subsidiaries a limited, royalty-free license to use the
Trademarks with respect to Packaging businesses, subject to quality standards
and other conditions. The license will expire (1) 60 days after the spin-off,
with respect to the use of the Trademarks in corporate names, (2) 12 months
after the spin-off, with respect to stationery and similar supplies and (3) 18
months after the spin-off, with respect to signage.
DESCRIPTION OF SENIOR CREDIT FACILITY
GENERAL
In connection with the spin-off, Tenneco has entered into a new senior
secured credit facility with a syndicate, or group, of banks and financial
institutions, including Citibank as syndication agent, Commerzbank and Bank of
America as co-documentation agents and The Chase Manhattan Bank as
administrative agent for the lenders' syndicate. The credit facility is referred
to as a senior credit facility because borrowings under the credit facility are
unsubordinated obligations of Tenneco and are secured as described below under
the heading "-- Guarantee; Security." In connection with this new facility,
Tenneco's prior $1,750 million credit facility was terminated.
The senior secured credit facility consists of:
- a Term Loan A facility of $450 million in term loans;
- a Term Loan B facility of $300 million in term loans;
- a Term Loan C facility of $300 million in term loans; and
- the revolving credit facility of up to $500 million in revolving credit
loans, including letters of credit of up to $250 million.
Tenneco borrowed $1,072 million under the senior secured credit facility
substantially contemporaneously with the spin-off, which consisted of $1,050
million of term loans and $22 million under the revolving credit facility. The
proceeds of these borrowings were used to fund a portion of the debt
realignment. Following the spin-off, the revolving credit facility will be
available to fund general corporate purposes.
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REPAYMENT
The terms of the senior secured credit facility require that the revolving
credit facility be repaid on or before the sixth anniversary of the funding
date. Prior to that date, funds may be borrowed, repaid and reborrowed under the
revolving credit facility without premium or penalty. The revolving credit
facility will terminate in 2005. The term loans under the senior secured credit
facility have varying maturities from six to eight and one-half years, a portion
of which will be payable in quarterly installments beginning September 30, 2001,
and the remainder of which will be payable at maturity.
GUARANTEE; SECURITY
The senior credit facility is jointly and severally guaranteed by each of
Tenneco's material direct and indirect domestic subsidiaries. The senior credit
facility is also secured by substantially all of the tangible and intangible
domestic assets of Tenneco and its subsidiaries and is collateralized by a
perfected security interest in all of the capital stock of Tenneco's material
domestic subsidiaries and in up to 66% of the capital stock of the Tenneco's
first-tier foreign subsidiaries. The collateral will be permanently released if
the Tenneco achieves specified long-term debt ratings and a portion of the term
loans has been paid in full.
COVENANTS
The senior credit facility requires Tenneco to maintain compliance with the
following financial tests:
- Maximum Leverage Ratio. Tenneco's maximum leverage ratio, which is the
ratio of Tenneco's consolidated indebtedness to its consolidated EBITDA,
cannot exceed a fixed amount at the end of each period of four
consecutive fiscal quarters commencing with the quarter ending March 31,
2000.
- Minimum Fixed Charge Coverage Ratio. Tenneco's fixed charge coverage
ratio, which is the ratio of Tenneco's consolidated EBITDA less its
consolidated capital expenditures to our consolidated cash interest
expense, must exceed a minimum level at the end of each period of four
consecutive fiscal quarters commencing with the period ending December
31, 2000; and
- Minimum Interest Coverage Ratio. Tenneco's interest coverage ratio, which
is the ratio of consolidated EBITDA to consolidated cash interest
expense, must exceed a minimum level at the end of each period of four
consecutive fiscal quarters commencing with the period ending on December
31, 2000. For the fiscal quarters ending March 31, June 30 and September
30, 2000, Tenneco's interest coverage ratio must exceed the minimum level
for the one, two or three fiscal quarters, respectively, ending with each
such fiscal quarter.
In addition, the senior secured credit facility contains negative covenants
limiting (with some exceptions), among other things:
- additional liens;
- additional indebtedness or guarantees;
- additional capital expenditures;
- transactions with affiliates;
- mergers and consolidations;
- prepayments and modifications of the Senior Subordinated Notes and other
debt instruments;
- additional lines of business;
- liquidations and dissolutions;
- sales or other dispositions of assets;
- dividends;
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- investments;
- loans and advances; and
- sales and leasebacks.
