UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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TENNECO INC.
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CONTROL NUMBER.
SEC 1913 (01-07)
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 (TENNECO LOGO)
April 3, 2007
To the Stockholders of Tenneco Inc.:
The Annual Meeting of Stockholders of Tenneco Inc. will be held Tuesday,
May 8, 2007, at 10:00 a.m., local time, at our 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 our activities for the year 2006 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/ GREGG SHERRILL
GREGG SHERRILL
Chairman and Chief Executive
Officer
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 (TENNECO LOGO)
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 2007
The Annual Meeting of Stockholders of Tenneco Inc. will be held at our
principal executive offices located at 500 North Field Drive, Lake Forest,
Illinois 60045 on Tuesday, May 8, 2007, at 10:00 a.m., local time.
The purposes of the meeting are:
1. To elect eight directors for a term to expire at the 2008 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 2007; and
3. To consider and act upon such other matters as may properly be 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 13, 2007 are entitled to vote at the meeting. A list of these
stockholders will be available for inspection for 10 days preceding the meeting
at our principal executive offices located at 500 North Field Drive, Lake
Forest, Illinois 60045, and also will 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 us 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
J. JEFFREY ZIMMERMAN
Corporate Secretary
Lake Forest, Illinois
April 3, 2007
TENNECO INC. (TENNECO LOGO)
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000
April 3, 2007
PROXY STATEMENT
This statement is furnished in connection with the solicitation on behalf
of the Board of Directors of Tenneco Inc. (which we refer to as we, us, our,
Tenneco or our company) of proxies to be voted at the Annual Meeting of
Stockholders on May 8, 2007, or at any adjournment or postponement thereof.
Holders of common stock of record at the close of business on March 13, 2007
will be entitled to vote at the Annual Meeting. Each share is entitled to one
vote. At March 13, 2007, there were 45,900,306 shares of common stock
outstanding and entitled to vote. This proxy statement is first being mailed to
stockholders on or about April 3, 2007.
BACKGROUND
In 1996, we were formed and spun off from the company that, at the time,
was known as Tenneco Inc. After the spin-off, we held the former Tenneco Inc.'s
automotive and packaging operations. In 1999, we spun off the packaging
operations and, at that time, changed our name to "Tenneco Automotive Inc." In
October 2005, we returned to the name "Tenneco Inc.", as we believe the name
Tenneco better represents the continued expansion of our offerings through our
commercial and specialty vehicle businesses.
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ELECTION OF DIRECTORS
(ITEM 1)
Our Board of Directors currently comprises ten individuals, eight 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 2008 and until their
successors are chosen and have qualified. After many years of distinguished
service, two our directors, Ms. M. Kathryn Eickhoff-Smith and Dr. Dennis G.
Severance, will be retiring from the Board of Directors effective at the Annual
Meeting and, at that time, the size of our Board will be reduced to eight.
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, we 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 13, 2007), 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 2008 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 was elected to our Board of
Directors in March 2003, is 60 years old and is Chairman of the Audit Committee.
FRANK E. MACHER -- Mr. Macher 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, from July 2005 until his
recent retirement. 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 66 years old and was named a director of our 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 60 years
old and has been a director of our company since January 1998. Mr. Porter is a
member
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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,
President and Founder 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
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, Inc. Mr. Price is 61 years old
and was named a director of our 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.
GREGG SHERRILL -- Chairman of the Board and Chief Executive Officer -- Mr.
Sherrill was named our Chairman and Chief Executive Officer in January 2007. Mr.
Sherrill joined us from Johnson Controls Inc., where he served since 1998, most
recently as President, Power Solutions. From 2002 to 2003, Mr. Sherrill served
as the Vice President and Managing Director of Europe, South Africa and South
America for Johnson Controls' Automotive Systems Group. Prior to joining Johnson
Controls, Mr. Sherrill held various engineering and manufacturing assignments
over a 22-year span at Ford Motor Company, including Plant Manager of Ford's
Dearborn, Michigan engine plant and Director of Supplier Technical Assistance.
Mr. Sherrill is 53 years old and became a director of our company in January
2007.
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 62 years old and has been a director of our company since November
1998. He is also a director of State Farm Mutual Insurance Company 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.
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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 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. He served as a
member of the Board of Directors of Denso Corporation from March 1995 until his
retirement in June 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 65 years old
and has been a director of our company since January 2006. Mr. Takeuchi is a
member of the Audit Committee.
JANE L. WARNER -- Ms. Warner has served as Group President at Illinois Tool
Works Inc., a global manufacturer of specialty products and equipment, since
December 2005, where she has worldwide responsibility for its Finishing Systems
and Click Commerce businesses. Prior to this, Ms. Warner was President of Plexus
Systems, L.L.C., a provider of manufacturing information systems from June 2004
until December 2005 and an executive with Electronic Data Systems from 2000
through June 2004, where she was President of their Global Manufacturing
Information Solutions Group. Ms. Warner served as Executive Vice President for
first tier supplier Textron Automotive from 1994 through 1999, where she was
President of its Kautex North America and Randall divisions. Previously, Ms.
Warner held various positions over a 20-year span at General Motors Corporation
which included General Superintendent and Assistant Chief Engineer. She was
sponsored as a Sloan Fellow to Stanford University where she received a Master's
in Management. Ms. Warner is 60 years old and was named a director of our
company in October 2004. Ms. Warner is also 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 a
member of the Board of Trustees for Kettering University where she is past Chair
and serves on the Executive and Finance Committees. Ms. Warner is a member of
the Compensation/Nominating/Governance Committee.
NON-CONTINUING DIRECTORS
TERMS EXPIRING AT 2007 ANNUAL MEETING OF STOCKHOLDERS
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
also a director of Moorings Park Institute, a non-profit retirement community in
Naples, Florida.
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Ms. Eickhoff-Smith has been a director of our 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 67 years
old and is a member of the Audit Committee and 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 63 years old and became a director of our company
in July 2000. Dr. Severance is a member of the Audit Committee.
CORPORATE GOVERNANCE
OVERVIEW
We have established a comprehensive corporate governance plan for the
purpose of defining responsibilities, setting high standards of professional and
personal conduct and assuring compliance with these 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 our corporate governance plan. Many of these matters are
described in more detail elsewhere in this proxy statement.
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INDEPENDENCE OF DIRECTORS (SEE PP. 9-10)
- Nine of our ten current directors are independent under the New York
Stock Exchange ("NYSE") listing standards. Assuming all nominees
presented in this Proxy Statement are elected at the Annual Meeting,
seven of our eight directors will be independent under the NYSE listing
standards.
- Independent directors are scheduled to meet separately in executive
session after every regularly scheduled Board of Directors meeting.
- We have a lead independent director, Mr. Paul T. Stecko.
AUDIT COMMITTEE (SEE PP. 12-13 AND PP. 59-62)
- 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, has been designated
as an "audit committee financial expert," as defined in the SEC rules.
All 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 our 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 our independent auditors.
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE AND SUBCOMMITTEE (SEE PP.
10-12 AND P. 58)
- 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 our 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
- We have adopted Corporate Governance Principles, including qualification
and independence standards for directors.
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STOCK OWNERSHIP GUIDELINES
- We have adopted Stock Ownership Guidelines to align the interests of our
executives with the interests of stockholders and promote our 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 case of an independent
director, his or her Board of Directors retainer fee and then converted
to a fixed number of shares.
COMMUNICATIONS WITH DIRECTORS (SEE P. 15)
- The Audit Committee has established a process for confidential and
anonymous submissions by our employees, 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
- We have adopted a Code of Ethical Conduct for Financial Managers that
applies to our Chief Executive Officer, Chief Financial Officer,
Controller and other key financial managers.
- We also operate 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.
RELATED PARTY TRANSACTIONS POLICY (SEE PP. 15-16)
- We have adopted a Policy and Procedure for Transactions with Related
Persons, under which our Audit Committee must generally pre-approve
transactions involving more than $120,000 with our directors, executive
officers, five percent or greater stockholders and their immediate family
members.
EQUITY AWARD POLICY (SEE PP. 31-32)
- We have adopted a written policy to be followed for all issuances by our
company of compensatory awards in the form of our common stock or any
derivative of our common stock.
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PERSONAL LOANS TO EXECUTIVE OFFICERS AND DIRECTORS
- We comply 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 our directors or executive officers.
Our Audit Committee, 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 and Procedures for Transactions with Related
Persons, Equity Award Policy, 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 our website at
www.tenneco.com. The contents of the website are not, however, a part of this
proxy statement. In addition, we 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. We
intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K and
applicable NYSE rules regarding amendments to or waivers of our Code of Ethical
Conduct for Financial Managers and Statement of Business Principles by posting
this information on our website at www.tenneco.com.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
GENERAL. Our Board of Directors currently comprises ten members, nine of
whom are not officers of our company and one of whom is an officer of our
company. As described above, two of our outside directors, Ms. M. Kathryn
Eickhoff-Smith and Dr. Dennis G. Severance, will be retiring at the Annual
Meeting. The Board of Directors believes that our ratio of outside directors to
inside directors represents a commitment to the independence of the Board and a
focus on matters of importance to our stockholders.
The Board of Directors has determined that Ms. M. Kathryn Eickhoff-Smith,
Ms. Jane L. Warner and Messrs. Charles W. Cramb, Frank E. Macher, Roger B.
Porter, David B. Price, Jr., Dennis G. Severance, Paul T. Stecko, and Mitsunobu
Takeuchi, all 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 us. 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 employee, director or beneficial owner of less than 10% of the
shares of another company that (directly or indirectly through its subsidiaries
or affiliates) does business with us and the annual sales to, or purchases from,
us are less than 1% of the annual consolidated revenues of both our company and
the other company; (ii) the director is an employee, director or beneficial
owner of less than 10% of the shares of another company that (directly or
indirectly through its subsidiaries or affiliates) is indebted to us, or to
which we are indebted, and the total amount of either company's consolidated
indebtedness to
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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
we own a common equity interest, and the amount of our interest is less than 5%
of the total voting power of the other company; or (iv) the director serves as
an employee, director or trustee of a charitable organization, and our
discretionary charitable contributions to the organization are less than 1% of
that organization's total annual charitable receipts. No outside director has a
relationship with us that is not within these guidelines. In making its
determinations, the Board of Directors considered the following relationships,
all of which are within these guidelines: in the case of Mr. Stecko, an ordinary
course supply arrangement between our company and the company where he serves as
chief executive officer; in the case of Ms. Warner, an ordinary course supply
arrangement between our company and the company where she serves as group
president; and in the case of Dr. Severance, fees paid to the University of
Michigan for educational programs unrelated to Dr. Severance. Mr. Mark P.
Frissora, our former Chairman and Chief Executive Officer, who resigned in July
2006, was an officer of our company, and not an independent director.
During 2006, the Board of Directors held eight meetings. All of our
directors who served in 2006 attended, during his or her term of service, 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 regularly scheduled Board meeting. 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 our
management.
All of the directors, other than Mr. Sherrill (who joined the Board in
January 2007), attended last year's annual meeting of the stockholders. The
Board of Directors has a policy that, absent unusual circumstances, all
directors attend our annual stockholder meetings.
The Board of Directors has four standing committees. These committees have
the responsibilities and authority described below.
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE AND SUBCOMMITTEE. 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 the officers and
employees of our company and its subsidiaries; (2) examine periodically our
compensation structure; (3) supervise our welfare and pension plans and
compensation plans; and (4) produce an annual report on executive compensation
for inclusion in our proxy statement in accordance with applicable rules and
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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 our
company; and (e) develop, recommend to the Board of Directors for approval and,
as appropriate, recommend to the Board of Directors revisions to our applicable
Corporate Governance Principles.
The Compensation/Nominating/Governance Committee may form and delegate
authority to subcommittees when appropriate and to the extent permitted by
applicable law and the rules of the NYSE. Once a subcommittee of this committee
is so formed, the committee may exercise any authority in its discretion that is
granted to the subcommittee.
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 our Chief Executive Officer and our
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. This subcommittee does not have the authority to further delegate its
responsibilities.
Each of the Compensation/Nominating/Governance Committee and its Executive
Compensation Subcommittee operates pursuant to a written charter, the current
versions of which were reaffirmed by the Board of Directors and the
Compensation/Nominating/Governance Committee, respectively, in March 2007 as
part of their annual review process. The Compensation/ Nominating/Governance
Committee held eight meetings and the Executive Compensation Subcommittee held
three meetings during 2006.
The Compensation/Nominating/Governance Committee engages Hewitt Associates,
LLC as its regular outside compensation consultant. Hewitt reports directly to
the Compensation/ Nominating/Governance Committee and the scope of its
assignment is to (i) assist in decision-making with respect to executive
compensation, (ii) provide plan design advice, (iii) provide annual competitive
market studies against which committee members can analyze executive
compensation and (iv) apprise the committee members regarding best practices and
pay levels in association with director compensation. For a more detailed
discussion of Hewitt's role in our executive compensation process, see
"Executive Compensation -- Compensation Discussion and Analysis." For our
director compensation, Hewitt prepares comparative market data and presents that
information directly to the committee. The committee reviews this data and
establishes director compensation in consultation with Hewitt.
