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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 Pursuant to Section 240.14a-12
TENNECO 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)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS
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CONTROL NUMBER.
SEC 1913 (04-05)
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 (TENNECO LOGO)
March 27, 2006
To the Stockholders of Tenneco Inc.:
The Annual Meeting of Stockholders of the Company will be held Tuesday, May
9, 2006, at 10:00 a.m., local time, at the Company's headquarters located at 500
North Field Drive, Lake Forest, Illinois 60045. 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 2005 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, Chief Executive Officer
and President
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 (TENNECO LOGO)
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 2006
The Annual Meeting of Stockholders of Tenneco Inc. will be held at the
Company's principal executive offices located at 500 North Field Drive, Lake
Forest, Illinois 60045 on Tuesday, May 9, 2006, at 10:00 a.m., local time.
The purposes of the meeting are:
1. To elect eleven directors for a term to expire at the 2007 Annual
Meeting of Stockholders;
2. To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as independent public accountants for 2006;
3. To consider and act upon a proposal to approve the Tenneco Inc. 2006
Long-Term Incentive Plan, pursuant to which up to 2,000,000 shares of the
Company's common stock (in addition to shares remaining available under the
Company's prior equity incentive plan) will be available for delivery under
awards granted pursuant to the plan; and
4. 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 14, 2006 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 Company's principal executive offices located at 500 North Field Drive,
Lake Forest, Illinois 60045, 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
March 27, 2006
TENNECO INC. (TENNECO LOGO)
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000
March 27, 2006
PROXY STATEMENT
This statement is furnished in connection with the solicitation on behalf
of the Board of Directors of Tenneco Inc. (the "Company") of proxies (the
"Proxies") to be voted at the Annual Meeting of Stockholders on May 9, 2006, or
at any adjournment or postponement thereof (the "Annual Meeting"). Holders of
common stock of record at the close of business on March 14, 2006 will be
entitled to vote at the Annual Meeting. Each share is entitled to one vote. At
March 14, 2006, there were 45,169,180 shares of common stock outstanding and
entitled to vote. This Proxy Statement is first being mailed to stockholders on
or about March 27, 2006.
BACKGROUND
In 1996, the Company was formed and spun off from the company that, at the
time, was known as Tenneco Inc. After the spin-off, the Company held the former
Tenneco Inc.'s automotive and packaging operations. In 1999, the Company spun
off the packaging operations and, at that time, changed its name to "Tenneco
Automotive Inc." In October 2005, the Company returned to the name "Tenneco
Inc.", as the Company believes the name Tenneco better represents the continued
expansion of the Company's offerings through its commercial and specialty
vehicle businesses.
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ELECTION OF DIRECTORS
(ITEM 1)
The Company's Board of Directors currently comprises eleven individuals,
all of whom are proposed to be elected at this Annual Meeting to serve for a
term to expire at the annual meeting of stockholders to be held in 2007 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 14, 2006), the principal
occupation, the employment during at least the past five years, the year in
which first elected a director and other information concerning each nominee
appears below.
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 2007 ANNUAL MEETING OF STOCKHOLDERS
CHARLES W. CRAMB -- Mr. Cramb has been Executive Vice President, Finance
and Technology and Chief Financial Officer of Avon Products, Inc., a global
manufacturer and marketer of beauty and related products, since November 2005.
Mr. Cramb was Senior Vice President and Chief Financial Officer of The Gillette
Company, a global manufacturer and marketer of a wide variety of consumer
products, from 1997 until October 2005. He joined Gillette in 1970 and served in
a number of financial positions. From 1976 to 1981, he held several key
financial management positions in Gillette's European operations, including
Manager, Financial Services, Gillette Europe, and Financial Controller, Gillette
Industries Limited, UK. From 1981 to 1995, he held a series of senior financial
management positions in the United States, including Controller, International
Operations; Vice President, Finance and Strategic Planning, Gillette North
Atlantic Group; Assistant Controller, The Gillette Company; and Vice President,
Finance, Planning and Administration, Diversified Group. From 1995 to 1997, he
was Corporate Vice President and Corporate Controller. He is a director of
Idenix Pharmaceuticals, Inc., where he is Chairman of the Audit Committee and a
member of the Compensation Committee. Mr. Cramb is also a member of the Board of
Visitors for Lawrence Academy. He was elected to the Company's Board of
Directors in March 2003, is 59 years old and is Chairman of the Audit Committee.
TIMOTHY R. DONOVAN, Executive Vice President -- Strategy and Business
Development and General Counsel -- Mr. Donovan was named Executive Vice
President -- Strategy and Business Development in July 2005. He was promoted to
Executive Vice President in December 2001 and was named Senior Vice President
and General Counsel in August 1999. Mr. Donovan also is in charge of the
Company's worldwide Environmental, Health and Safety Program. From October 2004
through July 2005, Mr. Donovan served as Managing Director-Asia Pacific, with
responsibility for Australia, New Zealand, Asia and the Japanese original
equipment business worldwide. From May 2001 through October 2004, he served as
Managing Director of the Company's International Group with responsibility for
all of the Company's operations in Asia and South America, as well as the
Japanese original equipment business worldwide. Mr. Donovan was a partner in the
law firm of Jenner & Block from 1989 until his resignation in September 1999,
and from approximately 1997 through 1999 served as the Chairman of Jenner &
Block's Corporate and Securities Department and as a member of its Executive
Committee. He is also a director of John B. Sanfilippo & Son, Inc., where he is
a member of its Compensation Committee and is the Chairman of its Audit
Committee. Mr. Donovan is 50 years old and became a director of the Company in
March 2004.
M. KATHRYN EICKHOFF-SMITH -- Ms. Eickhoff-Smith served as President and
Chief Economist of Eickhoff Economics, Inc., a consulting firm, from 1987 until
her recent retirement. 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-Smith spent 23 years at Townsend Greenspan & Co., Inc., an economic
consulting firm, most recently as Executive Vice President and Treasurer. She is
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also a director of Moorings Park Institute, a non-profit retirement community in
Naples, Florida. Ms. Eickhoff-Smith has been a director of the Company since
1996 (and prior to that was a director of the former Tenneco Inc. since 1987).
She also served as a member of Tenneco Inc.'s Board of Directors from 1982 until
her resignation to join the Office of Management and Budget in 1985. Ms.
Eickhoff-Smith is 66 years old and is a member of the Audit Committee and
Three-Year Independent Director Evaluation Committee.
MARK P. FRISSORA, Chairman of the Board, Chief Executive Officer and
President -- Mr. Frissora became the Company's Chief Executive Officer in
connection with the spin-off of the packaging operations in November 1999 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 Aeroquip Vickers
Corporation, where he served since 1991 as a Vice President. In the 15 years
prior to joining Aeroquip Vickers, he served for 10 years with General Electric
and five 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. He is also a director
of NCR Corporation, where he serves on its Compensation Committee, and FMC
Corporation, where he serves on its Audit Committee. Mr. Frissora is 50 years
old and became a director of the Company in November 1999.
FRANK E. MACHER -- Mr. Macher has served as President and Chief Executive
Officer and as a member of the Board of Directors of Collins & Aikman
Corporation, a global supplier of motor vehicle parts, since July 2005. Mr.
Macher served as Chief Executive Officer of Federal Mogul Corporation, a
manufacturer of motor vehicle parts and supplies, from January 2001 to July 2003
and Chairman of Federal Mogul from October 2001 to his retirement in January
2004. 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 65 years
old and was named a director of the Company in July 2000. He is a member of the
Board of Trustees of Kettering University. Mr. Macher is a member of the Audit
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 Zions Bancorporation, Pactiv Corporation, Extra
Space Storage Inc. and Packaging Corporation of America. Mr. Porter is
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59 years old and has been a director of the Company since January 1998. Mr.
Porter is a member of the Compensation/Nominating/Governance Committee and the
Chairman of the Three-Year Independent Director Evaluation Committee.
DAVID B. PRICE, JR. -- Mr. Price has served as Chief Executive Officer and
President of Birdet Price, LLC, an investment and consulting firm wholly owned
by Mr. Price, 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. He is a director and
Vice Chairman of the YMCA of Greater St. Louis and a Director of St. Lukes
Hospital in St. Louis. He is also a director of CH2M HILL. Mr. Price is 60 years
old and was named a director of the Company in November 1999. Mr. Price is the
Chairman of the Compensation/Nominating/ Governance Committee and a member of
the Three-Year Independent Director Evaluation Committee.
DENNIS G. SEVERANCE -- Dr. Severance is the Accenture Professor of Business
Information & Technology at the Stephen M. Ross Business School, University of
Michigan. 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 62 years old and became a director of the Company
in July 2000. Dr. Severance is a member of the Audit 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 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 61 years old and has been a director of the Company since November
1998. He is also a director of State Farm Mutual Insurance Company, American
Forest and Paper Association and Cives Corporation and is the Chairman of the
Board of Packaging Corporation of America. Mr. Stecko is a member of the
Compensation/Nominating/Governance Committee and the Three-Year Independent
Director Evaluation Committee.
MITSUNOBU TAKEUCHI -- Mr. Takeuchi served as Chairman Emeritus of DENSO
International Americas, Inc., the North American arm of Japan-based DENSO Corp.,
a worldwide supplier of
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advanced automotive systems and components, from 2004 until January 2006. Mr.
Takeuchi joined DENSO in 1964 and rose through a series of sales and general
manager positions in Japan and North America, with experience in both original
equipment and aftermarket. He became President and Chief Executive Officer,
DENSO International Americas in 1997, Chairman and Chief Executive Officer in
2002 and Chairman Emeritus in 2004. Mr. Takeuchi is a director of the Economic
Club of Detroit and the Motor Equipment Manufacturers Association and a member
and past president of the Japan Business Society of Detroit. Mr. Takeuchi is 64
years old and has been a director of the Company since January 2006.
JANE L. WARNER -- Ms. Warner has served as Group President, ITW Finishing
Systems at Illinois Tool Works Inc., a global manufacturer of specialty products
and equipment, since December 2005. Ms. Warner served as President of Plexus
Systems, L.L.C., a provider of manufacturing information systems, from June 2004
until December 2005. From 2000 to June 2004, Ms. Warner held various positions
with Electronic Data Systems Corporation ("EDS"), including President of its
Global Manufacturing Industry Solutions Group and Managing Director of its
Global Automotive Industry Group. Prior to joining EDS, Ms. Warner served as
President of Kautex Textron Inc. North America from 1998 to 1999 and Executive
Vice President for Textron Automotive Company from 1994 to 1999. Previously, Ms.
Warner held various positions over a 20-year span at General Motors Corporation,
including positions in engineering, manufacturing and human resources. Ms.
Warner is 59 years old and was named a director of the Company in October 2004.
Ms. Warner also is a board member of MeadWestvaco Corporation, where she sits on
the Audit and Safety, Health and Environmental Committees, a board member of the
Original Equipment Suppliers Association and is a member of the Board of
Trustees for Kettering University where she serves on the Executive Committee
and the Finance Committee. Ms. Warner is a member of the
Compensation/Nominating/Governance Committee.
CORPORATE GOVERNANCE OVERVIEW
The Company has established a comprehensive corporate governance plan for
the purpose of defining responsibilities, setting high standards of professional
and personal conduct and assuring compliance with such responsibilities and
standards. As part of its annual review process, the Board of Directors monitors
developments in the area of corporate governance. Listed below are some of the
key elements of the Company's corporate governance plan. Many of these matters
are described in more detail elsewhere in this Proxy Statement.
INDEPENDENCE OF DIRECTORS (SEE P. 10)
- Nine of the Company's eleven current directors are independent under the
New York Stock Exchange ("NYSE") listing standards.
- Independent directors are scheduled to meet separately in executive
session after every regularly scheduled Board of Directors meeting.
- The Company has a lead independent director, Mr. Paul T. Stecko.
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AUDIT COMMITTEE (SEE PP. 11-12 AND PP. 38-41)
- All members meet the independence standards for audit committee
membership under the NYSE listing standards and applicable Securities and
Exchange Commission ("SEC") rules.
- One member of the Audit Committee, Mr. Charles Cramb, qualifies as an
"audit committee financial expert," as defined in the SEC rules, and the
remaining members of the Audit Committee satisfy the NYSE's financial
literacy requirements.
- The Audit Committee operates under a written charter that governs its
duties and responsibilities, including its sole authority to appoint,
review, evaluate and replace the Company's independent auditors.
- The Audit Committee has adopted policies and procedures governing the
pre-approval of all audit, audit-related, tax and other services provided
by the Company's independent auditors.
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE (SEE P. 10 AND PP. 28-36)
- All members meet the independence standards for compensation and
nominating committee membership under the NYSE listing standards.
- The Compensation/Nominating/Governance Committee operates under a written
charter that governs its duties and responsibilities, including the
responsibility for executive compensation.
- In December 2005, an Executive Compensation Subcommittee was formed which
has the responsibility to consider and approve equity-based compensation
for the Company's executive officers which is intended to qualify as
"performance based compensation" under Section 162(m) of the Internal
Revenue Code of 1986, as amended.
CORPORATE GOVERNANCE PRINCIPLES
- The Company has adopted Corporate Governance Principles, including
qualification and independence standards for directors.
STOCK OWNERSHIP GUIDELINES
- The Company has adopted Stock Ownership Guidelines to align the interests
of its executives with the interests of stockholders and promote the
Company's commitment to sound corporate governance.
