UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[ ] Soliciting Material Pursuant to Section 240.14a-12
TENNECO INC.
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(Name of Registrant as Specified In Its Charter)
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PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS
FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB
CONTROL NUMBER.
SEC 1913 (01-07)
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 (TENNECO LOGO)
April 2, 2008
To the Stockholders of Tenneco Inc.:
The Annual Meeting of Stockholders of Tenneco Inc. will be held Tuesday,
May 6, 2008, 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 2007 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 M. SHERRILL)
GREGG M. 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 6, 2008
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 6, 2008, at 10:00 a.m., local time.
The purposes of the meeting are:
1. To elect nine directors for a term to expire at the 2009 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 2008; 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 11, 2008 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
DAVID A. WARDELL
Corporate Secretary
Lake Forest, Illinois
April 2, 2008
TENNECO INC. (TENNECO LOGO)
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000
April 2, 2008
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 6, 2008, or at any adjournment or postponement thereof.
Holders of common stock of record at the close of business on March 11, 2008
will be entitled to vote at the Annual Meeting. Each share is entitled to one
vote. At March 11, 2008, there were 46,592,999 shares of common stock
outstanding and entitled to vote. This proxy statement is first being mailed to
stockholders on or about April 2, 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.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON MAY 6, 2008
Under new Securities and Exchange Commission rules, you are receiving this
notice that the proxy materials for our Annual Meeting are available on the
Internet. The proxy statement and the annual report to shareholders are
available at www.tenneco.com/investors/documents.html.
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ELECTION OF DIRECTORS
(ITEM 1)
Our Board of Directors currently comprises nine individuals, all of whom
are proposed to be elected at this Annual Meeting to serve for a term to expire
at the annual meeting of stockholders to be held in 2009 and until their
successors are chosen and have qualified.
The persons named as proxy voters in the accompanying proxy card, or their
substitutes, will vote your proxy for all the nominees, each of whom has been
designated as such by the Board of Directors, unless otherwise indicated in your
proxy. In the event that any nominee for director withdraws or for any reason is
not able to serve as a director, 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 "Against" any or all of the director nominees, or you
may "Abstain" from voting. Assuming a quorum, each director nominee receiving a
majority of the votes cast at the Annual Meeting (in person or by proxy) will be
elected as director. A "majority of the votes cast" means the number of "For"
votes cast exceeds the number of "Against" votes cast. A proxy marked "Abstain"
with respect to any director will not be counted in determining the total number
of votes cast.
Brief statements setting forth the age (at March 11, 2008), 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.
Please note that because Tenneco is a Delaware corporation, under Delaware
law, if an incumbent director is not elected, that director remains in office
until the director's successor is duly elected and qualified or until the
director's death, resignation or retirement. To address this potential outcome,
the Board adopted a director resignation policy in Tenneco's By-Laws. Under this
policy, the Board of Directors will nominate for directors only those incumbent
candidates who tender, in advance, irrevocable resignations, and the Board has
obtained such conditional resignations from the nominees in this year's proxy
statement. The irrevocable resignations will be effective upon the failure to
receive the required vote at any annual meeting at which they are nominated for
re-election and Board acceptance of the resignation. If a nominee fails to
receive the required vote, the Compensation/Nominating/Governance Committee will
recommend to the Board whether to accept or reject the tendered resignation. The
Board will publicly disclose its decision within 90 days following certification
of the stockholder vote. In addition, the director whose resignation is under
consideration will not participate in the recommendation of the
Compensation/Nominating/Governance Committee with respect to the resignation. If
the Board does not accept the resignation, the director will continue to serve
until the next annual meeting and until his or her successor is duly elected, or
until his or her earlier resignation or removal. If the Board accepts the
resignation, then the Board, in its sole discretion, may fill any resulting
vacancy or may decrease the size of the Board.
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR ONE-YEAR TERMS EXPIRING AT THE 2009 ANNUAL MEETING OF STOCKHOLDERS
CHARLES W. CRAMB -- Mr. Cramb has been Vice Chairman, Chief Finance and
Strategy Officer of Avon Products, Inc., a global manufacturer and marketer of
beauty and related products, since September 2007. Mr. Cramb joined Avon in
November 2005 as Executive Vice President, Finance and Technology and Chief
Financial Officer. 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 a director of our company in March 2003, is 61 years old
and is Chairman of the Audit Committee.
DENNIS J. LETHAM -- Mr. Letham serves as Executive Vice President, Finance
and Chief Financial Officer of Anixter International Inc., overseeing all of the
company's finance, accounting, tax and internal audit activities in 49
countries. Prior to assuming his role as Chief Financial Officer in 1995, Mr.
Letham served as Executive Vice President and Chief Financial Officer of
Anixter, Inc., the principal operating subsidiary of Anixter International Inc.,
which he joined in 1993. Previously, he had a ten-year career with National
Intergroup Inc., where he was Senior Vice President and Chief Financial Officer,
as well as Vice President Controller. From 1983 to 1989, Mr. Letham held a
number of senior financial positions for National Intergroup Inc. including its
wholly-owned subsidiary National Aluminum Corporation that included Vice
President Controller, Director of Corporate Accounting, and Manager for Internal
Audit. Mr. Letham began his career at Arthur Andersen & Co. in 1973 where he
held progressive responsibilities in the Audit Department. Mr. Letham holds a
bachelors degree from Pennsylvania State University's Accounting Honors program.
He also is a Certified Public Accountant. Mr. Letham who is 56 years old was
elected a director of our company in October 2007 and is a member of the Audit
Committee.
FRANK E. MACHER -- Mr. Macher has served as Chief Executive Officer of
Finance Manufacturing Acquisition & Capital since 2008. Previously he 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 retirement in January 2007. 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 67 years old and was named a director of our company in
July 2000. Mr. Macher is a member of the Audit Committee.
ROGER B. PORTER -- Mr. Porter is the IBM Professor of Business and
Government and the Master of Dunster House 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 61
years old and has been a director of our company since January 1998. Mr. Porter
is a member of the Compensation/Nominating/Governance Committee and the Chairman
of the Three-Year Independent Director Evaluation Committee.
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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. Mr. Price is 62 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 M. SHERRILL -- Chairman 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 55 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 63 years old and has been a director of our company since November
1998. He is also a director of State Farm Mutual Insurance Company, American
Forest and Paper Association and Smurfit Kappa Group, and is the Chairman of the
Board of Packaging Corporation of America. Mr. Stecko is a member of the
Compensation/Nominating/Governance Committee and the Three-Year Independent
Director Evaluation Committee.
MITSUNOBU TAKEUCHI -- Mr. Takeuchi served as Chairman Emeritus of DENSO
International America, 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 America 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 66 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 Executive Vice President at
Illinois Tool Works Inc., a global manufacturer of specialty products and
equipment, since August 2007, where she has worldwide responsibility for its
Global Finishing and Software businesses. Ms. Warner joined Illinois Tool Works
Inc. in December 2005 as Group President of its Finishing 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.
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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 61 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 Finance
Committee. Ms. Warner is a member of the Audit Committee and the
Compensation/Nominating/Governance 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.
INDEPENDENCE OF DIRECTORS (SEE P. 7)
- Eight of the Company's nine 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,
eight of our nine 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 P. 9 AND P. 44)
- All members meet the independence standards for audit committee
membership under the NYSE listing standards and applicable Securities and
Exchange Commission ("SEC") rules.
- Two members of the Audit Committee, Messrs. Charles Cramb and Dennis
Letham, have been designated as "audit committee financial experts" 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. 7-9 AND P. 43)
- 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.
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- 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.
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 non-management directors, the
Chairman and Chief Executive Officer, all Executive Vice Presidents and
all Senior Vice Presidents.
COMMUNICATIONS WITH DIRECTORS (SEE PP. 10-11)
- 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. 11-12)
- 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
- 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.