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From time to time, the committees will review materials prepared by other
consultants to assist it with specific compensation matters. For example, in
2006 management engaged Buck Consultants, a pension actuarial firm, to provide
advice concerning the restructuring of Tenneco's defined benefit and defined
contribution retirement benefits plans for U.S. salaried and non-union hourly
employees. This information was reviewed by the Compensation/Nominating/
Governance Committee in connection with its decision to freeze future accruals
under our defined benefits retirement plans at the end of 2006, as described
under "Executive Compensation -- Post-Employment Compensation -- 2006 Changes in
Defined Benefits."
For a discussion of the role of our executive officers in the establishment
of executive officer compensation, see "Executive Compensation -- Compensation
Discussion and Analysis." Our executive officers do not participate in the
process for establishing director compensation.
A report of the Compensation/Nominating/Governance Committee regarding
executive compensation appears elsewhere in this proxy statement. For a more
detailed discussion of the Compensation/Nominating/Governance Committee's
processes and procedures for considering and determining executive compensation,
see "Executive Compensation -- Compensation Discussion and Analysis."
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 our stockholder rights plan at least every three years and, if it deems
it appropriate, recommend that the full Board modify or terminate that plan. The
TIDE Committee did not hold a meeting in 2006.
AUDIT COMMITTEE. The members of the Audit Committee are Ms. Eickhoff-Smith
and Messrs. Macher, Severance, Takeuchi 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 designated Mr. Cramb 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 our internal controls over the financial
reporting process. The independent public accounting firm is responsible for
performing an independent audit of our 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 our 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
12
independent public accountants the adequacy of our basic accounting system and
the effectiveness of our internal audit plan and activities; (4) review with
management and the independent public accountants our certified financial
statements and exercise general oversight over the financial reporting process;
(5) review with us litigation and other legal matters that may affect our
financial condition and monitor compliance with business ethics and other
policies; (6) review the independence, qualifications and performance of our
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 our 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 our selection or application of accounting
principles, and significant issues, if any, as to the adequacy of our 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 our
financial statements; and (d) the type and presentation of information to be
included in earnings press releases, as well as any financial information and
earnings guidance provided to analysts and rating agencies. In addition, the
Audit Committee has discussed our 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 our 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 2007 as part of its
annual review process. The Audit Committee held 11 meetings in 2006. 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 us
during their term, including the number of meetings attended, level of
participation, quality of performance and any transactions of such directors
with us during their term. In the event that vacancies are anticipated, or
otherwise arise, the Compensation/Nomination/Governance Com-
13
mittee 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. 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 our 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 our company; and (6) an absence of
employment at a competitor of our company.
The Compensation/Nominating/Governance Committee will consider director
candidates recommended by stockholders provided the procedures set forth below
are followed by 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 our 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 our By-laws,
in writing to our Corporate Secretary at our 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. 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 our 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 our 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.
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
14
candidates. Based on that search, the Compensation/Nominating/Governance
Committee recommended the election of Mr. Takeuchi to the Board of Directors.
From July 2006 to January 2007, Spencer Stuart also assisted in the search for
our new Chairman and Chief Executive Officer, based on which the
Compensation/Nominating/Governance Committee recommended Mr. Sherrill as our
Chairman and Chief Executive Officer.
COMMUNICATIONS WITH THE DIRECTORS. Anyone who has a concern about our
conduct, or about our accounting, internal accounting controls or auditing
matters, may communicate that concern directly to the Board of Directors, our
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 our 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. Our
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 our Corporate
Secretary at 500 North Field Drive, Lake Forest, Illinois 60045. The Corporate
Secretary will forward any communications as directed by the stockholder. We
maintain a separate, internal system for the receipt of communications from
employees.
TRANSACTIONS WITH RELATED PERSONS
The Board of Directors has adopted its Policy and Procedures for
Transactions with Related Persons. As a general matter, the policy requires the
Audit Committee to review and approve or disapprove the entry by us or our
subsidiaries into certain transactions with related persons. The policy only
applies to transactions, arrangements and relationships where the aggregate
amount involved could reasonably be expected to exceed $120,000 in any calendar
year and in which a related person has a direct or indirect interest. A related
person is:
- any director, nominee for director or executive officer of our company;
- any immediate family member of a director, nominee for director or
executive officer; and
- any person, and his or her immediate family members, or entity, including
affiliates, that was a beneficial owner of five percent or more of any of
our outstanding equity securities at the time the transaction occurred or
existed.
15
If advance approval of a transaction subject to the policy is not obtained,
it must be promptly submitted to the committee for possible approval, amendment,
termination or rescission. In reviewing any transaction, the committee will take
into account, among other factors the committee deems appropriate, whether the
transaction is on terms no less favorable than terms generally available to a
third party in similar circumstances and the extent of the related person's
interest in the transaction. The Board of Directors has delegated to the chair
of the committee the authority to approve, disapprove or ratify any transaction
with a related person in which the aggregate amount involved is expected to be
less than $1,000,000.
The policy provides that the following transactions are pre-approved for
the purposes of the policy:
- Employment of executive officers and compensation of directors and
executive officers that is otherwise being reported in our annual proxy
statement (as these transactions are otherwise subject to approval by the
Board of Directors or one of its committees);
- A transaction where the related person's only interest is as an employee,
director or owner of less than 10% of the other company's shares, and if
the transaction involves the sale of purchase or sale of goods or
services, the annual sales to or purchases from our company are less than
1% of the annual consolidated revenue for both our company and the other
company, or, if the transaction involves lending or borrowing, the total
amount of either company's indebtedness is less than 1% of the total
consolidated assets of the indebted company;
- Contributions to charitable organizations, foundations or universities at
which a related person's only relationship is as an employee, director or
trustee, if the aggregate amount does not exceed 1% of the charitable
organization's total annual receipts;
- Transactions where the related person's only interest arises solely from
the ownership of our company's common stock, and where all stockholders
of our company receive benefits on a pro rata basis;
- Transactions involving competitive bidding;
- Transactions where the related person renders services as a common or
contract carrier, or public utility, at rates or charges fixed in
conformity with law or governmental authority; and
- Transactions involving services as a bank depository of funds, transfer
agent, registrar, trustee under a trust indenture or similar services.
16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers and beneficial owners of 10 percent or more
of a registered class of our equity securities 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 such persons furnish us with copies of all such forms they file with the
SEC.
Based solely upon our review of such forms furnished to us during 2006, and
upon the written representations received by us from certain of our directors
and executive officers that no Forms 5 were required, we believe that our
directors, executive officers and 10% or greater stockholders complied with all
Section 16(a) filing requirements on a timely basis during 2006.
17
OWNERSHIP OF COMMON STOCK
MANAGEMENT
The following table shows, as of March 13, 2007, the number of shares of
our 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 PERCENT OF
OWNED COMMON STOCK
(1)(2)(3)(4) OUTSTANDING
------------ ------------
DIRECTORS
---------
Charles W. Cramb..................................... 24,475 *
M. Kathryn Eickhoff-Smith............................ 42,374 *
Frank E. Macher...................................... 42,804 *
Roger B. Porter...................................... 46,652 *
David B. Price, Jr. ................................. 75,824 *
Dennis G. Severance.................................. 44,804 *
Gregg Sherrill....................................... 180,000 *
Paul T. Stecko....................................... 30,796 *
Mitsunobu Takeuchi................................... 7,000 *
Jane L. Warner....................................... 14,502 *
NAMED EXECUTIVE OFFICERS
------------------------
Timothy R. Donovan................................... 35,569 *
Hari N. Nair......................................... 224,116 *
Kenneth R. Trammell.................................. 164,670 *
Neal Yanos........................................... 114,380 *
All executive officers and directors as a group (20
individuals)....................................... 1,713,556(5) 3.7 %
---------------
* Less than one percent.
(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.
(Notes continued on following page.)
18
(2) Includes restricted shares. At March 13, 2007, Ms. Eickhoff-Smith and
Messrs. Donovan, Nair, Sherrill, Trammell and Yanos held 22,203, 28,000,
28,000, 180,000, 26,000 and 18,666 restricted shares, respectively. At March
13, 2007, each outside director, other than Ms. Eickhoff-Smith (described
above) and Mr. Takeuchi, held 3,500 restricted shares. At March 13, 2007,
Mr. Takeuchi held 7,000 restricted shares. Also includes shares that are
subject to options that are exercisable within 60 days of March 13, 2007 for
Ms. Eickhoff-Smith, Ms. Warner and Messrs. Cramb, Macher, Porter, Price,
Severance, Stecko, Nair, Trammell and Yanos to purchase 10,000, 6,502,
16,475, 32,500, 35,000, 35,000, 32,500, 10,000, 171,667, 108,750 and 67,834
shares, respectively.
(3) Each of the individuals listed in the table owns less than 1% of the
outstanding shares of our common stock, respectively, except for all
directors and executive officers as a group, who beneficially own
approximately 3.7% 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 our option, shares of common stock after an outside director ceases
to serve as a director. At March 13, 2007, 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 25, 618, 5,232,
19,935, 17,816, 68,189, 43,416, 46,181, 43,416 and 2,665, respectively.
(5) Includes 907,912 shares that are subject to options that are exercisable
within 60 days of March 13, 2007 by all executive officers and directors as
a group. Includes 422,091 restricted shares.
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 13, 2007, certain information
regarding the persons known by us to be the beneficial owner of more than 5% of
our 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
---------------------- ------------ -----------------
Franklin Advisers, Inc.(2)....................... 2,333,270 5.1%
One Franklin Parkway
San Mateo, California 94403-1906
Jeffrey L. Gendell and various entities related
to Tontine Capital Management, L.L.C.(3)....... 3,132,450 6.8%
55 Railroad Avenue
Greenwich, Connecticut 06830
(Notes continued on following page.)
19
---------------
(1) This information is based on information contained in filings made with the
SEC regarding the ownership of our common stock.
(2) Franklin Advisers, Inc. has sole voting power for 2,318,470 shares and sole
dispositive power for 2,333,270 shares. Franklin Resources, Inc., Charles B.
Johnson and Rupert H. Johnson, Jr. disclaimed beneficial ownership of the
shares.
(3) Tontine Capital Management, L.L.C. has shared voting power and shared
dispositive power with Tontine Capital Partners, L.P. with respect to
2,747,050 shares. Tontine Overseas Associates, L.L.C. has shared voting
power and shared dispositive power with respect to 385,400 shares. Jeffrey
L. Gendell is the managing member of Tontine Overseas Associates, L.L.C. and
Tontine Capital Management, L.L.C., which is the general partner of Tontine
Capital Partners, L.P.
(Notes continued on following page.)
20
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
Our executive compensation philosophy, policies, plans and programs are
under the supervision of the Compensation/Nominating/Governance Committee of our
board of directors. In late 2005, the committee formed an Executive Compensation
Subcommittee, which is responsible for making executive compensation
determinations with respect to stock options and other equity-based compensation
that may qualify as "performance-based compensation" under Section 162(m) of the
Internal Revenue Code of 1986, as amended. For a description of the composition,
authority and responsibilities and ability to delegate of the committee and
subcommittee, see "Corporate Governance -- The Board of Directors and Its
Committees -- Compensation/Nominating/Governance Committee and Subcommittee."
Unless the context requires otherwise, in this Compensation Discussion and
Analysis when we refer to the "committee," we are also referring to the
subcommittee with respect to performance-based compensation under Section
162(m), and when we refer to "executives," we are referring to the executive
officers whose compensation is shown in this proxy statement under "-- Summary
Compensation Table."
COMPENSATION PROCESS
In determining competitive compensation, the committee engages a nationally
recognized, independent compensation consulting firm that reports directly to
the committee. For more information regarding this consulting firm and the scope
of its assignment, see "Corporate Governance -- The Board of Directors and Its
Committees -- Compensation/Nominating/ Governance Committee and Subcommittee."
For our Chief Executive Officer, the consulting firm generally provides market
data regarding salary, bonus targets and equity-based awards, and provides
counsel directly to the committee as it makes decisions with respect to
compensation. For the other executives, our management formulates the initial
recommendations regarding salary, bonus targets and equity-based awards. The
committee reviews the recommendations, in consultation with the consulting firm,
in light of market data prepared by the consulting firm. For other forms of
compensation and benefits, management generally makes initial recommendations
that are reviewed by the committee in consultation with the consulting firm as
appropriate.
COMPENSATION OBJECTIVES
The basic philosophy underlying our executive compensation policies, plans
and programs is that (1) executive and stockholder financial interests should be
aligned as closely as possible, and (2) compensation packages should be based on
delivering pay in line with performance.
21
Accordingly, our executive compensation program 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 our 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, our executive compensation program is designed
to provide competitive levels of compensation derived from several sources:
salaries; annual cash incentive awards; stock ownership opportunities through
stock options and restricted stock; and stock equivalent units. We also offer
other benefits typically offered to executives by major U.S. corporations,
including defined benefit retirement plans (future benefit accruals under which
were substantially eliminated for senior management in 2006 as described below),
defined contribution retirement plans, perquisites, employment agreements (in
limited cases), severance and change-in-control benefits and welfare benefits.
