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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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
TENNECO AUTOMOTIVE INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
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CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
TENNECO AUTOMOTIVE INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 [TENNECO AUTOMOTIVE LOGO]
April 3, 2003
To the Stockholders of Tenneco Automotive Inc.:
The Annual Meeting of Stockholders of the Company will be held Tuesday, May
13, 2003, at 10:00 a.m., local time, at the Company's headquarters located at
500 North Field Drive, Lake Forest, Illinois 60045. A Notice of the meeting, a
Proxy and a Proxy Statement containing information about the matters to be acted
upon are enclosed.
Holders of common stock are entitled to vote at the Annual Meeting on the
basis of one vote for each share held.
A record of the Company's activities for the year 2002 is contained in the
Annual Report to Stockholders. We urge each stockholder who cannot attend the
Annual Meeting to please assist us in preparing for the meeting by either
completing, executing and returning your Proxy promptly or using our telephone
or Internet voting procedures.
Very truly yours,
/s/ MARK P. FRISSORA
MARK P. FRISSORA
Chairman and Chief Executive
Officer
TENNECO AUTOMOTIVE INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000 [TENNECO AUTOMOTIVE LOGO]
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 2003
The Annual Meeting of Stockholders of Tenneco Automotive Inc. will be held
at the Company's principal executive offices located at 500 North Field Drive,
Lake Forest, Illinois 60045 on Tuesday, May 13, 2003, 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 2004 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 2003;
3. To consider and act upon a proposal to amend the Tenneco Automotive Inc.
2002 Long-Term Incentive Plan to increase the shares of the Company's
common stock available for delivery under the plan from 2 million to 4
million (which shares include an increase from 500,000 to 1 million in
the shares available for delivery as full value awards); and
4. To consider and act upon such other matters as may be properly brought
before the meeting, or any adjournment or postponement thereof.
The Board of Directors knows of no other matters at this time that may be
brought before the meeting. Holders of common stock of record at the close of
business on March 21, 2003 are entitled to vote at the meeting. A list of these
stockholders will be available for inspection for 10 days preceding the meeting
at the Company's principal executive offices located at 500 North Field Drive,
Lake Forest, Illinois 60045, and will also be available for inspection at the
meeting.
Each stockholder who does not expect to attend the meeting is urged to
either complete, date and sign the enclosed Proxy and return it to the Company
in the enclosed envelope, which requires no postage if mailed in the United
States, or utilize our telephone or Internet voting procedures.
By Order of the Board of Directors
KARL A. STEWART
Secretary
Lake Forest, Illinois
April 3, 2003
TENNECO AUTOMOTIVE INC. [TENNECO AUTOMOTIVE LOGO]
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000
April 3, 2003
PROXY STATEMENT
This statement is furnished in connection with the solicitation on behalf
of the Board of Directors of Tenneco Automotive Inc. (the "Company") of proxies
(the "Proxies") to be voted at the Annual Meeting of Stockholders on May 13,
2003, or at any adjournment or postponement thereof (the "Annual Meeting").
Holders of common stock of record at the close of business on March 21, 2003
will be entitled to vote at the Annual Meeting. Each share is entitled to one
vote. At March 21, 2003, there were 40,219,397 shares of common stock
outstanding and entitled to vote. This Proxy Statement is first being mailed to
stockholders on or about April 3, 2003.
BACKGROUND
During 1999, Tenneco Inc. separated its automotive, packaging and
administrative services operations. This completed a series of transactions
begun in December 1996, when the company then known as Tenneco Inc. ("Old
Tenneco") separated its automotive and packaging operations from its energy and
shipbuilding businesses.
The final separation was accomplished in November 1999 through the spin-off
of Pactiv Corporation (the "Spin-Off"), which at the time was known as Tenneco
Packaging Inc. and held Tenneco Inc.'s packaging and administrative services
businesses. Immediately following the Spin-Off, Tenneco Inc. changed its name to
"Tenneco Automotive Inc." to reflect the fact that the continuing operations are
its automotive business. In light of the form of this transaction, the Company
is the continuing legal entity which from December 1996 until the Spin-Off was
known as Tenneco Inc.
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ELECTION OF DIRECTORS
(ITEM 1)
On March 11, 2003, the Board of Directors increased its size from eight to
nine members, and Mr. Charles W. Cramb was elected as a director of the Company.
All nine of the Company's current directors 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 2004 and until their successors are chosen and have
qualified.
The persons named as proxy voters in the accompanying Proxy card, or their
substitutes, will vote your Proxy for all the nominees, each of whom has been
designated as such by the Board of Directors, unless otherwise indicated in your
Proxy. In the event that any nominee for director withdraws or for any reason is
not able to serve as a director, the Company will vote your Proxy for the
remainder of those nominated for director (except as otherwise indicated in your
Proxy) and for any replacement nominee designated by the
Compensation/Nominating/Governance Committee of the Board of Directors.
You may vote for or withhold your vote from any or all of the director
nominees. Assuming a quorum is present, the affirmative vote of the plurality of
votes cast at the Annual Meeting (in person or by proxy) will be required for
the election of directors.
Brief statements setting forth the age (at March 21, 2003), 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.
As described above, the Company and Old Tenneco have engaged in a series of
restructuring transactions over the last several years. As a result of these
transactions, there is some continuity in the Boards of Directors of the Company
and Old Tenneco. Accordingly, for periods prior to December 1996, references
herein to service to "the Company" refer to service to Old Tenneco.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE NOMINEES
LISTED BELOW.
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR ONE-YEAR TERMS EXPIRING AT THE 2004 ANNUAL MEETING OF STOCKHOLDERS
MR. CHARLES W. CRAMB -- Mr. Cramb has been Senior Vice President and Chief
Financial Officer of The Gillette Company, a global manufacturer and marketer of
a wide variety of consumer products, since 1997. 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 member of the CFO
Advisory Council of the Financial Executives Institute, the CFO/Senior Executive
Task Force of the Private Sector Council and the Finance Council of the American
Management Association. He also serves as a director of the National Foreign
Trade Council. He was elected to the Company's Board of Directors in March of
2003, is 54 years old and is a member of the Audit Committee.
M. KATHRYN EICKHOFF -- Ms. Eickhoff has been President of Eickhoff
Economics, Inc., a consulting firm, since 1987. From 1985 to 1987, she was
Associate Director for Economic Policy for the U.S. Office of Management and
Budget. Prior to that, Ms. Eickhoff spent 23 years at Townsend Greenspan & Co.,
Inc., an economic consulting firm, most recently as Executive Vice President and
Treasurer. She is also a director of AT&T Corp. and Pharmacia Inc. (formerly
known as Pharmacia & Upjohn, Inc.). Ms. Eickhoff is 63 years old and has been a
director of the Company since 1987. She also served as a member of the Company's
Board of Directors from 1982 until her resignation to join the Office of
Management and Budget in 1985. Ms. Eickhoff is a member of the Audit Committee
and Three-Year Independent Director Evaluation Committee.
MARK P. FRISSORA, Chairman of the Board -- Mr. Frissora became the
Company's Chief Executive Officer in connection with the Spin-Off and has been
serving as President of the automotive operations since April 1999. In March
2000, he was also named the Company's Chairman. From 1996 to April 1999, he held
various positions within the Company's automotive operations, including Senior
Vice President and General Manager of the worldwide original equipment business.
Mr. Frissora joined the Company in 1996 from AeroquipVickers Corporation, where
he served since 1991 as a Vice President. In the 15 years prior to joining
AeroquipVickers, he served for 10 years with General Electric and 5 years with
Philips Lighting Company in management roles focusing on product development and
marketing. He is a member of The Business Roundtable and the World Economic
Forum's Automotive Board of Governors. He is also a director of NCR Corporation.
Mr. Frissora is 47 years old and became a director of the Company in November
1999.
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FRANK E. MACHER -- Mr. Macher was named Chief Executive Officer of Federal
Mogul Corporation, a manufacturer of motor vehicle parts and supplies, in
January 2001 and became Chairman of Federal Mogul in October 2001. From June
1997 to his retirement in July 1999, Mr. Macher served as President and Chief
Executive Officer of ITT Automotive, a supplier of automotive components. From
1966 to his retirement in 1996, Mr. Macher was employed by Ford Motor Company,
serving most recently as Vice President and General Manager of the Automotive
Components Division. Mr. Macher is 62 years old and was named a director of the
Company in July 2000. He is also a director of Federal Mogul Corporation and
Decoma International, Inc. and a member of the Board of Trustees of Kettering
University and the Detroit Renaissance. Mr. Macher is a member of the
Compensation/Nominating/Governance Committee.
SIR DAVID PLASTOW -- Sir David was Chairman of the Medical Research
Council, which promotes and supports research and postgraduate training in the
biomedical and other sciences, from 1990 until his retirement in 1998. Sir David
was Chairman of Inchcape plc, a multinational marketing and distribution
company, from June 1992 to December 1995. From 1971 he was Managing Director of
Rolls-Royce Motors Ltd until 1980. When that company merged with Vickers plc, an
engineering and manufacturing company headquartered in London, he became
Managing Director and then Chairman of Vickers plc until his retirement in 1992.
Sir David is 70 years old and has been a director of the Company since May 1996.
He previously served as a member of the Board of Directors of the Company from
1985 until 1992. Sir David is a member of the Compensation/Nominating/Governance
Committee.
ROGER B. PORTER -- Mr. Porter is the IBM Professor of Business and
Government at Harvard University. Mr. Porter has served on the faculty at
Harvard University since 1977. Mr. Porter also held senior economic policy
positions in the Ford, Reagan and George H. W. Bush White Houses, serving as
special assistant to the President and executive secretary of the Economic
Policy Board from 1974 to 1977, as deputy assistant to the President and
director of the White House Office of Policy Development from 1981 to 1985, and
as assistant to the President for economic and domestic policy from 1989 to
1993. He is also a director of National Life Insurance Company, Zions
Bancorporation and Pactiv Corporation. Mr. Porter is 56 years old and has been a
director of the Company since January 1998. Mr. Porter is the Chairman of the
Compensation/ Nominating/Governance Committee and a member of the Three-Year
Independent Director Evaluation Committee.
DAVID B. PRICE, JR. -- Mr. Price has served as Chief Executive Officer of
Birdet Price, LLC since July 2001. Previously, Mr. Price was President of Noveon
Inc. from February 2001 until May 2001. Noveon, Inc. was formerly the
Performance Materials Segment of BF Goodrich Company prior to its sale to an
investor group in February 2001. While with BF Goodrich Company from July 1997
to February 2001, Mr. Price served as Executive Vice President of the BF
Goodrich Company and President and Chief Operating Officer of BF Goodrich
Performance Materials. Prior to joining BF Goodrich, Mr. Price held various
executive positions over a 25-year
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span at Monsanto Company, most recently serving as President of the Performance
Materials Division of Monsanto Company from 1995 to July 1997. From 1993 to
1995, he was Vice President and General Manager of commercial operations for the
Industrial Products Group and was also named to the management board of
Monsanto's Chemical Group. Mr. Price is 57 years old and was named a director of
the Company in November 1999. Mr. Price is a member of the Three-Year
Independent Director Evaluation Committee and the Compensation/Nominating/
Governance Committee.
DENNIS G. SEVERANCE -- Dr. Severance is the Accenture Professor of Computer
and Information Systems of the University of Michigan Business School. Before
joining the University of Michigan in 1978, Dr. Severance was an Associate
Professor and Principal Investigator in the Management Information System
Research Center at the University of Minnesota. Prior to that, he was an
Assistant Professor in the Department of Operations Research at Cornell
University. Dr. Severance is 59 years old and became a director in July 2000.
Dr. Severance is a member of the Audit Committee.
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 58 years old and has been a director of the Company since November
1998. He is also a director of State Farm Mutual Insurance Company and Pactiv
Corporation, and is the Chairman of the Board of Packaging Corporation of
America. Mr. Stecko is the Chairman of the Audit Committee and the Chairman of
the Three-Year Independent Director Evaluation Committee.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company currently comprises nine members,
eight of whom are not officers of the Company (the "Outside Directors") and one
of whom is an officer of the Company (the "Inside Director"). The Board of
Directors believes that the Company's ratio of Outside Directors to Inside
Directors represents a commitment to the independence of the Board and a focus
on matters of importance to its stockholders.
The Board of Directors has determined that all eight of the Outside
Directors are "independent" as that term is defined under the current listing
standards of the New York Stock Exchange (the "NYSE") and, except as noted
below, the revised listing standards currently being proposed by the NYSE (which
are not yet effective). As part of its analysis, the Board determined that none
of the Outside Directors has a direct or indirect material relationship with the
Company. Under written guidelines adopted by the Board, the following commercial
or
5
charitable relationships are not considered to be material relationships that
would impair a director's independence: (i) the director is an executive of
another company that does business with the Company where the annual sales
between the two are less than 5% of the annual revenues of either; (ii) the
director is an executive of another company that is indebted to the Company, or
to which the Company is indebted, and the total amount of either company's debt
to the other is less than 5% of its total assets; (iii) the director is an
executive of another company in which the Company owns a common equity interest,
and the amount of that interest is less than 5% of the total outstanding equity
of the other company; or (iv) the director serves as an officer, director or
trustee of a charitable organization, and the Company's discretionary
contributions to it are less than 5% of its total annual charitable receipts.
None of the Outside Directors has a material relationship with the Company under
these guidelines. Mr. Stecko would not meet the NYSE's proposed independence
standards if they were in effect today, as he was employed by the Company or one
of its subsidiaries within the last five years (the current NYSE standards look
at employment within the last three years). Mr. Stecko left the Company's
employment in April 1999. See "Report of Audit Committee" for a description of
the Board of Director's judgment with respect to Mr. Stecko's prior employment
with the Company.
During 2002, the Board of Directors held seven meetings. Each director,
other than Mr. Cramb (who did not join the Board of Directors until March 2003),
attended at least 75% of the aggregate of all meetings of the Board of Directors
and all meetings of the committees of the Board on which the director served
held during 2002. The Board of Directors is scheduled to meet in executive
session, without management, after every Board meeting that the directors attend
in person. Mr. Stecko acts as lead outside director to chair these executive
sessions and as primary spokesperson in communicating matters arising out of
these sessions to Company management.
The Board of Directors has three standing committees. These committees have
the following described responsibilities and authority.
The Compensation/Nominating/Governance Committee, comprised solely of
Outside Directors, has the responsibility, among other things, to: (1) establish
the salary rate of officers and employees of the Company and its subsidiaries;
(2) examine periodically the compensation structure of the Company; (3)
supervise the welfare and pension plans and compensation plans of the Company;
and (4) produce an annual report on executive compensation for inclusion in the
Company's proxy statement in accordance with applicable rules and regulations of
the Securities and Exchange Commission. 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
6
the qualifications of and recommend candidates for election as officers of the
Company; and (e) develop, recommend to the Board of Directors for approval and,
as appropriate, recommend to the Board of Directors revisions to Corporate
Governance Principles applicable to the Company. The
Compensation/Nominating/Governance held five meetings during 2002. A report of
the Compensation/Nominating/Governance Committee regarding executive
compensation appears elsewhere in this Proxy Statement.
The Three-year Independent Director Evaluation ("TIDE") Committee,
comprised solely of Outside Directors, has the responsibility, among other
things, to review the Company's stockholder rights plan at least every three
years and, if it deems it appropriate, recommend that the full Board modify or
terminate that plan. The TIDE Committee held no meetings in 2002.
The Audit Committee consists of four Outside Directors. The Audit Committee
has the responsibility, among other things, to: (1) select and approve the
compensation of the Company's independent public accountants; (2) review and
approve the scope of the independent public accountants' audit activity and all
non-audit services; (3) review with management and such independent public
accountants the adequacy of the Company's basic accounting system and the
effectiveness of the Company's internal audit plan and activities; (4) review
with management and the independent public accountants the Company's certified
financial statements and exercise general oversight over the financial reporting
process; (5) review with the Company litigation and other legal matters that may
affect the Company's financial condition and monitor compliance with business
ethics and other policies; (6) review the independence, qualifications and
performance of the Company's independent auditors; (7) provide an avenue of
communication among the independent auditors, management, the internal auditors
and the Board of Directors; and (8) prepare the audit-related report required by
the Securities and Exchange Commission to be included in the Company's annual
proxy statement. The Audit Committee held eight meetings in 2002. A report of
the Audit Committee appears elsewhere in this Proxy Statement.
A stockholder of the Company may nominate persons for election to the Board
of Directors at an annual meeting if the stockholder submits such nomination,
together with certain related information required by the Company's By-laws, in
writing to the Secretary of the Company at the principal executive offices of
the Company not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting. In the event, however, that the date of the
annual meeting is more than thirty days before or more than seventy days after
that anniversary date, the notice must be delivered not earlier than the close
of business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of the
meeting is first made.
7
COMPENSATION OF DIRECTORS
FEE STRUCTURE. Each Outside Director is paid an annual retainer fee of
$35,000 for service on the Board of Directors. In general, 100% of that fee is
to be paid in the form of common stock equivalents (the "directors' stock
equivalents"), as described below. A director may elect, however, to have up to
40%, or $14,000, of the fee paid in cash. The Outside Directors also receive
cash attendance fees and committee chair and membership fees, and reimbursement
of their expenses for attending meetings of the Board of Directors and its
committees. Outside Directors receive $1,000 for each meeting of the Board of
Directors attended. Each Outside Director who serves as a Chairman of the Audit
Committee or the Compensation/Nominating/ Governance Committee is paid a fee of
$7,000 per chairmanship. Outside Directors who serve as members of these
committees are paid $4,000 per committee membership. Members of the Three-year
Independent Director Evaluation Committee receive $1,000 plus expenses for each
meeting of that committee attended.
