-----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, UZV1KCtBkyjGSShYkoSOmV/dBJBilJzCuv7evpupfgsIay5UAPgjWQsYgjDZQspG 6Ht7kBoOjSuOS/AdbFfajw== 0000889697-98-000112.txt : 19980317 0000889697-98-000112.hdr.sgml : 19980317 ACCESSION NUMBER: 0000889697-98-000112 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980316 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECUMSEH PRODUCTS CO CENTRAL INDEX KEY: 0000096831 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 381093240 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-00452 FILM NUMBER: 98566129 BUSINESS ADDRESS: STREET 1: 100 E PATTERSON ST CITY: TECUMSEH STATE: MI ZIP: 49286 BUSINESS PHONE: 5174238411 MAIL ADDRESS: STREET 1: 100 EAST PATTERSON STREET CITY: TECUMSEH STATE: MI ZIP: 49286 DEF 14A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 Filed by the registrant [X] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary proxy statement [X] Definitive proxy statement [ ] Definitive additional materials [ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 TECUMSEH PRODUCTS COMPANY (Name of registrant as specified in its charter) TECUMSEH PRODUCTS COMPANY (Name of person(s) Filing Proxy Statement) 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 previsouly 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: _________________________________________________________ T E C U M S E H P R O D U C T S C O M P A N Y 100 EAST PATTERSON STREET TECUMSEH, MICHIGAN 49286 [ LOGO ART ] March 16, 1998 Dear Shareholder: We cordially invite you to attend Tecumseh Products Company's 1998 annual meeting of shareholders. We are holding this year's meeting at 9:00 a.m. on Wednesday, April 22, 1998 at the Tecumseh Country Club in Tecumseh, Michigan. Only Class B shareholders will vote at the meeting. However, all shareholders are most welcome to attend. We are sending the same Proxy Statement and related materials to all shareholders but are sending a form of proxy to Class B shareholders only. If you are a Class B shareholder, your vote is very important. Even if you plan to attend in person, please complete and mail the enclosed proxy at your earliest convenience. Thank you. Sincerely, /s/ Kenneth G. Herrick Chairman of the Board of Directors /s/ Todd W. Herrick President and Chief Executive Officer T E C U M S E H P R O D U C T S C O M P A N Y 100 EAST PATTERSON STREET TECUMSEH, MICHIGAN 49286 [ LOGO ART ] NOTICE OF ANNUAL MEETING OF SHAREHOLDERS April 22, 1998 Tecumseh Products Company holds a meeting of its shareholders every year. The date, time, and place of this year's annual meeting are as follows: Wednesday, April 22, 1998 9:00 a.m. Tecumseh Country Club Burt Street Tecumseh, Michigan (From the center of Tecumseh, Michigan, go north on the Tecumseh-Clinton Road about one mile to Burt Street. Turn right. Tecumseh Country Club is on the south side of Burt Street about one mile east of the Tecumseh-Clinton Road.) The purposes of this year's annual meeting are: 1. To elect a Board of Directors for the following year. 2. To consider any other matters properly presented at the meeting. (We do not expect any other matters to be presented.) All shareholders are most welcome to attend the meeting, but only those who held Class B stock at the close of business on March 2, 1998 will be entitled to vote. If you are a holder of Class B Stock, you will find enclosed a form of proxy solicited by our Board of Directors. Whether or not you plan to attend the meeting, please take the time to vote by completing and mailing the enclosed proxy. Even if you sign a proxy, you may still attend the meeting and vote in person. You may revoke your proxy any time before the voting begins. YOUR VOTE IS VERY IMPORTANT. Thank you. TECUMSEH PRODUCTS COMPANY Daryl P. McDonald Corporate Counsel and Secretary March 16, 1998 PROXY STATEMENT We (the Board of Directors of Tecumseh Products Company) are soliciting proxies to vote Company shares at the 1998 annual meeting of shareholders. Shareholders will meet at 9:00 a.m. on Wednesday, April 22, 1998 for the purposes stated in the accompanying Notice of Annual Meeting. This Proxy Statement contains information which may help you decide whether to sign and return the enclosed proxy. We began mailing this Proxy Statement to shareholders on or about March 16, 1998. Please read this Proxy Statement carefully. You can obtain more information about the Company from our 1997 Annual Report to Shareholders and from the public documents we file with the Securities and Exchange Commission (SEC). VOTING The Company has two classes of stock: Class B Common Stock, $1.00 par value, and Class A Common Stock, $1.00 par value. At the close of business on March 2, 1998 (the record date for the meeting), 5,470,146 Class B shares and 16,232,438 Class A shares were outstanding. Class B shares have full voting rights. With very limited exceptions, Class A shares have no voting rights. Nothing on the agenda for this year's annual meeting will require a vote by Class A shareholders so we are only soliciting proxies from Class B shareholders. Only record holders of Class B stock as of the record date are entitled to vote at the meeting. To have a quorum, a majority of the Class B shares entitled to vote must be present at the meeting (either in person or by proxy). If you complete the enclosed proxy and return it before the meeting, the persons named will vote your shares as you specify in the proxy. You may revoke a proxy any time before voting begins. PRINCIPAL SHAREHOLDERS The table which follows shows the Class B stock held by persons we know to be beneficial owners (as defined in SEC Rule 13d-3) of more than 5% of the Class B stock. The information in the table is as of March 2, 1998 unless a different date is shown.