Our policy is to provide salary, annual cash incentive payments and
equity-based incentive compensation to executives based on performance that is
competitive and at market levels with comparable companies when financial and
qualitative targets are met. In making its determinations regarding these
elements of compensation, the committee regularly reviews data regarding
compensation practices at other companies that it determines to be relevant to
compensation matters affecting our company. Historically, we have not regularly
engaged in any form of benchmarking regarding other elements of compensation. As
described below, however, we did examine some benchmarking data in connection
with our 2006 decision to substantially eliminate future accruals to our defined
benefit retirement plans.
The benchmarking information we use in establishing salary, annual cash
incentive payments and equity-based incentive compensation typically includes
data regarding companies believed to be comparable to our company in terms of
industry (automotive parts manufacturing) and/or size (total revenues, number of
employees, capitalization or other factors). For 2006, the committee examined
specific data regarding a comparison group of nineteen companies selected to
reflect a balance of automotive sector and other traditional manufacturing
22
companies.(1) The data was weighted based on the size of revenues of the
comparison companies. In addition, the committee reviewed aggregate data
regarding a broad group of durable goods manufacturers (that were not
specifically identified to the committee). This data was prepared by the
consulting firm and compared average compensation paid by these companies to
their executive officers in specified positions to the compensation we pay to
executives in the same or similar positions.
Our compensation program generally provides that, as an executive's level
of responsibility increases, a greater portion of his or her potential total
compensation is based on corporate performance and varies in accordance with the
market price of our common stock. This results in 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.
DESIGN AND ELEMENTS OF COMPENSATION
Total Executive Compensation
Consistent with our compensation objectives described above, our executive
compensation program is designed to be typical of the compensation programs that
companies of similar size and in similar industries offer to their executive
officers. The committee has examined "tally sheets" -- spreadsheets that attempt
to capture all elements of an executive's compensation in one quantifiable
format -- to understand all elements of executive compensation, although
decisions regarding one element of compensation are not specifically tied to
decisions regarding other elements of compensation.
The following is a description of each element of our executive
compensation program, along with a discussion of the decisions of and action
taken by the committee in 2006 with respect to that aspect of compensation.
Salary and Bonus/Non-Equity Incentive Plan Compensation
An executive's basic cash compensation package consists primarily of a base
salary, amounts paid in lieu of 401(k) plan contributions and payments under the
Tenneco Value Added
---------------
1 The companies comprising the comparison group for 2006 compensation were:
ArvinMeritor, Inc., BorgWarner Inc., Briggs & Stratton Corporation, Cummins
Inc., Dana Corporation, Eastman Chemical Company, FMC Technologies, Inc., The
Goodyear Tire & Rubber Company, W.W. Grainger, Inc., Johnson Controls, Inc.,
Lear Corporation, Lennox International Inc., A.O. Smith Corporation, Steelcase
Inc., Stewart & Stevenson Services, Inc., Teleflex Incorporated, Temple-Inland
Inc., Whirlpool Corporation and Worthington Industries, Inc.
23
Incentive Compensation Plan, which we call the TAVA Plan. The TAVA Plan provides
for annual discretionary bonuses and annual incentive payments based on the
achievement of corporate performance. We offer these elements of compensation
because they are customary within our industry.
Each year, our CEO and senior human resources executive reviews with the
committee an annual salary and TAVA Plan target for our executives and other key
management personnel (excluding the CEO). The committee approves that plan with
changes that the committee deems appropriate. The salary and TAVA Plan target
that is developed for each of these executives is based on competitive market
data and on the CEO's subjective recommendations regarding the executive's
overall contributions. The committee also reviews separately, with the
assistance of the consulting firm, and sets the salary and TAVA Plan target of
the CEO based on competitive market data as well as the committee's assessment
of the CEO's past performance and anticipated future contributions. For 2006,
the committee specifically considered the CEO's performance against objectives
established for 2005 in areas such as execution of our annual operating plan,
winning new business awards, debt reduction and implementation of key business
processes.
The 2006 salary levels established for our executives were 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. For 2006, the committee's standard executive merit increase was 3.5%,
although its average executive merit increase was 8.2% due to promotions of
certain executives and the implementation of the overall 50th percentile design
described above. The TAVA Plan target payment levels established for our
executives for 2006 were also designed to be, in general, in the 50th percentile
range when compared to target levels for similar payments set by the companies
in the compensation surveys reviewed by the committee. However, under the TAVA
Plan our executives had the opportunity to earn payouts above or below the
targeted 50th percentile based on our corporate performance.
Annual performance goals for the TAVA Plan are generally developed,
initially, by Stern Stewart & Co., an independent consulting firm with expertise
in EVA-based incentive programs. The firm's recommended performance goals are
reviewed by the committee. The committee approves the goals with any changes 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 for that year and on judgments of
performance as follows: (i) 75% of an individual's award is tied to our
corporate achievement of pre-established EVA(R) objectives, and (ii) 25% of an
individual's award is based on the committee's discretionary determination of
corporate performance. EVA is after-tax operating profit minus the annual cost
of capital and is a registered trademark of Stern Stewart & Co.
For years prior to 2006, the 75% portion of an individual's payout under
the TAVA Plan that was tied to EVA performance was calculated as follows: Each
year, the individual's "bonus
24
bank" under the TAVA Plan -- which is the amount (if any) of awards declared in
prior years but not yet paid -- was credited with an accrual equal to 75% of his
or her total TAVA Plan target multiplied by a corporate performance factor. This
performance factor, which could be positive or negative, was based upon our
corporate EVA performance against the committee's pre-established goal. For any
year, an individual's payout was equal to the sum of: (i) his or her EVA-based
award for that year, if positive (but not exceeding 120% of the portion of his
or her TAVA Plan target tied to EVA performance), plus (ii) one-third of the
individual's remaining bonus bank as of the end of that year, if any. The
declared award, 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.
In January 2006, the committee amended the TAVA Plan to eliminate the bonus
banking provisions with respect to awards paid for periods beginning January 1,
2006. We did this largely in response to new legislation which imposed
significant new rules, regulations and limitations on deferred compensation. As
a result, our executives now receive their full EVA-based payout for any year
within 2 1/2 months after the end of that year. Amounts credited to individual
bonus banks for prior periods are being paid out in accordance with the TAVA
Plan terms as they existed prior to the amendment, which generally provide for
one-third of the bonus bank to be paid each year.
The 25% portion of an individual's payout 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 our company versus
our peers in key strategic and operational areas. The factors considered may
change from year to year.
For 2006 performance, awards under the TAVA Plan were declared at
approximately 102.5% of the aggregate TAVA Plan targeted amount for each
executive. Because the TAVA Plan had a bonus bank feature prior to 2006,
individuals also received cash payouts in amounts equal to one-third of their
remaining bonus bank.
As described above, our corporate performance against EVA objectives
accounted for 75% of each executive's 2006 TAVA Plan award. Our EVA performance
for 2006 resulted in this portion of executives' TAVA Plan awards being declared
at 100% of the executives' 2006 EVA-based target. Payout of the remaining 25% of
each executive's TAVA Plan award 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 TAVA Plan award would be declared at 110% of the targeted
amount. After giving effect to the 2006 payouts to eligible participants, an
aggregate of approximately $0.4 million remained credited to the bonus bank for
executives under the TAVA Plan.
25
In making its determinations regarding the discretionary portion of 2006
bonuses, the committee considered in particular our strong financial performance
during 2006 in light of challenging operating conditions, including the nine
percent decrease in North American production of SUVs and light trucks during
2006 and our former Chief Executive Officer's resignation in July 2006.
During our search for our new Chief Executive Officer, four of our
executives -- Messrs. Trammell, Donovan, Nair and Yanos -- served as a committee
that performed the functions of the chief executive. This committee was known as
the Office of the Chief Executive. In recognition of these executives'
contributions to this committee, they were awarded an additional bonus of
$50,000 each.
Long-Term and Stock-Based Incentives
Our 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 2006 Long-Term Incentive Plan -- permits 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. 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 our 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 were payable in cash
in 1/3 increments after the end of each of 2004, 2005 and 2006 based on the
achievement of EVA and stock price performance targets. Our former CEO, Mark
Frissora, received only annual stock equivalent unit awards, as the committee
wanted to have the opportunity to annually evaluate award size and structure.
Each year, the committee reviews previously granted long-term and stock based
awards for our executives, typically at its meeting held in January.
In January 2006, the committee granted awards of the type described above
to our executives as set forth under the "Executive Compensation" section of
this Proxy Statement. In making its award determinations for 2006, the committee
noted in particular our success in winning new business awards during 2005, a
$40 million reduction in long-term debt during 2005 and the achievement of cost
savings through the ongoing implementation of Lean, Six Sigma and other key
business processes. Based on the committee's assumptions regarding future
corporate performance, interest rates and other factors, the 2006 grants were
designed to place our executives at approximately the 50th percentile range when
compared to the value of similar awards granted by peer companies to their
executives. Our executives had the opportunity for
26
the value actually realized from these awards to be above or below the 50th
percentile based on our corporate performance.
For 2006 performance, the annually scheduled cash payout under the stock
equivalent unit awards described above was made in early 2007. Based on our
achievement of corporate EVA and stock price appreciation targets established
for 2006, award holders received cash payouts equal to approximately 39.1% of
the maximum amount they could have been paid for 2006 under the stock equivalent
awards based on stock price appreciation over the measurement period of 14.2%.
For the executives to receive payouts at the 100% level, our stock price needed
to increase by 140% over the measurement period.
Allocation Among Forms of Compensation
In general, we allocate between currently paid compensation and long-term
compensation (excluding retirement benefits) based on the benchmarking data
analyzed by the committee as described above. Our preference in establishing
equity-based incentives is to deliver as much value in awards that result in the
issuance of stock as is possible (specifically, options and restricted stock).
However, since emerging as a stand alone company in 1999, we have been
constrained in the amount of stock available for issuance under our equity
incentive plans. As a result, we use the stock equivalent unit awards to deliver
to our executives the overall value we intend to deliver based on the
benchmarking described above, payable in cash rather than stock. Awards
deliverable in stock are then allocated between options and restricted stock in
line with the market data described above.
Actual Versus Targeted Compensation Levels
As a result of our corporate performance in 2006, our executives' salary,
TAVA Plan payments and equity-based awards placed them at approximately the 70th
percentile when compared to total compensation of similar types paid to
executives by the companies in the compensation surveys reviewed by the
committee.
Employment Agreements
For 2006, we had three executives with employment agreements that
established various terms and conditions of their employment as described under
"-- Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based
Awards Table -- Employment Agreements." All of these agreements were entered
into in connection with the series of transactions in 1999 that resulted in the
separation of Tenneco Inc.'s automotive, packaging and administrative services
businesses. In late 1999, we emerged as an independent, stand-alone public
company focused solely on our automotive operations. The separation transactions
caused substantial changes in our management, as the senior management of the
automotive operations became the executive officers of our company and the
previous executive officers resigned. In addition, the separation transactions
left us with a highly leveraged balance sheet in an extremely
27
competitive industry that has, historically, faced cycles of exceptionally
difficult operating conditions.
In the face of these challenges, we recognized the importance of ensuring
the continuation of top-notch managerial talent and the risk our executives were
taking in light of our balance sheet and the cyclicality of the automotive
industry. As a result, we entered into the employment agreements described above
with those who were, at the time, our top eight executive officers. In addition
to our recognition of the importance of these agreements as a recruiting and
retention tool, they were consistent with the types of employment agreements
historically offered by the consolidated Tenneco Inc. and were viewed as
customary. Since then, five of these officers have left our employ and, in most
cases, other managers have been promoted into positions vacated by them. We have
not, however, extended these type of employment agreements to these employees,
except with respect to our new Chief Executive Officer who was hired in January
2007.
In January 2007, Gregg Sherrill joined us as our Chief Executive Officer.
We entered into an employment agreement with him that is described under
"-- Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based
Awards Table -- Employment Agreements." We offered him an employment agreement
because we believe such agreements are customary for chief executive officers
and necessary to attract the highest quality candidates.
Retirement Plans
For those hired before April 1, 2005, we offered defined benefit retirement
plans to our executives that we believed were customary for the automotive
industry and were consistent with similar plans maintained by the consolidated
Tenneco Inc. prior to our becoming a stand-alone public company in 1999. These
plans included a customary tax-qualified retirement plan that provided benefits
as described under "-- Post Employment Compensation." In addition, we maintained
a supplemental executive retirement plan, which we call the "SERP," that
provided benefits as described under "-- Post Employment Compensation -- Tenneco
Supplemental Retirement Plan."
We also offer customary, tax-qualified defined contribution retirement
(ESOP/401(k)) plans that provide benefits as described under "-- Summary
Compensation Table." We provide a 50% company match on an executive's
contributions (up to 8% of salary), which we established to be in line with
prevailing practices for major U.S. corporations. As to executives hired on or
after April 1, 2005, we also provide an additional 2% company contribution. We
established this company contribution when we closed our defined benefit
retirement plans to new participants in 2005. We decided to do this because, in
general, our industry has been eliminating traditional defined benefit
retirement plans from compensation packages being offered to new employees.
