UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 7, 2018
TENNECO INC.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 1-12387 | 76-0515284 | ||
|
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS | 60045 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (847) 482-5000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.
On February 7, 2018, Tenneco Inc. (the “Company”) adopted a new annual bonus plan known as the Tenneco Inc. Annual Incentive Plan (the “Plan”). The purpose of the Plan is to enable the Company to provide a cash bonus program that fosters a culture of performance and ownership and to reward continuing improvements in stockholder value. The Plan will be administered by the Company’s Board of Directors or its Compensation/Nominating/Governance Committee, which shall be responsible for determining who is eligible to participate, the target and actual AIP Bonus (as defined in the Plan, including the performance targets upon which the AIP Bonus will be based), the level of satisfaction of the performance targets and the actual amount of the AIP Bonus that will be paid to Plan participants upon satisfaction of the performance targets. A participant must generally remain employed by the Company or an affiliate through the applicable payment date for an AIP Bonus in order to receive payment of that AIP Bonus under the Plan; provided, however, that a participant may receive a payment in respect of his or her AIP Bonus in the event his or her termination of employment occurs prior to the applicable payment date due to the participant’s death, Retirement or Disability. In this paragraph, Retirement and Disability have the meanings given to such terms in the Plan.
The Company also adopted a form of restricted stock unit award agreement (the “RSU Agreement”) and performance share unit award agreement (the “PSU Agreement”) for long-term incentive awards to employees commencing in 2018, in each case under the Company’s 2006 Long-Term Incentive Plan (as amended from time to time).
Each participant receiving an award under an RSU Agreement will receive an award of time-based restricted stock units (the “Company RSUs”) and associated dividend cash amounts under the Company’s 2006 Long-Term Incentive Plan, subject to forfeiture and the restrictions set forth therein. The Company RSUs and associated dividend cash amounts vest one-third on each of the first, second and third anniversaries of the grant date, subject to the participant’s continued employment with the Company or a subsidiary through the applicable vesting date. The Company RSUs and associated dividend cash amounts are subject to accelerated vesting in the event of a Change in Control or a participant’s termination of employment due to Total Disability, death or Retirement. In this paragraph, Change in Control, Total Disability, and Retirement have the meanings given to such terms in the RSU Agreement or the Company’s 2006 Long-Term Incentive Plan.
Each participant receiving an award under a PSU Agreement will receive an award of performance share units (“Company PSUs”) under the Company’s 2006 Long-Term Incentive Plan, subject to forfeiture and the restrictions set forth therein. The PSU Agreement provides for a three year performance term, and the participant must generally remain continuously employed with the Company or a subsidiary through the settlement date to receive the Company PSUs. Half of each grant vests based on the Company’s Relative TSR Performance (as defined in the PSU Agreement) and the remaining half of each grant vests based on the Company’s Cumulative EVA Performance (as defined in the PSU Agreement). The Company PSUs are subject to accelerated vesting in the event of a Change in Control or a participant’s termination of employment due to Total Disability, death or Retirement. In this paragraph, Change in Control, Total Disability, and Retirement have the meanings given to such terms in the PSU Agreement or the Company’s 2006 Long-Term Incentive Plan.
The foregoing summaries are qualified in their entirety by reference to the full texts of the Plan, the RSU Agreement and the PSU Agreement, which are filed as Exhibits 10.1, 10.2 and 10.3, respectively, to this Form 8-K, and are incorporated herein by reference.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TENNECO INC. | ||||||
| Date: | February 9, 2018 | By: |
/s/ Brandon B. Smith |
|||
| Brandon B. Smith | ||||||
| Senior Vice President, General Counsel | ||||||
| and Corporate Secretary | ||||||
Exhibit 10.1
TENNECO INC. ANNUAL INCENTIVE PLAN
(Effective as of January 1, 2018)
1. Purpose. Tenneco Inc., a Delaware corporation (together with its successors and assigns, the “ Company ”), has established the Tenneco Inc. Annual Incentive Plan (the “ Plan ”), effective for periods beginning on and after January 1, 2018, to aid it in attracting, retaining, motivating and rewarding employees of the Company and its Affiliates (as defined herein) by providing for a cash bonus program that will serve as an incentive to foster a culture of performance and ownership, promote employee accountability, and to reward continuing improvements in stockholder value with an opportunity to participate in a portion of the wealth created.
2. Definitions. Capitalized terms used herein shall have the following meanings:
| (a) | “ Affiliate ” means a corporation or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Company. For purposes of the Plan, an ownership interest of more than fifty percent (50%) shall be deemed to be a controlling interest. |
| (b) | “ Administrator ” means the Board or the Committee. The term Administrator shall include, with respect to any authority delegated to them pursuant to the Plan, officers of the Company to whom the Board or the Committee may from time to time delegate authority hereunder as provided in subsection 3(d). |
| (c) | “ AIP Bonus ” means the amount of the annual bonus for a given Performance Year payable to a Participant, as determined by the Administrator in accordance with the AIP Bonus Formula and in accordance with the terms and conditions of the Plan and the Bonus Formula Methodology approved by the Administrator for the applicable Performance Year. An AIP Bonus is not payable to a Participant until it is earned and vested in accordance with the terms of the Plan. |
| (d) | “ AIP Bonus Formula ” means, for a Performance Year, the methodology to be used to calculate the AIP Bonus for each Participant, as set forth in the Bonus Formula Methodology for such Performance Year. Application of the AIP Bonus Formula in the calculation of any AIP Bonus shall be subject to the terms and conditions of the Plan and the Bonus Formula Methodology for the applicable Performance Year. |
| (e) | “ AIP Target Bonus Opportunity ” means an amount (specified as such or determined pursuant to a formula) and denominated in local currency that a Participant potentially may earn as an AIP Bonus in respect of a specified Performance Year at the targeted level of Performance. An AIP Target Bonus Opportunity constitutes only a conditional right to receive an AIP Bonus and does not guarantee receipt of an AIP Bonus or any level of AIP Bonus based on Performance or otherwise. |
| (f) | “ Authorized Leave ” means an authorized leave of absence determined in accordance with the human resource policies and procedures of the Company or its applicable Affiliate. |
| (g) | “ Board ” means the Company’s Board of Directors. |
| (h) | “ Bonus Formula Methodology ” means, for any Performance Year, the methodology to be used to calculate the AIP Bonus for each Participant, as approved by the Administrator for such Performance Year. |
| (i) | “ Cause ” means the Participant’s (i) commission of an act of fraud, embezzlement or theft in connection with the Participant’s employment, (ii) commission of intentional wrongful damage to property of the Company or an Affiliate, (iii) failure to perform the material duties of employment after receipt of written notice from the Company or an Affiliate, or (iv) conviction of a felony (or plea of guilty or nolo contendere with respect thereto). |
| (j) | “ Code ” means the Internal Revenue Code of 1986, as amended. |
| (k) | “ Committee ” means the Compensation/Nominating/Governance Committee of the Board and any successor committee of the Board thereto or, in the absence of such a committee or at the Board’s discretion, the full Board. |
| (l) | “ Company ” has the meaning set forth in Section 1. |