PERSONAL LOANS TO EXECUTIVE OFFICERS AND DIRECTORS
- We comply with and 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
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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 nine members, eight of
whom are not officers of our company and one of whom is an officer of our
company. 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 all of our non-management
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 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. Letham, an ordinary course supply arrangement
between our company and the company where he serves as executive vice president,
finance and chief financial officer; 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 executive
vice president; and in the case of Dr. Severance (a former director during
2007), fees paid to the University of Michigan for educational programs
unrelated to Dr. Severance.
During 2007, the Board of Directors held 10 meetings. All of our directors
who served in 2007 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. Letham (who joined the Board in
October 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;
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(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 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 2008 as
part of their annual review process. The Compensation/Nominating/Governance
Committee held six meetings and the Executive Compensation Subcommittee held two
meetings during 2007.
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.
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/
8
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 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 2007.
AUDIT COMMITTEE. The members of the Audit Committee are Ms. Warner and
Messrs. Letham, Macher, 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 and Mr.
Letham as "audit committee financial experts" 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 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 2008 as part of its
annual review process. The Audit Committee held 13 meetings in 2007. 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
9
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 Committee considers
various potential candidates for director which may come to its attention
through a variety of sources, including current Board members, stockholders or
other persons. In addition, from time to time the Committee will retain a
professional search firm to assist it in identifying director candidates, for
which the firm generally receives a fee. 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 July 2006 to January 2007, a third-party executive search firm,
Spencer Stuart, 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. The
Compensation/Nominating/Governance Committee also determined in 2007 that the
Board of Directors needed an additional member who qualifies as a financial
expert under SEC rules and asked the Board of Directors to identify qualified
director candidates. Dennis J. Letham was identified in this process and
interviewed by the lead director, Paul T. Stecko, and Gregg M. Sherrill. The
Compensation/Nominating/Governance Committee subsequently recommended Mr. Letham
and he was elected to the Company's Board of Directors in October 2007.
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
10
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.
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;
11
- 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.
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 2007, 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 2007.
12
OWNERSHIP OF COMMON STOCK
MANAGEMENT
The following table shows, as of March 11, 2008, 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....................................... 27,485 *
Dennis J. Letham....................................... 3,757 *
Frank E. Macher........................................ 13,314 *
Roger B. Porter........................................ 49,662 *
David B. Price, Jr. ................................... 78,834 *
Gregg M. Sherrill...................................... 258,805 *
Paul T. Stecko......................................... 33,806 *
Mitsunobu Takeuchi..................................... 10,010 *
Jane L. Warner......................................... 17,512 *
NAMED EXECUTIVE OFFICERS
Kenneth R. Trammell.................................... 192,658 *
Hari N. Nair........................................... 263,584 *
Neal A. Yanos.......................................... 131,312 *
Timothy E. Jackson..................................... 237,107 *
All executive officers and directors as a group (18
individuals)......................................... 1,714,231(5) 3.6%
--------
* 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.
(2) Includes restricted shares. At March 11, 2008, Messrs. Sherrill,
Trammell, Nair, Yanos and Jackson held 184,999, 27,000, 38,000, 16,166
and 17,072 restricted shares, respectively. At March 11, 2008, each
outside director, other than Mr. Letham, held 3,010 restricted shares. At
March 11, 2008, Mr. Letham held 3,757 restricted shares. Also includes
shares that are subject to options that are exercisable within 60 days of
March 11, 2008 for Ms. Warner and Messrs. Cramb, Porter, Price, Sherrill,
Stecko, Trammell, Nair, Yanos and Jackson to purchase 6,502, 16,475,
35,000, 35,000, 33,334, 10,000, 126,750, 190,667, 80,501 and 155,964
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 3.6% 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 11, 2008, the total
number of common stock equivalents held by Ms. Warner and Messrs. Cramb,
Letham, Macher, Porter, Price, Stecko and Takeuchi was 6,383, 21,820,
1,922, 19,763, 70,632, 44,567, 44,567 and 3,815 respectively.
(5) Includes 863,802 shares that are subject to options that are exercisable
within 60 days of March 11, 2008 by all executive officers and directors
as a group. Includes 367,363 restricted shares.
13
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 11, 2008, 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
---------------------- ------------ -----------------
Goldman Sachs Asset Management, L.P. (2)......... 2,530,753 5.43%
32 Old Slip
New York, New York 10005
Caryn Seidman-Becker and various entities related
to Arience Capital Management, L.P. (3)........ 2,688,719 5.77%
745 Fifth Avenue, 7th Floor
New York, New York 10151
Wellington Management Company, L.L.P. (4)........ 2,710,392 5.82%
75 State Street
Boston, MA 02109
Jeffrey L. Gendell and various entities related
to Tontine Capital Management, L.L.C. (5)...... 4,588,497 9.85%
55 Railroad Avenue
Greenwich, Connecticut 06830
--------
(1) This information is based on information contained in filings made with
the SEC regarding the ownership of our common stock.
(2) Goldman Sachs Asset Management, L.P. has sole voting power for 2,426,531
shares and sole dispositive power for 2,530,753 shares.
(3) Arience Capital Management, L.P. ("Arience Capital") has shared voting
power and shared dispositive power with Arience GP, L.L.C. ("Arience GP")
with respect to 2,688,719 shares. Arience Capital Master Fund, Ltd.
("Master Fund") has shared voting power and shared dispositive power with
respect to 2,181,748 shares. Arience Capital Concentrated Master Fund,
Ltd. ("Concentrated Fund") has shared voting power and shared dispositive
power with respect to 334,518 shares. Arience Capital Long Fund, L.P.
("Long Fund") has shared voting power and shared dispositive power with
respect to 12,838 shares. Arience Capital Partners II, L.P. ("ACPII") has
shared voting power and shared dispositive power with respect to 19,643
shares. Arience Capital Partners III, L.P. ("ACPIII") has shared voting
power and shared dispositive power with respect to 129,300 shares.
Arience Associates, L.L.C. ("Arience Associates") has shared voting power
and shared dispositive power with respect to 161,781 shares. Caryn
Seidman-Becker serves as the managing member of Arience Associates and
Arience GP, which is the general partner of Arience Capital. In such
capacity, Ms. Seidman-Becker may be deemed the beneficial owner of the
securities held by the Master Fund, Concentrated Fund, the Long Fund,
ACPII, and ACPIII.
(4) Wellington Management Company, L.L.P. has shared voting power for
1,677,672 shares and shared dispositive power for 2,710,392 shares.
(5) Tontine Capital Management, L.L.C. has shared voting power and shared
dispositive power with respect to 3,724,208 shares. Tontine Capital
Partners, L.P. has shared voting power and shared dispositive power with
respect to 3,659,208 shares. Tontine Overseas Associates, L.L.C. has
shared voting power and shared dispositive power with respect to 929,289
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.
14
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 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.
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.
COMPENSATION PROCESS
In determining competitive compensation, the committee engages a nationally
recognized compensation consulting firm that reports directly to the committee
to maintain its independence. 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 CEO, the consulting firm generally provides market data
regarding salary, annual cash incentive award targets, and long-term incentive
compensation awards, and provides advice directly to the committee as it makes
decisions with respect to compensation. For the other executives, our management
formulates the initial recommendations regarding salary, annual cash incentive
award targets and equity-based and other long-term incentive compensation
awards. The committee reviews the recommendations in light of market data
prepared by the consulting firm. For other forms of
15
compensation and benefits, management generally makes initial recommendations
that are considered by the committee.
Our policy is to provide salary, annual cash incentive payments and long-
term incentive compensation to executives based on performance that is
competitive and at market levels with comparable companies when financial and
qualitative targets are met (i.e. 50th percentile for target performance). 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 and were provided with advice regarding market practices when
determining to amend and restate our change in control plan in 2007.
