-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hh3DfNIN/Afq/go/lH778RBCNhZN8rGvzpSTF1Knug2C+FfaKHGa61QgYUwTNsyz OLHIU2fjsrsfiB5A2GxEUA== 0000950137-00-001547.txt : 20000404 0000950137-00-001547.hdr.sgml : 20000404 ACCESSION NUMBER: 0000950137-00-001547 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000509 FILED AS OF DATE: 20000403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNECO AUTOMOTIVE INC CENTRAL INDEX KEY: 0001024725 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 760515284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-12387 FILM NUMBER: 592418 BUSINESS ADDRESS: STREET 1: 500 NORTH FIELD DRIVE CITY: LAKE FOREST STATE: IL ZIP: 60045 BUSINESS PHONE: 847-482-50 MAIL ADDRESS: STREET 1: 500 N FIELD DR STREET 2: ROOM T 2560B CITY: LAKE FOREST STATE: IL ZIP: 60045 FORMER COMPANY: FORMER CONFORMED NAME: NEW TENNECO INC DATE OF NAME CHANGE: 19961011 DEF 14A 1 DEFINITIVE NOTICE AND PROXY 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the registrant [x] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary proxy statement. [ ] Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2). [x] Definitive proxy statement. [ ] Definitive additional materials. [ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12. TENNECO AUTOMOTIVE INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (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: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. - -------------------------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 TENNECO AUTOMOTIVE INC. 500 NORTH FIELD DRIVE LAKE FOREST, ILLINOIS 60045 (847) 482-5000 [TENNECO AUTOMOTIVE LOGO] April 3, 2000 To the Stockholders of Tenneco Automotive Inc.: The Annual Meeting of Stockholders of Tenneco Automotive Inc. will be held on Tuesday, May 9, 2000, at 10:00 a.m., local time, at the Chicago Botanic Garden, 1000 Lake Cook Road, Glencoe, Illinois. A Notice of the meeting, a Proxy, and a Proxy Statement containing information about the matters to be acted upon are enclosed. Holders of common stock are entitled to vote at the Annual Meeting on the basis of one vote for each share held. A record of our activities for 1999 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 by using our telephone or Internet voting procedures. Very truly yours, /S/ MARK P. FRISSORA SIG MARK P. FRISSORA Chairman and Chief Executive Officer 3 TENNECO AUTOMOTIVE INC. 500 NORTH FIELD DRIVE LAKE FOREST, ILLINOIS 60045 (847) 482-5000 [TENNECO AUTOMOTIVE LOGO] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS MAY 9, 2000 The Annual Meeting of Stockholders of Tenneco Automotive Inc. will be held at the Chicago Botanic Garden, 1000 Lake Cook Road, Glencoe, Illinois on Tuesday, May 9, 2000, at 10:00 a.m., local time. The purposes of the meeting are: 1. To elect two directors for a term to expire at the 2001 Annual Meeting of Stockholders; 2. To consider and act upon a proposal to ratify the appointment of Arthur Andersen LLP as independent public accountants for the year 2000; 3. To consider and act upon a proposal to amend the Company's Restated Certificate of Incorporation, as amended, to decrease the total number of authorized shares of common stock from 350,000,000 shares to 135,000,000 shares; 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 17, 2000 are entitled to vote at the meeting. A list of these stockholders will be available for inspection for ten days preceding the meeting at the Chicago Botanic Garden, 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 card 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, 2000 4 TENNECO AUTOMOTIVE INC. [TENNECO AUTOMOTIVE LOGO] 500 NORTH FIELD DRIVE LAKE FOREST, ILLINOIS 60045 (847) 482-5000 April 3, 2000 PROXY STATEMENT This Proxy 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 9, 2000, or at any adjournment or postponement thereof (the "Annual Meeting"), for the purposes set forth in the accompanying Notice of the meeting. Holders of common stock of record at the close of business on March 17, 2000 will be entitled to vote at the Annual Meeting. Each share is entitled to one vote. At March 17, 2000, there were 33,978,558 shares of common stock outstanding and entitled to vote at the Annual Meeting. This Proxy Statement is first being mailed to stockholders on or about April 3, 2000. 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. Because 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. 1 5 ELECTION OF DIRECTORS (ITEM 1) GENERAL The Board of Directors presently consists of eight members, divided into three classes, serving staggered three-year terms. On October 25, 1999, the Company's stockholders approved a proposal to eliminate the staggered board structure and provide instead for the annual election of directors. Under this proposal, the staggered board structure will be phased out over the next three annual meetings of stockholders, beginning with this year's Annual Meeting. The two nominees below are proposed to be elected at this Annual Meeting to serve for terms to expire at the 2001 annual meeting of stockholders and until their successors are chosen and have qualified. Six directors will continue to serve as set forth below. 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 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 17, 2000), the principal occupation, employment during the past five years, the year in which first elected a director and other information concerning each nominee and the continuing directors appear 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. 2 6 NOMINEES FOR ELECTION FOR ONE-YEAR TERMS EXPIRING AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS MARK ANDREWS -- Mr. Andrews has been Chairman of Andrews Associates, Inc., a government consulting firm, since February 1987. From 1963 to 1980, he served in the U.S. House of Representatives, and from 1980 to 1986 he served in the U.S. Senate. He is also a director of Union Storage Co. Mr. Andrews is 73 and has been a director of the Company since 1987. He is also a director of Pactiv Corporation. Mr. Andrews is a member of the Compensation/ Nominating/Governance Committee. DAVID B. PRICE, JR. -- Mr. Price has been an Executive Vice President of the BF Goodrich Company and President and Chief Operating Officer of BF Goodrich Performance Materials, a producer of chemical additives and specialty plastics for use in consumer and industrial products, since July 1997. Prior to joining BF Goodrich, Mr. Price held various executive positions over a 20-year span at Monsanto Company, most recently serving as President of the Performance Materials Division of Monsanto Company from 1995 to July 1997. From 1993 to 1995, he was Vice President and General Manager of commercial operations for the Industrial Products Group and was also named to the management board of Monsanto's Chemical Group. Mr. Price is 54 years old and was named a director of the Company in November 1999 in connection with the Spin-off. Mr. Price is a member of the Three-Year Independent Director Evaluation Committee and the Compensation/Nominating/Governance Committee. CONTINUING DIRECTORS TERMS EXPIRING AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS M. KATHRYN EICKHOFF -- Ms. Eickhoff has been President of Eickhoff Economics, Inc., a consulting firm, since 1987. From 1985 to 1987, she was Associate Director for Economic Policy for the U.S. Office of Management and Budget, and prior to 1985, was Executive Vice President and Treasurer of Townsend Greenspan & Co., Inc., an economic consulting firm. She is also a director of AT&T Corp., Pharmacia & Upjohn, Inc. and Fleet Bank, NA. Ms. Eickhoff is 60 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. DANA G. MEAD -- In connection with the Spin-off, Mr. Mead retired as Chief Executive Officer of Tenneco Inc. He also retired as Chairman of the Board of Directors of the Company in March 2000. He served as an executive officer of Tenneco Inc. from April 1992, when he joined as Chief Operating Officer, to November 1999. Prior to joining Tenneco Inc., Mr. Mead served as an Executive Vice President of International Paper Company, a manufacturer of paper, pulp, and wood products, from 1988, and served as Senior Vice President of that company from 1981. He 3 7 is also a director of Packaging Corporation of America, Pactiv Corporation, Textron Inc., Zurich Allied AG, Pfizer Inc. and Newport News Shipbuilding Inc. Mr. Mead 64 years old and has been a director of the Company since 1992. ROGER B. PORTER -- Mr. Porter is Director of the Center for Business and Government at Harvard University and is the IBM Professor of Business and Government. 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 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 RightCHOICE Managed Care, Inc., National Life Insurance Company, Zions Bancorporation and Pactiv Corporation. Mr. Porter is 53 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. TERMS EXPIRING AT THE 2002 ANNUAL MEETING OF STOCKHOLDERS 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. Previously, he spent 15 years with both General Electric (10 years) and Philips Lighting Company in management roles focusing on product development and marketing. He is a member of both The Business Roundtable and the World Economic Forum's Automotive Board of Governors. Mr. Frissora is 44 years old and became a director of the Company in November 1999 in connection with the Spin-off. SIR DAVID PLASTOW -- Sir David Plastow 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. He served as Chairman of Inchcape plc, a multinational marketing and distribution company, from June 1992 to December 1995, and Chairman and Chief Executive Officer of Vickers plc, an engineering and manufacturing company headquartered in London, from January 1987 to May 1992. He is also a director of FT Everard & Sons Limited. Sir David Plastow is 67 years old and has been a director 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 Plastow is a member of the Compensation/Nominating/Governance Committee. 4 8 PAUL T. STECKO -- Mr. Stecko became the Chief Executive Officer of Packaging Corporation of America in connection with the April 1999 formation of Pactiv Corporation's containerboard joint venture. 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 55 years old and has been a director of the Company since November 1998. He is also a director of State Farm Mutual Insurance Company and Pactiv Corporation, and is the Chairman of the Board of Packaging Corporation of America. Mr. Stecko is the Chairman of the Audit Committee and the Chairman of the Three-Year Independent Director Evaluation Committee. THE BOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors of the Company currently comprises eight members, seven of whom are not officers of the Company (the "Outside Directors") and one of whom is an officer of the Company (the "Inside Director"). The Board of Directors believes that the Company's ratio of Outside Directors to Inside Directors represents a commitment to the independence of the Board and a focus on matters of importance to its stockholders. During 1999, the Board of Directors held 13 meetings. Each director attended more than 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. The Board of Directors has three standing committees. These committees have the following described responsibilities and authority. The Audit Committee, comprised solely of Outside Directors, has the responsibility, among other things, to: (1) recommend the selection of the Company's independent public accountants; (2) review and approve the scope of the independent public accountants' audit activity and extent of non-audit services; (3) review with management and such independent public accountants the adequacy of the Company's basic accounting system and the effectiveness of the Company's internal audit plan and activities; (4) review with management and the independent public accountants the Company's certified financial statements and exercise general oversight of the financial reporting process; and (5) review with the Company litigation and other legal matters that may affect the Company's financial condition and monitor compliance with business ethics and other policies. The Audit Committee held four meetings in 1999. Mr. Stecko, the Chairman of the Audit Committee, 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. The