- The Stock Ownership Guidelines apply to the independent directors, the
Chairman and Chief Executive Officer, all Executive Vice Presidents and
all Senior Vice Presidents. Ownership levels are determined as a multiple
of the participant's base salary or, in the
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case of an independent director, his or her Board of Directors retainer
fee and then converted to a fixed number of shares.
COMMUNICATION WITH DIRECTORS (SEE PP. 13-14)
- The Audit Committee has established a process for confidential and
anonymous submissions by employees of the Company, as well as submissions
by other interested parties, regarding questionable accounting or
auditing matters.
- Additionally, the Board of Directors has established a process for
stockholders to communicate with the Board of Directors, as a whole, or
any independent director.
CODES OF BUSINESS CONDUCT AND ETHICS
- The Company has adopted a Code of Ethical Conduct for Financial Managers
that applies to the Company's Chief Executive Officer, Chief Financial
Officer, Controller and other key financial managers.
- The Company also operates under an omnibus Statement of Business
Principles that applies to all directors, officers and employees and
includes provisions ranging from restrictions on gifts to conflicts of
interests. All salaried employees are required to affirm in writing their
acceptance of these principles.
PERSONAL LOANS TO EXECUTIVE OFFICERS AND DIRECTORS
- The Company complies with and will operate in a manner consistent with
the legislation outlawing extensions of credit in the form of a personal
loan to or for its directors or executive officers.
The Company's Audit Committee Charter, Compensation/Nominating/Governance
Committee and Executive Compensation Subcommittee Charters, Corporate Governance
Principles, Stock Ownership Guidelines, Audit Committee policy regarding
accounting complaints, Code of Ethical Conduct for Financial Managers, Statement
of Business Principles, policy for communicating with the Board of Directors and
Audit Committee policy regarding the pre-approval of audit, audit-related, tax
and other services may be accessed on the Company's website at www.tenneco.com.
The contents of the website are not, however, a part of this Proxy Statement. In
addition, the Company will make a copy of any of these documents available to
any person, without charge, upon written request to Tenneco Inc., 500 North
Field Drive, Lake Forest, Illinois 60045, Attn: General Counsel. The Company
intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K and
applicable NYSE rules regarding amendments to or waivers of its Code of Ethical
Conduct for Financial Managers and Statement of Business Principles by posting
this information on its website at www.tenneco.com.
8
THE BOARD OF DIRECTORS AND ITS COMMITTEES
GENERAL. The Board of Directors of the Company currently comprises eleven
members, nine of whom are not officers of the Company (the "Outside Directors")
and two of whom are officers of the Company (the "Inside Directors"). 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.
The Board of Directors has determined that all nine of the Outside
Directors are "independent" as that term is defined under the listing standards
of the NYSE. As part of its analysis, the Board determined that none of the
Outside Directors has a direct or indirect material relationship with the
Company. Under written guidelines adopted by the Board, the following commercial
or charitable relationships are not considered to be material relationships that
would impair a director's independence: (i) the director is an executive officer
of another company that (directly or indirectly through its subsidiaries or
affiliates) does business with the Company and the annual sales to, or purchases
from, the Company are less than 1% of the annual consolidated revenues of both
the Company and the other company he or she serves as an executive officer; (ii)
the director is an executive officer of another company that (directly or
indirectly through its subsidiaries or affiliates) is indebted to the Company,
or to which the Company is indebted, and the total amount of either company's
consolidated indebtedness to the other is less than 1% of the total consolidated
assets of the indebted company; (iii) the director is an executive officer of
another company in which the Company owns a common equity interest, and the
amount of the Company's interest is less than 5% of the total voting power of
the other company; or (iv) the director serves as an officer, director or
trustee of a charitable organization, and the Company's discretionary charitable
contributions to the organization are less than 1% of that organization's total
annual charitable receipts. The Outside Directors do not have relationships with
the Company that are not within these guidelines.
During 2005, the Board of Directors held seven meetings. During 2005, all
of the then-current directors attended at least 75% of the aggregate of all
meetings of the Board of Directors and all meetings of the committees of the
Board held and on which the director served. The Board of Directors is scheduled
to meet in executive session, without management, after every Board meeting that
the directors attend in person. Mr. Stecko acts as lead independent director to
chair these executive sessions and as primary spokesperson in communicating
matters arising out of these sessions to Company management.
All of the directors, other than Mr. Takeuchi (who joined the Board in
2006), attended last year's annual meeting of the stockholders. The Board of
Directors has a policy that, absent unusual circumstances, all directors attend
the Company's annual stockholder meetings.
The Board of Directors has three standing committees. These committees have
the responsibilities and authority described below.
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COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE. The members of the
Compensation/Nominating/Governance Committee are Ms. Warner and Messrs. Porter,
Stecko and Price, who is the Chairman of the Committee. The
Compensation/Nominating/ Governance Committee is comprised solely of Outside
Directors who meet the independence standards for compensation and nominating
committee members as set forth in the NYSE listing standards.
The Compensation/Nominating/Governance Committee 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; (3) supervise the welfare and pension plans and
compensation plans of the Company; and (4) produce an annual report on executive
compensation for inclusion in the Company's proxy statement in accordance with
applicable rules and regulations of the SEC. 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; (d) review
the qualifications of and recommend candidates for election as officers of the
Company; and (e) develop, recommend to the Board of Directors for approval and,
as appropriate, recommend to the Board of Directors revisions to Corporate
Governance Principles applicable to the Company.
The Compensation/Nominating/Governance Committee operates pursuant to a
written charter, which was most recently reviewed and reaffirmed by the Board of
Directors in March 2005 as part of its annual review process (the Committee has
scheduled its 2006 review of the charter for its May 2006 meeting). The
Compensation/Nominating/Governance Committee held six meetings during 2005.
An Executive Compensation Subcommittee, consisting of all
Compensation/Nominating/ Governance Committee members except Mr. Stecko, was
formed in 2005. This subcommittee has the responsibility of considering and
approving equity-based compensation for the Chief Executive Officer and the
Company's other executive officers which is intended to qualify as "performance
based compensation" under Section 162(m) of the Internal Revenue Code of 1986,
as amended.
A report of the Compensation/Nominating/Governance Committee regarding
executive compensation appears elsewhere in this Proxy Statement.
THREE-YEAR INDEPENDENT DIRECTOR EVALUATION ("TIDE") COMMITTEE. The members
of the TIDE Committee are Ms. Eickhoff-Smith and Messrs. Price, Stecko and
Porter, who is the Chairman of the Committee. The TIDE Committee, comprised
solely of Outside Directors, has the responsibility, among other things, to
review the Company's stockholder rights plan at least
10
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 2005.
AUDIT COMMITTEE. The members of the Audit Committee are Ms. Eickhoff-Smith
and Messrs. Macher, Severance and Cramb, who is the Chairman of the Committee.
The Audit Committee is comprised solely of directors who meet all of the
independence standards for audit committee membership as set forth in the
Sarbanes-Oxley Act of 2002, and the SEC rules adopted thereunder, and the NYSE
listing standards. The Board of Directors has determined that Mr. Cramb
qualifies as an "audit committee financial expert" as that term is defined in
the SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002.
Management is responsible for the Company's internal controls over the
financial reporting process. The independent public accounting firm is
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted audit standards and
for issuing a report on its audit. The Audit Committee's duty is to oversee and
monitor these activities on behalf of the Board of the Directors. Specifically,
the Audit Committee has the responsibility, among other things, to: (1) select
and approve the compensation of the Company's independent public accountants;
(2) review and approve the scope of the independent public accountants' audit
activity and all non-audit services; (3) review with management and the
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; (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; (6) review the
independence, qualifications and performance of the Company's independent public
accountants; (7) provide an avenue of communication among the independent public
accountants, management, the internal auditors and the Board of Directors; and
(8) prepare the audit-related report required by the SEC to be included in the
Company's annual proxy statement.
In fulfilling its responsibilities, the Audit Committee reviewed with
management and the independent public accountants (a) significant issues, if
any, regarding accounting principles and financial statement presentations,
including any significant changes in the Company's selection or application of
accounting principles, and significant issues, if any, as to the adequacy of the
Company's internal controls and any special audit steps adopted in view of
material internal control deficiencies; (b) analyses prepared by management
and/or the independent public accountants setting forth significant financial
reporting issues and judgments made in connection with the preparation of the
financial statements, including analyses of the effects of alternative generally
accepted accounting principles methods on financial statements; (c) the effect
of regulatory and accounting initiatives, as well as off-balance sheet
structures, if any, on the financial statements of the Company; and (d) the type
and presentation of information to be included in earnings press releases, as
well as any financial information and
11
earnings guidance provided to analysts and rating agencies. In addition, the
Audit Committee has discussed the Company's major risk exposures and the steps
that management has taken to monitor and control such exposures. Management is
required to advise the Committee of any instances of fraud relating to employees
who have a significant role in the Company's internal controls. The Committee
was advised that management was not aware of any such instances of fraud.
The Audit Committee operates under a written charter, the current version
of which was reaffirmed by the Board of Directors in March 2006 as part of its
annual review process. The Audit Committee held ten meetings in 2005. A report
of the Audit Committee appears elsewhere in this Proxy Statement.
CONSIDERATION OF DIRECTOR NOMINEES. The Compensation/Nomination/Governance
Committee regularly assesses the size of the Board of Directors, the need for
expertise on the Board of Directors and whether any vacancies are expected on
the Board of Directors due to retirement or otherwise. The Committee's process
for identifying and evaluating nominees is as follows: In the case of incumbent
directors, the Committee reviews annually such directors' overall service to the
Company during their term, including the number of meetings attended, level of
participation, quality of performance and any transactions of such directors
with the Company during their term. In the event that vacancies are anticipated,
or otherwise arise, the Compensation/Nomination/Governance Committee considers
various potential candidates for director which may come to its attention
through a variety of sources, including current Board members, stockholders or
other persons. In addition, from time to time the Committee will retain a
professional search firm to assist it in identifying director candidates, for
which the firm generally receives a fee. For example, from October 2005 to
January 2006, a third-party executive search firm, Spencer Stuart, assisted the
Compensation/Nominating/Governance Committee in a search for new director
candidates. Based on that search, the Compensation/Nominating/Governance
Committee recommended the election of, and the Board of Directors elected, Mr.
Takeuchi to the Board of Directors. All candidates for director are evaluated at
regular or special meetings of the Compensation/Nomination/Governance Committee.
In evaluating and determining whether to recommend a person as a candidate for
election as a director, the Compensation/Nomination/Governance Committee
considers the qualification standards set forth in the Company's Corporate
Governance Principles, including: (1) personal and professional ethics,
integrity and values; (2) an ability and willingness to undertake the requisite
time commitment to Board functions; (3) independence pursuant to the guidelines
set forth in the Corporate Governance Principles and applicable rules and
regulations; (4) age, which must be less than 72; (5) the potential impact of
service on the board of directors of other public companies, including
competitors of the Company; and (6) an absence of employment at a competitor of
the Company.
The Compensation/Nominating/Governance Committee will consider director
candidates recommended by stockholders provided the procedures set forth below
are followed by
12
stockholders in submitting recommendations. The committee does not intend to
alter the manner in which it evaluates candidates, including the minimum
criteria set forth above, based on whether the candidate was recommended by a
stockholder. 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. Following verification of
the stockholder's status, the Compensation/Nomination/Governance Committee will
perform an initial analysis of the qualifications of the nominee pursuant to the
criteria listed above to determine whether the nominee is qualified for service
on the Company's Board of Directors before deciding to undertake a complete
evaluation of the nominee. Other than the verification of compliance with the
procedures set forth in the Company's By-laws and stockholder status, and the
initial analysis performed by the Compensation/Nomination/Governance Committee,
a person nominated by a stockholder for election to the Board of Directors is
treated like any other potential candidate during the review process by the
Compensation/Nomination/Governance Committee.
COMMUNICATIONS WITH THE DIRECTORS. Anyone who has a concern about the
Company's conduct, or about the Company's accounting, internal accounting
controls or auditing matters, may communicate that concern directly to the Board
of Directors, the Company's lead independent director (Mr. Stecko) or any other
non-employee director or the Audit Committee. All such concerns will be
forwarded to the appropriate directors for their review, and all concerns
related to audit or accounting matters will be forwarded to the Audit Committee.
All reported concerns will be simultaneously reviewed and addressed by the
Company's Chief Compliance Officer and General Counsel, or his or her designee
(unless he or she is alleged to be involved in the matter at issue). The status
of all outstanding concerns addressed to the Board, the non-employee directors
or the Audit Committee will be reported to the Board or the Audit Committee (as
applicable) on a quarterly basis. The Board or any committee may direct special
treatment, including the retention of outside advisors or counsel, for any
concern addressed to them. The Company's corporate policies prohibit retaliatory
action against any employee who raises concerns or questions in good faith about
these matters.
Stockholders wishing to communicate with the Board of Directors, any
Outside Director or the Audit Committee may do so by writing to the Company's
Corporate Secretary at 500 North Field Drive, Lake Forest, Illinois 60045. The
Corporate Secretary will forward any communications
13
as directed by the stockholder. The Company maintains a separate, internal
system for the receipt of communications from employees.