| (m) | “ Completion Multiple ” means (i) in the case of a Participant whose Termination Year occurs during a Performance Year, a fraction, the numerator of which shall equal the total number of calendar days during the Termination Year during which the Participant was employed by and actively at work for the Company and its Affiliates on or prior to his or her Termination Date, and the denominator of which shall be 365 (366 if the Termination Year is a leap year), (ii) in the case of a Participant who was on an Authorized Leave during a Performance Year, a fraction, the numerator of which shall equal the total number of calendar days that Performance Year during which the Participant was employed by and actively at work for the Company or its Affiliates and was not on an Authorized Leave, and the denominator of which shall be 365 (366 if the Performance Year is a leap year), and (iii) in the case of a Participant who ceases to be an Eligible Employee on or prior to the last day of a Performance Year (but whose Termination Date has not occurred), a fraction, the numerator of which shall equal the total number of calendar days during the Performance Year during which the Participant was an Eligible Employee and a Participant in the Plan, and the denominator of which shall be 365 (366 if the Performance Year is a leap year). The provisions of clauses (i), (ii) and (ii) are to be applied in addition to, and not in limitation of, each other. Notwithstanding the foregoing, the Company, in its discretion, may apply an alternative method of proration that approximates the foregoing proration, such as payroll periods or months. |
| (n) |
“ Disability ” means an event that results in the Participant being (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) by reason of |
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| any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or its Affiliates. |
| (o) | “ Eligible Employee ” means any salaried employee of the Company or an Affiliate. |
| (p) | “ Exchange Act ” means the Securities and Exchange Act of 1934, as amended. |
| (q) | “ Participant ” means, for a Performance Year, an Eligible Employee who has been granted an AIP Target Bonus Opportunity under the Plan for the Performance Year. An individual whose AIP Bonus under the Plan for a Performance Year is earned and vested but remains outstanding shall also be a Participant solely with respect to such earned and vested AIP Bonus. |
| (r) | “ Payment Date ” means the date on which the AIP Bonus for a Performance Year is paid to a Participant, which date shall be in the calendar year following the last day of the Performance Year and as soon as practicable after the Administrator determines the amount of the AIP Bonuses payable to Participants but no later than two and one-half (2-1/2) months following the end of the Performance Year to which the AIP Bonus relates. |
| (s) | “ Performance ” means the extent to which the performance targets (including, if applicable, percentage levels of performance) and other components of the AIP Bonus Formula have been achieved for a Performance Year. |
| (t) | “ Performance Year ” means the Company’s fiscal year or portion thereof specified by the Administrator as the period over which Performance is to be measured pursuant to the AIP Bonus Formula for that period. Unless otherwise specified by the Administrator, the Performance Year shall be the calendar year. |
| (u) | “ PIP ” means a performance improvement plan, as may be in effect from time to time, or similar probationary performance period instituted by the Company or any Affiliate. |
| (v) | “ Plan ” has the meaning set forth in Section 1. |
| (w) | “ Retirement ” means the Participant’s termination of employment with the Company and its Affiliates, other than termination by the Company and its Affiliates for cause, which shall include the failure to meet the obligations required by the individual’s position (as determined in the reasonable discretion of the Committee), after the date on which the Participant attains (i) age 65 or (ii) age 55 and has completed at least 10 years of service with the Company and its Affiliates. |
| (x) | “ Section 409A ” has the meaning set forth in Section 9. |
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| (y) | “ Termination Date ” means the date on which the Participant’s employment with the Company and its Affiliates terminates for any reason. A transfer of a Participant’s employment between and among the Company or an Affiliate shall not be deemed to constitute a termination of employment for purposes of the Plan. |
| (z) | “ Termination Year ” means the Performance Year in which the Participant’s Termination Date occurs. |
3. Administration.
| (a) | Authority of the Administrator . The Plan shall be administered by the Administrator, which shall have full and final authority and discretion, in each case subject to and consistent with the provisions of the Plan and any applicable laws or regulations, to: |
| (i) | select, or determine the method of selecting, Eligible Employees who will receive the grant of an AIP Target Bonus Opportunity under the Plan for a Performance Year (and thereby become a Participant in the Plan for such Performance Year); |
| (ii) | establish the AIP Bonus Formula for a Performance Year; |
| (iii) | grant AIP Target Bonus Opportunities to Participants and determine the amount of AIP Bonuses to be paid under the Plan for any period; |
| (iv) | modify the AIP Bonus Formula, any AIP Target Bonus Opportunity or, prior to the date on which it is earned and vested, any AIP Bonus otherwise payable under the Plan, whether based on the AIP Bonus Formula, Performance or otherwise, including decreasing such amounts as described herein; |
| (v) | adopt such rules, regulations and guidelines for interpreting, implementing and administering the Plan as it deems necessary or proper; |
| (vi) | conclusively construe and interpret the Plan documents and correct defects, supply omissions or reconcile inconsistencies therein; |
| (vii) | employ attorneys, consultants, accountants, and other persons in connection with the administration of the Plan; and |
| (viii) | make all other decisions and determinations as the Administrator may deem necessary or advisable for the administration of the Plan. |
| (b) | Binding Effect of Administrator Actions . All actions taken and all interpretations and determinations made by the Administrator with respect to the Plan shall be final and binding upon the Participants, the Company and all other interested persons. |
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| (c) | Manner of Exercise Administrator Authority . The express grant of any specific power to the Administrator, and the taking of any action by the Administrator, shall not be construed as limiting any power or authority of the Administrator. |
| (d) | Delegation of Authority . The Administrator may delegate to one or more officers or managers of the Company or an Affiliate, or committees thereof, the authority, subject to such terms as the Administrator shall determine, to perform such functions, including administrative functions, as the Administrator may determine, to the extent that such delegation is permitted under the applicable provisions of the Delaware General Corporation Law and the provisions of the Plan. |
| (e) | Limitation of Liability . Each person acting in their capacity as Administrator, and each person acting pursuant to authority delegated by the Administrator, shall be entitled, in good faith, to rely or act upon any report or other information furnished by any executive officer, other officer or employee of the Company or its Affiliates, or the Company’s independent auditors, consultants or other agents assisting in the administration of the Plan. Each person acting as the Administrator or pursuant to authority delegated by the Administrator, and any officer or employee of the Company or any of its Affiliates acting at the direction or on behalf of the Administrator or a delegate, shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan and shall, to the fullest extent permitted by law and the Company’s By-Laws, be fully indemnified and protected by the Company with respect to any such action or determination. |
| (f) | Local Laws and Rules . Without limiting the generality of the duties and authorities granted to the Administrator under the Plan, the Administrator may establish rules and regulations for grants of AIP Target Bonus Opportunities and AIP Bonuses to nationals of countries other than the United States that may differ from the rules and regulations for grants of AIP Target Bonus Opportunities and AIP Bonuses to other persons if, in the judgment of the Administrator, such differences are necessary or desirable to foster and promote achievement of the purposes of the Plan (including compliance with provisions of laws in other countries or jurisdictions in which the Company or an Affiliate operates or in which a Participant is employed or performs services). |