Class B Shares Owned Amount and Nature of Beneficial Ownership Sole Sole Shared Shared Percent Name and Address Voting Power Investment Power Voting Power Investment Power Total of Class ---------------- ------------ ---------------- ------------ ---------------- ----- -------- Herrick Foundation 150 West Jefferson Suite 2500 Detroit, MI 48226 1,367,525(1) 1,367,525(1) 1,367,525(1) 25.0% Kenneth G. Herrick Tecumseh Products Co. 100 E. Patterson St. Tecumseh, MI 49286 888,113(2) 888,113(2) 888,113(2) 16.2% Comerica Bank 411 W. Fort St. Detroit, MI 48226 2,700(3) 2,700(3) 1,292,195(3) 1,292,195(3) 1,294,895(3) 23.7% John W. Gelder 150 W. Jefferson Suite 2500 Detroit, MI 48226 100 100 1,061,821(4) 1,061,821(4) 1,061,921(4) 19.4% Wellington Management Company, LLP 75 State St. Boston, MA 02109 200(5) 280,200(5) 280,200(5) 5.1% EQSF Advisers, Inc. 767 Third Ave. New York, NY 10017 398,900(6) 398,900(6) 398,900(6) 7.3% - --------- (1) Kenneth G. Herrick, Todd W. Herrick, and John W. Gelder, all of whom are directors and nominees for director, are members of the Board of Trustees of Herrick Foundation. (2) Shares held as a trustee of trusts for the benefit of himself and his descendants (Kenneth Herrick Trusts). (3) As of December 31, 1997, based on a Schedule 13G filed by Comerica Bank with the SEC. Includes shares held as a trustee of the Kenneth Herrick Trusts. Also includes shares held as a trustee of other trusts, including trusts then holding a total of 178,708 Class B shares of which John W. Gelder is also a trustee. (4) Shares held as a trustee of the Kenneth Herrick Trusts and of the other trusts referred to in note (3). (5) As of December 31, 1997, based on a Schedule 13G filed by Wellington Management Company, LLP with the SEC. (6) As of December 31, 1997, based on a Schedule 13G filed jointly by EQSF Advisers, Inc., M.J. Whitman Advisers, Inc., and Martin J. Whitman, all of whom share the same address. In addition to the shares shown in the table above, the Schedule 13G discloses that M.J. Whitman Advisers, Inc. beneficially owns 130,495 Class B shares (all with sole voting and investment power) and that Mr. Whitman, who is the Chief Executive Officer of EQSF Advisers, Inc. and M.J. Whitman Advisers, Inc., disclaims beneficial ownership of all shares owned by them.