COMPENSATION OF DIRECTORS
FEE STRUCTURE. In 2005, each Outside Director was paid an annual retainer
fee of $50,000 for service on the Board of Directors. In general, 100% of the
retainer fee is to be paid in the form of common stock equivalents (the
"directors' stock equivalents"), as described below. A director may elect,
however, to have up to 40%, or $20,000, of the fee paid in cash. The Outside
Directors also receive meeting attendance fees, committee chair and membership
fees, and reimbursement of their expenses for attending meetings of the Board of
Directors and its committees. The fees are generally paid in cash, but at the
option of the director may be paid in directors' stock equivalents. Outside
Directors receive $1,000 for each in-person meeting of the Board of Directors
attended, and $500 for each telephonic meeting. Outside Directors who are
members of the Audit Committee or the Compensation/Nominating/Governance
Committee receive $1,000 for each in-person meeting, and $500 for each
telephonic meeting attended. In 2005, each Outside Director who served as a
Chairman of the Audit Committee or the Compensation/Nominating/ Governance
Committee was paid a fee of $8,000 per chairmanship. Also, the lead independent
director was paid a $6,000 retainer fee for serving as the chairman and primary
spokesman when the Board of Directors meets in executive session. Outside
Directors who serve as members of the Audit Committee or
Compensation/Nominating/ Governance Committee are paid $4,000 per committee
membership. Members of the Three-year Independent Director Evaluation Committee
receive $1,000 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 equivalents are payable in cash or, at the
Company's option, shares of common stock after an Outside Director ceases to
serve as a director. Final distribution of these amounts 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.
Through 2005, each Outside Director generally received an annual grant of
an option to purchase up to 5,000 shares of common stock in January. These
Directors' options: (a) were 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) in 2005, had terms of seven years (for prior periods, the terms
were ten years); and (c) generally, fully vested six months from the grant date.
Once vested, the directors' options are exercisable at any time during the
option term. In early 2005, the Board granted options to purchase an additional
6,475 and 1,502 shares to Mr. Cramb and Ms. Warner, respectively. These grants
were designed to compensate these directors for the partial-year periods (from
March 2003 through December 2003, in the case of Mr. Cramb, and from October
2004 through December 2004, in the case of Ms. Warner) during
14
which these directors served on the Board but had not yet received an annual
option award. In December 2005, the Board of Directors determined to replace the
annual option-grant program with annual awards of restricted stock. Accordingly,
in December 2005, each Outside Director at the time was granted 3,500 shares of
restricted stock, which vest on the first anniversary of the date of grant.
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 $20,000, of his or her retainer fee and
some or all of his or her meeting or other 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, at the Company's option,
shares of common stock.
RESTRICTED STOCK. In partial satisfaction of residual obligations under
the discontinued retirement plan for directors, Ms. Eickhoff-Smith 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 Ms. Eickhoff-Smith ceases
to serve on the Board prior to the expiration of the restricted period. This
restricted period ends upon Ms. Eickhoff-Smith's normal retirement from the
Board, unless she is disabled or dies, or the Compensation/Nominating/Governance
Committee of the Board, at its discretion, determines otherwise. During the
restricted period, Ms. Eickhoff-Smith will be entitled to vote the shares and
receive dividends.
15
OWNERSHIP OF COMMON STOCK
MANAGEMENT
The following table shows, as of March 14, 2006, the number of shares of
the Company's common stock, par value $.01 per share (the only class of voting
securities outstanding), 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.
SHARES OF
COMMON STOCK
(1)(2)(3)(4)
------------
DIRECTORS
---------
Charles W. Cramb............................................ 20,975
Timothy R. Donovan.......................................... 162,171
M. Kathryn Eickhoff-Smith................................... 38,297
Mark P. Frissora............................................ 584,427
Frank E. Macher............................................. 39,304
Roger B. Porter............................................. 43,152
David B. Price, Jr. ........................................ 72,324
Dennis G. Severance......................................... 41,304
Paul T. Stecko.............................................. 22,296
Mitsunobu Takeuchi.......................................... --
Jane L. Warner.............................................. 11,002
NAMED EXECUTIVE OFFICERS
------------------------
Hari N. Nair................................................ 268,915
Kenneth R. Trammell......................................... 143,083
Richard P. Schneider........................................ 168,743
All executive officers and directors as a group (19
individuals).............................................. 2,201,014(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 and, in the case of Mr. Frissora, 300 shares held by his
son (as to which Mr. Frissora disclaims beneficial ownership).
(2) Includes restricted shares. At March 14, 2006, Ms. Eickhoff-Smith and
Messrs. Donovan, Frissora, Nair, Trammell and Schneider held 21,626, 45,000,
195,000, 45,000, 35,750 and 25,000 restricted shares, respectively. At March
14, 2006, each Outside Director, other than Ms. Eickhoff-Smith (described
above) and Mr. Takeuchi, held 3,500 restricted shares. Also includes shares
that are subject to options that are exercisable within 60 days of
(Notes continued on following page.)
16
March 14, 2006 for Ms. Eickhoff-Smith, Ms. Warner and Messrs. Cramb,
Donovan, Frissora, Macher, Porter, Price, Severance, Stecko, Nair, Trammell
and Schneider to purchase 10,000, 6,502, 16,475, 108,000, 341,667, 32,500,
35,000, 35,000, 32,500, 10,000, 219,667, 92,500 and 87,800 shares,
respectively.
(3) Mr. Frissora beneficially owns approximately 1.3% of the outstanding common
stock. Each of the other individuals listed in the table owns less than 1%
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 4.7% of the outstanding common stock.
(4) For Outside Directors, does not include common stock equivalents received in
payment of director fees. These common stock equivalents are payable in cash
or, at the Company's option, shares of common stock after an Outside
Director ceases to serve as a director. At March 14, 2006, the total number
of common stock equivalents held by Ms. Eickhoff-Smith, Ms. Warner and
Messrs. Cramb, Macher, Porter, Price, Severance, Stecko and Takeuchi was
24,397, 4,011, 17,425, 16,405, 65,469, 42,195, 44,960, 42,195 and 1,444,
respectively.
(5) Includes 1,407,895 shares that are subject to options that are exercisable
within 60 days of March 14, 2006 by all executive officers and directors as
a group. Includes 506,375 restricted shares.
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 14, 2006, certain information
regarding the persons known by the Company to be the beneficial owner of more
than 5% 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
---------------------- ------------ -----------------
Lord, Abbett & Co. LLC........................... 3,794,967(2) 8.4%
90 Hudson Street
Jersey City, NJ 07302
---------------
(1) This information is based on information contained in filings made with the
SEC regarding the ownership of the Company's common stock.
(2) Lord, Abbett & Co. LLC has indicated that it has sole voting power over
3,794,967 shares and sole dispositive power over 3,794,967 shares in the
aggregate.
17
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company, for the
periods indicated, to: (1) the Company's Chief Executive Officer; 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(2) SATION(3) AWARDS(4) OPTIONS PAYOUTS(5) SATION(6)
--------------------------- --------- ---------- --------- ---------- ---------- ---------- ---------
Mark P. Frissora................... 2005 $811,302 $1,223,767 $ 50,267 $1,215,750 75,000 $1,305,000 $ 10,929
Chairman, Chief Executive 2004 $775,472 $ 980,750 $ 66,779 $ 660,000 75,000 $2,437,500 $ 9,464
Officer and President 2003 $753,117 $ 777,750 $ 91,173 $ 94,250 125,000 $2,427,750 $408,893
Timothy R. Donovan................. 2005 $425,895 $ 417,462 $ 42,420 $ 291,780 18,000 $ 435,000 $ 10,131
Executive Vice President -- 2004 $420,348 $ 402,675 $ 50,616 $ 158,400 18,000 $ 812,500 $ 7,986
Strategy and Business 2003 $408,414 $ 348,075 $ 32,785 $ 37,700 55,000 $ 874,605 $ 7,579
Development and General
Counsel
Hari N. Nair....................... 2005 $385,928 $ 417,462 $141,098 $ 291,780 18,000 $ 435,000 $ 8,631
Executive Vice President and 2004 $363,353 $ 402,675 $ 86,837 $ 158,400 18,000 $ 812,500 $ 7,897
Managing Director -- Europe, 2003 $342,920 $ 348,075 $193,135 $ 37,700 55,000 $ 874,605 $ 7,331
South America and India
Kenneth R. Trammell................ 2005 $345,007 $ 331,615 $ 33,857 $ 194,520 15,000 $ 391,500 $ 8,471
Executive Vice President and 2004 $336,920 $ 314,841 $ 50,487 $ 105,600 15,000 $ 731,250 $ 7,773
Chief Financial Officer 2003 $233,296 $ 141,851 $ 21,091 $ 14,398 18,750 $ 261,339 $ 6,902
Richard P. Schneider............... 2005 $371,276 $ 246,196 $ 42,045 $ 194,520 12,000 $ 348,000 $ 9,992
Senior Vice President 2004 $368,511 $ 237,475 $ 59,774 $ 105,600 12,000 $ 650,000 $ 9,429
Global Administration 2003 $358,545 $ 205,275 $ 41,542 $ 20,735 30,000 $ 482,022 $ 8,394
---------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Company's 401(k) plans.
(2) Represents amounts paid under the Tenneco Value Added Incentive Compensation
Plan to each Named Executive. Of the payments reflected above for 2005,
$140,167 for Mr. Frissora, $59,150 for Mr. Donovan, $59,150 for Mr. Nair,
$38,927 for Mr. Trammell and $34,883 for Mr. Schneider represents payment of
amounts held in the individual's bonus bank after giving effect to prior
year (2004) payments. After giving effect to the 2005 payments reflected
above, $404,173, $159,250, $159,250, $111,305 and $93,917 remained credited
to the bonus bank of Messrs. Frissora, Donovan, Nair, Trammell and
Schneider, respectively.
(Notes continued on following page.)
18
(3) Includes amounts attributable to: (a) the value of personal benefits
provided by the Company to Named Executives, such as perquisite allowances
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, reimbursement for taxes and amounts paid as Dividend Equivalents
to the Named Executives were as follows:
NAME YEAR EXPLANATION
---- ---- -----------
Mr. Frissora............ 2005 $40,000 perquisite allowance; and $294 for reimbursement
of taxes.
2004 $40,000 perquisite allowance; and $4,971 for
reimbursement of taxes.
2003 $40,000 perquisite allowance; and $37,334 for
reimbursement of taxes.
Mr. Donovan............. 2005 $30,000 perquisite allowance; and $2,209 for
reimbursement of taxes.
2004 $30,000 perquisite allowance; and $4,990 for
reimbursement of taxes.
2003 $30,000 perquisite allowance; and $364 for reimbursement
of taxes.
Mr. Nair................ 2005 $39,352 for reimbursements and costs related to
expatriate assignment (including home travel allowances,
cost of living adjustments and automobile expenses); and
$82,456 for reimbursement of taxes, substantially all of
which related to his expatriate assignment.
2004 $56,512 for reimbursements and costs related to
expatriate assignment (including home travel allowances,
cost of living adjustments and automobile expenses).
2003 $131,567 for reimbursements and costs related to
expatriate assignment (including housing allowances,
cost of living adjustments, relocation expenses and
automobile expenses); and $44,010 for reimbursement of
taxes, substantially all of which related to his
expatriate assignment.
Mr. Trammell............ 2005 $30,000 perquisite allowance.
2004 $30,000 perquisite allowance; and $4,899 for
reimbursement of taxes.
2003 $19,375 perquisite allowance.
(Notes continued on following page.)
19
NAME YEAR EXPLANATION
---- ---- -----------
Mr. Schneider 2005 $30,000 perquisite allowance; and $11,993 for imputed
income paid with respect to group life insurance in
excess of $50,000.
2004 $30,000 perquisite allowance; $11,835 for imputed income
paid with respect to group life insurance in excess of
$50,000; and $4,793 for reimbursement of taxes.
2003 $30,000 perquisite allowance; and $11,538 for imputed
income paid with respect to group life insurance in
excess of $50,000.
(4) Amounts for 2005 represent the dollar value of the restricted shares granted
on January 14, 2005 to each of the Named Executives, based upon the closing
price of the Company's common stock on the NYSE on January 14, 2005, of
$16.21 per share. At December 31, 2005, the total number of restricted
shares held by Messrs. Frissora, Donovan, Nair, Trammell and Schneider was
175,000, 46,000, 46,000, 27,250 and 29,500, respectively. The dollar value
of these restricted shares on that date was $3,431,750, $902,060, $902,060,
$534,373 and $578,495, respectively, based upon the closing price of the
Company's common stock on the NYSE on December 30, 2005, of $19.61 per
share. Holders of restricted shares are entitled to receive dividends if the
Company were to declare and pay such dividends. The restricted shares
granted on January 14, 2005 vest 1/3 per year during the three years after
the date of grant, subject to the officer's continued employment.
(5) Represents cash settlement of stock equivalent units granted to the Named
Executives as described under "-- Long-Term Incentive Plans -- Awards for
2005" and "Tenneco Inc. Compensation/ Nominating/Governance Committee Report
on Executive Compensation." Cash settlement equals the number of units
earned based on the achievement of performance measures multiplied by the
Company's average common stock price for the ten trading days immediately
following the Company's public announcement of its results of operations for
the award year.