| (g) |
Adjustment to Payments . Notwithstanding anything to the contrary contained herein, the Administrator shall have the authority to change the AIP Target Bonus Opportunity of any Participant based upon the recommendation of the Participant’s manager or any of his or her direct or indirect supervisors (including, without limitation, the Chief Executive Officer). The Company retains the right to withhold any payment amounts determined hereunder (whether or not such amounts are earned and vested) from any Participant who violates any Company policy and to treat such withheld payments as forfeited by the Participant. Notwithstanding any other provision of the Plan or the applicable Bonus Formula Methodology for any Performance Year to the contrary, the Administrator may, in its sole and absolute discretion, adjust the amount of an AIP Target Bonus Opportunity or amend or cancel an AIP Bonus, in either case prior to the date on which the AIP Bonus is |
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| earned and vested; provided, however, that in no event shall the amount of a Participant’s AIP Bonus for any Performance Year exceed the Maximum Amount, if any, set forth in the Bonus Formula Methodology for the applicable Performance Year. In addition, the Administrator, in its sole and absolute discretion, is authorized to make adjustments in the terms and conditions of, and the performance targets and other criteria included in, the AIP Bonus Formula. |
4. Participation. The Administrator, in its sole and absolute discretion, may select any Eligible Employees to participate in the Plan for a specified Performance Year, which Eligible Employees so selected will be “Participants” for such Performance Year. An Eligible Employee who is not selected to participate in the Plan for a specified Performance Year shall not be entitled to any AIP Bonus under the Plan for such Performance Year and shall not be a Participant for such Performance Year. Unless otherwise provided by the Administrator, any Eligible Employee who has been selected for participation in the Plan for a Performance Year shall become a Participant as of the first day of such Performance Year; provided, however, that if an individual who is selected for participation is not an Eligible Employee as of the first day of the Performance Year, such individual shall become a Participant on the date specified by the Administrator (but in no event prior to the date on which such individual is an Eligible Employee). An individual whose employment with the Company or an Affiliate commences, or an individual who otherwise becomes an Eligible Employee, after September 30 of any Performance Year shall not be eligible to be a Participant for that Performance Year.
5. Establishment of AIP Bonus Formula and AIP Target Bonus Opportunities.
| (a) | Establishment of AIP Bonus Formula . Within the first ninety (90) days of the Performance Year, the Administrator shall establish the AIP Bonus Formula for the Performance Year. |
| (b) | Establishment of AIP Target Bonus Opportunities . For each Performance Year, the Administrator shall designate, for each Participant, such Participant’s AIP Target Bonus Opportunity. AIP Target Bonus Opportunities will be denominated in cash and all AIP Bonuses will be payable in cash. |
| (c) | Newly Eligible Participants . In the case of an Eligible Employee who becomes a Participant after the beginning of a Performance Year, the Administrator shall designate, prior to the date on which such Eligible Employee becomes a Participant, such individual’s AIP Target Bonus Opportunity for the portion of the Performance Year remaining after he or she becomes a Participant. |
| (d) | Written Determinations . Determinations by the Administrator under this Section 5, including AIP Target Bonus Opportunities for each Participant, the level of Performance for the Performance Year and the amount of the AIP Bonus for each Participant shall be recorded in writing as determined in such form as the Administrator may determine. |
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6. Determination of AIP Bonus; Earning and Payment of AIP Bonus.
| (a) | Determination of AIP Bonus . As soon as practicable after the end of the Performance Year and prior to the Payment Date, the Administrator shall determine the amount of the AIP Bonus to be paid to each Participant for the Performance Year. Subject to the terms and conditions of the Plan, the AIP Bonuses shall be determined in accordance with the AIP Bonus Formula for the Performance Year. Unless otherwise specifically provided in the Plan or determined by the Administrator (or otherwise specifically provided under a separate agreement, plan or policy conferring rights on the Participant), the AIP Bonus shall be earned and vested upon the Payment Date and only with respect to a Participant who remains actively employed by the Company or an Affiliate on the Payment Date, unless otherwise required by applicable law. |
| (b) | Determination of AIP Bonus—Leaves of Absence . If, during any Performance Year, a Participant is on an Authorized Leave, (i) the Participant’s AIP Bonus for the Performance Year shall be equal to the amount of the AIP Bonus that the Participant would have been entitled to receive for that Performance Year (determined in accordance with Section 5 and subsection 6(a)) had he or she not been on an Authorized Leave during such Performance Year, as applicable, multiplied by the Completion Multiple. |
| (c) | Determination of AIP Bonus—Ineligibility During Performance Year . If an Eligible Employee is a Participant in the Plan for a Performance Year and, during such Performance Year, he or she ceases to be an Eligible Employee (other than as a result of his or her Termination Date and other than as a result of an Authorized Leave), the Participant’s AIP Bonus for the Performance Year shall be equal to the amount of the AIP Bonus that the Participant would have been entitled to receive for that Performance Year (determined in accordance with Section 5 and subsection 6(a)), multiplied by the Completion Multiple. |
| (d) | Payment of AIP Bonus . Any AIP Bonus for a Performance Year shall be paid by the Company, or the Affiliate that employs the Participant, which payment shall be made no later than the Payment Date for such Performance Year. Except as otherwise provided herein or as provided by the Administrator in accordance with its authority under the Plan, if a Participant’s Termination Date occurs prior to the Payment Date for any Performance Year, the Participant shall not be entitled to payment of an AIP Bonus for such Performance Year (including the AIP Bonus for any completed Performance Year for which the Payment Date has not yet occurred) and the Participant shall have no further rights under the Plan. |
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| (e) | Special Rules for Death, Retirement or Disability . Notwithstanding the provisions of subsection 6(a) or 6(d), except as otherwise provided herein or as provided by the Administrator in accordance with its authority under the Plan, in the event that a Participant’s Termination Date occurs due to his or her death, Retirement or Disability: |
| (i) | the Participant’s AIP Bonus for the Termination Year shall be equal to the amount of the AIP Bonus that the Participant would have been entitled to receive for that Performance Year (determined in accordance with Section 5 and subsection 6(a)) had his or her Termination Date not occurred prior to the Payment Date for the Termination Year, multiplied by the Completion Multiple; |
| (ii) | if the Termination Date occurs after the end of a Performance Year and prior to the Payment Date for such Performance Year, the Participant’s AIP Bonus for such Performance Year shall be equal to the amount of the AIP Bonus for such prior Performance Year (determined in accordance with Section 5 and subsection 6(a)); and |
| (iii) | notwithstanding that the Participant’s Termination Date occurs prior to the Payment Date for the applicable Performance Year, the Participant shall be entitled to payment of the AIP Bonus described under paragraph (i) and/or (ii), such AIP Bonuses shall be earned and vested as of the Termination Date and such AIP Bonuses shall be paid as of the Payment Date for the applicable Performance Year with respect to Participants whose Termination Date has not occurred. |
| (f) | Determination of AIP Bonus—PIPs and Low Performance Ratings . If, during any Performance Year, a Participant is subject to a PIP or receives a low performance rating, the Participant shall be paid an AIP Bonus in such amount, if any, as determined by the Company. |