The benchmarking information we use in establishing salary, annual cash
incentive payments and equity-based incentive compensation typically includes
the most recently available data regarding companies believed to be comparable
to our company in terms of industry (automotive parts manufacturing), size
(total revenues, number of employees) and/or other factors. For 2007
compensation determinations, specific data was reviewed regarding a comparison
group of eighteen companies selected to reflect a balance of automotive sector
and other traditional manufacturing companies. The data was weighted based on
the size of revenues of the comparison companies. The following is a list of
these companies and a description of why the committee believes they are
appropriate for the comparison group:
COMPANY BASIS OF COMPARISON
------- -------------------
A.O. Smith Corporation Manufacturer; comparable employee base;
Midwest headquarters
ArvinMeritor, Inc. Automotive industry; comparable revenues and
employee base
BorgWarner Inc. Automotive industry; comparable revenues and
employee base
Briggs & Stratton Corporation Manufacturer; comparable market
capitalization; Midwest headquarters
Cummins, Inc. Manufacturer; Midwest headquarters
Eastman Chemical Company Comparable revenues; produce paint and
plastics for automotive industry
FMC Technologies, Inc. Manufacturer; comparable revenues; former
Midwest headquarters
The Goodyear Tire & Rubber Automotive industry
Company
Johnson Controls, Inc. Automotive industry; Midwest headquarters
Lear Corporation Automotive industry
Lennox International Inc. Manufacturer; comparable employee base
Steelcase Inc. Manufacturer; Midwest headquarters
Stewart & Stevenson Services, Manufacturer for aligned industries
Inc.
Teleflex Incorporated Manufacturer; comparable employee base
Temple-Inland Inc. Comparable revenues and employee base
W.W. Grainger, Inc. Midwest headquarters
Whirlpool Corporation Manufacturer; Midwest headquarters
Worthington Industries, Inc. Manufacturer; Midwest headquarters
In addition, with respect to the executives other than our Chief Executive
Officer (CEO), 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 targeted
and actual 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.
16
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 periodically examines "tally sheets" -- spreadsheets
that attempt to capture all elements of an executive's compensation in one
quantifiable format, including an analysis of the executive's wealth
accumulation from compensation we pay -- to understand all elements of executive
compensation. When the committee makes a determination regarding a particular
element or elements of compensation the committee reviews its decision in the
context of an executive's total compensation. The tally sheets are a tool that
allows the committee to appreciate the potential value of all elements of
executive pay.
How Compensation is Established
Traditionally, our CEO and senior human resources executive annually review
with the committee an annual salary, incentive plan target and long-term and
stock-based compensation for our executives and other key management personnel
(excluding the CEO). The committee approves that plan with any changes that the
committee deems appropriate. The compensation 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. Traditionally,
the committee also reviews separately and sets the salary, incentive plan target
and long-term and stock-based compensation 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.
When compensation determinations were being made for 2007 for our
executives, we were engaged in a search for a new CEO. As such, our senior human
resources executive worked directly with the compensation consulting firm and
the chairman of the committee to formulate the compensation recommendations to
the committee for our non-CEO executives. In connection with the hiring of our
new CEO in January 2007, the compensation consulting firm worked directly with
the director who was leading the search efforts (Mr. Paul T. Stecko, who is a
member of the committee and our lead director) to develop the recommendation
regarding compensation for our new CEO. That recommendation was based on
competitive market data for the companies in the compensation surveys reviewed
with respect to non-CEO compensation and was approved by the committee and our
board of directors.
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 with respect to that aspect of compensation for 2007.
Salary and Bonus/Non-Equity Incentive Plan Compensation
An executive's basic cash compensation package consists primarily of a base
salary and payments under the Tenneco Value Added 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 previously
established corporate performance targets. We offer these elements of
compensation because they are customary within our industry.
17
The 2007 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 as described above. For 2007,
the committee's standard executive merit increase was 3.5%, although its average
executive merit increase, excluding the newly hired CEO, was 6.25% due to
adjustments made for internal and external pay equity. The TAVA Plan target
payment levels established for our executives for 2007 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 as
described above. However, under the TAVA Plan our executives had the potential
to earn payouts above or below the targeted 50th percentile based on our actual
corporate performance.
The annual performance goal for the TAVA Plan was developed, initially, by
Stern Stewart & Co., an independent consulting firm with expertise in EVA(R)
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 objectives, and (ii) 25% of an
individual's award is based on the committee's discretionary determination of
corporate performance. EVA is defined as net operating profit after taxes minus
the annual cost of capital and is a registered trademark of Stern Stewart & Co.
We use EVA as the performance metric for that TAVA Plan because we believe
strong EVA performance is highly correlated with strong stockholder returns and
that making business decisions based on EVA balances cash-oriented results and
earnings-oriented results. We continue to base 25% of an individual's bonus on
the committee's discretionary determination of corporate performance because the
committee believes in the need to retain flexibility to respond to circumstances
where EVA performance alone does not address performance made by our company for
a particular year or where the committee assesses that other factors should be
considered in establishing bonuses.
For years prior to 2006, we maintained a "bonus bank" related to the 75%
EVA-based portion of an individual's bonus under the TAVA Plan. Each year, the
individual's bonus bank was credited with an accrual equal to that year's EVA-
based award. 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. This resulted in an increase in the bonus bank in years when our actual
EVA improvement exceeded 120% of the annual EVA target and a decrease in the
bonus bank in years when our actual EVA improvement was less than 120% of the
annual EVA target.
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 provides for one-third
of the remaining 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 2007, the targeted level of EVA improvement that would have resulted in
an executive receiving an EVA-based bonus equal to 100% of his targeted bonus
amount was an improvement of $13 million over EVA for 2006. While there is no
maximum payout, the potential payouts typically range from zero to two times
targeted bonus based upon the actual EVA growth in relation to the targeted
improvement. For 2007, EVA would have needed to improve $37 million over EVA for
2006 for an executive to have received an EVA-based bonus equal to two times his
targeted bonus amount.
18
For 2007 performance, awards under the TAVA Plan were declared at
approximately 120% 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 2007 TAVA Plan award. Our EVA performance
for 2007 was an $18 million improvement, which resulted in this portion of
executives' TAVA Plan awards being declared at 120% of the executives' 2007 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 120% of the targeted amount. After giving effect to
the 2007 payouts to eligible participants, an aggregate of approximately
$202,585 remained credited to the bonus bank for executives under the TAVA Plan.
In making its determinations regarding the discretionary portion of 2007
bonuses, the committee considered in particular the following factors:
- difficulties in the North American original equipment market;
- the performance of our international operations;
- the success of our 2007 new platform launches;
- our cash performance while launching these new platforms;
- actions taken during 2007 to enhance our long-term growth such as our
acquisition of the ELIM-NOX(TM) technology from Combustion Components
Associates, Inc.; and
- financing activities taken during 2007 designed to lower our cost of
capital and increase our financial flexibility.
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 long-
term performance units ("LTPUs") which are payable based on the level of total
stockholder return. These LTPUs were, as described below, adopted by the
committee in 2007 as a replacement for the company's prior cash-settled stock
equivalent units ("SEUs"). Each year, the committee reviews previously granted
long-term and stock based awards for our executives, typically at its meeting
held in January.
Prior to 2007, the committee granted executives cash-settled SEUs that were
payable based on the level of EVA improvement and stock price appreciation.
These awards generally covered a three-year period (except in the case of our
former CEO, who received only annual grants) but a portion of the award was
payable annually. Based on its review of the effectiveness and purpose of the
plan and competitive market data, the committee determined to eliminate the SEU
program beginning in 2007. The committee adopted in its place the LTPU program.
The LTPUs are denominated in units and are payable based on the level of total
stockholder return (stock price appreciation adjusted for any dividends) during
the performance period. The total stockholder return is applied against a
multiplier that determines the percentage of
19
the awarded units that is earned based on that level of total stockholder
return. The value of a unit is equal to the company's average closing stock
price during a ten-day period after the announcement of the company's earnings
for the last year of the performance period. The LTPUs, in general, are payable
at the end of a three-year performance cycle. For 2007 and 2008, the committee
granted special LTPUs covering only a one-year period as part of the phase in to
the new program.