Board of Directors has determined that it is in the best interests of the Company that Mr. Stecko continue to serve even though he was employed by the 5 9 Company within the last three years. This determination was based on, among other things, the Board's belief that Mr. Stecko's familiarity with the Company, both before and after the Spin-off, is of unique value in assuring continuity in the functioning of the Audit Committee. The Compensation/Nominating/Governance Committee, comprised solely of Outside Directors, has the responsibility, among other things, to: (1) establish the salary rate of officers and employees of the Company and its subsidiaries; (2) examine periodically the compensation structure of the Company; and (3) supervise the welfare and pension plans and compensation plans of the Company. It also has significant corporate governance responsibilities including, among other things, to: (a) review and determine the desirable balance of experience, qualifications and expertise among members of the Board; (b) review possible candidates for membership on the Board and recommend a slate of nominees for election as directors at each annual meeting of stockholders; (c) review the function and composition of the other committees of the Board and recommend membership on these committees; and (d) review the qualifications and recommend candidates for election as officers of the Company. The Compensation/Nominating/Governance Committee was formed in connection with the Spin-off and is the successor to the Company's former Compensation and Benefits Committee and Nominating and Management Development Committee. This committee and its predecessors held eight meetings during 1999. The Three-year Independent Director Evaluation 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 Three-year Independent Director Evaluation Committee held no meetings in 1999. In connection with the Spin-off, the Company eliminated its Executive Committee. The Executive Committee held no meetings during 1999. 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. 6 10 COMPENSATION OF DIRECTORS FEE STRUCTURE. For 1999, each Outside Director was paid an annual retainer fee of $47,000 for service on the Board of Directors. In connection with the Spin-off, the annual retainer was reduced to $35,000. In general, beginning with the Spin-off, 100% of that fee is to be paid in the form of stock-settled common stock equivalents (the "directors' stock equivalents"), as described below. A director may elect, however, to have up to 40%, or $14,000, of the fee paid in cash. Prior to the Spin-off, 40% of the fee was automatically paid in cash and the remainder was automatically paid in directors' stock equivalents. 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. For 1999 prior to the Spin-off, Outside Directors received $1,500 for each meeting of the Board of Directors attended. This attendance fee was reduced to $1,000 in connection with the Spin-off. 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 paid in common stock equivalent units. These directors' stock equivalents are payable in shares of common stock after an Outside Director ceases to serve as a director. Final distribution of these shares may be made either in a lump sum or in installments over a period of years. The directors' stock equivalents are issued at 100% of the fair market value on the date of the grant. For 1999, each Outside Director also received an option to purchase up to 1,000 shares of common stock (before giving effect to the Company's November 1999 one-for-five reverse stock split) as additional incentive compensation. Beginning with the Spin-off, each Outside Director will receive annual grants of an option to purchase up to 5,000 shares of common stock and 1,000 performance share equivalent units as additional incentive compensation in January of each year. 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) will fully vest six months from the grant date. Once vested, the directors' options will be exercisable at any time during the option term. The performance share equivalent units are payable in shares of common stock at the end of three years based on achievement of performance goals like those set for the executives' performance unit awards. See "Tenneco Automotive Inc. Compensation/Nominating/Governance Committee Report on Executive Compensation." 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 7 11 his or her retainer fee and some or all of his or her meeting fees credited to a deferred compensation account. The plan provides these directors with various investment options. The investment options include stock equivalent units of the Company's common stock, which may be paid out in either cash or shares of common stock. RESTRICTED STOCK. In satisfaction of residual obligations under the discontinued retirement plan for directors, Ms. Eickhoff and Mr. Andrews will receive a yearly grant of $15,400 in value of restricted shares of the Company's common stock as long as they continue to serve. The restricted shares may not be sold, transferred, assigned, pledged or otherwise encumbered and are subject to forfeiture if Ms. Eickhoff or Mr. Andrews ceases to serve on the Board prior to the expiration of the restricted period. This restricted period ends upon his or her normal retirement from the Board, unless he or 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 and Mr. Andrews will be entitled to vote the shares and receive dividends. TRANSACTIONS WITH MANAGEMENT AND OTHERS ARRANGEMENTS WITH FORMER EXECUTIVES As described above, the Company is the continuing legal entity that before November 1999 was known as Tenneco Inc. In connection with the Spin-off, the employment of the then-existing executive officers of Tenneco Inc. terminated and a subsidiary of Tenneco Inc. became obligated, in certain instances, to make severance payments and honor prior employment agreements entered into with these Tenneco Inc. executives. This subsidiary became a subsidiary of Pactiv Corporation upon the Spin-off. Related costs were included in the Spin-off expenses. In connection with the Spin-off, Mr. Mead resigned as Chief Executive Officer of the Company, and he entered into a revised agreement. Under that agreement: (1) Mr. Mead was paid an amount equivalent to three times the total of his annual salary plus bonus (which amount was consistent with the treatment of prior chief executive officers); (2) if certain performance goals were met, he would be entitled to an adjusted target bonus for 1999 prorated through the date of his separation; (3) his stock options were made exercisable, one half were replaced by Pactiv Corporation options and one half are continuing as the Company's options (the number and exercise price of such options were determined under the generally applicable rules applied in connection with the Spin-off and which maintain the economic equivalent of the outstanding options prior to the Spin-off); (4) for purposes of Tenneco's supplemental executive retirement plan, he will be treated as though he had remained employed until age 65 (resulting in an increase in the lump-sum benefit to which he was entitled of $890,000); and (5) Mr. Mead was granted options to purchase up to 50,000 shares of Pactiv Corporation common stock and options to purchase up to 50,000 shares of the Company's common stock at the time of the Spin-off. 8 12 During 1999, Mr. Mead was indebted to an affiliate of Tenneco Inc. in connection with a relocation loan. In September 1999, that obligation, which totalled approximately $432,000, was canceled, consistent with the treatment of relocation loans for other Tenneco Inc. executives in connection with the Spin-off. In 1998, Robert T. Blakely, an executive officer prior to the Spin-off, entered into an agreement which provided that, in the event of termination arising from the restructuring of the Company he would receive payment of an amount equal to three times his then-current annual base salary, a pro rata adjusted target bonus for the year in which the termination occurred, and the vesting and distribution of his restricted stock and performance shares (which would be deemed to have been earned at target). Additionally, Mr. Blakely's stock options would be deemed exercisable and would remain so for the lesser of five years or the remaining period of the option, and the Company would forgive the obligations under relocation loans made to him. In connection with the Spin-off, Mr. Blakely received severance in accordance with terms of this agreement. His relocation loan obligation, which totalled approximately $440,000, was canceled in September 1999. In April 1999, the Company caused the containerboard assets of its Paperboard Packaging business to be contributed to a new joint venture with Madison Dearborn Partners, in exchange for cash and debt assumption totaling approximately $2 billion, assumption of the containerboard business liabilities and a 45% common equity interest in the joint venture. This joint venture interest remained an asset of Pactiv Corporation upon the Spin-off. The joint venture entity, Packaging Corporation of America ("PCA"), is headed by Mr. Stecko. Upon closing of the transaction, Mr. Stecko resigned his position as President and Chief Operating Officer of the Company, but he continues to serve as a director of the Company. As previously reported by the Company, payments related to his severance in connection with this transaction included: (i) a modified lump sum benefit, approximately $1.2 million greater than his then-current benefit, under the supplemental executive retirement plan; (ii) treatment of his resignation as an event qualifying him for the payment of the severance amount under his prior employment contract (which entitled him to three times his base salary upon termination); (iii) a payment of $1.5 million; and (iv) the vesting of performance shares and restricted stock and a pro-rated bonus for 1999. Upon closing, Mr. Stecko became an executive of, and received a compensation package from, PCA. During 1999, two former executive officers before the Spin-off, John Castellani and Karl A. Stewart, were indebted to the Company in connection with relocation loans of approximately $400,000 each. In September 1999, these obligations were canceled. During 1999, Tenneco Inc. and its subsidiaries paid the law firm of Jenner & Block, of which Theodore R. Tetzlaff, an executive officer before the Spin-off, is a partner, approximately $20 million for legal services. These fees related to work performed for the Company and all its subsidiaries, which before the Spin-off included Pactiv Corporation and its subsidiaries. Pursuant to an agreement with the Company, Mr. Tetzlaff agreed to devote whatever time was necessary 9 13 to attend to his duties as an executive officer and that he would not receive from Jenner & Block any part of the fees paid by the Company to that firm during his service to the Company. ARRANGEMENTS WITH DIRECTORS AND CURRENT EXECUTIVES During 1999, Mr. Frissora was indebted to the Company. This indebtedness was incurred in connection with his relocation and all amounts outstanding are secured by a subordinated mortgage note, without interest. Principal will only be payable in full upon termination of his employment prior to 2003 except for a termination without cause or following a change in control. The approximate aggregate amount outstanding is $400,000. During 1999, Mr. McCollum was indebted to an affiliate of Tenneco Inc. in connection with a relocation loan. In July 1999, that obligation, which totalled approximately $418,000, was canceled. During 1999, the Company paid Eickhoff Economics, Inc., of which Ms. Eickhoff is the sole owner, $25,000 for financial consulting services. 10 14 OWNERSHIP OF COMMON STOCK MANAGEMENT The following table shows, as of March 1, 2000, the number of shares of the Company's common stock beneficially owned by: (1) each director and nominee for director; (2) each person who is named in the Summary Compensation Table, below; and (3) all directors and executive officers as a group. The table also shows: (a) common stock equivalents held by the directors and executive officers under the Company's benefit plans; and (b) the total number of shares of common stock and common stock equivalents held.