INTEREST
The borrowings under the senior secured credit facility bear interest at a
floating rate and may be maintained as base rate loans or as Eurodollar loans.
Base rate loans bear interest at the base rate, which is the greater of (1) the
applicable prime lending rate of the administrative agent or (2) the Federal
Funds Effective Rate plus 1/2 of 1%, plus, in each case, the applicable margin
as described below. Eurodollar loans will bear interest at the Eurodollar rate
as described in the senior secured credit facility, plus the applicable margin
as described below.
The applicable margin with respect to the revolving credit facility and
Term Loan A will vary from time to time in accordance with a pricing grid based
on Tenneco's leverage ratio. The initial applicable margin with respect to the
revolving credit facility and Term Loan A is (1) 1.75%, in the case of base rate
loans and (2) 2.75% in the case of Eurodollar loans. The applicable margins with
respect to Term Loan B and Term Loan C will not fluctuate. The applicable margin
for Term Loan B is (1) 2.25% in the case of base rate loans and (2) 3.25% in the
case of Eurodollar loans. The applicable margin with respect to Term Loan C is
(1) 2.50% in the case of base rate loans and (2) 3.50% in the case of Eurodollar
loans.
MANDATORY PREPAYMENTS
The senior secured credit facility requires Tenneco to prepay the term loan
facilities with:
- 100% of the net proceeds of any issuance or incurrence of indebtedness
after the funding date by Tenneco or its subsidiaries, subject to
exceptions for permitted debt;
- 50% of the net proceeds of any issuance of equity by Tenneco or its
subsidiaries, subject to some exceptions;
- 100% of the net proceeds of any sale or other disposition by Tenneco or
its subsidiaries of any assets, subject to certain exceptions, unless
such proceeds are reinvested in assets useful in Tenneco's business, with
certain exceptions;
- 75% of excess cash flow as defined in the senior secured credit facility;
and
- 100% of the net proceeds of casualty insurance, condemnation awards or
other recoveries, to the extent such proceeds are not reinvested in other
assets useful in Tenneco's business and subject to some other exceptions.
The mandatory prepayment percentages listed above (other than the
percentage relating to issuance of equity) will be reduced if Tenneco achieves
certain performance measures established in the facility.
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DESCRIPTION OF SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes mature on October 15, 2009 and bear interest
at the rate of 11 5/8% per year, payable semi-annually. They are unsecured and
rank in right of payment behind all of Tenneco's existing and future senior
debt. The notes are guaranteed by all of Tenneco's material domestic wholly
owned subsidiaries. At the option of the holders, Tenneco is required to redeem
the notes upon a change of control of Tenneco at a redemption price of 101% of
their principal amount, plus accrued and unpaid interest. The terms of the notes
contain restrictions on Tenneco's ability to, among other things, (1) incur
additional debt or liens, (2) pay dividends and make distributions or repurchase
stock, (3) make investments, and (4) merge or consolidate or transfer or sell
assets.
The notes were issued in reliance upon an exemption from registration under
the Securities Act of 1933 for offers and sales of securities not involving a
public offering. Tenneco has, however, entered into a registration rights
agreement with respect to the notes. Under this agreement, Tenneco is required
to a effect an exchange offer whereby note holders may exchange their privately
placed notes for publicly registered notes with identical terms. This exchange
offer must be completed by April 11, 2000.
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TENNECO MANAGEMENT AFTER THE SPIN-OFF
BOARD OF DIRECTORS
In connection with the spin-off, the Board of Directors of Tenneco was
restructured as follows. First, as described more fully below under "Special
Stockholders' Meeting," Tenneco's stockholders approved at a special
stockholders meeting on October 25, 1999 a proposal to phase-out Tenneco's
staggered board structure and provide instead for the annual election of
directors (the "Elimination of Staggered Board Proposal"). Under the Elimination
of Staggered Board Proposal, Tenneco's staggered board structure will be phased
out over the next three annual stockholders meetings, with directors being
elected annually after the expiration of their current staggered board terms set
forth below. Second, effective upon completion of the spin-off, Messrs.