7. General Provisions.
| (a) | No Right to Employment . Neither the Plan, its adoption, its operation, nor any action taken under the Plan shall be construed as giving any employee the right to be retained or continued in the employ of the Company or any of its Affiliates, nor shall it interfere in any way with the right and power of the Company or any of its Affiliates to discharge any employee or take any action that has the effect of terminating any employee’s employment or service at any time. |
| (b) | Plan Expenses . The expenses of the Plan and its administration shall be borne by the Company. |
| (c) | Plan Not Funded; No Guarantee . The Plan shall be unfunded. Neither the Company nor any of its Affiliates shall be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any AIP Bonus hereunder. Participation in the Plan is not a guarantee that any amounts will be paid under the Plan. Participation in the Plan is a privilege, not a right, and each individual Participant’s participation in the Plan is subject to review from time to time at the discretion of the Company. Receipt of an AIP Bonus in any one year does not guarantee receipt of an AIP Bonus under the Plan in any other year. |
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| (d) | Reports . The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding the Plan as may be required by any applicable law. |
| (e) | Governing Law . The validity, construction, and effect of the Plan and any rules and regulations or document hereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be determined in accordance with the laws of the State of Illinois, without giving effect to conflict of law principles. |
| (f) | Nonexclusively of the Plan . The adoption of this Plan shall not be construed as creating any limitations on the power of the Company, Board or Committee to adopt such other compensation arrangements as any of them may deem desirable for any Participant or non-participating employee, including authorization of annual incentives under other plans and arrangements. |
| (g) | Severability . The invalidity of any provision of the Plan or a document hereunder shall not be deemed to render the remainder of this Plan or such document invalid. |
| (h) | Successors . The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether or not the corporate existence of the Company continues) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the Company’s obligations under the Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that such successor may replace the Plan with a plan substantially equivalent in opportunity and achievability, as determined by a nationally recognized compensation consulting firm, and covering the persons who were Participants at the time of such succession. Any successor and the ultimate parent company of such successor shall in any event be subject to the requirements of this subsection 7(h) to the same extent as the Company. Subject to the foregoing, the Company may transfer and assign its rights and obligations hereunder. |
| (i) | Tax Withholding . The Company and its Affiliates shall deduct from any payment of a Participant’s AIP Bonus or from any other payment to the Participant, including wages, any Federal, state, local or provincial tax or charge that is then required to be deducted under applicable law with respect to the AIP Bonus or other payment or as determined by the Administrator to be appropriate under a program for withholding. |
| (j) | Non-Transferability . An AIP Target Bonus Opportunity, any resulting AIP Bonus and any other right hereunder shall be non-assignable and non-transferable, and shall not be pledged, encumbered or hypothecated to or in favor of any party or subject to any lien, obligation or liability of the Participant to any party other than the Company or an Affiliate. |
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| (k) | Heirs and Successors . If any benefits deliverable to the Participant under the Plan have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Participant’s Designated Beneficiary, in accordance with the provisions of the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Company in such form and at such time as the Company shall require and in accordance with such rules and procedures established by the Company. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercisable and distributed, as applicable, to the legal representative of the estate of the Participant. |
| (l) | Recoupment . AIP Bonuses shall be subject to any then-applicable policy of the Company relating to forfeiture or recoupment of incentive awards to employees. |
| (m) | Action by Company . Unless otherwise specified herein, any action required or permitted to be taken by the Company hereunder shall be by an officer of the Company or such other person authorized by the Board; provided, however, that in no event shall any officer be permitted to take any action on behalf of the Company with respect to himself or herself. |
8. Amendment and Termination. The Board or the Committee may, at any time, amend, alter, suspend, discontinue or terminate this Plan, and such action shall not be subject to the approval of the Company’s stockholders or Participants; provided, however, that, without the consent of the Participant, no such action shall materially impair the rights of a Participant with respect to an AIP Bonus that has been earned and vested in accordance with the terms of the Plan.
9. Section 409A. It is the intent of the Company that all AIP Bonuses under the Plan be exempt from or comply with Section 409A of the Code and all regulations, guidance and other interpretative guidance issued thereunder (“ Section 409A ”). The provisions of the Plan shall be construed and interpreted in accordance with the foregoing. Notwithstanding the foregoing, the Company shall not be required to assume any increased economic burden in connection therewith. Although the Company intends that the Plan be administered so as to be exempt from or in compliance with the requirements of Section 409A, neither the Company nor the Administrator represents or warrants that the Plan will comply with Section 409A or any other provision of federal, state, local or non-United States law. Neither the Company, its Affiliates nor their respective directors, officers, employees or advisers shall be liable to any Participant (or any other individual claiming a benefit through the Participant) for any tax, interest or penalties the Participant might owe as a result of participation in the Plan, and the Company and its Affiliates shall have no obligation to indemnify or otherwise protect any Participant from the obligation to pay any taxes or penalties pursuant to Section 409A. Without limiting the generality of the foregoing:
| (a) |
Time and Form of Payment . Notwithstanding any other provision of the Plan to the contrary, if any payment or benefit hereunder is subject to Section 409A, and if such payment or benefit is to be paid or provided on account of the Participant’s termination of employment (or other separation from service) and if the Participant is a specified employee (within the meaning of Code Section 409A(a)(2)(B)) such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s termination of employment (or separation from service). |
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| The determination as to whether a Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of Section 409A and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder. |
| (b) | Prohibition on Acceleration of Payments . Except as otherwise permitted under Section 409A and the guidance and Treasury regulations issued thereunder, the time or schedule of any payment or amount scheduled to be paid pursuant to the Plan shall not be accelerated. |
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Exhibit 10.2
TENNECO INC. 2006 LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Participant Name
Effective as of [Grant Date] (the “Grant Date”), the Participant has been granted a Full Value Award under the Tenneco Inc. 2006 Long-Term Incentive Plan (the “Plan”) in the form of restricted stock units with respect to [ Number of Awards Granted ] shares of Common Stock (“Restricted Stock Units”). The Award is subject to the following terms and conditions (sometimes referred to as this “Award Agreement”) and the terms and conditions of the Plan as the same has been and may be amended from time to time. Terms used in this Award Agreement are defined elsewhere in this Award Agreement; provided, however, that, capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Plan.
