EXHIBIT 10.25
TECUMSEH PRODUCTS COMPANY
DIRECTOR RETENTION PHANTOM STOCK PLAN
[Amended and restated November 27, 2002]
Tecumseh Products Company (the "Company") amends and restates its
Director Retention Phantom Stock Plan to provide an incentive for outside
Directors to remain in service on the Company's Board of Directors so that the
Company may continue to benefit from their counsel and dedication, while
rewarding their commitment to the Company with deferred income based on the
Company's realized return on equity and the stock market performance of the
Class A Common Stock of the Company.
1 DEFINITIONS
As used in the Plan, the following terms have the following respective
meanings:
"Account" has the meaning given in Section 4.1 hereof.
"Award" means an allocation of Phantom Shares to the Account of an
Eligible Director and shall include the dollar amount authorized for Plan Awards
prior to the conversion of such amount into Phantom Share units.
"Company" means Tecumseh Products Company.
"Board" means the Board of Directors of the Company.
"Committee" means Governance and Executive Compensation Committee of
the Board, or such other committee as the Board may subsequently appoint to
administer the Plan.
"Determination Date" means, for each Eligible Director, the date on
which he or she ceases to be a Director of the Company due to resignation,
retirement, death, Disability, or other reason.
"Disabled" (or to have a "Disability") shall mean an Eligible Director
has been declared to be permanently and totally disabled after examination by an
independent physician satisfactory to the Company and the Committee has
reasonably determined that the physical or mental condition of the Eligible
Director is such as would prevent such Director from performing the regular
duties of that position for a period of more than six months.
"Eligible Director" means, for any relevant time, each individual who
at that time is a member of the Board but is not also an officer or employee of
the Company or of any subsidiary of the Company.
"Market Price" means, for any given date (i) if the Shares are then
listed for trading on one or more national securities exchanges (including for
this purpose the NASDAQ "National Market"), the average of the high and low sale
prices for a Share on the principal such exchange on the date in question (or,
if no Shares traded on such exchange on such date, the next preceding date on
which such trading occurred); (ii) if (i) is inapplicable but bid and asked
prices for Shares are quoted through NASDAQ, the average of the highest bid and
lowest asked prices so quoted for a Share on the date in question (or, if no
prices for Shares were quoted on that date, the next preceding date on which
they were quoted); (iii) if (i) and (ii) are inapplicable but bid and asked
prices for Shares are otherwise quoted by one or more broker-dealers known to
the Company to be making a market in the Shares, the average of the highest bid
and lowest asked prices so quoted on the date in question (or, if no prices were
quoted on that date, the next preceding date on which they were quoted); and
(iv) if all of the foregoing are inapplicable, the fair market value of a Share
on the date in question as determined in good faith by the Committee.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Phantom Share" means an allocation credited to the Account of an
Eligible Director and maintained in such Account together with any prior or
subsequent allocations made on behalf of such Director. An allocation of Phantom
Shares shall confer only such rights as are specified in the Plan. Directors who
receive allocations of Phantom Share units shall not (as a consequence of such
allocations) be treated as shareholders under the Articles of Incorporation or
By-Laws of the Company or under applicable law.
"Plan" means this Director Retention Phantom Stock Plan.
"Plan Year" means the calendar year.
"Retainer" means the annual amount payable to an Eligible Director for
serving as a Director of the Company during a given year, excluding amounts
payable for attendance at meetings of the Board, any amounts payable for serving
on or as chair of any committee of the Board and any amounts payable for
reimbursement of expenses.
"Share(s)" means Class A Common Stock, $1.00 par value per share, of
the Company.
2 ADMINISTRATION
The Plan shall be administered by the Committee. To the extent
consistent with the terms of the Plan, the Committee shall have the power to
interpret any Plan provision, to prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all
2
other determinations that it deems necessary or advisable to administer the
Plan. The Committee may appoint such agents to assist in administration of the
Plan, other than Eligible Directors, as the Committee deems appropriate. The
Committee's interpretation of the Plan and any action it takes with respect to
allocations of Phantom Share units pursuant thereto shall be final and binding
upon all affected parties.