Blumenthal, Johnson, Weiss and Brady resigned as members of Tenneco's Board of
Directors and Messrs. Mark P. Frissora (Tenneco's new President and Chief
Executive Officer) and David B. Price, Jr. became new members of Tenneco's Board
of Directors. The other individuals who were members of Tenneco's Board of
Directors immediately prior to the spin-off continued as members of the board
following the spin-off. Mr. Mead will continue, on a non-executive basis, as the
Chairman of the Board of Tenneco through March 2000.
A list of the individuals who currently serve as directors of Tenneco and
their terms is provided below.
Terms Expiring at the 2000 Annual Meeting of Stockholders -- Class I
Mark Andrews
David B. Price, Jr.
Terms Expiring at the 2001 Annual Meeting of Stockholders -- Class II
Dana G. Mead
M. Kathryn Eickhoff
Roger B. Porter
Terms Expiring at the 2002 Annual Meeting Stockholders -- Class III
Mark P. Frissora
Sir David Plastow
Paul T. Stecko
Now that the spin-off is complete, Tenneco and Packaging share four common
directors: Dana G. Mead, Paul T. Stecko, Mark Andrews and Roger B. Porter.
Tenneco will adopt policies and procedures for its board of directors to limit
the involvement of Messrs. Mead, Stecko, Andrews and Porter in situations that
could give rise to potential conflicts of interest, including requesting them to
abstain from voting as a director of either Packaging or Tenneco on matters
which present a conflict of interest between the companies. Tenneco believes
that the number of these conflict situations will be minimal.
EXECUTIVE OFFICERS
Effective upon completion of the spin-off, the then existing executive
officers of Tenneco resigned and the following individuals named below became
the executive officers of Tenneco.
Mark P. Frissora President and Chief Executive Officer
Richard P. Schneider Senior Vice President -- Global Administration
Mark A. McCollum Senior Vice President and Chief Financial Officer
Timothy R. Donovan Senior Vice President and General Counsel
Timothy E. Jackson Senior Vice President and General Manager -- North American
Original Equipment and Worldwide Program Management
David G. Gabriel Senior Vice President and General Manager -- North American
Aftermarket
11
12
STOCK AWARDS
In connection with the completion of the spin-off, Tenneco made the
following new stock awards, in the aggregate, to management: (1) options to
purchase up to 2,059,500 shares of common stock at an exercise price per share
equal to the fair market value of a share of Tenneco common stock on the date of
grant, which options vest in equal annual increments over three years, (2)
477,000 performance shares, which vest over three years based on the attainment
of performance targets and (3) 244,000 shares of restricted common stock, which
vest in equal annual increments over three years.
12
13
REVERSE STOCK SPLIT
Also at the special stockholders' meeting held on October 25, 1999,
Tenneco's stockholders approved an amendment to Tenneco's certificate of
incorporation whereby every five shares of Tenneco's then-issued common stock
would be converted automatically into one share of Tenneco's new common stock
(the "Reverse Stock Split Proposal"). The reverse stock split became effective
immediately before the open of business on November 5, 1999 and, as a result
thereof, the total number of Tenneco's issued shares of common stock was reduced
from 174,864,667 shares (inclusive of 6,491,869 treasury shares) to 34,972,933
shares (inclusive of 1,298,374 treasury shares).
SPECIAL STOCKHOLDERS' MEETING
As described above, Tenneco held a special stockholders' meeting on October
25, 1999 to consider and vote on two separate proposals: (i) the Elimination of
Staggered Board Proposal, and (ii) the Reverse Stock Split Proposal. The meeting
proceeded and both the Elimination of Staggered Board Proposal and Reverse Stock
Split Proposal were approved by holders of a majority of the Tenneco's
outstanding common stock. The following sets forth the number of votes cast for,
against and abstain with respect to these proposals at the meeting:
ELIMINATION OF STAGGERED BOARD PROPOSAL
VOTES FOR VOTES AGAINST VOTES ABSTAIN
--------- ------------- -------------
127,396,690 2,378,548 1,051,113
REVERSE STOCK SPLIT PROPOSAL
VOTES FOR VOTES AGAINST VOTES ABSTAIN
--------- ------------- -------------
138,533,392 8,254,821 1,175,919
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ITEM 7. FINANCIAL STATEMENTS
(B) PRO FORMA FINANCIAL INFORMATION:
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet of Tenneco as
of June 30, 1999, and the Unaudited Pro Forma Consolidated Statements of Income
for the six months ended June 30, 1999 and the year ended December 31, 1998,
reflect the effects of:
- the debt realignment;
- the spin-off of Packaging and related transactions; and
- the April 1999 contribution of Packaging's containerboard assets to a new
joint venture and the June 1999 sale of Packaging's folding carton assets
(the "paperboard transactions"). These two transactions are reflected
only in the pro forma statement of income data since they were completed
before the date of the pro forma balance sheet.
