SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
TENNECO AUTOMOTIVE INC.
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(Name of Registrant as Specified in its Charter)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
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14a6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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number, or the form or schedule and the date of its filing.
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TENNECO AUTOMOTIVE INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 [TENNECO AUTOMOTIVE LOGO]
April 5, 2002
To the Stockholders of Tenneco Automotive Inc.:
The Annual Meeting of Stockholders of the Company will be held Tuesday, May
14, 2002, at 10:00 a.m., local time, at The Peabody Hotel, 149 Union Avenue,
Memphis, Tennessee 38103. A Notice of the meeting, a Proxy and a Proxy Statement
containing information about the matters to be acted upon are enclosed.
Holders of common stock are entitled to vote at the Annual Meeting on the
basis of one vote for each share held.
A record of the Company's activities for the year 2001 is contained in the
Annual Report to Stockholders. We urge each stockholder who cannot attend the
Annual Meeting to please assist us in preparing for the meeting by either
completing, executing and returning your Proxy promptly or using our telephone
or Internet voting procedures.
Very truly yours,
/s/ MARK P. FRISSORA
MARK P. FRISSORA
Chairman and Chief Executive
Officer
TENNECO AUTOMOTIVE INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 [TENNECO AUTOMOTIVE LOGO]
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 2002
The Annual Meeting of Stockholders of Tenneco Automotive Inc. will be held
at The Peabody Hotel, 149 Union Avenue, Memphis, Tennessee 38103 on Tuesday, May
14, 2002, at 10:00 a.m., local time.
The purposes of the meeting are:
1. To elect eight directors for a term to expire at the 2003 Annual Meeting
of Stockholders;
2. To consider and act upon a proposal to approve the Tenneco Automotive
Inc. 2002 Long-Term Incentive Plan; and
3. To consider and act upon such other matters as may be properly brought
before the meeting, or any adjournment or postponement thereof.
The Board of Directors knows of no other matters at this time that may be
brought before the meeting. Holders of common stock of record at the close of
business on March 22, 2002 are entitled to vote at the meeting. A list of these
stockholders will be available for inspection for 10 days preceding the meeting
at The Peabody Hotel, 149 Union Avenue, Memphis, Tennessee 38103, and will also
be available for inspection at the meeting.
Each stockholder who does not expect to attend the meeting is urged to
either complete, date and sign the enclosed Proxy and return it to the Company
in the enclosed envelope, which requires no postage if mailed in the United
States, or utilize our telephone or Internet voting procedures.
By Order of the Board of Directors
KARL A. STEWART
Secretary
Lake Forest, Illinois
April 5, 2002
TENNECO AUTOMOTIVE INC. [TENNECO AUTOMOTIVE LOGO]
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000
April 5, 2002
PROXY STATEMENT
This statement is furnished in connection with the solicitation on behalf
of the Board of Directors of Tenneco Automotive Inc. (the "Company") of proxies
(the "Proxies") to be voted at the Annual Meeting of Stockholders on May 14,
2002, or at any adjournment or postponement thereof (the "Annual Meeting").
Holders of common stock of record at the close of business on March 22, 2002
will be entitled to vote at the Annual Meeting. Each share is entitled to one
vote. At March 22, 2002, there were 40,046,379 shares of common stock
outstanding and entitled to vote. This Proxy Statement is first being mailed to
stockholders on or about April 5, 2002.
BACKGROUND
During 1999, Tenneco Inc. separated its automotive, packaging and
administrative services operations. This completed a series of transactions
begun in December 1996, when the company then known as Tenneco Inc. ("Old
Tenneco") separated its automotive and packaging operations from its energy and
shipbuilding businesses.
The final separation was accomplished in November 1999 through the spin-off
of Pactiv Corporation (the "Spin-Off"), which at the time was known as Tenneco
Packaging Inc. and held Tenneco Inc.'s packaging and administrative services
businesses. Immediately following the Spin-Off, Tenneco Inc. changed its name to
"Tenneco Automotive Inc." to reflect the fact that the continuing operations are
its automotive business. In light of the form of this transaction, the Company
is the continuing legal entity which from December 1996 until the Spin-Off was
known as Tenneco Inc.
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ELECTION OF DIRECTORS
(ITEM 1)
The Board of Directors presently consists of eight members, each with a
term that will expire at the 2002 Annual Meeting.
The eight nominees, each of whom currently serves as a director of the
Company, are proposed to be elected at this Annual Meeting to serve for a term
to expire at the 2003 annual meeting of stockholders and until their successors
are chosen and have qualified.
The persons named as proxy voters in the accompanying Proxy card, or their
substitutes, will vote your Proxy for all the nominees, each of whom has been
designated as such by the Board of Directors, unless otherwise indicated in your
Proxy. In the event that any nominee for director withdraws or for any reason is
not able to serve as a director, the Company will vote your Proxy for the
remainder of those nominated for director (except as otherwise indicated in your
Proxy) and for any replacement nominee designated by the
Compensation/Nominating/Governance Committee of the Board of Directors.
You may vote for or withhold your vote from any or all of the director
nominees. Assuming a quorum is present, the affirmative vote of the plurality of
votes cast at the Annual Meeting (in person or by proxy) will be required for
the election of directors.
Brief statements setting forth the age (at March 22, 2002), the principal
occupation, the employment during the past five years, the year in which first
elected a director and other information concerning each nominee appears below.
As described above, the Company and Old Tenneco have engaged in a series of
restructuring transactions over the last several years. As a result of these
transactions, there is some continuity in the Boards of Directors of the Company
and Old Tenneco. Accordingly, for periods prior to December 1996, references
herein to service to "the Company" refer to service to Old Tenneco.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE NOMINEES
LISTED BELOW.
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR ONE-YEAR TERMS EXPIRING AT THE 2003 ANNUAL MEETING OF STOCKHOLDERS
M. KATHRYN EICKHOFF -- Ms. Eickhoff has been President of Eickhoff
Economics, Inc., a consulting firm, since 1987. From 1985 to 1987, she was
Associate Director for Economic Policy for the U.S. Office of Management and
Budget. Prior to that, Ms. Eickhoff spent 23 years at Townsend Greenspan & Co.,
Inc., an economic consulting firm, most recently as Executive Vice President and
Treasurer. She is also a director of AT&T Corp. and Pharmacia Inc. (formerly
known as Pharmacia & Upjohn, Inc.). Ms. Eickhoff is 62 years old and has been a
director of the Company since 1987. She also served as a member of the Company's
Board of Directors from 1982 until her resignation to join the Office of
Management and Budget in 1985. Ms. Eickhoff is a member of the Audit Committee
and Three-Year Independent Director Evaluation Committee.
MARK P. FRISSORA, Chairman of the Board -- Mr. Frissora became the
Company's Chief Executive Officer in connection with the Spin-Off and has been
serving as President of the automotive operations since April 1999. In March
2000, he was also named the Company's Chairman. From 1996 to April 1999, he held
various positions within the Company's automotive operations, including Senior
Vice President and General Manager of the worldwide original equipment business.
Mr. Frissora joined the Company in 1996 from AeroquipVickers Corporation, where
he served since 1991 as a Vice President. In the 15 years prior to joining
AeroquipVickers, he served for 10 years with General Electric and 5 years with
Philips Lighting Company in management roles focusing on product development and
marketing. He is a member of The Business Roundtable and the World Economic
Forum's Automotive Board of Governors. Mr. Frissora is 46 years old and became a
director of the Company in November 1999.
FRANK E. MACHER -- Mr. Macher was named Chief Executive Officer of Federal
Mogul Corporation, a manufacturer of motor vehicle parts and supplies, in
January 2001 and became Chairman of Federal Mogul in October 2001. From June
1997 to his retirement in July 1999, Mr. Macher served as President and Chief
Executive Officer of ITT Automotive, a supplier of automotive components. From
1966 to his retirement in 1996, Mr. Macher was employed by Ford Motor Company,
serving most recently as Vice President and General Manager of the Automotive
Components Division. Mr. Macher is 61 years old and was named a director of the
Company in July 2000. He is also a director of Federal Mogul Corporation and
Decoma International, Inc. and a member of the Board of Trustees of Kettering
University and the Detroit Renaissance. Mr. Macher is a member of the
Compensation/Nominating/Governance Committee.
SIR DAVID PLASTOW -- Sir David was Chairman of the Medical Research
Council, which promotes and supports research and postgraduate training in the
biomedical and other sciences, from 1990 until his retirement in 1998. Sir David
was Chairman of Inchcape plc, a multinational marketing and distribution
company, from June 1992 to December 1995. From 1971 he was Managing Director of
Rolls-Royce Motors Ltd until 1980. When that company merged with Vickers plc, an
engineering and manufacturing company headquartered in London, he became
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Managing Director and then Chairman of Vickers plc until his retirement in 1992.
Sir David is 69 years old and has been a director of the Company since May 1996.
He previously served as a member of the Board of Directors of the Company from
1985 until 1992. Sir David is a member of the Compensation/Nominating/Governance
Committee.
ROGER B. PORTER -- Mr. Porter is the IBM Professor of Business and
Government at Harvard University. Mr. Porter has served on the faculty at
Harvard University since 1977. Mr. Porter also held senior economic policy
positions in the Ford, Reagan and George H. W. Bush White Houses, serving as
special assistant to the President and executive secretary of the Economic
Policy Board from 1974 to 1977, as deputy assistant to the President and
director of the White House Office of Policy Development from 1981 to 1985, and
as assistant to the President for economic and domestic policy from 1989 to
1993. He is also a director of National Life Insurance Company, Zions
Bancorporation and Pactiv Corporation. Mr. Porter is 55 years old and has been a
director of the Company since January 1998. Mr. Porter is the Chairman of the
Compensation/ Nominating/Governance Committee and a member of the Three-Year
Independent Director Evaluation Committee.
DAVID B. PRICE, JR. -- Mr. Price has served as Chief Executive Officer of
Birdet Price, LLC since July 2001. Previously, Mr. Price was President of Noveon
Inc. from February 2001 until May 2001. Noveon, Inc. was formerly the
Performance Materials Segment of BF Goodrich Company prior to its sale to an
investor group in February 2001. While with BF Goodrich Company from July 1997
to February 2001, Mr. Price served as Executive Vice President of the BF
Goodrich Company and President and Chief Operating Officer of BF Goodrich
Performance Materials. Prior to joining BF Goodrich, Mr. Price held various
executive positions over a 25-year span at Monsanto Company, most recently
serving as President of the Performance Materials Division of Monsanto Company
from 1995 to July 1997. From 1993 to 1995, he was Vice President and General
Manager of commercial operations for the Industrial Products Group and was also
named to the management board of Monsanto's Chemical Group. Mr. Price is 56
years old and was named a director of the Company in November 1999. Mr. Price is
a member of the Three-Year Independent Director Evaluation Committee and the
Compensation/Nominating/ Governance Committee.
DENNIS G. SEVERANCE -- Dr. Severance is the Accenture Professor of Computer
and Information Systems of the University of Michigan Business School. Before
joining the University of Michigan in 1978, Dr. Severance was an Associate
Professor and Principal Investigator in the Management Information System
Research Center at the University of Minnesota. Prior to that, he was an
Assistant Professor in the Department of Operations Research at Cornell
University. Dr. Severance is 59 years old and became a director in July 2000.
Dr. Severance is a member of the Audit Committee and the
Compensation/Nominating/Governance Committee.
PAUL T. STECKO -- Mr. Stecko has served as the Chief Executive Officer of
Packaging Corporation of America since April 1999. From November 1998 to April
1999, Mr. Stecko served
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as President and Chief Operating Officer of Tenneco Inc. From January 1997 to
November 1998, Mr. Stecko served as Chief Operating Officer of Tenneco Inc. From
December 1993 through January 1997, Mr. Stecko served as Chief Executive Officer
of Tenneco Packaging Inc. Prior to joining Tenneco Packaging Inc., Mr. Stecko
spent 16 years with International Paper Company. Mr. Stecko is 57 years old and
has been a director of the Company since November 1998. He is also a director of
State Farm Mutual Insurance Company and Pactiv Corporation, and is the Chairman
of the Board of Packaging Corporation of America. Mr. Stecko is the Chairman of
the Audit Committee and the Chairman of the Three-Year Independent Director
Evaluation Committee.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company currently comprises eight members,
seven of whom are not officers of the Company (the "Outside Directors") and one
of whom is an officer of the Company (the "Inside Director"). The Board of
Directors believes that the Company's ratio of Outside Directors to Inside
Directors represents a commitment to the independence of the Board and a focus
on matters of importance to its stockholders.
During 2001, the Board of Directors held eight meetings. Each director
attended at least 75% of the aggregate of all meetings of the Board of Directors
and all meetings of the committees of the Board on which the director served
held during 2001.
The Board of Directors has three standing committees. These committees have
the following described responsibilities and authority.
The Compensation/Nominating/Governance Committee, comprised solely of
Outside Directors, has the responsibility, among other things, to: (1) establish
the salary rate of officers and employees of the Company and its subsidiaries;
(2) examine periodically the compensation structure of the Company; and (3)
supervise the welfare and pension plans and compensation plans of the Company.
It also has significant corporate governance responsibilities including, among
other things, to: (a) review and determine the desirable balance of experience,
qualifications and expertise among members of the Board; (b) review possible
candidates for membership on the Board and recommend a slate of nominees for
election as directors at each annual meeting of stockholders; (c) review the
function and composition of the other committees of the Board and recommend
membership on these committees; and (d) review the qualifications of and
recommend candidates for election as officers of the Company. The
Compensation/Nominating/Governance held seven meetings during 2001.
The Three-year Independent Director Evaluation ("TIDE") Committee,
comprised solely of Outside Directors, has the responsibility, among other
things, to review the Company's stockholder rights plan at least every three
years and, if it deems it appropriate, recommend that the full Board modify or
terminate that plan. The TIDE Committee held one meeting in 2001.
5
The Audit Committee, whose three members are Outside Directors, has the
responsibility, among other things, to: (1) recommend the selection of the
Company's independent public accountants; (2) review and approve the scope of
the independent public accountants' audit activity and extent of non-audit
services; (3) review with management and such independent public accountants the
adequacy of the Company's basic accounting system and the effectiveness of the
Company's internal audit plan and activities; (4) review with management and the
independent public accountants the Company's certified financial statements and
exercise general oversight over the financial reporting process; and (5) review
with the Company litigation and other legal matters that may affect the
Company's financial condition and monitor compliance with business ethics and
other policies. The Audit Committee held four meetings in 2001. A report of the
Audit Committee appears elsewhere in this Proxy Statement.
A stockholder of the Company may nominate persons for election to the Board
of Directors at an annual meeting if the stockholder submits such nomination,
together with certain related information required by the Company's By-laws, in
writing to the Secretary of the Company at the principal executive offices of
the Company not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting. In the event, however, that the date of the
annual meeting is more than thirty days before or more than seventy days after
that anniversary date, the notice must be delivered not earlier than the close
of business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of the
meeting is first made.
COMPENSATION OF DIRECTORS
FEE STRUCTURE. Each Outside Director is paid an annual retainer fee of
$35,000 for service on the Board of Directors. In general, 100% of that fee is
to be paid in the form of stock-settled common stock equivalents (the
"directors' stock equivalents"), as described below. A director may elect,
however, to have up to 40%, or $14,000, of the fee paid in cash. The Outside
Directors also receive cash attendance fees and committee chair and membership
fees, and reimbursement of their expenses for attending meetings of the Board of
Directors and its committees. Outside Directors receive $1,000 for each meeting
of the Board of Directors attended. Each Outside Director who serves as a
Chairman of the Audit Committee or the Compensation/Nominating/Governance
Committee is paid a fee of $7,000 per chairmanship. Outside Directors who serve
as members of these committees are paid $4,000 per committee membership. Members
of the Three-year Independent Director Evaluation Committee receive $1,000 plus
expenses for each meeting of that committee attended.