1 ELECTION OF DIRECTORS Election Procedure The Company's bylaws authorize us to determine the number of directors that will make up the full Board. We currently have nine directors, and we have decided to keep the same number for the coming year. Dean E. Richardson will retire from the Board after this year's annual meeting. Mr. Richardson has been a director since 1979, contributing wisdom and enthusiasm that will be sorely missed. We extend our sincerest thanks for his long and faithful service. We have nominated Ralph W. Babb, Jr. to fill the vacancy that will be created by Mr. Richardson's retirement, and we have nominated all eight remaining incumbent directors for reelection. If you return a proxy to us, it will be voted for all of our nominees or, if you specify otherwise, as you specify. If a nominee becomes unable to serve (which we do not expect to happen), your proxy will be voted for a substitute determined in the best judgment of the proxy holders. From the persons duly nominated, directors will be elected at the annual meeting by plurality vote of the record date holders of Class B shares present or represented at the meeting. This means that this year, regardless of the number of Class B shares not voted for a nominee, the nominees who receive the highest through ninth highest numbers of votes will be elected. Nominees for Director The following paragraphs provide information about each nominee (including his business experience for at least the past five years) which you may wish to consider as you decide how you would like your proxy voted. Kenneth G. Herrick (director since 1951, age 76). Chairman of the Board of Directors of the Company. Mr. Herrick is a member of the Board of Trustees of Howe Military School and of Herrick Foundation. Todd W. Herrick (director since 1973, age 55). President and Chief Executive Officer of the Company. Mr. Herrick is a member of the Board of Directors of Comerica Bank and is a member of the Board of Trustees of Henry Ford Health System, of Albion College, of Howe Military School, and of Herrick Foundation. He is also a member of the Advisory Board to the School of Business of the University of Michigan and a member of the Advisory Board to the School of Business of the University of Notre Dame. He is a member of the Pension Committee. Mr. Herrick is the son of Kenneth G. Herrick. John H. Foss (director since 1982, age 55). Vice President, Treasurer and Chief Financial Officer of the Company. Mr. Foss is a member of the Board of Directors of United Bancorp, Inc., of United Bank & Trust, and of The Bartech Group, Inc. He is a member of the Pension Committee. J. Russell Fowler (director since 1967, age 79). Retired since 1994; Chairman Emeritus of Jacobson Stores, Inc. (mercantile business) from 1992 to 1994; Chairman of the Board of Directors and Chief Executive Officer of Jacobson Stores, Inc. from 1982 to 1992. Mr. Fowler is a member of the Board of Directors of Butterfield Investment Company. He is a member of the Audit Committee. John W. Gelder (director since 1989, age 64). Senior Member of the law firm of Miller, Canfield, Paddock and Stone, P.L.C. Mr. Gelder is a member of the Board of Trustees of Herrick Foundation. He is a member of the Pension Committee and the Audit Committee. Stephen L. Hickman (director since 1991, age 55). Chairman of the Board of Directors, President, and Chief Executive Officer of Brazeway, Inc. (manufacturer of aluminum extrusions and fabrication of aluminum products). Mr. Hickman is a member of the Board of Directors of Adrian State Bank, of Kenmore-Brazeway of Crook, England, of Spangler Candy Company, and of Stonebridge Industries. He also is a member of the Board of Trustees of Siena Heights College. He is a member of the Audit Committee and the Executive Compensation Committee. Peter M. Banks (director since 1991, age 60). President, Chairman of the Board, and Chief Executive Officer of ERIM International, Inc. (government research and development services) since 1997; President and Chief Executive Officer of Environmental Research Institute of Michigan (government research and development services) from 1995 to 1997; Professor and Dean of the College of Engineering of the University of Michigan from 1990 to 1994. Dr. Banks is a member of the Board of Trustees of Consortium for International Earth Science Information Networking and of Industrial Technology Institute. He is a member of the Pension Committee and the Executive Compensation Committee. Jon E. Barfield (director since 1993, age 46). Chairman, President, and Chief Executive Officer of The Bartech Group, Inc. (contract employment and related staffing services) since 1997; Chairman and Chief Executive Officer of The Bartech Group, Inc. from 1995 to 1997; President of The Bartech Group, Inc. from 1981 to 1995. Mr. Barfield is a member of the Board of Directors of First of America Bank Corporation. He also is a Charter Trustee of Princeton University, a member of the Board of Trustees of Kettering University, of Henry Ford Museum and Greenfield Village, and of Detroit Educational Television Foundation Channel 56, and a director of the Community Foundation for Southeastern Michigan. He is a member of the Pension Committee and the Executive Compensation Committee. Ralph W. Babb, Jr. (age 49). Executive