COMMON STOCK EQUIVALENTS/OPTIONS. As described above, all or a portion of
an Outside Director's retainer fee is generally paid in common stock equivalent
units. These directors' stock equivalents are payable in cash or, at the
Company's option, shares of common stock after an Outside Director ceases to
serve as a director. Final distribution of these amounts may be made either in a
lump sum or in installments over a period of years. The directors' stock
equivalents are issued at 100% of the fair market value on the date of the
grant.
As additional equity incentive compensation, for 2002 each Outside Director
received a grant of 1,000 performance share equivalents. The performance share
equivalent units were payable in shares of common stock at the end of 2002 based
on achievement of performance goals like those set for the executives'
performance share awards. The Company has discontinued granting performance
share equivalents to executives, and likewise does not anticipate making future
awards of performance share equivalents to Outside Directors. See "Tenneco
Automotive Inc. Compensation/Nominating/Governance Committee Report on Executive
Compensation." In addition, each Outside Director generally receives an annual
grant of an option to purchase up to 5,000 shares of common stock. Although the
Board of Directors elected to not award itself these options in 2002, these
grants will resume for 2003. Directors' options: (a) are granted with per share
exercise prices equal to 100% of the fair market value of a share of common
stock on the day the option is granted; (b) have terms of ten years; and (c)
generally, will fully vest six months from the grant date. Once vested, the
directors' options will be exercisable at any time during the option term.
DEFERRED COMPENSATION PLAN. The Company has a voluntary deferred
compensation plan for Outside Directors. Under the plan, an Outside Director may
elect, prior to commencement of the next calendar year, to have some or all of
the cash portion, that is, up to 40%, or $14,000, of his or her retainer fee and
some or all of his or her meeting fees credited to a deferred compensation
account. The plan provides these directors with various investment options. The
8
investment options include stock equivalent units of the Company's common stock,
which may be paid out in either cash or, at the Company's option, shares of
common stock.
RESTRICTED STOCK. In partial satisfaction of residual obligations under the
discontinued retirement plan for directors, Ms. Eickhoff receives an annual
grant of $15,400 in value of restricted shares of the Company's common stock.
The restricted shares may not be sold, transferred, assigned, pledged or
otherwise encumbered and are subject to forfeiture if the director ceases to
serve on the Board prior to the expiration of the restricted period. This
restricted period ends upon Ms. Eickhoff's normal retirement from the Board,
unless she is disabled or dies, or the Compensation/Nominating/Governance
Committee of the Board, at its discretion, determines otherwise. During the
restricted period, Ms. Eickhoff will be entitled to vote the shares and receive
dividends. In the past, these restricted shares have been issued under the
Company's various stockholder-approved equity incentive plans. In the event the
Company no longer has available shares for delivery under these plans, the
Company will work with Ms. Eickhoff to develop an alternative arrangement with
respect to residual obligations under the discontinued retirement plan for
directors.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 2002, Mr. Frissora was indebted to the Company for amounts incurred
in connection with his relocation. This loan was made prior to the adoption of
the prohibition on loans to directors and executive officers included in the
Sarbanes-Oxley Act of 2002. The loan bears no interest and principal will only
be payable in full upon termination of his employment prior to August 2003,
except for a termination without cause or following a change in control. The
approximate aggregate amount outstanding is $400,000.
9
OWNERSHIP OF COMMON STOCK
MANAGEMENT
The following table shows, as of March 21, 2003, the number of shares of
the Company's common stock, par value $.01 per share (the only class of voting
securities outstanding), beneficially owned by: (1) each director and nominee
for director; (2) each person who is named in the Summary Compensation Table,
below; and (3) all directors and executive officers as a group. The table also
shows: (a) common stock equivalents held by the directors and executive officers
under the Company's benefit plans; and (b) the total number of shares of common
stock and common stock equivalents held.
SHARES OF COMMON TOTAL
COMMON STOCK STOCK SHARES AND
(1)(2)(3) EQUIVALENTS(4) EQUIVALENTS
------------ -------------- -----------
DIRECTORS
---------------------------------------
Charles W. Cramb....................... -- -- --
M. Kathryn Eickhoff.................... 32,884 16,175 49,059
Mark P. Frissora....................... 580,567 150,000 730,567
Frank E. Macher........................ 18,072 24,434 42,506
Sir David Plastow...................... 25,992 23,875 49,867
Roger B. Porter........................ 21,921 32,809 54,730
David B. Price, Jr. ................... 51,092 21,154 72,246
Dennis G. Severance.................... 20,072 32,976 53,048
Paul T. Stecko......................... 26,224 21,256 47,480
NAMED EXECUTIVE OFFICERS
---------------------------------------
Timothy R. Donovan..................... 225,875 54,038 279,913
Hari N. Nair........................... 155,669 54,038 209,707
Mark A. McCollum....................... 193,274 37,810 231,084
Richard P. Schneider................... 159,596 29,782 189,378
All executive officers and directors as
a group (19 individuals)............. 1,982,652(5) 658,859 2,591,722(5)
---------------
(1) Each director and executive officer has sole voting and investment power
over the shares beneficially owned (or has the right to acquire shares as
described in note (2) below) as set forth in this column, except for
restricted shares.
(2) Includes restricted shares. At March 21, 2003, Ms. Eickhoff and Messrs.
Frissora, Donovan, Nair, McCollum and Schneider held 14,741, 25,000, 10,000,
10,000, 7,000 and 5,500 restricted shares, respectively. Also includes
shares that are subject to options that are exercisable within 60 days of
March 21, 2003 for Ms. Eickhoff and Messrs. Frissora, Macher, Plastow,
Porter, Price, Severance, Stecko, Donovan, Nair, McCollum and Schneider to
(Notes continued on following page.)
10
purchase 20,000, 458,333, 17,500, 23,764, 20,000, 20,000, 17,500, 20,000,
171,666, 110,001, 146,667 and 110,000 shares, respectively.
(3) Mr. Frissora beneficially owns approximately 1.4% of the outstanding common
stock (not including stock equivalents). Each of the other individuals
listed in the table own less than 1% of the outstanding shares of the
Company's common stock, respectively, except for all directors and executive
officers as a group, who beneficially own approximately 4.8% of the
outstanding common stock (not including stock equivalents).
(4) Common stock equivalents are denominated by reference to common stock and
distributed in cash or, at the Company's option in certain cases, in common
stock after the individual ceases to serve as a director or officer or after
the applicable performance period.
(5) Includes 1,457,283 shares that are subject to options that are exercisable
within 60 days of March 21, 2003 by all executive officers and directors as
a group. Includes 101,241 restricted shares.
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 21, 2003, certain information
regarding the person known by the Company to be the beneficial owner of more
than 5% of the Company's outstanding common stock (the only class of voting
securities outstanding).
SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENT OF COMMON
OF BENEFICIAL OWNER(1) OWNED(1) STOCK OUTSTANDING(1)
---------------------- ------------ --------------------
Dimensional Fund Advisors, Inc............... 2,658,880(2) 6.4%(2)
---------------
(1) This information is based on information contained in filings made with the
Securities and Exchange Commission (the "SEC") regarding the ownership of
the Company's common stock.
(2) Dimensional Fund Advisors Inc. ("Dimensional") has indicated that it has
sole voting power over 2,658,880 shares and sole dispositive power over
2,658,880 shares. Dimensional has also advised the Company that it is a
registered investment advisor and these shares are held on behalf of various
advisory clients.
11
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company, for the
periods indicated, to: (1) the Company's Chief Executive Officer; and (2) each
of the next four most highly compensated executive officers, other than the
Chief Executive Officer (collectively, the "Named Executives"). The table shows
amounts paid to the Named Executives for all services provided to the Company
and its subsidiaries.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ------------------------------------
AWARDS PAYOUTS
OTHER ----------------------- ----------
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL POSITION SALARY(1) BONUS SATION(2) AWARDS(3) OPTIONS PAYOUTS SATION(4)
--------------------------- --------- ----- --------- ---------- ---------- ------- ---------
Mark P. Frissora..................... 2002 $752,483 $762,500 $179,320 $-- -- $771,289 $ 8,349
Chairman and Chief Executive 2001 $682,096 $610,000 $ 51,205 $-- 250,000 $417,690 $ 9,440
Officer 2000 $659,200 $427,750 $ 75,994 $-- -- $528,973 $373,672
Timothy R. Donovan(5)................ 2002 $408,914 $341,250 $ 1,127 $-- -- $283,294 $ 7,079
Executive Vice President, 2001 $401,624 $203,197 $ -- $-- 135,000 $ 85,537 $ 9,752
General Counsel and Managing 2000 $311,709 $112,375 $ 3,300 $-- -- $103,229 $ 12,299
Director -- International
Hari N. Nair......................... 2002 $343,419 $341,250 $385,446 $-- -- $274,836 $ 6,810
Executive Vice President and 2001 $316,736 $216,750 $ -- $-- 175,000 $113,984 $ 9,286
Managing Director -- Europe 2000 $208,524 $140,800 $ 66,734 $-- -- $ 41,031 $ 74,678
Mark A. McCollum..................... 2002 $360,046 $278,750 $ 1,127 $-- -- $241,625 $ 6,886
Senior Vice President and 2001 $355,674 $223,000 $ -- $-- 80,000 $ 96,336 $ 9,636
Chief Financial Officer 2000 $341,208 $155,875 $ 4,200 $-- -- $133,717 $331,718
Richard P. Schneider................. 2002 $359,545 $201,250 $ 788 $-- -- $199,701 $ 6,886
Senior Vice President -- 2001 $355,674 $161,000 $ -- $-- 60,000 $ 74,371 $ 9,636
Global Administration 2000 $337,932 $112,375 $ 3,300 $-- -- $103,229 $316,281
---------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Company's 401(k) plans.
(2) Includes amounts attributable to: (a) the value of personal benefits
provided by the Company to Named Executives, which have an aggregate value
in excess of $50,000 for the year, such as the personal use of Company-owned
property and relocation expenses; (b) reimbursement for taxes; and (c)
amounts paid as dividend equivalents on performance share equivalent units
("Dividend Equivalents"). The amount of each personal benefit that exceeds
25% of the estimated value of the
(Notes continued on following page.)
12
total personal benefits reported for the Named Executive, reimbursement for
taxes and amounts paid as Dividend Equivalents to the Named Executives were as
follows:
NAME YEAR EXPLANATION
---- ---- -----------
Mr. Frissora............ 2002 $60,000 for club fees; $40,000 perquisite allowance; and
$41,199 for reimbursement of taxes.
2001 $40,000 perquisite allowance.
2000 $556 for reimbursement of taxes; $15,000 for Dividend
Equivalents; and $40,000 perquisite allowance.
Mr. Donovan............. 2002 $1,127 for reimbursement of taxes.
2000 $3,300 for Dividend Equivalents.
Mr. Nair................ 2002 $358,891 for reimbursements and costs related to
expatriate assignment; and $6,856 for reimbursement of
taxes.
2000 $2,990 for reimbursement of taxes; $1,500 in Dividend
Equivalents; $16,500 for relocation expenses; and
$24,960 for reimbursements and costs related to
expatriate assignment.
Mr. McCollum............ 2002 $1,127 for reimbursement of taxes.
2000 $4,200 for Dividend Equivalents.
Mr. Schneider........... 2002 $788 for reimbursement of taxes.
2000 $3,300 for Dividend Equivalents.
(3) At December 31, 2002, none of the Named Executives held any restricted
shares. No restricted stock was awarded to any of the Named Executives in
2000, 2001 or 2002.
(4) Includes amounts attributable during 2002 to benefit plans as follows:
(a) The dollar values paid by the Company for insurance premiums under the
group life insurance plan for Messrs. Frissora, Donovan, Nair, McCollum
and Schneider were $2,849, $1,579, $1,310, $1,386, and $1,386,
respectively.
(b) For 2002, the amounts contributed pursuant to the Company's 401(k) plans
for the accounts of Messrs. Frissora, Donovan, Nair, McCollum and
Schneider were $5,500 each.
(5) In May 2001, Mr. Donovan assumed the additional responsibilities of Managing
Director-International (while retaining his duties as General Counsel).
OPTIONS GRANTED IN 2002
There were no options granted to the Named Executives in 2002.
2002 YEAR-END OPTION VALUES
The following table shows the number of options to purchase the Company's
common stock and the value of unexercised in-the-money options held at December
31, 2002 by the persons
13
named in the Summary Compensation Table above. No options to purchase the
Company's common stock were exercised by these individuals in 2002.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT HELD AT
DECEMBER 31, 2002 DECEMBER 31, 2002(1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Mr. Frissora........... 458,333 166,667 $205,833 $411,668
Mr. Donovan............ 171,666 53,333 $114,365 $131,734
Mr. Nair............... 103,334 116,666 $106,284 $212,565
Mr. McCollum........... 146,667 53,333 $ 65,867 $131,732
Mr. Schneider.......... 110,000 40,000 $ 49,400 $ 98,800
---------------
(1) Based on the closing sale price of a share of common stock on the New York
Stock Exchange on December 31, 2002.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2002
The following table shows information concerning performance-based awards
made during 2002 to the persons named in the Summary Compensation Table above.
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS OTHER PERIOD NON-STOCK PRICE-BASED PLANS
OR OTHER UNTIL MATURATION ---------------------------------------
NAME RIGHTS(1) OR PAYOUT THRESHOLD(2) TARGET(2) MAXIMUM(2)
---- ------------- ---------------- ------------ --------- ----------
Mr. Frissora............. 150,000 One Year 25% 100% 150%
Mr. Donovan.............. -- -- -- -- --
Mr. Nair................. -- -- -- -- --
Mr. McCollum............. -- -- -- -- --
Mr. Schneider............ -- -- -- -- --
---------------
(1) Represents award of stock equivalent units which vested at the end of 2002
based on the achievement of annual performance goals. Stock equivalent units
are payable in cash in an amount equal to the number of units earned times
the value per share of the Company's common stock at the time of payment (as
determined in accordance with the terms of the grant). The payout of stock
equivalent units is based on Economic Value Added (EVA(R), a registered
trademark of Stern Stewart & Co.) improvement against the prior year. EVA is
generally defined as operating profit minus the annual cost of capital. The
number of stock equivalent units listed in this column represents the target
number of units that may be earned under the award.
(2) Represents the percentage of the units reflected in the first column of this
table that will be earned based on the achievement of the performance goals
at the threshold, target and maximum levels.
14
PENSION PLAN TABLE
The following table shows the aggregate estimated total annual benefits
payable upon normal retirement pursuant to the Tenneco Retirement Plan, the
Tenneco Automotive Inc. Supplemental Executive Retirement Plan and the Tenneco
Automotive Retirement Plan for Salaried Employees to persons in specified
remuneration and years of credited participation classifications. In connection
with the Spin-Off, Pactiv Corporation became the sponsor of the Tenneco
Retirement Plan. The Company adopted a salaried defined benefit pension plan
patterned after the Tenneco Retirement Plan. The plan counts service prior to
the Spin-Off for all purposes, including benefit accrual, but there will be an
offset for benefits accrued under the Tenneco Retirement Plan. Therefore, as to
the Company's continuing employees, the benefits described in the table will be
provided by a combination of payments from the Tenneco Retirement Plan and the
new plan. The Company also maintains a key executive pension plan covering
executive officers, which will provide benefits, commencing at age 55, of 4% of
compensation (salary and bonus) per year of service up to a maximum of 50%,
reduced by payments under all other company sponsored qualified and nonqualified
defined benefit pension plans.