SHARES OF COMMON TOTAL COMMON STOCK STOCK SHARES AND (1)(2)(3) EQUIVALENTS(4) EQUIVALENTS ------------ -------------- ----------- DIRECTORS AND NOMINEES - -------------------------------------- Mark Andrews.......................... 6,947 1,969 8,916 M. Kathryn Eickhoff................... 7,434 1,969 9,403 Mark P. Frissora...................... 112,695 225,000 337,696 Dana G. Mead.......................... 1,016,484 8,633 1,025,117 Sir David Plastow..................... 4,900 2,561 7,461 Roger B. Porter....................... 2,711 2,722 5,433 David B. Price, Jr.................... 10,000 2,305 12,305 Paul T. Stecko........................ 4,972 2,305 7,277 CURRENT EXECUTIVE OFFICERS - -------------------------------------- Mark A. McCollum...................... 88,654 134,430 223,084 Richard P. Schneider.................. 62,894 104,067 166,961 David G. Gabriel...................... 40,232 104,349 144,581 Timothy E. Jackson.................... 29,366 104,067 133,375 FORMER EXECUTIVE OFFICER - -------------------------------------- Robert T. Blakely..................... 17,852 -- 17,852 All executive officers and directors as a group.......................... 1,478,482(5) 998,058 2,476,540(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: (a) restricted shares; and (b) shares that executive officers and directors have the right to acquire pursuant to stock options. (Notes continued on following page.) 11 15 (2) Includes restricted shares. At March 1, 2000, Messrs. Frissora, McCollum, Schneider, Gabriel, Jackson, Andrews and Ms. Eickhoff held 68,385, 29,308, 29,308, 19,538, 29,308, 1,800 and 1,800 restricted shares, respectively. Also includes shares that are subject to options that are exercisable within 60 days of March 1, 2000 for Ms. Eickhoff and Messrs. Andrews, Frissora, Mead, Plastow, Porter, McCollum, Schneider and Gabriel to purchase 3,764, 1,882, 39,315, 977,507, 3,764, 1,882, 58,273, 29,830 and 18,534 shares, respectively. (3) The individuals listed in the table own less than one percent of the outstanding shares of the Company's common stock, respectively, except (1) for Mr. Mead, who beneficially owns approximately 3.0%, and (2) for all directors and executive officers as a group, who beneficially own approximately 4.4%. (4) Common stock equivalents are distributed either in cash or in shares of the Company's common stock, depending on the terms of the grant, in each case after the individual ceases to serve as a director or officer or after the applicable performance period. Mr. Mead's stock equivalent units are credited to his account under the Company's deferred compensation plan and are, therefore, already vested. (5) Includes 1,136,320 shares that are subject to options that are exercisable within 60 days of March 1, 2000, by all executive officers and directors as a group, and includes 247,832 restricted shares for all executive officers and directors as a group. 12 16 CERTAIN OTHER STOCKHOLDERS The following table sets forth, as of March 1, 2000, certain information regarding each person known by the Company to be the beneficial owner of more than five percent of the Company's outstanding common stock (the only class of voting securities outstanding).
NAME AND ADDRESS SHARES OF COMMON PERCENT OF COMMON OF BENEFICIAL OWNER(1) STOCK OWNED(1) STOCK OUTSTANDING(1) ---------------------- ---------------- -------------------- Barrow, Hanley, Mewhinney & Strauss, Inc. ...... 3,302,834(2) 9.7%(2) One McKinney Plaza 3232 McKinney Avenue 15th Floor Dallas, Texas 75204-2429 Gabelli Asset Management Inc. .................. 2,405,220(3) 7.1%(3) One Corporate Center Rye, New York 10580-1435 Highfields Capital Management LP................ 2,744,298(4) 8.1%(4) 200 Clarendon Street Boston, Massachusetts 02117 The Baupost Group, L.L.C. ...................... 2,304,510(5) 6.8%(5) 44 Brattle Street 5th Floor Cambridge, Massachusetts 02138
- --------------- (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) Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow Hanley") has indicated that it has sole voting power over 326,274 shares, shared voting power over 2,976,560 shares, and sole dispositive power over 3,302,834 shares. Barrow Hanley also advised the Company that it is a registered investment advisor and these shares are held on behalf of various clients. Barrow Hanley has advised that these shares include 2,717,760 shares (8.0%) held on behalf of the Vanguard Windsor II mutual fund, over which the fund has sole voting power and shared dispositive power. (3) Gabelli Funds, LLC ("Gabelli Funds"), a wholly-owned subsidiary of Gabelli Asset Management Inc. ("GAMI"), is the beneficial owner of 2.7% of the common stock outstanding. Gabelli Funds has indicated that it has sole voting power over 903,000 shares and sole dispositive power over 903,000 shares. Gabelli Funds has the same principal business (Notes continued on following page.) 13 17 address as GAMI. GAMCO Investors, Inc. ("GAMCO"), a wholly owned subsidiary of GAMI, is the beneficial owner of 4.4% of the common stock outstanding. GAMCO has indicated that it has sole voting power over 1,481,820 shares and sole dispositive power over 1,482,220 shares. GAMCO has the same principal business address as GAMI. Gemini Capital Management Ltd. ("Gemini") is the beneficial owner of .1% of the common stock outstanding. Gemini has indicated that it has sole voting power over 20,000 shares and sole dispositive power over 20,000 shares. The address of Gemini's principal office is as follows: c/o Appleby, Spurling & Kempe, Cedar House, Cedar Avenue, Hamilton HM12, Bermuda. Mario J. Gabelli is the Chief Executive Officer of GAMCO and the Chief Investment Officer of GAMCO and Gabelli Funds. Marc Gabelli is the President and Chief Investment Officer of Gemini. Gabelli Funds and GAMCO also advise that they are registered investment advisors. (4) Highfields Capital Management LP, Highfields GP LLC, Jonathon S. Jacobson and Richard L. Grubman (collectively, the "Reporting Persons") have reported that, with respect to common stock of the Company directly owned by Highfields Capital I LP, Highfields Capital II LP and Highfields Capital Ltd. (collectively, the "Funds"), each of the Reporting Persons has sole voting and sole dispositive power over 2,744,298 shares. In addition, Highfields Capital Ltd. indicated that it has sole dispositive and sole voting power over 1,972,621 shares, or 5.8% of the outstanding common stock. Neither Highfields Capital I LP or Highfields Capital II LP reported ownership of more than 5% of the outstanding common stock. Highfield Capital Ltd.'s principal business address is: c/o Goldman Sachs (Cayman) Trust, Limited, Harbour Centre, North Church Street, P.O. Box 896, George Town, Grand Cayman, Cayman Islands. (5) The Baupost Group, L.L.C., along with SAK Corporation and Seth A. Klarman, has indicated that it has sole voting and sole dispositive power over 2,304,510 shares. 