28
At the time of the 1999 separation transactions, five employees were
considered to be of key importance to our successful transition to being a
stand-alone company and were granted participation in a key executive pension
plan, which we call the "KEPP." The KEPP provided benefits as described under
"-- Post Employment Compensation -- Tenneco Supplemental Pension Plan." We
modeled the KEPP after the key executive pension plan maintained by the former
consolidated Tenneco Inc. prior to the separation transactions.
In August 2006, we froze, effective December 31, 2006, our defined benefit
retirement plans for certain employees and replaced them with additional
benefits under defined contribution retirement plans. Prior earned benefits
under the defined benefit retirement plans were, however, preserved. With the
exception of certain officers who had employment contracts providing for
specified benefits (all of whom voluntarily accepted a benefits reduction as
described below), this freeze impacted all U.S.-based salaried employees
(including executives) and non-union hourly employees who participated in any of
the plans.
To address the loss of future benefits associated with the freeze, we
amended our existing qualified defined contribution retirement plans, effective
January 1, 2007, to provide for additional annual company contributions in
amounts that increase with the employee's age. These additional contributions,
which we refer to as "DB Replacement Contributions," are payable for each
employee who ceased to accrue benefits or whose benefits were otherwise modified
under any defined benefit retirement plan in connection with the freeze. In
addition, effective January 1, 2007 there will be a new, unfunded non-qualified
defined contribution retirement plan. In general, our executives and other
senior managers will be eligible to participate in this new plan, with
allocations under the plan calculated the same as under the applicable existing
defined contribution retirement plan (as amended), except that (i) the
compensation limit in Section 401(a)(17) of the Internal Revenue Code will be
disregarded and awards under the TAVA Plan or any successor plan will be
included in calculating compensation, and (ii) there will be an offset for the
DB Replacement Contributions.
We decided to freeze our defined benefit retirement plans consistent with
an industry trend towards eliminating traditional defined benefits. We decided
to offer additional defined contribution retirement benefits to remain
competitive in the overall employment marketplace. Specifically, the committee
reviewed information presented by Buck Consultants, a pension actuarial firm,
regarding the industry trends in retirement compensation, the cost savings to
our company of a revised retirement compensation structure and the degree of
benefit replacement to be achieved through new defined contribution retirement
plans.
Three of our executive officers -- Timothy R. Donovan, Hari N. Nair and
Timothy E. Jackson -- had employment agreements that provided for their
participation in the SERP and/or KEPP. As a result, we did not freeze the KEPP
and SERP for these officers. Instead, each individual officer voluntarily agreed
to a reduction in his retirement benefit payable under those plans and to an
offset to benefits payable under those plans for DB Replacement Contributions
29
received under the existing or new defined contribution plans. The benefits
reduction increases to a maximum of 5% of the benefit that would have otherwise
been paid, depending on the officer's age at retirement.
One of our executive officers -- Mr. Richard P. Schneider -- had achieved
maximum service under the KEPP when we froze our defined benefits. We amended
the KEPP to provide, as an offset to Mr. Schneider's benefits, the value of any
DB Replacement Contributions he receives.
Perquisites
Each of our executives receives a modest perquisite allowance designed to
avoid any discussion regarding specific perquisites for specific individuals.
Each executive may spend his perquisite allowance on those items he deems
appropriate.
Severance Benefits
We provide severance benefits to enable us to attract, retain and motivate
highly qualified employees by eliminating, to the maximum practicable extent,
any concern that their job security or benefit entitlements will be jeopardized
by a reduction in force or other termination that is not for cause.
If any of our executives with an employment agreement is terminated by us
other than in connection with a change-in-control or 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 will be vested, subject to approval by our board of
directors, his stock options will remain exercisable for at least 90 days and he
will receive one year of post-termination health and welfare benefits. We
established these severance benefits at the time of the 1999 separation
transaction based on the severance offered by the former consolidated Tenneco
Inc. We viewed these benefits as customary and a key element of the recruiting
and retention of executives at the time in light of company and industry
specific factors. See "-- Narrative Disclosure to Summary Compensation Table and
Grants of Plan-Based Awards Table -- Employment Agreements."
For other executives who do not have employment agreements, we maintain a
Severance Benefit Plan that applies to all salaried, full-time employees with at
least one month of service who are terminated by us in connection with a
reduction in force or similar layoff. The benefits payable under this plan are
described under "-- Other Potential Post-Employment Compensation -- Other
Severance Benefits." This plan was originally adopted in the 1990s based on
prevailing practices at other major U.S. corporations and, after several
amendments, we continue to believe it reflects these prevailing practices.
Change-in-Control Plan
We maintain a Change-in-Control Severance Benefit Plan for Key Executives
to enable us to retain and motivate highly qualified employees by eliminating,
to the maximum practicable
30
extent, any concern that their job security or benefit entitlements will be
jeopardized by a "change-in-control" of our company. Benefits are payable under
the plan as described in "-- Other Potential Post-Employment
Compensation -- Change in Control Severance Benefit Plan for Key Executives."
We adopted the plan in connection with the 1999 separation transactions
based substantially on the change-in-control benefits offered by the former
consolidated Tenneco Inc. We viewed these benefits as a key element of the
recruiting and retention of executives and other senior management at the time
in light of company and industry specific factors.
Relocation and Expatriate Compensation
For those of our executives on overseas assignments, we provide an
expatriate package and relocation expenses at the end of the assignment. We
determine the amount of our expatriate and relocation packages in accordance
with prevailing practices identified in national surveys. We believe this
compensation is customary in connection with U.S. citizens who accept foreign
assignments.
Welfare Benefits
In addition to the compensation described above, we offer executives
welfare benefits that we believe are customary for our industry such as health,
life and disability insurance benefits.
EQUITY AWARD POLICY
We have adopted a formal policy regarding compensatory awards in the form
of our common stock or any common stock derivative, such as options, stock
appreciation rights and stock equivalent units.
Under the policy, in general, equity awards must be approved by the
committee or the full board of directors. Typically, the committee will make
annual awards that it determines to be appropriate at its meeting held in
January. The committee also has the authority to make interim awards in its
discretion. The strike price of any option or stock appreciation right must be
the fair market value of a share of our common stock on the date of grant.
Our policy also permits a committee of management to make awards in certain
cases. The management committee consists of our Chief Executive Officer, General
Counsel and Senior Vice President of Global Administration (or their respective
designees). The management committee has to the authority to make equity awards
to (i) newly hired employees and (ii) employees who are promoted during the
course of a year. The awards can be made only in amounts necessary to provide
the employee with awards consistent with the amount of awards most recently made
to employees of the same salary grade level, pro-rated based on when the
employee was hired or promoted. The awards are pro-rated to and take effect on
the first day of the calendar quarter beginning after the employee's hire or
promotion date, as applicable, and any strike price for an option or stock
appreciation right will be the fair market value of a share of our common stock
on
31
that date. The total number of shares that can be issued under awards granted by
the management committee is 100,000. The management committee is not authorized
to make awards to new or promoted employees whom we would typically consider to
be at the most senior management or executive officer level.
STOCK OWNERSHIP GUIDELINES
We maintain stock ownership guidelines that apply to all directors and most
of our executive officers. The requirements are determined as a multiple of the
officer's base salary or, in the case of a non-management director, his or her
board of directors retainer fee and then converted to a fixed number of shares.
The individual guidelines are:
5x annual base salary for Chairman/Chief Executive Officer;
3x annual retainer fee for Non-Management Members of the Board of
Directors; and
3x annual base salary for Sr. Vice Presidents and Executive Vice
Presidents.
That product is divided by our closing common stock price on January 31,
2005.
Once established, a participant's guideline generally does not change as a
result of changes in his or her base salary (or retainer fee) or fluctuations in
our common stock price. The committee may, however, from time to time,
reevaluate and revise participants' guidelines to give effect to changes in our
common stock price or capitalization.
Our stock that counts towards satisfaction of the guidelines includes (i)
shares owned outright by the participant or his or her immediate family members
residing in the same household; (ii) stock held in our 401(k) plans; (iii)
restricted stock issued and held as part of an officer's long term compensation,
whether or not vested; (iv) shares underlying vested stock options; and (v)
shares acquired upon stock option exercises that the participant continues to
hold.
The committee has the authority to review each participant's compliance (or
progress towards compliance) with the guidelines from time to time. In its
discretion, the committee may impose conditions, restrictions or limitations on
any non-compliant participant as the committee determines to be necessary or
appropriate.
IMPACT OF REGULATORY REQUIREMENTS ON COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a
$1 million limit on the amount that a publicly-traded corporation may deduct for
compensation paid to the Chief Executive Officer or one of the company's other
four most highly compensated executives who is employed on the last day of the
year. Non-discretionary "performance-based compensation," as defined under
Internal Revenue Service rules and regulations, is excluded from this $1 million
limitation.
32
In late 2005, the committee established the Executive Compensation
Subcommittee, comprised of all committee members except Mr. Stecko. The
subcommittee considers and approves compensation for the Chief Executive Officer
and our other executive officers that is intended to qualify as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code.
Our 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. In addition, the
TAVA Plan was not submitted to stockholders for approval. Additionally, our
restricted stock is not considered performance-based compensation under Section
162(m) because it vests on the basis of the individual's continued employment
over a defined period of time. The subcommittee makes 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, we seek to preserve the tax deductibility of executive
compensation only to the extent practicable and consistent with our overall
compensation philosophies.
We do not make compensation determinations based on the accounting
treatment of any particular type of award.
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 our 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 our
ability to achieve sustainable competitive advantage, which should result in
maximum stockholder value. The committee will continue to emphasize long-term
and stock-based incentives for executives as the most important component of
total compensation.
33
SUMMARY COMPENSATION TABLE
The following table shows the compensation that we paid, for 2006, to: (1)
our former Chief Executive Officer, who resigned in July 2006; (2) our Chief
Financial Officer; and (3) each of our next three most highly compensated
executive officers who were serving at the end of 2006 based on total
compensation less the increase in actuarial value of defined benefits and any
above market or preferential earnings on non tax-qualified deferred
compensation. We refer to these individuals collectively as the "Named
Executives." The table shows amounts paid to the Named Executives for all
services provided to our company and its subsidiaries.
SUMMARY COMPENSATION TABLE
NON-EQUITY CHANGE IN
STOCK OPTION INCENTIVE PLAN PENSION
SALARY BONUS(1) AWARDS(2) AWARDS(2) COMPENSATION(3) VALUE(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($)
--------------------------- ---- -------- -------- --------- --------- --------------- ----------
Mark P. Frissora(6)......................... 2006 $486,080 $ -- $(398,041) $152,934 $ -- $ 118,474
Chairman, CEO and President
Kenneth R. Trammell......................... 2006 395,000 125,075 719,400 109,857 204,750 121,254
Executive Vice President and CFO
Timothy R. Donovan(7)....................... 2006 439,662 125,075 777,355 120,733 204,750 508,697
Executive Vice President and General
Counsel
Hari Nair................................... 2006 414,000 125,075 777,355 120,733 204,750 127,743
Executive Vice President and President,
International
Neal Yanos.................................. 2006 327,484 111,325 639,983 80,899 167,250 103,785
Senior Vice President/General Manager North
American Original Equipment Ride Control
and Aftermarket
ALL OTHER
COMPENSATION(5) TOTAL
NAME AND PRINCIPAL POSITION ($) ($)
--------------------------- --------------- ----------
Mark P. Frissora(6)......................... $130,305 $ 489,752
Chairman, CEO and President
Kenneth R. Trammell......................... 46,229 1,721,565
Executive Vice President and CFO
Timothy R. Donovan(7)....................... 48,831 2,225,103
Executive Vice President and General
Counsel
Hari Nair................................... 256,678 2,026,334
Executive Vice President and President,
International
Neal Yanos.................................. 43,602 1,474,328
Senior Vice President/General Manager North
American Original Equipment Ride Control
and Aftermarket
---------------
(1) The amounts under the column entitled "Bonus" in the table above are
comprised of the discretionary portion of the Named Executive's bonus under
our TAVA Plan. See "-- Compensation Discussion and Analysis -- Salary and
Bonus/Non-Equity Incentive Plan Compensation." In addition, the bonus
amounts for Messrs. Trammell, Donovan, Nair and Yanos include $50,000 paid
to each of these Named Executives for serving in the Office of the Chief
Executive, the executive committee we formed to oversee the company during
our search for a new Chief Executive Officer, during 2006.
(2) See note 8 to our consolidated financial statements for the year ended
December 31, 2006 for a description of how we compute this value. During
2006, amounts reflected for Mr. Frissora give effect to his forfeiture of
the following awards in connection with his resignation in July 2006:
options to purchase 25,000 shares and 75,000 shares of restricted stock
granted on January 20, 2004, options to purchase 50,000 shares and 50,000
shares of restricted stock granted on January 17, 2005, options to purchase
70,000 shares and 70,000 shares of restricted stock granted on January 16,
2006 and 150,000 stock equivalent units granted on January 16, 2006.
(3) Reflects only earnings for services during 2006, and no earnings on
outstanding awards.
(Notes continued on following page.)