YEARS OF CREDITED PARTICIPATION
ANNUAL ---------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ - -- -- -- -- -- --
$ 250,000 $ 19,642.86 $ 39,285.71 $ 58,928.57 $ 78,571.43 $ 98,214.29 $ 117,857.14 $ 137,500.00
$ 300,000 $ 23,571.43 $ 47,142.86 $ 70,714.29 $ 94,285.71 $117,857.14 $ 141,428.57 $ 165,000.00
$ 350,000 $ 27,500.00 $ 55,000.00 $ 82,500.00 $110,000.00 $137,500.00 $ 165,000.00 $ 192,500.00
$ 400,000 $ 31,428.57 $ 62,857.14 $ 94,285.71 $125,714.29 $157,142.86 $ 188,571.43 $ 220,000.00
$ 450,000 $ 35,357.14 $ 70,714.29 $106,071.43 $141,428.57 $176,785.71 $ 212,142.86 $ 247,500.00
$ 500,000 $ 39,285.71 $ 78,571.43 $117,857.14 $157,142.86 $196,428.57 $ 235,714.29 $ 275,000.00
$ 550,000 $ 43,214.29 $ 86,428.57 $129,642.86 $172,857.14 $216,071.43 $ 259,285.71 $ 302,500.00
$ 600,000 $ 47,142.86 $ 94,285.71 $141,428.57 $188,571.43 $235,714.29 $ 282,857.14 $ 330,000.00
$ 650,000 $ 51,071.43 $102,142.86 $153,214.29 $204,285.71 $255,357.14 $ 306,428.57 $ 357,500.00
$ 700,000 $ 55,000.00 $110,000.00 $165,000.00 $220,000.00 $275,000.00 $ 330,000.00 $ 385,000.00
$ 750,000 $ 58,928.57 $117,857.14 $176,785.71 $235,714.29 $294,642.86 $ 353,571.43 $ 412,500.00
$ 800,000 $ 62,857.14 $125,714.29 $188,571.43 $251,428.57 $314,285.71 $ 377,142.86 $ 440,000.00
$ 850,000 $ 66,785.71 $133,571.43 $200,357.14 $267,142.86 $333,928.57 $ 400,714.29 $ 467,500.00
$ 900,000 $ 70,714.29 $141,428.57 $212,142.86 $282,857.14 $353,571.43 $ 424,285.71 $ 495,000.00
$ 950,000 $ 74,642.86 $149,285.71 $223,928.57 $298,571.43 $373,214.29 $ 447,857.14 $ 522,500.00
$1,000,000 $ 78,571.43 $157,142.86 $235,714.29 $314,285.71 $392,857.14 $ 471,428.57 $ 550,000.00
$1,050,000 $ 82,500.00 $165,000.00 $247,500.00 $330,000.00 $412,500.00 $ 495,000.00 $ 577,500.00
$1,100,000 $ 86,428.57 $172,857.14 $259,285.71 $345,714.29 $432,142.86 $ 518,571.43 $ 605,000.00
$1,150,000 $ 90,357.14 $180,714.29 $271,071.43 $361,428.57 $451,785.71 $ 542,142.86 $ 632,500.00
$1,200,000 $ 94,285.71 $188,571.43 $282,857.14 $377,142.86 $471,428.57 $ 565,714.29 $ 660,000.00
$1,250,000 $ 98,214.29 $196,428.57 $294,642.86 $392,857.14 $491,071.43 $ 589,285.71 $ 687,500.00
$1,300,000 $102,142.86 $204,285.71 $306,428.57 $408,571.43 $510,714.29 $ 612,857.14 $ 715,000.00
$1,350,000 $106,071.43 $212,142.86 $318,214.29 $424,285.71 $530,357.14 $ 636,428.57 $ 742,500.00
15
YEARS OF CREDITED PARTICIPATION
ANNUAL ---------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ - -- -- -- -- -- --
$1,400,000 $110,000.00 $220,000.00 $330,000.00 $440,000.00 $550,000.00 $ 660,000.00 $ 770,000.00
$1,450,000 $113,928.57 $227,857.14 $341,785.71 $455,714.29 $569,642.86 $ 683,571.43 $ 797,500.00
$1,500,000 $117,857.14 $235,714.29 $353,571.43 $471,428.57 $589,285.71 $ 707,142.86 $ 825,000.00
$1,550,000 $121,785.71 $243,571.43 $365,357.14 $487,142.86 $608,928.57 $ 730,714.29 $ 852,500.00
$1,600,000 $125,714.29 $251,428.57 $377,142.86 $502,857.14 $628,571.43 $ 754,285.71 $ 880,000.00
$1,650,000 $129,642.86 $259,285.71 $388,928.57 $518,571.43 $648,214.29 $ 777,857.14 $ 907,500.00
$1,700,000 $133,571.43 $267,142.86 $400,714.29 $534,285.71 $667,857.14 $ 801,428.57 $ 935,000.00
$1,750,000 $137,500.00 $275,000.00 $412,500.00 $550,000.00 $687,500.00 $ 825,000.00 $ 962,500.00
$1,800,000 $141,428.57 $282,857.14 $424,285.71 $565,714.29 $707,142.86 $ 848,571.43 $ 990,000.00
$1,850,000 $145,357.14 $290,714.29 $436,071.43 $581,428.57 $726,785.71 $ 872,142.86 $1,017,500.00
$1,900,000 $149,285.71 $298,571.43 $447,857.14 $597,142.86 $746,428.57 $ 895,714.29 $1,045,000.00
$1,950,000 $153,214.29 $306,428.57 $459,642.86 $612,857.14 $766,071.43 $ 919,285.71 $1,072,500.00
$2,000,000 $157,142.86 $314,285.71 $471,428.57 $628,571.43 $785,714.29 $ 942,857.14 $1,100,000.00
$2,050,000 $161,071.43 $322,142.86 $483,214.29 $644,285.71 $805,357.14 $ 966,428.57 $1,127,500.00
$2,100,000 $165,000.00 $330,000.00 $495,000.00 $660,000.00 $825,000.00 $ 990,000.00 $1,155,000.00
$2,150,000 $168,928.57 $337,857.14 $506,785.71 $675,714.29 $844,642.86 $1,013,571.43 $1,182,500.00
$2,200,000 $172,857.14 $345,714.29 $518,571.43 $691,428.57 $864,285.71 $1,037,142.86 $1,210,000.00
---------------
NOTES:
1. The benefits shown above are computed as a straight life annuity and are
based on years of credited participation and the employee's average
compensation, which is comprised of salary and bonus. These benefits are not
subject to any deduction for Social Security or other offset amounts. As of
December 31, 2002, the credited participation for Messrs. Frissora, Donovan,
Nair, McCollum and Schneider was 6 years/9 months, 3 years/5 months, 15
years/ 9 months, 8 years and 8 years/5 months, respectively. See the Summary
Compensation Table above for salary and bonus information for these
individuals.
2. If Mr. Frissora completes 10 years of service in the period commencing
January 1, 1999, he will be entitled to benefits commencing at age 55 of at
least 40% of his average salary plus bonus determined over a three-year
period.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company maintains a key executive change-in-control severance benefit
plan. The purpose of the plan is to enable the Company to continue to attract,
retain and motivate highly qualified employees by eliminating, to the maximum
practicable extent, any concern on the part of such employees that their job
security or benefit entitlements will be jeopardized by a "change-in-control" of
the Company, as that term is defined in the plan. The plan is designed to
achieve this purpose through the provision of severance benefits for key
employees and officers
16
whose positions are terminated following a change-in-control as provided in the
plan. Under the plan, a severed executive would receive a cash payment equal to
three times (1) his or her base salary plus, (2) the higher of (a) his or her
average bonuses for the prior three years (or such shorter period as the
executive had been employed by the Company) and (b) his or her targeted annual
bonus in effect immediately prior to the change in control. The Company expects
that Messrs. Frissora, Donovan, Nair, McCollum and Schneider would have become
entitled to receive payments from the Company in the amount of $4,020,000,
$2,014,425, $1,825,500, $1,723,458 and $1,537,458, respectively, had their
positions been terminated on December 31, 2002 following a change-in-control,
based on their salaries/target bonuses of $730,000/ $610,000, $398,475/$273,000,
$335,500/$273,000, $351,486/$223,000 and $351,486/ $161,000, respectively, at
that time. In addition, restricted shares held in the name of those individuals
under restricted stock plans would have automatically reverted to the Company,
and the Company would have been obliged to pay those individuals the fair market
value of those restricted shares. Their performance units and stock equivalent
units would also have been fully vested and paid and their stock options would
have been fully vested.
Each of the Named Executives is a party to an agreement with the Company
which sets forth certain terms and conditions of his employment with the
Company. Each of the employment agreements provides that, under the Company's
change-in-control severance benefit plan, the relevant Named Executive's cash
payment in connection with a change-in-control termination will equal three
times the total of his then current base salary plus the higher of (i) his
highest annual target bonus over the prior three years and (ii) his average
bonuses for the prior three years (or if shorter, his period of service to the
Company). Each of the employment agreements also provides that, other than in
connection with a change-in-control, if the relevant Named Executive's
employment is terminated by the Company other than for death, disability or
nonperformance of duties, he will be paid two times the total of his then
current salary and bonus for the immediately preceding year, all outstanding
stock-based awards would be vested, subject to Board approval, and his stock
options would remain exercisable for at least 90 days. Pursuant to the terms of
his employment agreement, each of the Named Executives is guaranteed a minimum
annual base salary/minimum annual target bonus as follows: Mr. Frissora,
$640,000/ $590,000; Mr. Donovan, $301,600/$155,000; Mr. Nair, $305,000/$273,000;
Mr. McCollum, $327,600/$215,000; and Mr. Schneider, $327,600/$155,000.
17
TENNECO AUTOMOTIVE INC. COMPENSATION/NOMINATING/GOVERNANCE
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The executive compensation philosophy, policies, plans, and programs of the
Company are under the supervision of the Compensation/Nominating/Governance
Committee (the "Committee"), which is composed of the directors named below,
none of whom is an officer or employee of the Company. The Committee has
furnished the following report on executive compensation:
COMPENSATION PHILOSOPHY
The basic philosophy underlying the Company's executive compensation
policies, plans, and programs is that executive and stockholder financial
interests should be aligned as closely as possible, and the compensation package
should be based on delivering pay in line with performance.
Accordingly, the executive compensation program for the Company's Chief
Executive Officer ("CEO") and the other Named Executives, as well as other
executives of the Company, has been structured to:
-- Reinforce a results-oriented management culture with executive pay that
varies according to overall corporate and individual performance against
operational and organizational goals.
-- Provide executive compensation packages that attract, retain, and
motivate executives of the highest qualifications and ability.
-- Focus executives on annual and long-term business results with the
overarching goal of enhancing stockholder value.
-- Align the interests of the Company's executives and stockholders through
equity-based compensation awards.
Based on these objectives, the executive compensation program has been
designed to promote appropriate levels of compensation derived from several
sources: salaries; annual cash incentive awards; stock ownership opportunities;
and other benefits typically offered to executives by major corporations.
The Company's policy is to provide total compensation to its executives
based on performance that is competitive and at market levels, for comparable
companies, when financial and qualitative targets are met. In determining
competitive compensation for each of the components of executive compensation
described below, the Committee engages a nationally recognized, independent
compensation consulting firm which reports directly to the Committee.
In making its determinations, the Committee generally reviews data
regarding compensation practices at other companies that it determines to be
relevant to compensation matters affecting
18
the Company. Historically, this information has included data regarding
companies believed to be comparable to the Company in terms of industry (i.e.
automotive parts manufacturing), total revenues, number of employees,
capitalization or other factors. This year, the Committee examined survey data
regarding over 350 manufacturing and service companies as well as specific data
regarding a comparison group comprised of companies -- including many automotive
parts manufacturers -- selected based on their similarity to the Company in
terms of size of revenues, total debt and market capitalization. The companies
selected for compensation survey purposes were not intended to be identical to
the automotive industry peer group shown in the stock Performance Graph
appearing elsewhere in this Proxy Statement, reflecting that individual
employment determinations are often driven by factors beyond those that are
industry-specific.
Salary levels are structured based upon reputable survey data for the
comparable companies. The Company's compensation plans provide that as an
executive's level of responsibility increases, (i) a greater portion of his/her
potential total compensation is based on performance (both individual and
corporate), and a lesser portion is comprised of salary, causing greater
potential variability in the individual's total compensation from year-to-year,
and (ii) the mix of compensation for that executive shifts to a greater portion
being derived from compensation plans where the executive's compensation level
varies in accordance with the market price of the Company's common stock.
In designing and administering the components of the executive compensation
program, the Committee strives to balance short- and long-term incentive
objectives and to employ prudent judgment when establishing performance
criteria, evaluating performance, and determining actual incentive payments.
Total executive compensation has two major components: (1) annual cash
compensation comprised primarily of salary and bonus; and (2) long-term
incentives comprised of some combination of stock options, performance-based
shares or share equivalents and restricted stock. The following is a description
of each of the components of the executive compensation program, along with a
discussion of the decisions of and action taken by the Committee with regard to
2002 compensation. There also follows a discussion regarding CEO compensation.
ANNUAL CASH COMPENSATION PROGRAM
An executive's annual cash compensation consists of a base salary plus
amounts paid in lieu of Company matching contributions to the Company's 401(k)
plans (when Internal Revenue Service maximums are reached) and bonuses under the
Company's executive incentive compensation plan. Each year, the Committee
reviews with the CEO and the senior human resources executive of the Company an
annual salary and bonus target plan for the Company's executives and other key
management personnel (excluding the CEO), following which the Committee approves
that plan with changes that the Committee deems appropriate. The salary
19
and bonus target plan that is developed is based on competitive market data and
on assessments of past and anticipated future performance. The Committee employs
competitive market data for directional and guideline purposes in combination
with corporate, divisional, and individual performance results. The Committee
also reviews (with the assistance of the senior human resources executive and
the nationally recognized, independent compensation consultants engaged directly
by the Committee) and sets the salary and bonus target of the CEO based on
similar information and criteria and the Committee's assessment of his past
performance with the Company and its expectations as to his future contribution
in leading the Company. For 2002, the salary and bonus target levels established
for the Company's executives were generally designed to be in the 50th
percentile range when compared to salaries and target bonuses set by the
companies in the compensation surveys reviewed by the Committee as described
above.
Annual performance goals are established under the Company's incentive
compensation plan at the beginning of each year for purposes of determining
incentive awards for that year. The performance goals are generally developed by
senior management and reviewed and approved by the Committee, with such changes
as the Committee determines appropriate. At the conclusion of each year, the
Committee approves incentive award payments to executives based on the degree of
achievement of the goals established at the beginning of that year and on
judgments of individual performance as follows: (i) 75% of an individual's bonus
is tied to the Company's achievement of EVA(R)(1) objectives, and (ii) 25% of an
individual's bonus is based on judgmental considerations which take into account
the relative performance of the Company versus its peers in key areas such as
improvements in working capital and SGA&E (selling, general and administrative
expenses) as a percentage of sales, technology leadership, improvements in
EBITDA (earnings before interest, income taxes, depreciation and amortization)
margins, performance of the Company's stock, management retention goals, overall
market and industry conditions, the degree of difficulty in meeting targets,
contribution to overall corporate performance, environmental and safety
performance, quality initiatives and equal employment opportunities performance.
For 2002, executive incentive compensation plan payouts were, on average,
made at 125% of the targeted bonus amount for each executive. As described
above, the Company's performance against its EVA objectives accounted for 75% of
each executive's bonus. The Company achieved performance goals commensurate with
125% payout based on its 2002 EVA objectives. Payout of the remaining 25% of
each executive's target bonus amount is discretionary and was established by the
Committee based on the various subjective factors described above. Weighing
these factors, the Committee determined that the 25% discretionary portion of
each executive's bonus would also be paid, on average, at 125% of the targeted
bonus amount
---------------
(1) EVA is after-tax operating profit minus the annual cost of capital. EVA is a
registered trademark of Stern Stewart & Co.
20
for 2002. In making its determinations, the Committee noted in particular that,
despite continuing difficult market conditions, the Company had substantially
outperformed its internal plan for 2002 with respect to cash flows, working
capital improvements and various profitability measures. At the same time, the
Committee, on management's recommendation, established the general policy that
no merit increases in base salary would be made for Company executives for 2003.
LONG-TERM INCENTIVES
The Company's long-term incentive plans have been designed to align a
significant portion of executive compensation with stockholder interests. The
current plan -- the 2002 Long-Term Incentive Plan -- permits the granting of a
variety of long-term awards including stock options, restricted stock, stock
equivalent units and performance units. The Company's former plans were
structured similarly.
Long-term awards are based on an analysis of competitive levels of similar
awards and an assessment of individual performance. As an individual's level of
responsibility increases, a greater portion of variable performance-related
compensation will be in the form of long-term awards.
In connection with the Spin-Off in 1999, the Committee reviewed the
long-term incentives awarded to executives of the ongoing automotive operations
in light of the foregoing principles and a supplemental independent compensation
survey that focused specifically on participants in the automotive parts
industry. At that time, the Committee implemented a long-term compensation
program for the Company's executives that has been comprised of (1) stock
options which generally vest over three years, (2) awards of restricted stock
which vest over three years, (3) cash-settled stock equivalent units which are
payable annually based on the achievement of EVA targets and (4) stock-settled
performance units which are generally payable at the end of three years based on
the achievement of EVA targets. For 2003, the Committee intends to discontinue
its policy of awarding restricted stock and stock-settled performance units that
generally vest over three years. The Committee intends that these components of
the Company's long-term compensation program be replaced with a policy of
awarding restricted stock that vests at the end of five years, subject to
earlier vesting at the end of three years if the Company achieves its EVA
performance goals for that three-year period.
The Committee has historically granted long-term awards to the Company's
executives that were designed to place them in the 75th percentile range when
compared to the value of similar awards granted by peer companies to their
executives. In 2002, however, the Committee revised its approach so that
long-term awards are designed to place the Company's executives in the 50th
percentile range when compared to the peer company awards.
In 2002, the Committee approved an award of stock equivalent units to the
Chief Executive Officer. The Committee did not, however, award stock options,
performance units or restricted
21
stock to the Chief Executive Officer in 2002. Additionally, the Committee, in
general, did not award any equity-based long-term incentives to the Company's
other executives in 2002. The Committee made its determinations consistent with
the philosophy described above, specifically noting the amount of outstanding
stock option, stock equivalent unit, performance unit and restricted stock
awards that had been granted to Company executives at the time of the Spin-Off
in 1999 through 2001, many of which were scheduled to fully vest at the end of
2002. For the Chief Executive Officer, the award of stock equivalent units was
made in recognition of the fact that the Chief Executive Officer did not hold
any previously granted, outstanding stock equivalent units and of the specific
challenges facing the Company, the Company's operational achievements and the
desire to provide incentive for further operational achievements.