14 18 EXECUTIVE COMPENSATION The following table shows the compensation paid by the Company, for the periods indicated, to: (1) the Company's current Chief Executive Officer, who became Chief Executive Officer upon the Spin-off of Pactiv Corporation; (2) each of the Company's next four most highly compensated executive officers who are continuing after the Spin-off, other than the Chief Executive Officer; and (3) three former officers who qualified for inclusion herein (collectively, the "Named Executives"). The table shows amounts paid to the Named Executives for all services provided to the Company and its subsidiaries, which before the Spin-off included Pactiv Corporation and its subsidiaries. In connection with the Spin-off, substantial changes in the management of the Company and its automotive operations occurred. Mark P. Frissora and David G. Gabriel were promoted to become executive officers of the Company. In addition, several others were added to the senior management team. Richard P. Sloan, with over 18 years experience in the automotive industry, was named Executive Vice President and Managing Director -- Europe in October 1999. Timothy E. Jackson, with over 14 years automotive experience, was named Senior Vice President and General Manager -- North American Original Equipment and Worldwide Program Management in June 1999. In addition, Timothy R. Donvoan, who had served as the Company's principal outside legal counsel for over three years, joined the team in August 1999 as Senior Vice President and General Counsel. The rules of the Securities and Exchange Commission require that inclusion in the Summary Compensation Table be based on actual 1999 salary and bonus. The Company expects that, had the newly hired executives been employed by the Company for a full year, each would have been included in the Summary Compensation Table below. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------------ ------------------------------------- AWARDS PAYOUTS OTHER ------------------------ ---------- ANNUAL RESTRICTED ALL OTHER COMPEN- STOCK LTIP COMPEN- NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS SATION(2) AWARDS(3) OPTIONS(4) PAYOUTS(5) SATION(6) --------------------------- ---- --------- ----- --------- ---------- ---------- ---------- --------- CURRENT EXECUTIVE OFFICERS (7): Mark P. Frissora............... 1999 $ 398,174 $ 325,000 $142,660 $ 585,376 375,000 $ 177,243 $ 9,218 Chairman and Chief Executive Officer Mark A. McCollum............... 1999 $ 275,095 $ 127,696 $361,847 $ 250,876 120,000 $ 158,510 $ 412,921 Senior Vice President and Chief Financial Officer Richard P. Schneider........... 1999 $ 282,897 $ 120,000 $ 11,424 $ 250,876 90,000 $ 180,125 $ 12,796 Senior Vice President- Global Administration
15 19
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------------ ------------------------------------- AWARDS PAYOUTS OTHER ------------------------ ---------- ANNUAL RESTRICTED ALL OTHER COMPEN- STOCK LTIP COMPEN- NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS SATION(2) AWARDS(3) OPTIONS(4) PAYOUTS(5) SATION(6) --------------------------- ---- --------- ----- --------- ---------- ---------- ---------- --------- David G. Gabriel............... 1999 $ 211,187 $ 72,000 $ 4,944 $ 167,254 75,000 $ 76,373 $ 7,008 Senior Vice President and G.M. -- North American Aftermarket Timothy E. Jackson(8).......... 1999 $ 138,195 $ 120,000 $ 66,250 $ 250,876 90,000 -- $ 636 Senior Vice President and G.M. -- North American OE and Worldwide Program Mgt. FORMER EXECUTIVE OFFICERS: Dana G. Mead................... 1999 $ 901,400 $ 1,002,000 $291,297 $ -- -- $1,469,820 $6,104,100 Former Chairman and Chief Executive Officer 1998 $1,029,617 $ 540,000 $362,191 $ 1,521,450 -- -- $ 39,959 1997 $1,012,638 --(9) $332,874 $950,078(10) 192,000 -- $ 39,251 Paul T. Stecko(11)............. 1999 $ 168,250 $ 139,726 $ 25,479 -- -- $1,899,784 $3,217,602 Former President and 1998 $ 592,063 $ 400,000 $365,501 $ 845,250 -- -- $ 10,869 Chief Operating Officer 1997 $ 531,767 $ 550,000 $ 90,539 $ 604,650 94,509 -- $ 8,708 Robert T. Blakely.............. 1999 $ 421,251 $ 450,000 $ 44,386 -- -- $ 547,580 $1,722,102 Former Executive Vice President and Chief Financial 1998 $ 445,760 $ 220,000 $134,544 $ 507,150 -- -- $ 15,254 Officer 1997 $ 441,960 $480,000(10) $577,513 $199,957(10) 40,000 -- $ 14,693
- ------------ (1) Includes base salary plus amounts paid in lieu of matching contributions to the Company's 401(k) plans. (2) Includes amounts attributable to: (a) the value of personal benefits provided by the Company to Named Executives, which have an aggregate value in excess of the lesser of $50,000 and 10% of the executive's salary and bonus for the year, such as the personal use of Company-owned property and relocation expenses; (b) reimbursement for taxes; and (c) amounts paid as dividend equivalents on performance share equivalent units ("Dividend Equivalents"). The amount of each personal benefit that exceeds 25% of the estimated value of the total personal benefits reported for the Named Executive, reimbursement for taxes, and amounts paid as Dividend Equivalents to the Named Executives were as follows:
NAME YEAR EXPLANATION ---- ---- ----------- Mr. Frissora............ 1999 $12,661 for reimbursement of taxes; $11,070 for Dividend Equivalents; $33,333 perquisite allowance; and $75,625 for relocation expenses. Mr. McCollum............ 1999 $351,947 for reimbursement of taxes; and $9,900 for Dividend Equivalents. Mr. Schneider........... 1999 $174 for reimbursement of taxes; and $11,250 in Dividend Equivalents.
(Notes continued on following page) 16 20
NAME YEAR EXPLANATION ---- ---- ----------- Mr. Gabriel............. 1999 $174 for reimbursement of taxes; and $4,770 in Dividend Equivalents. Mr. Jackson............. 1999 $7,609 for reimbursement of taxes; and $47,808 for relocation expenses. Mr. Mead................ 1999 $72,508 for reimbursement of taxes; $91,800 in Dividend Equivalents; $40,000 perquisite allowance; and $86,989 in the use of Company-owned property. 1998 $49,000 for relocation expenses; $76,886 for reimbursement of taxes; $80,400 in Dividend Equivalents; and $92,150 in the use of Company-owned property. 1997 $119,398 for relocation expenses; $52,965 for reimbursement of taxes; $38,400 in Dividend Equivalents; and $60,994 in the use of Company-owned property. Mr. Stecko.............. 1999 $20,400 in Dividend Equivalents; and $5,079 for reimbursement of taxes. 1998 $144,456 for relocation expenses; $92,951 in reimbursement for taxes; and $52,800 in Dividend Equivalents. 1999 $40,000 perquisite allowance; $18,841 for financial planning services; and $24,000 in Dividend Equivalents. Mr. Blakely............. 1999 $10,186 for reimbursement for taxes; and $34,200 in Dividend Equivalents. 1998 $21,000 for relocation expenses; $40,000 perquisite allowance; $5,140 in reimbursement of taxes; and $30,000 in Dividend Equivalents. 1997 $280,665 for relocation expenses; $194,510 in reimbursement of taxes; and $14,400 in Dividend Equivalents.