Vice President and Chief Financial Officer of Comerica Incorporated and of its principal subsidiary, Comerica Bank, since 2 1995; Vice Chairman of Mercantile Bancorporation Inc. and of its subsidiary, Mercantile Bank of St. Louis, from 1987 to 1995. Mr. Babb is a member of the Board of Directors of Citizens Research Council of Michigan, a member of the Finance Committee of The Detroit Medical Center, and a member of the Advisory Board for the St. Vincent and Sarah Fisher Center. Directors' Meetings and Certain Standing Committees We have no standing nominating committee or committee performing similar functions. We do have an Audit Committee and an Executive Compensation Committee. The Audit Committee selects and recommends to the Board the employment of independent public accountants, reviews the audit plans of our independent public accountants and internal auditors, the scope and effectiveness of their audits, the fees the independent public accountants charge, and our annual financial statements before release. It also reviews and acts on comments and suggestions by our independent public accountants and internal auditors relating to their audit activities. The functions of the Executive Compensation Committee include annually fixing the salaries of our Chief Executive Officer and other executive officers, considering, developing, reviewing, and making recommendations concerning programs for annual and long-term incentive compensation for those executives and for other key employees, and administering those programs, including our Management Incentive Plan. No director on this committee can be an employee of the Company. We held ten Board of Directors meetings during 1997. The Audit Committee met three times, and the Executive Compensation Committee met twice during the year. In 1997, each director attended at least 75% of the total of all Board meetings and all meetings of Board committees on which he served that were held during his period of service, except that Kenneth G. Herrick attended 60% of the meetings applicable to him. Director Compensation We do not pay employee directors any separate compensation for serving as directors. We pay all other directors a monthly retainer of $1,000, a $1,500 fee for each Board meeting attended, and a $1,000 fee for each committee meeting attended. We also reimburse those directors for travel expenses. Management's Ownership of Equity Securities The table on the next page provides information about Rule 13d-3 beneficial ownership of Class B stock and Class A stock by each director, director nominee, and executive officer and all directors and executive officers as a group. 3 Number of Shares of Common Stock Beneficially Owned on March 2, 1998
Class of Sole Voting and Aggregate Common Investment Aggregate Percent Name Stock Power Other Total Owned ---- ------- --------------- ----- --------- --------- Ralph W. Babb, Jr. Class B ... -0- -0- -0- -0- Class A ... -0- -0- -0- -0- Peter M. Banks Class B ... -0- -0- -0- -0- Class A ... -0- -0- -0- -0- Jon E. Barfield Class B ... -0- -0- -0- -0- Class A ... 659 -0- 659 * John H. Foss Class B ... 100 -0- 100 * Class A ... 300 -0- 300 * J. Russell Fowler Class B ... 1,300 -0- 1,300 * Class A ... 900 -0- 900 * John W. Gelder Class B ... 100 -0-(1) 100 * Class A ... 300 -0-(1) 300 * Kenneth G. Herrick Class B ... -0- 2,328,188(2) 2,328,188 42.6% Class A ... -0- 1,015,765(2) 1,015,765 6.3% Todd W. Herrick(3) Class B ... 21,906 10,000(4) 31,906 * Class A ... -0- -0-(4) -0- -0- Stephen L. Hickman Class B ... 100 -0- 100 * Class A ... 300 -0- 300 * Dean E. Richardson Class B ... 100 -0- 100 * Class A ... 300 -0- 300 * James Martinco Class B ... 10 -0- 10 * Class A ... 30 -0- 30 * Dennis McCloskey Class B ... 46 -0- 46 * Class A ... -0- -0- -0- -0- All directors and executive Class B ... 23,662 2,338,188 2,361,850 43.2% officers as a group (11 persons) Class A ... 2,789 1,015,765 1,018,554 6.3% - --------- * Less than 1% (1) Does not include the 888,113 Class B shares and 454,441 Class A shares owned by the Kenneth Herrick Trusts or the 173,708 Class B shares owned by other trusts of which Mr. Gelder is a co-trustee. Also does not include the 1,367,525 Class B shares and 458,347 Class A shares owned by Herrick Foundation. Mr. Gelder disclaims beneficial ownership of all of these shares. (2) Includes the 888,113 Class B shares and 454,441 Class A shares owned by the Kenneth Herrick Trusts. Also includes the 1,367,525 Class B shares and 458,347 Class A shares owned by Herrick Foundation and the 72,550 Class B shares and 102,977 Class A shares owned by Howe Military School, of which Kenneth G. Herrick is a member of the Board of Trustees. Mr. Herrick disclaims beneficial ownership of the shares owned by Herrick Foundation and Howe Military School. (3) Todd W. Herrick is an income beneficiary of the Kenneth Herrick Trusts. (4) Includes 10,000 Class B shares owned by Albion College, of which Mr. Herrick is a member of the Board of Trustees. Does not include the 1,367,525 Class B shares and 458,347 Class A shares owned by Herrick Foundation and the 72,550 Class B shares and 102,977 Class A shares owned by Howe Military School, of which Todd W. Herrick also is a member of the Board of Trustees. Mr. Herrick disclaims beneficial ownership of both the included and excluded shares.