In January and March 2007, the committee granted awards of the type
described above to our executives as set forth under the "Executive
Compensation" section of this Proxy Statement. Based on the committee's
assumptions regarding future corporate performance, interest rates and other
factors, the 2007 grants were designed, in general, 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. In making its
determinations for 2007, the committee also considered factors such as internal
pay equity and common stock dilution. Our executives have the opportunity for
the value actually realized from these awards to be above or below the 50th
percentile based on our actual corporate performance.
For the LTPUs granted in 2007, the committee's target level of stockholder
return for 2007 and the 2007 to 2009 period was a 10% annualized rate of return.
For the LTPUs granted in 2007 that covered a one-year performance period, an
executive would earn no units if our stock value decreased, would earn 50% of
the awarded units if our stock value remained the same and would earn a maximum
of 167% of the awarded units if total stockholder return was 20% or greater.
(The plan uses straight-line interpolation to determine payout levels for total
stockholder return levels between zero and 20%.) For the LTPUs granted in 2007
that cover a three-year performance period (2007 through 2009), an executive
would earn no units if our stock value decreased, would earn 50% of the awarded
units if our stock value remained the same and would earn a maximum of 116% of
the awarded units if total annualized stockholder return was 20% or greater. In
each case, as described above, the value of the units at the time of payment is
based on an average of the then-prevailing stock prices.
For 2007 performance, the cash payout under the one-year LTPUs described
above was made in early 2008. During 2007, our total stockholder return was
5.2%, based on our closing stock price on the first day of 2007 ($24.78) and on
the last day of 2007 ($26.07). Based upon this performance, award holders earned
71.8% of their units with a value of $26.23 per unit (the average closing price
for our common stock for the ten-day period after the announcement of our 2007
earnings).
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 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 have used the SEU and LTPU 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 2007, our executives' salary,
TAVA Plan payments, LTPU payouts and equity-based awards granted in 2007 placed
them at approximately the 50th 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
In general, we do not have employment agreements with our executive
officers. In late 1999, we emerged as an independent, stand-alone public company
focused solely on our automotive operations.
20
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 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, at that time, we entered into employment agreements with
our then 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. Other than with respect to our new
Chief Executive Officer who was hired in January 2007, we have not, however,
extended these type of employment agreements to these employees. For 2007, we
had two 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." Both 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. We also still
employ one other executive officer with whom entered into an employment
agreement in 1999.
In January 2007, Gregg M. Sherrill joined us as our CEO. 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. In January 2007, as an
inducement to accept our offer of employment, we (i) paid him a signing bonus of
$1,325,000 and (ii) granted him 125,000 shares of restricted stock on his first
day of employment that vest in three equal installments subject to his continued
employment. We offered Mr. Sherrill this additional compensation because we
believe signing inducements are customary for CEOs and because of the
compensation Mr. Sherrill would forgo from his former employer by accepting our
offer.
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. In addition to this matching
contribution, we also provide a company contribution equal to 2% of an
executive's salary for executives hired on or after April 1, 2005. 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.
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
21
"-- 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 we implemented an unfunded non-qualified
defined contribution retirement plan. In general, our executives and other
senior managers are 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 is disregarded and
awards under the TAVA Plan or any successor plan are included in calculating
compensation, and (ii) there is an offset for the DB Replacement Contributions.
Under the terms of his employment agreement, our CEO is entitled to 150% of
the standard age-graded benefit under the non-qualified defined contribution
retirement plan. The committee granted our CEO this enhanced benefit based on
competitive data provided by our compensation consultant.
In December 2007, the committee granted our Chief Financial Officer an
enhanced benefit equal to 200% of the standard age-graded benefit under the non-
qualified defined contribution retirement plan. The committee granted our CFO
this enhanced benefit based on competitive data provided by our compensation
consultant.
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.
Two of our executives -- 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 such 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 officer's
age at retirement.
Perquisites
In keeping with competitive practices ,each of our executives received a
perquisite allowance in an amount between $15,000 and $50,000 for 2007. Each
executive may spend his perquisite allowance on those items he deems
appropriate.
22
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.
Except for our CEO, if any of our executives with an employment agreement
(Messrs. Nair and Jackson) 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. Under his employment agreement, we have
agreed to pay our CEO two times his then current salary if we terminate his
employment other than for disability, cause or in connection with a change of
control. We view these benefits as customary and a key element of the recruiting
and retention of executives 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 (Messrs.
Trammell and Yanos), 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 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 a version of 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. For executives with
employment agreements, other than our CEO, the terms of this plan as to
entitlement to cash payments and the vesting of awards continue to apply.
In 2007, the committee reevaluated our plan in light of current market
conditions and practices. While the committee continued to believe that a change
in control program was necessary to keep executive decision-making objective and
neutral to potential job loss, for executive retention during a transaction and
to provide and maintain a competitive total compensation package, the committee
determined that changes should be made to the plan so that the plan did not
exceed current "median" market practices. The principal differences between the
amended and restated change in control plan adopted in 2007 and our prior change
in control plan are (i) it applies to far fewer individuals (applies to nine top
executives, which is 46 fewer than the prior plan), (ii) it redefines what
constitutes a "change-in-control" (more limited in scope) (iii) it no longer
provides that awards under the plan or any similar benefit plan or compensation
arrangement or program will be treated as exercisable, earned at target and
vested immediately upon the happening of a change-in-control and (iv) it removes
the provision previously allowing certain executives voluntarily separating from
the company following a change-in-control to be paid benefits under the plan.
23
Relocation and Expatriate Compensation
In accordance with our policies on overseas assignments, we provided each
of Messrs. Nair and Jackson an expatriate package and, at the end of his
overseas assignment, relocation expenses. 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
Our board of directors has 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 beginning of our calendar
year for operational and compensation purposes). 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 as determined under the 2006 Long-Term
Incentive Plan (which is the average of the highest and lowest sales price 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 that date. The total number of shares that the management committee can issue
under this board of directors policy 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
officers and many of our other senior managers. The individual guidelines are:
- 125,000 shares for the Chairman/Chief Executive Officer (equal to
approximately 5x base salary as of July 2007);
- 4,000 shares for the Non-Management Members of Board of Directors (equal
to approximately 3x annual retainer fee as of July 2007);
- 35,000 shares for the Executive Vice Presidents (equal to approximately
3x annual base salary as of July 2007); and
- 30,000 shares for the Senior Vice Presidents (equal to approximately 3x
annual base salary as of July 2007).
The committee may, from time to time, reevaluate and revise participants'
guidelines to give effect to changes in our common stock or other factors the
committee deems relevant. Shares that count towards
24
satisfaction of the guidelines include: (i) shares owned outright by the
participant or an immediate family member that shares the same household; (ii)
shares held in our defined contribution plans; (iii) restricted stock issued by
us, whether or not vested; (iv) shares underlying vested options granted by us;
and (v) shares or share equivalent units underlying deferred compensation of
executives or deferred fees paid to directors.
Participants are required to achieve their guideline within five years of
becoming subject to the guidelines. 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 CEO 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.
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 CEO 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 SEUs and LTPUs
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.