(3) Includes the dollar value of grants of restricted shares based on the price of the Company's common stock on the date of grant. At December 31, 1999, Messrs. Frissora, McCollum, Schneider, Gabriel and Jackson held 68,385, 29,308, 29,308, 19,538, and 29,308 restricted shares, respectively. Messrs. Mead, Stecko and Blakely held no restricted shares. The value at December 31, 1999, based on a per share price of $9.31 on that date, of all restricted shares held was $636,664 for Mr. Frissora, $272,857 for Mr. McCollum, $272,857 for Mr. Schneider, $181,898 for Mr. Gabriel and $272,857 for Mr. Jackson. Dividends are paid on restricted stock. Upon the Spin-off, restricted stock outstanding at the time was vested. (4) Upon completion of the Spin-off, employee stock options granted before the Spin-off which remained outstanding were adjusted to give effect to (1) the Spin-off, and (2) the one-for-five reverse stock split of the Company's common stock effected in connection with the Spin-off. The adjustment for the Spin-off amended the number of shares subject to these options, as well as their exercise prices, so (Notes continued on following page) 17 21 that the options immediately after the Spin-off had equivalent economic terms to the options immediately before the Spin-off. Amounts presented give effect to this adjustment. (5) Reflects the vesting and payment of all outstanding performance share equivalent units immediately prior to the Spin-off. (6) Includes amounts attributable during 1999 to benefit plans as follows: (a) The dollar values paid by the Company for insurance premiums under the group life insurance plan (including dependent life) for Messrs. Frissora, McCollum, Schneider, Gabriel, Jackson, Mead, Stecko and Blakely, were $2,818, $2,103, $6,546, $2,008, $636, $23,852, $1,352 and $3,735, respectively. (b) The amounts contributed pursuant to the Company's 401(k) plans for the accounts of Messrs. Frissora, McCollum, Schneider, Gabriel, Jackson, Mead, Stecko and Blakely were $6,400, $0, $6,250, $5,000, $0, $7,500, $6,250 and $0, respectively. (c) Includes for Mr. McCollum forgiveness of a relocation loan of $410,818. Prior to the Spin-off, Mr. Mead entered into a severance agreement with a company that was, at the time, a subsidiary of the Company (but became a subsidiary of Pactiv Corporation upon the Spin-off). Under this agreement, Mr. Mead has been paid $5,640,000 in severance payments. Before the Spin-off he also received $432,748 for forgiveness of a relocation loan. In connection with the formation of the Company's former containerboard joint venture (which remained an asset of Pactiv Corporation in connection with the Spin-off), Mr. Stecko left employment with the Company to head the joint venture and received $3,214,500 in severance-related payments from the Company (including a payment of $1.5 million and a termination payment of three times his base salary). Amounts for Mr. Blakely include $1,273,800 in severance-related payments and $438,601 for forgiveness of a relocation loan. See "Election of Directors -- Transactions with Management and Others." (7) Compensation information for the Company's CEO and other current executive officers is presented for 1999, the only year in which these individuals served as executive officers of the Company. (8) Mr. Jackson joined the Company in June 1999. (9) No cash bonus was paid to Mr. Mead in 1997. Mr. Mead elected to receive, in lieu of a cash bonus, options to purchase the Company's common stock. (10) Includes a special one-time award of restricted shares to Messrs. Mead and Blakely, and a special award of $200,000 to Mr. Blakely, to reflect their contributions to Old Tenneco's 1996 reorganization. (11) Mr. Stecko's employment terminated in April 1999 in connection with the formation of the Company's former containerboard joint venture. At the time of the Spin-off, salary and bonus targets for the Company's executive officers were increased to reflect their promotions and the assumption of new duties in connection with the Spin-off and the establishment of the Company as a stand-alone public company. See "-- Employment Contracts and Termination of Employment and Change-in-Control Arrangements." 18 22 OPTIONS GRANTED IN 1999 The following table shows the number of options to purchase the Company's common stock granted during 1999 to the persons named in the Summary Compensation Table above.
PERCENT OF SHARES OF TOTAL OPTIONS COMMON STOCK GRANTED UNDERLYING TO THE COMPANY'S OPTIONS EMPLOYEES EXERCISE EXPIRATION GRANT DATE NAME GRANTED(#) IN 1999(%) PRICE($)(1) DATE PRESENT VALUE(2) ---- ------------ ---------------- ----------- ---------- ---------------- CURRENT EXECUTIVE OFFICERS: Mr. Frissora(3)...... 375,000 18.6% $8.56 11/05/09 $768,750 Mr. McCollum(3)...... 120,000 6.0% $8.56 11/05/09 $246,000 Mr. Schneider(3)..... 90,000 4.5% $8.56 11/05/09 $184,500 Mr. Gabriel(3)....... 75,000 3.7% $8.56 11/05/09 $153,750 Mr. Jackson(3)....... 90,000 4.5% $8.56 11/05/09 $184,500 FORMER EXECUTIVE OFFICERS: Mr. Mead............. 50,000 2.5% $8.56 11/05/09 $102,500 Mr. Stecko........... -- -- -- -- -- Mr. Blakely.......... -- -- -- -- --
- --------------- (1) All options were granted with exercise prices equal to 100% of the fair market value of a share of the Company's common stock on the date of grant. All options, except for Mr. Mead's, vest one-third on each of the first, second and third anniversaries of the grant date. Mr. Mead's options were vested upon grant. The options include a reload feature, whereby upon exercise the option holder receives a new option if the exercise price is delivered in shares of common stock. The new option would cover the number of shares so delivered and have an exercise price equal to 100% of the fair market value of the common stock on the new grant date. (2) The Black-Scholes valuation was performed using the following assumptions: 26.8% volatility, 5.97% risk free interest rate, 2.46% expected dividend rate and five-year option life. (3) Reflects grants made in connection with the Spin-off, which are intended to represent three-year awards. The Company made these three-year awards in recognition of the importance of equity incentives to retention and recruiting in light of the potential risks and uncertainties surrounding the Company's transition to a stand-alone public company following the Spin-off. 1999 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, 1999 by the persons 19 23 named in the Summary Compensation Table above. No options to purchase the Company's common stock were exercised in 1999.
TOTAL NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS HELD AT HELD AT DECEMBER 31, 1999(1) DECEMBER 31, 1999(1) ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- CURRENT EXECUTIVE OFFICERS: Mr. Frissora....................... 17,355 496,540 -- $281,250 Mr. McCollum....................... 58,273 197,367 -- $ 90,000 Mr. Schneider...................... 37,073 175,776 -- $ 67,500 Mr. Gabriel........................ 18,535 111,392 -- $ 56,250 Mr. Jackson........................ -- 90,000 -- $ 67,500 FORMER EXECUTIVE OFFICERS: Mr. Mead........................... 977,516 -- $37,500 -- Mr. Stecko......................... -- -- -- -- Mr. Blakely........................ -- -- -- --
- --------------- (1) Gives effect to the adjustments of outstanding options in connection with the Spin-off and the one-for-five reverse stock split in November 1999. See Note (4) to the Summary Compensation Table above. 20 24 LONG-TERM INCENTIVE PLANS AWARDS IN 1999 The following table shows information concerning performance-based awards made during 1999 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 UNTIL MATURATION --------------------------------------- NAME OTHER RIGHTS OR PAYOUT(3) THRESHOLD(4) TARGET(4) MAXIMUM(4) ---- ------------- ---------------- ------------ --------- ---------- CURRENT EXECUTIVE OFFICERS: Mr. Frissora......... 150,000(1) 1 year 25% 100% 150% 75,000(2) 3 years 25% 100% 150% Mr. McCollum......... 113,430(1) 3 years 25% 100% 150% 21,000(2) 3 years 25% 100% 150% Mr. Schneider........ 87,567(1) 3 years 25% 100% 150% 16,500(2) 3 years 25% 100% 150% Mr. Gabriel.......... 89,349(1) 3 years 25% 100% 150% 15,000(2) 3 years 25% 100% 150% Mr. Jackson.......... 87,567(1) 3 years 25% 100% 150% 16,500(2) 3 years 25% 100% 150% FORMER EXECUTIVE OFFICERS: Mr. Mead............. -- -- -- -- -- Mr. Stecko........... -- -- -- -- -- Mr. Blakely.......... -- -- -- -- --
- --------------- (1) Represents awards of stock equivalent units made in connection with the Spin-off which, except in the case of Mr. Frissora, were intended to represent three-year awards. Stock equivalent units generally vest at the following rates, based on the achievement of annual performance goals: 39% first year, 30.5% second year and 30.5% third year. Stock equivalent units are payable yearly in cash in an amount equal to the number of units earned times the value per share of the Company's common stock at the time of payment (as determined in accordance with the terms of the grant). The future payouts for 2000, 2001 and 2002 are 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. Mr. Frissora's stock equivalent units vest at the end of one year, based on the EVA criteria described above. 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 awards of performance units made in connection with the Spin-off which were intended to represent three-year awards. The performance units vest at the rate of one-third of the award each year for three years, based on the achievement of annual performance goals described below. They are payable at the end of three years in shares of the Company's common stock in an amount equal to (Notes continued on following page.) 21 25 the number of performance units earned. The future payouts are based on EVA improvement during the three-year period ended December 31, 2002. The number of performance units listed in this column represents the target number of units that may be earned under the award. (3) The Company made these three-year awards in recognition of the importance of equity incentives to retention and recruiting in light of the potential risks and uncertainties surrounding the Company's transition to a stand-alone public company following the Spin-off (4) Represents the percentage of the units reflected in the first column of this table that will be earned based on the achievement of the performance goals at the threshold, target and maximum levels. The final performance units earned will be based on the higher of performance units earned on an individual year basis or performance units earned on an accumulated three-year basis. 22 26 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 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 adopted plans similar to the Tenneco Inc. supplemental pension plan. The Company also adopted 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 $ 39,285 $ 58,928 $ 78,571 $ 98,214 $117,857 $137,500 300,000 23,571 47,142 70,714 94,285 117,857 141,428 165,000 350,000 27,500 55,000 82,500 110,000 137,500 165,000 192,500 400,000 31,428 62,857 94,285 125,714 157,142 188,571 220,000 450,000 35,357 70,714 106,071 141,428 176,785 212,142 247,500 500,000 39,285 78,571 117,857 157,142 196,428 235,714 275,000 550,000 43,214 86,428 129,642 172,857 216,071 259,285 302,500 600,000 47,142 94,285 141,428 188,571 235,714 282,857 330,000 650,000 51,071 102,142 153,214 204,285 255,357 306,428 357,500 700,000 55,000 110,000 165,000 220,000 275,000 330,000 385,000 750,000 58,928 117,857 176,785 235,714 294,642 353,571 412,500 800,000 62,857 125,714 188,571 251,428 314,285 377,142 440,000 850,000 66,785 133,571 200,357 267,142 333,928 400,714 467,500 900,000 70,714 141,428 212,142 282,857 353,571 424,285 495,000 950,000 74,642 149,285 223,928 298,571 373,214 447,857 522,500 1,000,000 78,571 157,142 235,714 314,285 392,857 471,428 550,000