COMMON STOCK EQUIVALENTS/OPTIONS. As described above, all or a portion of
an Outside Director's retainer fee is generally paid in common stock equivalent
units. These directors' stock
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equivalents are payable in shares of common stock after an Outside Director
ceases to serve as a director. Final distribution of these shares may be made
either in a lump sum or in installments over a period of years. The directors'
stock equivalents are issued at 100% of the fair market value on the date of the
grant. In the past, the directors' stock equivalent units have been issued under
the Tenneco Automotive Inc. Stock Ownership Plan (the "Stock Ownership Plan"),
which expired in December 2001. The Company is submitting a new plan, the
Tenneco Automotive Inc. 2002 Long-Term Incentive Plan (the "New Equity Plan"),
for stockholder approval at the Annual Meeting. If the New Equity Plan is
approved, the Company expects that future directors' stock equivalents will be
granted under that plan. If that plan is not approved, the Board of Directors
will reconsider its alternatives for the payment of directors' annual retainer
fees in stock, stock equivalents or cash, or some combination thereof.
As additional equity incentive compensation, for 2001 each Outside Director
received grants of options to purchase up to 15,000 shares of common stock and
1,000 performance share equivalents. Directors' options: (a) are granted with
per share exercise prices equal to 100% of the fair market value of a share of
common stock on the day the option is granted; (b) have terms of ten years; and
(c) generally, will fully vest six months from the grant date. Once vested, the
directors' options will be exercisable at any time during the option term. The
performance share equivalent units are payable in shares of common stock at the
end of three years based on achievement of performance goals like those set for
the executives' performance unit awards. See "Tenneco Automotive Inc.
Compensation/Nominating/Governance Committee Report on Executive Compensation."
This additional equity incentive compensation was granted under the Company's
Stock Ownership Plan. In light of the expiration of that plan in December 2001,
the Board of Directors is reevaluating what additional equity incentive
compensation, if any, should be granted to directors for 2002 and subsequent
periods.
DEFERRED COMPENSATION PLAN. The Company has a voluntary deferred
compensation plan for Outside Directors. Under the plan, an Outside Director may
elect, prior to commencement of the next calendar year, to have some or all of
the cash portion, that is, up to 40%, or $14,000, of his or her retainer fee and
some or all of his or her meeting fees credited to a deferred compensation
account. The plan provides these directors with various investment options. The
investment options include stock equivalent units of the Company's common stock,
which may be paid out in either cash or, subject to availability under the
Company's equity plans, shares of common stock.
RESTRICTED STOCK. In partial satisfaction of residual obligations under the
discontinued retirement plan for directors, Ms. Eickhoff receives an annual
grant of $15,400 in value of restricted shares of the Company's common stock.
The restricted shares may not be sold, transferred, assigned, pledged or
otherwise encumbered and are subject to forfeiture if the director ceases to
serve on the Board prior to the expiration of the restricted period. This
restricted period ends upon Ms. Eickhoff's normal retirement from the Board,
unless she is
7
disabled or dies, or the Compensation/Nominating/Governance Committee of the
Board, at its discretion, determines otherwise. During the restricted period,
Ms. Eickhoff will be entitled to vote the shares and receive dividends. In the
past, these restricted shares have been issued under the Company's Stock
Ownership Plan, which expired in December 2001. The Company proposes that future
grants of restricted stock to Ms. Eickhoff will be made under the New Equity
Plan, if it is approved at the Annual Meeting. In the event that stockholders do
not approve the New Equity Plan, the Company will work with Ms. Eickhoff to
develop an alternative arrangement with respect to residual obligations under
the discontinued retirement plan for directors.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 2001, Mr. Frissora was indebted to the Company. This indebtedness
was incurred in connection with his relocation. The loan bears no interest and
principal will only be payable in full upon termination of his employment prior
to 2003, except for a termination without cause or following a change in
control. The approximate aggregate amount outstanding is $400,000.
8
OWNERSHIP OF COMMON STOCK
MANAGEMENT
The following table shows, as of March 1, 2002, the number of shares of the
Company's common stock beneficially owned by: (1) each director and nominee for
director; (2) each person who is named in the Summary Compensation Table, below;
and (3) all directors and executive officers as a group. The table also shows:
(a) common stock equivalents held by the directors and executive officers under
the Company's benefit plans; and (b) the total number of shares of common stock
and common stock equivalents held.
SHARES OF COMMON TOTAL
COMMON STOCK STOCK SHARES AND
(1)(2)(3) EQUIVALENTS(4) EQUIVALENTS
------------ -------------- -----------
DIRECTORS
---------------------------------------
M. Kathryn Eickhoff.................... 17,628 3,969 21,597
Mark P. Frissora....................... 308,207 225,000 533,207
Frank E. Macher........................ 7,500 19,209 26,709
Sir David Plastow...................... 14,900 19,312 34,212
Roger B. Porter........................ 12,711 21,120 33,831
David B. Price, Jr..................... 20,000 14,971 34,971
Dennis G. Severance.................... 9,500 20,068 29,568
Paul T. Stecko......................... 14,972 16,557 31,529
NAMED EXECUTIVE OFFICERS
---------------------------------------
Timothy R. Donovan..................... 94,065 69,903 163,968
Mark A. McCollum....................... 103,747 55,596 159,343
Hari N. Nair........................... 46,014 73,096 119,110
Richard P. Schneider................... 85,483 43,208 128,691
All executive officers and directors as
a group (17 individuals)............. 902,568(5) 702,295 1,604,863(5)
---------------
(1) Each director and executive officer has sole voting and investment power
over the shares beneficially owned (or has the right to acquire shares as
described in note (2) below) as set forth in this column, except for
restricted shares.
(2) Includes restricted shares. At March 1, 2002, Ms. Eickhoff and Messrs.
Frissora, Donovan, McCollum, Nair and Schneider held 6,628, 22,795, 9,769,
9,769, 6,513 and 9,769 restricted shares, respectively. Also includes shares
that are subject to options that are exercisable within 60 days of March 1,
2002 for Ms. Eickhoff and Messrs. Frissora, Macher, Plastow, Porter, Price,
Severance, Stecko, Donovan, McCollum, Nair and Schneider to purchase
(Notes continued on following page.)
9
10,000, 250,000, 7,500, 13,764, 11,882, 10,000, 7,500, 10,000, 60,000,
80,000, 30,000 and 60,000 shares, respectively.
(3) The individuals listed in the table own less than one percent of the
outstanding shares of the Company's common stock, respectively, except for
all directors and executive officers as a group, who beneficially own
approximately 2.2% of the outstanding common stock (not including stock
equivalents).
(4) Common stock equivalents are distributed either in cash or in shares of the
Company's common stock, depending on the terms of the grant, in each case
after the individual ceases to serve as a director or officer or after the
applicable performance period.
(5) Includes 683,979 shares that are subject to options that are exercisable
within 60 days of March 1, 2002, by all executive officers and directors as
a group, and includes 81,525 restricted shares for all executive officers
and directors as a group.
10
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 1, 2002, certain information
regarding each person known by the Company to be the beneficial owner of more
than five percent of the Company's outstanding common stock (the only class of
voting securities outstanding).
SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENT OF COMMON
OF BENEFICIAL OWNER(1) OWNED(1) STOCK OUTSTANDING(1)
---------------------- ------------ --------------------
Greenway Partners L.P.................. 3,212,500(2) 8.0%(2)
277 Park Avenue, 27th Floor
New York, New York 10017
Dimensional Fund Advisors Inc.......... 2,762,780(3) 6.9%(3)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Gabelli Asset Management Inc........... 2,273,782(4) 5.7%(4)
One Corporate Center
Rye, New York 10580-1435
Kestrel Investment Management
Corporation.......................... 2,109,400(5) 5.3%(5)
411 Borel Avenue, Suite 403
San Mateo, California 94402
---------------
(1) This information is based on information contained in filings made with the
Securities and Exchange Commission (the "SEC") regarding the ownership of
the Company's common stock.
(2) Greenway Partners L.P. ("Greenway"), Greentree Partners, L.P. ("Greentree"),
Greenhouse Partners, L.P. ("Greenhouse"), Greenhut, L.L.C. ("Greenhut"),
Greenbelt Corp. ("Greenbelt"), Greensea Offshore, L.P. ("Greensea"),
Greenhut Overseas, L.L.C. ("Greenhut Overseas"), Alfred D. Kingsley and Gary
K. Duberstein (collectively, the "Greenway Reporting Persons") are the
beneficial owners of an aggregate of 3,212,500 shares.
Greenhouse, as the general partner of Greenway, may be deemed to own
beneficially shares of which Greenway may be deemed to possess beneficial
ownership. Each of Kingsley and Duberstein, as general partners of
Greenhouse, may be deemed to beneficially own shares which Greenhouse may be
deemed to beneficially own. Greenhut, as the general partner of Greentree,
may be deemed to own beneficially shares of which Greentree may be deemed to
possess beneficial ownership. Each of Kingsley and Duberstein, as
(Notes continued on following page.)
11
members of Greenhut, may be deemed to beneficially own shares that Greenhut
may be deemed to beneficially own. Greenhut Overseas, as the investment
general partner of Greensea, may be deemed to own beneficially shares of
which Greensea may be deemed to possess beneficial ownership. Each of
Kingsley and Duberstein, as members of Greenhut Overseas, may be deemed to
beneficially own shares that Greenhut Overseas may be deemed to beneficially
own. Each of Kingsley and Duberstein, as executive officers and directors of
Greenbelt, may be deemed to beneficially own shares that Greenbelt
beneficially owns.
Greenway has the sole power to vote or direct the vote of 397,400 shares and
the sole power to dispose or to direct the disposition of such shares.
Greenhouse and Kingsley and Duberstein may be deemed to share with Greenway
the power to vote or to direct the vote and to dispose or to direct the
disposition of such shares. Greentree has the sole power to vote or direct
the vote of 231,000 shares and the sole power to dispose or direct the
disposition of such shares. Greenhut and Kingsley and Duberstein may be
deemed to share with Greentree the power to vote or to direct the vote and
to dispose or to direct the disposition of such shares. Greensea has the
sole power to vote or direct the vote of 204,000 shares and the sole power
to dispose or direct the disposition of such shares. Greenhut Overseas and
Kingsley and Duberstein may be deemed to share with Greensea the power to
vote or to direct the vote and to dispose or to direct the disposition of
such shares. Greenbelt has the sole power to vote or direct the vote of
1,980,100 shares and the sole power to dispose or direct the disposition of
such shares. Kingsley and Duberstein may be deemed to share with Greenbelt
the power to vote or to direct the vote and to dispose or to direct the
disposition of such shares. Kingsley has the sole power to vote or direct
the vote of 400,000 shares and the sole power to dispose or direct the
disposition of such shares.
The business address of each of the Greenway Reporting Persons (other than
Greensea) is 277 Park Avenue, 27th Floor, New York, New York 10017. The
business address of Greensea is P.O. Box 1561, Mary Street, Grand Cayman,
Cayman Islands, British West Indies.
(3) Dimensional Fund Advisors Inc. ("Dimensional") has indicated that it has
sole voting power over 2,762,780 shares and sole dispositive power over
2,762,780 shares. Dimensional has also advised the Company that it is a
registered investment advisor and these shares are held on behalf of various
advisory clients.
(4) Gabelli Funds, LLC ("Gabelli Funds"), GAMCO Investors, Inc. ("GAMCO"),
Gabelli Securities, Inc. ("Gabelli Securities"), Gemini Capital Management,
LLC ("Gemini"), Gabelli Group Capital Partners Inc. ("Gabelli Partners"),
Gabelli Asset Management Inc.
(Notes continued on following page.)
12
("GAMI"), Marc J. Gabelli ("Marc Gabelli") and Mario J. Gabelli ("Mario
Gabelli") have indicated they are the beneficial owners of 2,273,782 shares.
Mario Gabelli is deemed to have beneficial ownership of shares which Gabelli
Funds, GAMCO and Gabelli Securities may be deemed to possess beneficial
ownership. Marc Gabelli is deemed to have beneficial ownership of shares
which Gemini may be deemed to possess beneficial ownership. GAMI and Gabelli
Partners are deemed to have beneficial ownership of shares which Gabelli
Funds, GAMCO and Gabelli Securities may be deemed to possess beneficial
ownership.
Gabelli Funds has the sole power to vote or direct the vote of 854,000
shares and the sole power to dispose or direct the disposition of such
shares. Gabelli Funds has the same principal business address as GAMI. GAMCO
has the sole power to vote or direct the vote of 1,393,382 shares and the
sole power to dispose or direct the disposition of 1,394,782 shares. GAMCO
has the same principal business address as GAMI. Gabelli Securities has the
sole power to vote or direct the vote of 5,000 shares and the sole power to
dispose or direct the disposition of such shares. Gabelli Securities has the
same principal business address as GAMI. Gemini has the sole power to vote
or direct the vote of 20,000 shares and the sole power to dispose or direct
the disposition of such shares. Gemini's principal business address is 401
Theodore Fremd Ave., Rye, New York 10580.
(5) Kestrel Investment Management Corporation ("Kestrel") has indicated that is
has sole voting power over 2,109,400 shares and sole dispositive power over
1,982,300 shares. Kestrel has also advised the Company that it is a
registered investment advisor and that these shares are held by certain
persons for whom it acts as an investment advisor and in which it also holds
an ownership interest. The sole shareholders of Kestrel are David J.
Stierman and Abbot J. Keller, each of whom has the same principal business
address as Kestrel. Accordingly, each of Mr. Stierman, Mr. Keller and
Kestrel is deemed to be the beneficial owner of the above-referenced shares.
13
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company, for the
periods indicated, to: (1) the Company's Chief Executive Officer, who became
Chief Executive Officer upon the Spin-Off; and (2) each of the next four most
highly compensated executive officers, other than the Chief Executive Officer
(collectively, the "Named Executives"). The table shows amounts paid to the
Named Executives for all services provided to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ------------------------------------
AWARDS PAYOUTS
OTHER ----------------------- ----------
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL POSITION SALARY(1) BONUS SATION(2) AWARDS(3) OPTIONS PAYOUTS(4) SATION(5)
--------------------------- --------- ----- --------- ---------- ---------- ---------- ---------
Mark P. Frissora..................... 2001 $682,096 $610,000 $ 51,205 $ -- 250,000 $417,690 $ 9,440
Chairman and Chief Executive 2000 $659,200 $427,750 $ 75,994 $ -- -- $528,973 $373,672
Officer 1999 $398,174 $325,000 $142,600 $585,376 375,000 $177,243 $ 9,218
Timothy R. Donovan(6)................ 2001 $401,624 $203,197 $ -- $ -- 135,000 $ 85,537 $ 9,752
Executive Vice President, 2000 $311,709 $112,375 $ 3,300 $ -- -- $103,229 $ 12,299
General Counsel and Managing 1999 $120,833 $140,000 $ -- $250,876 90,000 $ -- $ --
Director -- International
Mark A. McCollum..................... 2001 $355,674 $223,000 $ -- $ -- 80,000 $ 96,336 $ 9,636
Senior Vice President and 2000 $341,208 $155,875 $ 4,200 $ -- -- $133,717 $331,718
Chief Financial Officer 1999 $275,095 $127,696 $361,847 $250,876 120,000 $158,810 $412,921
Hari N. Nair......................... 2001 $316,736 $216,750 $ -- -- 175,000 $113,984 $ 9,286
Executive Vice President and 2000 $208,524 $140,800 $ 66,734 $ -- -- $ 41,031 $ 74,678
Managing Director -- Europe 1999 $183,610 $ 59,164 $371,543 $158,746 45,000 $ 55,478 $ 4,688
Richard P. Schneider................. 2001 $355,674 $161,000 $ -- $ -- 60,000 $ 74,371 $ 9,636
Senior Vice President -- 2000 $337,932 $112,375 $ 3,300 $ -- -- $103,229 $316,281
Global Administration 1999 $282,897 $120,000 $ 11,424 $250,876 90,000 $180,125 $ 12,796
------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Company's 401(k) plans.