For 2002, the annually scheduled cash payout under the stock equivalent
unit awards described above was made. Based on the Company's achievement of EVA
targets established for 2002, award holders earned 125% of their targeted number
of units for 2002. The cash payouts were equal to the number of units earned
multiplied by the average of the closing prices of the Company's common stock
for the ten trading days immediately following the Company's public announcement
of its results of operations for 2002 ($2.37).
For 2002, the scheduled stock settlement under the performance unit awards
described above was made. Based on the Company's achievement of EVA targets
established for 2000 through 2002, award holders earned and received common
stock in an average amount equal to 109% of their targeted number of shares for
the term of the award.
In late 2002, the outstanding restricted stock held by Company executives
became fully vested.
CEO COMPENSATION
For 2002, Mr. Frissora's base salary and bonus target were set at $730,000
and $610,000, respectively, to reflect his leadership of Tenneco Automotive in
an extremely difficult economic environment and in the face of increasingly
challenging automotive industry conditions. His 2002 base salary represented a
10% increase over his 2001 base salary. As described above, on management's
recommendation, the Committee has determined that there will be no merit
increase of the base salary of Mr. Frissora or the other company executives for
2003. The Committee approved for 2002 an annual incentive award of $780,000, or
125% of target, for Mr. Frissora. The amount of Mr. Frissora's incentive award
was based on the same factors as described above with respect to the 2002
bonuses paid to the Company's other executives, including his overall
performance as CEO and the Company's achievement of its EVA goals. Mr.
Frissora's 2002 base salary and bonus target were slightly below the 50th
percentile of base salaries and target bonuses set for chief executive officers
of the comparable companies surveyed. For 2002, in recognition of the Company's
substantial operational improvements and a desire to provide incentives for
further achievements, the Committee awarded stock equivalent units to Mr.
Frissora as reflected under "Executive Compensation." In addition, his
outstanding
22
performance unit and restricted stock awards, originally granted in 1999, were
paid or vested for 2002 as described above for the Company's other executives.
TAX LIMITATIONS ON THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a
$1 million limit on the amount that a publicly traded corporation may deduct for
compensation paid to the CEO or a Named Executive who is employed on the last
day of the year; provided, however, non-discretionary "performance based
compensation" is excluded from this $1 million limitation.
The Committee has reviewed section 162(m) and its related regulations and
feels that the Company's current compensation program and policies are
appropriate. The Committee structures the Company's compensation programs to
support organizational goals and priorities and stockholder interests. The
Committee seeks to preserve the tax deductibility of executive compensation to
the extent practicable and consistent with this philosophy. Because the
Committee retains certain discretion under the executive incentive program to
account for individual performance in making bonus awards, amounts payable to
the designated officers under the program may not be fully deductible where the
section 162(m) $1 million deduction limitation is otherwise reached. The
Committee believes this ability to exercise discretion, considered with the fact
that the 2002 salary and bonus paid to the Company's most highly compensated
executive only slightly exceeded $1 million, is in the best interests of the
Company and its stockholders. The stock equivalent unit, performance unit and
stock option awards made under the Company's long-term incentive plans, however,
are generally designed to incorporate the applicable requirements for
"performance-based compensation" for purposes of section 162(m).
Compensation / Nominating / Governance Committee
Roger B. Porter -- Chairman
Frank Macher
Sir David Plastow
David B. Price, Jr.
23
PERFORMANCE GRAPH
The performance graph presented below provides the cumulative total
stockholder return for Tenneco Automotive Inc. after the Spin-Off of Pactiv
Corporation, reflecting continuing operations. The Spin-Off of Pactiv
Corporation changed the Company in terms of revenue size and market
capitalization, and also represented the final step in the Company's transition
from a diversified holding company to a product- and market-focused company in
the automotive parts industry. The performance graph compares the cumulative
total stockholder return on the Company's common stock from November 5, 1999
(the first trading day after the Spin-Off) through December 31, 2002 with the
Standard & Poor's 500 Stock Index and a peer group of companies chosen by the
Company (the "Peer Group"). The companies comprising the Peer Group represent
other participants in the automotive industry. The performance graph assumes an
investment of $100 in each of the Company's common stock, the Standard & Poor's
500 Stock Index and the Peer Group index at the beginning of the period
described. The performance graph is not intended to be indicative of future
stock performance.
24
CUMULATIVE TOTAL STOCKHOLDER RETURN
BASED UPON AN INITIAL INVESTMENT OF $100
ON NOVEMBER 5, 1999 WITH DIVIDENDS REINVESTED
[PERFORMANCE GRAPH]
5-Nov-99 31-Dec-99 31-Dec-00 31-Dec-01 31-Dec-02
Tenneco Automotive
Inc. $100 $115 $38 $26 $51
S&P 500 $100 $107 $98 $86 $67
Custom Composite Index
(11 Stocks) $100 $101 $71 $92 $71
-------------------------
NOTES:
1. Cumulative total stockholder return is based on share price appreciation plus
the reinvestment of dividends.
2. Cumulative total stockholder return for the Peer Group is based on the market
capitalization weighted cumulative total stockholder return of the companies
comprising the Peer Group. The Peer Group is comprised of the following
companies: Arvin Industries Inc. (through the second quarter of 2000, when it
merged with Meritor Automotive), ArvinMeritor, Inc. (formerly known as
Meritor Automotive Inc.), Borg Warner Automotive, Inc., Cummins Inc., Dana
Corporation, Delphi Corporation, Federal Mogul Corporation, Lear Corporation,
Magna International, Simpson Industries, Inc. (through the third quarter of
2000, when it merged with MascoTech, Inc.), and Tower Automotive Inc.
25
REPORT OF AUDIT COMMITTEE
GENERAL
The Audit Committee comprises of four directors and operates under a
written charter for the Audit Committee. All of the members of the Audit
Committee meet the current definition of "independent" for purposes of the NYSE
listing standards. In addition, under current rules and regulations of the
Securities and Exchange Commission and the NYSE, our Board has determined that
each of Messrs. Cramb (who joined the Audit Committee in March 2003) and Stecko
qualify as an Audit Committee financial expert and all of the members of Audit
Committee satisfy the NYSE's financial literacy requirements. The charter of the
Audit Committee was amended most recently in March 2003, in response to the
adoption of the Sarbanes-Oxley Act of 2002. A copy of the charter is attached to
this Proxy Statement as Appendix A.
In addition, all of the members of the Audit Committee meet the definition
of "independent" as reflected in the pending amendments to the listing standards
that were proposed by the NYSE and pending SEC rules, except for Mr. Stecko, the
Chairman of the Audit Committee. Mr. Stecko would not meet the amended NYSE
"independence" standard if it were in effect today, as he was employed by the
Company or one of its subsidiaries from 1993 to April 1999, when he resigned to
become Chief Executive Officer of Packaging Corporation of America. Under the
proposed amendments to the NYSE listing standards, the NYSE will not consider a
director "independent" if he has been employed by the listed company during the
prior five years (as compared to three years under the existing listing
standards). The Board of Directors nonetheless has determined that it is in the
best interests of the Company that Mr. Stecko continues to serve on the Audit
Committee based on, among other things, the Board's belief that Mr. Stecko's
familiarity with the Company, both before and after the Spin-Off, is of unique
value in assuring continuity in the functioning of the Audit Committee. In
addition, the five-year anniversary of Mr. Stecko's resignation from the Company
will pass in April 2004. The Company expects that, by the time the proposed
amendments to the listing standards are adopted (after giving affect to any
phase-in period for the new rules), and assuming the proposed amendments are not
further modified, Mr. Stecko will meet the NYSE's definition of independent.
REPORT
The Audit Committee has furnished the following report:
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2002 with the
Company's management. In addition, the Audit Committee has discussed with
Deloitte & Touche LLP, the Company's independent auditors ("Deloitte & Touche"),
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees."
26
The Audit Committee has also received the written disclosures and the
letter from Deloitte & Touche required by Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees," and has discussed with
Deloitte & Touche its independence from the Company and its management.
The Audit Committee has considered whether the services rendered by the
Company's independent public accountants with respect to audit, audit-related,
tax and other fees are compatible with maintaining their independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the Company for the fiscal year ended December 31, 2002 be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002
for filing with the Securities and Exchange Commission.
Audit Committee
Paul T. Stecko -- Chairman
M. Kathryn Eickhoff
Dennis G. Severance
27
RATIFY APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
Financial statements of the Company and its consolidated subsidiaries will
be included in the Company's Annual Report furnished to all stockholders. The
Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP as
independent public accountants for the Company to examine its consolidated
financial statements for the year ending December 31, 2003, 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
should not ratify the appointment, the Audit Committee would reconsider the
appointment. Deloitte & Touche LLP was engaged as the Company's principal
independent public accountants for the year ended December 31, 2002.
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.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS IN 2002
As previously reported by the Company in a Form 8-K dated May 16, 2002,
effective May 16, 2002, the Board of Directors, upon the recommendation of the
Audit Committee, approved the engagement of Deloitte & Touche LLP as the
Company's independent auditors for 2002, replacing Arthur Andersen LLP (which
was dismissed as independent auditors of the Company effective May 16, 2002 and
which subsequently ceased accounting practice). Arthur Andersen LLP's reports on
the Company's financial statements for the prior two fiscal years ended December
31, 2001 did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or accounting
principles. During each of the prior two fiscal years ended December 31, 2001,
and during the interim period of 2002 for which Arthur Andersen LLP continued to
be engaged by the Company, there were no disagreements with Arthur Andersen LLP
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen to make
reference to the matter in their report. During 2002, the Company requested
Arthur Andersen LLP to furnish it a letter addressed to the SEC stating whether
it agreed with the above statements. A copy of that letter, dated May 17, 2002,
was received and filed as Exhibit 16.1 to the Company's Form 8-K dated May 16,
2002.
28
AUDIT, AUDIT-RELATED, TAX AND OTHER FEES
The following table shows the aggregate fees paid to the Company's
independent public accountants during 2002 and 2001.
DELOITTE & TOUCHE LLP ARTHUR ANDERSEN LLP
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
--------------------- -------------------
Audit fees..................... $2,337,000 $1,886,000
Audit-related fees............. 109,000 1,014,000
Tax fees....................... 1,464,000 2,172,000
All other fees................. -- 1,206,000
---------- ----------
$3,910,000 $6,278,000
Audit fees are for services necessary to perform an audit or review in
accordance with Generally Accepted Auditing Standards (GAAS), including audits
of some subsidiary financial statements required by local country laws and
reviews of the Company's quarterly financial statements.
Audit-related fees are for assurance and related services traditionally
performed by the independent accountant. In 2002, these fees primarily consist
of consultation on accounting issues, including adopting new accounting
standards. In 2001, the fees consisted of benefit plan audits and accounting and
transactional consultation.
Tax fees in both years relate to foreign and domestic tax compliance, tax
planning and tax advice, mainly related to assistance with managing tax audits.
In 2002, Deloitte & Touche LLP performed tax services from June through year end
and Arthur Andersen LLP performed those services through May 2002, for which the
Company paid Arthur Andersen LLP $1,007,000.
All other fees in 2001 consist of extended audit services through internal
audit co-sourcing.
OTHER
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 (in its entirety) approved the continued
provision to the Company of tax services as described above and benefits plan
audits by Deloitte & Touche LLP. 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 (in its entirety) reaffirmed
its approval of Deloitte & Touche LLP's provision of tax services as described
above for the ensuing year.
The Audit Committee has considered whether the services rendered by the
Company's independent public accountants with respect to the foregoing fees are
compatible with maintaining their independence.
29
APPROVAL OF AMENDMENTS TO THE
TENNECO AUTOMOTIVE INC. 2002 LONG-TERM INCENTIVE PLAN
(ITEM 3)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE AMENDMENTS TO THE 2002 LONG-TERM INCENTIVE PLAN
BACKGROUND AND PURPOSE
In March 2002, the Company established the Tenneco Automotive Inc. 2002
Long-Term Incentive Plan (the "Plan"), which was approved by the Company's
stockholders at the 2002 annual meeting. The purposes of the Plan are to: (i)
promote the long-term success of the Company and its subsidiaries; (ii) attract
and retain persons eligible to participate in the Plan; (iii) motivate
participants in the Plan, by means of appropriate incentives, to achieve
long-range goals; (iv) provide incentive compensation opportunities that are
competitive with those of other similar companies; (v) further identify
participants' interests with those of the Company's other stockholders through
compensation that is based on the Company's common stock; and (vi) thereby
promote the long-term financial interest of the Company and its subsidiaries,
including the growth in value of the Company's equity and enhancement of
long-term stockholder return.
The Plan, as originally approved, provided for the delivery of up to 2
million shares of the Company's common stock pursuant to awards granted under
the plan, including a maximum of 500,000 shares for Full Value Awards (as
defined below). Through March 11, 2003, the Company has granted awards under the
Plan covering the delivery of up to 1,733,914 shares of common stock, including
151,113 shares subject to Full Value Awards. Accordingly, at March 11, 2003,
266,086 shares remained available for delivery under the Plan.
The Board of Directors wishes to ensure the Company's continued ability to
offer equity-based incentives to employees, consultants and other persons
providing services to the Company or its subsidiaries. The Board of Directors
believes this type of compensation is critical to its ability to attract and
retain highly qualified individuals and otherwise attain the goals described
above. Based on its experience since the Plan was established, however, it does
not believe it has sufficient shares available for future delivery under the
Plan to accomplish these purposes.
Accordingly, on March 11, 2003, the Board of Directors approved amendments
of the Plan that would (i) increase the total number of shares of common stock
available for delivery pursuant to awards granted under the Plan from 2 million
to 4 million and (ii) increase the number of shares of common stock available
for delivery pursuant to Full Value Awards granted under the Plan from 500,000
to 1 million. The Board of Directors is submitting these amendments, as a single
proposal, to the Company's stockholders for approval at the 2003 Annual Meeting.
30
Stockholder approval of the amendments of the Plan is required by the rules
of the New York Stock Exchange. The affirmative vote of holders of a majority of
the votes cast on the proposal at the Annual Meeting is required to approve the
amendments of the Plan (provided the total votes cast on the proposal represent
more than 50% of the outstanding shares of common stock on the record date for
the Annual Meeting).
The following is a summary of the principal features of the Plan, including
the amendments described above. The effective date of the Plan as originally
adopted was March 12, 2002 (the "Effective Date"), and no new awards may be
granted under the Plan after the ten-year anniversary of the Effective Date
(except pursuant to commitments entered into before that ten-year anniversary).
The effective date of the amendments is March 11, 2003, subject to stockholder
approval at the Annual Meeting. A copy of the full text of the Plan (amended and
restated effective as of March 11, 2003, subject to stockholder approval of the
amendments) is attached to this Proxy Statement as Appendix B and is
incorporated herein by reference. Stockholders are urged to read the actual text
of the Plan in its entirety.
ADMINISTRATION OF THE PLAN; PARTICIPATION
The authority to control and manage the operation and administration of the
Plan will be generally vested in a committee of the Company's Board of Directors
(the "Committee"), which is selected by the Board and must consist of two or
more members of the Board. If the Committee does not exist, or for any other
reason determined by the Board, the Board may take any action under the Plan
that would otherwise be the responsibility of the Committee. The Company's
current Compensation/Nominating/Governance Committee is the "Committee" for
purposes of the Plan.
Subject to the terms of the Plan, the Committee determines from among the
Eligible Individuals (as defined below) who will receive awards under the Plan
("Awards"), the number of shares of common stock subject thereto and the
exercise price and other terms thereof. The persons eligible to receive Awards
under the Plan are employees of the Company or its subsidiaries, consultants and
other persons providing services to the Company or its subsidiaries and members
of the Board of Directors (the "Eligible Individuals"), except that only
employees are eligible to receive incentive stock option Awards under the Plan.
As of March 21, 2003, there were approximately 1,084 persons who would be
considered Eligible Individuals for the purposes of the Plan. The consideration
to be received by the Company for the granting of Awards under the Plan is
service to the Company or its subsidiaries.
AVAILABLE SHARES AND SHARE INFORMATION
If the amendment is approved at the Annual Meeting, (i) the maximum total
number of shares of common stock that may be delivered under the Plan will be
increased from 2 million to 4 million (subject to adjustment as described in the
Plan) and (ii) the maximum number of
31
shares of common stock that may be delivered under the Plan in respect of "Full
Value Awards" will be increased from 500,000 to 1 million (subject to adjustment
as described in the Plan). For the purposes of the Plan, "Full Value Awards" are
Bonus Stock, Stock Equivalent Units, Performance Units, Restricted Stock and
Restricted Stock Units (each as defined below).
The Company had an aggregate of 40,219,397 shares of common stock
outstanding as of March 21, 2003. The shares of common stock with respect to
which Awards may be made under the Plan will be shares of common stock currently
authorized but unissued or currently held or, to the extent permitted by
applicable law, subsequently acquired by the Company as treasury shares,
including shares of common stock purchased in the open market or in private
transactions. The closing price per share of common stock on March 21, 2003, as
reported by the New York Stock Exchange, was $2.59.
CERTAIN TERMS AND CONDITIONS OF AWARDS
An Award under the Plan is subject to such terms and conditions, not
inconsistent with the Plan, as the Committee prescribes. The terms and
conditions of any Award to a participant are reflected in such form of written
document, if any, as is determined by the Committee. A copy of such document
shall be provided to the participant, and the Committee may, but need not,
require that the participant sign a copy of such document.