- --------------- (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 (Notes continued on following page.) 23 27 salary and bonus. These benefits are not subject to any deduction for Social Security or other offset amounts. The years of credited participation for Messrs. Frissora, McCollum, Schneider, Gabriel and Jackson are 3, 4, 4, 4, and 1 respectively. See the Summary Compensation Table above for salary and bonus information for these individuals. (2) If Mr. Frissora completes 10 years of service in the period commencing January 1, 1999, he will be entitled to benefits commencing at age 55 of at least 40% of his average salary plus bonus determined over a three-year period. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS The Company maintains a key executive change-in-control severance benefit plan. The purpose of the plan is to enable the Company to continue to attract, retain and motivate highly qualified employees by eliminating, to the maximum practicable extent, any concern on the part of such employees that their job security or benefit entitlements will be jeopardized by a "change-in-control" of the Company, as that term is defined in the plan. The plan is designed to achieve this purpose through the provision of severance benefits for key employees and officers whose positions are terminated following a change-in-control as provided in the plan. Under the plan, a severed executive would receive a cash payment equal to three times (1) his or her base salary plus (2) the higher of (a) his or her average bonuses for the prior three years (or such shorter period as the executive had been employed by the Company) and (b) his or her targeted annual bonus in effect immediately prior to the change in control. The Company expects that Messrs. Frissora, McCollum, Schneider, Gabriel and Jackson would have become entitled to receive payments from the Company in the amount of $3,390,000, $1,470,000, $1,470,000, $945,000 and $1,170,000, respectively, had their positions been terminated on December 31, 1999 following a change-in-control, based on their salaries/target bonuses of $580,000/550,000, $315,000/175,000, $315,000/175,000, $235,000/80,000 and $250,000/140,000, 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. Mr. Frissora has entered into a letter agreement, dated as of January 11, 2000, with the Company which sets forth certain terms and conditions of his employment with the Company. Beginning with the calendar year 2000, the agreement guarantees Mr. Frissora a minimum annual base salary of $640,000 and a minimum annual target bonus of $590,000 (subject to the fulfillment of performance goals). The letter agreement provides that, under the Company's change-in-control severance benefit plan, Mr. Frissora's cash payment in connection with a change-in-control termination will equal three times the total of his then current base salary plus 24 28 his highest annual target bonus over the prior three years. The letter agreement also provides that, other than in connection with a change-in-control, if Mr. Frissora's employment is terminated other than for death, disability or nonperformance of duties, he will be paid two times the total of his 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. The Company has agreed to provide Mr. Schneider severance benefits in circumstances not involving a change-in-control similar to Mr. Frissora's, except he would be paid one and one half times the total of his current salary plus bonus for the immediately preceding year. 25 29 The report of the Compensation/Nominating/Governance Committee and the performance graphs that appear immediately below are not deemed to be soliciting material or to be filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934 or incorporated by reference in any document so filed. 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. Before the Spin-off, the Committee's functions were performed by the Compensation and Benefits Committee, on which two of the members of the current Committee served. The Committee has furnished the following report on executive compensation: BACKGROUND As described above, during 1999 Tenneco Inc. completed the separation of its automotive, packaging and administrative services businesses. This was accomplished through the Spin-off of Pactiv Corporation, which at the time of the Spin-off was named Tenneco Packaging Inc. and held the packaging and administrative services operations. Immediately following the Spin-off, Tenneco Inc. changed its name to Tenneco Automotive Inc. to reflect the fact that its continuing operations are the automotive business. Because of the form of this transaction, the Company is the continuing legal entity which formerly was known as Tenneco Inc. As a result of the Spin-off, substantial changes in the management of the Company occurred. The senior management of the Company's automotive operations became the executive officers of the Company and the previous executive officers resigned. Following the Spin-off, the Company's Board of Directors consisted of six continuing directors and two new directors. The remaining four directors of Tenneco Inc. resigned. In addition, the committees of the Board of Directors were restructured and two members were appointed to the Committee to replace the directors who left office and were members of the former Compensation and Benefits Committee. The Committee, which was established upon completion of the Spin-off, has written this report to stockholders regarding the compensation of the Chief Executive Officer ("CEO") and the other executives named in the Summary Compensation Table (collectively with the CEO, the "Named Executives"). These individuals were compensated by Tenneco Inc. prior to the Spin-off based on their responsibilities and performance. In connection with the Spin-off, the Committee was charged with implementing a comprehensive executive compensation program to aid in the transition of the Company to an independent, publicly owned corporation. The Committee, working directly with nationally recognized, independent compensation consultants, reviewed and, in certain circumstances, amended the pre-existing plans in an effort to develop compensation appropriate for the Company following the Spin-off. 26 30 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 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 aggressive goals. -- Focus on annual and long-term business results that lead to improvement in stockholder value. -- De-emphasize fixed compensation and place greater emphasis on variable, performance-based and long-term compensation. -- Provide incentives, in the form of substantial long-term reward potential, for high-performing senior executives to remain employees of the Company. -- 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 nationally recognized, independent compensation consultants who report directly to the Committee. In connection with the Spin-off and its analysis of the Company's compensation policies as a stand-alone automotive parts supplier, the Committee also commissioned and reviewed a supplemental compensation survey prepared by its independent consultants which focused on participants in the automotive parts industry. Salary levels are structured within a range of reputable survey data for comparable companies without regard to the performance of the companies surveyed. 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 that result in stock ownership. 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 27 31 judgment when establishing performance criteria, evaluating performance, and determining actual incentive payments. Total executive compensation has two major components: (1) annual cash compensation comprised primarily of salary and bonus; and (2) long-term incentives comprised of some combination of stock options, performance-based shares and share equivalents and restricted stock. The following is a description of each of the components of the executive compensation program, along with a discussion of the decisions and action taken by the Committee with regard to 1999 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 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 plan that is developed is based in part on competitive market data and on assessments of past and anticipated future performance. The Committee employs competitive market data for directional and guideline purposes in combination with corporate, divisional, and individual performance results. The Committee also reviews (with the assistance of the senior human resources executive and nationally recognized, independent compensation consultants engaged directly by the Committee) and sets the salary 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. Annual performance goals are established under the Executive Incentive Compensation Plan at the beginning of each year for purposes of determining incentive awards for that year. The performance goals are generally developed by senior management and reviewed and approved by the Committee, with such changes as the Committee determines appropriate. At the conclusion of each year, the Committee approves incentive award payments to executives based on the degree of achievement of the goals established at the beginning of that year and on judgments of individual performance. Using EBITDA (earnings before interest, income taxes, depreciation and amortization and minority interest), cash flow and EVA(R)(1) objectives, as a starting point, each strategic business unit receives incentive compensation funds based on judgmental considerations including the degree of difficulty in meeting targets, contribution to overall corporate performance, environmental and safety performance, quality initiatives, equal employment opportunities performance, and technology leadership. The Committee does not place a greater value on any particular one of these considerations but considers performance against such goals as part of the overall information considered by the Committee. The - --------------- (1) EVA(R) is after-tax operating profit minus the annual cost of capital. EVA(R) is a registered trademark of Stern Stewart & Co. 28 32 Committee makes individual awards based upon its evaluation of the individual's contribution to the overall performance results of his/her strategic business unit. The 1999 Executive Incentive Compensation Plan payouts for employees of the Company's continuing automotive operations were on average paid at 80% of target. This reflects the Committee's assessment of the Company's automotive operating performance