34
(4) As described below under "Post-Employment Compensation," we have
traditionally maintained defined benefit and supplemental pension plans for
our senior management (although future benefit accruals were frozen for most
employees as of December 31, 2006 as described below under
"-- Post-Employment Compensation -- 2006 Changes in Defined Benefits"). The
amount for each Named Executive in the table above reflects solely the
change in actuarial present value of the Named Executive's accumulated
benefit under all defined benefit plans from September 30, 2005 to September
30, 2006.
(5) The amounts under the column entitled "All Other Compensation" in the table
above are comprised of the following:
REGISTRANT
PERQUISITES CONTRIBUTIONS
AND OTHER EARNINGS ON TO DEFINED
PERSONAL DEFERRED TAX CONTRIBUTION
NAME BENEFITS(A) COMPENSATION(B) REIMBURSEMENTS(C) PLANS(D) OTHER(E)
---- ----------- --------------- ----------------- ------------- --------
Mr. Frissora................................. $91,129 $ 0 $19,733 $8,800 $10,643
Mr. Trammell................................. 30,384 0 116 7,500 8,229
Mr. Donovan.................................. 30,384 849 116 8,800 8,682
Mr. Nair..................................... 83,536 0 156,582 7,500 9,060
Mr. Yanos.................................... 30,384 0 118 7,500 5,600
--------------------
(a) Perquisites and other personal benefits consist of: (a) for Mr.
Frissora, perquisite allowance ($40,000), gifts and the value of travel
and spousal travel; (b) for Mr. Trammell, perquisite allowance
($30,000) and gifts; (c) for Mr. Donovan, perquisite allowance
($30,000) and gifts; (d) for Mr. Nair, perquisite allowance ($30,000)
and costs and expenses relating to his expatriate assignment, such as
home travel, cost of living allowances and automobile benefits
($38,536), gifts and the value of other travel ($14,616); and (e) for
Mr. Yanos, perquisite allowance of ($30,000) and gifts. For purposes
hereof, such perquisites and personal benefits are valued at their
aggregate incremental cost to our company based on the following
methodology: since each of the perquisites involved actual cash
expenditure by our company, that cash expenditure is what is reflected
as the value of the perquisites.
(b) We maintain unfunded, non-qualified deferred compensation plans
pursuant to which our senior management may elect to defer receipt of
all or a specified portion of their incentive compensation. The plans
provide participants with various investment options, including stock
equivalent units of our common stock, and their deferrals are credited
(or debited) as if funds had actually been invested in the option
selected. Amounts credited under the plans are paid in a single lump
sum as soon as practicable after the participant's death or
termination, or on the date otherwise specified in the participant's
deferral election. However, for amounts deferred by the Named
Executives that are subject to the recently adopted rules under Section
409A of the Internal Revenue Code, no payment may be made earlier than
six months after the executive's separation from service with our
company. The amount reflected in the table above represents
(Notes continued on following page.)
35
the increase in the executive's deferred compensation account for 2006
based on his selected investment alternative.
(c) In the case of Mr. Nair, substantially all of the tax reimbursements
relate to his expatriate assignment.
(d) For 2006, we offered retirement benefits to our senior management
though a 401(k) savings plan entitled the Tenneco Employee Stock
Ownership Plan for Salaried Employees. Under the plan, subject to
limitations in the Internal Revenue Code, participants may elect to
defer up to 75% of their salary through contributions to the plan,
which are invested in selected mutual funds or used to buy our common
stock. We match in cash 50% of each employee's contribution up to eight
percent of the employee's salary. As to executives hired after April 1,
2005 (when we closed our defined benefit plans to new participants), we
provide an additional 2% company contribution. All contributions vest
immediately. This plan will continue in effect for 2007. In addition,
as described below under "-- Post-Employment Compensation -- 2006
Changes in Defined Benefits," we will implement additional company
contributions and a new excess defined contribution plan for 2007 in
connection with the December 31, 2006 freezing of our defined benefit
plans.
(e) Represents amounts paid in lieu of matching contributions to our 401(k)
plan.
(6) Mr. Frissora resigned in July 2006.
(7) Mr. Donovan resigned in February 2007.
36
GRANTS OF PLAN-BASED AWARDS DURING 2006
The following table shows certain information regarding grants of
plan-based awards we made to the Named Executives during 2006.
GRANTS OF PLAN-BASED AWARDS DURING 2006
ESTIMATED
FUTURE ALL OTHER ALL OTHER
PAYOUTS UNDER ESTIMATED FUTURE STOCK OPTION
NON-EQUITY PAYOUTS UNDER EQUITY AWARDS: AWARDS: EXERCISE
INCENTIVE PLAN INCENTIVE PLAN NUMBER OF NUMBER OF OR BASE
AWARDS(1) AWARDS(2) SHARES OF SECURITIES PRICE OF
-------------- ---------------------- STOCK OR UNDERLYING OPTION
TARGET TARGET MAXIMUM UNITS(3) OPTIONS(3) AWARDS
NAME GRANT DATE ($) ($) ($) (#) (#) ($/SH)
---- ---------- -------------- --------- ---------- --------- ---------- --------
Mr. Frissora.............. $663,750
1/16/2006 $842,697 $3,707,865
1/16/2006 70,000
1/16/2006 70,000 $21.19
Mr. Trammell.............. 204,750
1/16/2006 28,090 126,405
1/16/2006 15,000
1/16/2006 15,000 21.19
Mr. Donovan............... 204,750
1/16/2006 15,000
1/16/2006 15,000 21.19
Mr. Nair.................. 204,750
1/16/2006 15,000
1/16/2006 15,000 21.19
Mr. Yanos................. 167,250
1/16/2006 10,000
1/16/2006 10,000 21.19
GRANT DATE
CLOSING PRICE FAIR VALUE
ON GRANT OF STOCK
DATE(4) AND OPTION
NAME ($/SH) AWARDS
---- ------------- ----------
Mr. Frissora..............
$1,459,500
1,491,000
$21.30 659,400
Mr. Trammell..............
48,650
319,500
21.30 141,300
Mr. Donovan...............
319,500
21.30 141,300
Mr. Nair..................
319,500
21.30 141,300
Mr. Yanos.................
213,000
21.30 94,200
---------------
(1) Represents targeted incentive payouts that are paid based on our corporate
performance against Economic Value Added ("EVA") goals under the Tenneco
Value Added Incentive Plan as described below under "-- Bonus and Non-Equity
Incentive Plan Awards." There is no threshold or maximum payout.
(2) Represents awards of stock equivalent units under our 2006 Long-Term
Incentive Plan as described below under "-- Stock Awards." For Mr. Frissora,
represents his annual award as described in "-- Compensation Discussion and
Analysis." For Messrs. Trammell and Yanos, represents a pro-rata award in
connection with a promotion designed to increase each individual's overall
holdings of stock equivalent units for 2006 to a level commensurate with the
level of awards made to executives of the same salary grade when the units
were originally awarded in 2004. We are presenting estimates of future
payment in dollars rather than units because the awards have a minimum total
dollar value that is payable if the EVA-based performance criteria is met
(which also is the Compensation/Nominating/ Governance Committee's
expectation of future payout if the EVA-based performance criteria is met)
and a maximum total value that is payable if stock price performance was
well in excess of expectations. See "-- Compensation Discussion and
Analysis -- Design and Elements of Compensation -- Long-Term and Stock-Based
Incentives."
(Notes continued on following page.)
37
(3) Represents awards of restricted stock and stock options under our 2006
Long-Term Incentive Plan. One-third of the options and restricted stock vest
on each of the first three anniversaries of the grant date.
(4) The difference in the exercise price and closing price on the grant date
results from the application of the provisions of our 2006 Long-Term
Incentive Plan. The plan requires that options be granted with a strike
price equal to the fair market value of a share of our common stock on the
date of grant. Fair market value is defined by taking the average of the
high and low sales price of our common stock on the date in question.
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF
PLAN-BASED AWARDS TABLE
BONUS AND NON-EQUITY INCENTIVE PLAN AWARDS
Amounts reflected in the Summary Compensation Table under the column
entitled "Bonus" and "Non-Equity Incentive Plan Compensation" are payments under
the Tenneco Value Added Incentive Plan ("TAVA Plan"), plus a $50,000 bonus paid
to each Named Executive for service in the Office of the Chief Executive. Under
the TAVA Plan, (i) 25% of an individual's bonus is based on the
Compensation/Nominating/Governance committee's discretionary determination of
performance (reflected in the "Bonus" column) and (ii) 75% of an individual's
bonus is tied to our achievement of pre-established EVA(R) objectives
(represented in the "Non-Equity Incentive Plan Compensation" column).
Annual performance goals for the TAVA Plan are generally developed,
initially, by Stern Stewart & Co., an independent consulting firm with expertise
in EVA-based incentive programs. The firm's recommended performance goals are
reviewed by the committee. The committee approves the goals with any changes 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 for that year and on judgments of
performance as follows: (i) 75% of an individual's award is tied to our
corporate achievement of pre-established EVA(R) objectives, and (ii) 25% of an
individual's award is based on the committee's discretionary determination of
corporate performance. EVA is after-tax operating profit minus the annual cost
of capital and is a registered trademark of Stern Stewart & Co.
For years prior to 2006, the 75% portion of an individual's payout 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 awards declared in prior years but not yet paid -- was credited with
an accrual equal to 75% of his or her total TAVA Plan target multiplied by a
corporate performance factor. This performance factor, which could be positive
or negative, was based upon our corporate EVA performance against the
committee's pre-established goal. For any year, an individual's payout was equal
to the sum of: (i) his or her EVA-based award for that year, if positive (but
not exceeding 120% of the portion of his or her TAVA Plan target tied to EVA
performance), plus (ii) one-third of the individual's remaining bonus
38
bank as of the end of that year, if any. The declared award, 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.
In January 2006, we amended the TAVA Plan to eliminate the bonus banking
provisions with respect to awards paid for periods beginning January 1, 2006. We
did this largely in response to new legislation which imposed significant new
rules, regulations and limitations on deferred compensation. As a result, our
executives now receive their full EVA-based payout for any year within 2 1/2
months after the end of that year. Amounts credited to individual bonus banks
for prior periods are being paid out in accordance with the TAVA Plan terms as
they existed prior to the amendment, which generally provide for one-third of
the bonus bank to be paid each year.
The 25% portion of an individual's payout 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 our company versus
our peers in key strategic and operational areas. The factors considered may
change from year to year.
See "-- Compensation Discussion and Analysis" for a discussion of specific
determinations under the TAVA Plan for 2006.
In addition to the payments described above for 2006, $37,102 for Mr.
Trammell, $53,083 for Mr. Donovan, $53,083 for Mr. Nair and $30,448 for Mr.
Yanos was paid in respect of amounts held in the individual's bonus bank after
giving effect to 2005 payments. After giving effect to the 2006 payments
reflected above, $74,203, $106,167, $106,167 and $60,896 remained credited to
the bonus bank of Messrs. Trammell, Donovan, Nair and Yanos, respectively. Each
of Messrs. Frissora and Donovan forfeited his bonus bank when he left our
employment.
STOCK AWARDS
Amounts reflected in the Summary Compensation Table under the column
entitled "Stock Awards" represent awards of restricted common stock and stock
equivalent units granted to each Named Executive under our 2006 Long-Term
Incentive Plan. See "-- Grants of Plan Based Awards During 2006."
In general, our restricted stock awards vest one-third per year during the
three years after the grant date, subject to the officer's continued employment.
One outstanding tranche of awards vests 100% on the third anniversary of the
grant date. Holders of restricted shares are entitled to receive dividends if we
were to declare and pay them. Subject to the terms of any employment agreement,
the unvested portion of these awards is generally forfeited by a participant if
his or her employment is terminated other than due to death, disability or
retirement Accordingly, each of Messrs. Frissora and Donovan forfeited his
unvested awards when he left our employment. All restrictions lapse upon death,
disability or retirement.
39
Except in the case of Mr. Frissora, stock equivalent unit awards were made
at the beginning of 2004 and are earned and payable one-third each year. In each
case, stock equivalent units pay out based on the achievement of a corporate
performance goal based on EVA improvement and a corporate performance goal based
on stock price appreciation. To earn any portion of the yearly scheduled vesting
under the awards, we must at least meet our 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 our 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 our 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. Mr. Frissora's stock equivalent
units were generally earned and payable at the end of one year, based on the EVA
and stock price criteria described above, reflecting the committee's desire to
re-evaluate Mr. Frissora's awards on an annual basis. Subject to the terms of
any employment agreement, the unvested portion of these awards is generally
forfeited by a participant if his or her employment is terminated other than due
to death, disability or retirement. Accordingly, Mr. Frissora forfeited his
awards when he left our employment. In the event of termination due to death,
disability or retirement, the award is treated as fully vested and is paid based
on our prevailing stock price at the time.