25
SUMMARY COMPENSATION TABLE
The following table shows the compensation that we paid, for 2007, to: (1)
our Chief Executive Officer; (2) our Chief Financial Officer; and (3) each of
our next three most highly compensated executive officers who were serving at
the end of 2007 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 ALL OTHER
SALARY BONUS(1) AWARDS(2) AWARDS(2) COMPENSATION(3) VALUE(4) COMPENSATION(5)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($) ($)
--------------------------- ---- ------- --------- --------- --------- --------------- --------- ---------------
Gregg M. Sherrill............ 2007 841,856 1,587,500 2,551,381 314,775 787,500 -- 336,611
Chairman and CEO
Kenneth R. Trammell.......... 2007 408,825 81,900 691,970 163,488 245,700 40,275 107,209
Executive Vice President 2006 395,000 125,075 719,400 109,857 204,750 121,254 46,229
and CFO
Hari N. Nair................. 2007 466,720 81,900 726,641 171,867 245,700 167,638 115,597
Executive Vice President 2006 414,000 125,075 777,355 120,733 204,750 127,743 256,678
and President,
International
Neal A. Yanos................ 2007 375,000 66,900 480,512 114,578 200,700 33,922 79,871
Senior Vice President 2006 327,484 111,325 639,983 80,899 167,250 103,785 43,602
General Manager North
American Original Equipment
Ride Control and
Aftermarket
Timothy E. Jackson........... 2007 372,713 63,800 464,453 114,183 191,399 416,468 490,946
Senior Vice President and 2006 327,600 44,275 576,439 78,037 120,750 318,937 216,458
Chief Technology Officer
TOTAL
NAME AND PRINCIPAL POSITION ($)
--------------------------- ---------
Gregg M. Sherrill............ 6,419,623
Chairman and CEO
Kenneth R. Trammell.......... 1,739,367
Executive Vice President 1,721,565
and CFO
Hari N. Nair................. 1,976,063
Executive Vice President 2,026,334
and President,
International
Neal A. Yanos................ 1,351,483
Senior Vice President 1,474,328
General Manager North
American Original Equipment
Ride Control and
Aftermarket
Timothy E. Jackson........... 2,113,962
Senior Vice President and 1,682,496
Chief Technology Officer
--------
(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 -- Design and Elements of Compensation -- Salary and Bonus/Non-
Equity Incentive Plan Compensation." In addition, the bonus amounts in
2006 for Messrs. Trammell, 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 and the bonus amount
for Mr. Sherrill for 2007 includes $1,325,000 paid to him upon his
joining our Company.
(2) See note 8 to our consolidated financial statements for the year ended
December 31, 2006 for a description of how the 2006 data was computed and
note 8 of our consolidated financial statements for the year ended
December 31, 2007 for a description of how the 2007 data was computed.
The stock award totals reflect all restricted stock, stock equivalent
units (2006 award) and long term performance units (2007 award)
outstanding during each of 2006 and 2007.
(3) Reflects only earnings for services during 2006 or 2007 as applicable,
and no earnings on outstanding awards.
(4) As described below under "Post-Employment Compensation," we 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 change
in value shown for 2006 reflects the change from September 30, 2005 to
September 30, 2006. Due to a change in measurement date, the change in
value for 2007 reflects the change from September 30, 2006 to December
31, 2007.
(Notes continued on following page.)
26
(5) The amounts under the column entitled "All Other Compensation" in the
table above are comprised of the following:
REGISTRANT
PERQUISITES CONTRIBUTIONS
AND OTHER TAX TO DEFINED
PERSONAL REIMBURSEMENTS CONTRIBUTION
NAME BENEFITS (A) (GROSS-UPS) (B) PLANS (C)
---- ------------ --------------- -------------
Mr. Sherrill.................................... $207,041 $ 31,811 $97,759
Mr. Trammell.................................... 44,839 5,545 56,825
Mr. Nair........................................ 70,953 8,857 35,787
Mr. Yanos....................................... 44,311 5,585 29,975
Mr. Jackson..................................... 62,293 395,238 33,415
--------
(a) Perquisites and other personal benefits consist of: (a) for Mr.
Sherrill, relocation costs ($135,575), perquisite allowance ($50,000),
gifts and travel; (b) for Mr. Trammell, perquisite allowance
($30,000), gifts and travel; (c) for Mr. Nair, perquisite allowance
($15,000) and costs and expenses relating to his expatriate
assignment, such as home travel, cost of living allowances and
automobile benefits ($41,477), gifts and travel; (d) for Mr. Yanos,
perquisite allowance ($30,000) and travel and (e) for Mr. Jackson,
perquisite allowance ($15,000) and costs and expenses relating to his
expatriate assignment, such as home travel, cost of living allowances
and automobile benefits ($47,293). 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) In the case of Mr. Jackson, the tax reimbursements relate to his
expatriate assignment.
(c) For 2007, we offered retirement benefits to our senior management
through 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 (other than
Mr. Sherrill) hired after April 1, 2005 (when we closed our defined
benefit plans to new participants), we provide an additional 2%
company contribution. All matching contributions vest immediately.
Additional company contributions vest upon the executive's third
anniversary with Tenneco. In addition, as described below under
"-- Post-Employment Compensation -- 2006 Changes in Defined Benefits,"
we implemented 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.
27
GRANTS OF PLAN-BASED AWARDS DURING 2007
The following table shows certain information regarding grants of plan-
based awards we made to the Named Executives during 2007.
GRANTS OF PLAN-BASED AWARDS DURING 2007
ESTIMATED FUTURE ESTIMATED FUTURE ALL OTHER ALL OTHER
PAYOUTS UNDER PAYOUTS UNDER STOCK OPTION
NON-EQUITY EQUITY AWARDS: AWARDS: EXERCISE
INCENTIVE PLAN INCENTIVE PLAN NUMBER OF NUMBER OF OR BASE
AWARDS(1) AWARDS(2) SHARES OF SECURITIES PRICE OF CLOSING PRICE
---------------- ------------------ STOCK OR UNDERLYING OPTION ON GRANT
TARGET MINIMUM TARGET UNITS(3) OPTIONS(3) AWARDS DATE(4)
NAME GRANT DATE ($) ($) ($) (#) (#) ($/SH) ($/SH)
---- ---------- ---------------- ------- -------- --------- ---------- -------- -------------
Mr. Sherrill........ 1/16/2007 $656,250
1/16/2007 $0 $700,000
1/16/2007 0 700,000
1/15/2007 125,000
1/16/2007 55,000
1/16/2007 100,000 $26.70 $26.55
Mr. Trammell........ 1/16/2007 204,750
1/16/2007 0 280,000
1/16/2007 0 280,000
1/16/2007 12,000
1/16/2007 24,000 26.70 26.55
Mr. Nair............ 1/16/2007 204,500
1/16/2007 0 280,000
1/16/2007 0 280,000
1/16/2007 12,000
1/16/2007 24,000 26.70 26.55
Mr. Yanos........... 1/16/2007 167,250
1/16/2007 0 184,000
1/16/2007 0 184,000
1/16/2007 8,000
1/16/2007 16,000 26.70 26.55
Mr. Jackson......... 1/16/2007 159,500
1/16/2007 0 124,000
1/16/2007 0 124,000
3/6/2007 0 49,325
3/6/2007 0 56,450
1/16/2007 7,200
3/6/2007 658
1/16/2007 15,400 26.70 26.55
3/6/2007 493 24.08 24.11
GRANT DATE
FAIR VALUE
OF STOCK
AND OPTION
NAME AWARDS
---- ----------
Mr. Sherrill........
$ 770,136
564,159
3,371,250
1,460,250
989,000
Mr. Trammell........
308,060
225,667
318,600
237,360
Mr. Nair............
308,060
225,667
318,600
237,360
Mr. Yanos...........
202,437
148,294
212,400
158,240
Mr. Jackson.........
136,426
99,938
54,256
45,486
191,160
15,864
152,306
4,875
--------
(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 long term performance units ("LTPUs") under our 2006
Long-Term Incentive Plan as described under "-- Compensation Discussion
and Analysis -- Design and Elements of Compensation -- Long-Term and
Stock-Based Incentives." There is no maximum payout.
(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. Mr.
Sherrill's grant of 125,000 restricted shares is subject to early vesting
if he is involuntarily terminated other than for cause.
(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.
28
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"). For 2006, this amount
included a $50,000 bonus paid to Messrs. Trammel, Nair and Yanos 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). A discussion of why EVA is used as the performance metric
for the TAVA plan can be found in "-- Compensation Discussion and
Analysis -- Design and Elements of Compensation -- Salary and Bonus/Non-Equity
Incentive Plan Compensation."
The annual performance goal for the TAVA Plan was 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 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 2007.
In addition to the payments described above for 2007, $24,734 for Mr.
Trammell, $35,389 for Mr. Nair, $20,299 for Mr. Yanos and $20,870 for Mr.
Jackson was paid in respect of amounts held in the individual's bonus bank after
giving effect to 2006 payments. After giving effect to the 2007 payments
reflected above,
29
$49,469, $70,778, $40,597 and $41,741 remained credited to the bonus bank of
Messrs. Trammell, Nair, Yanos and Jackson, respectively.
