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
TESCUMSEH PRODUCTS COMPANY
(Name of registrant as specified in its charter)
TESCUMSEH 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: _________________________________________________________
[ LETTERHEAD -- TECUMSEH PRODUCTS COMPANY ]
TECUMSEH PRODUCTS COMPANY
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
[LOGO]
March 14, 1997
Dear Shareholder:
We cordially invite you to attend Tecumseh Products Company's 1997
annual meeting of shareholders. We are holding this year's meeting at 9:00
a.m. on Wednesday, April 23, 1997 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
[ LETTERHEAD -- TECUMSEH PRODUCTS COMPANY ]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 23, 1997
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 23, 1997
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 February 28, 1997 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 14, 1997
TECUMSEH PRODUCTS COMPANY
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
PROXY STATEMENT
We (the Board of Directors of Tecumseh Products Company) are soliciting
proxies to vote Company shares at the 1997 annual meeting of shareholders.
Shareholders will meet at 9:00 a.m. on Wednesday, April 23, 1997 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 14, 1997.
Please read this Proxy Statement carefully. You can obtain more information
about the Company from our 1996 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
February 28, 1997 (the record date for the meeting), 5,470,146 Class B shares
and 16,410,438 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 on the next page 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 February 28, 1997 unless
a different date is shown.
1
Class B Shares Owned
Amount and Nature of Beneficial Ownership
----------------------------------------------------------------------------------------
Sole Sole Shared Shared
Voting Investment Voting Investment Percent
Name and Address Power Power Power 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 West Fort St.
Detroit, MI 48226 2,025(3) 1,800(3) 1,308,005(3) 1,308,230(3) 1,310,030(3) 23.9%
John W. Gelder
150 West Jefferson
Suite 2500
Detroit, MI 48226 100 100 1,081,821(4) 1,081,821(4) 1,081,921(4) 19.8%
<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, 1996, 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 holding a total of 193,708 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).
ELECTION OF DIRECTORS
Election Procedure
The Company's bylaws authorize us to determine the number of directors that
will make up the full Board. This year, we have decided to continue the
number of directors at nine and have nominated all nine 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 75). 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 54). 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
2
Pension Committee. Mr. Herrick is the son of Kenneth G. Herrick.
John H. Foss (director since 1982, age 54). 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 Bartech, Inc.
He is a member of the Pension Committee.
J. Russell Fowler (director since 1967, age 78). 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.
Dean E. Richardson (director since 1979, age 69). Retired. Mr. Richardson is a
member of the Board of Directors of DTE Energy Company and of its principal
subsidiary, The Detroit Edison Company. He is a member of the Audit Committee
and the Executive Compensation Committee.
John W. Gelder (director since 1989, age 63). 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 54). 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, and of Spangler Candy Company. 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 59). President and Chief Executive
Officer of Environmental Research Institute of Michigan since 1995; Dean of
the College of Engineering of the University of Michigan from 1990 to 1994.
Dr. Banks is a member of the Board of Directors of Michigan Development
Corporation. He also 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 45). Chairman and Chief Executive
Officer of Bartech, Inc. (contract employment and related staffing services)
since 1995; President of Bartech, 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 GMI Engineering and Management Institute, 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.
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 the 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 1996. The Audit Committee met
four times, and the Executive Compensation Committee met twice during the
year. In 1996, 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
70% of the meetings applicable to him.
3
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 (increased
from $600 last May), a $1,500 fee for each Board meeting attended, and a
$1,000 fee (increased from $600 last May) 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, each current
or former executive officer named in the Summary Compensation Table, and all
directors and current executive officers as a group.
4
Number of Shares of Common Stock Beneficially Owned on February 28, 1997
Sole Voting
Class of and Aggregate
Common Investment Aggregate Percent
Name Stock Power Other Total Owned
---- -------- ----------- ----- --------- -------
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 6.2%
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 *
Harry L. Hans Class B ..... -0- -0- -0- -0-
Class A ..... -0- -0- -0- -0-
All directors and
current executive
officers
as a group
(9 persons) Class B ..... 23,606 2,338,188 2,361,794 43.2%
Class A ..... 2,759 1,015,765 1,018,524 6.2%
<FN>
- ----------------
* 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 193,708 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 1996 filing requirements were met.