Awards may be granted under the Plan as any of the following: Options;
SARs; Bonus Stock Awards; Stock Equivalent Unit Awards; Restricted Stock Awards;
Restricted Stock Unit Awards; and Performance Unit Awards (each as defined
below).
The grant of an "Option" will entitle the participant to purchase shares of
common stock at an exercise price (the "Exercise Price") established by the
Committee. An Option may be either an incentive stock option (an "ISO") or a
non-qualified stock option (an "NQO"), as determined in the discretion of the
Committee. An ISO is an Option that is intended to satisfy the requirements
applicable to an "incentive stock option" described in section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"). An NQO is an Option that
is not intended to be an "incentive stock option" as that term is described in
section 422(b) of the Code.
A stock appreciation right (a "SAR") entitles the participant to receive,
in cash or shares of common stock, value equal to (or otherwise based on) the
excess of (i) the Fair Market Value (as defined below) of a specified number of
shares of common stock at the time of exercise, over (ii) an Exercise Price
established by the Committee. No Option or SAR may be granted with a term that
extends beyond the tenth anniversary of the grant date.
The "Exercise Price" of each Option and SAR granted is established by the
Committee or determined by a method established by the Committee at the time the
Option or SAR is granted; provided, however, that no Exercise Price may be less
than 100% of the Fair Market Value of a
32
share of common stock on the date of grant (or, if greater, the par value of a
share of common stock). For purposes of determining the "Fair Market Value" of a
share of common stock as of any date, the following rules apply: (i) if the
principal market for the shares of common stock is a national securities
exchange or the NASDAQ securities market, then the "Fair Market Value" as of
that date shall be the average of the highest and lowest sales prices of a share
of common stock on that date (or, if such day is not a business day, the next
preceding business day) on the principal exchange or market on which the shares
of common stock are then listed or admitted to trading; (ii) if the shares of
common stock are not listed on a national securities exchange and the shares of
common stock are not quoted on the NASDAQ securities market, then the "Fair
Market Value" as of that date shall be the average of the highest and lowest
prices of a share of common stock on that date (or, if such day is not a
business day, the next preceding business day) as reported on the NASDAQ OTC
Bulletin Board Service or by the National Quotation Bureau, Incorporated or a
comparable service; and (iii) if neither clause (i) nor (ii) is applicable, then
the Fair Market Value of the shares of common stock shall be determined in good
faith by the Committee.
A "Bonus Stock" Award is a grant of shares of common stock in return for
previously performed services, or in return for the participant surrendering
other compensation that may be due to such participant from the Company or its
subsidiaries.
A "Stock Equivalent Unit" Award is a grant of a right to receive cash in an
amount equal to the value of a specified number of shares of common stock, in
the future, which may be (but need not be) contingent on the achievement of
performance or other objectives, including without limitation continued service,
during a specified period.
A "Performance Unit" Award is a grant of a right to receive a specified
number of shares, or dollar value amount of shares, of common stock, in the
future, which is contingent on the achievement of performance or other
objectives, including without limitation continued service, during a specified
period.
A "Restricted Stock" Award is a grant of shares of common stock, and a
"Restricted Stock Unit" Award is a grant of a right to receive a specified
number of shares of common stock, or cash in an amount equal to the value of a
specified number of shares of common stock, in the future, with such shares of
common stock or right to future delivery of such shares of common stock or
payment of cash subject to a risk of forfeiture or other restrictions that will
lapse upon the achievement of one or more goals relating to completion of
service by the participant, or achievement of performance or other objectives,
as determined by the Committee.
The payment of the Exercise Price of an Option granted under the Plan is
subject to the following: (a) subject to clauses (b) and (c) below, the full
Exercise Price for shares of common stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the case of
an exercise arrangement approved by the Committee and
33
described in clause (c) below, payment may be made as soon as practicable after
the exercise); (b) the Exercise Price shall be payable in cash, by promissory
note, or by tendering, by either actual delivery of shares of common stock or by
attestation, shares of the Company's common stock owned for at least six months
or acquired on the open market, and valued at Fair Market Value as of the day of
exercise, or in any combination thereof, as determined by the Committee; and (c)
the Committee may permit a participant to elect to pay the Exercise Price upon
the exercise of an Option by irrevocably authorizing a third party to sell
shares of common stock (or a sufficient portion of the shares of common stock)
acquired upon exercise of the Option and remit to the Company a sufficient
portion of the sale proceeds to pay the entire Exercise Price and any tax
withholding resulting from such exercise.
In the discretion of the Committee, a participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a participant. Awards may be granted as alternatives to or
replacement of Awards granted or outstanding under the Plan, or any other plan
or arrangement of the Company or its subsidiaries.
An Award (including without limitation an Option or SAR Award) may provide
the participant with the right to receive dividend payments, dividend equivalent
payments or dividend equivalent units with respect to shares of common stock
subject to the Award.
The obligation to make payments and distributions with respect to Awards of
Stock Equivalent Units, Performance Units, or Restricted Stock Units may be
satisfied through cash payments, the delivery of shares of common stock, the
granting of replacement Awards, or any combination thereof as the Committee
determines. Satisfaction of any obligations under an Award, which is sometimes
referred to as "settlement" of the Award, may be subject to such conditions,
restrictions and contingencies as the Committee determines.
If the Exercise Price of any Option granted under the Plan is satisfied by
tendering shares of common stock to the Company (by either actual delivery or by
attestation), only the number of shares of common stock issued net of the shares
of common stock tendered shall be deemed delivered for purposes of determining
the maximum number of shares of common stock available for delivery under the
Plan. To the extent any shares of common stock covered by an Award are not
delivered because the Award is forfeited or canceled, or the Award is settled in
cash or the shares are used to satisfy the applicable tax withholding
obligation, such shares of common stock shall not be deemed to have been
delivered for purposes of determining the maximum number of shares of common
stock available for delivery under the Plan or, if applicable, as Full Value
Awards.
All distributions under the Plan are subject to withholding of all
applicable taxes, and the Committee may condition the delivery of any shares or
other benefits under the Plan on satisfaction of the applicable withholding
obligations.
34
TRANSFERABILITY
Except as otherwise provided by the Committee, Awards under the Plan are
not transferable except as designated by the participant by will or by the laws
of descent and distribution.
CERTAIN ADJUSTMENTS
In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or exchange of shares), the Committee may adjust the terms
of the Plan and Awards to preserve the benefits or potential benefits of the
Plan or the Awards. Action by the Committee with respect to the Plan or Awards
may include: (i) adjustment of the number and kind of shares which may be
delivered under the Plan; (ii) adjustment of the number and kind of shares
subject to outstanding Awards; (iii) adjustment of the Exercise Price of
outstanding Options and SARs; and (iv) any other adjustments that the Committee
determines to be equitable.
AMENDMENT OR TERMINATION
The Board may, at any time, amend or terminate the Plan, and may amend any
award agreement under the Plan, provided that no amendment or termination may,
in the absence of written consent to the change by the affected participant (or,
if the participant is not then living, the affected beneficiary), adversely
affect the rights of any participant or beneficiary under any Award granted
under the Plan prior to the date such amendment is adopted by the Board.
Notwithstanding the foregoing, (i) without the prior approval of the Company's
stockholders, Options issued under the Plan will not be repriced, replaced or
regranted through cancellation, or by lowering the exercise price of a
previously granted Option, and (ii) no amendment of the Plan shall be made
without stockholder approval if stockholder approval is required by applicable
law, regulation or stock exchange rule.
CERTAIN LIMITATIONS ON AWARDS AND RELATED MATTERS
The aggregate number of shares of common stock underlying Options and SARs
granted to any one individual under the Plan may not exceed 350,000 (subject to
adjustments as described in the Plan) in any one calendar year period. If an
Option is in tandem with a SAR, such that the exercise of the Option or SAR with
respect to a share of common stock cancels the tandem SAR or Option right,
respectively, with respect to such share, the tandem Option and SAR rights with
respect to each share of common stock shall be counted as covering only one
share of common stock for purposes of applying the limitation in the preceding
sentence.
The Committee may designate whether any Award being granted to any
participant is intended to be "performance-based compensation" as that term is
used in section 162(m) of
35
the Code. Any such Awards designated as intended to be "performance-based
compensation" will be conditioned on the achievement of one or more Performance
Measures (as defined in the Plan), to the extent required by Code section
162(m). The Performance Measures that may be used by the Committee for such
Awards include, among others, earnings, operating income, expense performance,
margins, working capital targets, cash flow performance and EVA.
For Bonus Stock Awards, Stock Equivalent Unit Awards, Restricted Stock
Awards, Restricted Stock Unit Awards and Performance Unit Awards that are
intended to be "performance-based compensation" (as that term is used for
purposes of Code section 162(m)), no more than 200,000 shares of common stock
and, if such Awards are denominated in cash value, no more than $800,000, may be
subject to such Awards granted to any one individual during any one calendar
year.
CHANGE OF CONTROL
Upon the occurrence of a change in control of the Company (as defined in
the Plan), unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any applicable governmental agencies or national
securities exchange, or unless the Committee shall otherwise provide in any
award agreement: (a) Options and SARs will become immediately vested and
exercisable and will remain exercisable for the lesser of 36 months following
such change in control or the remaining maximum term of such Award; (b) any
restriction imposed on Restricted Stock or Restricted Stock Units will lapse and
each participant holding any such Award will be entitled to be paid in cash,
within 30 days after the change in control, the total of the fair market value,
determined as of immediately prior to such change in control, of any such Award
held; and (c) the target payout opportunities attainable under all Bonus Stock,
Stock Equivalent Unit and Performance Unit Awards will be deemed to have been
fully earned as of the effective date of the change in control (based on an
assumed achievement of all relevant targeted performance goals over any
applicable performance period(s)) and each participant holding any such Award
will be entitled to be paid in cash, within 30 days after the change in control,
the total of the fair market value, determined as of immediately prior to such
change in control, of any such Award held.
NEW PLAN BENEFITS
Because grants under the Plan are discretionary, it is not possible to
determine or estimate the benefits or amounts that will be received in the
future by any Eligible Individual under the Plan, except that, as described
above under "Election of Directors -- Compensation of Directors," it is
anticipated that (i) M. Kathryn Eickhoff, a current director of the Company,
will receive $15,400 of Restricted Stock annually under the Plan in respect of
certain residual obligations under the Company's former directors' retirement
plan, (ii) the portion of Outside Directors' fees
36
payable in equivalent units that may be stock-settled will be awarded under the
Plan and (iii) each of the Outside Directors will continue to be awarded an
option to purchase up to 5,000 shares of common stock annually under the Plan.
OUTSTANDING AWARDS
The following table shows, as of December 31, 2002, information regarding
outstanding awards under all compensation plans of the Company (including
individual compensation arrangements) under which equity securities of the
Company may be delivered:
NUMBER OF
SECURITIES TO BE
ISSUED UPON WEIGHTED AVERAGE
EXERCISE OF EXERCISE PRICE OF NUMBER OF
OUTSTANDING OUTSTANDING SECURITIES REMAINING
OPTIONS, WARRANTS OPTIONS, WARRANTS AVAILABLE FOR FUTURE
PLAN CATEGORY AND RIGHTS(1) AND RIGHTS ISSUANCE(1)
------------- ----------------- ----------------- --------------------
EQUITY COMPENSATION PLANS APPROVED
BY SECURITY HOLDERS:
Tenneco Automotive Inc. Stock
Ownership Plan(2)................ 5,058,646 $6.38 0
Tenneco Automotive Inc. 2002 Long-
Term Incentive Plan.............. 122,801(3) $5.69(3) 1,859,119(4)
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS:
Tenneco Automotive Inc.
Supplemental Stock Ownership
Plan(5).......................... 809,601(6) $8.56(6) 0
---------------
(1) Reflects number of shares of the Company's common stock. Does not include
185,067 shares that may be issued under the stockholder-approved equity
plans listed above in settlement of directors' stock equivalent units,
credited to the outside directors as payment of directors' fees. In general,
these units are settled in cash. At the option of the Company, however, they
may be settled in shares of the Company's common stock. See "Election of
Directors -- Compensation of Directors."
(2) This plan terminated as to new awards on December 31, 2001 (except awards
pursuant to commitments outstanding at that date). Does not include 295,669
shares subject to outstanding restricted stock (vest over time) and
stock-settled performance share awards (vest based on the achievement of
performance goals over a specified period) outstanding as of December 31,
2002 that were issued at a weighted average issue price of $7.20 per share.
(3) Does not include 18,080 shares subject to outstanding restricted stock (vest
over time) and stock-settled performance share awards (vest based on the
achievement of performance goals over a specified period) outstanding as of
December 31, 2002 that were issued at a weighted average issue price of
$5.28 per share.
37
(4) Under this plan, as of December 31, 2002, a maximum of 481,920 of these
shares remained available for delivery under Full Value Awards. As described
above, at March 11, 2003 the Company had outstanding awards granted under
this plan covering the delivery of up to a total of 1,733,914 shares of
common stock. Accordingly, at March 11, 2003, 266,086 shares remained
available under this plan (all of which could be delivered as Full Value
Awards).
(5) The plan described in the table above as not having been approved by
security holders is the Tenneco Automotive Inc. Supplemental Stock Ownership
Plan. This plan, which terminated on December 31, 2001 as to new awards
(except awards pursuant to commitments outstanding at that date), originally
covered the delivery of up to 1.5 million shares of common stock held in the
Company's treasury. This plan was and continues to be administered by the
Compensation/Nominating/Governance Committee. The Company's directors,
officers and other employees were eligible to receive awards under this
plan, although awards under the plan were limited to the Company's
non-executive employees. Awards under the plan could take the form of
non-statutory stock options, stock appreciation rights, restricted stock,
stock equivalent units or performance units. All awards made under this plan
were discretionary. The committee determined which eligible persons received
awards and determined all terms and conditions (including form, amount and
timing) of each award.
(6) Does not include 204,000 shares subject to outstanding stock-settled
performance share awards (vest based on the achievement of performance goals
over a specified period) outstanding as of December 31, 2002 that were
issued at a weighted average issue price of $8.56 per share.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS OF OPTIONS
The federal income tax discussion set forth below is included for general
information only. Eligible Individuals are urged to consult their tax advisors
to determine the particular tax consequences applicable to them, including the
application and effect of foreign, state and local income and other tax laws.
No income results to the holder of an ISO upon the grant thereof or
issuance of shares upon exercise thereof. The amount realized on the sale or
taxable exchange of the shares received upon exercise of the ISO in excess of
the Exercise Price will be considered a capital gain, except that, if a sale,
taxable exchange or other disposition occurs within one year after exercise of
the ISO or two years after the grant of the ISO (generally considered to be a
"disqualifying disposition"), the participant will realize compensation, for
federal income tax purposes, on the amount by which the lesser of the Fair
Market Value on the date of exercise, or the amount realized on the sale of the
shares, exceeds the Exercise Price. Any appreciation on the shares between the
exercise date and the disposition will be taxed to the participant as capital
gain. The difference between the Exercise Price and the Fair Market Value of the
shares acquired at the time of exercise is a tax preference item for the purpose
of calculating the alternative minimum tax on individuals under the Code. This
preference amount will not be included again in alternative minimum taxable
income in the year the taxpayer disposes of the stock.
38
No compensation will be realized by a participant holding a NQO at the time
it is granted. Upon the exercise of a NQO, a participant will realize
compensation for federal income tax purposes on the difference between the
Exercise Price and the Fair Market Value of the shares acquired at the time of
exercise.
If the participant exercises a NQO by surrendering previously owned shares
of common stock, the basis and the holding period of the previously owned shares
carry over to the same number of shares received in exchange for the previously
owned shares. The compensation income recognized on exercise of these Options is
added to the basis of the shares received. If the exercised Option is an ISO and
the shares surrendered were acquired through the exercise of an ISO and have not
been held for the applicable holding period, the participant will recognize
income on such exchange, and the basis of the shares received will be equal to
the Fair Market Value of the shares surrendered. If the applicable holding
period has been met on the date of exercise of such an ISO, there will be no
income recognition and the basis and the holding period of the previously owned
shares will carry over to the same number of shares received in exchange, and
the remaining shares will begin a new holding period and have a zero basis.
The Company recognizes no deduction at the time of grant or exercise of an
ISO and recognizes no deduction at the time of grant of a NQO. The Company will
recognize a deduction at the time of exercise of a NQO in an amount equal to the
difference between the Exercise Price and the Fair Market Value of the shares on
the date of exercise. The Company also will recognize a deduction to the extent
the participant recognizes income upon a disqualifying disposition of shares
underlying an ISO.
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
39
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, (iii) FOR approval of the amendments to the Tenneco
Automotive Inc. 2002 Long-Term Incentive Plan, and (iv) in accordance with the
judgment of the persons named in the Proxy as to such other matters as may
properly come before the Annual Meeting.
A Proxy may be revoked at any time prior to the voting at the Annual
Meeting by submitting a later-dated proxy (including a later-dated Proxy via the
Internet or telephone), giving timely written notice of such revocation to the
Secretary of the Company or by attending the Annual Meeting and voting in
person.
The presence at the Annual Meeting, in person or by proxy, of holders of a
majority of the issued and outstanding shares of common stock as of the record
date is considered a quorum for the transaction of business. If you submit a
properly completed Proxy or if you appear at the Annual Meeting to vote in
person, your shares of common stock will be considered part of the quorum.