1. Dividend Cash Amounts . This Award contains the right to receive cash credits to a hypothetical bookkeeping account (a “Dividend Cash Account”) in respect of dividends paid with respect to shares of Common Stock in accordance with the following:
| (a) | If a dividend with respect to shares of Common Stock is payable in cash, then, as of the applicable dividend payment date, the Participant’s Dividend Cash Account shall be credited with an amount (a “Dividend Cash Amount”) equal to (i) the cash dividend payable with respect to a share of Common Stock, multiplied by (ii) the number of Restricted Stock Units outstanding on the applicable dividend record date. |
| (b) | If a dividend with respect to shares of Common Stock is payable in shares of Common Stock, then, as of the applicable dividend payment date, the Participant’s Dividend Cash Account shall be credited with a Dividend Cash Amount in an amount equal to (i) the number of shares of Common Stock distributed in the dividend with respect to a share of Common Stock, divided by (ii) the Fair Market Value of a share of Common Stock on the dividend payment date, multiplied by (iii) the number of Restricted Stock Units outstanding on the applicable dividend record date. |
The Dividend Cash Amounts credited to the Participant’s Dividend Cash Account shall be subject to the same vesting provisions as the Restricted Stock Units to which the Dividend Cash Amounts relate and shall be settled in accordance with Paragraph 3. No Dividend Cash Amounts with respect to a Restricted Stock Unit shall be credited under this Award Agreement for any period after the Vesting Date (as defined in Paragraph 2) applicable to such Restricted Stock Unit. Amounts credited to a Participant’s Dividend Cash Account shall not be credited with any investment earnings.
2. Vesting and Forfeiture of Restricted Stock Units and Dividend Cash Amounts . All Restricted Stock Units and Dividend Cash Amounts credited to the Participant’s Dividend Cash Account shall be unvested unless and until they become vested and nonforfeitable in accordance with this Paragraph 2. Subject to the terms and conditions of this
Award Agreement and the Plan, one-third (1/3) of the Restricted Stock Units and associated Dividend Cash Amounts awarded hereunder shall vest on each of the first, second and third anniversary of the Grant Date (each a “Vesting Date”), provided that the Participant is continuously employed by the Company or a Subsidiary through the applicable Vesting Date. Notwithstanding the foregoing:
| (a) | if the Participant’s Termination Date occurs by reason of Total Disability (as defined below) or death, any unvested Restricted Stock Units that are outstanding on the Termination Date (and any associated Dividend Cash Amounts) shall immediately vest on the Termination Date and the Termination Date shall be the “Vesting Date” for purposes of this Award Agreement; |
| (b) | if the Participant’s Termination Date occurs by reason of Retirement (as defined below) [ after the first anniversary of the Grant Date ] , any unvested Restricted Stock Units that are outstanding on the Termination Date (and associated Dividend Cash Amounts) shall immediately vest on the Termination Date and the Termination Date shall be the “Vesting Date” for purposes of this Award Agreement; and 1 |
| (c) | upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any applicable governmental agencies or national securities exchange, all unvested Restricted Stock Units that are outstanding on the Change in Control (and associated Dividend Cash Amounts) shall immediately vest on the Change in Control and the Change in Control shall be the “Vesting Date” for purposes of this Award Agreement. |
All Restricted Stock Units and associated Dividend Cash Amounts that are not vested upon the Participant’s Termination Date shall immediately expire and shall be forfeited and the Participant shall have no further rights with respect to such Restricted Stock Units or Dividend Cash Amounts. In addition, this Award is subject to forfeiture if the Participant fails to accept the Award within the first twelve (12) months following the Grant Date in accordance with procedures established by the Company. In the event of forfeiture for any reason, the balance in the Participant’s Dividend Cash Account shall be reduced by the amount of any Dividend Cash Amounts that are forfeited. For purposes of this Award Agreement, (i) the term “Total Disability” means an event that results in the Participant being (A) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (B) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or its Subsidiaries and (ii) the term “Retirement” means the Participant’s termination of employment with the Company and its Subsidiaries, other than termination by the Company and its Subsidiaries for cause, which shall include the failure to meet the obligations required by the individual’s position (as determined in the reasonable discretion of the Committee), after the date on which the Participant attains (I) age 65 or (II) age 55 and has completed at least 10 years of service with the Company and its Subsidiaries.
| 1 |
Bracketed language to be included at Committee discretion on a grant by grant basis. |
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3. Settlement and Payment . Subject to the terms and conditions of this Award Agreement, Restricted Stock Units and associated Dividend Cash Amounts that have become vested in accordance with Paragraph 2 shall be settled as of the applicable Vesting Date. The date on which settlement occurs is referred to as the “Settlement Date.” Unless otherwise determined by the Committee in accordance with the terms of the Plan, (a) settlement of the vested Restricted Stock Units on a Settlement Date shall be made in the form of shares of Common Stock with one share of Common Stock being issued in settlement of each Restricted Stock Unit, plus an amount of cash equal to the Fair Market Value of any fractional Restricted Stock Unit being settled as of such Settlement Date and (b) settlement of the vested Dividend Cash Amounts on a Settlement Date shall be paid in a cash lump sum payment. Upon the settlement of any vested Restricted Stock Units such Restricted Stock Units shall be cancelled and upon payment of any Dividend Cash Amounts the balance in the Participant’s Dividend Cash Account shall be reduced by the amount paid to the Participant pursuant to subparagraph (b).
4. Withholding . All Awards and distributions under the Plan, including this Award and any distribution in respect of this Award, are subject to withholding of all applicable taxes, and the delivery of any cash or other benefits under the Plan or this Award is conditioned on satisfaction of the applicable tax withholding obligations. Such withholding obligations may be satisfied, at the Participant’s election, (a) through cash payment by the Participant, (b) through the surrender of shares of Common Stock that the Participant already owns, or (c) through the surrender of shares of Common Stock to which the Participant is otherwise entitled under the Plan; provided, however, that any withholding obligations with respect to any Participant shall be satisfied by the method set forth in subparagraph (c) of this Paragraph 4 unless the Participant otherwise elects in accordance with this Paragraph 4; and provided further that any withholding with respect to payments of Dividend Cash Amounts shall be satisfied by the method set forth in subparagraph (a) of this Paragraph 4. The amount withheld in the form of shares of Common Stock under this Paragraph 4 may not exceed the minimum statutory withholding obligation (based on the minimum statutory withholding rates for Federal and state purposes, including, without limitation, payroll taxes) unless otherwise elected by the Participant, in no event shall the Participant be permitted to elect less than the minimum statutory withholding obligation, and in no event shall the Participant be permitted to elect to have an amount withheld in the form of shares of Common Stock pursuant to this Paragraph 4 that exceeds the maximum individual tax rate for the employee in applicable jurisdictions.