3 AWARDS
3.1 The target dollar amount of an Award shall equal a stated
percentage (not to exceed 50%) of each Eligible Director's annual Retainer that
will constitute the Award if the Company attains or exceeds a target Return on
Equity ("ROE") as established by the Committee from time to time. The actual
amount to be used for Awards (the "Award Pool") for a given Plan Year shall be a
percentage of the target amount (not to exceed 100%) of the Company's actual ROE
for such Plan Year. As used in this Plan, "ROE" means the Company's average
annual rate of return on equity for the Plan Year, determined by the same method
as the Company uses for other performance measurement purposes (rounded to the
nearest one-hundredth of a percent). The Award Pool shall be zero for any Plan
Year in which ROE is below a percentage established by the Committee when the
Committee establishes the target ROE. Promptly after establishing the target ROE
and the minimum ROE (if any) the Committee shall advise the Eligible Directors
of such determination(s).
3.2 If an Eligible Director shall die, become Disabled, retire or
otherwise terminate service as a Director prior to December 31 of a Plan Year,
he or she shall not be entitled to an Award for such Plan Year. If an Eligible
Director shall die or become Disabled on or after January 1 but before Awards,
if any, are determined pursuant to Section 4.2, the Committee may authorize an
Award to him or her or to his or her beneficiary or estate in such amount, if
any, as the Committee in its discretion deems appropriate; provided that Awards
shall be made under this Section 3.2 only if an Award Pool is established under
Section 3.1.
4 ACCOUNTS
4.1 For each Eligible Director, the Company shall establish and
maintain a bookkeeping account ("Account") in which all Phantom Share units
allocable to the Eligible Director due to his or her participation in the Plan
shall be credited.
4.2 At the organizational meeting of the Board of Directors which
follows the Annual Meeting of Shareholders, the Award (if any) for the preceding
Plan Year shall be determined and there shall be allocated to each Eligible
Director's Account a number (to four decimal places) of Phantom Share units that
is equal to the dollar amount of the Eligible Director's Award, divided by the
Market Price on the trading date immediately preceding the allocation date.
EXAMPLE: If an Eligible Director is due to receive $10,000 as his/her
annual Award pursuant to this Plan, and if the Market Price per Share
is $51 on the
3
valuation date, then he or she will receive an allocation of Phantom
Share units determined by the formula $10,000 / $51, or 196.0784
Phantom Share units.
4.3 On the payment date for any cash dividend or other cash
distribution declared upon the Shares, there shall be allocated to each Eligible
Director's Account that number (to four decimal places) of Phantom Share units
that is equal to the total of units which on the related record date were in the
Eligible Director's Account, multiplied by the per Share cash dividend or other
distribution, and divided by the Market Price on such payment date.
5 POLICY REGARDING RETIREMENT OF OUTSIDE DIRECTORS
5.1 An Eligible Director shall retire from the Board as provided in the
Company's Bylaws, and nothing contained in this Plan shall entitle an Eligible
Director to serve beyond the term for which he or she was elected to the Board.
Nothing in this Plan shall be construed to restrict the stockholders' right to
elect any person a Director of the Company in accordance with the Articles of
Incorporation and Bylaws.
6 PAYMENT OF AWARDS
6.1 Subject to the provisions of Sections 6.2 and 6.3, within 30 days
after (a) an Eligible Director's Determination Date, or (b) a Company Change of
Control, the Company shall pay to the Director an amount in cash equal to the
number of Phantom Share units then credited to his or her Account multiplied by
the Market Price per Share on the Determination Date or date such Company Change
of Control shall have occurred, as the case may be.