5
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 1996 and whose total salary for that year exceeded $100,000.
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 1996 $365,000 $ 70,619 $4,500
President, CEO 1995 330,000 80,496 4,500
1994 300,000 126,562 4,500
John H. Foss 1996 $242,000 $ 48,821 $4,500
Vice President, Treasurer, CFO 1995 220,000 53,664 4,500
1994 198,500 83,742 4,500
Harry L. Hans 1996 $140,000 $ 22,401 $4,200
Group Vice President, 1995 135,000 10,478 4,050
Engine & Power Train Components(4) 1994 123,000 55,818 4,140
<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 begun in 1994. 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, 1996, before the 1996 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 1996: Todd W.
Herrick -- 4,438.48 share units valued at $254,658; John H. Foss --
2,944.57 share units valued at $168,941; and Harry L. Hans -- 1,477.06
share units valued at $84,706.
(3) Amounts shown are Company matching contributions to the Retirement Savings
Plan.
(4) Retired December 31, 1996.
6
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, 1997, Mr. Todd Herrick had 32.5 years of credited
service, Mr. Foss had 18 years, and Mr. Hans had retired with 40.5 years of
credited service.
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.
Pension Plan Table
Estimated Annual Benefit at Age 65
Average for Years of Service Indicated
---------------------------------------------------
Annual 35 or
Base 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 ............................... 35,630 47,507 59,384 71,261 84,386
200,000 ............................... 41,255 55,007 68,759 82,511 97,511
225,000 ............................... 46,880 62,507 78,134 93,761 110,636
250,000 ............................... 52,505 70,007 87,509 105,011 123,761
275,000 ............................... 58,130 77,507 96,884 116,261 136,686
300,000 ............................... 63,755 85,007 106,259 127,511 150,011
400,000 ............................... 86,255 115,007 143,759 172,511 202,511
450,000 ............................... 97,505 130,007 162,509 195,011 228,761
500,000 ............................... 108,755 145,007 181,259 217,511 255,011
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
Beginning in 1994, we dramatically changed our approach to compensating
executives. We abandoned the use of traditional discretionary cash bonuses in
favor of 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
7
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 1996 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.
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 1996, 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 1996, 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, including the Engine & Power Train Group headed by Mr. Hans,
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 1996, 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
1996 salary based on these objective criteria. In addition, each covered
employee could receive an award of up to 10% of 1996 salary depending on our
evaluation of 1996 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 1996 was good in absolute terms but declined slightly
from 1995, causing the portion of 1996 awards based on that standard to
decline from the year before. Cash return on assets for the Engine & Power
Train Group improved over 1995, resulting in higher objective-based awards
for its executives than was the case last year. In each case, 1996 awards to
executive officers on the basis of objective performance criteria made up
more than 50% of their total awards.
The balance of each award, while necessarily determined in a more subjective
manner, was also based on 1996 performance. We believed that the performance
of each business group reflected a team effort on the part of the executives
in that group.
8
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), 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 international planning, acquisitions, human
resources, employee benefits, investor and public relations, and other
matters. The non-objective portions of the awards for participating employees
in other groups 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 1996 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 other executives
continued to be too low given their responsibilities. In our salary
deliberations with respect to executive officers other than the CEO, we
considered the CEO's recommendations. The Company's fiscal 1995 performance
also was a factor, but not a controlling factor, in our decisions on 1996
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 1996 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 1997 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.
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 1996, 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 voting common stock (since April 22, 1992, the 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
voting common stock and in each index on December 31, 1991, (2) retention of
the Class A shares paid as a one-for-one dividend on the Class B stock on May
29, 1992 and the Class A shares paid as a one-for-one dividend on both
classes on June 30, 1993, and (3) reinvestment of all cash dividends in
shares of the same class.