5. Transferability . This Award is not transferable except as designated by the Participant by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order.
6. Heirs and Successors . If any benefits deliverable to the Participant under this Award Agreement have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Participant’s Designated Beneficiary, in accordance with the provisions of this Award Agreement. The “Designated Beneficiary” shall be the beneficiary or
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beneficiaries designated by the Participant in a writing filed with the Company in such form and at such time as the Company shall require and in accordance with such rules and procedures established by the Company. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant.
7. Administration . The authority to administer and interpret this Award and this Award Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Award and this Award Agreement as it has with respect to the Plan. Any interpretation of this Award or this Award Agreement by the Committee and any decision made by it with respect to the Award or the Award Agreement is final and binding on all persons.
8. Addendum to Award Agreement . Notwithstanding any provision of this Award Agreement, if the Participant resides and/or works outside the United States of America (the “United States”, “U.S.” or “U.S.A.”), this Award shall be subject to the special terms and conditions set forth in the addendum to this Award Agreement (the “Addendum”) for the Participant’s country. Further, if Participant transfers residence and/or employment to another country reflected in the Addendum, the special terms and conditions for such country will apply to Participant to the extent the Company determines, in its sole discretion, that the application of such special terms and conditions is necessary or advisable for legal or administrative reasons (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate Participant’s transfer). The Addendum shall constitute part of this Award Agreement.
9. Adjustment of Award . The number of Restricted Stock Units awarded pursuant to this Award may be adjusted by the Committee in accordance with the Plan to reflect certain corporate transactions which affect the number, type or value of the Restricted Stock Units.
10. Notices . Any notice required or permitted under this Award Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Committee or the Company at the Company’s principal offices, to the Participant at the Participant’s address as last known by the Company or, in any case, such other address as one party may designate in writing to the other.
11. Governing Law . The validity, construction and effect of this Award Agreement shall be determined in accordance with the laws of the State of Illinois and applicable federal law.
12. Amendments . The Board may, at any time, amend or terminate the Plan, and the Committee may amend this Award Agreement, provided that, except as provided in the Plan, no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under this Award Agreement prior to the date such amendment or termination is adopted by the Board or the Committee, as the case may be.
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13. Award Not Contract of Employment . The Award does not constitute a contract of employment or continued service, and the grant of the Award shall not give the Participant the right to be retained in the employ or service of the Company or any Subsidiary, nor any right or claim to any benefit under the Plan or this Award Agreement, unless such right or claim has specifically accrued under the terms of the Plan and this Award Agreement.
14. Unfunded Obligation . The Dividend Cash Account shall not be funded, no trust, escrow or other provisions shall be established to secure payments and distributions due from the Dividend Cash Account and the Dividend Cash Account shall be regarded as unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended, and the Code. The Participant shall be treated as a general, unsecured creditor of the Company with respect to amounts credited to the Dividend Cash Account, and shall have no rights to any specific assets of the Company. Any amounts credited to the Dividend Cash Account will remain general assets of the Company and shall be payable solely from the general assets of the Company.
15. Severability . If a provision of this Award Agreement is held invalid by a court of competent jurisdiction, the remaining provisions shall nonetheless be enforceable according to their terms. Further, if any provision is held to be overbroad as written, that provision shall be amended to narrow its application to the extent necessary to make the provision enforceable according to applicable law and enforced as amended.
16. Plan Governs . The Award evidenced by this Award Agreement is granted pursuant to the Plan, and this Award and this Award Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Award Agreement by reference or are expressly cited.
17. Counterparts . This Award Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.
18. Special Section 409A Rules . It is intended that any amounts payable under this Award Agreement shall either be exempt from or comply with section 409A of the Code. The provisions of this Award shall be construed and interpreted in accordance with section 409A of the Code. Notwithstanding any other provision of this Award Agreement to the contrary, if any payment or benefit hereunder is subject to section 409A of the Code, and if such payment or benefit is to be paid or provided on account of the Participant’s termination of employment (or other separation from service):
| (a) | and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s termination of employment or separation from service; and |
| (b) | the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder. |
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| ACCEPTED: | ||||
| PARTICIPANT: | TENNECO INC.: | |||
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| Electronic Signature | Senior Vice President Global Human Resources and Administration | |||
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| Acceptance Date | ||||
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Exhibit 10.3
TENNECO INC.
PERFORMANCE SHARE UNIT AWARD AGREEMENT
( - Performance Period)
Participant
Effective as of [Grant Date] (the “Grant Date”), the Participant has been granted a Full Value Award (the “Award”) under the Tenneco Inc. 2006 Long-Term Incentive Plan (the “Plan”) in the form of performance share units (“PSUs”) with respect to the number of shares of Common Stock (“Target PSUs”) set forth herein. The Award is subject to the following terms and conditions (sometimes referred to as this “Award Agreement”) and the terms and conditions of the Plan as the same has been and may be amended from time to time. Terms used in this Award Agreement are defined elsewhere in this Award Agreement; provided, however, that, capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Plan.
1. General Terms of the Award . The following terms and conditions apply to the Award:
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Performance Period: |
January 1, 201 to December 31, 202 | |
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Target PSUs: |
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Earning of Award: |
50% based on Relative TSR Performance | |
| 50% based on Cumulative EVA Performance | ||
Appendix A of this Award Agreement, which is incorporated herein and forms a part of this Award Agreement, sets forth the manner in which the “Relative TSR Performance” and “Cumulative EVA Performance” are calculated for purposes of this Award Agreement for the Performance Period. Relative TSR Performance and Cumulative EVA Performance are sometimes referred to herein individually as a “Performance Target” and collectively as the “Performance Targets”.