(2) Includes amounts attributable to: (a) the value of personal benefits
provided by the Company to Named Executives, which have an aggregate value
in excess of the lesser of $50,000 and 10% of the executive's salary and
bonus for the year, such as the personal use of Company-owned property and
relocation expenses; (b) reimbursement for taxes; and (c) amounts paid as
dividend equivalents on performance share equivalent units ("Dividend
Equivalents"). The amount of each personal benefit that exceeds 25% of the
estimated value of the total personal benefits reported for the Named
Executive,
(Notes continued on following page.)
14
reimbursement for taxes and amounts paid as Dividend Equivalents to the
Named Executives were as follows:
NAME YEAR EXPLANATION
---- ---- -----------
Mr. Frissora............ 2001 $40,000 perquisite allowance.
2000 $556 for reimbursement of taxes; $15,000 for Dividend
Equivalents; and $40,000 perquisite allowance.
1999 $12,661 for reimbursement of taxes; $11,070 for Dividend
Equivalents; $33,333 perquisite allowance; and $75,625
for relocation expenses.
Mr. Donovan............. 2000 $3,300 for Dividend Equivalents.
Mr. McCollum............ 2000 $4,200 for Dividend Equivalents.
1999 $351,947 for reimbursement of taxes; and $9,900 for
Dividend Equivalents.
Mr. Nair................ 2000 $2,990 for reimbursement of taxes; $1,500 in Dividend
Equivalents; $16,500 for relocation expenses; and
$24,960 for reimbursements and costs related to
expatriate assignment.
1999 $44 for reimbursement of taxes; $3,465 in Dividend
Equivalents; and $357,011 for reimbursements and costs
related to expatriate assignment.
Mr. Schneider........... 2000 $3,300 for Dividend Equivalents.
1999 $174 for reimbursement of taxes; and $11,250 in Dividend
Equivalents.
(3) Includes the dollar value of grants of restricted shares based on the price
of the Company's common stock on the date of grant. At December 31, 2001,
Messrs. Frissora, Donovan, McCollum, Nair and Schneider held 22,795, 9,769,
9,769, 6,513, and 9,769 restricted shares, respectively. The value at
December 31, 2001, based on a per share price of $2.04, of all restricted
shares held was $46,502 for Mr. Frissora, $19,931 for Mr. Donovan, $19,931
for Mr. McCollum, $13,287 for Mr. Nair and $19,931 for Mr. Schneider.
Dividends are paid on restricted stock. No restricted stock was awarded to
any of the Named Executives in 2000 or 2001.
(4) For 1999, reflects the vesting and payment of all outstanding performance
share equivalent units immediately prior to the Spin-Off.
(5) Includes amounts attributable during 2001 to benefit plans as follows:
(a) The dollar values paid by the Company for insurance premiums under the
group life insurance plan for Messrs. Frissora, Donovan, McCollum, Nair
and Schneider were $3,440, $1,877, $1,761, $1,411 and $1,761,
respectively.
(b) For 2001, the amounts contributed pursuant to the Company's 401(k) plans
for the accounts of Messrs. Frissora, Donovan, McCollum, Nair and
Schneider were $6,000, $7,875, $7,875, $7,875 and $7,875, respectively.
(Notes continued on following page.)
15
(6) Mr. Donovan joined the Company as Senior Vice President and General Counsel
in August 1999. In May 2001, Mr. Donovan assumed the additional
responsibilities of Managing Director-International (while retaining his
duties as General Counsel).
OPTIONS GRANTED IN 2001
The following table shows the number of options to purchase the company's
common stock granted during 2001 to the persons named in the Summary
Compensation Table above.
SHARES OF PERCENT OF TOTAL
COMMON STOCK OPTIONS GRANTED
UNDERLYING TO THE COMPANY'S
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) 2001 (%) ($/SHARE)(1) DATE PRESENT VALUE(2)
---- ------------ ---------------- -------------- ---------- ----------------
Mr. Frissora......... 250,000 7.32% $1.57 12/05/11 $212,500
Mr. Donovan.......... 110,000 3.22% $1.57 12/05/11 $ 93,500
25,000 .73% $2.10 12/28/11 $ 28,500
Mr. McCollum......... 80,000 2.34% $1.57 12/05/11 $ 68,000
Mr. Nair............. 20,000 .56% $3.19 01/02/11 $ 22,000
45,000 1.32% $3.37 07/02/11 $ 83,250
110,000 3.22% $1.57 12/05/11 $ 93,500
Mr. Schneider........ 60,000 1.76% $1.57 12/05/11 $ 51,000
---------------
(1) All options were granted with exercise prices equal to 100% of the fair
market value of a share of the Company's common stock on the date of grant.
All options vest one-third on each of the first, second and third
anniversaries of the grant date. The options include a reload feature,
whereby upon exercise the option holder receives a new option if the
exercise price is delivered in shares of common stock. The new option would
cover the number of shares so delivered and have an exercise price equal to
100% of the fair market value of the common stock on the new grant date.
(2) The Black-Scholes valuation was performed using the following assumptions:
58.52% volatility, risk free interest rate of 4.86%, 4.76%, 4.39%, and 4.39%
for options granted on January 2, 2001, July 2, 2001, December 5, 2001 and
December 28, 2001, respectively, 0% expected dividend rate and five-year
option life.
2001 YEAR-END OPTION VALUES
The following table shows the number of options to purchase the Company's
common stock and the value of unexercised in-the-money options held at December
31, 2001 by the persons
16
named in the Summary Compensation Table above. No options to purchase the
Company's common stock were exercised in 2001.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT HELD AT
DECEMBER 31, 2001 DECEMBER 31, 2001(1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Mr. Frissora........... 250,000 375,000 $-- $117,500
Mr. Donovan............ 60,000 165,000 $-- $ 51,700
Mr. McCollum........... 80,000 120,000 $-- $ 37,600
Mr. Nair............... 30,000 190,000 $-- $ 51,700
Mr. Schneider.......... 60,000 90,000 $-- $ 28,200
---------------
(1) Based on the closing sale price of a share of common stock on the New York
Stock Exchange on December 31, 2001.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2001
The following table shows information concerning performance-based awards
made during 2001 to the persons named in the Summary Compensation Table above.
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS OTHER PERIOD NON-STOCK PRICE-BASED PLANS
OR OTHER UNTIL MATURATION ---------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD(6) TARGET(6) MAXIMUM(6)
---- ------------- ---------------- ------------ --------- ----------
Mr. Frissora.......... 150,000(1) 1 year 25% 100% 150%
Mr. Donovan........... 11,360(1)(2) 2 year 25% 100% 150%
14,849(1)(3) 1 year 25% 100% 150%
4,500(3)(5) 1 year 25% 100% 150%
Mr. McCollum.......... -- -- -- -- --
Mr. Nair.............. 36,360(1)(4) 2 year 25% 100% 150%
36,450(1)(2) 2 year 25% 100% 150%
5,000(2)(5) 2 year 25% 100% 150%
7,500(4)(5) 2 year 25% 100% 150%
Mr. Schneider......... -- -- -- -- --
------------------
(1) Represents awards of stock equivalent units which vest based on the
achievement of annual performance goals as follows: (i) for awards
designated as "1 year" in the table above, the entire award may vest at the
end of December 2002; and (ii) for awards designated as "2 year" in the
table above, 50% of the award was eligible for vesting at the end of
December 2001 and 50% of the award may vest at the end of December 2002.
Stock equivalent units are payable yearly in cash in an amount equal to the
number of units earned times the value per share of the Company's common
stock at the time of payment (as determined in accordance with the terms of
the grant). The future payouts are
17
based on Economic Value Added (EVA(R), a registered trademark of Stern
Stewart & Co.) improvement against the prior year. EVA is generally defined
as operating profit minus the annual cost of capital. The number of stock
equivalent units listed in this column represents the target number of units
that may be earned under the award.
(2) Represents pro-rated awards made in connection with the retirement of the
company's former Managing Director-Europe in May 2001, following which (i)
Mr. Nair was promoted to Executive Vice President and Managing
Director-Europe, and (ii) Mr. Donovan assumed Mr. Nair's former
responsibilities as Managing Director-International, in addition to Mr.
Donovan's duties as Senior Vice President and General Counsel and head of
environmental, health and safety.
(3) Represents pro-rated award made in connection with Mr. Donovan's promotion
to Executive Vice President in December 2001.
(4) Represents pro-rated award made in connection with Mr. Nair's promotion from
Vice President to Senior Vice President in November 2000.
(5) Represents awards of performance units which vest based on the achievement
of annual performance goals described below as follows: (i) for awards
designated as "1 year" in the table above, the entire award may vest at the
end of December 2002; and (ii) for awards designated as "2 year" in the
table above, the award vests at the rate of 50% at the end of each of
December 2001 and December 2002. They are payable after December 31, 2002 in
shares of the Company's common stock in an amount equal to the number of
performance units earned. The future payouts are based on EVA improvement
over the three-year period ending December 31, 2002. The number of
performance units listed in the column represents the target number of units
that may be earned under the award.
(6) Represents the percentage of the units reflected in the first column of this
table that will be earned based on the achievement of the performance goals
at the threshold, target and maximum levels. The final performance units
earned will be based on the higher of performance units earned on an
individual year basis or accumulated performance units earned based on
three-year performance.
18
PENSION PLAN TABLE
The following table shows the aggregate estimated total annual benefits
payable upon normal retirement pursuant to the Tenneco Retirement Plan, the
Tenneco Automotive Inc. Supplemental Executive Retirement Plan and the Tenneco
Automotive Retirement Plan for Salaried Employees to persons in specified
remuneration and years of credited participation classifications. In connection
with the Spin-Off, Pactiv Corporation became the sponsor of the Tenneco
Retirement Plan. The Company adopted a salaried defined benefit pension plan
patterned after the Tenneco Retirement Plan. The plan counts service prior to
the Spin-Off for all purposes, including benefit accrual, but there will be an
offset for benefits accrued under the Tenneco Retirement Plan. Therefore, as to
the Company's continuing employees, the benefits described in the table will be
provided by a combination of payments from the Tenneco Retirement Plan and the
new plan. The Company also maintains a key executive pension plan covering
executive officers, which will provide benefits, commencing at age 55, of 4% of
compensation (salary and bonus) per year of service up to a maximum of 50%,
reduced by payments under all other company sponsored qualified and nonqualified
defined benefit pension plans.
YEARS OF CREDITED PARTICIPATION
ANNUAL -----------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ - -- -- -- -- -- --
$ 250,000 $ 19,642.86 $ 39,285.71 $ 58,928.57 $ 78,571.43 $ 98,214.29 $117,857.14 $137,500.00
$ 300,000 $ 23,571.43 $ 47,142.86 $ 70,714.29 $ 94,285.71 $117,857.14 $141,428.57 $165,000.00
$ 350,000 $ 27,500.00 $ 55,000.00 $ 82,500.00 $110,000.00 $137,500.00 $165,000.00 $192,500.00
$ 400,000 $ 31,428.57 $ 62,857.14 $ 94,285.71 $125,714.29 $157,142.86 $188,571.43 $220,000.00
$ 450,000 $ 35,357.14 $ 70,714.29 $106,071.43 $141,428.57 $176,785.71 $212,142.86 $247,500.00
$ 500,000 $ 39,285.71 $ 78,571.43 $117,857.14 $157,142.86 $196,428.57 $235,714.29 $275,000.00
$ 550,000 $ 43,214.29 $ 86,428.57 $129,642.86 $172,857.14 $216,071.43 $259,285.71 $302,500.00
$ 600,000 $ 47,142.86 $ 94,285.71 $141,428.57 $188,571.43 $235,714.29 $282,857.14 $330,000.00
$ 650,000 $ 51,071.43 $102,142.86 $153,214.29 $204,285.71 $255,357.14 $306,428.57 $357,500.00
$ 700,000 $ 55,000.00 $110,000.00 $165,000.00 $220,000.00 $275,000.00 $330,000.00 $385,000.00
$ 750,000 $ 58,928.57 $117,857.14 $176,785.71 $235,714.29 $294,642.86 $353,571.43 $412,500.00
$ 800,000 $ 62,857.14 $125,714.29 $188,571.43 $251,428.57 $314,285.71 $377,142.86 $440,000.00
$ 850,000 $ 66,785.71 $133,571.43 $200,357.14 $267,142.86 $333,928.57 $400,714.29 $467,500.00
$ 900,000 $ 70,714.29 $141,428.57 $212,142.86 $282,857.14 $353,571.43 $424,285.71 $495,000.00
$ 950,000 $ 74,642.86 $149,285.71 $223,928.57 $298,571.43 $373,214.29 $447,857.14 $522,500.00
$1,000,000 $ 78,571.43 $157,142.86 $235,714.29 $314,285.71 $392,857.14 $471,428.57 $550,000.00
$1,050,000 $ 82,500.00 $165,000.00 $247,500.00 $330,000.00 $412,500.00 $495,000.00 $577,500.00
$1,100,000 $ 86,428.57 $172,857.14 $259,285.71 $345,714.29 $432,142.86 $518,571.43 $605,000.00
$1,150,000 $ 90,357.14 $180,714.29 $271,071.43 $361,428.57 $451,785.71 $542,142.86 $632,500.00
$1,200,000 $ 94,285.71 $188,571.43 $282,857.14 $377,142.86 $471,428.57 $565,714.29 $660,000.00
$1,250,000 $ 98,214.29 $196,428.57 $294,642.86 $392,857.14 $491,071.43 $589,285.71 $687,500.00
$1,300,000 $102,142.86 $204,285.71 $306,428.57 $408,571.43 $510,714.29 $612,857.14 $715,000.00
19
YEARS OF CREDITED PARTICIPATION
ANNUAL -----------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ - -- -- -- -- -- --
$1,350,000 $106,071.43 $212,142.86 $318,214.29 $424,285.71 $530,357.14 $636,428.57 $742,500.00
$1,400,000 $110,000.00 $220,000.00 $330,000.00 $440,000.00 $550,000.00 $660,000.00 $770,000.00
$1,450,000 $113,928.57 $227,857.14 $341,785.71 $455,714.29 $569,642.86 $683,571.43 $797,500.00
$1,500,000 $117,857.14 $235,714.29 $353,571.43 $471,428.57 $589,285.71 $707,142.86 $825,000.00
$1,550,000 $121,785.71 $243,571.43 $365,357.14 $487,142.86 $608,928.57 $730,714.29 $852,500.00
$1,600,000 $125,714.29 $251,428.57 $377,142.86 $502,857.14 $628,571.43 $754,285.71 $880,000.00
$1,650,000 $129,642.86 $259,285.71 $388,928.57 $518,571.43 $648,214.29 $777,857.14 $907,500.00
---------------
NOTES:
1. The benefits shown above are computed as a straight life annuity and are
based on years of credited participation and the employee's average
compensation, which is comprised of salary and bonus. These benefits are not
subject to any deduction for Social Security or other offset amounts. The
years of credited participation for Messrs. Frissora, Donovan, McCollum, Nair
and Schneider are 4, 2, 7, 15 and 6, respectively. See the Summary
Compensation Table above for salary and bonus information for these
individuals.