Directions to withhold authority to vote for any director, abstentions and
broker non-votes (described below) will be counted to determine if a quorum for
the transaction of business is present. Once a quorum is present, voting on
specific proposals may proceed.
The cost of solicitation of Proxies will be borne by the Company.
Solicitation will be made by mail, and may be made by directors, officers, and
employees, personally or by telephone, telecopy or telegram. Proxy cards and
material also will be distributed to beneficial owners of stock through brokers,
custodians, nominees and other like parties, and the Company expects to
reimburse such parties for their charges and expenses. Georgeson Shareholder
Communications Inc., New York, New York, has been retained to assist the Company
in the solicitation of proxies at a fee estimated not to exceed $25,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, directors,
officers and beneficial owners of 10% or more of the common stock ("Reporting
Persons") are required to report to the SEC on a timely basis the initiation of
their status as a Reporting Person and any changes with respect to their
beneficial ownership of common stock. Based solely on its review of such forms
received by it and the written representations of its Reporting Persons, the
Company has determined that no Reporting Persons known to it were delinquent
with respect to their reporting obligations as set forth in Section 16(a) of the
Exchange Act, other than the following: In December 2001, a Form 4 was filed on
behalf of Timothy R. Donovan reporting the grant by the Company to him of an
option to purchase common stock. The Form 4 reported that the amount of common
stock subject to the option was 80,000 shares; it was subsequently determined
that the amount was 110,000 shares. This was discovered after Mr. Donovan's Form
5 was filed in February 2002 and has since been reported on an amended Form 4.
The total option grant was, in any event, reported in the Proxy Statement for
the Company's 2002 annual meeting of stockholders under the heading "Options
Granted in 2001."
40
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
Directions to withhold authority, abstentions and "broker non-votes" (which
occur when a nominee holding shares for a beneficial owner does not vote on a
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner) will be counted in determining the presence or absence of a quorum for
the transaction of business at the Annual Meeting.
Assuming the presence of a quorum, the affirmative vote of (1) a plurality
of the votes cast at the Annual Meeting (in person or by proxy) is required for
the election of directors, (2) holders of a majority of the common stock present
at the Annual Meeting (in person or by proxy) and entitled to vote is required
to ratify Deloitte & Touche LLP as the Company's independent public accountants,
and (3) the majority of votes cast on the proposal at the Annual Meeting (in
person or by proxy) is required to approve the amendments to the Tenneco
Automotive Inc. 2002 Long-Term Incentive Plan, assuming the total votes cast on
the proposal represent more than 50% of the outstanding common stock on the
record date for the Annual Meeting.
Because the election of directors is determined on the basis of a plurality
of the votes cast, directions to withhold authority have no effect on the
election of directors. Because the vote standard for the approval of Deloitte &
Touche LLP is a majority of shares present and entitled to vote, abstentions
have the effect of a vote against and broker non-votes would have no effect on
the proposal. Because the vote standard for the approval of the amendments to
the Tenneco Automotive Inc. 2002 Long-Term Incentive Plan is a majority of votes
cast on the proposal, abstentions have the effect of a vote against and,
assuming the total votes cast on the proposal represent more than 50% of the
outstanding common stock on the record date for the Annual Meeting, broker
non-votes would have no effect on the proposal.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement is incorporated by reference in any
other filing by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, the sections of this Proxy Statement entitled "Executive
Compensation -- Tenneco Automotive Inc. Compensation/Nominating/Governance
Committee Report on Executive Compensation," "Performance Graph," and "Report of
Audit Committee" will not be deemed to be incorporated, unless specifically
provided otherwise in such filing.
41
SUBMISSION OF STOCKHOLDER PROPOSALS
STOCKHOLDER PROPOSALS -- INCLUSION IN COMPANY PROXY STATEMENT
For a stockholder proposal to be considered by the Company for inclusion in
the Company's proxy statement and form of proxy relating to the annual meeting
of stockholders to be held in 2004, the proposal must be received by the Company
by December 4, 2003.
OTHER STOCKHOLDERS PROPOSALS -- DISCRETIONARY VOTING AUTHORITY AND BY-LAWS
With respect to stockholder proposals not included in the Company's proxy
statement and form of proxy, the Company may utilize discretionary authority
conferred by proxy in voting on any such proposals if, among other situations,
the stockholder does not give timely notice of the matter to the Company by the
date determined under the Company's By-laws for the submission of business by
stockholders. This notice requirement and deadline are independent of the notice
requirement and deadline described above for a stockholder proposal to be
considered for inclusion in the Company's proxy statement. The Company's By-laws
state that, to be timely, notice and certain related information must be
received at the principal executive offices not later than the close of business
on the 90th day nor earlier than the close of business on the 120th day prior to
the first anniversary of the preceding year's annual meeting. However, in the
event that the date of the annual meeting is more than thirty days before or
more than seventy days after the anniversary date, the notice must be delivered
not earlier than the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Therefore, to be timely
under the Company's By-laws, a proposal for the 2004 annual meeting not included
by or at the direction of the Board must be received not earlier than January
13, 2004, nor later than February 12, 2004.
KARL A. STEWART
Secretary
------------------------
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES THERETO. REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE DIRECTED TO
TIMOTHY R. DONOVAN, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND MANAGING
DIRECTOR-INTERNATIONAL, 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045.
42
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF TENNECO AUTOMOTIVE INC.
Tenneco Automotive Inc. recognizes that sound principles of corporate
governance and the integrity of the company's financial statements and financial
reporting processes are essential to obtaining and retaining the trust and
respect of investors and other persons and groups interested in the company and
its activities, including employees, customers, suppliers, communities in which
it does business, government officials and the public generally.
The Board of Directors has approved the following Charter of the Audit
Committee that, together with the company's Corporate Governance Principles, is
intended to provide a framework for the governance of the company with respect
to the company's financial statements, financial reporting processes, systems of
internal controls and compliance with legal and regulatory requirements.
I. Audit Committee Designation
There is a committee of the Board of Directors of Tenneco Automotive
Inc. called the Audit Committee.
II. Audit Committee Purpose
The Audit Committee is directly responsible for the appointment,
compensation and oversight of the work of the company's independent
auditors. The purpose of the Audit Committee is to:
- assist the Board of Directors in fulfilling its oversight of (a) the
integrity of the company's financial statements and financial
reporting processes and systems of internal controls regarding
finance, accounting, information systems security, environmental
compliance and legal compliance, (b) the company's compliance with
legal and regulatory requirements, and (c) the independence,
qualifications and performance of the company's independent auditors
and internal auditing function;
- provide an avenue of communication among the independent auditors,
management, the internal auditors and the Board of Directors; and
- prepare the audit-related report required by the Securities and
Exchange Commission (SEC) to be included in the company's annual proxy
statement.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as
A-1
any officer or other employee of the company or its subsidiaries. The Audit
Committee has the ability to retain, at the company's expense, special
legal, accounting or other consultants or experts it deems necessary in the
performance of its duties.
III. Audit Committee Composition and Meetings
The Audit Committee is comprised of three or more directors, as
determined by the Board of Directors. The Board of Directors appoints the
members of the Audit Committee annually, considering the recommendation of
the Compensation/Nominating/Governance Committee, and further considering
the views of the Chairman of the Board of Directors and the Chief Executive
Officer, as appropriate. The members of the Audit Committee serve until
their successors are appointed and qualify. The Board of Directors has the
power at any time to change the membership of the Audit Committee and to
fill vacancies in it, subject to the new member(s) satisfying the
independence, experience and financial expertise requirements described in
this Charter.
Each member of the Audit Committee must be "independent" for purposes
of Section 10A of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder. Each member of Audit Committee must be an
independent director as determined under the applicable rules of the New
York Stock Exchange, and must also satisfy the additional New York Stock
Exchange independence requirement for members of audit committees, in each
case no later than the end of any applicable grace or "phase-in" period
adopted by the New York Stock Exchange with respect to those rules.
All members of the Audit Committee are required to have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements. Unless otherwise determined by the Board
of Directors to be appropriate under the circumstances, at least one member
of the Audit Committee is required to be a "financial expert," and at least
one member of the Audit Committee is required to have "financial
expertise," as determined for purposes of the rules of the SEC and New York
Stock Exchange, respectively.
If an Audit Committee Chair is not designated by the Board of
Directors or present, the members of the Audit Committee may designate a
Chair by majority vote of the Audit Committee membership.
The Audit Committee holds regular meetings, at least quarterly and
additionally as often as the committee deems appropriate. The Audit
Committee Chair approves an agenda in advance of each meeting. The Audit
Committee should meet privately in executive session as often as it deems
necessary, but at least annually, with management, the Internal Audit
Director, the independent auditors and as a committee to discuss any
matters that the Audit Committee or any of these groups believe should be
discussed.
A-2
Except as expressly provided in this Charter, the by-laws of the
company or any Corporate Governance Principles of the company, or as
otherwise provided by law or the rules of the New York Stock Exchange, the
Audit Committee may fix its own rules of procedure.
IV. Audit Committee Responsibilities and Authority
The Audit Committee has the sole authority to appoint or replace the
independent auditors, and must approve all audit engagement fees and terms.
The Audit Committee also must approve all non-audit engagements by the
Company with the independent auditors, except as otherwise permitted by
applicable law. The Audit Committee may consult with management but may not
delegate these responsibilities, except that pre-approvals of non-audit
services may be delegated to the extent permitted by applicable law. In its
capacity as a committee of the Board, the Audit Committee is directly
responsible for the oversight of the work of the independent auditors
(including resolution of disagreements between management and the
independent auditors regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work, and the independent
auditors report directly to the Audit Committee.
In performing its functions, the Audit Committee undertakes those
tasks and responsibilities that, in its judgment, would most effectively
contribute to and implement the purposes of the Audit Committee. The
following functions are some of the common recurring activities of the
Audit Committee in carrying out its duties:
Review Procedures
1. The Audit Committee reviews the company's annual audited financial
statements and quarterly financial statements prior to filing or
distribution, including the company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and other matters required to be reviewed under
applicable legal, regulatory or New York Stock Exchange requirements
and, as appropriate, recommends to the Board of Directors whether the
audited financial statements should be included in the company's Form
10-K. The Audit Committee's review should include discussion with
management and the independent auditors of significant issues
regarding accounting principles, practices and judgments, including
any items required to be communicated by the independent auditors in
accordance with Statement on Auditing Standards No. 61.
2. The Audit Committee discusses with management and, as appropriate,
the independent auditors earnings press releases (paying particular
attention to any use of "pro forma" or "adjusted" non-GAAP
information) and financial information and earnings guidance provided
to analysts and ratings agencies.
A-3
3. In consultation with the management, the independent auditors and the
internal auditors, the Audit Committee considers the integrity of the
company's financial reporting processes and controls.
4. The Audit Committee reviews disclosures made by the company's
principal executive officer or officers and principal financial
officer or officers regarding compliance with their certification
obligations as required under the Sarbanes-Oxley Act of 2002 and the
rules promulgated thereunder, including the company's disclosure
controls and procedures and internal controls for financial reporting
and evaluations thereof.
5. The Audit Committee reviews any reports of the independent auditors
mandated pursuant to Section 10A of the Securities Exchange Act of
1934, as amended, and the rules thereunder, and obtains from the
independent auditors any information with respect to illegal acts in
accordance with Section 10A and the rules thereunder.
6. The Audit Committee reviews and discusses with management and the
independent auditors, as applicable:
a. major issues regarding accounting principles and financial
statement presentations, including any significant changes in the
company's selection or application of accounting principles, and
major issues as to the adequacy of the company's internal
controls and any special audit steps adopted in light of material
control deficiencies;
b. analyses prepared by management or the independent auditors that
set forth significant financial reporting issues and judgments
made in connection with the preparation of the financial
statements, including analyses of the effects of alternative GAAP
methods on the financial statements;
c. any management letter provided by the independent auditors and
the company's response to that letter;
d. any problems, difficulties or differences encountered in the
course of the audit work, including any disagreements with
management or restrictions on the scope of the independent
auditors' activities or on access to requested information and
management's response thereto;
e. liquidity, off-balance sheet structures and debt covenants; and
f. the effect of significant regulatory and accounting initiatives
on the financial statements of the company.
7. The Audit Committee discusses with management the company's major
financial risk exposures and the steps management has taken to
monitor and control those exposures, including the company's risk
assessment and risk management policies.
A-4
Independent Auditors
8. The independent auditors are ultimately accountable to the Audit
Committee. The Audit Committee reviews the independence,
qualifications and performance of the auditors at least annually,
including a review and evaluation of the lead partner of the
independent auditors and taking into account the opinions of
management and the company's internal auditors. At least annually,
the Audit Committee appoints the company's independent auditors for
the ensuing fiscal year, and will report to the Board of Directors
regarding its determinations about the appointment or removal of any
independent auditors.
9. The Audit Committee obtains and reviews a report from the independent
auditors at least annually regarding:
a. the independent auditors' internal quality-control procedures;
b. any material issues raised by the most recent quality-control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within
the preceding five years respecting one or more independent
audits carried out by the firm; and
c. any steps taken to deal with any such issues.
10. On an annual basis, the Audit Committee requires the independent
auditors to submit a formal written statement delineating all
relationships between the auditors and the company or its
subsidiaries or affiliates, and reviews and discusses all
significant relationships that could impair the auditors'
independence. It is the responsibility of the Audit Committee to
take appropriate action in response to the independent auditors'
report to satisfy itself of the auditors' independence.
11. At least annually, the Audit Committee reviews the independent
auditors' audit plan with respect to the ensuing fiscal year, and
discusses with them, as determined appropriate, the plan's scope,
staffing, locations, reliance upon management and internal audit and
general audit approach.
12. It is the responsibility of the Audit Committee to ensure that the
representatives of the independent auditors who perform work for the
company are rotated as required by the Sarbanes-Oxley Act of 2002
and other applicable law, and to further consider rotation of the
independent auditor firm itself.
13. The Audit Committee discusses with the independent auditors any
communications between the audit team and the audit firm's national
office regarding any material auditing or material accounting issues
presented by the independent auditors' engagement by the company.
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14. The Audit Committee discusses with management and the independent
auditors any accounting adjustments that were noted or proposed by
the independent auditors but were not recorded by management
(because they were deemed to be immaterial or otherwise were
"passed").
Internal Audit
15. It is the responsibility of the Audit Committee to ensure that the
company maintains an internal audit function.
16. At least annually, the Audit Committee reviews the company's
internal audit plan, activities, organizational structure and
staffing. The Audit Committee reviews any significant changes to the
company's internal audit plan.
17. The Audit Committee reviews significant reports prepared by the
internal audit department, together with management's response and
follow-up to these reports.
18. At least annually, the Audit Committee discusses with the
independent auditors the company's internal auditors and their audit
plan, responsibilities, budget and staffing.
Environmental and Legal Compliance
19. At least annually, the Audit Committee reviews with the company's
General Counsel:
a. any environmental or legal matters that could have a significant
impact on the company's financial statements;
b. compliance by the company and its subsidiaries with applicable
laws and regulations; and
c. any inquiries received from regulators or governmental agencies
by the company or its subsidiaries.
Other Audit Committee Responsibilities
20. It is the responsibility of the Audit Committee to annually prepare
a report to stockholders as required by the rules of the SEC. The
report is included in the company's annual proxy statement.
21. It is the responsibility of the Audit Committee to review and
reassess the adequacy of this Charter at least annually and to
recommend any proposed changes to the Board of Directors for
approval. It is the responsibility of the Audit Committee to cause
the Charter to be published in accordance with applicable SEC and
New York Stock Exchange regulations.
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22. The Audit Committee monitors compliance with the company's Statement
of Business Principles.
23. As may be set forth from time to time in the company's Statement of
Business Principles (or other code of business conduct and ethics
adopted by the company), the Audit Committee may be responsible for
granting waivers of the Statement of Business Principles (or other
code of business conduct and ethics) for directors and executive
officers.
24. Pursuant to applicable SEC rules, it is the responsibility of the
Audit Committee to establish procedures for:
a. the receipt, retention and treatment of complaints received by
the company and its subsidiaries regarding accounting, internal
accounting controls or auditing matters; and
b. the confidential, anonymous submission by employees of the
company and its subsidiaries of concerns regarding questionable
accounting or auditing matters.
25. The Audit Committee may from time to time recommend to the Board of
Directors policies for the company's hiring of employees or former
employees of the independent auditors who were engaged on the
company's account (recognizing that the hiring by the Company of
certain representatives of the independent auditors could jeopardize
the auditors' independence or otherwise be prohibited).
26. It is the responsibility of the Audit Committee to maintain minutes
of its meetings and report, through its Chair, to the Board of
Directors on significant results of each meeting.
27. It is the responsibility of the Audit Committee to engage in a
self-assessment of its performance at least annually.
V. Limitations on Audit Committee Responsibilities
While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to prepare
financial statements, plan or conduct audits or to determine that the
company's financial statements and disclosures are complete and accurate
and are in accordance with generally accepted accounting principles and
applicable rules and regulations. These are the responsibilities of
management and the independent auditors.
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APPENDIX B
TENNECO AUTOMOTIVE INC.