9
Comparison of Five Year Cumulative Total Return
Among Tecumseh Products Company, S&P 500 Index,
and S&P Composite Industry Index
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
Tecumseh Products Co. $100.00 $112.64 $190.23 $190.21 $225.99 $256.90
S&P 500 Index 100.00 107.62 118.46 120.03 165.13 203.05
S&P Composite Industry Index 100.00 109.39 158.89 137.18 167.79 171.38
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER
PARTICIPATION
Messrs. Barfield, Hickman, and Richardson served on the Executive Compensation
Committee throughout 1996. Mr. Gelder served on the committee until resigning
last October, and Dr. Banks was appointed as his successor. Dr. Banks did not
participate in the committee's deliberations concerning 1996 executive salaries
or the establishment of 1996 performance goals under the Management Incentive
Plan. Mr. Gelder did not take part in granting 1996 awards under that plan. No
one who served on the committee is or ever has been an officer or employee of
the Company or any of its subsidiaries.
Mr. Gelder is a member of the law firm of Miller, Canfield, Paddock and
Stone, P.L.C. We retained that firm as our general legal counsel in 1996 and
have retained it again this year.
John H. Foss (a Company director and executive officer) served during 1996
and continues to serve on the board and compensation committee of Bartech,
Inc. That company is owned by the family of Mr. Barfield, then and still its
Chief Executive Officer. During a portion of 1996, Mr. Foss also served on
the board and compensation committee of Utility Support Services, Inc., which
also was owned by Mr. Barfield's family and of which Mr. Barfield also was
Chief Executive Officer.
10
RELATIONSHIP WITH
INDEPENDENT ACCOUNTANTS
Ciulla, Smith & Dale, LLP, our independent accountants for the fiscal year
ended December 31, 1996 and for many years before, will continue to serve for
the fiscal year ending December 31, 1997. 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 February 28, 1997, you may request a copy of the Annual Report on Form
10-K we filed with the SEC for 1996 (including the financial statements,
schedules, and exhibits) by writing:
Tecumseh Products Company
100 East Patterson Street
Tecumseh, Michigan 49286
Attention: Daryl P. McDonald
Corporate Counsel and Secretary
We will provide these copies without charge.
1998 Shareholder Proposals
In order for shareholder proposals for the 1998 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 14,
1997.
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 14, 1997
11
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
TESCUMSEH
PRODUCTS COMPANY
1. Election of Directors.
With- For All
Kenneth G. Herrick John W. Gelder For hold Except
Todd W. Herrick Stephen L. Hickman / / / / / /
John H. Foss Peter M. Banks
J. Russell Fowler Jon E. Barfield
Dean E. Richardson
NOTE: If you do not wish your shares voted "For" a particular
nominee, mark the "For All Except" box and strike a line
through the nominee's(s') name(s). Your shares will be voted
for the remaining nominees(s).
RECORD DATE SHARES:
Please be sure to sign and date this proxy. Date ____________
_____________________________ __________________________________
Shareholder sign here Co-owner sign here
Mark box at right if comments or address change have
been noted on the reverse side of this card. / /
DETACH CARD
- -------------------------------------------------------------------------------
TECUMSEH PRODUCTS COMPANY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 23, 1997
By signing on the reverse side, I (or, if more than one person signs, we)-
o authorize either of Kenneth G. Herrick or Todd W. Herrick to act as
my (or our) proxy at the Annual Meeting of Shareholders of Tecumseh
Products Company to be held on Wednesday, April 23, 1997, 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 shares 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.
If you sign and return this proxy, the proxies will vote your shares as
specified on the reverse side. If you do not specify how to vote, the proxies
will vote your shares FOR the election of all nominees listed on the reverse
side as Directors, and in their discretion on any other matters that may come
before the meeting.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appears(s) on the reverse side. Joint
owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_________________________________ _________________________________
_________________________________ _________________________________
- -----------------------------------------------------------------------------
WE APPRECIATE YOUR PROMPT ACTION IN SIGNING AND RETURNING THIS PROXY.