6.2 An Eligible Director's Account shall be forfeited if his or her
service on the Board is terminated, voluntarily or otherwise, for any Reason
denominated below (which shall be determined by the Committee). Such "Reason",
for the sole purpose of determining whether an Eligible Director's Awards are to
be forfeited, shall be deemed to exist where -
(i) The Eligible Director breaches any material written rules,
regulations or policies of the Board, now existing or hereafter arising, which
are uniformly applied to all Eligible Directors or which rules, regulations and
policies are promulgated for general application to Directors of the Company; or
(ii) The Eligible Director willfully and repeatedly fails to
substantially perform the duties of his or her tenure (other than any such
failure resulting from incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to him by the Board
chairperson, which demand specifically identifies the manner in which the
chairperson believes that the Eligible Director has not substantially performed
such duties; or
4
(iii) The Eligible Director is convicted of a felony under state or
federal law, or commits a crime involving moral turpitude; or
(iv) The Eligible Director embezzles or misappropriates any property
belonging to the Company such that he may be subject to criminal prosecution
therefor or the Eligible Director intentionally and materially injures the
Company, its personnel or its property.
6.3 If an Eligible Director's Determination Date occurs due to death,
or if he or she dies prior to payment pursuant to Section 6.1, then the amount
payable shall be paid to the beneficiary or beneficiaries designated in the
Eligible Director's written beneficiary designation filed with the Committee,
or, if no valid beneficiary designation has been filed, the legally appointed
personal representative of the Eligible Director's estate. If no such
representative is appointed by the time payment is due, then the Company shall
hold the payment without interest until appointment occurs or proper claim for
such items otherwise is made of the Company by the person or persons entitled
thereto. If the Company is notified that an Eligible Director has been
adjudicated mentally incompetent as of the time any amount is payable under the
Plan to the Eligible Director, or if it otherwise is demonstrated to the
satisfaction of the Committee that such mental incapacity then exists by a
person authorized by a durable power of attorney or similar document to attend
to the Eligible Director's financial affairs, the any cash so payable shall be
delivered to, the Eligible Director's legally appointed guardian or conservator
or, if none has been appointed, the holder of such power of attorney or similar
document.
6.4 A "Company Change in Control," for the purposes of this Plan, shall
mean one or more of the following events:
(i) The acquisition, after December 31, 2002, of beneficial ownership
of 25% or more of the Company's Class A Common Stock or Class B Common Stock
then outstanding by any person (including a group, within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act")), other than:
(A) the trustee of any Company-sponsored employee benefit plan,
(B) the Company or any of its subsidiaries,
(C) Kenneth G. Herrick, his descendants, or trusts for the benefit of
such individuals, or
(D) trusts or foundations established by Kenneth G. Herrick or by any
of the descendants or trusts mentioned in (C), above.
(ii) The first purchase, after December 31, 2002, under a tender offer
or exchange offer for 25% or more of the Company's Class A Common Stock or Class
B Common Stock then outstanding, other than an offer by:
(A) the trustee of any Company-sponsored employee benefit plan,
5
(B) the Company or any of its subsidiaries,
(C) Kenneth G. Herrick, his descendants, or trusts for the benefit of
such individuals, or
(D) trusts or foundations established by Kenneth G. Herrick or by any
of the descendants or trusts mentioned in (C), above.
(iii) The first day on which less than a majority of the total
membership of the Board shall be Continuing Directors;
(iv) The effective date of a transaction (or a group of related
transactions) in which more than 50% in fair market value of the assets of the
Company are disposed of pursuant to a partial or complete liquidation, a
spin-off, a sale of assets or otherwise; or
(v) The date on which the shareholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 51% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger of consolidation.
(b) For purposes of this Section 6.3, the following terms shall have
the following meanings:
(i) "Continuing Director" shall mean any Director of the Company who
either (1) is a member of the Board on the date this Plan is adopted by the
Board and has not terminated membership on the Board, or (2) is recommended or
elected to the Company's Board of Directors by at least three-quarters of the
Continuing Directors.