2. If Mr. Frissora completes 10 years of service in the period commencing
January 1, 1999, he will be entitled to benefits commencing at age 55 of at
least 40% of his average salary plus bonus determined over a three-year
period.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company maintains a key executive change-in-control severance benefit
plan. The purpose of the plan is to enable the Company to continue to attract,
retain and motivate highly qualified employees by eliminating, to the maximum
practicable extent, any concern on the part of such employees that their job
security or benefit entitlements will be jeopardized by a "change-in-control" of
the Company, as that term is defined in the plan. The plan is designed to
achieve this purpose through the provision of severance benefits for key
employees and officers whose positions are terminated following a
change-in-control as provided in the plan. Under the plan, a severed executive
would receive a cash payment equal to three times (1) his or her base salary
plus, (2) the higher of (a) his or her average bonuses for the prior three years
(or such shorter period as the executive had been employed by the Company) and
(b) his or her targeted annual bonus in effect immediately prior to the change
in control. The Company expects that Messrs. Frissora, Donovan, McCollum, Nair
and Schneider would have become entitled to receive payments from the Company in
the amount of $3,817,200, $1,974,000, $1,686,150, $1,734,000 and $1,500,150,
respectively, had their positions been terminated on December 31, 2001 following
a change-in-control, based on their salaries/target bonuses of
$662,400/$610,000, $385,000/$273,000, $339,050/$223,000, $305,000/273,000 and
20
$339,050/$161,000, respectively, at that time. In addition, restricted shares
held in the name of those individuals under restricted stock plans would have
automatically reverted to the Company, and the Company would have been obliged
to pay those individuals the fair market value of those restricted shares. Their
performance units and stock equivalent units would also have been fully vested
and paid and their stock options would have been fully vested.
Each of the Named Executives is a party to an agreement with the Company
which sets forth certain terms and conditions of his employment with the
Company. Each of the employment agreements provides that, under the Company's
change-in-control severance benefit plan, the relevant Named Executive's cash
payment in connection with a change-in-control termination will equal three
times the total of his then current base salary plus the higher of (i) his
highest annual target bonus over the prior three years and (ii) his average
bonuses for the prior three years (or if shorter, his period of service to the
Company). Each of the employment agreements also provides that, other than in
connection with a change-in-control, if the relevant Named Executive's
employment is terminated by the Company other than for death, disability or
nonperformance of duties, he will be paid two times the total of his then
current salary and bonus for the immediately preceding year, all outstanding
stock-based awards would be vested, subject to Board approval, and his stock
options would remain exercisable for at least 90 days. Pursuant to the terms of
his employment agreement, each of the Named Executives is guaranteed a minimum
annual base salary/minimum annual target bonus as follows: Mr. Frissora,
$640,000/$590,000; Mr. Donovan, $301,600/$155,000; Mr. McCollum,
$327,600/$215,000; Mr. Nair, $305,000/$273,000 and Mr. Schneider,
$327,600/$155,000.
TENNECO AUTOMOTIVE INC. COMPENSATION/NOMINATING/GOVERNANCE
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The executive compensation philosophy, policies, plans, and programs of the
Company are under the supervision of the Compensation/Nominating/Governance
Committee (the "Committee"), which is composed of the directors named below,
none of whom is an officer or employee of the Company. The Committee has
furnished the following report on executive compensation:
COMPENSATION PHILOSOPHY
The basic philosophy underlying the Company's executive compensation
policies, plans, and programs is that executive and stockholder financial
interests should be aligned as closely as possible, and the compensation package
should be based on delivering pay in line with performance.
21
Accordingly, the executive compensation program for the Company's Chief
Executive Officer ("CEO") and the other Named Executives, as well as other
executives of the Company, has been structured to:
-- Reinforce a results-oriented management culture with executive pay that
varies according to overall corporate and individual performance against
operational and organizational goals.
-- Provide executive compensation packages that attract, retain, and
motivate executives of the highest qualifications and ability.
-- Focus executives on annual and long-term business results with the
overarching goal of enhancing stockholder value.
-- De-emphasize fixed compensation and place greater emphasis on variable,
performance-based and long-term compensation.
-- Align the interests of the Company's executives and stockholders through
equity-based compensation awards.
Based on these objectives, the executive compensation program has been
designed to promote appropriate levels of compensation derived from several
sources: salaries; annual cash incentive awards; stock ownership opportunities;
and other benefits typically offered to executives by major corporations.
The Company's policy is to provide total compensation to its executives
based on performance that is competitive and at market levels, for comparable
companies, when financial and qualitative targets are met. In determining
competitive compensation for each of the components of executive compensation
described below, the Committee engages a nationally recognized, independent
compensation consulting firm which reports directly to the Committee.
In making its determinations, the Committee has generally reviewed
compensation paid by companies that it believes to be comparable to the Company
in terms of industry, total revenues and number of employees. In connection with
the Spin-Off and its analysis of the Company's compensation policies as a
stand-alone automotive parts supplier, the Committee also commissioned and
reviewed a supplemental compensation survey prepared by its compensation
consultants which focused specifically on participants in the automotive parts
industry. In the Fall of 2001, the Committee, after considering market and
industry conditions, the significant amount of debt left with the Company upon
the Spin-Off and consultations with its compensation advisors, adopted a revised
compensation comparison group. The revised group focuses on companies similar to
the Company in terms of size (i.e. revenues), as well as total debt and market
capitalization, and continues to include several automotive parts manufacturers.
The companies selected for compensation survey purposes are not intended to be
identical to the automotive industry peer group shown in the stock Performance
Graph appearing elsewhere in
22
this Proxy Statement, reflecting that individual employment determinations are
often driven by factors beyond those that are industry-specific.
Salary levels are structured based upon reputable survey data for the
comparable companies. The Company's compensation plans provide that as an
executive's level of responsibility increases, (i) a greater portion of his/her
potential total compensation is based on performance (both individual and
corporate), and a lesser portion is comprised of salary, causing greater
potential variability in the individual's total compensation from year-to-year,
and (ii) the mix of compensation for that executive shifts to a greater portion
being derived from compensation plans where the executive's compensation level
varies in accordance with the market price of the Company's common stock.
In designing and administering the components of the executive compensation
program, the Committee strives to balance short- and long-term incentive
objectives and to employ prudent judgment when establishing performance
criteria, evaluating performance, and determining actual incentive payments.
Total executive compensation has two major components: (1) annual cash
compensation comprised primarily of salary and bonus; and (2) long-term
incentives comprised of some combination of stock options, performance-based
shares and share equivalents and restricted stock. The following is a
description of each of the components of the executive compensation program,
along with a discussion of the decisions and action taken by the Committee with
regard to 2001 compensation. There also follows a discussion regarding CEO
compensation.
ANNUAL CASH COMPENSATION PROGRAM
An executive's annual cash compensation consists of a base salary plus
amounts paid in lieu of Company matching contributions to the Company's 401(k)
plans (when Internal Revenue Service maximums are reached) and bonuses under the
Company's Executive Incentive Compensation Plan ("EICP"). Each year, the
Committee reviews with the CEO and the senior human resources executive of the
Company an annual salary and bonus target plan for the Company's executives and
other key management personnel (excluding the CEO), following which the
Committee approves that plan with changes that the Committee deems appropriate.
The salary and bonus target plan that is developed is based in part on
competitive market data and on assessments of past and anticipated future
performance. The Committee employs competitive market data for directional and
guideline purposes in combination with corporate, divisional, and individual
performance results. The Committee also reviews (with the assistance of the
senior human resources executive and the nationally recognized, independent
compensation consultants engaged directly by the Committee) and sets the salary
and bonus target of the CEO based on similar information and criteria and the
Committee's assessment of his past performance with the Company and its
expectations as to his future contribution in leading the Company. For 2001, the
salary and bonus target levels established for the Company's execu-
23
tives were generally designed to be in the 50th percentile range when compared
to salaries and target bonuses set by the companies in the compensation surveys
reviewed by the Committee as described above.
Annual performance goals are established under the Executive Incentive
Compensation Plan at the beginning of each year for purposes of determining
incentive awards for that year. The performance goals are generally developed by
senior management and reviewed and approved by the Committee, with such changes
as the Committee determines appropriate. At the conclusion of each year, the
Committee approves incentive award payments to executives based on the degree of
achievement of the goals established at the beginning of that year and on
judgments of individual performance as follows: (i) 75% of an individual's bonus
is tied to the Company's achievement of EVA(R)(1) objectives, and (ii) 25% of an
individual's bonus is based on judgmental considerations which take into account
the relative performance of the Company versus its peers in key areas such as
improvements in working capital and SGA&E (selling, general and administrative
expenses) as a percentage of sales, technology leadership, improvements in
EBITDA (earnings before interest, income taxes, depreciation and amortization)
margins, performance of the Company's stock, management retention goals, overall
market and industry conditions, the degree of difficulty in meeting targets,
contribution to overall corporate performance, environmental and safety
performance, quality initiatives and equal employment opportunities performance.
For 2001, Executive Incentive Compensation Plan payouts were, on average,
made at 100% of the targeted bonus amount for each executive. As described
above, the Company's performance against its EVA objectives accounted for 75% of
each executive's bonus. The Company achieved 119% of its aggregate 2001 EVA
objectives, such that 75% of each executive's bonus was paid at 119% of target.
Payout of the remaining 25% of each executive's target bonus amount is
discretionary and is established by the Committee based on the various
subjective factors described above. Weighing these factors, the Committee
determined that the 25% discretionary portion of each executive's bonus would be
paid, on average, at 11% of the targeted bonus amount for 2001 (resulting in an
aggregate payout, on average, of 100% of each executive's total targeted bonus
amount). In making its determinations, the Committee noted that, despite
substantially deteriorated market conditions, the Company performed extremely
well in 2001 both against the working capital and cash flow plan it had
submitted to its senior lenders in early 2001 and against its automotive
industry peers in several key areas. For example, compared to a peer group of
nine other automotive companies selected for this analysis, the Company was in
the top third for 2001 versus 2000 performance in the areas of SGA&E and working
capital as percentages of sales and EBITDA margins. In 2001, SGA&E expenses as a
percentage of sales, before extraordinary charges, fell by 1 percent and working
capital as a
---------------
(1) EVA is after-tax operating profit minus the annual cost of capital. EVA is a
registered trademark of Stern Stewart & Co.
24
percentage of sales, before factoring of receivables, declined more than 4
percent. Implementation of restructuring programs reduced SGA&E by $62 million
for 2001 and gross margin increased by about 1 percent from the second half of
2000 to the same period in 2001 (excluding the effects of pass-through catalytic
converter sales). The Company was also awarded critical new business with
aftermarket customers, including a ride control supply award from Sears. The
Company's stock price, however, did not perform satisfactorily. As a result, the
Committee exercised negative discretion in determining the final level of
bonuses that were paid.
LONG-TERM INCENTIVES
The Company's long-term incentive plan (the Stock Ownership Plan) is
designed to align a significant portion of executive compensation with
stockholder interests. This plan permitted the granting of a variety of
long-term awards including stock options, restricted stock, stock equivalent
units and performance units. This plan expired in December 2001, and the Company
is seeking stockholder approval for a new long-term incentive plan (see Item 2).
Long-term awards are based on an analysis of competitive levels of similar
awards and an assessment of individual performance. As an individual's level of
responsibility increases, a greater portion of variable performance-related
compensation will be in the form of long-term awards.
In connection with the Spin-Off, the Committee reviewed the long-term
incentives awarded to executives of the ongoing automotive operations in light
of the foregoing principles and the independent compensation survey described
above. The Committee implemented a long-term compensation program for the
Company's executives that is comprised of (1) stock options which generally vest
over three years, (2) awards of restricted stock which vest over three years,
(3) cash-settled stock equivalent units which are payable annually based on the
achievement of EVA targets and (4) stock-settled performance units which are
generally payable at the end of three years based on the achievement of EVA
targets. The Committee has historically granted long-term awards to the
Company's executives that were designed to place them in the 75th percentile
range when compared to the value of similar awards granted by peer companies to
their executives. In 2001, however, the Committee revised its approach so that
long-term awards are designed to place the Company's executives in the 50th
percentile range when compared to the peer company awards.
In 2001, the Committee approved awards of stock options, stock equivalent
units and performance units to the Named Executives as reflected in the Summary
Compensation Table, as well as grants of these types of awards to certain other
Company executives. The Committee made its determinations consistent with the
philosophy described above, specifically noting the importance of equity
incentives to the Company's ability to retain key management in light of the
difficult automotive industry conditions and specific challenges facing the
Company. The Committee also noted the Company's significant operational
achievements during 2001, which
25
were made despite a decline in the build rate for new vehicles of over 10% and
the fact that replacement rates for automotive parts remained below historical
levels. The Committee structured its awards to provide additional incentive for
further operational achievements in 2002, consistent with the philosophy
described above.
For 2001, the annually scheduled cash payout under the stock equivalent
unit awards described above was made. Based on the Company's achievement of EVA
targets established for 2001, award holders earned 119% of their targeted number
of units for 2001. The cash payouts were equal to the number of units earned
multiplied by the market price of the Company's common stock at the time of
payment ($2.34).
CEO COMPENSATION
For 2001, Mr. Frissora's base salary and bonus target were set at $662,400
and $610,000, respectively, to reflect his key leadership role in transitioning
Tenneco Automotive into a stand-alone public company during 2000. His 2001 base
salary represented a 3.5% increase over his 2000 base salary, which percentage
salary increase was applied generally to all Company executives. The Committee
approved for 2001 an annual incentive award of $610,000, or 100% of target, for
Mr. Frissora. The amount of Mr. Frissora's incentive award was based on the same
factors as described above with respect to the 2001 bonuses paid to the
Company's other executives, including his overall performance as CEO and the
interplay of the Company's achievement of its EVA goals with the Company's stock
price performance. Mr. Frissora's 2001 base salary and bonus target were
moderately below the 50th percentile of base salaries and target bonuses set for
chief executive officers of the comparable companies surveyed. In 2001, in
recognition of the Company's substantial operational improvements described
above and a desire to provide incentives for further achievements in 2002, the
Committee awarded stock options and stock equivalent units to Mr. Frissora as
reflected under "Executive Compensation." In addition, his previous stock
equivalent unit award was paid for 2001 as described above for the Company's
other executives.
TAX LIMITATIONS ON THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a
$1 million limit on the amount that a publicly traded corporation may deduct for
compensation paid to the CEO or a Named Executive who is employed on the last
day of the year; provided, however, non-discretionary "performance based
compensation" is excluded from this $1 million limitation.
The Committee has reviewed section 162(m) and its related regulations and
feels that the Company's current compensation program and policies are
appropriate. The Committee structures the Company's compensation programs to
support organizational goals and priorities and stockholder interests. The
Committee seeks to preserve the tax deductibility of executive compensation to
the extent practicable and consistent with this philosophy. Because the
26
Committee retains certain discretion under the EICP to account for individual
performance in making bonus awards, amounts payable to the designated officers
under the EICP may not be fully deductible where the section 162 (m) $1 million
deduction limitation is otherwise reached. The Committee believes this ability
to exercise discretion, considered with the fact that the 2001 salary and bonus
paid to the Company's most highly compensated executive only slightly exceeded
$1 million, is in the best interests of the Company and its stockholders. The
stock equivalent unit, performance unit and stock option awards made under the
Stock Ownership Plan, however, are generally designed to incorporate the
applicable requirements for "performance-based compensation" for purposes of
section 162(m).