during 1999, as well as the efforts of its management team in transitioning the Company to a stand-alone public company. In connection with the Spin-off, the Committee reviewed and, in certain circumstances, adjusted the base salary and bonus targets for the individuals who became executives in connection with the Spin-off. As part of this process, the Committee analyzed competitive market data prepared by independent compensation consultants regarding other participants in the automotive industry. In general, the Committee set the total base salaries and bonus targets for these new executives at approximately the 50th percentile when compared to total base salaries and bonus targets paid by peer companies in the automotive industry to their executives. LONG-TERM INCENTIVES The Company's long-term incentive plan (the Stock Ownership Plan) is designed to align a significant portion of executive compensation with stockholder interests. This plan permits the granting of a variety of long-term awards including stock options, restricted stock, stock equivalent units and performance units. Long-term awards are based on an analysis of competitive levels of similar awards and an assessment of individual performance. As an individual's level of responsibility increases, a greater portion of variable performance-related compensation will be in the form of long-term awards. In connection with the Spin-off, the Committee reviewed the long-term incentives given to executives of the ongoing automotive operations in light of the foregoing principles and the independent compensation survey described above. The Committee designed a long-term compensation program for the Company's continuing executives that is comprised of (1) stock options, (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 payable at the end of three years based on the achievement of EVA targets. The Committee granted long-term awards to these executives that were designed to place the Company's executives in the 75th percentile range when compared to the value of similar awards granted by peer companies to their executives. The Committee's awards of options, stock equivalent units and performance units to the senior management team were generally intended to represent three-year awards, in recognition of the importance of equity incentives to retention and recruiting in light of the potential risks and uncertainties surrounding the Company's transition to a stand-alone public company following the Spin-off. CEO COMPENSATION In connection with the Spin-off, the Committee analyzed Mr. Frissora's compensation in light of his assumption of duties as the CEO of a newly independent public company. In determining 29 33 the overall level of Mr. Frissora's compensation and each component thereof, the Committee took into consideration information provided by an independent compensation consultant, as described below. Based on this analysis, Mr. Frissora's base salary was increased from $400,000 to $580,000 and his annualized bonus target was revised to $550,000 in connection with the Spin- off. The Committee approved a 1999 annual incentive award of $325,000 for Mr. Frissora based on his performance as CEO, as well as his performance as president of the Company's automotive operating division during most of 1999 and his role in transitioning the Company into a stand-alone public company. Mr. Frissora's base salary and bonus target are moderately below the 50(th) percentile of base salaries and bonuses paid to chief executive officers of the automotive industry participants surveyed. In recognition of Mr. Frissora's new duties and the role he will be expected to play in the Company's success following the Spin-off, in connection with the Spin-off the Committee awarded Mr. Frissora (1) options to purchase 375,000 shares of common stock, (2) 68,385 shares of restricted stock, (3) 75,000 performance units payable in stock at the end of three years, based on the achievement of EVA targets, and (4) 150,000 stock equivalent units payable in cash at the end of one year, based on the achievement of EVA targets. The option and performance unit awards were intended to represent three-year grants, for the reasons described above. In 1999, the Company's former CEO, Dana Mead, received a base salary at the annual rate of $980,000 (of which $857,500 was paid before his resignation in connection with the Spin-off). This base salary had not been increased since January 1998 and was below the 50(th) percentile of base salary paid to chief executive officers at companies surveyed by the Committee. The Committee approved an annual incentive award of $1,002,000 to Mr. Mead for 1999, reflecting Mr. Mead's contribution to the separation of the Company's automotive and former packaging and administrative services operations during 1999, including the November 1999 Spin-off and the sale of the containerboard operations in April 1999. TAX LIMITATIONS ON THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION 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. "Performance based compensation" is excluded from this $1 million limitation. The Stock Ownership Plan incorporates the applicable requirements for "performance based compensation" with respect to certain types of awards. Compensation / Nominating / Governance Committee Roger B. Porter -- Chairman Mark Andrews David B. Price, Jr. Sir David Plastow 30 34 PERFORMANCE GRAPHS Two performance graphs are presented below to provide cumulative total stockholder return for (i) Tenneco Automotive Inc. after the Spin-off of Pactiv Corporation, reflecting continuing operations, and (ii) for Tenneco Inc. for the period beginning December 31, 1994 through the date of the Spin-off. 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 graphs assume an investment of $100 in each of the Company's common stock, the Standard & Poor's 500 Stock Index and the respective peer groups identified and described below at the beginning of the respective periods. The performance graphs are not intended to be indicative of future stock performance. The first 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, 1999 with the Standard & Poor's 500 Stock Index and a peer group of companies chosen by the Company (the "New Peer Group"). The companies comprising the New Peer Group represent other participants in the automotive industry. The second graph compares the cumulative total stockholder return on the common stock of Tenneco Inc. (including, for periods prior to December 1996, Old Tenneco) from December 31, 1994 through November 4, 1999 (the date of the Spin-off) with the Standard & Poor's 500 Stock Index and an industry peer group that includes representative companies in the automotive and packaging industries (the "Old Peer Group"). The second performance graph is shown for historical purposes only and will not be included in the Company's future proxy statements. 31 35 TENNECO AUTOMOTIVE INC. COMPARISON OF CUMULATIVE TOTAL RETURN FROM NOVEMBER 5, 1999 THROUGH DECEMBER 31, 1999 [PERFORMANCE GRAPH]
5-Nov-99 31-Dec-99 Tenneco Automotive Inc. $ 100 $ 115 S&P 500(R) $ 100 $ 107 New Peer Group $ 100 $ 102
- ------------ NOTES: 1. Cumulative total stockholder return is based on share price appreciation plus the reinvestment of dividends. Cumulative total stockholder return for the New Peer Group is based on the market capitalization weighted cumulative total stockholder return of the companies comprising the New Peer Group. 2. The New Peer Group is comprised of the following companies: Arvin Industries, Inc., Borg Warner Inc., Cummins Engine Company, Inc., Dana Corporation, Delphi Automotive Systems Corporation, Federal-Mogul Corporation, Lear Corporation, Magna International Inc., Meritor Automotive, Inc., Simpson Industries, Inc., and Tower Automotive, Inc. 32 36 TENNECO INC. COMPARISON OF CUMULATIVE TOTAL RETURN FROM DECEMBER 31, 1994 THROUGH NOVEMBER 4, 1999 PERFORMANCE GRAPH
31-Dec-94 31-Dec-95 31-Dec-96 31-Dec-97 31-Dec-98 4-Nov-99 Tenneco Inc. $100 $121 $133 $119 $106 $ 52 S&P 500(R) $100 $138 $169 $226 $290 $351 Old Peer Group $100 $114 $140 $162 $174 $180
- ------------ NOTES: 1. Cumulative total stockholder return is based on share price appreciation plus the reinvestment of dividends (also assuming for Tenneco Inc. the reinvestment of the value of the Newport News Shipbuilding Inc. and El Paso Natural Gas Company shares, received as part of Old Tenneco's 1996 reorganization, into shares of Tenneco Inc.'s common stock). The Old Peer Group is based on market capitalization weighted cumulative total stockholder return of the companies comprising the Automotive Parts Portfolio and the Packaging/Forest & Paper Products Portfolio, respectively. Each portfolio is then weighted to reflect Tenneco Inc.'s revenues within such industry for each year. Such portfolios are reweighted on a quarterly basis for corporate actions such as divestitures, acquisitions, mergers and bankruptcies. 2. Automotive Parts Portfolio: Arvin Industries, Inc., Cooper Industries, Inc., Dana Corporation, Honeywell Inc. (the successor by name change to Allied Signal Inc.), Magna International Inc., and TRW, Inc. Packaging/Forest & Paper Products Portfolio: AEP Industries Inc., Bemis Company, Inc., First Brands Corporation (through the date of its acquisition by Clorox), Great Pacific Enterprises Inc., GeorgiaPacific Corporation, International Paper Company, Fort James Corp., Sonoco Products Company, Smurfit-Stone Container Corp., The Carlisle Companies Inc., and TempleInland Inc. 33 37 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. Upon recommendation of the Audit Committee of the Board of Directors, the Board of Directors has appointed Arthur Andersen LLP as independent public accountants for the Company to examine its consolidated financial statements for the year ending December 31, 2000, 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 and the Board would reconsider the appointment. Arthur Andersen LLP also acted as the Company's principal accountants for the fiscal year ended December 31, 1999. Representatives of Arthur Andersen 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. AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE FOR A DECREASE IN THE AUTHORIZED SHARES OF COMMON STOCK (ITEM 3) THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. THE PROPOSED AMENDMENT The Board of Directors has declared advisable and approved, and recommends to stockholders that they consider and approve, an amendment to the Company's Restated Certificate of Incorporation, as amended, to decrease the authorized shares of common stock from 350,000,000 shares to 135,000,000 shares. If the amendment is approved, the FOURTH Article of the Company's Restated Certificate of Incorporation, as amended, would be amended by deleting Paragraph A in its entirety and inserting the following in lieu thereof: FOURTH: A. The total number of shares of all classes of stock which the corporation shall be authorized to issue is 185,000,000 shares, divided into 135,000,000 shares of common stock, par value $.01 per share (herein called "Common Stock"), and 50,000,000 shares of preferred stock, par value $.01 per share (herein called "Preferred Stock"). 