(6) Includes amounts attributable during 2005 as follows:
(a) The dollar values paid by the Company for insurance premiums under the
group life insurance plan for Messrs. Frissora, Donovan, Nair, Trammell
and Schneider were $3,410, $1,815, $1,631, $1,471 and $1,592,
respectively.
(b) The amounts contributed pursuant to the Company's 401(k) plans for the
accounts of Messrs. Frissora, Donovan, Nair, Trammell and Schneider were
$7,519, $8,316, $7,000, $7,000 and $8,400, respectively.
20
OPTIONS GRANTED IN 2005
The following table shows the number of options to purchase the Company's
common stock granted during 2005 to the persons named in the Summary
Compensation Table above.
PERCENT OF
TOTAL OPTIONS
SHARES OF GRANTED TO
COMMON STOCK THE COMPANY'S GRANT DATE
UNDERLYING EMPLOYEES EXERCISE PRESENT
OPTIONS GRANTED IN 2005 PRICE(1) EXPIRATION DATE VALUE(2)
--------------- ------------- -------- --------------- ----------
Mr. Frissora......... 75,000 13.9% $16.00 1/14/2012 $611,250
Mr. Donovan.......... 18,000 3.5% $16.00 1/14/2012 $146,700
Mr. Nair............. 18,000 3.3% $16.00 1/14/2012 $146,700
Mr. Trammell......... 15,000 2.8% $16.00 1/14/2012 $122,250
Mr. Schneider........ 12,000 2.2% $16.00 1/14/2012 $ 97,800
---------------
(1) All options were granted with exercise prices equal to 100 percent 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.
(2) The Black-Scholes valuation was performed using the following assumptions:
42.96% volatility, risk free interest rate of 3.97%, 0% expected dividend
rate and seven-year option life.
AGGREGATE OPTION EXERCISES IN 2005 AND 2005 YEAR-END OPTION VALUES
The following table shows the number of shares underlying options to
purchase the Company's common stock that were exercised in 2005 by the persons
named in the Summary Compensation Table above, as well as the value realized
therefrom. This table also shows the number and the value of unexercised
in-the-money options held at December 31, 2005 by the persons named in the
Summary Compensation Table above.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SECURITIES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
OPTIONS EXERCISED IN 2005 HELD AT HELD AT
------------------------- DECEMBER 31, 2005 DECEMBER 31, 2005(1)
OPTIONS VALUE --------------------------- ---------------------------
EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------- ----------- ----------- ------------- ----------- -------------
Mr. Frissora......... -- -- 650,001 236,666 $8,743,684 $1,477,239
Mr. Donovan.......... 118,334 $1,485,404 96,000 63,333 $1,060,080 $ 486,535
Mr. Nair............. -- -- 189,334 63,333 $2,864,308 $ 486,535
Mr. Trammell......... -- -- 77,500 46,250 $1,192,150 $ 259,100
Mr. Schneider........ 104,200 $1,122,016 69,800 35,000 $1,206,496 $ 289,160
(Notes on following page.)
21
---------------
(1) Based on the closing sale price of a share of common stock on the New York
Stock Exchange on December 30, 2005.
LONG-TERM INCENTIVE PLANS -- AWARDS FOR 2005
The following table shows information concerning certain performance-based
awards made for 2005 to the persons named in the Summary Compensation Table
above.
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD
OR OTHER UNTIL MATURATION
NAME RIGHTS(1) OR PAYOUT
---- ------------- ----------------
Mr. Frissora..................................... 150,000 1 year
---------------
(1) Represents award of stock equivalent units made in 2005 which vested at the
end of 2005 based on the achievement of performance goals. For the Company's
other executives, stock equivalent unit awards were made at the beginning of
2004 and are earned and payable 1/3 each year. In each case, stock
equivalent units pay out based on the achievement of performance goals based
on Economic Value Added (EVA(R), a registered trademark of Stern Stewart &
Co.) improvement and a performance goal based on stock price appreciation.
To earn any portion of the yearly scheduled vesting under the awards, the
Company must at least meet its EVA performance goal for that year. If that
goal is met, the stock equivalent units are earned (up to a maximum of 100%
of the units) based on the Company's stock price appreciation over the year.
Stock equivalent units are payable yearly in cash in an amount equal to the
number of units earned multiplied by 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 program was designed so that an aggregate amount
could be earned over the three-year life of the program. For example, a
shortfall due to failures to fully realize goals in the first year would
result in greater earning potential under the program for the remaining two
years. EVA is generally defined as operating profits minus the annual cost
of capital. Mr. Frissora's stock equivalent units are earned and payable at
the end of one year, based on the EVA and stock price criteria described
above, reflecting the Compensation/ Nominating/Governance Committee's desire
to re-evaluate Mr. Frissora's awards on an annual basis. The number of stock
equivalent units listed in this column represents the maximum number of
units that may be earned under the award.
PENSION PLAN TABLES
The following tables show the aggregate estimated total annual benefits
payable upon normal retirement pursuant to the Tenneco Retirement Plan, the
Tenneco Retirement Plan for Salaried Employees and Tenneco's Supplemental
Retirement Plan and Supplemental Pension Plan for Management to persons in
specified remuneration, years of credited participation and
22
years of vesting service classifications. For Messrs. Frissora, Donovan and
Schneider (and one other executive officer who is not a Named Executive
Officer), as the only participants in the Supplemental Pension Plan for
Management, the benefits are based on the greater of the amounts calculated
under the two tables. For Messrs. Nair and Trammell (and each other executive
officer and eligible employee), the benefits are based on the amount calculated
under the first table only. In connection with the 1999 spin-off of the
Company's packaging operations, Pactiv Corporation became the sponsor of the
Tenneco Retirement Plan, which subsequently became the Pactiv Retirement Plan.
The Company adopted a salaried defined benefit pension plan patterned after the
Pactiv 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 Pactiv Retirement Plan. Therefore, as to the Company's
continuing employees, the benefits described in the applicable table will be
provided by a combination of payments from the Pactiv Retirement Plan and the
Tenneco plans.
YEARS OF CREDITED PARTICIPATION
ANNUAL ---------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ - -- -- -- -- -- --
2$50,000.... $ 19,642.86 $ 39,285.71 $ 58,928.57 $ 78,571.43 $ 98,214.29 $ 117,857.14 $ 137,500.00
3$00,000.... $ 23,571.43 $ 47,142.86 $ 70,714.29 $ 94,285.71 $117,857.14 $ 141,428.57 $ 165,000.00
3$50,000.... $ 27,500.00 $ 55,000.00 $ 82,500.00 $110,000.00 $137,500.00 $ 165,000.00 $ 192,500.00
4$00,000.... $ 31,428.57 $ 62,857.14 $ 94,285.71 $125,714.29 $157,142.86 $ 188,571.43 $ 220,000.00
4$50,000.... $ 35,357.14 $ 70,714.29 $106,071.43 $141,428.57 $176,785.71 $ 212,142.86 $ 247,500.00
5$00,000.... $ 39,285.71 $ 78,571.43 $117,857.14 $157,142.86 $196,428.57 $ 235,714.29 $ 275,000.00
5$50,000.... $ 43,214.29 $ 86,428.57 $129,642.86 $172,857.14 $216,071.43 $ 259,285.71 $ 302,500.00
6$00,000.... $ 47,142.86 $ 94,285.71 $141,428.57 $188,571.43 $235,714.29 $ 282,857.14 $ 330,000.00
6$50,000.... $ 51,071.43 $102,142.86 $153,214.29 $204,285.71 $255,357.14 $ 306,428.57 $ 357,500.00
7$00,000.... $ 55,000.00 $110,000.00 $165,000.00 $220,000.00 $275,000.00 $ 330,000.00 $ 385,000.00
7$50,000.... $ 58,928.57 $117,857.14 $176,785.71 $235,714.29 $294,642.86 $ 353,571.43 $ 412,500.00
8$00,000.... $ 62,857.14 $125,714.29 $188,571.43 $251,428.57 $314,285.71 $ 377,142.86 $ 440,000.00
8$50,000.... $ 66,785.71 $133,571.43 $200,357.14 $267,142.86 $333,928.57 $ 400,714.29 $ 467,500.00
9$00,000.... $ 70,714.29 $141,428.57 $212,142.86 $282,857.14 $353,571.43 $ 424,285.71 $ 495,000.00
9$50,000.... $ 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
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
23
YEARS OF CREDITED PARTICIPATION
ANNUAL ---------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ - -- -- -- -- -- --
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
1$,700,000.. $133,571.43 $267,142.86 $400,714.29 $534,285.71 $667,857.14 $ 801,428.57 $ 935,000.00
1$,750,000.. $137,500.00 $275,000.00 $412,500.00 $550,000.00 $687,500.00 $ 825,000.00 $ 962,500.00
1$,800,000.. $141,428.57 $282,857.14 $424,285.71 $565,714.29 $707,142.86 $ 848,571.43 $ 990,000.00
1$,850,000.. $145,357.14 $290,714.29 $436,071.43 $581,428.57 $726,785.71 $ 872,142.86 $1,017,500.00
1$,900,000.. $149,285.71 $298,571.43 $447,857.14 $597,142.86 $746,428.57 $ 895,714.29 $1,045,000.00
1$,950,000.. $153,214.29 $306,428.57 $459,642.86 $612,857.14 $766,071.43 $ 919,285.71 $1,072,500.00
2$,000,000.. $157,142.86 $314,285.71 $471,428.57 $628,571.43 $785,714.29 $ 942,857.14 $1,100,000.00
2$,050,000.. $161,071.43 $322,142.86 $483,214.29 $644,285.71 $805,357.14 $ 966,428.57 $1,127,500.00
2$,100,000.. $165,000.00 $330,000.00 $495,000.00 $660,000.00 $825,000.00 $ 990,000.00 $1,155,000.00
2$,150,000.. $168,928.57 $337,857.14 $506,785.71 $675,714.29 $844,642.86 $1,013,571.43 $1,182,500.00
2$,200,000.. $172,857.14 $345,714.29 $518,571.43 $691,428.57 $864,285.71 $1,037,142.86 $1,210,000.00
2$,250,000.. $176,785.71 $353,571.43 $530,357.14 $707,142.86 $883,928.57 $1,060,714.29 $1,237,500.00
2$,300,000.. $180,714.29 $361,428.57 $542,142.86 $722,857.14 $903,571.43 $1,084,285.71 $1,265,000.00
2$,350,000.. $184,642.86 $369,285.71 $553,928.57 $738,571.43 $923,214.29 $1,107,857.14 $1,292,500.00
2$,400,000.. $188,571.43 $377,142.86 $565,714.29 $754,285.71 $942,857.14 $1,131,428.57 $1,320,000.00
2$,450,000.. $192,500.00 $385,000.00 $577,500.00 $770,000.00 $962,500.00 $1,155,000.00 $1,347,500.00
2$,500,000.. $196,428.57 $392,857.14 $589,285.71 $785,714.29 $982,142.86 $1,178,571.43 $1,375,000.00
YEARS OF VESTING SERVICE
ANNUAL -----------------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ ----------- ------------- ------------- ------------- ------------- ------------- -------------
2$50,000.... $ 50,000.00 $ 100,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00
3$00,000.... $ 60,000.00 $ 120,000.00 $ 150,000.00 $ 150,000.00 $ 150,000.00 $ 150,000.00 $ 150,000.00
3$50,000.... $ 70,000.00 $ 140,000.00 $ 175,000.00 $ 175,000.00 $ 175,000.00 $ 175,000.00 $ 175,000.00
4$00,000.... $ 80,000.00 $ 160,000.00 $ 200,000.00 $ 200,000.00 $ 200,000.00 $ 200,000.00 $ 200,000.00
4$50,000.... $ 90,000.00 $ 180,000.00 $ 225,000.00 $ 225,000.00 $ 225,000.00 $ 225,000.00 $ 225,000.00
5$00,000.... $100,000.00 $ 200,000.00 $ 250,000.00 $ 250,000.00 $ 250,000.00 $ 250,000.00 $ 250,000.00
5$50,000.... $110,000.00 $ 220,000.00 $ 275,000.00 $ 275,000.00 $ 275,000.00 $ 275,000.00 $ 275,000.00
6$00,000.... $120,000.00 $ 240,000.00 $ 300,000.00 $ 300,000.00 $ 300,000.00 $ 300,000.00 $ 300,000.00
6$50,000.... $130,000.00 $ 260,000.00 $ 325,000.00 $ 325,000.00 $ 325,000.00 $ 325,000.00 $ 325,000.00
7$00,000.... $140,000.00 $ 280,000.00 $ 350,000.00 $ 350,000.00 $ 350,000.00 $ 350,000.00 $ 350,000.00
7$50,000.... $150,000.00 $ 300,000.00 $ 375,000.00 $ 375,000.00 $ 375,000.00 $ 375,000.00 $ 375,000.00
8$00,000.... $160,000.00 $ 320,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00
24
YEARS OF VESTING SERVICE
ANNUAL -----------------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ ----------- ------------- ------------- ------------- ------------- ------------- -------------
8$50,000.... $170,000.00 $ 340,000.00 $ 425,000.00 $ 425,000.00 $ 425,000.00 $ 425,000.00 $ 425,000.00
9$00,000.... $180,000.00 $ 360,000.00 $ 450,000.00 $ 450,000.00 $ 450,000.00 $ 450,000.00 $ 450,000.00
9$50,000.... $190,000.00 $ 380,000.00 $ 475,000.00 $ 475,000.00 $ 475,000.00 $ 475,000.00 $ 475,000.00
1$,000,000.. $200,000.00 $ 400,000.00 $ 500,000.00 $ 500,000.00 $ 500,000.00 $ 500,000.00 $ 500,000.00
1$,050,000.. $210,000.00 $ 420,000.00 $ 525,000.00 $ 525,000.00 $ 525,000.00 $ 525,000.00 $ 525,000.00
1$,100,000.. $220,000.00 $ 440,000.00 $ 550,000.00 $ 550,000.00 $ 550,000.00 $ 550,000.00 $ 550,000.00
1$,150,000.. $230,000.00 $ 460,000.00 $ 575,000.00 $ 575,000.00 $ 575,000.00 $ 575,000.00 $ 575,000.00
1$,200,000.. $240,000.00 $ 480,000.00 $ 600,000.00 $ 600,000.00 $ 600,000.00 $ 600,000.00 $ 600,000.00
1$,250,000.. $250,000.00 $ 500,000.00 $ 625,000.00 $ 625,000.00 $ 625,000.00 $ 625,000.00 $ 625,000.00
1$,300,000.. $260,000.00 $ 520,000.00 $ 650,000.00 $ 650,000.00 $ 650,000.00 $ 650,000.00 $ 650,000.00
1$,350,000.. $270,000.00 $ 540,000.00 $ 675,000.00 $ 675,000.00 $ 675,000.00 $ 675,000.00 $ 675,000.00
1$,400,000.. $280,000.00 $ 560,000.00 $ 700,000.00 $ 700,000.00 $ 700,000.00 $ 700,000.00 $ 700,000.00
1$,450,000.. $290,000.00 $ 580,000.00 $ 725,000.00 $ 725,000.00 $ 725,000.00 $ 725,000.00 $ 725,000.00