Compensation / Nominating / Governance Committee
Roger B. Porter -- Chairman
Frank Macher
Sir David Plastow
David B. Price
27
PERFORMANCE GRAPH
The performance graph presented below provides the cumulative total
stockholder return for Tenneco Automotive Inc. after the Spin-Off of Pactiv
Corporation, reflecting continuing operations. The Spin-Off of Pactiv
Corporation changed the Company in terms of revenue size and market
capitalization, and also represented the final step in the Company's transition
from a diversified holding company to a product- and market-focused company in
the automotive parts industry. The performance graph compares the cumulative
total stockholder return on the Company's common stock from November 5, 1999
(the first trading day after the Spin-Off) through December 31, 2001 with the
Standard & Poor's 500 Stock Index and a peer group of companies chosen by the
Company (the "Peer Group"). The companies comprising the Peer Group represent
other participants in the automotive industry. The performance graph assumes an
investment of $100 in each of the Company's common stock, the Standard & Poor's
500 Stock Index and the Peer Group index at the beginning of the period
described. The performance graph is not intended to be indicative of future
stock performance.
28
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100
ON NOVEMBER 5, 1999 WITH DIVIDENDS REINVESTED
[PERFORMANCE GRAPH]
5-Nov-99 31-Dec-99 31-Dec-00 31-Dec-01
Tenneco Automotive Inc. $100 $115 $38 $26
S&P 500 $100 $107 $98 $86
Peer Group (11 Stocks) $100 $102 $66 $92
-------------------------
1. Cumulative total stockholder return is based on share price appreciation plus
the reinvestment of dividends.
2. Cumulative total stockholder return for the Peer Group is based on the market
capitalization weighted cumulative total stockholder return of the companies
comprising the Peer Group. The Peer Group is comprised of the following
companies: Arvin Industries Inc. (through the second quarter of 2000, when it
merged with Meritor Automotive), ArvinMeritor, Inc. (formerly known as
Meritor Automotive Inc.), Borg Warner, Inc., Cummins Engine Company, Inc.,
Dana Corporation, Delphi Automotive Systems Corporation, Federal-Mogul
Corporation, Lear Corporation, Magna International Inc., Simpson Industries,
Inc. (through the third quarter of 2000, when it merged with MasoTech, Inc.),
and Tower Automotive, Inc.
29
TENNECO AUTOMOTIVE INC. AUDIT COMMITTEE REPORT
GENERAL
The Audit Committee is comprised of three directors and operates under a
written charter for the Audit Committee. All of the members of the Audit
Committee meet the definition of "independent" for purposes of the New York
Stock Exchange listing standards (the "Listing Standards") except for Mr.
Stecko, the Chairman of the Audit Committee, who does not meet such definition
as of the date of this Proxy Statement. Mr. Stecko was employed by the Company
or one of its subsidiaries from 1993 to April 1999, when he resigned to become
Chief Executive Officer of Packaging Corporation of America. In accordance with
the Listing Standards, the Board of Directors has determined that it is in the
best interests of the Company that Mr. Stecko continues to serve on the Audit
Committee even though he was employed by the Company within the last three
years. This determination was based on, among other things, the Board's belief
that Mr. Stecko's familiarity with the Company, both before and after the
Spin-Off, is of unique value in assuring continuity in the functioning of the
Audit Committee. In addition, shortly after the date of this Proxy Statement,
the three-year anniversary of Mr. Stecko's resignation from the Company will
have passed and at that time he will meet the Listing Standards' definition of
independent.
REPORT
The Audit Committee has furnished the following report:
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2001 with the
Company's management. In addition, the Audit Committee has discussed with Arthur
Andersen LLP, the Company's independent auditors ("Andersen"), the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees."
The Audit Committee has also received the written disclosures and the
letter from Andersen required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and has discussed with
Andersen its independence from the Company and its management.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the Company for the fiscal year ended December 31, 2001 be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001
for filing with the Securities and Exchange Commission.
Audit Committee
Paul T. Stecko -- Chairman
M. Kathryn Eickhoff
Dennis G. Severance
30
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has acted as independent public accountants for the
Company and its automotive operations for the last 35 years. Upon recommendation
of the Audit Committee, the Board of Directors had appointed Arthur Andersen LLP
as independent public accountants for the Company to examine its consolidated
financial statements for the year ending December 31, 2002. However, in light of
the recent, well-publicized events involving Arthur Andersen LLP and its
relationship with Enron Corp., the Audit Committee and the Board of Directors
have determined that it would be desirable to reconsider the Company's
engagement of Arthur Andersen LLP. Accordingly, the Board of Directors has
determined not to request that the stockholders ratify the appointment of the
Company's independent public accountants at this time.
The Board of Directors and Audit Committee are closely reviewing and
monitoring Arthur Andersen LLP, its qualifications as independent auditors for
the Company and its continued ability to provide high-quality, professional
services to the Company in the fields of accounting and auditing. Additionally,
the Company is currently in the process of having meetings with and obtaining
proposals from the other major accounting firms. If, based on their ongoing
review and assessment of the situation, the Board of Directors and Audit
Committee determine that a change in independent public accountants would be in
the best interests of the Company and its stockholders, they will direct the
appointment of a different independent accounting firm for 2002.
Stockholder ratification of the Company's independent accountants is not
required by the Company's by-laws or the applicable laws of the State of
Delaware (the Company's State of incorporation). Nonetheless, the Company has
historically sought such ratification from its stockholders, and intends to seek
ratification of the Company's independent accountants for the fiscal year ending
December 31, 2003 at the 2003 annual meeting of stockholders.
The Company has been advised that representatives of Arthur Andersen LLP
will be at the Annual Meeting and will have the opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.
AUDIT FEES
The aggregate fees billed for professional services rendered by Arthur
Andersen LLP in connection with the audit and review of the Company's 2001
financial statements was $1,886,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees were billed for professional services rendered by Arthur Andersen
LLP in connection with financial information systems design and implementation
for 2001.
31
ALL OTHER FEES
The aggregate of all fees billed for professional services, other than
those described above, rendered during 2001 by Arthur Andersen LLP was
$4,392,000. These services included tax services ($2,172,000), benefit plan
audits ($257,000) and extended audit services through internal audit cosourcing
($1,206,000).
The Audit Committee has considered whether the services rendered by the
Company's independent public accountants with respect to the foregoing fees are
comparable with maintaining their independence. Arthur Andersen LLP recently
made a commitment to discontinue (subject to an eighteen month transition
period) providing public U.S. audit clients with internal audit services. In
connection with its review and analysis as described above, the Company is
working on a transition plan to address this issue by December 31, 2002.
32
APPROVAL OF TENNECO AUTOMOTIVE INC. 2002 LONG-TERM INCENTIVE PLAN
(ITEM 2)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE 2002 LONG-TERM INCENTIVE PLAN
BACKGROUND AND PURPOSE
The Company's Board of Directors has established, subject to stockholder
approval at the Annual Meeting, the Tenneco Automotive Inc. 2002 Long-Term
Incentive Plan (the "Plan"). The purposes of the Plan are to: (i) promote the
long-term success of the Company and its subsidiaries; (ii) attract and retain
persons eligible to participate in the Plan; (iii) motivate participants in the
Plan, by means of appropriate incentives, to achieve long-range goals; (iv)
provide incentive compensation opportunities that are competitive with those of
other similar companies; (v) further identify participants' interests with those
of the Company's other stockholders through compensation that is based on the
Company's common stock; and (vi) thereby promote the long-term financial
interest of the Company and its subsidiaries, including the growth in value of
the Company's equity and enhancement of long-term stockholder return. A copy of
the full text of the Plan is attached to this Proxy Statement as Exhibit A and
is incorporated herein by reference.
The Company's former equity incentive plan, the Tenneco Automotive Inc.
Stock Ownership Plan, expired on December 31, 2001. The Board of Directors
wishes to ensure the Company's continued ability to offer equity-based
incentives to employees, consultants and other persons providing services to the
Company or its subsidiaries. The Board of Directors believes this type of
compensation is critical to its ability to attract and retain highly qualified
individuals and otherwise attain the goals described above. Therefore, on March
12, 2002, the Board of Directors adopted the Plan and hereby submits it to the
Company's stockholders for their approval at the Annual Meeting.
Stockholder approval of the Plan is required (i) for purposes of compliance
with certain exclusions from the limitations of section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) in order for certain awards
that may be granted under the Plan to qualify as incentive stock options under
section 422 of the Code, and (iii) by the rules of the New York Stock Exchange.
The affirmative vote of holders of a majority of the Company's common stock
present at the Annual Meeting and entitled to vote is required to approve the
Plan.
The effective date of the Plan is March 12, 2002 (the "Effective Date"),
subject to stockholder approval at the Annual Meeting. The Plan will be
unlimited in duration and, in the event of Plan termination, will remain in
effect as long as any awards under it are outstanding; provided, however, that
no awards may be granted under the Plan after the ten-year anniversary
33
of the Effective Date (except for awards granted pursuant to commitments entered
into prior to such ten-year anniversary).
The following is a summary of the principal features of the Plan. This
summary is qualified in its entirety by reference to the complete text of the
Plan. Stockholders are urged to read the actual text of the Plan in its
entirety.
ADMINISTRATION OF THE PLAN; PARTICIPATION
The authority to control and manage the operation and administration of the
Plan will be generally vested in a committee of the Company's Board of Directors
(the "Committee"), which shall be selected by the Board and consist of two or
more members of the Board. If the Committee does not exist, or for any other
reason determined by the Board, the Board may take any action under the Plan
that would otherwise be the responsibility of the Committee. The Company's
current Compensation/Nominating/Governance Committee will be the initial
"Committee" for purposes of the Plan.
Subject to the terms of the Plan, the Committee will determine from among
the Eligible Individuals (as defined below) who will receive awards under the
Plan ("Awards"), the number of shares of common stock subject thereto and the
exercise price and other terms thereof. The persons eligible to receive Awards
under the Plan will be employees of the Company or its subsidiaries, consultants
and other persons providing services to the Company or its subsidiaries and
members of the Board of Directors (the "Eligible Individuals"), except that only
employees will be eligible to receive incentive stock option Awards under the
Plan. As of March 22, 2002, there were approximately 20,200 persons who would be
considered Eligible Individuals for purposes of the Plan. The consideration to
be received by the Company for the granting of Awards under the Plan will be
service to the Company or its subsidiaries.
AVAILABLE SHARES AND SHARE INFORMATION
A maximum of 2,000,000 shares of common stock (subject to adjustment as
described in the Plan) may be delivered under the Plan. In addition, the maximum
number of shares that may be delivered under the Plan in respect of "Full Value
Awards" is 500,000 shares of common stock (subject to adjustment as described in
the Plan). For the purposes of the Plan, "Full Value Awards" are Bonus Stock,
Stock Equivalent Units, Performance Units, Restricted Stock and Restricted Stock
Units (each as defined below).
The Company had an aggregate of 40,046,379 shares of common stock
outstanding as of March 22, 2002. The shares of common stock with respect to
which Awards may be made under the Plan will be shares of common stock currently
authorized but unissued or currently held or, to the extent permitted by
applicable law, subsequently acquired by the Company as treasury shares,
including shares of common stock purchased in the open market or in private
transac-
34
tions. The closing price per share of common stock on March 22, 2002, as
reported by the New York Stock Exchange, was $3.84.
CERTAIN TERMS AND CONDITIONS OF AWARDS
An Award under the Plan shall be subject to such terms and conditions, not
inconsistent with the Plan, as the Committee shall prescribe. The terms and
conditions of any Award to a participant shall be reflected in such form of
written document, if any, as is determined by the Committee. A copy of such
document shall be provided to the participant, and the Committee may, but need
not, require that the participant sign a copy of such document.
Awards may be granted under the Plan as any of the following: Options;
SARs; Bonus Stock Awards; Stock Equivalent Unit Awards; Restricted Stock Awards;
Restricted Stock Unit Awards; and Performance Unit Awards (each as defined
below).
The grant of an "Option" will entitle the participant to purchase shares of
common stock at an exercise price (the "Exercise Price") established by the
Committee. An Option may be either an incentive stock option (an "ISO") or a
non-qualified stock option (an "NQO"), as determined in the discretion of the
Committee. An ISO is an Option that is intended to satisfy the requirements
applicable to an "incentive stock option" described in section 422(b) of the
Code. An NQO is an Option that is not intended to be an "incentive stock option"
as that term is described in section 422(b) of the Code.
A stock appreciation right (a "SAR") will entitle the participant to
receive, in cash or shares of common stock, value equal to (or otherwise based
on) the excess of (i) the Fair Market Value (as defined below) of a specified
number of shares of common stock at the time of exercise, over (ii) an Exercise
Price established by the Committee.
No Option or SAR may be granted with a term that extends beyond the tenth
anniversary of the grant date.
The "Exercise Price" of each Option and SAR granted shall be established by
the Committee or shall be determined by a method established by the Committee at
the time the Option or SAR is granted; provided, however, that no Exercise Price
shall be less than 100% of the Fair Market Value of a share of common stock on
the date of grant (or, if greater, the par value of a share of common stock).
For purposes of determining the "Fair Market Value" of a share of common stock
as of any date, the following rules shall apply: (i) if the principal market for
the shares of common stock is a national securities exchange or the NASDAQ
securities market, then the "Fair Market Value" as of that date shall be the
average of the highest and lowest sales prices of a share of common stock on
that date (or, if such day is not a business day, the next preceding business
day) on the principal exchange or market on which the shares of common stock are
then listed or admitted to trading; (ii) if the shares of common stock are not
listed on a national securities exchange and the shares of common stock are not
quoted on the
35
NASDAQ securities market, then the "Fair Market Value" as of that date shall be
the average of the highest and lowest prices of a share of common stock on that
date (or, if such day is not a business day, the next preceding business day) as
reported on the NASDAQ OTC Bulletin Board Service or by the National Quotation
Bureau, Incorporated or a comparable service; and (iii) if neither clause (i)
nor (ii) is applicable, then the Fair Market Value of the shares of common stock
shall be determined in good faith by the Committee.
A "Bonus Stock" Award is a grant of shares of common stock in return for
previously performed services, or in return for the participant surrendering
other compensation that may be due to such participant from the Company or its
subsidiaries.
A "Stock Equivalent Unit" Award is a grant of a right to receive cash in an
amount equal to the value of a specified number of shares of common stock, in
the future, which may be (but need not be) contingent on the achievement of
performance or other objectives, including without limitation continued service,
during a specified period.
A "Performance Unit" Award is a grant of a right to receive a specified
number of shares, or dollar value amount of shares, of common stock, in the
future, which is contingent on the achievement of performance or other
objectives, including without limitation continued service, during a specified
period.
A "Restricted Stock" Award is a grant of shares of common stock, and a
"Restricted Stock Unit" Award is a grant of a right to receive a specified
number of shares of common stock, or cash in an amount equal to the value of a
specified number of shares of common stock, in the future, with such shares of
common stock or right to future delivery of such shares of common stock or
payment of cash subject to a risk of forfeiture or other restrictions that will
lapse upon the achievement of one or more goals relating to completion of
service by the participant, or achievement of performance or other objectives,
as determined by the Committee.
The payment of the Exercise Price of an Option granted under the Plan shall
be subject to the following: (a) subject to clauses (b) and (c) below, the full
Exercise Price for shares of common stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the case of
an exercise arrangement approved by the Committee and described in clause (c)
below, payment may be made as soon as practicable after the exercise); (b) the
Exercise Price shall be payable in cash, by promissory note, or by tendering, by
either actual delivery of shares of common stock or by attestation, shares of
the Company's common stock owned for at least six months or acquired on the open
market, and valued at Fair Market Value as of the day of exercise, or in any
combination thereof, as determined by the Committee; and (c) the Committee may
permit a participant to elect to pay the Exercise Price upon the exercise of an
Option by irrevocably authorizing a third party to sell shares of common stock
(or a sufficient portion of the shares of common stock) acquired upon exercise
of the
36
Option and remit to the Company a sufficient portion of the sale proceeds to pay
the entire Exercise Price and any tax withholding resulting from such exercise.
