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: _________________________________________________________
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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
---------------- ------------ ---------------- ------------ ---------------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
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%
- ---------
<FN>
(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.
</TABLE>
1
<PAGE>
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
<PAGE>
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
<PAGE>
Number of Shares of Common Stock Beneficially Owned on March 2, 1998
<TABLE>
<CAPTION>
Class of Sole Voting and Aggregate
Common Investment Aggregate Percent
Name Stock Power Other Total Owned
---- ------- --------------- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
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
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------
Awards
------------
Restricted
Stock All Other
Name and Principal Position Year Salary(1) Award(s)(2) Compensation(3)
--------------------------- ---- --------- ----------- ---------------
<S> <C> <C> <C> <C>
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)
<FN>
(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.
</TABLE>
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
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
Average Estimated Annual Benefit at Age 65
Annual for Years of Service Indicated
Base 35 or
Salary 15 20 25 30 Longer
------ -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
$ 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
</TABLE>
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
<PAGE>
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
<PAGE>
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 ]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
8
<PAGE>
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
<PAGE>
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