1$,500,000.. $300,000.00 $ 600,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00
1$,550,000.. $310,000.00 $ 620,000.00 $ 775,000.00 $ 775,000.00 $ 775,000.00 $ 775,000.00 $ 775,000.00
1$,600,000.. $320,000.00 $ 640,000.00 $ 800,000.00 $ 800,000.00 $ 800,000.00 $ 800,000.00 $ 800,000.00
1$,650,000.. $330,000.00 $ 660,000.00 $ 825,000.00 $ 825,000.00 $ 825,000.00 $ 825,000.00 $ 825,000.00
1$,700,000.. $340,000.00 $ 680,000.00 $ 850,000.00 $ 850,000.00 $ 850,000.00 $ 850,000.00 $ 850,000.00
1$,750,000.. $350,000.00 $ 700,000.00 $ 875,000.00 $ 875,000.00 $ 875,000.00 $ 875,000.00 $ 875,000.00
1$,800,000.. $360,000.00 $ 720,000.00 $ 900,000.00 $ 900,000.00 $ 900,000.00 $ 900,000.00 $ 900,000.00
1$,850,000.. $370,000.00 $ 740,000.00 $ 925,000.00 $ 925,000.00 $ 925,000.00 $ 925,000.00 $ 925,000.00
1$,900,000.. $380,000.00 $ 760,000.00 $ 950,000.00 $ 950,000.00 $ 950,000.00 $ 950,000.00 $ 950,000.00
1$,950,000.. $390,000.00 $ 780,000.00 $ 975,000.00 $ 975,000.00 $ 975,000.00 $ 975,000.00 $ 975,000.00
2$,000,000.. $400,000.00 $ 800,000.00 $1,000,000.00 $1,000,000.00 $1,000,000.00 $1,000,000.00 $1,000,000.00
2$,050,000.. $410,000.00 $ 820,000.00 $1,025,000.00 $1,025,000.00 $1,025,000.00 $1,025,000.00 $1,025,000.00
2$,100,000.. $420,000.00 $ 840,000.00 $1,050,000.00 $1,050,000.00 $1,050,000.00 $1,050,000.00 $1,050,000.00
2$,150,000.. $430,000.00 $ 860,000.00 $1,075,000.00 $1,075,000.00 $1,075,000.00 $1,075,000.00 $1,075,000.00
2$,200,000.. $440,000.00 $ 880,000.00 $1,100,000.00 $1,100,000.00 $1,100,000.00 $1,100,000.00 $1,100,000.00
2$,250,000.. $450,000.00 $ 900,000.00 $1,125,000.00 $1,125,000.00 $1,125,000.00 $1,125,000.00 $1,125,000.00
2$,300,000.. $460,000.00 $ 920,000.00 $1,150,000.00 $1,150,000.00 $1,150,000.00 $1,150,000.00 $1,150,000.00
2$,350,000.. $470,000.00 $ 940,000.00 $1,175,000.00 $1,175,000.00 $1,175,000.00 $1,175,000.00 $1,175,000.00
2$,400,000.. $480,000.00 $ 960,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00
2$,450,000.. $490,000.00 $ 980,000.00 $1,225,000.00 $1,225,000.00 $1,225,000.00 $1,225,000.00 $1,225,000.00
2$,500,000.. $500,000.00 $1,000,000.00 $1,250,000.00 $1,250,000.00 $1,250,000.00 $1,250,000.00 $1,250,000.00
(Notes on following page.)
25
---------------
NOTES:
1. The benefits shown above are computed as a straight life annuity and are
based on years of credited participation (upper table) or vesting service
(lower table) 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 portion of the benefit payable from the
Supplemental Retirement Plan and the Supplemental Pension Plan for Management
is payable as an actuarial equivalent lump sum. As of December 31, 2005, the
credited participation (vesting service) for Messrs. Frissora, Donovan, Nair,
Trammell and Schneider was 8 years/9 months (10 years), 5 years/5 months (6
years), 17 years/ 9 months (not applicable), 8 years/8 months (not
applicable) and 10 years/5 months (12 years), respectively. See the Summary
Compensation Table above for salary and bonus information for these
individuals.
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 or two times, depending on his or
her grouping under the plan, (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, Nair, Trammell and Schneider would have
become entitled to receive payments from the Company in the amount of
$4,953,600, $2,093,382, $2,019,000, $1,709,163 and $1,590,813, respectively, had
their positions been terminated on December 31, 2005 following a
change-in-control. 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 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, other than Mr. Trammell, 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
26
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 their employment agreements, certain of
the Named Executives are 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. Nair, $305,000/$273,000; and Mr. Schneider,
$327,600/$155,000.
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During fiscal 2005, Ms. Warner and Messrs. Porter, Stecko and Price served
on the Compensation/Nominating/Governance Committee. From November 1998 to April
1999, Mr. Stecko served as President and Chief Operating Officer of the Company,
at a time when the Company held the former Tenneco Inc.'s automotive and
packaging operations. Prior to that time, he served in other executive officer
capacities in the former packaging operations. Mr. Stecko, having left the
Company's employment in April 1999 to become Chief Executive Officer of
Packaging Corporation of America (which simultaneously purchased the Company's
former paperboard packaging operations), meets the independence standards for
compensation and nominating committee membership under the NYSE listing
standards.
27
TENNECO INC. COMPENSATION/NOMINATING/GOVERNANCE
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
For 2005, the executive compensation philosophy, policies, plans and
programs of the Company were under the supervision of the
Compensation/Nominating/Governance Committee (the "Committee"), which is
composed of the directors named below, all of whom are independent for purposes
of the rules of the NYSE and the SEC. The Committee operates under a written
charter. 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 (1) executive and stockholder financial
interests should be aligned as closely as possible, and (2) the compensation
package should be based on delivering pay in line with performance.
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 performance.
-- Focus executives on annual and long-term business results with the
overarching goal of enhancing stockholder value.
-- Align the interests of the Company's executives and stockholders through
equity-based compensation awards.
-- Provide executive compensation packages that attract, retain and
motivate executives of the highest qualifications, experience and
ability.
Based on these objectives, the executive compensation program has been
designed to provide competitive levels of compensation derived from several
sources: salaries; annual cash incentive awards; stock ownership opportunities;
stock equivalent units; 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 with 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 regularly reviews data
regarding compensation practices at other companies that it determines to be
relevant to compensation matters affecting
28
the Company. Historically, this information has included data regarding
companies believed to be comparable to the Company in terms of industry (i.e.,
automotive parts manufacturing), total revenues, number of employees,
capitalization or other factors. For 2005, the Committee examined specific data
regarding a comparison group comprised of approximately 20
companies -- including many automotive parts manufacturers -- selected to
reflect a balance of automotive sector and other traditional manufacturing
companies, as well as other data presented to the Committee from time to time by
the Committee's independent compensation consulting firm. The data was weighted
based on the size of revenues of the comparison companies. The companies
selected for compensation survey purposes are not identical to the automotive
industry peer group shown in the stock Performance Graph appearing elsewhere in
this Proxy Statement. The Committee does not limit its review for compensation
purposes to the automotive peer group companies because it believes that
individual employment determinations are often driven by factors beyond those
that are solely industry-specific.
The Company's compensation program generally provides that as an
executive's level of responsibility increases, a greater portion of his/her
potential total compensation is based on performance and varies in accordance
with the market price of the Company's common stock, causing greater potential
variability in the individual's total compensation from year-to-year. 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
Total executive compensation has two major components: (1) annual cash
compensation comprised of salary and bonus; and (2) long-term and stock-based
incentives comprised of some combination of stock options, performance-based
shares or 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 of and action taken by the Committee with regard to
2005 compensation.
Salary and Bonus Compensation
An executive's annual cash compensation consists primarily of a base
salary, 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, the Tenneco Value
Added Incentive Compensation Plan ("TAVA Plan"). Each year, the CEO and the
senior human resources executive of the Company reviews with the Committee an
annual salary and bonus target plan for the Company's executives and other key
management personnel (excluding the CEO), following which the Committee ap-
29
proves that plan with changes that the Committee deems appropriate. The salary
and bonus target plan that is developed is based 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 separately (with the assistance of the nationally recognized,
independent compensation consultant engaged 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 2005, for
executives other than the CEO, the Committee awarded approximately 3.5%
increases in 2005 executive salaries over 2004 (see below for a discussion of
the Chief Executive Officer's 2005 compensation). The 2005 salary levels
established for the Company's executives, which became effective in July 2005,
are designed to be, in general, in the 50th percentile range when compared to
the salaries set by the companies in the compensation surveys reviewed by the
Committee as described above. The target bonus levels (i.e. what is paid if
goals are met at the 100% payout level) established for the Company's executives
for 2005 were also designed to be, in general, in the 50th percentile range when
compared to target bonus levels set by the companies in the compensation surveys
reviewed by the Committee, with the opportunity for bonus payouts to be above or
below the 50th percentile based on the Company's performance.
Performance goals have generally been established under the TAVA Plan every
three years. The performance goals are generally developed, initially, by an
independent consulting firm with expertise in EVA-based incentive programs. The
firm's recommended performance goals are 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 pre-established
EVA(R) objectives, and (ii) 25% of an individual's bonus is based on the
Committee's discretionary determination of performance. EVA is after-tax
operating profit minus the annual cost of capital and is a registered trademark
of Stern Stewart & Co.
For 2005 and prior years, the 75% portion of an individual's bonus under
the TAVA Plan that was tied to EVA performance was calculated as follows: Each
year, the individual's "bonus bank" under the TAVA Plan -- which is the amount
(if any) of bonuses declared in prior years but not yet paid -- is credited with
a bonus accrual (the "EVA-based bonus") equal to 75% of his or her total bonus
target (the "EVA-based target") multiplied by a Company performance factor
(which could be positive or negative) that was based upon the Company's EVA
performance against the pre-established goal. For any year, an individual's
payout was equal to the sum of: (i) his or her EVA-based bonus for that year, if
positive (but not exceeding 120% of his or her EVA-based target), plus (ii)
one-third of the individual's remaining bonus bank as of
30
the end of that year, if any. The declared bonus, as well as the value of an
individual's bonus bank reserve account, could be positive or negative. Except
for certain circumstances, such as disability, death or retirement, any bonus
bank is forfeited when an individual terminates employment with the Company.
In January 2006, the Committee approved the amendment and restatement of
the TAVA Plan to eliminate the bonus banking provisions with respect to bonuses
paid for periods beginning January 1, 2006, so that an individual will receive
his or her full EVA-based bonus for any year within 2 1/2 months after the end
of that year. Amounts credited to individual bonus banks for prior periods will
be paid out in accordance with the TAVA Plan terms as they existed prior to the
amendment and restatement (generally one-third of the bonus bank each year).
The 25% portion of an individual's bonus that is discretionary under the
TAVA Plan is determined by the Committee based on factors which take into
account, but are not limited to, the relative performance of the Company versus
its peers in key strategic and operational areas, which may change from year to
year.
For 2005, bonus awards under the TAVA Plan were declared at approximately
146% of the aggregate targeted bonus amount for each executive. Because the TAVA
Plan had a bonus bank feature for 2005, cash payouts for these 2005 bonuses
differed by individual based on the beginning balance of his or her bonus bank.