In the discretion of the Committee, a participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a participant. Awards may be granted as alternatives to or
replacement of Awards granted or outstanding under the Plan, or any other plan
or arrangement of the Company or its subsidiaries.
An Award (including without limitation an Option or SAR Award) may provide
the participant with the right to receive dividend payments, dividend equivalent
payments or dividend equivalent units with respect to shares of common stock
subject to the Award.
The obligation to make payments and distributions with respect to Awards of
Stock Equivalent Units, Performance Units, or Restricted Stock Units may be
satisfied through cash payments, the delivery of shares of common stock, the
granting of replacement Awards, or any combination thereof as the Committee
shall determine. Satisfaction of any obligations under an Award, which is
sometimes referred to as "settlement" of the Award, may be subject to such
conditions, restrictions and contingencies as the Committee shall determine.
If the Exercise Price of any Option granted under the Plan is satisfied by
tendering shares of common stock to the Company (by either actual delivery or by
attestation), only the number of shares of common stock issued net of the shares
of common stock tendered shall be deemed delivered for purposes of determining
the maximum number of shares of common stock available for delivery under the
Plan. To the extent any shares of common stock covered by an Award are not
delivered because the Award is forfeited or canceled, or the Award is settled in
cash or the shares are used to satisfy the applicable tax withholding
obligation, such shares of common stock shall not be deemed to have been
delivered for purposes of determining the maximum number of shares of common
stock available for delivery under the Plan or, if applicable, as Full Value
Awards.
All distributions under the Plan shall be subject to withholding of all
applicable taxes, and the Committee may condition the delivery of any shares or
other benefits under the Plan on satisfaction of the applicable withholding
obligations.
TRANSFERABILITY
Except as otherwise provided by the Committee, Awards under the Plan are
not transferable except as designated by the participant by will or by the laws
of descent and distribution.
CERTAIN ADJUSTMENTS
In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization,
37
merger, consolidation, split-up, spin-off, combination or exchange of shares),
the Committee may adjust the terms of the Plan and Awards to preserve the
benefits or potential benefits of the Plan or the Awards. Action by the
Committee with respect to the Plan or Awards may include: (i) adjustment of the
number and kind of shares which may be delivered under the Plan; (ii) adjustment
of the number and kind of shares subject to outstanding Awards; (iii) adjustment
of the Exercise Price of outstanding Options and SARs; and (iv) any other
adjustments that the Committee determines to be equitable.
AMENDMENT OR TERMINATION
The Board may, at any time, amend or terminate the Plan, and may amend any
award agreement under the Plan, provided that no amendment or termination may,
in the absence of written consent to the change by the affected participant (or,
if the participant is not then living, the affected beneficiary), adversely
affect the rights of any participant or beneficiary under any Award granted
under the Plan prior to the date such amendment is adopted by the Board.
Notwithstanding the foregoing, (i) without the prior approval of the Company's
stockholders, Options issued under the Plan will not be repriced, replaced or
regranted through cancellation, or by lowering the exercise price of a
previously granted Option, and (ii) no amendment of the Plan shall be made
without stockholder approval if stockholder approval is required by applicable
law, regulation or stock exchange rule.
CERTAIN LIMITATIONS ON AWARDS AND RELATED MATTERS
The aggregate number of shares of common stock underlying Options and SARs
granted to any one individual under the Plan may not exceed 350,000 (subject to
adjustments as described in the Plan) in any one calendar year period. If an
Option is in tandem with a SAR, such that the exercise of the Option or SAR with
respect to a share of common stock cancels the tandem SAR or Option right,
respectively, with respect to such share, the tandem Option and SAR rights with
respect to each share of common stock shall be counted as covering only one
share of common stock for purposes of applying the limitation in the preceding
sentence.
The Committee may designate whether any Award being granted to any
participant is intended to be "performance-based compensation" as that term is
used in section 162(m) of the Code. Any such Awards designated as intended to be
"performance-based compensation" will be conditioned on the achievement of one
or more Performance Measures (as defined in the Plan), to the extent required by
Code section 162(m). The Performance Measures that may be used by the Committee
for such Awards include, among others, earnings, operating income, expense
performance, margins, working capital targets, cash flow performance and EVA(R)
(a registered trademark of Stern Stewart & Co.).
For Bonus Stock Awards, Stock Equivalent Unit Awards, Restricted Stock
Awards, Restricted Stock Unit Awards and Performance Unit Awards that are
intended to be "performance-
38
based compensation" (as that term is used for purposes of Code section 162(m)),
no more than 200,000 shares of common stock and, if such Awards are denominated
in cash value, no more than $800,000, may be subject to such Awards granted to
any one individual during any one calendar year.
CHANGE OF CONTROL
Upon the occurrence of a change in control of the Company (as defined in
the Plan), unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any applicable governmental agencies or national
securities exchange, or unless the Committee shall otherwise provide in any
award agreement: (a) Options and SARs will become immediately vested and
exercisable and will remain exercisable for the lesser of 36 months following
such change in control or the remaining maximum term of such Award; (b) any
restriction imposed on Restricted Stock or Restricted Stock Units will lapse and
each participant holding any such Award will be entitled to be paid in cash,
within 30 days after the change in control, the total of the fair market value,
determined as of immediately prior to such change in control, of any such Award
held; and (c) the target payout opportunities attainable under all Bonus Stock,
Stock Equivalent Unit and Performance Unit Awards will be deemed to have been
fully earned as of the effective date of the change in control (based on an
assumed achievement of all relevant targeted performance goals over any
applicable performance period(s)) and each participant holding any such Award
will be entitled to be paid in cash, within 30 days after the change in control,
the total of the fair market value, determined as of immediately prior to such
change in control, of any such Award held.
NEW PLAN BENEFITS
Because grants under the Plan are discretionary, it is not possible to
determine or estimate the benefits or amounts that will be received in the
future by any Eligible Individual under the Plan, except that, as described
above under "Election of Directors -- Compensation of Directors," it is
anticipated that (i) M. Kathryn Eickhoff, a current director of the Company,
will receive $15,400 of Restricted Stock annually under the Plan in respect of
certain residual obligations under the Company's former directors' retirement
plan, and (ii) the portion of Outside Directors' annual fees payable in stock
will be awarded under the Plan.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS OF OPTIONS
The federal income tax discussion set forth below is included for general
information only. Eligible Individuals are urged to consult their tax advisors
to determine the particular tax consequences applicable to them, including the
application and effect of foreign, state and local income and other tax laws.
39
No income results to the holder of an ISO upon the grant thereof or
issuance of shares upon exercise thereof. The amount realized on the sale or
taxable exchange of the shares received upon exercise of the ISO in excess of
the Exercise Price will be considered a capital gain, except that, if a sale,
taxable exchange or other disposition occurs within one year after exercise of
the ISO or two years after the grant of the ISO (generally considered to be a
"disqualifying disposition"), the participant will realize compensation, for
federal income tax purposes, on the amount by which the lesser of the Fair
Market Value on the date of exercise, or the amount realized on the sale of the
shares, exceeds the Exercise Price. Any appreciation on the shares between the
exercise date and the disposition will be taxed to the participant as capital
gain. The difference between the Exercise Price and the Fair Market Value of the
shares acquired at the time of exercise is a tax preference item for the purpose
of calculating the alternative minimum tax on individuals under the Code. This
preference amount will not be included again in alternative minimum taxable
income in the year the taxpayer disposes of the stock.
No compensation will be realized by a participant holding a NQO at the time
it is granted. Upon the exercise of a NQO, a participant will realize
compensation for federal income tax purposes on the difference between the
Exercise Price and the Fair Market Value of the shares acquired at the time of
exercise.
If the participant exercises a NQO by surrendering previously owned shares
of common stock, the basis and the holding period of the previously owned shares
carry over to the same number of shares received in exchange for the previously
owned shares. The compensation income recognized on exercise of these Options is
added to the basis of the shares received. If the exercised Option is an ISO and
the shares surrendered were acquired through the exercise of an ISO and have not
been held for the applicable holding period, the participant will recognize
income on such exchange, and the basis of the shares received will be equal to
the Fair Market Value of the shares surrendered. If the applicable holding
period has been met on the date of exercise of such an ISO, there will be no
income recognition and the basis and the holding period of the previously owned
shares will carry over to the same number of shares received in exchange, and
the remaining shares will begin a new holding period and have a zero basis.
The Company recognizes no deduction at the time of grant or exercise of an
ISO and recognizes no deduction at the time of grant of a NQO. The Company will
recognize a deduction at the time of exercise of a NQO in an amount equal to the
difference between the Exercise Price and the Fair Market Value of the shares on
the date of exercise. The Company also will recognize a deduction to the extent
the participant recognizes income upon a disqualifying disposition of shares
underlying an ISO.
40
OTHER MATTERS
The Board of Directors is not aware of any other matters that may properly
come before the Annual Meeting. However, should any such matters come before the
Annual Meeting, it is the intention of the persons named in the enclosed form of
Proxy card to vote all Proxies (unless otherwise directed by stockholders) in
accordance with their judgment on such matters.
SOLICITATION OF PROXIES AND VOTING
Stockholders may specify their choices by marking the appropriate boxes on
the enclosed Proxy card. Alternatively, in lieu of returning signed Proxy cards,
stockholders can submit a Proxy over the Internet or by calling a specially
designated telephone number which appears on the Proxy cards. These Internet and
telephone voting procedures are designed to authenticate stockholders'
identities, allow stockholders to provide their voting instructions and confirm
the proper recording of those instructions. Specific instructions for
stockholders who wish to use the Internet or telephone voting procedures are set
forth on the enclosed Proxy card.
All properly completed, unrevoked Proxies, which are received prior to the
close of voting at the Annual Meeting, will be voted in accordance with the
specifications made. If a properly executed, unrevoked written Proxy card does
not specifically direct the voting of shares covered, the Proxy will be voted
(i) FOR the election of all nominees for election as director described in this
Proxy Statement, (ii) FOR approval of the Tenneco Automotive Inc. 2002 Long-Term
Incentive Plan, and (iii) in accordance with the judgment of the persons named
in the Proxy as to such other matters as may properly come before the Annual
Meeting.
A Proxy may be revoked at any time prior to the voting at the Annual
Meeting by submitting a later-dated proxy (including a later-dated Proxy via the
Internet or telephone), giving timely written notice of such revocation to the
Secretary of the Company or by attending the Annual Meeting and voting in
person.
The presence at the Annual Meeting, in person or by proxy, of holders of a
majority of the issued and outstanding shares of common stock as of the record
date is considered a quorum for the transaction of business. If you submit a
properly completed Proxy or if you appear at the Annual Meeting to vote in
person, your shares of common stock will be considered part of the quorum.
Directions to withhold authority to vote for any director, abstentions and
broker non-votes (described below) will be counted to determine if a quorum for
the transaction of business is present. Once a quorum is present, voting on
specific proposals may proceed.
The cost of solicitation of Proxies will be borne by the Company.
Solicitation will be made by mail, and may be made by directors, officers, and
employees, personally or by telephone, telecopy or telegram. Proxy cards and
material also will be distributed to beneficial owners of stock through brokers,
custodians, nominees and other like parties, and the Company expects to
41
reimburse such parties for their charges and expenses. Georgeson Shareholder
Communications Inc., New York, New York, has been retained to assist the Company
in the solicitation of proxies at a fee estimated not to exceed $25,000.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
Directions to withhold authority, abstentions and "broker non-votes" (which
occur when a nominee holding shares for a beneficial owner does not vote on a
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner) will be counted in determining the presence or absence of a quorum for
the transaction of business at the Annual Meeting.
Assuming the presence of a quorum, the affirmative vote of (1) a plurality
of the votes cast at the Annual Meeting (in person or by proxy) is required for
the election of directors, and (2) holders of a majority of the common stock
present at the Annual Meeting (in person or by proxy) and entitled to vote is
required to approve the Tenneco Automotive Inc. 2002 Long-Term Incentive Plan.
Because the election of directors is determined on the basis of a plurality
of the votes cast, directions to withhold authority have no effect on the
election of directors. Because the vote standard for the approval of the 2002
Long-Term Incentive Plan is a majority of shares present and entitled to vote,
abstentions have the effect of a vote against and broker non-votes would have no
effect on the proposal.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement is incorporated by reference in any
other filing by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, the sections of this Proxy Statement entitled "Executive
Compensation -- Tenneco Automotive Inc. Compensation/Nominating/Governance
Committee Report on Executive Compensation," "Performance Graph," and "Tenneco
Automotive Inc. Audit Committee Report" will not be deemed to be incorporated,
unless specifically provided otherwise in such filing.
42
SUBMISSION OF STOCKHOLDER PROPOSALS
STOCKHOLDER PROPOSALS -- INCLUSION IN COMPANY PROXY STATEMENT
For a stockholder proposal to be considered by the Company for inclusion in
the Company's proxy statement and form of proxy relating to the annual meeting
of stockholders to be held in 2003, the proposal must be received by the Company
by December 6, 2002.
OTHER STOCKHOLDERS PROPOSALS -- DISCRETIONARY VOTING AUTHORITY AND BY-LAWS
With respect to stockholder proposals not included in the Company's proxy
statement and form of proxy, the Company may utilize discretionary authority
conferred by proxy in voting on any such proposals if, among other situations,
the stockholder does not give timely notice of the matter to the Company by the
date determined under the Company's By-laws for the submission of business by
stockholders. This notice requirement and deadline are independent of the notice
requirement and deadline described above for a stockholder proposal to be
considered for inclusion in the Company's proxy statement. The Company's By-laws
state that, to be timely, notice and certain related information must be
received at the principal executive offices not later than the close of business
on the 90th day nor earlier than the close of business on the 120th day prior to
the first anniversary of the preceding year's annual meeting. However, in the
event that the date of the annual meeting is more than thirty days before or
more than seventy days after the anniversary date, the notice must be delivered
not earlier than the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Therefore, to be timely
under the Company's By-laws, a proposal for the 2003 annual meeting not included
by or at the direction of the Board must be received not earlier than January
14, 2003, nor later than February 13, 2003.
KARL A. STEWART
Secretary
------------------------
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES THERETO. REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE DIRECTED TO
TIMOTHY R. DONOVAN, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND MANAGING
DIRECTOR-INTERNATIONAL, 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045.
43
EXHIBIT A
TENNECO AUTOMOTIVE INC.
2002 LONG-TERM INCENTIVE PLAN
ARTICLE 1
GENERAL
1.1. Purpose. The Tenneco Automotive Inc. 2002 Long-Term Incentive Plan
(the "Plan") has been established by Tenneco Automotive Inc. (the "Company") to:
(i) promote the long-term success of the Company and its Subsidiaries (as
defined herein); (ii) attract and retain persons eligible to participate in the
Plan; (iii) motivate Participants (as defined herein), by means of appropriate
incentives, to achieve long-range goals; (iv) provide incentive compensation
opportunities that are competitive with those of other similar companies; (v)
further identify Participants' interests with those of the Company's other
stockholders through compensation that is based on the Company's common stock;
and (vi) thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee (as defined herein) shall determine and designate, from time to time,
from among the Eligible Individuals (as defined herein), including without
limitation transferees of Eligible Individuals to the extent the transfer is
permitted by the Plan and the applicable Award Agreement (as defined herein),
those persons who will be granted one or more Awards (as defined herein) under
the Plan, and thereby become "Participants" in the Plan.
1.3. Operation and Administration. The operation and administration of the
Plan, including the Awards made under the Plan, shall be subject to the
provisions of Article 5 (relating to operation and administration).
