UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
TECUMSEH PRODUCTS COMPANY
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (04-05)
(TECUMSEH LOGO)
April 4, 2008
Dear Shareholder:
We cordially invite you to attend our 2008 annual meeting of shareholders
later this month in Ann Arbor, Michigan.
Only Class B shareholders will vote at the meeting. However, all
shareholders are most welcome to attend. Starting today, we are sending the
enclosed proxy statement to all our shareholders and 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 card, or
vote by telephone or on the Internet, at your earliest convenience.
Thank you.
Sincerely,
/s/ Edwin L. Buker
Chairman, President, and Chief Executive
Officer
100 E Patterson St,
Tecumseh, MI 49286
www.tecumseh.com
(TECUMSEH LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: Wednesday, April 30, 2008
Time: 9:00 a.m.
Location: The Sheraton Four Points
3200 Boardwalk
Ann Arbor, Michigan
The purposes of this year's annual meeting are:
- To elect directors for the following year.
- To ratify the appointment of the accounting firm of Grant Thornton LLP
as independent accountants for the current year.
- To consider any other matters properly presented at the meeting.
All shareholders are most welcome to attend the meeting, but only those who
held Class B shares at the close of business on March 7, 2008 will be entitled
to vote.
If you are a Class B shareholder, 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 or by voting by telephone or on the Internet. Even if you sign a proxy or
vote by telephone or on the Internet, 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
Lynn Dennison
Vice President, General Counsel,(1) and
Secretary
April 4, 2008
100 E Patterson St,
Tecumseh, MI 49286
www.tecumseh.com
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(1) Not admitted in Michigan. Admitted in Ohio.
PROXY STATEMENT
The board of directors of Tecumseh Products Company is soliciting proxies
to vote Class B shares at our 2008 annual meeting of shareholders. This proxy
statement contains information that may help you decide whether and how to vote.
Please read this proxy statement carefully. Appendices A, B, and C contain
important information about share ownership, executive compensation, and audit
fees. Appendix D is a copy of our corporate governance guidelines. You can
obtain more information about Tecumseh Products Company from our 2007 annual
report to shareholders and from our 2007 annual report on Form 10-K and the
other public documents that we file with the SEC.
VOTING
We have two classes of common stock: Class B, which has full voting rights,
and Class A, which generally has 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.
At the close of business on March 7, 2008 (the record date for the
meeting), 5,077,746 Class B shares were outstanding and entitled to vote, and
13,401,938 Class A shares were outstanding.
To have a quorum, a majority of the outstanding Class B shares entitled to
vote must be present at the meeting--either in person or by proxy.
Instead of signing and returning a proxy, if you hold your shares in your
own name, you may vote by telephone or on the Internet by following the
instructions attached to your proxy. If your shares are held through a broker,
bank, or other nominee, you must contact the broker, bank, or other nominee to
find out whether you will be able to vote by telephone or on the Internet.
If you complete the enclosed proxy and return it before the meeting, or if
you vote by telephone or on the Internet, the persons named will vote your
shares as you specify.
You may revoke a proxy any time before voting begins at the meeting. A
later proxy by any means will cancel any earlier proxy. For example, if you vote
by telephone and later vote differently on the Internet, the Internet vote will
count, and the telephone vote will be canceled. If you wish to change your vote
by mail, you should call or write our Secretary to request a new proxy. The last
proxy we receive before the meeting will be the one we use. You also may change
your vote by voting in person at the meeting.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE GUIDELINES
Our board of directors has adopted corporate governance guidelines. A copy
is included in this proxy statement as Appendix D and is also available at the
Investor Relations section of our website at www.tecumseh.com.
DIRECTOR INDEPENDENCE
We determine director independence by applying the definition of
independence contained in the applicable rules of The Nasdaq Stock Market, both
for purposes of Nasdaq's rule requiring that a majority of our board consist of
independent directors and its rules requiring our Audit Committee, Governance
and Nominating Committee, and Compensation Committee (and our former combined
Governance, Compensation, and Nominating Committee) to be made up entirely of
independent directors. Applying that definition, our board determined as
follows:
- Peter M. Banks and David M. Risley are independent directors and were
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independent directors throughout 2007. William E. Aziz, Steven J.
Lebowski, and Jeffry N. Quinn, all of whom joined our board during
2007, are all independent directors.
- Kevin E. Sheehan, who served on the board during a portion of 2007,
was an independent director throughout his period of service.
- Albert A. Koch, who served on the board during a portion of 2007, was
not an independent director during that time.
- Neither Edwin L. Buker nor Kent B. Herrick, both of whom joined the
board during 2007, is an independent director.
There were no transactions, relationships, or arrangements that were
considered by the board under the Nasdaq independence definition in determining
the independence of the directors identified above as independent.
All directors who are or at any time during 2007 were members of our Audit
Committee or our Governance, Compensation, and Nominating Committee (or the
separate Compensation Committee and Governance and Nominating Committee that
replaced it late in the year) were independent throughout their respective
periods of service on those committees.