The Unaudited Pro Forma Consolidated Statements of Income have been
prepared as if these transactions occurred as of January 1, 1998. The Unaudited
Pro Forma Consolidated Balance Sheet has been prepared as if the debt
realignment, spin-off and related transactions occurred on June 30, 1999. The
Unaudited Pro Forma Consolidated Financial Statements for these periods are not
necessarily indicative of the results that would have actually occurred if these
transactions had been consummated as of June 30, 1999 or January 1, 1998, or
results which may be attained in the future.
The spin-off represents the pro rata distribution of Packaging common stock
to the holders of Tenneco common stock. Consequently, no gain or loss was
recognized as a result of the spin-off.
The pro forma adjustments, as described in the Notes to the Unaudited Pro
Forma Consolidated Financial Statements, are based upon available information
and upon certain assumptions that management believes are reasonable.
14
15
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(MILLIONS)
PRO FORMA ADJUSTMENTS
---------------------
SPIN-OFF CONSOLIDATED
TENNECO DEBT AND RELATED TENNECO
AS REPORTED REALIGNMENT TRANSACTIONS PRO FORMA
----------- ----------- ------------ ------------
ASSETS
Current assets:
Cash and temporary cash investments.............. $ 40 $ -- $ -- $ 40
Receivables...................................... 606 -- 79 (b) 785
100(c)
Inventories...................................... 401 -- -- 401
Other current assets............................. 129 31(a) -- 160
------ ----- ------- ------
Total current assets........................... 1,176 31 179 1,386
Plant, property, and equipment, net................ 1,049 -- -- 1,049
Goodwill and intangibles, net...................... 510 -- -- 510
Other assets and deferred charges.................. 260 41(a) (54)(h) 247
Net assets of discontinued operations.............. 1,421 -- (1,421)(d) --
------ ----- ------- ------
Total assets................................... $4,416 $ 72 $(1,296) $3,192
====== ===== ======= ======
LIABILITIES AND
SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)................................ $ 206 $(143)(a) $ -- $ 63
Trade payables................................... 351 -- 20(c) 371
Other current liabilities........................ 287 -- -- 287
------ ----- ------- ------
Total current liabilities...................... 844 (143) 20 658
Long-term debt..................................... 832 778(a) -- 1,610
Deferred income taxes.............................. 39 -- (22)(h) 17(f)
Other liabilities and deferred credits............. 168 -- -- 168
Minority interest.................................. 411 (394)(a) -- 17
Shareowners' equity................................ 2,122 (169)(a) (1,421)(d) 659
80(c)
(32)(h)
79(b)
------ ----- ------- ------
Total liabilities and shareowners' equity...... $4,416 $ 72 $(1,296) $3,192
====== ===== ======= ======
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
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16
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
-----------------------------------------
SPIN-OFF CONSOLIDATED
TENNECO PAPERBOARD DEBT AND RELATED TENNECO
AS REPORTED TRANSACTIONS REALIGNMENT TRANSACTIONS PRO FORMA
----------- ------------ ----------- ------------ ------------
REVENUES
Net sales and operating revenues...... $ 1,657 $ -- $ -- $ -- $ 1,657
Other income, net..................... 8 -- -- -- 8
---------- ---- ---- ----- ----------
1,665 -- -- -- 1,665
---------- ---- ---- ----- ----------
OPERATING COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below).......... 1,212 -- -- -- 1,212
Engineering, research, and
development........................ 27 -- -- -- 27
Selling, general, and
administrative..................... 203 -- -- 3(h) 206
Depreciation and amortization......... 71 -- -- -- 71
---------- ---- ---- ----- ----------
1,513 -- -- 3 1,516
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST.......... 152 -- -- (3) 149
Interest expense........................ 42 (15)(e) 57(g) -- 84(g)
Income tax expense...................... 44 6(i) (23)(i) (1)(i) 26
Minority interest....................... 13 -- (13)(j) -- --
---------- ---- ---- ----- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................ $ 53 $ 9 $(21) $ (2) $ 39
========== ==== ==== ===== ==========
EARNINGS PER SHARE(K)
Average shares of common stock --
Basic............................ 33,387,472 33,387,472