Section 16(a) Beneficial Ownership Reporting Compliance Directors, certain officers, and beneficial owners of more than 10% of the Class B Stock are required to file reports about their ownership of Company equity securities under Section 16(a) of the Securities Exchange Act of 1934 and to provide copies of the reports to us. Based on the copies we received and on written representations from the persons we know are subject to these requirements, we believe that all 1997 filing requirements were met. EXECUTIVE COMPENSATION Summary Compensation Information The table which follows provides information about the compensation of our Chief Executive Officer and each other person who served as an executive officer during 1997 and whose total salary for that year exceeded $100,000. It also identifies two new executive officers appointed at the beginning of 1998. 4 Summary Compensation Table
Annual Long-Term Compensation Compensation ------------ ------------ Awards ------------ Restricted Stock All Other Name and Principal Position Year Salary(1) Award(s)(2) Compensation(3) --------------------------- ---- --------- ----------- --------------- Todd W. Herrick 1997 $395,000 $53,700 $4,500 President, CEO 1996 365,000 70,619 4,500 1995 330,000 80,496 4,500 John H. Foss 1997 $262,000 $35,619 $4,500 Vice-President, 1996 242,000 48,821 4,500 Treasurer, CFO 1995 220,000 53,664 4,500 James Martinco Group Vice President, Engine & Power Train Components (4) Dennis McCloskey Group Vice President, Compressors (4) (1) Includes, where applicable, amounts deferred at the election of the executive officer and contributed on his behalf to our Retirement Savings Plan (a 401(k) plan). (2) The awards reported in this column are restricted phantom stock units relating to Class A shares that were awarded for achievement of performance goals under the Management Incentive Plan. As more fully discussed in the Executive Compensation Committee Report, awards under this plan and any deemed dividend reinvestments that may be credited on those awards generally are nontransferable and subject to forfeiture until five years after the end of the year for which they were granted. As required by SEC rules, for purposes of attributing a dollar value to the units reported in this column, values have been calculated by multiplying the number of units awarded by the grant date closing price for a Class A share on the NASDAQ National Market System. Please note, however, that awards under the Management Incentive Plan are denominated in share units, not dollars, so that the potential payout on an award, when and if vested, is tied directly to the market value performance of Class A shares after the grant. Thus, the actual dollar amount a grantee ultimately may realize from a reported award will depend on our future performance and on general market conditions prevailing in the future. As cash dividends are paid on Class A stock, additional phantom share units, which correspond to the dividends paid, are credited to employees' accounts. As of December 31, 1997, before the 1997 awards reported in this column, the named executives held the following numbers of share units, which had the following values based on the Class A share closing price on the NASDAQ National Market System on the last trading day of 1997: Todd W. Herrick -- 5,787.04 share units valued at $282,120; and John H. Foss -- 3,838.65 share units valued at $187,134. (3) Amounts shown are Company matching contributions to the Retirement Savings Plan. (4) Compensation information is not included because Mr. Martinco and Mr. McCloskey first became executive officers during 1998.
Retirement Plans Our retirement plan, which is a broad-based defined benefit and (since 1985) noncontributory plan, and our supplemental retirement plan, which covers certain executives, provide benefits in the event of normal (i.e., at age 65), early, deferred, or disability retirement. Upon a participant's death, these plans provide a surviving spouse pension and a refund of any pre-1985 employee contributions. Participants are vested after five years of credited service. As of January 1, 1998, Mr. Todd Herrick had 33.5 years of credited service, and Mr. Foss had 19 years. Retirement benefits under these plans are provided to a vested participant in the form of a life-time pension, the amount of which is equal to a percentage of the participant's average base salary over the 60 months immediately before his or her retirement date, multiplied by years of credited service (up to a maximum of 35 years), and reduced in the case of certain benefits payable under the supplemental retirement plan by a percentage of Social Security benefits. The table below shows the estimated annual pension benefit (which is not subject to further deduction for Social Security benefits or other offset amounts) payable under the plans on a straight life annuity basis to executive officers retiring at age 65 in the earnings and years of service classifications specified, without considering any benefits which in some cases may be payable to a participant due to voluntary contributions made by the participant before 1985. 5 Pension Plan Table
Average Estimated Annual Benefit at Age 65 Annual for Years of Service Indicated Base 35 or Salary 15 20 25 30 Longer ------ -------- -------- -------- -------- ------ $ 90,000 ............ $ 16,875 $ 22,500 $ 28,125 $ 33,750 $ 39,375 100,000 ............ 18,750 25,000 31,250 37,500 43,750 125,000 ............ 23,437 31,250 39,062 46,875 54,687 150,000 ............ 28,125 37,500 46,875 56,250 65,625 175,000 ............ 35,396 47,195 58,994 70,792 83,917 200,000 ............ 41,021 54,695 68,369 82,042 97,042 225,000 ............ 46,646 62,195 77,744 93,292 110,167 250,000 ............ 52,271 69,695 87,119 104,452 123,292 275,000 ............ 57,896 77,195 96,494 115,792 136,417 300,000 ............ 63,521 84,695 105,869 127,042 149,542 400,000 ............ 86,021 114,695 143,369 172,042 202,042 450,000 ............ 97,271 129,695 162,119 194,492 228,292 500,000 ............ 108,521 144,695 180,869 217,042 254,542