2. Determination of Amount of Award . The number of Target PSUs that shall become vested pursuant to this Award shall be based on satisfaction of Performance Targets as determined in accordance with the following:
| (a) | TSR Target PSUs . For purposes hereof, the Participant’s “TSR Target PSUs” is 50% of his or her total Target PSUs. The maximum number of TSR Target PSUs (expressed as a percentage, the “TSR Vesting Percentage”) to which the Participant may become entitled under the Award (subject to the terms and conditions of the Plan) is based on the Company TSR Percentile Ranking (calculated as described in Appendix A) for the Performance Period based on the following chart: |
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Relative TSR Performance (Company TSR Percentile Ranking) |
TSR Vesting Percentage | |
| ³ 75 th | 200% (maximum) | |
| 50 th | 100% (target) | |
| 25 th | 25% (threshold) | |
| <25 th | 0% |
Interpolation shall be used to determine the TSR Vesting Percentage in the event the Relative TSR Performance does not fall directly on one of the ranks listed in the above chart.
| (b) | EVA Target PSUs . For purposes hereof, the Participant’s “EVA Target PSUs” is 50% of his or her total Target PSUs. The maximum number of EVA Target PSUs (expressed as a percentage, the “EVA Vesting Percentage”) to which the Participant may become entitled under the Award (subject to the terms and conditions of this Award Agreement) is based on the achievement by the Company of Cumulative EVA (calculated as described in Appendix A) for the Performance Period against the Cumulative EVA Target established by the Committee for the Performance Period. |
| (c) | Determination of Performance Targets and Number of Vested Target PSUs. As soon as practicable following the end of the Performance Period, the Committee shall determine whether and the extent to which the Performance Targets have been satisfied and the number of the Participant’s Target PSUs to which the Participant shall be entitled under the Award, subject to the terms and conditions of Paragraph 3 and the other terms and conditions of this Award Agreement. |
3. Form and Timing of Settlement of Award .
| (a) | Unvested Award . Except as otherwise specifically provided herein, the Participant shall have no right with respect to any payments or other amounts in respect of this Award until the Award is actually settled on the Settlement Date (as defined below) and if the Participant’s Termination Date occurs before the Settlement Date, the Participant shall forfeit this Award and shall have no rights with respect thereto. |
| (b) | Settlement Generally. Except as otherwise provided in this Paragraph 3, the settlement of this Award shall be made following the end of the Performance Period as of a date determined by the Committee and no later than two and one-half months after the end of the Performance Period (such date, the “Settlement Date”). Unless otherwise determined by the Committee in accordance with the terms of the Plan, settlement shall be made in the form of shares of Common Stock with one share of Common Stock being issued in settlement of each vested Target PSU, plus an amount of cash equal to the Fair Market Value of any fractional vested Target PSUs being settled as of such Settlement Date. Upon the settlement of the Award, the Award shall be cancelled. |
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| (c) | Termination for Death, Total Disability or Retirement. Notwithstanding the provisions of Paragraphs 3(a) and (b), if the Participant’s Termination Date occurs on or before the end of the Performance Period: |
| (i) | as a result of the Participant’s death or Total Disability (as defined below), the Participant (or, in the event of his or her death, his or her beneficiary) shall be entitled to settlement of that number of Target PSUs equal to the product of (A) 100% of the Target PSUs subject to this Award for the Performance Period, multiplied by (B) the Termination Multiplier (as defined below), which Target PSUs shall be settled within 60 days after the Participant’s Termination Date (and such date shall be the “Settlement Date” for purposes of this Award Agreement), or |
| (ii) | as a result of Retirement (as defined below), the Participant shall be entitled to settlement of that number of Target PSUs equal to the product of (A) the number of Target PSUs to which the Participant would otherwise have been entitled pursuant to Paragraph 2 for the Performance Period had the Participant’s Termination Date not occurred prior to the end of the Performance Period, multiplied by (B) the Termination Multiplier, which Target PSUs shall be settled on the Settlement Date. |
If the Participant’s Termination Date occurs after the end of the Performance Period and prior to the Settlement Date for the Performance Period as a result of the Participant’s death, Total Disability or Retirement, the Participant (or, in the event of his or her death, his or her beneficiary) shall be entitled to settlement on the Settlement Date of that number of Target PSUs to which the Participant would have been entitled for the Performance Period had his or her Termination Date not occurred prior to the Settlement Date.
| (d) | Change in Control. In the event of a Change in Control, the terms of Article 6 of the Plan shall control. |
| (e) |
Certain Definitions. For purposes of this Award Agreement, the term (i) “Total Disability” means an event that results in the Participant being (A) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (B) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or its Subsidiaries, (ii) “Retirement” means the Participant’s termination of employment with the Company and its Subsidiaries, other than termination by the Company and its |
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| Subsidiaries for cause, which shall include the failure to meet the obligations required by the individual’s position (as determined in the reasonable discretion of the Committee), after the date on which the Participant attains (A) age 65 or (B) age 55 and has completed at least 10 years of service with the Company and its Subsidiaries, and (iii)“Termination Multiplier” means a fraction, the numerator of which is the number of full months of the Participant’s employment during the Performance Period prior to his or her Termination Date and the denominator of which is the number of full months in the Performance Period. |
| (f) | Effect of Contrary Terms in Employment Agreement. In the event that the Company (or any of its Subsidiaries) is a party to a written employment agreement with the Participant, and if the employment agreement is inconsistent with the provisions of this Paragraph 3, the terms of the employment agreement will take precedence over the foregoing provisions, as applicable. |
4. Payment of Fair Market Value in Certain Cases . If the Participant is entitled to receive payment for the fair market value of this Award pursuant to Article 6 of the Plan (relating to Change in Control), that fair market value shall be equal to the amount the Participant would have received hereunder as if (a) his or her service had continued through the end of the Performance Period and (b) he or she had earned 100% of his or her Target PSUs.
5. Withholding . All Awards and distributions under the Plan, including this Award and any distribution in respect of this Award, are subject to withholding of all applicable taxes, and the delivery of any cash or other benefits under the Plan or this Award is conditioned on satisfaction of the applicable tax withholding obligations. Such withholding obligations may be satisfied, at the Participant’s election, (a) through cash payment by the Participant, (b) through the surrender of shares of Common Stock that the Participant already owns, or (c) through the surrender of shares of Common Stock to which the Participant is otherwise entitled under the Plan; provided, however, that any withholding obligations with respect to any Participant shall be satisfied by the method set forth in subparagraph (c) of this Paragraph 5 unless the Participant otherwise elects in accordance with this Paragraph 5. The amount withheld in the form of shares of Common Stock under this Paragraph 5 may not exceed the minimum statutory withholding obligation (based on the minimum statutory withholding rates for Federal and state purposes, including, without limitation, payroll taxes) unless otherwise elected by the Participant, in no event shall the Participant be permitted to elect less than the minimum statutory withholding obligation, and in no event shall the Participant be permitted to elect to have an amount withheld in the form of shares of Common Stock pursuant to this Paragraph 5 that exceeds the maximum individual tax rate for the employee in applicable jurisdictions.
6. Transferability . This Award is not transferable except as designated by the Participant by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order.
7. Heirs and Successors . If any benefits deliverable to the Participant under this Award Agreement have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Participant’s Designated Beneficiary, in accordance with the provisions of this Award Agreement. The “Designated Beneficiary” shall be the beneficiary or
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beneficiaries designated by the Participant in a writing filed with the Company in such form and at such time as the Company shall require and in accordance with such rules and procedures established by the Company. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant.