OPTION AWARDS
Amounts reflected in the Summary Compensation Table under the column
entitled "Option Awards" represent awards of nonqualified options to purchase
common stock granted to each Named Executive under our 2006 Long-Term Incentive
Plan. See "-- Grants of Plan Based Awards During 2006." The awards vest
one-third per year during the three years after the grant date and have a
seven-year term. Subject to the terms of any employment agreement, the
unexercised portion of these awards is generally forfeited by a participant on
the date his or her employment is terminated other than due to death, disability
or retirement. Accordingly, each of Messrs. Frissora and Donovan forfeited his
unvested awards when he left our employment. In the event of death, disability
or retirement, the options become fully exercisable and remain exercisable for a
period specified in the applicable award agreement.
EMPLOYMENT AGREEMENTS
In January 2007, we entered into an agreement with our new Chairman and
Chief Executive Officer -- Mr. Gregg Sherrill -- that sets forth certain terms
and conditions of his employment with our company. The agreement provides, among
other things, for an annual salary for 2007 of $875,000 and a target bonus for
2007 of $875,000. As an inducement for Mr. Sherrill to accept his offer, we
agreed to (i) pay Mr. Sherrill $1,325,000 within seven days of his first day of
40
employment and (ii) grant Mr. Sherrill 125,000 shares of restricted stock on his
first day of employment (which will vest in three equal installments on each of
the first three anniversaries of the date of grant or, if earlier, upon his
involuntary termination of employment for reasons other than cause). The
agreement also provides that he would be entitled to specified equity incentive
awards when made for our other executives for 2007 (100,000 options, 55,000
restricted shares and stock equivalent units covering a three-year performance
period with a targeted value of $700,000). The agreement provides that, under
our Change-in-Control Severance Benefit Plan for Key Executives, Mr. Sherrill's
cash payment in connection with a change-in-control termination will equal three
times the total of his then current base salary plus the higher of (i) his
highest annual target bonus over the prior three years and (ii) his average
bonuses for the prior three years (or if shorter, his period of service to the
company). See "-- Post-Employment Compensation -- Other Potential
Post-Employment Compensation" for a discussion of the other benefits afforded
under the Change-in-Control Severance Benefit Plan for Key Executives. The
agreement also provides that, other than in connection with a change-in-control,
if Mr. Sherrill's employment is terminated by us other than for disability or
nonperformance of duties, he will be paid two times his then current annual
salary. The employment agreement also provides for participation in an excess
non-qualified defined contribution plan which, prior to offset for amounts
contributed under the qualified plan, is equal to 150% of the standard
age-graded benefit under the plan and for participation in other benefit plans
we offer our employees generally.
Messrs. Frissora and Donovan were, and Mr. Nair is, party to an agreement
with us that sets forth certain terms and conditions of his employment with our
company. Each of the employment agreements provides that, under our
Change-in-Control Severance Benefit Plan for Key Executives, the relevant Named
Executive's cash payment in connection with a change-in-control termination
would 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 us 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, his stock options
would remain exercisable for at least 90 days and he would receive one year of
post-termination health and welfare benefits. Pursuant to the terms of their
employment agreements, Messrs. Frissora and Donovan were, and Mr. Nair is,
guaranteed a minimum annual base salary/minimum annual target bonus as follows:
Mr. Frissora, $640,000/$590,000; Mr. Donovan, $455,000/$273,000 and Mr. Nair,
$428,490/$273,000. The employment agreements also provide for participation in
benefit plans we offer to our employees generally, as well as continued
participation in supplemental retirement benefit plans as described under
"-- Post-Employment Compensation."
41
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
The following table shows certain information regarding the outstanding
equity awards held by the Named Executives at the end of 2006.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
STOCK AWARDS
------------------------
OPTION AWARDS NUMBER OF
---------------------------------------------------------- SHARES OR MARKET
NUMBER OF NUMBER OF UNITS OF VALUE OF
SECURITIES SECURITIES STOCK SHARES OR
UNDERLYING UNDERLYING THAT HAVE UNITS OF
UNEXERCISED UNEXERCISED OPTION OPTION NOT STOCK THAT
OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION VESTED HAVE NOT
NAME EXERCISABLE UNEXERCISABLE(1) PRICE($) DATE (#)(1) VESTED($)
---- --------------- ---------------- -------- ---------- ----------- ----------
Mr. Frissora......... -- -- $ -- -- -- $ --
Mr. Trammell......... 15,000 -- 8.56 11/5/2009
15,000 -- 3.66 1/9/2011
30,000 -- 1.57 12/5/2011
15,000 -- 3.77 1/21/2013
3,750 -- 6.45 10/1/2013
10,000 5,000 8.68 1/20/2014
5,000 10,000 16.00 1/17/2012
-- 15,000 21.19 1/16/2013
12,000 296,640
8,000 197,760
15,000 370,800
Mr. Donovan.......... 7,000 -- 8.56 11/5/2009
12,000 6,000 8.68 1/20/2014
6,000 12,000 16.00 1/17/2012
-- 15,000 21.19 1/16/2013
18,000 444,960
12,000 296,640
15,000 370,800
42
STOCK AWARDS
------------------------
OPTION AWARDS NUMBER OF
---------------------------------------------------------- SHARES OR MARKET
NUMBER OF NUMBER OF UNITS OF VALUE OF
SECURITIES SECURITIES STOCK SHARES OR
UNDERLYING UNDERLYING THAT HAVE UNITS OF
UNEXERCISED UNEXERCISED OPTION OPTION NOT STOCK THAT
OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION VESTED HAVE NOT
NAME EXERCISABLE UNEXERCISABLE(1) PRICE($) DATE (#)(1) VESTED($)
---- --------------- ---------------- -------- ---------- ----------- ----------
Mr. Nair............. 20,000 -- 3.19 1/2/2011
25,000 -- 3.37 7/2/2011
36,667 -- 1.57 12/5/2011
55,000 -- 3.77 1/21/2013
12,000 6,000 8.86 1/20/2014
6,000 12,000 16.00 1/17/2012
-- 15,000 21.19 1/16/2013
18,000 444,960
12,000 296,640
15,000 370,800
Mr. Yanos............ 2,000 -- 3.66 1/9/2011
15,000 -- 1.57 12/5/2011
25,000 -- 3.77 1/21/2013
2,500 -- 3.74 7/1/2013
8,000 4,000 8.86 1/20/2014
4,000 8,000 16.00 1/17/2012
-- 10,000 21.19 1/16/2013
12,000 296,640
8,000 197,760
10,000 247,200
---------------
(1) The vesting dates and number of shares vesting for the options and
restricted stock reflected above as of December 31, 2006, are as set forth
below. In connection with Mr. Donovan's resignation in February 2007, vested
options were exercised and all unvested awards were forfeited.
43
NUMBER OF NUMBER OF
NAME OPTION VESTING DATE OPTIONS VESTING STOCK VESTING DATE SHARES VESTING
---- ------------------- --------------- ------------------ --------------
Mr. Frissora......... -- -- -- --
Mr. Trammell......... 1/16/2007 5,000 1/16/2007 5,000
1/17/2007 5,000 1/17/2007 4,000
1/20/2007 5,000 1/20/2007 12,000
1/16/2008 5,000 1/16/2008 5,000
1/17/2008 5,000 1/17/2008 4,000
1/16/2009 5,000 1/16/2009 5,000
Mr. Donovan.......... 1/16/2007 5,000 1/16/2007 5,000
1/17/2007 6,000 1/17/2007 6,000
1/20/2007 6,000 1/20/2007 18,000
1/16/2008 5,000 1/16/2008 5,000
1/17/2008 6,000 1/17/2008 6,000
1/16/2009 5,000 1/16/2009 5,000
Mr. Nair............. 1/16/2007 5,000 1/16/2007 5,000
1/17/2007 6,000 1/17/2007 6,000
1/20/2007 6,000 1/20/2007 18,000
1/16/2008 5,000 1/16/2008 5,000
1/17/2008 6,000 1/17/2008 6,000
1/16/2009 5,000 1/16/2009 5,000
Mr. Yanos............ 1/16/2007 3,334 1/16/2007 3,334
1/17/2007 4,000 1/17/2007 4,000
1/20/2007 4,000 1/20/2007 12,000
1/16/2008 3,333 1/16/2008 3,333
1/17/2008 4,000 1/17/2008 4,000
1/16/2009 3,333 1/16/2009 3,333
44
OPTION EXERCISES AND STOCK VESTED DURING 2006
The following table shows certain information regarding options exercised
and stock vested during 2006 for the Named Executives.
OPTION EXERCISES AND STOCK VESTED DURING 2006
OPTION AWARDS STOCK AWARDS
-------------------------- -------------------------
NUMBER OF NUMBER OF
SHARES SHARES
ACQUIRED ON VALUE ACQUIRED ON VALUE
EXERCISE REALIZED ON VESTING REALIZED ON
NAME (#) EXERCISE ($) (#) VESTING ($)
---- ----------- ------------ ----------- -----------
Mr. Frissora.............. 741,667 $11,361,705 50,000 $1,030,500
Mr. Trammell.............. -- -- 7,250 152,543
Mr. Donovan............... 101,333 1,556,494 16,000 327,000
Mr. Nair.................. 65,000 1,059,625 16,000 327,000
Mr. Yanos................. -- -- 9,250 191,300
45
POST-EMPLOYMENT COMPENSATION
PENSION BENEFITS TABLE
The following table shows certain information regarding potential benefits
as of September 30, 2006 for the Named Executives under each of our defined
benefit retirement plans.
PENSION BENEFITS
NUMBER OF
YEARS PRESENT VALUE
CREDITED OF
SERVICE ACCUMULATED
NAME PLAN NAME (1) (#) BENEFIT (2) ($)
---- ------------- ------------ ---------------
Mr. Frissora......................... Plan 1 9.33 $ 139,018
Plan 2 9.33 1,478,265
Plan 3 10.00 5,677,428
Mr. Trammell......................... Plan 1 9.42 108,763
Plan 2 9.42 318,302
Mr. Donovan.......................... Plan 1 6.08 111,159
Plan 2 6.08 370,572
Plan 3 7.00 2,024,754
Mr. Nair............................. Plan 1 18.50 183,329
Plan 2 18.50 814,030
Mr. Yanos............................ Plan 1 17.08 178,600
Plan 2 17.08 374,215
---------------
(1) Plan 1 represents the Tenneco Retirement Plan for Salaried Employees; Plan 2
represents the Tenneco Supplemental Retirement Plan (which includes, for
purposes of these disclosures, its predecessor plan, the Supplemental
Executive Retirement Plan); and Plan 3 represents the Tenneco Supplemental
Pension Plan for Management (which includes, for purposes of these
disclosures, its predecessor plan, the Key Employee Pension Plan).
(2) The present value of accrued benefits were calculated using the RP-2000
Blended Mortality Table with a 5.9% discount rate, deferred to the unreduced
retirement age, with no deferral if the participant's age on the calculation
date is greater than the unreduced retirement age. The unreduced retirement
age for Plan 1 and Plan 2 is age 62 (normal retirement age is 65) and for
Plan 3 is age 55 (also normal retirement age). In all cases, the Named
Executive's years of service credited under the plans is less than his
actual years of service with Tenneco and its predecessors. For Plans 1 and
2, the first year of service is generally
(Notes continued on following page.)
46
excluded as credited service under the Plan. For Plan 3, the officer must
earn 1,000 hours of service in order to be credited with an additional year
of service under the plan. As of September 30, 2006, none of the officers
had yet earned 1,000 hours in the then-current computation period under the
plan.
TENNECO RETIREMENT PLAN FOR SALARIED EMPLOYEES
The benefit under the Tenneco Retirement Plan for Salaried Employees, in
which all U.S. salaried employees were eligible to participate until it was
frozen as to new participants on April 1, 2005, is based on the participant's
years of service, salary and age at retirement. The monthly benefit formula is
55% of the participant's final average base pay multiplied by the years of
credited service (up to a maximum of 35 years) and divided by 35 and then by 12.
This amount is then reduced by any benefits accrued under the Pactiv Retirement
Plan.(2) The final average base pay excludes all bonus payments and is the
average pay for the last 60 full months of participation in the plan. Pay is
subject to the Internal Revenue Code Section 401(a)(17) pay limits. If the
participant retires prior to the age of 62, the benefit is reduced by an early
reduction factor.
Benefits paid under this plan are payable as an annuity only. The default
form of payment for a single participant is the Single Life Annuity, and for a
married participant is a Qualified 50% Joint and Survivor Annuity. Other forms
of benefit payments available include the 100% Joint and Survivor Annuity, the
75% Joint and Survivor Annuity, and the Ten Year Certain and Life Annuity.
As described below, we froze this plan effective December 31, 2006 so that
no future benefits will be accrued under the plan.
TENNECO SUPPLEMENTAL RETIREMENT PLAN
The benefit under the Tenneco Supplemental Retirement Plan (which includes,
for purposes of these disclosures, its predecessor plan, the Supplemental
Executive Retirement Plan), is based on the participant's years of service,
salary and bonus and age at retirement. The purpose of the plan is to include
bonuses in determining retirement payments, which cannot be done under the
Tenneco Retirement Plan for Salaried Employees and which we believe provided a
level of retirement benefit that was common in manufacturing companies. The
monthly benefit formula is 55% of the participant's final average compensation
multiplied by the years of credited service (up to a maximum of 35 years) and
divided by 35 and then by 12. This amount is then reduced by the accrued
benefits from the Tenneco Retirement Plan for Salaried Employees and the Pactiv
Retirement Plan. The final average compensation for this plan is the sum of the
---------------
2 In 1999, we spun off our packaging and administrative services
operations. The resulting company, now known as Pactiv Corporation, became the
sponsor of our then-existing qualified defined benefit plan for salaried
employees. We adopted the Tenneco Retirement Plan for Salaried Employees, which
is patterned after the Pactiv-sponsored plan.