EXECUTIVE COMPENSATION COMMITTEE REPORT This report is provided by the Executive Compensation Committee. None of the committee members is an employee of the Company. Compensation Philosophy and Objectives We follow a "pay for performance" philosophy designed to accomplish three primary objectives: * Encouraging teamwork among members of management and excellence in the performance of individual responsibilities. * Aligning the interests of key managers with the interests of shareholders by offering an incentive compensation vehicle that is based on growth in return on equity and shareholder value. * Attracting, rewarding, and retaining strong management. Our "pay for performance" strategy is intended to enhance shareholder value: * In the short term, by focusing management's attention on return on equity, cash return on assets, and other measures of current financial performance so as to challenge each of the Company's business groups to achieve and maintain positions of market leadership, to reduce costs where appropriate, and to continually seek to maintain and enhance the Company's reputation for excellence in product quality and customer service. * In the longer term, by causing a substantial portion of each executive's potential compensation to be directly tied to market performance of Company stock. Management Incentive Plan Awards The principal tool for implementing our "pay for performance" philosophy is the Management Incentive Plan, a so-called "phantom stock" plan which covers approximately 35 key executives, including all executive officers. (The Company also has a plan for awarding annual cash bonuses based on similar performance criteria, which covers approximately 100 lower level management employees.) The Management Incentive Plan is structured to provide both a short-term incentive tied to achievement of company-wide and business unit annual performance goals and a long-term incentive tied to the market performance of Company stock. All Plan awards are maintained in phantom stock "units" considered for record keeping purposes as equivalents to Class A shares and valued accordingly. Except in cases of earlier employment termination due to death, disability, or retirement, or in the event of a "change in control" (as defined in the Plan), the entire award granted an employee under the Management Incentive Plan for any year (including the 1997 awards reported in the Summary Compensation Table) is subject to forfeiture if the grantee does not remain with the Company for at least five full fiscal years. As cash dividends are paid on Class A shares, additional phantom stock units (also subject to forfeiture), equal in value to the dividends paid, are credited to employee accounts under the Plan. Thus, the potential payout on an award, although payable only in cash, is tied directly to the market value performance of Class A shares over a five-year period. For purposes of computations under the Plan, units are valued at the average of the closing prices for the Class A shares on the first trading day of the month over the eleven months preceding the valuation date rather than by the method required by the SEC for the Summary Compensation Table. 6 The Management Incentive Plan affords us broad discretion to determine the amounts of awards granted, subject only to a limitation setting the maximum number of units awardable during a given year at 2% of the number of Class A shares outstanding at the end of the year. We also have broad discretion under the Plan to establish criteria under which otherwise eligible employees may receive awards. In general, however, as was true for 1997, before or early in each year, we expect to establish objective company-wide and business group performance criteria and, after year-end, to use the Company's actual performance -- measured against these criteria -- as the principal basis for phantom stock grant decisions for that year. For 1997, the company-wide criteria established for the Corporate Office Group, which includes Todd Herrick and John Foss, related to return on equity, both in absolute terms and in relation to historical performance. The same Company-wide return on equity criteria also were established for each business unit, and additional group criteria relating to cash return on assets (both absolute and relative to prior performance) also were established for each business unit. Under the Plan as implemented for 1997, depending on the extent to which actual return on equity for that year (and, for employees in a business unit, the extent to which the unit's actual cash return on assets for the year) fell within or exceeded our pre-approved ranges, each covered employee could receive an award of phantom stock units equal to up to 40% of 1997 salary based on these objective criteria. In addition, each covered employee could receive an award of up to 10% of 1997 salary depending on our evaluation of 1997 performance based on achievement of business plan goals, completion of specified strategic plan actions, recommendations of the CEO, and such other factors as we deem appropriate. Return on equity for 1997 was good but declined somewhat from 1996, causing the portion of 1997 awards based on that standard to decline from the year before. The balance of each award, while necessarily determined in a more subjective manner, was also based on 1997 performance. We believed that the performance of each business group reflected a team effort