STOCK AWARDS
Amounts reflected in the Summary Compensation Table under the column
entitled "Stock Awards" represent awards of restricted common stock, long term
performance units (2007 award) and stock equivalent units (2006 award) granted
to each Named Executive under our 2006 Long-Term Incentive Plan. See "-- Grants
of Plan Based Awards During 2007."
Our restricted stock awards vest one-third per year during the three years
after the grant date, subject to the officer's continued employment. 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. All restrictions lapse upon
death, disability or retirement.
As discussed in "-- Compensation Discussion and Analysis," we decided to
eliminate our stock equivalent units ("SEUs") beginning in 2007 replacing them
with cash-settled long term performance units ("LTPUs") which are payable based
on the level of total stockholder return. The LTPUs are denominated in units and
are payable based on the level of total stockholder return (stock price
appreciation adjusted for any dividends) during the performance period. The
total stockholder return is applied against a multiplier that determines the
percentage of the awarded units that is earned based on that level of total
stockholder return. The value of a unit is equal to the company's average stock
price during a ten-day period after the announcement of the company's earnings
for the last year of the performance period. The LTPUs, in general, are payable
at the end of a three-year performance cycle. For 2007 and 2008, the committee
granted special LTPUs covering only a one-year period as part of the phase in to
the new program. Subject to the terms of any employment agreement, units
evidenced by this award are generally forfeited by a participant if his or her
employment is terminated other than due to death, disability or retirement,
unless the committee determines otherwise. In the event of termination due to
death, disability or retirement, all units initially awarded are deemed 100%
earned and paid out in cash at 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 2007." 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. 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 M. 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
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 his highest target bonus.
See "-- Post-Employment Compensation --
30
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 cause, 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.
Mr. Nair and Mr. Jackson are party to agreements with us that set forth
certain terms and conditions of their 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. Nair and Jackson
are guaranteed a minimum annual base salary/minimum annual target bonus as
follows: Mr. Nair, $414,000/$273,000 and Mr. Jackson, $260,000/$155,000. The
employment agreements also provide for participation in benefit plans we offer
to our employees generally, as well as continued participation in supplemental
retirement benefit plans as described under "-- Post-Employment Compensation."
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
The following table shows certain information regarding the outstanding
equity awards held by the Named Executives at the end of 2007.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
STOCK AWARDS
----------------------
NUMBER OF MARKET
OPTION AWARDS SHARES OR VALUE OF
-------------------------------------------------------- UNITS OF SHARES OR
NUMBER OF NUMBER OF STOCK UNITS OF
SECURITIES SECURITIES STOCK STOCK
UNDERLYING UNDERLYING THAT HAVE THAT
UNEXERCISED UNEXERCISED OPTION OPTION NOT HAVE
OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION VESTED NOT
NAME EXERCISABLE UNEXERCISABLE (1) PRICE ($) DATE (#) (1) VESTED ($)
---- ----------- ----------------- --------- ---------- --------- ----------
Mr. Sherrill........... -- 100,000 26.70 1/16/2014
125,000 3,258,750
55,000 1,433,850
Mr. Trammell........... 15,000 -- 8.56 11/5/2009
15,000 -- 3.66 1/9/2011
30,000 -- 1.57 12/5/2011
15,000 -- 3.77 1/21/2013
3,750 -- 6.45 10/1/2013
15,000 -- 8.68 1/20/2014
10,000 5,000 16.00 1/17/2012
5,000 10,000 21.19 1/16/2013
-- 24,000 26.70 1/16/2014
4,000 104,280
10,000 260,700
12,000 312,840
31
STOCK AWARDS
----------------------
NUMBER OF MARKET
OPTION AWARDS SHARES OR VALUE OF
-------------------------------------------------------- UNITS OF SHARES OR
NUMBER OF NUMBER OF STOCK UNITS OF
SECURITIES SECURITIES STOCK STOCK
UNDERLYING UNDERLYING THAT HAVE THAT
UNEXERCISED UNEXERCISED OPTION OPTION NOT HAVE
OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION VESTED NOT
NAME EXERCISABLE UNEXERCISABLE (1) PRICE ($) 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
18,000 -- 8.68 1/20/2014
12,000 6,000 16.00 1/17/2012
5,000 10,000 21.19 1/16/2013
-- 24,000 26.70 1/16/2014
6,000 156,420
10,000 260,700
12,000 312,840
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
12,000 -- 8.68 1/20/2014
8,000 4,000 16.00 1/17/2012
3,333 6,667 21.19 1/16/2013
-- 16,000 26.70 1/16/2014
4,000 104,280
6,666 173,783
8,000 208,560
Mr. Jackson............ 90,000 -- 8.56 11/5/2009
30,000 -- 3.77 1/21/2013
12,000 -- 8.68 1/20/2014
8,000 4,000 16.00 1/14/2012
1,666 3,334 21.19 1/16/2013
1,666 3,334 21.60 3/17/2013
-- 15,400 26.70 1/16/2014
-- 493 24.08 3/6/20014
4,000 104,280
3,333 86,891
2,667 69,529
7,200 187,704
658 17,154
--------
(1) The vesting dates and number of shares vesting for the options and
restricted stock reflected above as of December 31, 2007, are as set
forth below.
32
NUMBER OF NUMBER OF
NAME OPTION VESTING DATE OPTIONS VESTING STOCK VESTING DATE SHARES VESTING
---- ------------------- --------------- ------------------ --------------
Mr. Sherrill.......... 1/16/2008 33,333 1/15/2008 41,667
1/16/2009 33,333 1/16/2008 18,334
1/16/2010 33,334 1/15/2009 41,667
1/16/2009 18,333
1/15/2010 41,666
1/16/2010 18,333
Mr. Trammell.......... 1/16/2008 5,000 1/16/2008 5,000
1/17/2008 5,000 1/16/2008 4,000
1/16/2008 8,000 1/17/2008 4,000
1/16/2009 5,000 1/16/2009 5,000
1/16/2009 8,000 1/16/2009 4,000
1/16/2010 8,000 1/16/2010 4,000
Mr. Nair.............. 1/16/2008 5,000 1/16/2008 5,000
1/17/2008 6,000 1/16/2008 4,000
1/16/2008 8,000 1/17/2008 6,000
1/16/2009 5,000 1/16/2009 5,000
1/16/2009 8,000 1/16/2009 4,000
1/16/2010 8,000 1/16/2010 4,000
Mr. Yanos............. 1/16/2008 3,333 1/16/2008 3,333
1/17/2008 4,000 1/16/2008 2,667
1/16/2008 5,333 1/17/2008 4,000
1/16/2009 3,333 1/16/2009 3,333
1/16/2009 5,333 1/16/2009 2,666
1/16/2010 5,334 1/16/2010 2,666
Mr. Jackson........... 1/14/2008 4,000 1/16/2008 1,667
1/16/2008 1,667 1/16/2008 2,400
3/17/2008 1,667 1/17/2008 4,000
1/16/2008 5,133 3/6/2008 220
3/6/2008 164 3/17/2008 1,333
1/16/2009 1,667 1/16/2009 1,666
3/17/2009 1,667 1/16/2009 2,400
1/16/2009 5,133 3/6/2009 219
3/6/2009 164 3/17/2009 1,334
1/16/2010 5,134 1/16/2010 2,400
3/6/2010 165 3/6/2010 219
33
OPTION EXERCISES AND STOCK VESTED DURING 2007
The following table shows certain information regarding options exercised
and stock vested during 2007 for the Named Executives.
OPTION EXERCISES AND STOCK VESTED DURING 2007
OPTION AWARDS STOCK AWARDS
------------------------- -------------------------
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
ACQUIRED ON REALIZED ON ACQUIRED ON REALIZED ON
EXERCISE EXERCISE VESTING (1) VESTING (1)
NAME (#) ($) (#) ($)
---- ----------- ----------- ----------- -----------
Mr. Sherrill....................... -- $ -- -- $ --
Mr. Trammell....................... -- -- 21,000 553,230
Mr. Nair........................... -- -- 29,000 763,470
Mr. Yanos.......................... -- -- 19,334 508,998
Mr. Jackson........................ 30,000 670,800 19,001 497,355
--------
(1) Does not give effect to shares withheld to satisfy tax obligations.
