UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): APRIL 9, 2007
TECUMSEH PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 0-452 38-1093240
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 423-8411
(NOT APPLICABLE)
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Amendments to Credit Agreements and Related Agreements
On April 9, 2007, we signed amendments to our First Lien and Second Lien
Credit Agreements. We had been in default under both credit agreements since
March 22, when our Brazilian engine manufacturing subsidiary filed a request for
judicial restructuring under Brazilian law. As a result of the amendments, we
are no longer in default, and we will be able to continue implementing our
business turnaround plan.
The principal terms of the amendments are:
- The lenders waived the cross default resulting from our Brazilian
engine subsidiary's filing for judicial restructuring and extended
their deadline for us to provide audited 2006 financial statements to
April 15, 2007.
- The minimum cumulative adjusted EBITDA levels we are required to
achieve (measured from October 1, 2006) through the third and fourth
quarters of 2007 were reduced by $10 million and $20 million,
respectively. As amended, the required levels (in millions) are:
Quarterly Period Ending First Lien Agreement Second Lien Agreement
- ----------------------- -------------------- ---------------------
December 31, 2006 ($14.9) ($16.9)
March 31, 2007 ($8.0) ($10.0)
June 30, 2007 $ 17.0 $ 15.0
September 30, 2007 $ 42.0 $ 40.0
December 31, 2007 $ 62.0 $ 60.0
- The interest rate on our First Lien debt is increased by 0.25% per
annum.
- We will be required to pay 2.5% per annum in additional cash interest
on our Second Lien debt if we fail to engage a new CEO by May 1, 2007
unless the failure is due to specified reasons.
- Until we appoint a new CEO, there are caps on the amounts of fees we
can incur for financial advisors.
- The limitation on our capital expenditures is reduced by $12.7 million
for 2007 and $17.7 million for 2008.
- There are new limitations on our ability to provide financial support
to our Brazilian engine manufacturing facility.
- Our Brazilian compressor manufacturing facility is permitted to incur
up to $40 million of additional secured debt.
- In consideration of the amendments, we paid the First and Second Lien
lenders cash fees totaling approximately $1.375 million, plus
expenses, and we issued a Class A share purchase warrant to the Second
Lien lender. Please see Item 3.02 for more information about the terms
of the warrant. We also entered into a registration rights agreement
with the Second Lien lender, which is described in more detail below.
After giving effect to the amendments, we are currently in compliance with
the covenants of both credit agreements. Achieving the level of financial
performance that would support our lending arrangements, which is required by
the financial covenants, will depend on enhanced operational efficiency through
a variety of initiatives, including customer price increases to cover increases
in commodity costs, further employee headcount reductions, consolidation of
productive capacity, and rationalization of various product platforms. While we
are currently moving forward with these actions, there can be no assurance that
any of these initiatives will be sufficient if certain risks continue to impede
our progress. Those risks include currency fluctuations, weather, and the extent
to which we may lose sales in reaction to higher product prices or adverse
publicity.
In the event that we fail to improve operational performance through these
measures, our ability to raise additional funds through debt financing will be
limited. We also continue to be concerned about the amount of debt we are
carrying in this challenging operating environment and as we seek to improve our
company's financial performance. As a result, we are continuing to evaluate the
feasibility of asset sales as a means to reduce our total indebtedness and to
increase liquidity.
For more detailed information about the terms of the amendments, please see
the copies filed as exhibits to this report.
Registration Rights Agreement
On April 9, 2007, as required by the amendment to our Second Lien Credit
Agreement described above, we entered into a registration rights agreement with
our Second Lien lender, Tricap Partners II L.P. providing for registration under
the Securities Act of 1933 of the Class A shares it may purchase under the
warrant described in Item 3.02 of this report, as well as the Class A and Class
B shares it may purchase on exercise of the options previously granted to it by
Herrick Foundation and Herrick family trusts. The agreement provides the Second
Lien lender with so-called "piggyback" registration rights and the right to
demand registration on a short-form S-3 registration statement.
For more detailed information about the terms of the registration rights
agreement, please see the copy filed as an exhibit to this report.
Agreement Settling Litigation with Herrick Group
On April 2, 2007, we signed a Settlement and Release Agreement settling the
corporate governance disputes that had been the subject of two pending lawsuits.
The agreement was subject to a condition subsequent that was satisfied by
execution of the credit agreement amendments described above on April 9, 2007.
The parties to the agreement are: Tecumseh Products Company; Herrick Foundation;
Todd W. Herrick and Toni Herrick in their capacities as trustees of specified
Herrick family trusts; Todd W. Herrick, Kent B. Herrick, and Michael Indenbaum
in their capacities as members of the board of trustees of Herrick Foundation;
Todd W. Herrick, Kent B. Herrick, Michael Indenbaum, and Toni Herrick in their
individual capacities; and Albert A. Koch, Peter Banks, and David M. Risley in
their capacities as directors of Tecumseh Products Company.