(ii) "Person" shall mean a person as defined in Section 3(a)(9) of the
1934 Act, "beneficial ownership" shall be determined in accordance with Rule
13d-3 promulgated under the 1934 Act or any successor regulation, the term
"group" shall mean a group as described in Rule 13d-5 promulgated under the 1934
Act or any successor regulation, and the formation of a group hereunder shall
have the effect described in paragraph (b) of said Rule 13d-5 or any successor
regulation. Anything hereinabove to the contrary notwithstanding, however: (a)
relationships by blood, adoption or marriage between or among two or more
persons shall not be deemed to constitute any of such persons a member of a
group with any other such persons; (b) action taken or agreed to be taken by any
person acting in his official capacity as an officer or Director of the Company
shall not be deemed to constitute such person a member of a group with any other
person, and (c) formation of a group shall not constitute an acquisition by the
group (or any member thereof) of beneficial ownership of any shares of the
Company's Class B ("voting") common stock beneficially owned by any member of
such group and acquired by such group member in an Excluded Acquisition.
6
(iii) "Excluded Acquisition" means any acquisition of shares of voting
common stock from the Company (whether or not for consideration) or from any
person by operation of law (including but not limited to the laws of descent and
distribution), by will, by gift or by foreclosure of a security interest given
to secure a bona fide loan, or any acquisition consummated prior to January 1,
2002.
7 ADJUSTMENTS
In the event of any non-cash dividend or other distribution, or any
stock split, reverse stock split, recapitalization, reorganization, split-up,
spin-off, merger, consolidation, share exchange, or other like change in the
capital or corporate structure of the Company affecting the Shares, there shall
be made such adjustment or adjustments (if any) in the number of units credited
to the Accounts of Eligible Directors as the Committee determines to be
appropriate in light of such event in order to continue to make available the
benefits intended by the Plan, but no adjustment shall be required by reason of
any sales of Shares or other Company securities by the Company at any price,
whether below, or at or above Market Price, and whether by or pursuant to
warrant, option, right, conversion right or privilege, or otherwise.
8 MISCELLANEOUS MATTERS
8.1 Accounts are not intended to be and shall not be trust accounts for
the benefit of any Eligible Director or other person, nor shall the
establishment and maintenance of an Account afford any Eligible Director or
other person any right or interest in any asset the Company may determine to
earmark for future payment of benefits under the Plan. Rather, benefits payable
under the Plan are intended to be unfunded for tax purposes, and the sole right
of an Eligible Director or beneficiary or other successor in interest thereof
with respect to his or her Account shall be the right as an unsecured general
creditor of the Company to claim any cash benefit to which the Eligible Director
becomes entitled after his or her Determination Date, pursuant to the terms and
conditions of the Plan.
8.2 An Eligible Director's right and interest in his or her Account
shall not be subject in any manner to anticipation, alienation, sale,
assignment, pledge, encumbrance, attachment, garnishment for the benefit of
creditors of the Eligible Director, or other transfer whatsoever, other than by
will or the laws of descent and distribution.
8.3 Nothing in the Plan shall obligate any Eligible Director to
continue as a Director of the Company or the Company, or to accept any
nomination for a future term as such a Director, or require the Company to
nominate or cause the nomination of any Eligible Director for a future term as a
Director of the Company or the Company.
8.4 This Plan shall be governed by and construed, enforced, and
administered in accordance with the laws of the State of Michigan excluding any
such laws which direct an application of the laws of any other jurisdiction. The
Company and the Committee shall be subject to suit regarding the Plan only in
the courts of the State of
7
Michigan, and the Company shall fully indemnify and defend the Board and the
Committee with respect to any actions relating to this Plan made in good faith
by such bodies or their members.
9 DURATION OF THE PLAN
9.1 The Plan was adopted by the Board on October 30, 2002 amended
November 27, 2002 and shall take effect on January 1, 2003.
9.2 The Board may at any time and from time to time amend, modify,
suspend, or terminate the Plan, except that none of the foregoing actions by the
Board shall adversely affect the rights or benefits of an Eligible Director
without such Eligible Director's consent.
8