ARTICLE 2
CERTAIN DEFINED TERMS
As used in this Plan, the following terms shall have the meanings set forth
or referenced below. In addition, other terms may be defined in the other
Articles and Sections of this Plan, and, unless the context otherwise requires,
shall have the specified meanings throughout the Plan:
(a) Award. The term "Award" means any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs, Bonus
Stock Awards, Stock Equivalent Unit Awards, Restricted Stock Awards,
Restricted Stock Unit Awards and Performance Unit Awards.
A-1
(b) Board. The term "Board" means the Board of Directors of the
Company.
(c) Change in Control. The term "Change in Control" shall mean any of
the following events (but no event other than one of the following events):
(i) any person, alone or together with any of its affiliates or
associates, becoming the beneficial owner, directly or indirectly, of
securities of the Company representing (A) fifteen percent (15%) or more
of either the Company's then outstanding shares of common stock or the
combined voting power of the Company's then outstanding securities
having general voting rights, and a majority of the Incumbent Board does
not approve the acquisition before the acquisition occurs, or (B) forty
percent (40%) or more of either the Company's then outstanding shares of
common stock or the combined voting power of the Company's then
outstanding securities having general voting rights; provided, however,
that, notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to this subparagraph (i) solely because the
requisite percentage of either the Company's then outstanding shares of
common stock or the combined voting power of the Company's then
outstanding securities having general voting rights is acquired by one
or more employee benefits plans maintained by the Tenneco Companies; or
(ii) members of the Incumbent Board ceasing to constitute a
majority of the Board; or
(iii) the consummation of any plan of merger, consolidation, share
exchange or combination between the Company and any person, including
without limitation becoming a subsidiary of any other person, without
members of the Incumbent Board, as constituted immediately prior to the
merger, consolidation, share exchange or combination, constituting a
majority of the board of directors of (A) the surviving or successor
corporation of such transaction, or (B) if the surviving or successor
corporation of such transaction is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent company of the
surviving or successor corporation; or
(iv) the consummation of any sale, exchange or other disposition of
all or substantially all of the Company's assets without members of the
Incumbent Board immediately prior to any such sale, exchange or
disposition of all or substantially all of the Company's assets
constituting a majority of the board of directors of (A) the corporation
which holds such assets after such disposition, or (B) if such
corporation is a majority-owned subsidiary of another corporation or
corporations, the ultimate parent company of the corporation which holds
such assets after such disposition; provided, however, that the Board
may determine conclusively that any transaction does not constitute a
sale, exchange or other disposition of substantially all of the
Company's assets; or
A-2
(v) if any person, alone or together with any of its affiliates or
associates, elects or has elected during any period not exceeding 24
months, at least 25% of the members of the Board, without the approval
of the Incumbent Board, and such members are comprised of persons not
serving as members of the Board immediately prior to the formation of
such group or the first solicitation of proxies by such person; or
(vi) the Company's stockholders approving a plan of complete
liquidation or dissolution of the Company.
(d) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
(e) Common Stock. The term "Common Stock" means the Company's common
stock, par value $.01 per share.
(f) Covered Employee. The term "Covered Employee" means a Participant
who, as of the date of vesting and/or payout of an Award, as applicable, is
a "covered employee," as defined in Code section 162(m) and the regulations
promulgated under Code section 162(m).
(g) Effective Date. The term "Effective Date" has the meaning set
forth in Section 5.1.
(h) Eligible Individual. For purposes of the Plan, the term "Eligible
Individual" means any employee of the Company or a Subsidiary, any
consultant or other person providing services to the Company or a
Subsidiary and any member of the Board; provided, however, that an
incentive stock option may only be granted to an employee of the Company or
a Subsidiary.
(i) Fair Market Value. For purposes of determining the "Fair Market
Value" of a share of Common Stock as of any date, the following rules shall
apply:
(i) If the principal market for the shares of Common Stock is a
national securities exchange or the NASDAQ securities market, then the
"Fair Market Value" as of that date shall be the average of the highest
and lowest sales prices of a share of Common Stock on that date (or, if
such day is not a business day, the next preceding business day) on the
principal exchange or market on which the shares of Common Stock are
then listed or admitted to trading.
(ii) If the shares of Common Stock are not listed on a national
securities exchange and the shares of Common Stock are not quoted on the
NASDAQ securities market, then the "Fair Market Value" as of that date
shall be the average of the highest and lowest prices of a share of
Common Stock on that date (or, if such day is not a business
A-3
day, the next preceding business day) as reported on the NASDAQ OTC
Bulletin Board Service or by the National Quotation Bureau, Incorporated
or a comparable service.
(iii) If subparagraphs (i) and (ii) next above are otherwise
inapplicable, then the Fair Market Value of the shares of Common Stock
shall be determined in good faith by the Committee.
(j) Incumbent Board. The "Incumbent Board" shall consist of the
following persons:
(i) the members of the Board as of the Effective Date, to the
extent they continue to serve as members of the Board; and
(ii) any individual who becomes a member of the Board after the
Effective Date, if his or her election or nomination for election as a
director is approved by a vote of at least three-quarters of the then
Incumbent Board, other than a director whose initial assumption of
office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
election of directors of the Company.
(k) Participants. The term "Participants" has the meaning set forth in
Section 1.2.
(l) Performance Measure. The term "Performance Measure" means any of
the following: (1) net earnings; (2) earnings per share; (3) net sales
growth; (4) net income (before or after taxes); (5) net operating profit;
(6) return measures (including, but not limited to, return on assets,
capital, equity or sales); (7) cash flow (including, but not limited to,
operating cash flow and free cash flow); (8) cash flow return on
investments, which equals net cash flows divided by owner's equity; (9)
earnings before or after taxes, interest, depreciation and/or amortization;
(10) internal rate of return or increase in net present value; (11)
dividend payments to parent; (12) gross margins; (13) gross margins minus
expenses; (14) operating margin; (15) share price (including, but no
limited to, growth measures and total stockholder return); (16) expense
targets; (17) working capital targets relating to inventory and/or accounts
receivable; (18) planning accuracy (as measured by comparing planned
results to actual results); (19) comparisons to various stock market
indices; (20) comparisons to the performance of other companies;
(21)technological achievement; (22) customer counts; (23) customer
satisfaction, quality management or customer service performance; and (24)
EVA(R). For purposes of this Plan, "EVA" means the positive or negative
value determined by net operating profits after taxes over a charge for
capital, or any other financial measure, as determined by the Committee in
its sole discretion. (EVA is a registered trademark of Stern Stewart & Co.)
(m) Subsidiary. The term "Subsidiary" means any corporation,
partnership, joint venture or other entity during any period in which at
least a fifty percent voting or profits interest is owned, directly or
indirectly, by the Company (or by any entity that is a successor
A-4
to the Company), and any other business venture designated by the Committee
in which the Company (or any entity that is a successor to the Company) has
a significant interest, as determined in the discretion of the Committee.
(n) Tenneco Companies. The term "Tenneco Companies" means the Company
and any Subsidiary of which a majority of the voting common stock or
capital stock is owned directly or indirectly by the Company.
ARTICLE 3
OPTIONS AND SARS
3.1. Certain Definitions.
(a) The grant of an "Option" entitles the Participant to purchase
shares of Common Stock at an Exercise Price (as defined herein) established
by the Committee. Any Option granted under this Article 3 may be either an
incentive stock option (an "ISO") or a non-qualified stock option (an
"NQO"), as determined in the discretion of the Committee. An "ISO" is an
Option that is intended to satisfy the requirements applicable to an
"incentive stock option" described in section 422(b) of the Code. An "NQO"
is an Option that is not intended to be an "incentive stock option" as that
term is described in section 422(b) of the Code.
(b) A stock appreciation right (an "SAR") entitles the Participant to
receive, in cash or shares of Common Stock (as determined in accordance
with Section 5.2), value equal to (or otherwise based on) the excess of:
(i) the Fair Market Value of a specified number of shares of Common Stock
at the time of exercise; over (ii) an Exercise Price established by the
Committee.
3.2. Exercise Price. The "Exercise Price" of each Option and SAR granted
under this Article 3 shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option or
SAR is granted; provided, however, that the Exercise Price shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date of
grant (or, if greater, the par value of a share of Common Stock).
3.3. Exercise. An Option and an SAR granted under this Article 3 shall be
exercisable in accordance with such terms and conditions and during such periods
as may be established by the Committee; provided, however, that no Option or SAR
shall be exercisable after the tenth anniversary of the date as of which such
Award was granted.
A-5
3.4. Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Article 3 shall be subject to the following:
(a) Subject to the following provisions of this Section 3.4, the full
Exercise Price for shares of Common Stock purchased upon the exercise of
any Option shall be paid at the time of such exercise (except that, in the
case of an exercise arrangement approved by the Committee and described in
Section 3.4(c), payment may be made as soon as practicable after the
exercise).
(b) The Exercise Price shall be payable to the Company in full either:
(i) in cash or its equivalent, (ii) by tendering (either by actual delivery
or attestation) previously acquired shares of Common Stock having an
aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price (provided that the shares that are tendered must have been
held by the Participant for at least six (6) months prior to their tender
to satisfy the Exercise Price or must have been purchased on the open
market), (iii) by a combination of (i) and (ii), or (iv) by any other
method approved by the Committee in its sole discretion at the time of
grant and as set forth in the Award Agreement.
(c) The Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by irrevocably authorizing a
third party to sell shares of Common Stock (or a sufficient portion of the
shares of Common Stock) acquired upon exercise of the Option and remit to
the Company a sufficient portion of the sale proceeds to pay the entire
Exercise Price and any tax withholding resulting from such exercise.
3.5. Settlement of Award. Settlement of Options and SARs is subject to the
provisions of Section 5.7.
ARTICLE 4
OTHER STOCK-RELATED AWARDS
4.1. Certain Definitions.
(a) A "Bonus Stock" Award is a grant of shares of Common Stock in
return for previously performed services, or in return for the Participant
surrendering other compensation that may be due to such Participant from
the Company or a Subsidiary.
(b) A "Stock Equivalent Unit" Award is a grant of a right to receive
cash in an amount equal to the value of a specified number of shares of
Common Stock, in the future, which may be contingent on the achievement of
performance or other objectives, including without limitation continued
service, during a specified period.
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(c) A "Performance Unit" Award is a grant of a right to receive a
specified number of shares, or dollar amount of shares, of Common Stock, in
the future, which is contingent on the achievement of performance or other
objectives, including without limitation continued service, during a
specified period.
(d) A "Restricted Stock" Award is a grant of shares of Common Stock,
and a "Restricted Stock Unit" Award is a grant of a right to receive a
specified number of shares of Common Stock, or cash in an amount equal to
the value of a specified number of shares of Common Stock, in the future,
with such shares of Common Stock or right to future delivery of such shares
of Common Stock or payment of cash subject to a risk of forfeiture or other
restrictions that will lapse upon the achievement of one or more goals
relating to completion of service by the Participant, or achievement of
performance or other objectives, as determined by the Committee.
4.2. Restrictions on Awards. Each Bonus Stock Award, Stock Equivalent Unit
Award, Restricted Stock Award, Restricted Stock Unit Award and Performance Unit
Award shall be subject to such conditions, restrictions and contingencies as the
Committee shall determine. The Committee may designate whether any such Award
being granted to any Participant is intended to be "performance-based
compensation" as that term is used in section 162(m) of the Code. Any such
Awards designated as intended to be "performance-based compensation" shall be
conditioned on the achievement of one or more Performance Measures, to the
extent required by Code section 162(m). For Awards under this Section 4.2
intended to be "performance-based compensation," the grant of the Awards and the
establishment of the Performance Measures shall be made during the period
required under Code section 162(m). Any Performance Measure(s) may be used to
measure the performance of the Company as a whole or any business unit or
Subsidiary of the Company or any combination thereof, as the Committee may deem
appropriate, or any such performance as compared to the performance of a group
of comparator companies, or any published or special index that the Committee,
in its sole discretion, deems appropriate. The Committee also has the authority
to provide for accelerated vesting of any Award made under this Article 4 based
on the achievement of performance goals pursuant to the Performance Measures
specified herein. The Committee may provide in any such Award that any
evaluation of performance may include or exclude any of the following events
that occurs during a performance period: (a) asset write-downs, (b) litigation
or claim judgments or settlements, (c) the effect of changes in tax laws,
accounting principles, or other laws or provisions affecting reported results,
(d) accruals for reorganization and restructuring programs, (e) extraordinary
nonrecurring items as described in Accounting Principles Board Opinion No. 30
and/or in management's discussion and analysis of financial condition and
results of operations appearing in the Company's annual report to stockholders
for the applicable year, (f) acquisitions or divestitures, and (g) foreign
exchange gains and losses. To the extent such inclusions or exclusions affect
Awards to Covered Employees intended to qualify as "performance-based
compensation," they shall be prescribed in a form that meets the requirements of
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Code section 162(m) for deductibility. Awards that are designed to qualify as
"performance-based compensation," and that are held by Covered Employees, may
not be adjusted upward (the Committee shall retain the discretion to adjust such
Awards downward). In the event that applicable tax and/or securities laws change
to permit Board or Committee discretion to alter the governing Performance
Measures without obtaining stockholder approval of such changes, the Board and
Committee shall have the discretion to make such changes without obtaining
stockholder approval. In addition, in the event that the Committee determines
that it is advisable to grant Awards under this Article 4 that shall not qualify
as "performance-based compensation," the Committee may make such grants without
satisfying the requirements of Code section 162(m).
ARTICLE 5
OPERATION AND ADMINISTRATION
5.1. Effective Date. Subject to the approval of the stockholders of the
Company, the Plan shall be effective as of March 12, 2002 (the "Effective
Date"). The Plan shall be unlimited in duration and, in the event of Plan
termination, shall remain in effect as long as any Awards under it are
outstanding; provided, however, that no Awards may be granted under the Plan
after the ten-year anniversary of the Effective Date (except for Awards granted
pursuant to commitments entered into prior to such ten-year anniversary).
5.2. Plan and Other Limitations. The Awards that may be granted under the
Plan shall be subject to the following:
(a) The shares of Common Stock with respect to which Awards may be
made under the Plan shall be shares of Common Stock currently authorized
but unissued or currently held or, to the extent permitted by applicable
law, subsequently acquired by the Company as treasury shares, including
shares of Common Stock purchased in the open market or in private
transactions.
(b) Subject to the following provisions of this Section 5.2, the
maximum number of shares of Common Stock that may be delivered to
Participants and their beneficiaries under the Plan shall be equal to
2,000,000 (Two Million) shares of Common Stock. In addition, subject to the
following provisions of this Section 5.2, the maximum number of shares of
Common Stock that may be delivered to Participants and their beneficiaries
under the Plan pursuant to Full Value Awards (as defined below) shall be
equal to 500,000 (Five Hundred Thousand) shares of Common Stock. For the
purposes of this Plan, "Full Value Awards" shall be Awards of Bonus Stock,
Stock Equivalent Units, Performance Units, Restricted Stock or Restricted
Stock Units.
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(c) To the extent provided by the Committee, any Award of Stock
Equivalent Units, Performance Units or Restricted Stock Units may be
settled in cash rather than shares of Common Stock. To the extent any
shares of Common Stock covered by an Award are not delivered to a
Participant or beneficiary because the Award is forfeited or canceled, or
the shares of Common Stock are not delivered because the Award is settled
in cash or used to satisfy the applicable tax withholding obligation, such
shares of Common Stock shall not be deemed to have been delivered for
purposes of determining the maximum number of shares of Common Stock
available for delivery under the Plan or, if applicable, pursuant to Full
Value Awards.
(d) If the exercise price of any Option granted under the Plan is
satisfied by tendering shares of Common Stock to the Company (by either
actual delivery or by attestation), only the number of shares of Common
Stock issued net of the shares of Common Stock tendered shall be deemed
delivered for purposes of determining the maximum number of shares of
Common Stock available for delivery under the Plan.