Diluted.......................... 33,463,882 33,463,882
Income from continuing operations --
Basic............................ $1.59 $1.17
Diluted.......................... $1.58 $1.17
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
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17
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
------------------------------------------
SPIN-OFF CONSOLIDATED
TENNECO PAPERBOARD DEBT AND RELATED TENNECO
AS REPORTED TRANSACTIONS REALIGNMENT TRANSACTIONS PRO FORMA
----------- ------------ ----------- ------------ ------------
REVENUES
Net sales and operating
revenues....................... $ 3,237 $ -- $ -- $ -- $ 3,237
Other income, net................. (25) -- -- -- (25)
---------- ---- ---- ----- ----------
3,212 -- -- -- 3,212
---------- ---- ---- ----- ----------
OPERATING COSTS AND EXPENSES:
Cost of sales (exclusive of
depreciation shown below)...... 2,332 -- -- -- 2,332
Engineering, research, and
development.................... 31 -- -- -- 31
Selling, general, and
administrative................. 472 -- -- 5(h) 477
Depreciation and amortization..... 150 -- -- -- 150
---------- ---- ---- ----- ----------
2,985 -- 5 2,990
---------- ---- ---- ----- ----------
INCOME BEFORE INTEREST EXPENSE,
INCOME TAXES, AND MINORITY
INTEREST.......................... 227 -- -- (5) 222
Interest expense.................... 69 (53)(e) 153(g) -- 169(g)
Income tax expense (benefit)........ 13 21(i) (61)(i) (2)(i) (29)
Minority interest................... 29 -- (29)(j) -- --
---------- ---- ---- ----- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................ $ 116 $ 32 $(63) $ (3) $ 82
========== ==== ==== ===== ==========
EARNINGS PER SHARE(K)
Average shares of common stock --
Basic........................ 33,701,115 33,701,115
Diluted...................... 33,766,906 33,766,906
Income from continuing
operations --
Basic........................ $3.44 $2.43
Diluted...................... $3.44 $2.43
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
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18
TENNECO
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) To reflect adjustments to Tenneco's debt for the debt realignment and the
assumed payment of interest on Tenneco consolidated debt tendered or
exchanged as part of the pre-spin-off debt realignment. The adjustment to
equity reflects the net impact of the debt realignment, the recording of
debt issue costs and deferred income taxes related to the debt realignment.
Tenneco acquired certain subsidiary preferred stock as part of the debt
realignment. In the cash tender offer, Tenneco offered to purchase
securities with a book value of approximately $1,374 million. Of this
amount, approximately $1,292 million was tendered by security holders.
Therefore, Tenneco retained the obligation to pay the remaining $82 million
of debt securities as they become due. Approximately $63 million of these
securities are due on November 15, 1999 and have been reflected as current
maturities on long-term debt on the accompanying pro forma balance sheet. In
the exchange offer, Tenneco offered to exchange new Packaging public debt
securities for Tenneco debt securities with a book value of approximately
$1,166 million. Of this amount, approximately $1,163 million was exchanged
by security holders. Therefore, Tenneco retained the obligation to pay the
remaining $3 million of debt securities as they become due. The new
Packaging debt securities were recorded at the net carrying amount of the
Tenneco debt securities for which they were exchanged. In other words, the
new Packaging debt securities were not considered to be "substantially
different" for accounting purposes from the Tenneco debt securities for
which they were exchanged. Tenneco will incur an extraordinary charge as a
result of the debt realignment related to the cash tender offers which it
expects will be approximately $12 million after tax. Other costs, including
transaction costs and costs associated with foreign tax restructuring
initiatives, will be incurred by Tenneco in connection with the corporate
restructuring transactions and the spin-off. Tenneco estimates these costs
will be approximately $50 million after-tax. The effect on Tenneco's debt of
these costs has been reflected in this pro forma adjustment. However, these
charges have not been included in the unaudited pro forma consolidated
statements of income.