As described above, the Company's performance against its EVA objectives
accounted for 75% of each executive's 2005 bonus. The Company's EVA performance
for 2005 resulted in this portion of executives' bonuses being declared at 150%
of the executives' 2005 EVA-based target. Under the terms of the TAVA Plan, only
120% of the executives' 2005 EVA-based target bonuses was automatically paid out
for 2005. An amount equal to 30% (150%-120%) of the executives' 2005 EVA-based
target bonuses was credited to the bonus bank, with 1/3 of each executive's
aggregate remaining bonus bank (after giving effect to the 120% payout) eligible
for payout for 2005. Payout of the remaining 25% of each executive's bonus
amount is discretionary and was 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 declared at 135% of the targeted bonus amount. After giving
effect to the 2005 payouts to eligible participants, an aggregate of
approximately $9.1 million remained credited to the bonus bank under the TAVA
Plan.
In making its determinations regarding the discretionary portion of 2005
bonuses, the Committee considered in particular (1) the Company's achievement of
16 consecutive quarters of year over year improvement in adjusted EBITDA
(earnings before interest expense, taxes, depreciation and amortization and
minority interest) despite 2005 being marked by highly volatile and negative
materials costs, (2) a 14% increase in the price of the Company's stock over the
price a year earlier, (3) the fact that the Company achieved its highest revenue
as a
31
standalone company of $4.4 billion in 2005 and (4) the fact that the Company was
only one of four auto suppliers reviewed by the Committee whose common stock
price increased during 2005. In addition, the Company entered 2006 with
projected annual revenues from its original equipment business for 2007 at a
record level.
Long-Term and Stock-Based Incentives
The Company's long-term and stock-based incentive plans have been designed
to align a significant portion of executive compensation with stockholder
interests. The current plan -- the 2002 Long-Term Incentive Plan as amended in
2003 -- permits the granting of a variety of awards including stock options,
restricted stock, stock equivalent units and performance units.
These 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 and stock-based awards.
The Committee has implemented a long-term and stock-based compensation
program for the Company's executives that is comprised of (1) stock options
which generally vest in 1/3 increments over three years, (2) awards of
restricted stock which vest in 1/3 increments over three years, and (3)
cash-settled stock equivalent units which were originally awarded in 2004 and
are (except in the case of Mr. Frissora) payable in 1/3 increments at the end of
each of 2004, 2005 and 2006 based on the achievement of EVA and stock price
performance targets (see below for a discussion of Mr. Frissora's stock
equivalent unit awards). Each year, the Committee reviews previously granted
long-term and stock based awards for the Company's executives, typically at its
meeting held in January. Based on this review, the Committee determines whether
and to what extent to make additional awards for the ensuing year.
In January 2005, the Committee granted long-term awards, including stock
options and restricted stock, to the Company's executives as set forth under the
"Executive Compensation" section of this Proxy Statement. In making its award
determinations for 2005, the Committee noted in particular the achievements made
by the Company during 2004, including stock price improvement of approximately
158% during 2004, achieving revenue of $4.2 billion (which, at the time, was the
highest revenue in the Company's history as a stand-alone company), the
successful refinancing of the Company's senior subordinated debt in November
2004 and being awarded significant new business. Based on the Committee's
assumptions regarding future performance levels, interest rates and other
factors, these grants were designed to place the executives at approximately the
50th percentile range when compared to the value of similar awards granted by
peer companies to their executives, with the opportunity for the value actually
realized by the executives to be above or below the 50th percentile based on the
Company's performance. The Committee made its determinations consistent with the
philosophy described
32
above, specifically taking into account the amount of stock option, stock
equivalent unit and restricted stock awards that had been previously granted to
Company executives.
For 2005, the annually scheduled cash payout under the stock equivalent
unit awards described above was made in early 2006. Based on the Company's
achievement of EVA and stock price appreciation targets established for 2005,
award holders received cash payouts equal to approximately 50% of the maximum
amount they could have been paid for 2005 under the stock equivalent awards.
As a result of the Company's performance in 2005, the total compensation
paid to the Company's executives for 2005, including the salary and bonus
payments described above, was at approximately the 75th percentile when compared
to total compensation paid to executives by the companies in the compensation
surveys reviewed by the Committee.
CEO COMPENSATION
Mr. Frissora's base salary from January 1, 2004 through June 30, 2005 was
$751,900. Effective July 1, 2005, his base salary was increased to $825,600 to
reflect his substantial contribution to the strategic and operational
achievements noted earlier in this report. Taking into account the salary
increase on July 1, 2005, Mr. Frissora's base salary paid in 2005 was 4.9%
higher than his base salary paid in 2004. For 2005, Mr. Frissora's target bonus
was set at $825,600. Mr. Frissora's 2005 base salary and bonus target were at
approximately the 50th percentile of base salaries and target bonuses set for
chief executive officers of the comparable companies surveyed.
For 2005, the Committee approved a bonus payment of $1,223,767 to Mr.
Frissora as his 2005 incentive award under the TAVA Plan. This amount was
calculated as follows:
- Mr. Frissora's EVA-based bonus target of $619,200 (75% of his target
bonus of $825,600) was earned at 150%, resulting in a declared 2005
EVA-based bonus of $928,800, of which, by the terms of the plan, $743,040
was paid to Mr. Frissora and $185,760 was credited to his bonus bank.
- One-third of Mr. Frissora's aggregate bonus bank, or $202,087, was paid
to Mr. Frissora.
- Mr. Frissora's discretionary bonus target of $206,400 (25% of his target
bonus of $825,600) was earned at 135%, resulting in a discretionary bonus
payment of $278,640.
The amount of Mr. Frissora's incentive award was based on the same factors
as described above with respect to the 2005 bonuses paid to the Company's other
executives, including his overall leadership in driving the Company to the
performance improvements described above under "-- Salary and Bonus
Compensation." In addition, the Committee considered Mr. Frissora's strong
individual performance against his personal objectives in areas such as:
improved business profitability, including mitigating the impact of significant
increases in steel
33
prices, incremental business growth, development and commercialization of new
technologies, improvement in the Company's productivity initiatives, improved
employee satisfaction and the improvement in the Company's balance sheet. After
giving effect to this payment, $404,173 remained credited to Mr. Frissora's
bonus bank under the TAVA Plan.
In January 2005, in recognition of the Company's substantial operational
improvements for 2004 (as described above under "-- Long-Term and Stock-Based
Incentives") and a desire to provide incentives for further achievements, the
Committee awarded stock options, restricted stock and stock equivalent units to
Mr. Frissora as reflected under the section of this Proxy Statement entitled
"Executive Compensation." Unlike the stock equivalent unit awards made to the
Company's other executives (which cover three years and vest in one year
increments), the award made to Mr. Frissora was for one year only, providing for
yearly re-evaluation by the Committee. In early 2006, Mr. Frissora's 2005 stock
equivalent unit award was paid at the earned level as described above for the
Company's other executives.
As a result of the Company's strong performance in 2005 as described above,
the total compensation paid to Mr. Frissora for 2005 was at approximately the
75th percentile of compensation paid to chief executive officers of the
comparable companies surveyed.
2006 COMPENSATION
Included as Item 3 to the Company's 2006 proxy statement is a proposal
seeking stockholder approval of a new equity-based incentive compensation plan,
the Tenneco Inc. 2006 Long-Term Incentive Plan. If the Company's stockholders do
not approve this proposal, the Company will be unable to provide ongoing
compensation as described in this report since the Company's current
equity-based incentive plan does not have sufficient shares available for
delivery in connection with periods after 2006. In the event stockholder
approval of the new plan is not obtained, the Committee intends to consider
other forms of compensation to maintain overall compensation at competitive
levels consistent with the Company's compensation philosophies.
TAX LIMITATIONS ON THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") 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," as defined under Internal Revenue Service
("IRS") rules and regulations is excluded from this $1 million limitation.
In late 2005, the Committee established an Executive Compensation
Subcommittee, comprised of all Committee members except Mr. Stecko (the
"Subcommittee"), to consider and approve compensation for the Chief Executive
Officer and the Company's other executive
34
officers that is intended to qualify as "performance-based compensation" under
Section 162(m) of the Code. The Subcommittee operates under a separate written
charter. For 2006 and beyond, the Company expects that the Subcommittee will
make executive compensation determinations with respect to stock options and
other equity-based compensation that may qualify as "performance-based
compensation" under Section 162(m).
The Company's compensation programs are structured to support
organizational goals and priorities and stockholder interests. The Committee has
not in the past had, and does not currently have, a policy requiring all
compensation to be deductible under Section 162(m). Amounts payable under the
TAVA Plan do not qualify for the performance-based compensation exemption under
Section 162(m), as the Committee retains discretion in making bonus awards and,
furthermore, the plan was not submitted to stockholders for approval.
Additionally, the Company's restricted stock is not considered performance-based
compensation under Section 162(m) because it vests on the basis of the
individual's continued employment with the Company over a defined period of
time. Going forward, the Committee anticipates that the Subcommittee will make
grants of stock equivalent units and stock option awards that are generally
designed to incorporate the applicable requirements for "performance-based
compensation" under IRS rules and regulations. However, the Committee and the
Subcommittee will seek to preserve the tax deductibility of executive
compensation only to the extent practicable and consistent with their overall
compensation philosophies.
SUMMARY
In addition to its stated policies and its written charter, the Committee's
guidelines are evolving to include compensation practices that:
-- Promote creativity, innovation and calculated risk-taking to achieve
outstanding business results.
-- Encourage reward systems that are simple, credible and common across
all segments of the organization.
-- Make the Company a great place to work that values diversity and
inclusiveness in order to attract world-class employees at all levels
around the globe.
The Committee believes that the caliber and motivation of management and
the leadership of its Chief Executive Officer are critical factors in the
ability of the Company to achieve sustainable competitive advantage, which
should result in maximum stockholder value. The
35
Committee and Subcommittee will continue to emphasize long-term and stock-based
incentives for executives as the most important component of total compensation.
Compensation / Nominating / Governance Committee
David B. Price, Jr. -- Chairman
Roger B. Porter
Paul T. Stecko
Jane L. Warner
PERFORMANCE GRAPH
The performance graph presented below provides the cumulative total
stockholder return for Tenneco Inc. The performance graph compares the
cumulative total stockholder return on the Company's common stock from December
31, 2000 through December 31, 2005 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.
36
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON DECEMBER 31, 2000
WITH DIVIDENDS REINVESTED
[PERFORMANCE GRAPH]
31-Dec-00 31-Dec-01 31-Dec-02 31-Dec-03 31-Dec-04 31-Dec-05
Tenneco Inc. $100 $ 68 $135 $223 $575 $654
S&P 500 $100 $ 88 $ 69 $ 88 $ 98 $103
Custom Composite
Index (9 stocks) $100 $129 $100 $158 $168 $113
---------------
NOTES:
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: ArvinMeritor, Inc. (formerly known as Meritor Automotive Inc.),
BorgWarner Inc., Cummins Inc., Dana Corporation, Delphi Corporation,
Federal-Mogul Corporation, Lear Corporation, Magna International Inc., and
Tower Automotive Inc.
37
REPORT OF AUDIT COMMITTEE
GENERAL
The Audit Committee comprises four 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 NYSE listing standards. In
addition, the Board has determined that Mr. Cramb qualifies as an "audit
committee financial expert" under the applicable SEC rules and all of the
members of Audit Committee satisfy the NYSE's financial literacy requirements.
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, 2005 with the
Company's management. In addition, the Audit Committee has discussed with
Deloitte & Touche LLP, the Company's independent auditors ("Deloitte & Touche"),
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees" (as amended by Statement on Auditing
Standards No. 90) and Regulation S-X Rule 2-07, "Communication with Audit
Committees."
The Audit Committee has also received the written disclosures and the
letter from Deloitte & Touche required by Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees," and has discussed with
Deloitte & Touche its independence from the Company and its management.
The Audit Committee has considered whether the services rendered by the
Company's independent public accountants with respect to audit, audit-related,
tax and other non-audit fees are compatible with maintaining their independence.
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, 2005 be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005
for filing with the SEC.
Audit Committee
Charles W. Cramb -- Chairman
M. Kathryn Eickhoff-Smith
Frank E. Macher
Dennis G. Severance
38
RATIFY APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
Financial statements of the Company and its consolidated subsidiaries will
be included in the Company's Annual Report furnished to all stockholders. The
Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP as
independent public accountants for the Company to examine its consolidated
financial statements for the year ending December 31, 2006, and has determined
that it would be desirable to request that the stockholders ratify the
appointment. You may vote for, vote against or abstain from voting with respect
to this proposal. Assuming the presence of a quorum, the affirmative vote of a
majority of the shares present, in person or by proxy, at the Annual Meeting and
entitled to vote is required to ratify the appointment. If the stockholders do
not ratify the appointment, the Audit Committee will reconsider the appointment.
Deloitte & Touche LLP was engaged as the Company's principal independent public
accountants for 2002 through 2005. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if they desire to do so and are also expected to be available
to respond to appropriate questions.
AUDIT, AUDIT-RELATED, TAX AND OTHER FEES
The following table summarizes the aggregate fees and expenses billed to
the Company for the fiscal years ended December 31, 2005 and 2004 by the
Company's principal accounting firm, Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu and their respective affiliates (collectively,
"Deloitte & Touche"):
2005 2004
---------- ----------
Audit fees(a).............................. $4,226,500 $4,330,000
Audit-related fees(b)...................... 239,000 244,000
---------- ----------
Total audit and audit-related fees......... 4,465,000 4,574,000
Tax fees:
Compliance and tax audit support(c)...... 1,587,000 1,758,000
Planning and consulting(d)............... 607,000 579,000
---------- ----------
Total tax fees............................. 2,194,000 2,337,000
All other fees............................. -- 10,000
---------- ----------
$6,659,000 $6,921,000
(Notes on following page.)