2002 LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective March 11, 2003)
ARTICLE 1
GENERAL
1.1. Purpose. The Tenneco Automotive Inc. 2002 Long-Term Incentive Plan
(the "Plan") has been established by Tenneco Automotive Inc. (the "Company") to:
(i) promote the long-term success of the Company and its Subsidiaries (as
defined herein); (ii) attract and retain persons eligible to participate in the
Plan; (iii) motivate Participants (as defined herein), by means of appropriate
incentives, to achieve long-range goals; (iv) provide incentive compensation
opportunities that are competitive with those of other similar companies; (v)
further identify Participants' interests with those of the Company's other
stockholders through compensation that is based on the Company's common stock;
and (vi) thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee (as defined herein) shall determine and designate, from time to time,
from among the Eligible Individuals (as defined herein), including without
limitation transferees of Eligible Individuals to the extent the transfer is
permitted by the Plan and the applicable Award Agreement (as defined herein),
those persons who will be granted one or more Awards (as defined herein) under
the Plan, and thereby become "Participants" in the Plan.
1.3. Operation and Administration. The operation and administration of the
Plan, including the Awards made under the Plan, shall be subject to the
provisions of Article 5 (relating to operation and administration).
ARTICLE 2
CERTAIN DEFINED TERMS
As used in this Plan, the following terms shall have the meanings set forth
or referenced below. In addition, other terms may be defined in the other
Articles and Sections of this Plan, and, unless the context otherwise requires,
shall have the specified meanings throughout the Plan:
(a) Award. The term "Award" means any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs, Bonus
Stock Awards, Stock
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Equivalent Unit Awards, Restricted Stock Awards, Restricted Stock Unit
Awards and Performance Unit Awards.
(b) Board. The term "Board" means the Board of Directors of the
Company.
(c) Change in Control. The term "Change in Control" shall mean any of
the following events (but no event other than one of the following events):
(i) any person, alone or together with any of its affiliates or
associates, becoming the beneficial owner, directly or indirectly, of
securities of the Company representing (A) fifteen percent (15%) or more
of either the Company's then outstanding shares of common stock or the
combined voting power of the Company's then outstanding securities
having general voting rights, and a majority of the Incumbent Board does
not approve the acquisition before the acquisition occurs, or (B) forty
percent (40%) or more of either the Company's then outstanding shares of
common stock or the combined voting power of the Company's then
outstanding securities having general voting rights; provided, however,
that, notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to this subparagraph (i) solely because the
requisite percentage of either the Company's then outstanding shares of
common stock or the combined voting power of the Company's then
outstanding securities having general voting rights is acquired by one
or more employee benefits plans maintained by the Tenneco Companies; or
(ii) members of the Incumbent Board ceasing to constitute a
majority of the Board; or
(iii) the consummation of any plan of merger, consolidation, share
exchange or combination between the Company and any person, including
without limitation becoming a subsidiary of any other person, without
members of the Incumbent Board, as constituted immediately prior to the
merger, consolidation, share exchange or combination, constituting a
majority of the board of directors of (A) the surviving or successor
corporation of such transaction, or (B) if the surviving or successor
corporation of such transaction is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent company of the
surviving or successor corporation; or
(iv) the consummation of any sale, exchange or other disposition of
all or substantially all of the Company's assets without members of the
Incumbent Board immediately prior to any such sale, exchange or
disposition of all or substantially all of the Company's assets
constituting a majority of the board of directors of (A) the corporation
which holds such assets after such disposition, or (B) if such
corporation is a majority-owned subsidiary of another corporation or
corporations, the ultimate parent company of the corporation which holds
such assets after such disposition; provided, however, that the Board
may determine conclusively that any transaction does not
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constitute a sale, exchange or other disposition of substantially all of
the Company's assets; or
(v) if any person, alone or together with any of its affiliates or
associates, elects or has elected during any period not exceeding 24
months, at least 25% of the members of the Board, without the approval
of the Incumbent Board, and such members are comprised of persons not
serving as members of the Board immediately prior to the formation of
such group or the first solicitation of proxies by such person; or
(vi) the Company's stockholders approving a plan of complete
liquidation or dissolution of the Company.
(d) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
(e) Common Stock. The term "Common Stock" means the Company's common
stock, par value $.01 per share.
(f) Covered Employee. The term "Covered Employee" means a Participant
who, as of the date of vesting and/or payout of an Award, as applicable, is
a "covered employee," as defined in Code section 162(m) and the regulations
promulgated under Code section 162(m).
(g) Effective Date. The term "Effective Date" has the meaning set
forth in Section 5.1.
(h) Eligible Individual. For purposes of the Plan, the term "Eligible
Individual" means any employee of the Company or a Subsidiary, any
consultant or other person providing services to the Company or a
Subsidiary and any member of the Board; provided, however, that an
incentive stock option may only be granted to an employee of the Company or
a Subsidiary.
(i) Fair Market Value. For purposes of determining the "Fair Market
Value" of a share of Common Stock as of any date, the following rules shall
apply:
(i) If the principal market for the shares of Common Stock is a
national securities exchange or the NASDAQ securities market, then the
"Fair Market Value" as of that date shall be the average of the highest
and lowest sales prices of a share of Common Stock on that date (or, if
such day is not a business day, the next preceding business day) on the
principal exchange or market on which the shares of Common Stock are
then listed or admitted to trading.
(ii) If the shares of Common Stock are not listed on a national
securities exchange and the shares of Common Stock are not quoted on the
NASDAQ securities market, then the "Fair Market Value" as of that date
shall be the average of the highest and
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lowest prices of a share of Common Stock on that date (or, if such day
is not a business day, the next preceding business day) as reported on
the NASDAQ OTC Bulletin Board Service or by the National Quotation
Bureau, Incorporated or a comparable service.
(iii) If subparagraphs (i) and (ii) next above are otherwise
inapplicable, then the Fair Market Value of the shares of Common Stock
shall be determined in good faith by the Committee.
(j) Incumbent Board. The "Incumbent Board" shall consist of the
following persons:
(i) the members of the Board as of the Effective Date, to the
extent they continue to serve as members of the Board; and
(ii) any individual who becomes a member of the Board after the
Effective Date, if his or her election or nomination for election as a
director is approved by a vote of at least three-quarters of the then
Incumbent Board, other than a director whose initial assumption of
office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
election of directors of the Company.
(k) Participants. The term "Participants" has the meaning set forth in
Section 1.2.
(l) Performance Measure. The term "Performance Measure" means any of
the following: (1) net earnings; (2) earnings per share; (3) net sales
growth; (4) net income (before or after taxes); (5) net operating profit;
(6) return measures (including, but not limited to, return on assets,
capital, equity or sales); (7) cash flow (including, but not limited to,
operating cash flow and free cash flow); (8) cash flow return on
investments, which equals net cash flows divided by owner's equity; (9)
earnings before or after taxes, interest, depreciation and/or amortization;
(10) internal rate of return or increase in net present value; (11)
dividend payments to parent; (12) gross margins; (13) gross margins minus
expenses; (14) operating margin; (15) share price (including, but no
limited to, growth measures and total stockholder return); (16) expense
targets; (17) working capital targets relating to inventory and/or accounts
receivable; (18) planning accuracy (as measured by comparing planned
results to actual results); (19) comparisons to various stock market
indices; (20) comparisons to the performance of other companies; (21)
technological achievement; (22) customer counts; (23) customer
satisfaction, quality management or customer service performance; and (24)
EVA(R). For purposes of this Plan, "EVA" means the positive or negative
value determined by net operating profits after taxes over a charge for
capital, or any other financial measure, as determined by the Committee in
its sole discretion. (EVA is a registered trademark of Stern Stewart & Co.)
(m) Subsidiary. The term "Subsidiary" means any corporation,
partnership, joint venture or other entity during any period in which at
least a fifty percent voting or profits
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interest is owned, directly or indirectly, by the Company (or by any entity
that is a successor to the Company), and any other business venture
designated by the Committee in which the Company (or any entity that is a
successor to the Company) has a significant interest, as determined in the
discretion of the Committee.
(n) Tenneco Companies. The term "Tenneco Companies" means the Company
and any Subsidiary of which a majority of the voting common stock or
capital stock is owned directly or indirectly by the Company.
ARTICLE 3
OPTIONS AND SARS
3.1. Certain Definitions.
(a) The grant of an "Option" entitles the Participant to purchase
shares of Common Stock at an Exercise Price (as defined herein) established
by the Committee. Any Option granted under this Article 3 may be either an
incentive stock option (an "ISO") or a non-qualified stock option (an
"NQO"), as determined in the discretion of the Committee. An "ISO" is an
Option that is intended to satisfy the requirements applicable to an
"incentive stock option" described in section 422(b) of the Code. An "NQO"
is an Option that is not intended to be an "incentive stock option" as that
term is described in section 422(b) of the Code.
(b) A stock appreciation right (an "SAR") entitles the Participant to
receive, in cash or shares of Common Stock (as determined in accordance
with Section 5.2), value equal to (or otherwise based on) the excess of:
(i) the Fair Market Value of a specified number of shares of Common Stock
at the time of exercise; over (ii) an Exercise Price established by the
Committee.
3.2. Exercise Price. The "Exercise Price" of each Option and SAR granted
under this Article 3 shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option or
SAR is granted; provided, however, that the Exercise Price shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date of
grant (or, if greater, the par value of a share of Common Stock).
3.3. Exercise. An Option and an SAR granted under this Article 3 shall be
exercisable in accordance with such terms and conditions and during such periods
as may be established by the Committee; provided, however, that no Option or SAR
shall be exercisable after the tenth anniversary of the date as of which such
Award was granted.
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3.4. Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Article 3 shall be subject to the following:
(a) Subject to the following provisions of this Section 3.4, the full
Exercise Price for shares of Common Stock purchased upon the exercise of
any Option shall be paid at the time of such exercise (except that, in the
case of an exercise arrangement approved by the Committee and described in
Section 3.4(c), payment may be made as soon as practicable after the
exercise).
(b) The Exercise Price shall be payable to the Company in full either:
(i) in cash or its equivalent, (ii) by tendering (either by actual delivery
or attestation) previously acquired shares of Common Stock having an
aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price (provided that the shares that are tendered must have been
held by the Participant for at least six (6) months prior to their tender
to satisfy the Exercise Price or must have been purchased on the open
market), (iii) by a combination of (i) and (ii), or (iv) by any other
method approved by the Committee in its sole discretion at the time of
grant and as set forth in the Award Agreement.
(c) The Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by irrevocably authorizing a
third party to sell shares of Common Stock (or a sufficient portion of the
shares of Common Stock) acquired upon exercise of the Option and remit to
the Company a sufficient portion of the sale proceeds to pay the entire
Exercise Price and any tax withholding resulting from such exercise.
3.5. Settlement of Award. Settlement of Options and SARs is subject to the
provisions of Section 5.7.
ARTICLE 4
OTHER STOCK-RELATED AWARDS
4.1. Certain Definitions.
(a) A "Bonus Stock" Award is a grant of shares of Common Stock in
return for previously performed services, or in return for the Participant
surrendering other compensation that may be due to such Participant from
the Company or a Subsidiary.
(b) A "Stock Equivalent Unit" Award is a grant of a right to receive
cash in an amount equal to the value of a specified number of shares of
Common Stock, in the future, which may be contingent on the achievement of
performance or other objectives, including without limitation continued
service, during a specified period.
(c) A "Performance Unit" Award is a grant of a right to receive a
specified number of shares, or dollar amount of shares, of Common Stock, in
the future, which is contingent on
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the achievement of performance or other objectives, including without
limitation continued service, during a specified period.
(d) A "Restricted Stock" Award is a grant of shares of Common Stock,
and a "Restricted Stock Unit" Award is a grant of a right to receive a
specified number of shares of Common Stock, or cash in an amount equal to
the value of a specified number of shares of Common Stock, in the future,
with such shares of Common Stock or right to future delivery of such shares
of Common Stock or payment of cash subject to a risk of forfeiture or other
restrictions that will lapse upon the achievement of one or more goals
relating to completion of service by the Participant, or achievement of
performance or other objectives, as determined by the Committee.
4.2. Restrictions on Awards. Each Bonus Stock Award, Stock Equivalent Unit
Award, Restricted Stock Award, Restricted Stock Unit Award and Performance Unit
Award shall be subject to such conditions, restrictions and contingencies as the
Committee shall determine. The Committee may designate whether any such Award
being granted to any Participant is intended to be "performance-based
compensation" as that term is used in section 162(m) of the Code. Any such
Awards designated as intended to be "performance-based compensation" shall be
conditioned on the achievement of one or more Performance Measures, to the
extent required by Code section 162(m). For Awards under this Section 4.2
intended to be "performance-based compensation," the grant of the Awards and the
establishment of the Performance Measures shall be made during the period
required under Code section 162(m). Any Performance Measure(s) may be used to
measure the performance of the Company as a whole or any business unit or
Subsidiary of the Company or any combination thereof, as the Committee may deem
appropriate, or any such performance as compared to the performance of a group
of comparator companies, or any published or special index that the Committee,
in its sole discretion, deems appropriate. The Committee also has the authority
to provide for accelerated vesting of any Award made under this Article 4 based
on the achievement of performance goals pursuant to the Performance Measures
specified herein. The Committee may provide in any such Award that any
evaluation of performance may include or exclude any of the following events
that occurs during a performance period: (a) asset write-downs, (b) litigation
or claim judgments or settlements, (c) the effect of changes in tax laws,
accounting principles, or other laws or provisions affecting reported results,
(d) accruals for reorganization and restructuring programs, (e) extraordinary
nonrecurring items as described in Accounting Principles Board Opinion No. 30
and/or in management's discussion and analysis of financial condition and
results of operations appearing in the Company's annual report to stockholders
for the applicable year, (f) acquisitions or divestitures, and (g) foreign
exchange gains and losses. To the extent such inclusions or exclusions affect
Awards to Covered Employees intended to qualify as "performance-based
compensation," they shall be prescribed in a form that meets the requirements of
Code section 162(m) for deductibility. Awards that are designed to qualify as
"performance-based compensation," and that are held by Covered Employees, may
not be adjusted upward (the Committee shall retain the discretion to adjust such
Awards downward). In the event that applicable
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tax and/or securities laws change to permit Board or Committee discretion to
alter the governing Performance Measures without obtaining stockholder approval
of such changes, the Board and Committee shall have the discretion to make such
changes without obtaining stockholder approval. In addition, in the event that
the Committee determines that it is advisable to grant Awards under this Article
4 that shall not qualify as "performance-based compensation," the Committee may
make such grants without satisfying the requirements of Code section 162(m).
ARTICLE 5
OPERATION AND ADMINISTRATION
5.1. Effective Date. Subject to the approval of the stockholders of the
Company and the provisions of Section 5.2(b), the Plan shall be effective as of
March 12, 2002 (the "Effective Date"). The Plan shall be unlimited in duration
and, in the event of Plan termination, shall remain in effect as long as any
Awards under it are outstanding; provided, however, that no Awards may be
granted under the Plan after the ten-year anniversary of the Effective Date
(except for Awards granted pursuant to commitments entered into prior to such
ten-year anniversary).
5.2. Plan and Other Limitations. The Awards that may be granted under the
Plan shall be subject to the following:
(a) The shares of Common Stock with respect to which Awards may be
made under the Plan shall be shares of Common Stock currently authorized
but unissued or currently held or, to the extent permitted by applicable
law, subsequently acquired by the Company as treasury shares, including
shares of Common Stock purchased in the open market or in private
transactions.
(b) Effective upon approval by the Company's stockholders of the
amendment to increase by 2,000,000 (Two Million) the maximum number of
shares available under the Plan (which amendment is submitted to such
stockholders for their approval at the Company's 2003 Annual Meeting of
Stockholders), subject to the following provisions of this Section 5.2, the
maximum number of shares of Common Stock that may be delivered to
Participants and their beneficiaries under the Plan shall be equal to
4,000,000 (Four Million) shares of Common Stock. In addition, effective
upon approval by the Company's stockholders of the amendment to increase by
500,000 (Five-Hundred Thousand) the maximum number of shares available
under the Plan (which amendment is submitted to such stockholders for their
approval at the Company's 2003 Annual Meeting of Stockholders), subject to
the following provisions of this Section 5.2, the maximum number of shares
of Common Stock that may be delivered to Participants and their
beneficiaries under the Plan pursuant to Full Value Awards (as defined
below) shall be equal to 1,000,000 (One Million)
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shares of Common Stock. For the purposes of this Plan, "Full Value Awards"
shall be Awards of Bonus Stock, Stock Equivalent Units, Performance Units,
Restricted Stock or Restricted Stock Units.
(c) To the extent provided by the Committee, any Award of Stock
Equivalent Units, Performance Units or Restricted Stock Units may be
settled in cash rather than shares of Common Stock. To the extent any
shares of Common Stock covered by an Award are not delivered to a
Participant or beneficiary because the Award is forfeited or canceled, or
the shares of Common Stock are not delivered because the Award is settled
in cash or used to satisfy the applicable tax withholding obligation, such
shares of Common Stock shall not be deemed to have been delivered for
purposes of determining the maximum number of shares of Common Stock
available for delivery under the Plan or, if applicable, pursuant to Full
Value Awards.
(d) If the exercise price of any Option granted under the Plan is
satisfied by tendering shares of Common Stock to the Company (by either
actual delivery or by attestation), only the number of shares of Common
Stock issued net of the shares of Common Stock tendered shall be deemed
delivered for purposes of determining the maximum number of shares of
Common Stock available for delivery under the Plan.