47
participant's average base pay plus the average bonus pay, where the average is
determined as the highest three out of the past five calendar years. If the
participant retires prior to the age of 62, the benefit will be reduced by an
early reduction factor.
Benefits paid under this plan are payable as a lump sum only. To calculate
the lump sum payment amount, the accrued benefit after offsets, as calculated
above, is multiplied by a lump sum factor. This factor is determined using the
1994 Group Annuity Mortality Tables at an interest rate that is the average of
the 30 year Treasury Bond yields for the November preceding the year of
distribution.
This plan applied to our approximately top 60 managers. As described below,
effective December 31, 2006, this plan was frozen as to substantially all
managers so that no future benefits will be accrued under the plan. One
executive did not have his benefits frozen. However, he agreed to a voluntary
reduction in benefits under this plan as described below under "-- 2006 Changes
in Defined Benefits."
TENNECO SUPPLEMENTAL PENSION PLAN
The accrued benefit under the Tenneco Supplemental Pension Plan (which
includes, for purposes of these disclosures, its predecessor plan, the Key
Employee Pension Plan), is calculated based on the participant's years of
vesting service and salary and bonus. This plan was implemented in 1999 in
connection with the transactions that resulted in us becoming a stand-alone
company. The plan was designed to attract and retain key management as we faced
the challenges of being highly leveraged in the automotive industry. The monthly
benefit formula is the number of years of vesting service multiplied by 4%,
subject to a maximum of 50%, multiplied by one-twelfth of the participant's
final average compensation. This amount is then reduced by any accrued benefits
from the Tenneco Retirement Plan for Salaried Employees, Tenneco Supplemental
Pension Plan and Pactiv Retirement Plan. The final average compensation for this
plan is the sum of the participant's base pay and bonus payments received during
the last 36 months of participation in the plan. Benefits from this plan are
available to the participant upon reaching age 55 without any reduction for
early retirement.
Benefits paid under this plan are payable as a lump sum only. To calculate
the lump sum payment amount, the accrued benefit after offsets, as calculated
above, is multiplied by a lump sum factor. This factor is determined using the
1994 Group Annuity Mortality Tables at an interest rate that is the average of
the 30 year Treasury Bond yields for the November preceding the year of
distribution.
As described below, we froze our defined benefits plans as to substantially
all of our executives at December 31, 2006. Those who were not fully vested in
the Supplemental Pension Plan did not have their benefits frozen. However, they
agreed to a voluntary reduction in benefits under this plan as described below
under "-- 2006 Changes in Defined Benefits."
48
2006 CHANGES IN DEFINED BENEFITS
In August 2006, we froze, effective December 31, 2006, our defined benefit
pension plans for certain employees and replaced them with additional benefits
under defined contribution plans beginning in 2007. Prior earned benefits under
the defined benefit plans were, however, preserved. With the exception of
certain executives who had employment contracts providing for specified benefits
(all of whom voluntarily accepted a benefits reduction as described below), this
freeze impacted all U.S.-based salaried employees (including executive officers)
and non-union hourly employees who participated in any of the plans.
To address the loss of benefits associated with the freeze, we amended our
existing qualified defined contribution, effective January 1, 2007, to provide
for additional annual company contributions in amounts that increase with the
employee's age. These additional contributions, which we refer to as "DB
Replacement Contributions," are payable for each employee who ceased to accrue
benefits or whose benefits were otherwise modified under any defined benefit
plan in connection with the freeze. In addition, effective January 1, 2007 there
will be a new, unfunded non-qualified defined contribution pension plan. In
general, our senior employees will be eligible to participate in this new plan,
with allocations to the plan calculated the same as under the applicable
existing defined contribution plan (as amended), except that (i) the
compensation limit in Section 401(a)(17) of the Internal Revenue Code will be
disregarded and awards under the TAVA Plan or any successor plan will be
included in calculating compensation, and (ii) there will be an offset for the
DB Replacement Contributions.
Three of our executive officers -- Mr. Donovan, Mr. Nair and one
other -- had employment agreements that provided for his participation in the
Supplemental Retirement Plan (Mr. Nair) and/or Supplemental Pension Plan (Mr.
Donovan and the other executive). As a result, we did not freeze these plans for
these executives. Instead, each individual executive voluntarily agreed to a
reduction in his retirement benefit payable under those plans and to an offset
to benefits payable under those plans for DB Replacement Contributions received
under the existing or new defined contribution plans. The benefits reduction
increases to a maximum of 5% of the benefit that would have otherwise been paid,
depending on the executive's age at retirement.
49
NONQUALIFIED DEFINED CONTRIBUTION AND OTHER DEFERRED COMPENSATION PLANS TABLE
The following table sets forth certain information regarding potential
benefits as of the end of 2006 for the Named Executives under our deferred
compensation plans. We did not maintain any nonqualified defined contribution
plans in 2006.
NONQUALIFIED DEFERRED COMPENSATION
REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS EARNINGS IN WITHDRAWALS/ BALANCE AT
IN 2006 2006(1) DISTRIBUTIONS(2) 12/31/06(3)
NAME ($) ($) ($) ($)
---- ------------- ----------- ---------------- -----------
Mr. Frissora......................... $123,840 $ -- $ -- $ --
Mr. Trammell......................... 33,450 -- 37,102 74,203
Mr. Donovan.......................... 40,950 849 53,083 116,345
Mr. Nair............................. 40,950 -- 53,083 106,167
Mr. Yanos............................ 24,150 -- 30,448 60,896
---------------
(1) Reflects earnings on compensation deferred under our deferred compensation
plan based on the individual's selected investments.
(2) The amounts in this column reflect the portion of the bonus bank under the
TAVA Plan that was paid during 2006. All of these amounts were earned and
reported as part of the applicable executive's bonus bank for periods prior
to 2006.
(3) Represents amounts remaining in the Named Executive's bonus bank under the
TAVA Plan after giving effect to payments for 2006, all of which were earned
and reported as part of the applicable executive's bonus bank in years prior
to 2006. In the case of Mr. Donovan, also includes $10,178 credited under
our deferred compensation program, $849 of which was reported in Mr.
Donovan's compensation for 2006 in the Summary Compensation Table and the
remainder of which was reported in Mr. Donovan's compensation for periods
prior to 2006.
We maintain a deferred compensation plan known as the Incentive Deferral
Plan (which includes, for purposes of these disclosures, its predecessor plan,
the Deferred Compensation Plan). Pursuant to the plan, certain executives,
including the Named Executives, are eligible to defer all or a specified portion
of his or her bonuses or incentive compensation to be received during a calendar
year.
Pursuant to the plan, any compensation that the executives elect to defer
is put into an account with our company to which an earnings factor is applied.
Plan participants may choose to have the earnings factor based on: (i) the prime
rate of interest as reported on the first day of each calendar month; (ii) the
performance of our common stock in a stock equivalent unit
50
account or (iii) the return for selected mutual funds. Plan participants may
choose more than one investment option in increments of at least one percent.
The plan also provides for the deferral of non-employee directors' fees
into stock equivalent unit accounts as described under "-- Director
Compensation."
Benefits under the plan will be paid in a lump sum as soon as practicable
after the participant's death, after the termination of the participant's
employment or service as a director or on the date specified in the applicable
deferral election made by the participant. However, for amounts deferred by the
Named Executives that are subject to the recently adopted rules under Section
409A of the Internal Revenue Code, no payment may be made earlier than six
months after the executive's separation from service with our company.
OTHER POTENTIAL POST-EMPLOYMENT COMPENSATION
Change in Control Severance Benefit Plan for Key Executives
We maintain a Change-in-Control Severance Benefit Plan for Key Executives.
The purpose of the plan is to enable us 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 our
company. A "change-in-control" happens if:
- any person or group acquires 15% or more of our voting stock and the
acquisition is not approved by our then incumbent board of directors, or
any person or group acquires 40% or more of our voting stock, in each
case subject to limited exceptions,
- our incumbent board of directors ceases to constitute a majority of our
directors or any person elects during any 24 months new directors that
represent at least 25% of our board of directors without approval of our
incumbent board,
- any merger, consolidation or sale of all or substantially all the assets
of our company if a majority of our incumbent board of directors is not a
majority of the board of the surviving or successor company, or
- we are liquidated.
Benefits under the plan are payable to a key employee who is discharged
(either actually or constructively) within two years after a change of control
or, in the case of certain of our most senior executive officers (including
Messrs. Donovan, Nair and Trammell), to the key employee if he or she
voluntarily elects to separate from service during the first thirty days
following the first anniversary of the change in control. Under the plan, we
must pay an eligible executive a lump sum 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 us)
and (b) his or
51
her targeted annual bonus in effect immediately prior to the change-in-control.
In addition, we must provide the executive with a pro rata bonus (payable in a
lump sum), three years of health and welfare benefits continuation, out
placement services and all deferred compensation (payable in a lump sum). In
addition, upon a change in control participants in the plan are entitled to be
paid in cash the total fair market value of any restricted stock and stock
equivalent units held immediately prior to the change in control and their
options become fully vested (and remain exercisable for the lesser of 36 months
thereafter or the remaining life of the option). Finally, we are required to
provide a tax gross up to any employee whose payments under the plan become
subject to the tax imposed by Section 4999 of the Internal Revenue Code. See
"-- Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based
Awards Table -- Employment Agreements" for a discussion of specific provisions
in the employment agreements regarding the calculation of benefits under this
plan. Benefits under this plan are not conditioned on any action by the
participant.
Under this plan, we expect that Messrs. Trammell, Donovan, Nair and Yanos
would have become entitled to receive payments from us as follows had we
experienced a change in control on December 31, 2006 (assuming termination on
that date):
STOCK EARLY EARLY
EQUIVALENT VESTING OF VESTING OF
SEVERANCE BONUS UNIT STOCK RESTRICTED OTHER EXCISE TAX AND
NAME AMOUNT AMOUNT PAYOUT(1) OPTIONS(2) STOCK(2) BENEFITS(3) GROSS-UP(4) TOTAL(5)
---- ---------- -------- ---------- ---------- ---------- ----------- -------------- ----------
Mr. Trammell......... $2,004,000 $273,000 $1,236,000 $220,350 $ 865,200 $180,155 $1,544,558 $6,323,263
Mr. Donovan.......... 2,487,199 273,000 1,236,000 253,830 1,112,400 229,767 -- 5,592,196
Mr. Nair............. 2,410,213 273,000 1,236,000 253,830 1,112,400 228,166 1,420,022 6,933,631
Mr. Yanos............ 1,101,007 273,000 1,112,400 169,221 741,600 149,113 973,385 4,519,726
---------------
(1) Represents full value of all unpaid stock equivalent unit awards at their
payout levels that would have vested upon a change in control, based on the
closing price of a share of our common stock on December 29, 2006 of $24.72.
(2) Represents the difference between the option exercise price and the closing
price of a share of our common stock on December 29, 2006 for all unvested
options and the value of all unvested restricted shares based on that price.
(3) Represents welfare benefits, outplacement services and remaining bonus bank
under the TAVA Plan.
(4) Represents 20% excise tax (where applicable), grossed up for income tax.
Does not represent lost tax deductibility to the company.
(5) The amounts presented are estimated without any allocation of amounts
payable to service prior to or after the change in control.
52
Other Severance Benefits
Our employment agreements provide for certain severance benefits if the
relevant Named Executive's employment is terminated by us other than for death,
disability or nonperformance of duties or in connection with a change in
control. See "-- Narrative Disclosure to Summary Compensation Table and Grants
of Plan-Based Awards Table -- Employment Agreements" for a discussion of these
benefits. Receipt of benefits is subject to the executive's execution of a
customary release.
We expect that Messrs. Donovan and Nair would have become entitled to
receive payments from us as follows had their positions been terminated by us on
December 31, 2006, other than following a change-in-control and other than for
death, disability or nonperformance of duties (assuming our board of directors
agreed to vest outstanding equity-based awards upon termination):
STOCK EARLY EARLY
EQUIVALENT VESTING OF VESTING OF HEALTH AND
SEVERANCE UNIT STOCK RESTRICTED WELFARE
NAME AMOUNT(1) PAYOUT(1)(2) OPTIONS(3) STOCK(3) BENEFITS TOTAL
---- ---------- ------------ ---------- ---------- ---------- ----------
Mr. Donovan.......... $1,714,250 $1,236,000 $253,800 $1,112,400 $15,172 $4,331,622
Mr. Nair............. 1,662,926 1,236,000 253,800 1,112,400 14,639 4,279,765
---------------
(1) Payable in a lump sum.
(2) Represents full value of all unpaid stock equivalent unit awards at their
payout levels, based on the closing price of a share of our common stock on
December 29, 2006 of $24.72.