(b) To reflect the purchase of Automotive accounts receivable at fair value
which had previously been sold to a third party.
(c) To reflect affiliated receivables and payables with Packaging that were
eliminated in the Tenneco consolidated balance sheet.
(d) To reflect the spin-off of Packaging common stock to holders of Tenneco
common stock at an exchange ratio of one share of Packaging common stock for
each share of Tenneco common stock.
(e) To reflect the adjustment to interest expense resulting from the use of $854
million of proceeds from (1) the contribution of the containerboard assets
of Tenneco's paperboard packaging segment to a new joint venture with an
affiliate of Madison Dearborn Partners, Inc. and (2) the sale of Tenneco's
folding carton operations. For the purpose of this pro forma adjustment, the
$854 million of Tenneco short-term debt, with an average annual effective
interest rate of 6 1/4%, was assumed to be repaid.
(f) Deferred income taxes at June 30, 1999 include approximately $45 million of
net operating loss carryforwards which will be utilized by Packaging in
connection with the paperboard transactions.
18
19
(g) To reflect the adjustment to interest expense from the allocation of Tenneco
debt to Packaging in the debt realignment as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------------- ------------
(IN MILLIONS)
Interest expense on historical debt(1).......... $(42) $(69)
Reduction of interest expense from paperboard
transactions(2)............................... 15 53
Interest expense on the new Tenneco
borrowings(3)................................. 80 161
Amortization of debt financing costs and
commitment fees(4)............................ 4 8
---- ----
Adjustment to interest expense.................. $ 57 $153
==== ====
- -------------------------
(1) Weighted average outstanding historical debt and average annual
effective interest rates were $985 million and 7.3%, respectively,
for the six months ended June 30, 1999 and $1,155 million and 7.0%,
respectively, for the year ended December 31, 1998.
(2) See Note (e) above.
(3) Weighted average outstanding debt and average annual effective
interest rate for the new Tenneco borrowings were assumed to be
$1,673 million and 9 5/8%, respectively, for the six months ended
June 30, 1999 and the year ended December 31, 1998.
(4) Represents commitment fees on the unused borrowing capacity of the
new financing arrangements to be entered into prior to the spin-off
and the amortization of deferred debt financing costs.
A 1/8% change in the assumed interest rates would change annual pro forma
interest expense by approximately $2 million, before the effect of income
taxes.
(h) To reflect the increase in net periodic pension costs resulting from the
transfer to Packaging of prepaid pension costs attributable to Automotive
employees. Automotive employees will no longer participate in the Tenneco
Retirement Plan following the spin-off and Packaging will become the sponsor
of this plan. These prepaid pension costs will be transferred to Packaging
in connection with the corporate restructuring transactions.
(i) To reflect the income tax expense effects of pro forma adjustments at an
assumed statutory tax rate of 40%.
(j) To eliminate the minority interest related to the acquisition of subsidiary
preferred stock in connection with the debt realignment.
(k) At a special stockholders' meeting held on October 25, 1999, Tenneco's
stockholders approved a reverse stock split whereby every five shares of
Tenneco common stock would be automatically converted into one share of
Tenneco's new common stock. This reverse stock split became effective the
morning following the spin-off of Packaging. The earnings per share and
shares outstanding in those pro forma financial statements have been
restated to reflect the effect of the reverse stock split.
(C) EXHIBITS
See the Exhibit Index following the signature page of this Current Report
on Form 8-K, which is incorporated by reference herein.
19
20
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 8-K
DATED NOVEMBER 4, 1999
EXHIBIT
NO. DESCRIPTION
- ------- -----------
1 None.
2 Distribution Agreement by and between Tenneco Inc. and
Tenneco Packaging Inc. dated November 3, 1999.
4 None.
16 None.
17 None.
20 None.
23 None.
24 None.
27 None.
99.1 Human Resources Agreement by and between Tenneco Inc. and
Tenneco Packaging Inc. dated November 4, 1999.
99.2 Tax Sharing Agreement by and between Tenneco Inc. and
Tenneco Packaging Inc. dated November 3, 1999.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Tenneco Automotive Inc. has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
TENNECO AUTOMOTIVE INC.
By: /s/ Mark A. McCollum
---------------------------
Mark A. McCollum
Senior Vice President and
Chief Financial Officer
November 11, 1999