(e) Subject to Section 5.2(f), the following additional limitations
are imposed under the Plan.
(i) The maximum number of shares of Common Stock that may be
covered by Awards granted to any one individual pursuant to Article 3
(relating to Options and SARs) shall be 350,000 (Three Hundred Fifty
Thousand) shares of Common Stock during any one calendar year period. If
an Option is in tandem with an SAR, such that the exercise of the Option
or SAR with respect to a share of Common Stock cancels the tandem SAR or
Option right, respectively, with respect to such share, the tandem
Option and SAR rights with respect to each share of Common Stock shall
be counted as covering only one share of Common Stock for purposes of
applying the limitations of this clause (i).
(ii) For Awards granted pursuant to Article 4 that are intended to
be "performance-based compensation" (as that term is used for purposes
of Code section 162(m)), no more than 200,000 (Two Hundred Thousand)
shares of Common Stock and, if such Awards are denominated in cash
value, no more than $800,000, may be subject to such Awards granted to
any one individual during any one calendar year. If, after shares have
been earned, the delivery is deferred, any additional shares
attributable to dividends or other amounts attributable to earnings
during the deferral period shall be disregarded. Unless otherwise
indicated by the Committee at the time of grant, all Awards granted
pursuant to Article 4 for which the vesting or payment are
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conditioned on achievement of one or more Performance Measures shall be
deemed to be intended to be "performance-based compensation" for the
purposes of Code section 162(m).
(f) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
Committee may adjust the terms of the Plan and Awards to preserve the
benefits or potential benefits of the Plan or the Awards. Action by the
Committee with respect to the Plan or Awards under this Section 5.2(f) may
include: (i) adjustment of the number and kind of shares which may be
delivered under the Plan; (ii) adjustment of the number and kind of shares
subject to outstanding Awards; (iii) adjustment of the Exercise Price of
outstanding Options and SARs; and (iv) any other adjustments that the
Committee determines to be equitable.
5.3. General Restrictions. Delivery of shares of Common Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Common Stock under the Plan or
make any other distribution of benefits under the Plan unless such delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933, as amended),
and the applicable requirements of any securities exchange or similar
entity.
(b) To the extent that the Plan provides for issuance of certificates
to reflect the issuance of shares of Common Stock, the issuance may be
effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any securities exchange.
5.4. Tax Withholding. All distributions under the Plan shall be subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. Except as otherwise provided by the
Committee, such withholding obligations may be satisfied (a) through cash
payment by the Participant, (b) through the surrender of shares of Common Stock
which the Participant already owns, or (c) through the surrender of shares of
Common Stock to which the Participant is otherwise entitled under the Plan;
provided, however, that such shares of Common Stock under this paragraph (c) may
be used to satisfy not more than the Company's minimum statutory withholding
obligation (based on minimum statutory withholding rates for Federal and state
tax purposes, including without limitation payroll taxes, that are applicable to
such supplemental taxable income).
5.5. Grant and Use of Awards. In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be
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granted to a Participant. Awards may be granted as alternatives to or
replacement of awards granted or outstanding under the Plan, or any other plan
or arrangement of the Company or a Subsidiary (including a plan or arrangement
of a business or entity, all or a portion shares of common stock of which is
acquired by the Company or a Subsidiary). The Committee may use available shares
of Common Stock hereunder as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or a Subsidiary, including the plans and arrangements of the Company or
a Subsidiary assumed in business combinations.
5.6. Dividends and Dividend Equivalents. An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend payments, dividend equivalent payments or dividend equivalent
units with respect to shares of Common Stock subject to the Award (both before
and after the shares of Common Stock subject to the Award are earned, vested, or
acquired), which payments may be either made currently or credited to an account
for the Participant, and may be settled in cash or shares of Common Stock, as
determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Common Stock or
Common Stock equivalents, may be subject to such conditions, restrictions and
contingencies as the Committee shall establish, including the reinvestment of
such credited amounts in Common Stock equivalents.
5.7. Settlement of Awards. The obligation to make payments and
distributions with respect to Awards of Stock Equivalent Units, Performance
Units or Restricted Stock Units may be satisfied through cash payments, the
delivery of shares of Common Stock, the granting of replacement Awards, or any
combination thereof as the Committee shall determine. Satisfaction of any
obligations to make payments or distributions under an Award, which is sometimes
referred to as "settlement" of the Award, may be subject to such conditions,
restrictions and contingencies as the Committee shall determine. The Committee
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest or dividend equivalents, and may include converting
such credits into deferred Common Stock equivalents. Each Subsidiary shall be
liable for payment of cash due under the Plan with respect to any Participant to
the extent that such benefits are attributable to the services rendered for that
Subsidiary by the Participant. Any disputes relating to liability of a
Subsidiary for cash payments shall be resolved by the Committee.
5.8. Transferability. Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.
5.9. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee
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at such times, in such form and subject to such restrictions and limitations,
not inconsistent with the terms of the Plan, as the Committee shall require.
5.10. Agreement With Company. An Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. The terms and conditions of any Award
to any Participant shall be reflected in such form of written document, if any,
as is determined by the Committee. A copy of such document shall be provided to
the Participant, and the Committee may, but need not, require that the
Participant sign a copy of such document. Such document is referred to in the
Plan as an "Award Agreement" regardless of whether any Participant signature is
required.
5.11. Action by Company or Subsidiary. Any action required or permitted to
be taken by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or (except
to the extent prohibited by applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.
5.12. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
5.13. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets,
funds or property of the Company or any Subsidiary whatsoever, including,
without limitation, any specific funds, assets or other property which the
Company or any Subsidiary, in its sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the shares of Common Stock or amounts, if any, payable
under the Plan, unsecured by any assets of the Company or any Subsidiary,
and nothing contained in the Plan shall constitute a guarantee that the
assets of the Company or any Subsidiary shall be sufficient to pay any
benefits to any person.
(b) The Plan does not constitute a contract of employment or continued
service, and selection as a Participant will not give any participating
individual the right to be retained in the employ or continued service of
the Company or any Subsidiary, nor any right or claim to any benefit under
the Plan, unless such right or claim has specifically accrued under the
terms of the Plan. Except as otherwise provided in the Plan, no Award under
the Plan shall confer upon the holder thereof any rights as a stockholder
of the Company prior to the date on which the individual fulfills all
conditions for receipt of such rights.
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5.14. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
ARTICLE 6
CHANGE IN CONTROL
Subject to the provisions of Section 5.2(f) (relating to certain
adjustments), upon the occurrence of a Change in Control, unless otherwise
specifically prohibited under applicable laws, or by the rules and regulations
of any applicable governmental agencies or national securities exchange, or
unless the Committee shall otherwise provide in the Award Agreement:
(a) any and all Options and SARs granted hereunder shall become
immediately vested and exercisable and shall remain exercisable for the
lesser of 36 months following such Change in Control or the remaining
maximum term of such Award (regardless of whether the applicable
Participant's employment or directorship is terminated upon or after such
Change in Control);
(b) any period of restriction and restrictions imposed on Restricted
Stock or Restricted Stock Units granted hereunder shall lapse and each
Participant holding any such Award shall be entitled to be paid in cash,
within 30 days after the Change in Control, the total of the fair market
value, determined as of immediately prior to such Change in Control, of any
such Award which he or she held immediately prior to such Change in
Control; and
(c) the target payout opportunities attainable under all Bonus Stock,
Stock Equivalent Unit and Performance Unit Awards granted hereunder shall
be deemed to have been fully earned as of the effective date of the Change
in Control (based on an assumed achievement of all relevant targeted
performance goals over any applicable performance period(s)) and each
Participant holding any such Award shall be entitled to be paid in cash,
within 30 days after the Change in Control, the total of the fair market
value, determined as of immediately prior to such Change in Control, of any
such Award which he or she held immediately prior to such Change in
Control.
ARTICLE 7
COMMITTEE
7.1. Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Article 7. The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board. From and after the
Effective Date, unless removed by the Board or unless said
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committee no longer exists, the Company's Compensation/Nominating/Governance
Committee shall be the Committee for purposes of this Plan. If the Committee
does not exist, or for any other reason determined by the Board, the Board may
take any action under the Plan that would otherwise be the responsibility of the
Committee.
7.2. Powers of Committee. The Committee's administration of the Plan shall
be subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Individuals
those persons who shall receive Awards, to determine the time or times of
receipt, to determine the types of Awards and the number of shares of
Common Stock or other amounts covered by the Awards, to establish the
terms, conditions, performance criteria, restrictions and other provisions
of such Awards and (subject to the restrictions imposed by Article 8) to
cancel or suspend Awards.
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of
the Awards in jurisdictions outside the United States, the Committee will
have the authority and discretion to modify those restrictions as the
Committee determines to be necessary or appropriate to conform to
applicable requirements or practices of jurisdictions outside of the United
States.
(c) The Committee will have the authority and discretion to
conclusively interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan, to determine the terms and provisions
of any Award Agreement made pursuant to the Plan and to make all other
determinations that may be necessary or advisable for the administration of
the Plan.
(d) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan is final and binding on all persons.
(e) In controlling and managing the operation and administration of
the Plan, the Committee shall take action in a manner that conforms to the
certificate of incorporation and by-laws of the Company, and applicable
state corporate law.
7.3. Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of a securities exchange, the Committee may allocate
all or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers to
any person or persons selected by it. Any such allocation or delegation may be
revoked by the Committee at any time.
7.4. Information to be Furnished to Committee. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an individual's employment or service, termination of
employment or service, leave of absence, reemployment or
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recommencement of service and compensation shall be conclusive on all persons
unless determined to be incorrect. Participants and other persons entitled to
benefits under the Plan must furnish the Committee such evidence, data or
information as the Committee considers desirable to carry out the terms of the
Plan.
ARTICLE 8
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, and may amend any
Award Agreement, provided that no amendment or termination may, in the absence
of written consent to the change by the affected Participant (or, if the
Participant is not then living, the affected beneficiary), adversely affect the
rights of any Participant or beneficiary under any Award granted under the Plan
prior to the date such amendment is adopted by the Board; and further provided
that adjustments pursuant to Section 5.2(f) shall not be subject to the
foregoing limitations of this Article 8. Notwithstanding anything herein to the
contrary, (i) without the prior approval of the Company's stockholders, Options
issued under the Plan will not be repriced, replaced, or regranted through
cancellation, or by lowering the exercise price of a previously granted Option,
and (ii) no amendment of the Plan shall be made without stockholder approval if
stockholder approval is required by applicable law, regulation or stock exchange
rule.
ARTICLE 9
MISCELLANEOUS
9.1. Governing Law. The validity, construction and effect of the Plan, and
any actions taken or relating to the Plan, shall be determined in accordance
with the laws of the State of Illinois and applicable federal law.
9.2. Severability. If for any reason any provision or provisions of the
Plan are determined invalid or unenforceable, the validity and effect of the
other provisions of the Plan shall not be affected thereby.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on its
behalf by its respective officer thereunder duly authorized, on the day and year
set forth below.
Date: As of March 11, 2003
TENNECO AUTOMOTIVE INC.
By: /s/ MARK P. FRISSORA
----------------------------------------------------
Mark P. Frissora
Chairman and Chief Financial Officer
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NOTICE OF ANNUAL
MEETING AND
PROXY STATEMENT
-------------------------------------
ANNUAL MEETING
OF STOCKHOLDERS
MAY 13, 2003
TENNECO
AUTOMOTIVE INC.
500 NORTH FIELD DRIVE, LAKE FOREST,
ILLINOIS 60045
[TENNECO AUTOMOTIVE LOGO]
TENNECO AUTOMOTIVE INC.
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045 [TENNECO AUTOMOTIVE LOGO]
April 3, 2003
Dear Benefit Plan Participant:
The Annual Meeting of the Stockholders of Tenneco Automotive Inc. is
scheduled to be held Tuesday, May 13, 2003, at 10:00 a.m., local time, at the
Company's headquarters located at 500 North Field Drive, Lake Forest, Illinois
60045. A Notice and Proxy Statement, which is being sent to all registered
stockholders in connection with the Annual Meeting, is enclosed for your
information.
Also enclosed with this letter is a form of proxy card, which designates
the number of shares held in your benefit plan account. By executing this proxy
card you instruct the benefit plan trustee (the "Trustee") how to vote the
shares of Tenneco Automotive Inc. stock in your account which you are entitled
to vote. The Trustee will vote all shares eligible to be voted by benefit plan
participants in accordance with their instructions.
If you return your form of proxy executed but without furnishing voting
instructions, the eligible shares in your account will be voted by the Trustee,
as holder of record of the shares in your account, FOR the election of the
nominees for director named in the Proxy Statement, FOR the approval of the
appointment of Deloitte & Touche LLP as independent public accountants for 2003,
FOR the approval of the amendment of the Tenneco Automotive Inc. 2002 Long-Term
Incentive Plan to increase shares available from 2 million to 4 million (which
shares include an increase from 500,000 to 1 million for full value awards), 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 the proxy to the Trustee, then
your shares can be voted by the Trustee only in accordance with the requirements
of your benefit plan, which may or may not reflect your views.
Your vote is important. Please send your executed form of proxy card with
your voting instructions at your earliest opportunity. For your convenience, a
return envelope is enclosed.
YOUR BENEFITS COMMITTEE
[TENNECO AUTOMOTIVE LOGO]
TENNECO AUTOMOTIVE INC.
Annual Meeting of Stockholders
May 13, 2003
10:00 a.m., local time
Tenneco Automotive
500 North Field Drive
Lake Forest, Illinois 60045
Dear Stockholder:
Tenneco Automotive Inc. encourages you to take advantage of convenient
ways by which you can vote your shares. You can vote your shares electronically
through the Internet or the telephone. This eliminates the need to return the
proxy card.
To vote your shares electronically, please follow the instructions on the
opposite side of this card.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
\/ FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL \/
--------------------------------------------------------------------------------
PROXY [TENNECO AUTOMOTIVE LOGO]
TENNECO AUTOMOTIVE INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 13, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby appoint Mark P. Frissora, Paul T. Stecko and
Karl A. Stewart, and any of them, with full power of substitution, as Proxies
to vote, as directed on the reverse side of this card, or, if not so directed,
in accordance with the Board of Directors' recommendations, all shares of
Tenneco Automotive Inc. held of record by the undersigned at the close of
business on March 21, 2003 and entitled to vote at the Annual Meeting of
Stockholders of Tenneco Automotive Inc. to be held at 10:00 a.m., local time,
May 13, 2003, at the Company's Headquarters located at 500 North Field Drive,
Lake Forest, Illinois 60045 or at any adjournment or postponement thereof, and
to vote, in their discretion, upon such other matters as may properly come
before the Annual Meeting.
Election of Directors -- Nominees: 01) Charles W. Cramb, 02) M. Kathryn
Eickhoff, 03) Mark P. Frissora, 04) Frank E. Macher, 05) Sir David Plastow, 06)
Roger B. Porter, 07) David B. Price, Jr., 08) Dennis G. Severance, 09) Paul T.
Stecko
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot
vote your shares unless you sign and return this card.
INSTRUCTIONS FOR VOTING YOUR PROXY
Tenneco Automotive Inc. offers shareholders three alternative ways of voting
their proxies:
- BY TELEPHONE (using a touch-tone telephone)
- THROUGH THE INTERNET (using a browser) - BY MAIL (traditional method)
Your telephone or internet vote authorizes the Proxies to vote your shares in
the same manner as if you had mailed your proxy card. We encourage you to use
these cost effective and convenient ways of voting, 24 hours a day, 7 Days a
week.
TELEPHONE VOTING Available only until 5:00 p.m. Eastern Daylight Time May 12,
2003.
- On a touch-tone telephone, call TOLL FREE 1-800-433-2279, 24 hours a day, 7
days a week
- You will be asked to enter ONLY the Control Number shown below
- Have your proxy card ready, then follow the prerecorded instructions
- Your vote will be confirmed and cast as you directed
INTERNET VOTING Available only until 5:00 p.m. Eastern Daylight Time May 12,
2003.
- Visit the Internet voting Website at http://proxy.georgeson.com
- Enter the COMPANY NUMBER AND CONTROL NUMBER shown below and follow the
instructions on your screen
- You will incur only your usual Internet charges
VOTING BY MAIL
- Simply sign and date your proxy card and return it in the postage-paid
envelope
COMPANY NUMBER CONTROL NUMBER
\/ FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL \/
--------------------------------------------------------------------------------
PLEASE MARK YOUR
/x/ VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
--------------------------------------------------------------------------------
1. Election of Directors / / FOR / / WITHHELD
(see reverse)
For, except vote withheld from the nominee(s):__________________________________
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approve appointment of Deloitte & Touche LLP / / / / / /
as independent public accountants for 2003
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. Approve amendment of the Tenneco Automotive / / / / / /
Inc. 2002 Long-Term Incentive Plan to increase
shares available from 2 million to 4 million
(with 500,000 of the new shares available
for full value awards)
--------------------------------------------------------------------------------
4. In the discretion of the Proxies named herein, the Proxies are authorized
to vote upon such other matters as may properly come before the meeting (or
any adjournment or postponement thereof).
--------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee, or guardian,
please give full title as such.
SIGNATURE____________________________________
SIGNATURE____________________________________
DATE_________________________________________