POST-EMPLOYMENT COMPENSATION
PENSION BENEFITS TABLE
The following table shows certain information regarding potential benefits
as of December 31, 2007 for the Named Executives under each of our defined
benefit retirement plans.
PENSION BENEFITS
NUMBER OF PRESENT VALUE
YEARS OF
CREDITED ACCUMULATED
SERVICE (3) BENEFIT (4)
NAME(1) PLAN NAME (2) (#) ($)
------- ------------- ----------- -------------
Mr. Trammell.............................. Plan 1 9.67 114,609
Plan 2 9.67 352,732
Mr. Nair.................................. Plan 1 18.75 191,856
Plan 2 19.75 973,141
Mr. Yanos................................. Plan 1 17.33 184,945
Plan 2 17.33 401,792
Mr. Jackson............................... Plan 1 6.50 113,627
Plan 2 6.50 207,741
Plan 3 8.00 1,614,307
--------
(1) Mr. Sherrill does not participate in any defined benefit plan sponsored
by us.
(2) 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).
(Notes continued on following page.)
34
(3) 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.
(4) The present value of accrued benefits were calculated using the RP-2000
Blended Mortality Table with a 6.20% 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
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.
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. (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.) 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
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
35
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."
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 we
implemented an unfunded non-qualified defined contribution pension plan as
described in "-- Compensation Discussion and Analysis -- Design and Elements of
Compensation -- Retirement Plans."
Two of our executive officers -- Mr. Nair and Mr. Jackson -- had employment
agreements that provided for their participation in the Supplemental Retirement
Plan (Mr. Nair and Mr. Jackson) and/or Supplemental Pension Plan (Mr. Jackson).
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.
36
NONQUALIFIED DEFINED CONTRIBUTION AND OTHER DEFERRED COMPENSATION PLANS
TABLE
The following table sets forth certain information regarding potential
benefits as of the end of 2007 for the Named Executives under our nonqualified
defined contribution plans.
NONQUALIFIED DEFERRED COMPENSATION
REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS EARNINGS IN WITHDRAWALS/ BALANCE AT
IN 2007 2007(1) DISTRIBUTIONS(2) 12/31/07(3)
NAME ($) ($) ($) ($)
---- ------------- ----------- ---------------- -----------
Mr. Sherrill........................... $88,759 $1,353 $ -- $90,112
Mr. Trammell........................... 35,575 574 24,734 85,618
Mr. Nair............................... 14,537 107 35,389 85,422
Mr. Yanos.............................. 9,008 58 20,299 49,663
Mr. Jackson............................ 10,347 67 20,870 52,155
--------
(1) Reflects earnings on contributions under our non-qualified defined
contribution 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 2007. All of these amounts were earned
and reported as part of the applicable executive's bonus bank for periods
prior to 2007.
(3) Includes the following amounts remaining in the Named Executive's bonus
bank under the TAVA Plan after giving effect to payments for 2007, all of
which were earned and reported as part of the applicable executive's
bonus bank in years prior to 2006: Mr. Trammell, $49,469, Mr. Nair,
$70,778, Mr. Yanos, $40,597 and Mr. Jackson, $41,741.
We maintain a non-qualified defined contribution retirement plan. As
described above in "-- Compensation Discussion and Analysis -- Design and
Elements of Compensation -- Retirement Plans," effective January 1, 2007, our
executives and other senior managers became eligible to participate in this
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 is disregarded and awards under the TAVA Plan or any successor plan are
included in calculating compensation, and (ii) there is an offset for the DB
Replacement Contributions.
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,
which was amended and restated effective as of December 12, 2007. 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.
The principal differences between the amended and restated change in
control plan and our prior change in control plan are (i) it applies to far
fewer individuals (currently applies to nine top executives, which is 46 fewer
than the prior plan, although we may expand the number of participants), (ii) it
redefines what constitutes a "change-in-control" (more limited in scope) and
(iii) it eliminates the provision previously allowing certain executives
voluntarily separating from the company following a change-in-control to be paid
benefits under the plan. Under the amended plan, a "change-in-control" happens
if:
- any person or group acquires 20% or more of our then outstanding common
stock or the combined voting power of our then outstanding securities
having general voting rights subject to limited exceptions,
- our incumbent board of directors ceases to constitute a majority of our
board of directors,
37
- any merger, consolidation or sale of all or substantially all the assets
in which our shareholders are less than 50% of the new company, or
- we are liquidated or dissolved.
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.
Under the plan, we must pay an eligible executive a lump sum cash payment equal
to one, two or three times, depending on his or her grouping under the plan, (i)
his or her base salary plus, (ii) his or her targeted annual bonus in effect
immediately prior to the change-in-control. In addition, we must provide the
executive with (i) a pro rata bonus (payable in a lump sum), (ii) one, two or
three years (depending on his or her grouping under the plan) of health and
welfare benefits continuation, (iii) out placement services and (iv) all
deferred compensation (payable in a lump sum). Finally, we are required to
provide a tax gross up to employees whose payments under the plan become subject
to the tax imposed by Section 4999 of the Internal Revenue Code (gross up
payment provisions differ depending on each employee's grouping under the plan).
Benefits under this plan are not conditioned on any action by the participant.
For executives with employment agreements, except for our CEO, various
terms of the Change-in-Control Severance Benefit Plan in effect prior to
December 12, 2007 continue to apply in terms of entitlement to cash payments and
the vesting of awards. Specifically, for such executives (including Mr. Nair and
Mr. Jackson), 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.
These executives are also entitled to a lump sum cash payment equal to
three times (i) his base salary plus, (ii) the higher of (a) his average bonus
for the prior three years (or such shorter period as the executive had been
employed by us) and (b) his targeted annual bonus in effect immediately prior to
the change-in-control. The employment agreements further provide that each of
the executive's outstanding awards under the plan or any similar benefit plan or
compensation arrangement or program will be treated as exercisable, earned at
target and vested immediately upon the happening of a change-in-control.
See "-- Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table -- Employment Agreements" for additional discussion of
specific provisions in employment agreements regarding the calculation of
benefits under this plan.
Under our 2006 Long-Term Incentive Compensation Plan (and its predecessor,
the 2002 Long-Term Incentive Compensation Plan), upon a Change in Control, all
options will immediately vest and remain exercisable for up to 36 months. All
restrictions on outstanding restricted stock will lapse and our LTPUs shall be
deemed fully earned on the date of the Change in Control and paid based on
assumed achievement of targeted performance goals.
Accounting for specific provisions related to the plan contained in
employment agreements, we expect that Messrs. Sherrill, Trammell, Nair, Yanos
and Mr. Jackson would have become entitled to receive
38
payments from us as follows had we experienced a change in control on December
31, 2007(assuming termination on that date):
LONG TERM EARLY EARLY
PERFORMANCE 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. Sherrill....... $5,250,000 $875,000 $1,400,000 $ -- $4,692,600 $ 45,001 $2,922,552 $15,185,153
Mr. Trammell....... 1,363,650 273,000 560,000 99,150 677,820 119,538 -- 3,093,158
Mr. Nair........... 2,578,045 273,000 560,000 109,220 729,960 151,777 -- 4,402,002
Mr. Yanos.......... 1,196,000 223,000 368,000 72,814 486,640 105,751 -- 2,452,205
Mr. Jackson........ 1,820,000 212,666 353,775 72,427 465,558 107,141 -- 3,031,567
--------
(1) Represents full value of all unpaid long term performance units 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 31, 2007 of
$26.07.
(2) Represents the difference between the option exercise price and the
closing price of a share of our common stock on December 31, 2007 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.