39
---------------
(a) Audit services in 2005 and 2004 consisted of:
- Audit of the Company's annual financial statements including audits of
subsidiary financial statements required by local country laws
- Audit of Management's assessment of the Company's internal control over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act of 2002
- Reviews of the Company's quarterly financial statements
- Comfort letters, consents and other services related to SEC matters
(b) Audit-related services in 2005 and 2004 consisted of:
- Employee benefit plan audits
(c) Tax compliance services are services rendered based upon facts already in
existence or transactions that have already occurred to document, compute,
support and obtain government approval for amounts to be included in tax
filings. Tax compliance services in 2005 and 2004 consisted of:
- Federal, state and local income tax return assistance
- Sales and use, property and other tax return assistance
- Transfer pricing documentation
- Requests for technical advice from taxing authorities
- Assistance with tax audits and appeals
(d) Tax planning and consulting services are services rendered with respect to
proposed transactions or that alter a transaction to obtain a particular
tax result. Tax planning and consulting services in 2005 and 2004 consisted
of:
- Tax advice related to intra-group transactions and restructurings
- Tax planning related to certain foreign operations
In considering the nature of the services provided by Deloitte & Touche,
the Audit Committee determined that such services are compatible with the
provision of independent audit services. The Audit Committee discussed these
services with Deloitte & Touche and Company management to determine that they
are permitted under the rules and regulations concerning auditor independence
promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as
by the American Institute of Certified Public Accountants.
PRE-APPROVAL POLICY
At a meeting held in September 2002, shortly after the adoption of the
Sarbanes-Oxley Act of 2002 and its provisions regarding audit committee
pre-approval of non-audit services provided by a public company's independent
public accountants, the Audit Committee approved the
40
continued provision to the Company of audit, audit-related and tax services as
described above by Deloitte & Touche. In March 2003, after the SEC's adoption of
final rules regarding provision of non-audit services by a public company's
independent public accountants, the Audit Committee adopted a pre-approval
policy regarding these services. All of the services performed by Deloitte &
Touche in 2005 were pre-approved in accordance with the pre-approval policy
adopted by the Audit Committee at its March 2003 meeting.
The Audit Committee's pre-approval policy describes the permitted audit,
audit-related, tax and other services (collectively, the "Disclosure
Categories") that Deloitte & Touche may perform. The policy requires that, each
fiscal year, a description of the services (the "Service List") expected to be
performed by Deloitte & Touche in each of the Disclosure Categories, as well as
related budgeted fee amounts, be presented to the Audit Committee for approval.
Providing a range of fees for a service incorporates appropriate oversight and
control of the independent auditor relationship, while permitting the Company to
receive immediate assistance from the independent auditor when time is of the
essence.
Any requests for audit, audit-related, tax and other services not included
on the Service List must be submitted to the Audit Committee for specific
pre-approval and cannot commence until such approval has been granted. Normally,
pre-approval is provided at regularly scheduled meetings. However, the authority
to grant specific pre-approval between meetings, as necessary, has been
delegated to the Chairman of the Audit Committee. The Chairman must update the
Audit Committee at the next regularly scheduled meeting of any services that
were granted specific pre-approval. On a quarterly basis, the Audit Committee
reviews the status of services and fees incurred year-to-date against the
original Service List and the forecast of remaining services and fees for the
fiscal year. Any proposed service exceeding 120% of the pre-approved cost level
or budgeted amount requires specific additional pre-approval by the Audit
Committee.
41
TENNECO INC. 2006 LONG-TERM INCENTIVE PLAN
(ITEM 3)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
BACKGROUND AND PURPOSE
The Company's Board of Directors has established, subject to stockholder
approval at the Annual Meeting, the Tenneco Inc. 2006 Long-Term Incentive Plan
(the "Plan"). A copy of the full text of the Plan is attached to this Proxy
Statement as Appendix A and is incorporated herein by reference. Stockholders
are urged to read the actual text of the Plan in its entirety.
The Company's former equity incentive plan, the Tenneco Inc. 2002 Long-Term
Incentive Plan (as amended, the "2002 Plan"), provided for the delivery of up to
4 million shares of the Company's common stock pursuant to awards granted under
the 2002 Plan, including a maximum of 1,000,000 shares for Full Value Awards (as
defined below). Through March 14, 2006, the Company has delivered or granted
awards under the 2002 Plan covering the delivery of up to 3,768,300 shares of
common stock in the aggregate, including 884,139 shares subject to Full Value
Awards. Accordingly, at March 14, 2006, only 231,700 shares remained available
for award under the 2002 Plan.
Our Board of Directors and Compensation/Nominating/Governance Committee
believe that our growth and performance depends significantly upon the efforts
of our officers and key employees and that such individuals are best motivated
if they own or have the opportunity to acquire (through options and other
equity-based incentives) a significant equity interest in us. The Board of
Directors and Committee consider equity-based incentives an important component
of their efforts to attract and retain talented individuals.
The success of this compensation philosophy is evidenced, the Company
believes, by the performance of the Company's Common Stock over the last several
years. From the first trading day of January 2002 to the first trading day of
January 2006, the closing sales price of the Company's Common Stock increased
from $2.30 to $20.40 (and was $21.42 as of March 14, 2006).
With only 231,700 shares available under the 2002 Plan as of March 14,
2006, the Board of Directors and Committee do not believe the Company has
sufficient shares available for future delivery under the 2002 Plan to
accomplish these purposes. Accordingly, on March 21, 2006, the Board of
Directors adopted, subject to stockholder approval at the Annual Meeting, the
Plan, the purposes of which 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
42
stockholders through compensation that is based on the Company's common stock;
and (vi) thereby promote growth in value of the Company's equity and enhancement
of long-term stockholder return.
Stockholder approval of the Plan is required by the rules of the NYSE. The
affirmative vote of holders of a majority of the votes cast on the proposal at
the Annual Meeting is required to approve the Plan (provided the total votes
cast on the proposal represent more than 50% of the outstanding shares of common
stock on the record date for the Annual Meeting).
The effective date of the Plan is March 21, 2006, 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. However, no awards may be granted under the Plan after the
ten-year anniversary of the effective date.
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.
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 is selected by the Board and must 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 is the "Committee" for
purposes of the Plan; however, as described elsewhere herein, it has delegated
certain of its responsibilities with respect to compensation that is intended to
be "performance-based" for purposes of Section 162(m) of the Code to an
Executive Compensation Subcommittee (and, as to such delegated duties, the
Subcommittee will act as the "Committee" until such duties are no longer
delegated to it).
Subject to the terms of the Plan, the Committee determines 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 are 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 are eligible to receive incentive stock option Awards under the Plan.
As of March 14, 2006, there were approximately 19,000 persons who would be
considered Eligible Individuals for the purposes of the Plan. The consideration
to be received by the Company for the granting of Awards under the Plan is
service to the Company or its subsidiaries.
43
AVAILABLE SHARES AND SHARE INFORMATION
If the Plan is approved at the Annual Meeting, (i) the maximum total number
of shares of common stock that may be delivered under the Plan will be equal to
the sum of (a) 2,000,000, plus (b) any shares of common stock available for
issuance as of the date of approval of the Plan by the Company's stockholders
under the 2002 Plan, plus (c) any shares that are represented by awards granted
under the 2002 Plan that are forfeited, expire, are canceled or are settled in
cash after the date of approval of the Plan by the Company's stockholders
without delivery of shares of common stock or which result in the forfeiture or
withholding of the shares of common stock, in any case to the extent that such
shares of common stock would have been added back to the reserve under the terms
of the 2002 Plan (in each case, subject to adjustment as described in the
Plan)(the shares referenced in clauses (b) and (c) being collectively referred
to as the "2002 Plan Shares") and (ii) the maximum number of shares of common
stock that may be delivered under the Plan in respect of "Full Value Awards"
will be 500,000, plus the amount of 2002 Plan Shares that, under the 2002 Plan,
would have been so available (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). If the Plan is approved by the stockholders at the
Annual Meeting, no further awards will be made under the 2002 Plan, as the
shares available under the 2002 Plan will be rolled forward and become available
under the new Plan.
The Company had an aggregate of 45,169,180 shares of common stock
outstanding as of March 14, 2006. 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
transactions. The closing price per share of common stock on March 14, 2006, as
reported by the NYSE, was $21.42.
CERTAIN TERMS AND CONDITIONS OF AWARDS
An Award under the Plan is subject to such terms and conditions, not
inconsistent with the Plan, as the Committee prescribes. The terms and
conditions of any Award to a participant are 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.
44
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
Internal Revenue Code of 1986, as amended (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") entitles 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 is established by the
Committee or determined by a method established by the Committee at the time the
Option or SAR is granted; provided, however, that no Exercise Price may be less
than 100% of the Fair Market Value of a share of common stock on the date of
grant. For purposes of determining the "Fair Market Value" of a share of common
stock as of any date, the following rules 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 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.
45
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 or in respect of a specified period of at least one year in duration.
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 or in respect
of a specified period of at least one year in duration.
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. However, the risk of forfeiture with respect to
any Restricted Stock Award made to any Eligible Individual in respect of his or
her employment by the Company or one of its subsidiaries will not lapse any
sooner than three years after the date of grant of such Restricted Stock Award
(subject, to the extent provided by the Committee, to pro rated vesting over the
course of such three year period and to acceleration of vesting in the event of
the participant's death, disability or involuntary termination or a change in
control of the Company (as defined in the Plan)).
The payment of the Exercise Price of an Option granted under the Plan is
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 not disapproved 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)
except as otherwise provided by the Committee, a participant may 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.
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
46
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
determines. 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 determines.
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 are 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, 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;
47
(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) 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 revision of the Plan
shall be made without stockholder approval, if such revision would constitute a
"material revision" of the Plan for purposes of the rules of the New York Stock
Exchange, Inc. or stockholder approval is otherwise 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,
including ISOs, granted during any one calendar year period to any one
individual under the Plan may not exceed 350,000 (subject to adjustments as
described in the Plan). 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.
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-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 $4,000,000, may
be subject to such Awards granted to any one individual during any one calendar
year.
48
CHANGE IN 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 (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 (or that, for last year, would have been received by or allocated to)
any Eligible Individual under the Plan, except that, as described above under
"Election of Directors -- Compensation of Directors," it is anticipated that (i)
Ms. Eickhoff-Smith, 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 discontinued retirement plan for directors, (ii) the
portion of Outside Directors' fees payable in equivalent units that may be
stock-settled will be awarded under the Plan (see "Election of Directors --
Compensation of Directors") and (iii) each of the Outside Directors will
continue to be awarded 3,500 shares of restricted stock annually under the Plan
(with a dollar value of $74,790 based on the closing price on March 14, 2006)
(see "Election of Directors -- Compensation of Directors").
49
OUTSTANDING AWARDS
The following table shows, as of December 31, 2005, information regarding
outstanding awards under all compensation plans of the Company (including
individual compensation arrangements) under which equity securities of the
Company may be delivered:
NUMBER OF WEIGHTED
SECURITIES TO BE AVERAGE
ISSUED UPON EXERCISE PRICE OF NUMBER OF
EXERCISE OF OUTSTANDING SECURITIES
OUTSTANDING OPTIONS, REMAINING AVAILABLE
OPTIONS, WARRANTS WARRANTS AND FOR FUTURE
PLAN CATEGORY AND RIGHTS(1) RIGHTS ISSUANCE(1)
------------- ----------------- ----------------- -------------------
EQUITY COMPENSATION PLANS APPROVED BY
SECURITY HOLDERS:
Stock Ownership Plan(2).............. 2,631,838(3) $9.68 --
2002 Long-Term Incentive Plan (as
amended)........................... 1,987,957(4)(5) $8.35(4) 816,694(5)
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS:
Supplemental Stock Ownership
Plan(6)............................ 302,300(7) $8.56 --
---------------
(1) Reflects the number of shares of the Company's common stock. Does not
include 247,196 shares that may be issued in settlement of common stock
equivalent units that were credited to outside directors as payment for
their retainer fee. In general, these units are settled in cash. At the
option of the Company, however, the units may be settled in shares of the
Company's common stock.
(2) This plan terminated as to new awards on December 31, 2001 (except awards
pursuant to commitments outstanding at that date). Does not include 6,628
shares subject to outstanding restricted stock (vest over time) as of
December 31, 2005 that were issued at a weighted-average issue price of
$4.65 per share.
(3) At March 14, 2006, due to option exercises since the end of 2005,
outstanding awards of options, warrants, and rights granted under this plan
covered the delivery of up to 2,168,151 shares of common stock. There were
6,628 shares of restricted stock outstanding under this plan at March 14,
2006.
(4) Does not include 709,229 shares subject to outstanding restricted stock
(vest over time) as of December 31, 2005 that were issued at a
weighted-average issue price of $11.11 per share. Under this plan, as of
December 31, 2005, a maximum of 269,771 shares remained available for
delivery under Full Value Awards.
(Notes continued on following page.)