on the part of the executives in that group. In the interest of maintaining team spirit, we concluded that all covered employees in a given group should receive awards which were identical in terms of percentage of salary. In fixing this portion of the awards for executives in the Corporate Office Group (which includes the CEO and CFO), we considered the degree to which the Company had succeeded in accomplishing strategic objectives established at the beginning of the year by the CEO, including objectives relating to acquisitions, labor relations, employee benefits, year 2000 computer implementation, investor relations, and other matters. The non-objective portions of the awards for participating employees in other groups (which, for 1997, did not include any executive officers) were based principally on the CEO's recommendations, which were in turn based on the performance of those groups in relation to their business plans for the year. Salaries In keeping with our "pay for performance" philosophy, we believe executive officers should receive salaries that are reasonable but modest in light of their experience, skills, and responsibilities, and that the opportunity to achieve significantly greater total compensation should be tied to the Company's short- and long-term performance through the potential for awards under the Management Incentive Plan. When we considered 1997 executive salaries, it was our shared perception, based on our general business knowledge and without review of any data specifically collected by us for that purpose, that existing salary levels for the CEO and CFO continued to be too low given their responsibilities. In our salary deliberations with respect to the CFO, we considered the CEO's recommendations. The Company's fiscal 1996 performance also was a factor, but not a controlling factor, in our decisions on 1997 salary, due to our belief that short-term performance generally is not appropriate for consideration with respect to that form of compensation. Based on these considerations, we decided to increase the 1997 salary for each executive officer to the level reported in the Summary Compensation Table. Except for the fact that we did not obtain a recommendation from the CEO concerning his own salary, we made our salary determinations on the same basis for each executive officer. Concluding Observations Management has reported to us that our "pay for performance" strategy continues to have an observable, positive effect on employee behavior and appears to be promoting the precise objectives it was intended to promote. We therefore expect to continue to approach executive compensation in a similar fashion in 1998 and for the foreseeable future. Nevertheless, we intend to closely monitor the continuing impact of compensation philosophy on Company performance and shareholder value and to consider ways in which current plans and policies might be improved. 7 Section 162(m) of the Internal Revenue Code generally prohibits the deduction of certain compensation in excess of $1 million per year paid by a publicly-held corporation to any individual named in the corporation's summary compensation table for the year. As shown in the Summary Compensation Table, the compensation paid to each of the Company's executive officers was well below $1 million for 1997, and we expect the same will be true for the current year. Therefore, we have decided to defer consideration of any compensation policies related to Section 162(m) for the present. Presented by the members of the Executive Compensation Committee of the Board of Directors Dean E. Richardson, Chairman Peter M. Banks Jon E. Barfield Stephen L. Hickman SHAREHOLDER RETURN PERFORMANCE PRESENTATION The graph which follows compares the performance over the last five years of the Company's Class B stock (trading symbol TECUB) to the Standard & Poor's 500 Stock Index and to a composite industry group index made up of the Standard & Poor's Household Furnishing and Appliances Index (70%) and the Standard & Poor's Diversified Machinery Index (30%). The graph assumes: (1) an investment of $100 in the Class B stock and in each index on December 31, 1992, (2) retention of the Class A shares paid as a one-for-one dividend on the Class B stock on June 30, 1993, and (3) reinvestment of all cash dividends in shares of the same class. Comparison of Five Year Cumulative Total Return Among Tecumseh Products Company, S&P 500 Index, and S&P Composite Industry Index [ PERFORMANCE GRAPH ]
1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- Tecumseh Products Co. $100.00 $158.55 $158.31 $188.11 $209.91 $183.41 S&P 500 Index 100.00 110.08 111.53 153.45 188.68 251.63 S&P Composite Industry Index 100.00 145.25 125.41 153.39 156.67 223.54
8 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Dr. Banks and Messrs. Barfield, Hickman, and Richardson served on the Executive Compensation Committee throughout the period covered by the Executive Compensation Committee Report. No one who served on the committee is or ever has been an officer or employee of the Company or any of its subsidiaries. John H. Foss (a Company director and executive officer) served during 1997 and continues to serve on the board and compensation committee of The Bartech Group, Inc. That company is owned by the family of Jon E. Barfield (a Company director and member of the Executive Compensation Committee), who is its Chief Executive Officer. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS Ciulla, Smith & Dale, LLP, our independent accountants for the fiscal year ended December 31, 1997 and for many years before, will continue to serve for the fiscal year ending December 31, 1998. A representative of Ciulla, Smith & Dale, LLP will be present at the annual meeting and available to respond to appropriate questions from shareholders. He will have an opportunity to make a statement if he so desires. OTHER MATTERS We know of no business to be acted on at the annual meeting other than the matters listed in the accompanying Notice of Annual Meeting. If any other matter does properly come before the meeting, proxies returned to us will be voted on the matter in accordance with the judgment of the proxy holders. Form 10-K If you were a record or beneficial owner of either class of our common stock on March 2, 1998, you may request a copy of the Annual Report on Form 10-K filed with the SEC for 1997 (including the financial statements, schedules, and exhibits) by writing to Daryl P. McDonald, Corporate Counsel & Secretary, Tecumseh Products Company, 100 E. Patterson Street, Tecumseh, Michigan 49286. We will provide these copies without charge. Our Form 10-K may also be obtained from the SEC, including through the Web site it maintains at http://www.sec.gov. 1999 Shareholder Proposals in Company's Proxy Statement In order for shareholder proposals for the 1999 annual meeting of shareholders to be eligible for inclusion in the Company's proxy statement, they must be received at our principal office no later than November 16, 1998. Advance Notice Requirements The Company's bylaws contain advance notice procedures which must be followed in order for a shareholder to nominate a person for election to our Board of Directors or to present any other proposal at an annual meeting of shareholders. A director nomination by a shareholder or other shareholder proposal is proper for action at an annual meeting only if the applicable advance notice procedures have been complied with. In general, except when an annual meeting is called for a date that is not within 20 days before or after the first anniversary of the prior year's annual meeting (in which case other time limits apply), these provisions require notice of a nomination or other proposal expected to be made at an annual meeting to be in writing, to contain specified information concerning the nominee or other proposal and concerning the shareholder proponent, and to be delivered or sent by first class U.S. mail to the Company's Secretary and received at its principal office no later than 60 days nor earlier than 90 days before to the first anniversary of the prior year's annual meeting. The bylaws filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (available from the SEC, including through its Web site mentioned above) contain the complete text of the advance notice provisions. Proxy Solicitation Expenses The Company will pay the expenses of this solicitation. We have engaged Georgeson & Company Inc. to assist in soliciting proxies, for which we will pay a fee estimated at $7,500 plus out-of-pocket expenses. We also may pay brokers, nominees, fiduciaries, custodians, and other organizations performing similar functions their reasonable expenses for sending proxy material to principals and obtaining their instructions. In addition to solicitation by mail, directors, officers, and regular employees of the Company may solicit proxies in person, or by telephone, fax, or similar means. YOUR VOTE IS VERY IMPORTANT. If you are a Class B shareholder, please complete and return the enclosed proxy as soon as possible, even if you currently plan to attend the annual meeting in person. By Order of the Board of Directors, /s/ Daryl P. McDonald Daryl P. McDonald Corporate Counsel and Secretary Tecumseh, Michigan March 16, 1998 9 TECUMSEH PRODUCTS COMPANY THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 22, 1998. P By signing on the reverse, I (or, if more than one person signs, R we)-- O o authorize either of Kenneth G. Herrick or Todd W. Herrick to X act as my (or our) Proxy at the Annual Meeting of Shareholders Y of Tecumseh Products Company to be held on Wednesday, April 22, 1998 and at any adjournments of that meeting, o give each proxy full power to name another person to substitute for him as proxy. o authorize each proxy to vote any and all share of Tecumseh Products Company Class B Common Stock, $1.00 par value, registered in my name (or our names) or which for any reason I (or we) may be entitled to vote, and o direct the proxies to vote as specified below and to vote in their discretion on any other matters that may come before the meeting. Continued and to be voted and signed on reverse /X/ PLEASE MARK VOTES AS IN THIS EXAMPLE Election of Directors. With- For All Kenneth G. Herrick Stephen L. Hickman For hold Except Todd W. Herrick Peter M. Banks / / / / / / John H. Foss Jon E. Barfield J. Russell Fowler Ralph W. Babb, Jr. John W. Gelder (INSTRUCTIONS: To withhold authority to vote for any individual nominee, check the "For All Except" box and write that nominee's name in the space provided below.) - ------------------------------------------------------------------------------ If you sign and return this proxy, the proxies will vote your shares as specified above. If you do not specify how to vote, the proxies will vote your shares FOR the election as Directors of all nominees listed above and in their discretion on any other matters that may come before the meeting. WE APPRECIATE YOUR PROMPT ACTION IN SIGNING AND RETURNING THIS PROXY. _____________________________ Signature _____________________________ Signature Dated__________________, 1998 NOTE: Please sign above exactly as your name(s) appear above. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, or guardian, please give your full title. PLEASE PROMPTLY COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE. If you have any questions or need assistance, please contact Georgeson & Company, Inc., the Proxy Solicitor, at 1-800-223-2064 -----END PRIVACY-ENHANCED MESSAGE-----