34 38 You may vote for, vote against or abstain from voting with respect to this proposal. The affirmative vote of the majority of the outstanding shares of common stock as of the record date for the Annual Meeting is required to approve the proposed amendment. BACKGROUND AND REASONS FOR PROPOSED AMENDMENT In connection with the Spin-off, the Company recommended, and the stockholders approved, a one-for-five reverse stock split of the Company's common stock. This reverse split was effected on November 5, 1999 and reduced the number of issued shares of common stock from approximately 174,864,667 to approximately 34,972,933. The number of shares which the Company was authorized to issue was not correspondingly reduced at that time and remained 350,000,000 shares of common stock. While the Company currently does not have plans to issue any shares of common stock other than under existing options and benefit plans, the Board believes that an adequate reserve of authorized and unissued common stock preserves important flexibility for possible issuances in connection with equity incentive plans, equity financings or acquisition transactions. The Board believes, however, that the Company's current number of authorized shares of common stock may be excessive in light of the Company's anticipated needs. The Board also recognizes that an excessive reserve may be viewed as having a chilling effect on hostile takeover bids and aiding in the possible improper entrenchment of management by enabling the Board to dilute stockholder ownership, make a hostile takeover bid more costly or place stock with parties who would support management. The Board therefore believes that the proposal to reduce the amount of authorized common stock to 135,000,000 shares from 350,000,000 shares balances the foregoing considerations. EFFECTS OF THE PROPOSED AMENDMENT The principal effect of the proposed amendment would be to reduce the number of authorized but unissued shares of common stock which the Company may issue in the future. As of March 17, 2000, the Company had 316,021,442 shares of common stock available for future issuance (in addition to 1,294,773 shares of common stock held in treasury available for future sale). If the proposed amendment becomes effective, the Company will have approximately 101,021,442 shares of common stock available for future issuance (and will continue to have approximately 1,294,773 shares of treasury stock), based on issued share amounts as of March 17, 2000. 35 39 OTHER MATTERS The Board of Directors is not aware of any other matters that may properly come before the Annual Meeting. However, should any such matters come before the Annual Meeting, it is the intention of the persons named in the enclosed form of Proxy card to vote all Proxies (unless otherwise directed by stockholders) in accordance with their judgment on such matters. SOLICITATION OF PROXIES AND VOTING Stockholders may specify their choices by marking the appropriate boxes on the enclosed Proxy card. Alternatively, in lieu of returning signed Proxy cards, stockholders can submit a Proxy over the Internet or by calling a specially designated telephone number which appears on the Proxy cards. These Internet and telephone voting procedures are designed to authenticate stockholders' identities, allow stockholders to provide their voting instructions and confirm the proper recording of those instructions. Specific instructions for stockholders who wish to use the Internet or telephone voting procedures are set forth on the enclosed Proxy card. All properly completed, unrevoked Proxies, which are received prior to the close of voting at the Annual Meeting, will be voted in accordance with the specifications made. If a properly executed, unrevoked written Proxy card does not specifically direct the voting of shares covered, the Proxy will be voted (i) FOR the election of all nominees for election as director described in this Proxy Statement, (ii) FOR the ratification of the appointment of Arthur Andersen LLP, (iii) FOR the proposal to amend the Company's Restated Certificate of Incorporation as described in this Proxy Statement, 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 36 40 stock through brokers, custodians, nominees, and other like parties, and the Company expects to reimburse such parties for their charges and expenses. Georgeson & Co. Inc., New York, New York, has been retained to assist the Company in the solicitation of proxies at a fee estimated not to exceed $25,000. EFFECT OF ABSTENTIONS AND BROKER NON-VOTES Directions to withhold authority, abstentions and "broker non-votes" (which occur when a nominee holding shares for a beneficial owner does not vote on a proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner) will be counted in determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. Assuming the presence of a quorum, the affirmative vote of (1) a plurality of the votes cast at the Annual Meeting (in person or by proxy) is required for the election of directors, (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 Arthur Andersen LLP as the Company's independent public accountants and (3) the holders of a majority of the common stock outstanding on the record date for the Annual Meeting is required to approve the amendment to the Company's Restated Certificate of Incorporation. Because the election of directors is determined on the basis of a plurality of the votes cast, abstentions and broker non-votes have no effect on the election of directors. Because the vote standard for the approval of Arthur Andersen 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 amendment to the Company's Restated Certificate of Incorporation is a majority of outstanding shares, abstentions and broker non-votes have the effect of votes against the proposal. 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 2001, the proposal must be received by the Company by December 3, 2000. OTHER STOCKHOLDERS PROPOSALS -- DISCRETIONARY VOTING AUTHORITY AND BY-LAW REQUIREMENTS 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 37 41 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 shareholder 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 not included by or at the direction of the Board must be received not earlier than January 9, 2001, nor later than February 8, 2001. 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, 1999, 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, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045. 38 42 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT ------------------------------------- ANNUAL MEETING OF STOCKHOLDERS MAY 9, 2000 TENNECO AUTOMOTIVE INC. 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045 [TENNECO AUTOMOTIVE LOGO] 43 PROXY [TENNECO AUTOMOTIVE LOGO] TENNECO AUTOMOTIVE INC. ANNUAL MEETING OF STOCKHOLDERS MAY 9, 2000 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 17, 2000, 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 9, 2000, at the Chicago Botanic Garden, 1000 Lake Cook Road, Glencoe, Illinois, 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) Mark Andrews 02) David B. Price, Jr. 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 or use the telephone or Internet voting procedures. - -------------------------------------------------------------------------------- FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL [TENNECO AUTOMOTIVE LOGO] TENNECO AUTOMOTIVE INC. Annual Meeting of Stockholders May 9, 2000 10:00 a.m., local time Chicago Botanic Garden 1000 Lake Cook Road Glencoe, Illinois 60022 44 X Please mark your votes as in this example. 5260 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 - ------------------------------------------------------------------------- FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1. Election of 2. Ratify 3. Approval of amendment Directors Independent of Restated Certificate of (see reverse) Accountants Incorporation to Decrease for year 2000 Authorized Shares of Common Stock For, except vote withheld from -------------------------------------------------------- the following nominee(s): 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. - ------------------------------------------------------------------------------------------------------------------------------------ The signer hereby revokes all proxies heretofore given by the signer to vote at said meeting or any adjournments 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 DATE
- -------------------------------------------------------------------------------- - FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL - TENNECO AUTOMOTIVE INC. Dear Stockholder: Tenneco Automotive Inc. encourages you to take advantage of new and 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 you must use the control number printed in the box above, just below the perforation. The series of numbers that appear in the box above must be used to access the system. 1. To vote over the Internet: Log on to the Internet and go to the web site HTTP://WWW.EPROXYVOTE.COM/TEN 2. To vote over the telephone: On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683) 24 hours a day, 7 days a week 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. 45 TENNECO AUTOMOTIVE INC. 500 NORTH FIELD DRIVE LAKE FOREST, ILLINOIS 60045 [TENNECO AUTOMOTIVE LOGO] April 3, 2000 Dear Benefit Plan Participant: The Annual Meeting of Stockholders of Tenneco Automotive Inc. (the "Company") is scheduled to be held at the Chicago Botanic Garden, 1000 Lake Cook Road, Glencoe, Illinois at 10:00 a.m., local time, on Tuesday, May 9, 2000. A copy of the Notice and Proxy Statement, which is being sent to all registered stockholders in connection with the Annual Meeting, is enclosed for your information. Also enclosed with this letter is a form of proxy card, which designates the number of shares held in your benefit plan account. By executing this proxy card you instruct the benefit plan trustee (the "Trustee") how to vote the shares of Tenneco Automotive Inc. stock in your account which you are entitled to vote. The Trustee will vote all shares eligible to be voted by benefit plan participants in accordance with their instructions. If you return your form of proxy executed but without furnishing voting instructions, the eligible shares in your account will be voted by the Trustee, as holder of record of the shares in your account, FOR the election of the nominees for directors named in the Proxy Statement, FOR the ratification of the appointment of Arthur Andersen LLP as the Company's independent public accountants for the year 2000, FOR the amendment to the Company's Restated Certificate of Incorporation to decrease the number of authorized shares of common stock and in the discretion of the proxies on all other matters to be considered at the Annual Meeting. If you do not return your executed form of proxy to the Trustee, then your shares can be voted by the Trustee only in accordance with the requirements of your benefit plan, which may or may not reflect your views. Your vote is important. Please send your executed form of proxy card with your voting instructions at your earliest opportunity. For your convenience, a return envelope is enclosed. YOUR BENEFITS COMMITTEE -----END PRIVACY-ENHANCED MESSAGE-----