50
(5) At March 14, 2006, due to plan activity since the end of 2005, (i)
outstanding awards of options, warrants, and rights granted under this plan
covered the delivery of up to 2,089,687 shares of common stock, (ii) 231,700
shares remained available under the plan, of which 115,861 shares could be
delivered as Full Value Awards and (iii) 730,847 shares of restricted stock
were outstanding under this plan.
(6) The plan described in the table above as not having been approved by
security holders is the Tenneco Inc. Supplemental Stock Ownership Plan. This
plan, which terminated on December 31, 2001 as to new awards (except awards
pursuant to commitments outstanding at that date), originally covered the
delivery of up to 1.5 million shares of common stock held in the Company's
treasury. This plan was and continues to be administered by the
Compensation/Nominating/Governance Committee. The Company's directors,
officers and other employees were eligible to receive awards under this
plan, although awards under the plan were limited to the Company's
non-executive employees. Awards under the plan could take the form of
non-statutory stock options, stock appreciation rights, restricted stock,
stock equivalent units or performance units. All awards made under this plan
were discretionary. The committee determined which eligible persons received
awards and determined all terms and conditions (including form, amount and
timing) of each award.
(7) At March 14, 2006, due to option exercises since the end of 2005,
outstanding awards of options, warrants, and rights granted under this plan
covered the delivery of up to 279,300 shares of common stock.
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.
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, equal to 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
51
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 equal to 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.
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
52
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 the ratification of the appointment of Deloitte &
Touche LLP as the Company's independent public accountants for 2006, (iii) FOR
approval of the Tenneco Inc. 2006 Long-Term Incentive Plan, and (iv) 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
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
beneficial owners of 10 percent or more of a registered class of the Company's
equity securities (collectively, "Reporting Persons") to file with the SEC
initial reports of beneficial ownership (Form 3) and reports on changes in
beneficial ownership (Form 4 or 5). SEC rules adopted pursuant to Section 16(a)
require that Reporting Persons furnish the Company with copies of all such forms
they file with the SEC.
53
Based solely upon its review of such forms furnished to the Company during
2005, and upon the written representations received by the Company from certain
of the Company's directors and executive officers that no Forms 5 were required,
the Company has determined that no Reporting Persons known to it were delinquent
with respect to their reporting obligations as set forth in Section 16(a) of the
Exchange Act during, or with respect to, 2005.
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, (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 ratify Deloitte & Touche LLP as the Company's independent public accountants
for 2006 and (3) the majority of votes cast on the proposal at the Annual
Meeting (in person or by proxy) is required to approve the Tenneco Inc. 2006
Long-Term Incentive Plan, assuming the total votes cast on the proposal
represent more than 50% of the outstanding common stock on the record date for
the Annual Meeting.
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 Deloitte &
Touche LLP 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. Because the vote standard for the approval of the Tenneco Inc.
2006 Long-Term Incentive Plan is a majority of votes cast on the proposal,
abstentions have the effect of a vote
54
against and, assuming the total votes cast on the proposal represent more than
50% of the outstanding common stock on the record date for the Annual Meeting,
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, as amended, or the
Securities Exchange Act of 1934, as amended, the information included or
incorporated in the sections of this Proxy Statement entitled "Executive
Compensation -- Tenneco Inc. Compensation/Nominating/Governance Committee Report
on Executive Compensation," "Performance Graph," and "Report of Audit Committee"
will not be deemed to be incorporated, unless specifically provided otherwise in
such filing.
55
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 2007, the proposal must be received by the Company
by November 27, 2006.
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 tenth 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 2007 annual meeting not included
by or at the direction of the Board must be received not earlier than January 9,
2007, nor later than February 8, 2007.
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, 2005, 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 -- STRATEGY AND BUSINESS
DEVELOPMENT AND GENERAL COUNSEL, TENNECO INC., 500 NORTH FIELD DRIVE, LAKE
FOREST, ILLINOIS 60045.
56
APPENDIX A
TENNECO INC.
2006 LONG-TERM INCENTIVE PLAN
ARTICLE 1
GENERAL
1.1. PURPOSE. The Tenneco Inc. 2006 Long-Term Incentive Plan (the "Plan")
has been established by Tenneco 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 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) APPROVAL DATE. The term "Approval Date" means the date on which
the Plan is approved by the Company's stockholders.
(b) 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
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Equivalent Unit Awards, Restricted Stock Awards, Restricted Stock Unit
Awards and Performance Unit Awards.
(c) BOARD. The term "Board" means the Board of Directors of the
Company.
(d) 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
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constitute a sale, exchange or other disposition of substantially all of
the Company's assets; or
(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.
(e) 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.
(f) COMMON STOCK. The term "Common Stock" means the Company's common
stock, par value $.01 per share.
(g) 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).
(h) EFFECTIVE DATE. The term "Effective Date" has the meaning set
forth in Section 5.1.
(i) 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.
(j) 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,
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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.
(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.
(k) 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.
(l) PARTICIPANTS. The term "Participants" has the meaning set forth
in Section 1.2.
(m) 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 not
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
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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.)
(n) PRIOR PLAN. The term "Prior Plan" means the Tenneco Automotive
Inc. 2002 Long-Term Incentive Plan.
(o) 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 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. For
purposes of the grant of incentive stock options, the term "Subsidiary"
means a subsidiary corporation within the meaning of section 424(f) of the
Code.
(p) 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).
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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.
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 not disapproved 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) Except as otherwise provided by the Committee, a Participant may
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.
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(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 or in respect of a specified period of at least one year in
duration.
(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 or in
respect of a specified period of at least one year in duration.
(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.
Notwithstanding the foregoing, the risk of forfeiture with respect to any
Restricted Stock Award made to any Eligible Individual in respect of his or
her employment by the Company or a Subsidiary shall not lapse any sooner
than three years after the date of grant of such Restricted Stock Award
(subject, to the extent provided by the Committee, to pro rated vesting
over the course of such three year period and to acceleration of vesting in
the event of the Participant's death, disability or involuntary termination
or a Change in Control).
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
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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 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; APPROVAL DATE AND EFFECT ON PRIOR PLAN. Subject to
the provisions of Section 5.2(b), the Plan shall be effective as of the date
that the Plan is adopted by the Board (the "Effective Date"); provided, however,
that Awards granted under the Plan prior to the Approval Date will be contingent
on approval of the Plan by the Company's stockholders. 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). Upon the Approval Date, no further awards
will be made under the Prior Plan. Any awards made under the Prior Plan prior to
the Approval Date shall continue to be subject to the terms and conditions of
the Prior Plan. If the Approval Date does not occur, awards may continue to be
made under the Prior Plan subject to the terms and conditions thereof.
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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) The maximum number of shares of Common Stock that may be delivered
to Participants and their beneficiaries under the Plan shall be equal to
the sum of (i) 2,000,000 shares of Common Stock, (ii) any shares of Common
Stock available for issuance as of the Approval Date under the Prior Plan,
and (iii) any shares that are represented by awards granted under the Prior
Plan that are forfeited, expire, are canceled or are settled in cash after
the Approval Date without delivery of shares of Common Stock or which
result in the forfeiture or withholding of the shares of Common Stock, in
any case to the extent that such shares of Common Stock would have been
added back to the reserve under the terms of the Prior Plan (the shares
referenced in clauses (ii) and (iii) being collectively referred to as the
"Prior Plan Shares"). 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 shares of Common Stock
(plus the amount of Prior Plan Shares that, under the Prior Plan, would
have been so available). 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.
(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 expires, 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.
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(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 during any one calendar year period to any one
individual pursuant to Article 3 (relating to Options and SARs,
including ISOs) shall be 350,000 (Three Hundred Fifty Thousand) shares
of Common Stock. 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 (Two Hundred Thousand)
shares of Common Stock and, if such Awards are denominated in cash
value, no more than $4,000,000, 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, 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
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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 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
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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, 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.
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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.
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);
A-13
(b) any period of restriction and restrictions imposed on Restricted
Stock or Restricted Stock Units granted hereunder shall lapse; 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.
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
A-14
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.
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) 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 revision of the Plan shall be made
without stockholder approval if such revision would constitute a "material
revision" of the Plan for purposes of the rules of the New York Stock Exchange,
Inc. or stockholder approval is otherwise required by applicable law, regulation
or stock exchange rule.
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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.
TENNECO INC.
By: /s/ Mark P. Frissora
Its: Chairman of the Board,
Chief Executive Officer
and President
Date: As of March 21, 2006
A-16
NOTICE OF ANNUAL
MEETING AND
PROXY STATEMENT
-------------------------------------
ANNUAL MEETING
OF STOCKHOLDERS
MAY 9, 2006
TENNECO INC.
500 NORTH FIELD DRIVE, LAKE FOREST,
ILLINOIS 60045
(TENNECO LOGO)
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045 [TENNECO LOGO]
March 27, 2006
Dear Benefit Plan Participant:
The Annual Meeting of the Stockholders of Tenneco Inc. is scheduled to be
held Tuesday, May 9, 2006, at 10:00 a.m., local time, at the Company's
headquarters located at 500 North Field Drive, Lake Forest, Illinois 60045. A
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 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
appointment of Deloitte & Touche LLP as independent public accountants for 2006,
FOR the approval of the Tenneco Inc. 2006 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
ANNUAL MEETING OF STOCKHOLDERS OF
TENNECO INC.
MAY 9, 2006
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy card in the envelope provided as soon as
possible
- OR -
TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) from any touch-tone
telephone and follow the instructions. Have your proxy card available when you
call.
- OR -
INTERNET - Access "WWW.VOTEPROXY.COM" and follow the on-screen instructions.
Have your proxy card available when you access the web page.
COMPANY NUMBER
--------------------
ACCOUNT NUMBER
--------------------
You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up
until 11:59 PM Eastern Time the day before the cut-off or meeting date.
Please detach along perforated line and mail in the envelope provided IF you are
not voting via telephone or the Internet.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
--------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS:
NOMINEES:
[ ] FOR ALL NOMINEES O CHARLES W. CRAMB
O TIMOTHY R. DONOVAN
[ ] WITHHOLD AUTHORITY O M. KATHRYN EICKHOFF-SMITH
FOR ALL NOMINEES O MARK P. FRISSORA
O FRANK E. MACHER
[ ] FOR ALL EXCEPT O ROGER B. PORTER
(See instructions below) O DAVID B. PRICE, JR.
O DENNIS G. SEVERANCE
O PAUL T. STECKO
O MITSUNOBU TAKEUCHI
O JANE L. WARNER
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: @
FOR AGAINST ABSTAIN
2. Approve appointment of Deloitte &
Touche LLP as independent public
accountants for 2006. [ ] [ ] [ ]
3. Approve the Tenneco Inc. 2006
Long-Term Incentive Plan. [ ] [ ] [ ]
4. 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).
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, 2 AND 3.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that [ ]
changes to the registered name(s) on the account may not be submitted via
this method.
SIGNATURE OF STOCKHOLDER DATE:
------------------------------------ ---------------
SIGNATURE OF STOCKHOLDER DATE:
------------------------------------ ---------------
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
TENNECO INC.
Annual Meeting of Stockholders
May 9, 2006
10:00 a.m., local time
Tenneco
500 North Field Drive
Lake Forest, Illinois 60045
Dear Stockholder:
Tenneco 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
YOUR VOTE IS IMPORTANT: THANK YOU FOR VOTING.
TENNECO INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 9, 2006
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
Inc. held of record by the undersigned at the close of business on March 14,
2006 and entitled to vote at the Annual Meeting of Stockholders of Tenneco Inc.
to be held at 10:00 a.m., local time, May 9, 2006, at the Company's headquarters
located at 500 North Field Drive, Lake Forest, Illinois 60045 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.
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.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
ANNUAL MEETING OF STOCKHOLDERS OF
TENNECO INC.
MAY 9, 2006
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON
AS POSSIBLE.
Please detach along perforated line and mail in the envelope provided.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
--------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS:
NOMINEES:
[ ] FOR ALL NOMINEES O CHARLES W. CRAMB
O TIMOTHY R. DONOVAN
[ ] WITHHOLD AUTHORITY O M. KATHRYN EICKHOFF-SMITH
FOR ALL NOMINEES O MARK P. FRISSORA
O FRANK E. MACHER
[ ] FOR ALL EXCEPT O ROGER B. PORTER
(See instructions below) O DAVID B. PRICE, JR.
O DENNIS G. SEVERANCE
O PAUL T. STECKO
O MITSUNOBU TAKEUCHI
O JANE L. WARNER
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: @
FOR AGAINST ABSTAIN
2. Approve appointment of Deloitte &
Touche LLP as independent public
accountants for 2006. [ ] [ ] [ ]
3. Approve the Tenneco Inc. 2006
Long-Term Incentive Plan. [ ] [ ] [ ]
4. 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).
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, 2 AND 3.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that [ ]
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Stockholder: Date:
----------------------------------- ---------------
Signature of Stockholder: Date:
----------------------------------- ---------------
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
TENNECO INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 9, 2006
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
Inc. held of record by the undersigned at the close of business on March 14,
2006 and entitled to vote at the Annual Meeting of Stockholders of Tenneco Inc.
to be held at 10:00 a.m., local time, May 9, 2006, at the Company's headquarters
located at 500 North Field Drive, Lake Forest, Illinois 60045 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.
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.
(Continued and to be signed on the reverse side.)