(3) Represents the difference between the option exercise price and the closing
price of a share of our common stock on December 29, 2006 for all unvested
options and the value of all unvested restricted shares based on that price.
In addition, we maintain a Severance Benefit Plan that applies to all
salaried, full-time employees with at least one month of service who are
terminated by us in connection with a reduction in force or similar layoff.
Under this plan, eligible employees receive a severance payment in a lump sum
equal to the total of (1) 1.5 weeks of pay for each full or partial year of
service, (2) an additional payment from four to 12 weeks of pay based on the
employee's age at termination, and (3) an additional payment from one to 14
weeks of pay based on the employee's pay grade at termination, subject to a
maximum of 52 weeks of pay. This plan would apply to Mr. Trammell and Mr. Yanos,
who we expect would have received $277,259 and $303,096, respectively, if his
employment had been terminated by us on December 31, 2006 in connection with a
reduction in force or similar layoff. We require participants to sign a
customary release to receive benefits under this plan.
53
DIRECTOR COMPENSATION
The following table and related narrative shows the compensation we paid,
for 2006, to each of our outside directors for all services provided to our
company and its subsidiaries.
DIRECTOR COMPENSATION FOR 2006
STOCK
FEES EARNED AWARDS(1) TOTAL
NAME ($) ($) ($)
---- ----------- --------- --------
Mr. Cramb......................................... $73,500 $61,010 $134,510
Ms. Eickhoff-Smith................................ 67,000 77,264 144,264
Mr. Macher........................................ 71,000 61,010 132,010
Mr. Porter........................................ 65,500 61,010 126,510
Mr. Price......................................... 69,500 61,010 130,510
Mr. Severance..................................... 67,500 61,010 128,510
Mr. Stecko........................................ 73,500 61,010 134,510
Mr. Takeuchi...................................... 57,000 63,000 120,000
Ms. Warner........................................ 66,500 61,010 127,510
---------------
(1) See note 8 to our consolidated financial statements for the year ended
December 31, 2006 for a description of how we compute this value. The grant
date fair value of each award of restricted stock made to our directors
during 2006, and the aggregate number of awards of restricted stock and
options outstanding at December 31, 2006, for each director was:
GRANT DATE
FAIR VALUE OF
STOCK AWARDS
NAME GRANT DATE ($)
---- ---------- -------------
Mr. Cramb.................................. -- $ --
Ms. Eickhoff-Smith......................... 1/16/2006 15,480
Mr. Macher................................. -- --
Mr. Porter................................. -- --
Mr. Price.................................. -- --
Mr. Severance.............................. -- --
Mr. Stecko................................. -- --
Mr. Takeuchi............................... 3/17/2006 75,355
Ms. Warner................................. -- --
(Notes continued on following page.)
54
NUMBER OF NUMBER OF
OPTIONS RESTRICTED SHARES
OUTSTANDING OUTSTANDING
NAME (#) (#)
---- ----------- -----------------
Mr. Cramb................................ 16,475 --
Ms. Eickhoff-Smith....................... 10,000 18,126
Mr. Macher............................... 32,500 --
Mr. Porter............................... 35,000 --
Mr. Price................................ 35,000 --
Mr. Severance............................ 32,500 --
Mr. Stecko............................... 10,000 --
Mr. Takeuchi............................. -- 3,500
Ms. Warner............................... 6,502 --
FEE STRUCTURE
In 2006, 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 2006,
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/Nomination/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 AND RESTRICTED STOCK
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 our 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
55
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 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. A
like award was made in January 2007. Mr. Takeuchi, who joined our Board of
Directors in January 2006, was awarded an additional 3,500 shares of restricted
stock in March 2006.
DEFERRED COMPENSATION PLAN
We have 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 our common stock, which may be paid out in either cash or,
at the our option, shares of common stock.
RESTRICTED STOCK IN LIEU OF RETIREMENT BENEFITS
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 our 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 our board of directors, unless she is
disabled or dies, or the Compensation/Nominating/Governance committee of our
board of directors, at its discretion, determines otherwise. During the
restricted period, Ms. Eickhoff-Smith will be entitled to vote the shares and
receive dividends.
56
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During fiscal 2006, 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 our President and Chief Operating Officer, at a time
when we 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 our employment in April
1999 to become Chief Executive Officer of Packaging Corporation of America
(which simultaneously purchased our former paperboard packaging operations),
meets the independence standards for compensation and nominating committee
membership under the NYSE listing standards.
57
TENNECO INC.
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation/Nominating/Governance Committee has reviewed and discussed
the Compensation Discussion and Analysis contained in this proxy statement with
management and, based on such review and discussion, the
Compensation/Nominating/Governance Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in the
Company's annual report on Form 10-K for the year ended December 31, 2006 and in
this proxy statement.
Compensation / Nominating / Governance Committee
David B. Price, Jr. -- Chairman
Roger B. Porter
Paul T. Stecko
Jane L. Warner
58
REPORT OF AUDIT COMMITTEE
GENERAL
The Audit Committee comprises five 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 designated Mr. Cramb as our "audit committee financial
expert" under the applicable SEC rules. 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 our company for the fiscal year ended December 31, 2006 with our
management. In addition, the Audit Committee has discussed with Deloitte &
Touche LLP, our 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 our company and our management.
The Audit Committee has considered whether the services rendered by our
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
our company for the fiscal year ended December 31, 2006 be included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for
filing with the SEC.
Audit Committee
Charles W. Cramb -- Chairman
M. Kathryn Eickhoff-Smith
Frank E. Macher
Dennis G. Severance
Minsunobu Takeuchi
59
RATIFY APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
Financial statements of our company and our consolidated subsidiaries will
be included in our Annual Report furnished to all stockholders. The Audit
Committee of the Board of Directors has appointed Deloitte & Touche LLP as
independent public accountants for us to examine our consolidated financial
statements for the year ending December 31, 2007, 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 our principal independent public accountants for 2002
through 2006. 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 ALL OTHER FEES
The following table summarizes the aggregate fees and expenses billed to us
for the fiscal years ended December 31, 2006 and 2005 by our principal
accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche
Tohmatsu and their respective affiliates (collectively, "Deloitte & Touche"):
2006 2005
---------- ----------
Audit fees(a)...................................... $4,356,200 $4,238,100
Audit-related fees(b).............................. 240,000 238,600
---------- ----------
Total audit and audit-related fees................. 4,596,200 4,476,700
Tax fees:
Compliance and tax audit support(c).............. 1,803,700 1,587,400
Planning and consulting(d)....................... 380,500 606,800
---------- ----------
Total tax fees..................................... 2,184,200 2,194,200
All other fees..................................... -- --
---------- ----------
$6,780,400 $6,670,900
========== ==========
(Notes on following page.)
60
---------------
(a) Audit services in 2006 and 2005 consisted of:
- Audit of our annual financial statements including audits of subsidiary
financial statements required by local country laws
- Audit of Management's assessment of our internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of
2002
- Reviews of our quarterly financial statements
- Comfort letters, consents and other services related to SEC matters
(b) Audit-related services in 2006 and 2005 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 2006 and 2005 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 2006 and 2005 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 our 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
61
by a public company's independent public accountants, the Audit Committee
approved the continued provision to us 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 2006 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 us 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.
62
OTHER MATTERS
The Board of Directors is not aware of any other matters that may properly
come before the Annual Meeting. However, should any such matters come before the
Annual Meeting, it is the intention of the persons named in the enclosed form of
proxy card to vote all proxies (unless otherwise directed by stockholders) in
accordance with their judgment on such matters.
SOLICITATION OF PROXIES AND VOTING
Stockholders may specify their choices by marking the appropriate boxes on
the enclosed proxy card. Alternatively, in lieu of returning signed proxy cards,
stockholders can submit a proxy over the Internet or by calling a specially
designated telephone number which appears on the proxy cards. These Internet and
telephone voting procedures are designed to authenticate stockholders'
identities, allow stockholders to provide their voting instructions and confirm
the proper recording of those instructions. Specific instructions for
stockholders who wish to use the Internet or telephone voting procedures are set
forth on the enclosed proxy card.
All properly completed, unrevoked proxies, which are received prior to the
close of voting at the Annual Meeting, will be voted in accordance with the
specifications made. If a properly executed, unrevoked written proxy card does
not specifically direct the voting of shares covered, the proxy will be voted
(i) FOR the election of all nominees for election as director described in this
proxy statement, (ii) FOR the ratification of the appointment of Deloitte &
Touche LLP as our independent public accountants for 2007, and (iii) in
accordance with the judgment of the persons named in the proxy as to such other
matters as may properly come before the Annual Meeting.
A proxy may be revoked at any time prior to the voting at the Annual
Meeting by submitting a later-dated proxy (including a later-dated proxy via the
Internet or telephone), giving timely written notice of such revocation to the
Secretary of our 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 us. 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
63
brokers, custodians, nominees and other like parties, and we expect to reimburse
such parties for their charges and expenses. Georgeson Shareholder
Communications Inc., New York, New York, has been retained to assist us in the
solicitation of proxies at a fee estimated not to exceed $10,000.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
Directions to withhold authority, abstentions and "broker non-votes" (which
occur when a nominee holding shares for a beneficial owner does not vote on a
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner) will be counted in determining the presence or absence of a quorum for
the transaction of business at the Annual Meeting.
Assuming the presence of a quorum, the affirmative vote of (1) a plurality
of the votes cast at the Annual Meeting (in person or by proxy) is required for
the election of directors, and (2) holders of a majority of the common stock
present at the Annual Meeting (in person or by proxy) and entitled to vote is
required to ratify Deloitte & Touche LLP as our independent public accountants
for 2007.
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.
INCORPORATION BY REFERENCE
To the extent that this proxy statement is incorporated by reference in any
other filing by us 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" and "Report of Audit Committee" will not be deemed to
be incorporated, unless specifically provided otherwise in such filing.
64
SUBMISSION OF STOCKHOLDER PROPOSALS
STOCKHOLDER PROPOSALS -- INCLUSION IN COMPANY PROXY STATEMENT
For a stockholder proposal to be considered by us for inclusion in our
proxy statement and form of proxy relating to the annual meeting of stockholders
to be held in 2008, the proposal must be received by December 4, 2007.
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, we 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 us by the date
determined under our 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 our proxy statement. Our 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 our By-laws, a proposal for
the 2008 annual meeting not included by or at the direction of the Board must be
received not earlier than January 8, 2008, nor later than February 7, 2008.
J. JEFFREY ZIMMERMAN
Corporate Secretary
------------------------
WE WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING SOLICITED,
UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF OUR ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006, 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 GENERAL
COUNSEL, TENNECO INC., 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045.
65
NOTICE OF ANNUAL
MEETING AND
PROXY STATEMENT
-------------------------------------
ANNUAL MEETING
OF STOCKHOLDERS
MAY 8, 2007
TENNECO INC.
500 NORTH FIELD DRIVE, LAKE FOREST,
ILLINOIS 60045
(TENNECO LOGO)
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045 [TENNECO LOGO]
April 3, 2007
Dear Benefit Plan Participant:
The Annual Meeting of the Stockholders of Tenneco Inc. is scheduled to be
held Tuesday, May 8, 2007, at 10:00 a.m., local time, at our 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 2007
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
TENNECO INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 2007
10:00 A.M., LOCAL TIME
TENNECO
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045 PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 8, 2007.
The undersigned does hereby appoint Gregg Sherrill and J. Jeffrey Zimmerman, and
either 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 13, 2007 and entitled to
vote at the Annual Meeting of Stockholders of Tenneco Inc. to be held at 10:00
a.m., local time, May 8, 2007, at our 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.
See reverse for voting instructions.
COMPANY # ____________
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED
AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-560-1965 -- QUICK *** EASY *** IMMEDIATE
- Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. (CT) on May 7, 2007.
- Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number
available. Follow the simple instructions the voice provides you.
VOTE BY INTERNET -- HTTP://WWW.EPROXY.COM/TEN/ -- QUICK *** EASY *** IMMEDIATE
- Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. (CT) on May 7, 2007.
- Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number
available. Follow the simple instructions to obtain your records and create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we've provided or return it to Tenneco Inc.,
c/o Shareowner Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
Please detach here
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
1. Election of directors: 01 Charles W. Cramb 05 Gregg Sherrill [ ] Vote FOR [ ] Vote WITHHELD
02 Frank E. Macher 06 Paul T. Stecko all nominees from all nominees
03 Roger B. Porter 07 Jane L. Warner (except as marked)
04 David B. Price, Jr. 08 Mitsunobu Takeuchi
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) ---------------------------------------------
2. Approve appointment of Deloitte & Touche LLP as independent public accountants for [ ] For [ ] Against [ ] Abstain
2007.
3. In the discretion of the Proxies named herein, the Proxies are authorized to vote upon such other matters as may
properly come before the meeting (or any adjournment or postponement thereof).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Indicate changes below: Date
----------------------------------------
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Signature(s) in Box
Please sign exactly as your name(s) appears
on Proxy. If held in joint tenancy, all
persons should sign. Trustees,
administrators, etc., should include title
and authority. Corporations should provide
full name of corporation and title of
authorized officer signing the Proxy.