The principal terms of the agreement are:
- Board of directors
- There will continue to be five directors until we name a new
permanent CEO.
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- Todd W. Herrick will resign from the board immediately and will
become "Chairman Emeritus," with the right to attend board
meetings and to receive materials distributed to the board, but
with no vote. Todd W. Herrick will continue as "Chairman
Emeritus" during the term of the settlement agreement, which
continues until the earlier of the conclusion of our 2008 annual
meeting of shareholders or April 30, 2008.
- The board will appoint Kent B. Herrick to fill the vacancy
created by Todd W. Herrick's resignation. The board will continue
to nominate Kent B. Herrick for re-election to the board during
the term of the settlement agreement.
- A search committee is to be charged with immediately locating a
new director with restructuring experience reasonably acceptable
to the independent members of the board and who is not affiliated
with AlixPartners. Albert A. Koch will resign from the board by
the earliest of: (1) the date this new director is appointed; (2)
60 days after we appoint our new CEO; or (3) July 31, 2007.
- When we name a new permanent CEO, the board will be expanded to
seven members. The new CEO will become a director and Chairman of
the Board. At that time, we also must appoint Steven Lebowski to
the board if he qualifies as an "independent director" under
Nasdaq rules, and we will continue to nominate Mr. Lebowski for
re-election to the board during the term of the settlement
agreement. (If Mr. Lebowski does not qualify as an independent
director, we will follow a process set forth in the settlement
agreement to select and appoint another person selected by Kent
B. Herrick who does qualify.)
- Management
- The search for a new permanent CEO will continue. Appointment of
a new CEO must be approved by majority vote of the full
five-member board.
- James J. Bonsall will continue as President and COO under our
existing contract with his employer, AP Services, LLC, while the
CEO search is in progress.
- Todd W. Herrick will serve as a consultant to the company in a
capacity to be determined by our new CEO. He will not receive any
compensation but will be entitled to reimbursement for reasonable
and documented expenses.
- When our new CEO is appointed, he will decide whether or not to
rehire Kent B. Herrick and, if so, in what capacity. If Mr.
Herrick is rehired, he will receive an agreement to provide him
with a lump sum severance payment on termination equal to one
year's salary less any salary paid to him from the date he is
rehired through the date of his termination. If the new CEO has
not rehired Mr. Herrick within three months after his
appointment, Mr Herrick will be entitled to a lump sum severance
payment equal to one year's salary at the rate in effect when he
was terminated from his position with the company on January 19,
2007.
- Other matters
- The parties will dismiss their pending lawsuits. We and our
directors who were sued by Todd W. Herrick and related entities
(Messrs. Banks, Koch, and Risley) agreed
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not to challenge the right of Mr. Herrick and those related
entities to vote their shares and agreed that they have the right
to vote all of their shares.
- We agreed to reimburse Todd W. Herrick and related entities for
their reasonable and documented expenses in connection with the
lawsuits, the settlement agreement, and other specified matters,
up to a maximum of $300,000.
- Todd W. Herrick and related entities agreed to exercise their
voting rights in a manner consistent with the terms of the
agreement.
- The various parties release each other and specified related
persons from claims in connection with the matters referenced in
the agreement.
For more detailed information about the terms of the agreement, please see
the copy filed as an exhibit to this report.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
On April 9, 2007, in consideration of its entering into the amendment to
our Second Lien Credit Agreement described above, we issued a Class A share
purchase warrant to the Second Lien lender, Tricap Partners II L.P. Under the
warrant, the Second Lien lender has the right to purchase 1,390,944 Class A
shares directly from us, at any time during the warrant's five-year term, for a
cash purchase price per share equal to 65% of the lowest closing price of the
Class A common stock during the one-year period that began March 27, 2007. The
warrant permits cashless exercise under a procedure by which the warrant holder
could pay the exercise price by giving up some of the shares for which the
warrant is being exercised, with those shares valued at the then current market
price. If all the shares covered by the warrant were issued, they would
constitute 9.4% of the Class A shares then outstanding and 7.0% of our then
outstanding total common equity. We expect to use any cash proceeds we receive
on exercise of the warrant for general corporate purposes.
Our issuance of the warrant was exempt from registration under the
Securities Act of 1933 by reason of the exemption provided under Section 4(2) of
the Act since it was issued in a transaction not involving any public offering.
For more detailed information about the terms of the warrant, please see
the copy filed as an exhibit to this report.
ITEM 3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS.
Please see Item 3.02 for information about the Class A share purchase
warrant we issued to our Second Lien lender.
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN
OFFICERS.
Under the settlement agreement described in Item 1.01 of this report, Todd
W. Herrick has agreed to resign from our board of directors immediately, and we
have agreed to appoint Kent Herrick to fill the vacancy created by his
resignation. The circumstances of Todd Herrick's resignation and Kent B.
Herrick's appointment are described in Item 1.01. At the time of this report, we
do not expect Kent B. Herrick to be named to any board committees.