8. Administration . The authority to administer and interpret this Award and this Award Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Award and this Award Agreement as it has with respect to the Plan. Any interpretation of this Award or this Award Agreement by the Committee and any decision made by it with respect to the Award or the Award Agreement is final and binding on all persons.
9. Addendum to Award Agreement . Notwithstanding any provision of this Award Agreement, if the Participant resides and/or works outside the United States of America (the “United States”, “U.S.” or “U.S.A.”), this Award shall be subject to the special terms and conditions set forth in Appendix B (the “Addendum”) for the Participant’s country. Further, if Participant transfers residence and/or employment to another country reflected in the Addendum, the special terms and conditions for such country will apply to Participant to the extent the Company determines, in its sole discretion, that the application of such special terms and conditions is necessary or advisable for legal or administrative reasons (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate Participant’s transfer). The Addendum shall constitute part of this Award Agreement.
10. Notices . Any notice required or permitted under this Award Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Committee or the Company at the Company’s principal offices, to the Participant at the Participant’s address as last known by the Company or, in any case, such other address as one party may designate in writing to the other.
11. Governing Law . The validity, construction and effect of this Award Agreement shall be determined in accordance with the laws of the State of Illinois and applicable federal law.
12. Amendments . The Board may, at any time, amend or terminate the Plan, and the Committee may amend this Award Agreement, provided that, except as provided in the Plan, no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under this Award Agreement prior to the date such amendment or termination is adopted by the Board or the Committee, as the case may be. Without limiting the generality of the foregoing or of Paragraph 15, the Committee may amend or terminate this Award at any time prior to the Settlement Date in its sole discretion to exercise downward discretion in the amount payable under this Award if the Committee determines that the payout yielded or that would be yielded by this Award for the Performance Period does not accurately reflect the Company’s performance for the Performance Period.
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13. Award Not Contract of Employment . The Award does not constitute a contract of employment or continued service, and the grant of the Award shall not give the Participant the right to be retained in the employ or service of the Company or any Subsidiary, nor any right or claim to any benefit under the Plan or this Award Agreement, unless such right or claim has specifically accrued under the terms of the Plan and this Award Agreement.
14. Severability . If a provision of this Award Agreement is held invalid by a court of competent jurisdiction, the remaining provisions shall nonetheless be enforceable according to their terms. Further, if any provision is held to be overbroad as written, that provision shall be amended to narrow its application to the extent necessary to make the provision enforceable according to applicable law and enforced as amended.
15. Plan Governs/Other Terms . The Award evidenced by this Award Agreement is granted pursuant to the Plan, and this Award and this Award Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Award Agreement by reference or are expressly cited. Notwithstanding any other provision of the Plan or this Award Agreement, (a) all Awards are subject to the Company’s recoupment or clawback policies as applicable and as in effect from time to time, (b) if the Committee determines, in its sole discretion, that the Participant at any time has willfully engaged in any activity that the Committee determines was or is harmful to the Company or any of its Subsidiaries, any unpaid portion of the Award shall be forfeited and the Participant shall have no rights with respect thereto, (c) the Committee may, in its sole and absolute discretion, adjust any Performance Target or the calculation thereof, and (d) this Award is subject to forfeiture if the Participant fails to accept the Award within the first twelve (12) months following the Grant Date in accordance with procedures established by the Company.
16. Counterparts . This Award Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.
17. Special Section 409A Rules . It is intended that any amounts payable under this Award Agreement shall either be exempt from or comply with section 409A of the Code. The provisions of this Award shall be construed and interpreted in accordance with section 409A of the Code. Notwithstanding any other provision of this Award Agreement to the contrary, if any payment or benefit hereunder is subject to section 409A of the Code, and if such payment or benefit is to be paid or provided on account of the Participant’s termination of employment (or other separation from service):
| (a) | and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s termination of employment or separation from service; and |
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| (b) | the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder. |
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APPENDIX A
DEFINITIONS AND CALCULATION METHODOLOGIES
Calculation of Relative TSR Performance.
Calculation of TSR
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“TSR” |
= | Change in Stock Price + Dividends Paid | ||||
| Beginning Stock Price |
(i) Beginning Stock Price shall mean the average of the Closing Prices for each of the twenty (20) trading days immediately prior to the first day of the Performance Period;
(ii) Ending Stock Price shall mean the average of Closing Prices for each of the last twenty (20) trading days of the Performance Period;
(iii) Change in Stock Price shall equal the Ending Stock Price minus the Beginning Stock Price;
(iv) Dividends Paid shall mean the total of all dividends paid on one (1) share of stock during the Performance Period, provided that dividends shall be treated as though they are reinvested;
(v) Closing Price shall mean the last reported sale price on the applicable stock exchange or market of one share of stock for a particular trading day; and
(vi) In all events, TSR shall be adjusted to give effect to any stock dividends, stock splits, reverse stock splits and similar transactions.
Calculation of Company TSR Percentile Ranking
The Company TSR Percentile Ranking is computed by (A) computing the Company’s TSR for the Performance Period and (b) computing the TSR for the Performance Period of each company that was in the peer group selected by the Committee for the Performance Period (the “Peer Group”), provided that if a company declares bankruptcy at any time during the Performance Period, the company will be removed from the Peer Group, and if a company does not have publicly reported stock prices for the whole Performance Period, the company will be removed from the Peer Group. The Company TSR Percentile Ranking is the percentage of TSRs of the Peer Group calculated that are lower than the Company’s TSR (e.g., if the Company’s TSR is greater than 75% of the TSRs of the members of the Peer Group, the Company TSR Percentile Ranking is the 75 th percentile).
Calculation of Cumulative EVA Performance.
Cumulative EVA Performance for the Performance Period is based on the Company’s cumulative EVA for the three years during the Performance Period (“Cumulative EVA”) expressed as a percentage of the three-year target for Cumulative EVA for the Performance Period as established by the Committee (“Cumulative EVA Target”).
“EVA” means the “economic value added” of the Company determined for the applicable period by deducting the Company’s Capital Charge from NOPAT, as determined by the Committee. EVA is intended to reflect a measure of profit after subtracting the cost of all capital employed. EVA ® is a registered trademark of Stern Stewart & Co.
“Capital Charge” means the Cost of Capital multiplied by the Company’s aggregate capital, as determined by the Committee.
“Cost of Capital” means the Company’s weighted average of the expected return on the Company’s debt and equity capital. Cost of Capital is intended to reflect the rate of return that an investor could earn by choosing another investment with equivalent risk.
“NOPAT” means the Company’s net operating profit after tax, as determined by the Committee based on the Company’s audited financial statements, subject to adjustments established by the Committee.
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