Other Severance Benefits
Under Mr. Sherrill's employment agreement, if he is involuntarily
terminated by us other than for disability or cause or in connection with a
Change in Control, he is entitled to receive a lump sum payment equal to two
times his annual base salary (which two times would have been $1,750,000 as of
December 31, 2007). We expect that Mr. Nair and Mr. Jackson would have become
entitled to receive payments from us as follows had their positions been
terminated by us on December 31, 2007, 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):
LONG TERM EARLY EARLY
PERFORMANCE VESTING OF VESTING OF HEALTH AND
SEVERANCE UNIT STOCK RESTRICTED WELFARE
NAME AMOUNT(1) PAYOUT(1)(2) OPTIONS(3) STOCK(3) BENEFITS TOTAL
---- ---------- ------------ ---------- ---------- ---------- ----------
Mr. Nair............... $1,615,817 $560,000 $109,220 $729,960 $10,306 $3,025,303
Mr. Jackson............ 1,152,661 353,775 72,427 465,558 9,765 2,054,186
--------
(1) Payable in a lump sum.
(2) Represents full value of all unpaid long term performance units at their
payout levels, based on the closing price of a share of our common stock
on December 31, 2007 of $26.07.
(3) Represents the difference between the option exercise price and the
closing price of a share of our common stock on December 31, 2007 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 $298,757 and $360,577,
39
respectively, if his employment had been terminated by us on December 31, 2007
in connection with a reduction in force or similar layoff. We require
participants to sign a customary release to receive benefits under this plan.
DIRECTOR COMPENSATION
The following table and related narrative shows the compensation we paid,
for 2007, to each of our outside directors for all services provided to our
company and its subsidiaries.
DIRECTOR COMPENSATION FOR 2007
STOCK
FEES EARNED AWARDS(1) TOTAL
NAME ($) ($) ($)
---- ----------- --------- --------
Mr. Cramb......................................... $ 76,608 $ 93,450 $170,058
Mr. Letham........................................ 9,608 5,832 15,440
Mr. Macher........................................ 73,608 93,450 167,058
Mr. Porter........................................ 67,608 93,450 161,058
Mr. Price......................................... 73,108 93,450 166,558
Mr. Stecko........................................ 174,608 226,950 401,558
Mr. Takeuchi...................................... 71,608 93,450 165,058
Ms. Warner........................................ 75,941 93,450 169,391
--------
(1) See note 8 to our consolidated financial statements for the year ended
December 31, 2007 for a description of how we compute this value. The
grant date fair value of each award of restricted stock (and, in the case
of Mr. Stecko, bonus shares received for his role in the search for our
new CEO) made to our directors during 2007, and the aggregate number of
awards of restricted stock and options outstanding at December 31, 2007,
for each director was:
GRANT DATE
FAIR VALUE OF
STOCK AWARDS
NAME GRANT DATE ($)
---- ---------- -------------
Mr. Cramb.......................................... 1/16/2007 $ 92,925
Mr. Letham......................................... 10/17/2007 23,441
Mr. Macher......................................... 1/16/2007 92,925
Mr. Porter......................................... 1/16/2007 92,925
Mr. Price.......................................... 1/16/2007 92,925
Mr. Stecko......................................... 1/16/2007 226,675
Mr. Takeuchi....................................... 1/16/2007 92,925
Ms. Warner......................................... 1/16/2007 92,925
NUMBER OF NUMBER OF
OPTIONS RESTRICTED SHARES
OUTSTANDING OUTSTANDING
NAME (#) (#)
---- ----------- -----------------
Mr. Cramb........................................ 16,475 3,500
Mr. Letham....................................... -- 747
Mr. Macher....................................... -- 3,500
Mr. Porter....................................... 35,000 3,500
Mr. Price........................................ 35,000 3,500
Mr. Stecko....................................... 10,000 3,500
Mr. Takeuchi..................................... -- 3,500
Ms. Warner....................................... 6,502 3,500
40
FEE STRUCTURE
In 2007, 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 2007,
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. Director
fees in 2007 also included additional cash payments to Messrs. Stecko
($100,000), Macher ($4,000) and Cramb ($4,000) for their respective roles in the
search for our new CEO (which was completed in January 2007).
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
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 January 2007, 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. Mr.
Letham, who joined our Board of Directors in October 2007, was awarded 747
shares of restricted stock in October 2007.
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.
41
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During fiscal 2007, 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.
42
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, 2007 and in
this proxy statement.
Compensation /Nominating /Governance Committee
David B. Price, Jr. -- Chairman
Roger B. Porter
Paul T. Stecko
Jane L. Warner
43
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 Messrs. Cramb and Letham as "audit committee
financial experts" 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, 2007 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, 2007 be included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for
filing with the SEC.
Audit Committee
Charles W. Cramb -- Chairman
Dennis J. Letham
Frank E. Macher
Minsunobu Takeuchi
Jane L. Warner
44
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, 2008, 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 2007. 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, 2007 and 2006 by our principal
accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche
Tohmatsu and their respective affiliates (collectively, "Deloitte & Touche"):
2007 2006
---------- ----------
Audit fees(a)...................................... $5,441,700 $4,356,200
Audit-related fees(b).............................. 348,700 240,000
---------- ----------
Total audit and audit-related fees................. 5,790,400 4,596,200
Tax fees:
Compliance and tax audit support(c).............. 1,856,200 1,803,700
Planning and consulting(d)....................... 249,000 380,500
---------- ----------
Total tax fees..................................... 2,105,200 2,184,200
All other fees..................................... -- --
---------- ----------
$7,895,600 $6,780,400
========== ==========
--------
(a) Audit services in 2007 and 2006 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 2007 and 2006 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 2007 and 2006 consisted of:
- Federal, state and local income tax return assistance
- Sales and use, property and other tax return assistance
(Notes continued on following page.)
45
- 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 2007 and 2006
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 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 2007 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.
46
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 2008, 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
Corporate 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 brokers, custodians,
nominees and other like parties, and we expect to reimburse such parties for
their charges and expenses.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
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 majority
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 2008.
47
Because the election of directors is determined on the basis of a majority
of the votes cast, abstentions 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.
48
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 2009, the proposal must be received by December 3, 2008.
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 2009 annual meeting not included by or at the direction of the Board must be
received not earlier than January 6, 2009, nor later than February 5, 2009.
DAVID A. WARDELL
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, 2007, 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.
49
NOTICE OF ANNUAL
MEETING AND
PROXY STATEMENT
-----------------------------
ANNUAL MEETING
OF STOCKHOLDERS
MAY 6, 2008
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 2, 2008
Dear Benefit Plan Participant:
The Annual Meeting of the Stockholders of Tenneco Inc. is scheduled to be
held Tuesday, May 6, 2008, 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. Please submit your vote by May 1, 2008 so
that the Trustee can vote the shares in your benefit plan account in accordance
with your 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 2008
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 confidential and will not be disclosed except as required by
law.
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 6, 2008
10:00 A.M.
TENNECO INC.
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 6, 2008.
The undersigned does hereby appoint Gregg M. Sherrill and David A. Wardell, 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 11, 2008 and entitled to
vote at the Annual Meeting of Stockholders of Tenneco Inc. to be held at 10:00
a.m., local time, May 6, 2008, 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 5, 2008.
- 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-- 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 5, 2008.
- 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
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR ITEMS 1 AND 2.
Election of directors:
NOMINEES
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
(1A) Charles W. Cramb / / / / / / (1C) Frank E. Macher / / / / / /
(1B) Dennis J. Letham / / / / / / (1D) Roger B. Porter / / / / / /
- Please fold here -
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
(1E) David B. Price, Jr. / / / / / / (1H) Mitsunobu Takeuchi / / / / / /
(1F) Gregg M. Sherrill / / / / / / (1I) Jane L. Warner / / / / / /
(1G) Paul T. Stecko / / / / / /
2. Approve appointment of Deloitte & Touche LLP as independent public
accountants for 2008. / / For / / Against / / Abstain
3. In the discretion of the Proxies named herein, the Proxies are authorized
to vote upon such other matters as may properly come before the meeting
(or any adjournment or postponement thereof).
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.