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As a non-employee director, Kent B. Herrick will receive a monthly retainer
of $2,500, a $1,500 fee for each board meeting attended, and a $1,200 fee for
each committee meeting attended and will be entitled to reimbursement for travel
expenses. He also will be eligible to receive phantom share awards under our
Director Retention Phantom Share Plan, under which each non-employee director
receives an annual award denominated in phantom Class A shares. The minimum
award is $5,000, and the maximum is 100% of the director's annual retainer fee.
The board of directors makes the awards at its organizational meeting following
each annual meeting of shareholders on the basis of our actual return on equity
for the preceding year as compared to a target established for that year. In
addition, Mr. Herrick will be eligible to participate in our Outside Directors'
Voluntary Deferred Compensation Plan, under which our non-employee directors can
elect to defer receipt of a portion of their retainers and meeting fees.
ITEM 7.01 REGULATION FD DISCLOSURE.
On April 10, 2007, we issued a press release about the events described in
this report. We are furnishing a copy of the press release as an exhibit.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibits are filed or furnished with this report:
Exhibit No. Description
- ----------- -----------
4.1 Amendment No. 5 dated April 9, 2007 to First Lien Credit Agreement
dated November 13, 2006 by and among Tecumseh Products Company and
certain Lenders and Issuers listed therein and Citicorp USA, Inc.
as Administrative Agent and Collateral Agent (Note: Portions of
this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the
Securities and Exchange Commission.)
4.2 Amendment No. 2 dated April 9, 2007 to Amended and Restated Second
Lien Credit Agreement dated November 13, 2006 among Tecumseh
Products Company, Tricap Partners II L.P. and Citicorp USA, Inc.
(Note: Portions of this exhibit have been omitted pursuant to a
request for confidential treatment and have been filed separately
with the Securities and Exchange Commission.)
10.1 Warrant to Purchase Class A Common Stock of Tecumseh Products
Company issued to Tricap Partners II L.P. on April 9, 2007
10.2 Registration Rights Agreement dated as of April 9, 2007 between
Tecumseh Products Company and Tricap Partners II L.P.
10.3 Settlement and Release Agreement dated as of April 2, 2007 among
Tecumseh Products Company; Herrick Foundation; Todd W. Herrick and
Toni Herrick, each in their capacity as trustee for specified
Herrick family trusts; Todd W. Herrick, Kent B. Herrick, and
Michael Indenbaum, each in their capacity as members of the Board
of Trustees of Herrick Foundation; Todd W. Herrick, Kent B.
Herrick, Michael Indenbaum, and Toni Herrick, each in their
individual capacities; and Albert A. Koch, Peter Banks, and David
M. Risley, each in their capacity as directors of Tecumseh
Products Company
99.1 Press release dated April 10, 2007
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TECUMSEH PRODUCTS COMPANY
Date: April 10, 2007 By /s/ James S. Nicholson
-------------------------------------
James S. Nicholson
Vice President, Treasurer and Chief
Financial Officer
NOTE: The information in Item 7.01 of this report and the related exhibit
(Exhibit 99.1) is not to be deemed "filed" for purposes of Section 18 of the
Exchange Act or otherwise subject to the liabilities of that section unless the
registrant specifically incorporates it by reference into a filing under the
Securities Act or the Exchange Act.
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4.1 Amendment No. 5 dated April 9, 2007 to First Lien Credit
Agreement dated November 13, 2006 by and among Tecumseh Products
Company and certain Lenders and Issuers listed therein and
Citicorp USA, Inc. as Administrative Agent and Collateral Agent
(Note: Portions of this exhibit have been omitted pursuant to a
request for confidential treatment and have been filed separately
with the Securities and Exchange Commission.)
4.2 Amendment No. 2 dated April 9, 2007 to Amended and Restated
Second Lien Credit Agreement dated November 13, 2006 among
Tecumseh Products Company, Tricap Partners II L.P. and Citicorp
USA, Inc. (Note: Portions of this exhibit have been omitted
pursuant to a request for confidential treatment and have been
filed separately with the Securities and Exchange Commission.)
10.1 Warrant to Purchase Class A Common Stock of Tecumseh Products
Company issued to Tricap Partners II L.P. on April 9, 2007
10.2 Registration Rights Agreement dated as of April 9, 2007 between
Tecumseh Products Company and Tricap Partners II L.P.
10.3 Settlement and Release Agreement dated as of April 2, 2007 among
Tecumseh Products Company; Herrick Foundation; Todd W. Herrick and
Toni Herrick, each in their capacity as trustee for specified
Herrick family trusts; Todd W. Herrick, Kent B. Herrick, and
Michael Indenbaum, each in their capacity as members of the Board
of Trustees of Herrick Foundation; Todd W. Herrick, Kent B.
Herrick, Michael Indenbaum, and Toni Herrick, each in their
individual capacities; and Albert A. Koch, Peter Banks, and David
M. Risley, each in their capacity as directors of Tecumseh
Products Company
99.1 Press release dated April 10, 2007
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