(e) Subject to Section 5.2(f), the following additional limitations
are imposed under the Plan.
(i) The maximum number of shares of Common Stock that may be
covered by Awards granted to any one individual pursuant to Article 3
(relating to Options and SARs) shall be 350,000 shares of Common Stock
during any one calendar year period. If an Option is in tandem with an
SAR, such that the exercise of the Option or SAR with respect to a share
of Common Stock cancels the tandem SAR or Option right, respectively,
with respect to such share, the tandem Option and SAR rights with
respect to each share of Common Stock shall be counted as covering only
one share of Common Stock for purposes of applying the limitations of
this clause (i).
(ii) For Awards granted pursuant to Article 4 that are intended to
be "performance-based compensation" (as that term is used for purposes
of Code section 162(m)), no more than 200,000 shares of Common Stock
and, if such Awards are denominated in cash value, no more than
$800,000, may be subject to such Awards granted to any one individual
during any one calendar year. If, after shares have been earned, the
delivery is deferred, any additional shares attributable to dividends or
other amounts attributable to earnings during the deferral period shall
be disregarded. Unless otherwise indicated by the Committee at the time
of grant, all Awards granted pursuant to Article 4 for which the vesting
or payment are conditioned on achievement of one or more Performance
Measures shall be deemed to be intended to be "performance-based
compensation" for the purposes of Code section 162(m).
(f) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization,
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reorganization, merger, consolidation, split-up, spin-off, combination or
exchange of shares), the Committee may adjust the terms of the Plan and
Awards to preserve the benefits or potential benefits of the Plan or the
Awards. Action by the Committee with respect to the Plan or Awards under
this Section 5.2(f) may include: (i) adjustment of the number and kind of
shares which may be delivered under the Plan; (ii) adjustment of the number
and kind of shares subject to outstanding Awards; (iii) adjustment of the
Exercise Price of outstanding Options and SARs; and (iv) any other
adjustments that the Committee determines to be equitable.
5.3. General Restrictions. Delivery of shares of Common Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Common Stock under the Plan or
make any other distribution of benefits under the Plan unless such delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933, as amended),
and the applicable requirements of any securities exchange or similar
entity.
(b) To the extent that the Plan provides for issuance of certificates
to reflect the issuance of shares of Common Stock, the issuance may be
effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any securities exchange.
5.4. Tax Withholding. All distributions under the Plan shall be subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. Except as otherwise provided by the
Committee, such withholding obligations may be satisfied (a) through cash
payment by the Participant, (b) through the surrender of shares of Common Stock
which the Participant already owns, or (c) through the surrender of shares of
Common Stock to which the Participant is otherwise entitled under the Plan;
provided, however, that such shares of Common Stock under this paragraph (c) may
be used to satisfy not more than the Company's minimum statutory withholding
obligation (based on minimum statutory withholding rates for Federal and state
tax purposes, including without limitation payroll taxes, that are applicable to
such supplemental taxable income).
5.5. Grant and Use of Awards. In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant. Awards may be granted
as alternatives to or replacement of awards granted or outstanding under the
Plan, or any other plan or arrangement of the Company or a Subsidiary (including
a plan or arrangement of a business or entity, all or a portion shares of common
stock of which is acquired by the Company or a Subsidiary). The Committee may
use available shares of Common Stock hereunder as the form of payment for
compensation, grants or
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rights earned or due under any other compensation plans or arrangements of the
Company or a Subsidiary, including the plans and arrangements of the Company or
a Subsidiary assumed in business combinations.
5.6. Dividends and Dividend Equivalents. An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend payments, dividend equivalent payments or dividend equivalent
units with respect to shares of Common Stock subject to the Award (both before
and after the shares of Common Stock subject to the Award are earned, vested, or
acquired), which payments may be either made currently or credited to an account
for the Participant, and may be settled in cash or shares of Common Stock, as
determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Common Stock or
Common Stock equivalents, may be subject to such conditions, restrictions and
contingencies as the Committee shall establish, including the reinvestment of
such credited amounts in Common Stock equivalents.
5.7. Settlement of Awards. The obligation to make payments and
distributions with respect to Awards of Stock Equivalent Units, Performance
Units or Restricted Stock Units may be satisfied through cash payments, the
delivery of shares of Common Stock, the granting of replacement Awards, or any
combination thereof as the Committee shall determine. Satisfaction of any
obligations to make payments or distributions under an Award, which is sometimes
referred to as "settlement" of the Award, may be subject to such conditions,
restrictions and contingencies as the Committee shall determine. The Committee
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest or dividend equivalents, and may include converting
such credits into deferred Common Stock equivalents. Each Subsidiary shall be
liable for payment of cash due under the Plan with respect to any Participant to
the extent that such benefits are attributable to the services rendered for that
Subsidiary by the Participant. Any disputes relating to liability of a
Subsidiary for cash payments shall be resolved by the Committee.
5.8. Transferability. Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.
5.9. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
5.10. Agreement With Company. An Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion,
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prescribe. The terms and conditions of any Award to any Participant shall be
reflected in such form of written document, if any, as is determined by the
Committee. A copy of such document shall be provided to the Participant, and the
Committee may, but need not, require that the Participant sign a copy of such
document. Such document is referred to in the Plan as an "Award Agreement"
regardless of whether any Participant signature is required.
5.11. Action by Company or Subsidiary. Any action required or permitted to
be taken by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or (except
to the extent prohibited by applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.
5.12. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
5.13. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets,
funds or property of the Company or any Subsidiary whatsoever, including,
without limitation, any specific funds, assets or other property which the
Company or any Subsidiary, in its sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the shares of Common Stock or amounts, if any, payable
under the Plan, unsecured by any assets of the Company or any Subsidiary,
and nothing contained in the Plan shall constitute a guarantee that the
assets of the Company or any Subsidiary shall be sufficient to pay any
benefits to any person.
(b) The Plan does not constitute a contract of employment or continued
service, and selection as a Participant will not give any participating
individual the right to be retained in the employ or continued service of
the Company or any Subsidiary, nor any right or claim to any benefit under
the Plan, unless such right or claim has specifically accrued under the
terms of the Plan. Except as otherwise provided in the Plan, no Award under
the Plan shall confer upon the holder thereof any rights as a stockholder
of the Company prior to the date on which the individual fulfills all
conditions for receipt of such rights.
5.14. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
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ARTICLE 6
CHANGE IN CONTROL
Subject to the provisions of Section 5.2(f) (relating to certain
adjustments), upon the occurrence of a Change in Control, unless otherwise
specifically prohibited under applicable laws, or by the rules and regulations
of any applicable governmental agencies or national securities exchange, or
unless the Committee shall otherwise provide in the Award Agreement:
(a) any and all Options and SARs granted hereunder shall become
immediately vested and exercisable and shall remain exercisable for the
lesser of 36 months following such Change in Control or the remaining
maximum term of such Award (regardless of whether the applicable
Participant's employment or directorship is terminated upon or after such
Change in Control);
(b) any period of restriction and restrictions imposed on Restricted
Stock or Restricted Stock Units granted hereunder shall lapse and each
Participant holding any such Award shall be entitled to be paid in cash,
within 30 days after the Change in Control, the total of the fair market
value, determined as of immediately prior to such Change in Control, of any
such Award which he or she held immediately prior to such Change in
Control; and
(c) the target payout opportunities attainable under all Bonus Stock,
Stock Equivalent Unit and Performance Unit Awards granted hereunder shall
be deemed to have been fully earned as of the effective date of the Change
in Control (based on an assumed achievement of all relevant targeted
performance goals over any applicable performance period(s)) and each
Participant holding any such Award shall be entitled to be paid in cash,
within 30 days after the Change in Control, the total of the fair market
value, determined as of immediately prior to such Change in Control, of any
such Award which he or she held immediately prior to such Change in
Control.
ARTICLE 7
COMMITTEE
7.1. Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Article 7. The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board. From and after the
Effective Date, unless removed by the Board or unless said committee no longer
exists, the Company's Compensation/Nominating/Governance Committee shall be the
Committee for purposes of this Plan. If the Committee does not exist, or for any
other reason determined by the Board, the Board may take any action under the
Plan that would otherwise be the responsibility of the Committee.
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7.2. Powers of Committee. The Committee's administration of the Plan shall
be subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Individuals
those persons who shall receive Awards, to determine the time or times of
receipt, to determine the types of Awards and the number of shares of
Common Stock or other amounts covered by the Awards, to establish the
terms, conditions, performance criteria, restrictions and other provisions
of such Awards and (subject to the restrictions imposed by Article 8) to
cancel or suspend Awards.
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of
the Awards in jurisdictions outside the United States, the Committee will
have the authority and discretion to modify those restrictions as the
Committee determines to be necessary or appropriate to conform to
applicable requirements or practices of jurisdictions outside of the United
States.
(c) The Committee will have the authority and discretion to
conclusively interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan, to determine the terms and provisions
of any Award Agreement made pursuant to the Plan and to make all other
determinations that may be necessary or advisable for the administration of
the Plan.
(d) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan is final and binding on all persons.
(e) In controlling and managing the operation and administration of
the Plan, the Committee shall take action in a manner that conforms to the
certificate of incorporation and by-laws of the Company, and applicable
state corporate law.
7.3. Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of a securities exchange, the Committee may allocate
all or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers to
any person or persons selected by it. Any such allocation or delegation may be
revoked by the Committee at any time.
7.4. Information to be Furnished to Committee. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an individual's employment or service, termination of
employment or service, leave of absence, reemployment or recommencement of
service and compensation shall be conclusive on all persons unless determined to
be incorrect. Participants and other persons entitled to benefits under the Plan
must furnish the Committee such evidence, data or information as the Committee
considers desirable to carry out the terms of the Plan.
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ARTICLE 8
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, and may amend any
Award Agreement, provided that no amendment or termination may, in the absence
of written consent to the change by the affected Participant (or, if the
Participant is not then living, the affected beneficiary), adversely affect the
rights of any Participant or beneficiary under any Award granted under the Plan
prior to the date such amendment is adopted by the Board; and further provided
that adjustments pursuant to Section 5.2(f) shall not be subject to the
foregoing limitations of this Article 8. Notwithstanding anything herein to the
contrary, (i) without the prior approval of the Company's stockholders, Options
issued under the Plan will not be repriced, replaced, or regranted through
cancellation, or by lowering the exercise price of a previously granted Option,
and (ii) no amendment of the Plan shall be made without stockholder approval if
stockholder approval is required by applicable law, regulation or stock exchange
rule.
ARTICLE 9
MISCELLANEOUS
9.1. Governing Law. The validity, construction and effect of the Plan, and
any actions taken or relating to the Plan, shall be determined in accordance
with the laws of the State of Illinois and applicable federal law.
9.2. Severability. If for any reason any provision or provisions of the
Plan are determined invalid or unenforceable, the validity and effect of the
other provisions of the Plan shall not be affected thereby.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on its
behalf by its respective officer thereunder duly authorized, on the day and year
set forth below.
Date: As of March 12, 2002
TENNECO AUTOMOTIVE INC.
By: /s/ TIMOTHY R. DONOVAN
----------------------------------------------------
Timothy R. Donovan
Executive Vice President, General Counsel
and Managing Director -- International
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NOTICE OF ANNUAL
MEETING AND
PROXY STATEMENT
-------------------------------------
ANNUAL MEETING
OF STOCKHOLDERS
MAY 14, 2002
TENNECO
AUTOMOTIVE INC.
500 NORTH FIELD DRIVE, LAKE FOREST,
ILLINOIS 60045
[TENNECO AUTOMOTIVE LOGO]
[TENNECO LOGO]
TENNECO AUTOMOTIVE INC.
Annual Meeting of Stockholders
May 14, 2002
10:00 a.m., local time
The Peabody Hotel
149 Union Avenue
Memphis, Tennessee 38103
Dear Stockholder:
Tenneco Automotive Inc. encourages you to take advantage of convenient ways by
which you can vote your shares. You can vote your shares electronically through
the Internet or the telephone. This eliminates the need to return the proxy
card.
To vote your shares electronically, please follow the instructions on the
opposite side of this card.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
/\ FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL /\
--------------------------------------------------------------------------------
PROXY [TENNECO AUTOMOTIVE LOGO]
TENNECO AUTOMOTIVE INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 14, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby appoint Mark P. Frissora, Paul T. Stecko
and Karl A. Stewart, and any of them, with full power of substitution, as
Proxies to vote, as directed on the reverse side of this card, or, if not so
directed, in accordance with the Board of Directors' recommendations, all shares
of Tenneco Automotive Inc. held of record by the undersigned at the close of
business on March 22, 2002 and entitled to vote at the Annual Meeting of
Stockholders of Tenneco Automotive Inc. to be held at 10:00 a.m., local time,
May 14, 2002, at The Peabody Hotel, 149 Union Avenue, Memphis, Tennessee 38103,
or at any adjournment or postponement thereof, and to vote, in their discretion,
upon such other matters as may properly come before the Annual Meeting.
Election of Directors - Nominees: 01) M. Kathryn Eickhoff, 02) Mark P. Frissora,
03) Frank E. Macher, 04) Sir David Plastow, 05) Roger B. Porter, 06) David B.
Price, Jr., 07) Dennis G. Severance, 08) Paul T. Stecko
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The Proxies cannot vote your
shares unless you sign and return this card.
/\ FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL /\
------------------------------------------------------------------------------------------------------------------------------------
[X] PLEASE MARK YOUR
VOTE AS IN THIS [0410)
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ITEMS 1 AND 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
1. Election of Directors [ ] FOR [ ] WITHHELD
(see reverse)
For, except vote withheld from the following nominee(s): ________________________________________________________________________
2. Approve Tenneco Automotive Inc. 2002 Long-Term Incentive Plan FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In the discretion of the Proxies named herein, the Proxies are authorized to vote upon such other matters as may properly come
before the meeting (or any adjournment or postponement thereof).
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such.
SIGNATURE ________________________________________________________________
SIGNATURE ________________________________________________________________
DATE _____________________________________________________________________
TENNECO AUTOMOTIVE INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045 [TENNECO AUTOMOTIVE LOGO]
April 5, 2002
Dear Benefit Plan Participant:
The Annual Meeting of Stockholders of Tenneco Automotive Inc. is scheduled
to be held at The Peabody Hotel, 149 Union Avenue, Memphis, Tennessee 38103 at
10:00 a.m., local time, on Tuesday, May 14, 2002. A copy of the Notice and Proxy
Statement, which is being sent to all registered stockholders in connection with
the Annual Meeting, is enclosed for your information.
Also enclosed with this letter is a form of proxy card, which designates
the number of shares held in your benefit plan account. By executing this proxy
card you instruct the benefit plan trustee (the "Trustee") how to vote the
shares of Tenneco Automotive Inc. stock in your account which you are entitled
to vote. The Trustee will vote all shares eligible to be voted by benefit plan
participants in accordance with their instructions.
If you return your form of proxy executed but without furnishing voting
instructions, the eligible shares in your account will be voted by the Trustee,
as holder of record of the shares in your account, FOR the election of the
nominees for director named in the Proxy Statement, FOR the approval of the
Tenneco Automotive Inc. 2002 Long-Term Incentive Plan and in the discretion of
the proxies on all other matters as may be properly brought before the Annual
Meeting.
If you do not return your executed form of proxy to the Trustee, then your
shares can be voted by the Trustee only in accordance with the requirements of
your benefit plan, which may or may not reflect your views.
Your vote is important. Please send your executed form of proxy card with
your voting instructions at your earliest opportunity. For your convenience, a
return envelope is enclosed.
YOUR BENEFITS COMMITTEE