DIRECTORS' AND COMMITTEE MEETINGS; ANNUAL MEETING ATTENDANCE
We held 31 board meetings during 2007. The Audit Committee met twelve
times, and the Governance, Compensation, and Nominating Committee met eight
times. Late in 2007, we replaced the Governance, Compensation, and Nominating
Committee with a separate Compensation Committee, which met once during 2007,
and a Governance and Nominating Committee, which did not meet.
Each incumbent 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.
We encourage our directors to attend our annual meetings of shareholders.
All of the directors who held office at that time attended last year's meeting.
COMMUNICATIONS WITH BOARD OF DIRECTORS
You can find information about sending communications to our board of
directors at the Investor Relations section of our website at www.tecumseh.com.
RELATED PARTY TRANSACTIONS
Payments to AP Services, LLC
During 2007, we paid approximately $8,120,000 to AP Services, LLC, a
subsidiary of AlixPartners, LLP, for interim management services provided by AP
Services' personnel, including the services of its employee, James J. Bonsall,
who served as our President and Chief Operating Officer for part of 2007. Both
Mr. Bonsall and Albert A. Koch, who was a director during a portion of 2007, are
partners in AlixPartners and thus indirect equity owners in AP Services. Their
combined ownership in AP Services amounts to less than 10% of its total equity.
Settlement of Corporate Governance Disputes
As previously reported, during 2007 we entered into a settlement and
release agreement with Todd W. Herrick, Kent B. Herrick, Toni L. Herrick,
Herrick Foundation, Michael A. Indenbaum, Peter M. Banks, Albert A. Koch, and
David M. Risley settling corporate governance disputes that had been the subject
of two lawsuits. Each of Todd W. Herrick, Toni L. Herrick, and Herrick
Foundation was at that time and still is a beneficial owner of more than 5% of
our outstanding Class B stock.
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Kent B. Herrick joined our board as provided for in the agreement and continues
to serve as a director. At the time the agreement was signed, Peter M. Banks,
Albert A. Koch, and David M. Risley were members of our board; Mr. Koch later
resigned, and Dr. Banks and Mr. Risley continue to serve. Under the agreement,
among other things:
- We paid Kent B. Herrick a lump sum severance payment in the amount of
$120,000, which was 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.
- We reimbursed Todd W. Herrick, Kent B. Herrick, Toni L. Herrick, and
Herrick Foundation for legal expenses incurred in connection with the
lawsuits, the settlement agreement, and related matters in the amount
of $300,000.
See "Compensation Committee Interlocks and Insider Participation" below for
information about our payment of legal expenses incurred by Dr. Banks, Mr. Koch,
and Mr. Risley in connection with these matters.
Approval Process
Our Audit Committee's charter requires it to conduct as appropriate, and on
an ongoing basis, a review of all related party transactions required to be
disclosed in our public filings for potential conflict of interest situations
and requires all such transactions to be approved by the committee or another
independent body of the board. All of the interested party transactions
described above were approved by majority vote of our board and by unanimous
vote of the disinterested directors.
GOVERNANCE AND NOMINATING COMMITTEE
(Note: Until December 17, 2007, the functions of our current Governance and
Nominating Committee were the responsibility of a combined Governance,
Compensation, and Nominating Committee.)
COMMITTEE FUNCTIONS; CHARTER
The overall mission of the Governance and Nominating Committee is to assist
the board in conducting our business successfully so as to maximize long-term
benefits to shareholders, including optimizing long-term financial success. Its
functions include:
- Actively developing and recommending to the board strategies for
achieving those goals.
- Monitoring and reporting to the board on the effectiveness of
management policies and decisions.
- Annually reporting to the board the committee's assessment of the
board's performance in light of the objectives described above.
- Annually reviewing with the board the appropriate skills and
characteristics required of board members in the context of the then
current composition and needs of the board, including issues of
diversity, age, and skills.
- Making recommendations to the board concerning candidates for
nomination to the board.
The board has adopted a written charter for the committee, a current copy
of which is available to security holders at the Investor Relations section of
our website at www.tecumseh.com.
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DIRECTOR NOMINATIONS
One function of the Governance and Nominating Committee is to make
recommendations on nominations for the board of directors.
The committee will consider shareholder suggestions for nominees for
director (other than self-nominations). If you wish to make a suggestion, you
should submit it in writing to Lynn Dennison, Vice President, General
Counsel,(1) and Secretary, Tecumseh Products Company, 100 E. Patterson Street,
Tecumseh, Michigan 49286. The committee will consider suggestions received
before December 31, 2008 before we mail the proxy materials for next year's
annual meeting.
During 2007, we engaged Boardroom Consultants, Inc. to assist the committee
in identifying and evaluating potential director candidates. We also engaged
Korn/Ferry International during 2007 to assist us in identifying and evaluating
candidates for the position of Chief Executive Officer with the understanding
that our new Chief Executive Officer would become a director.
The committee identifies potential nominees through recommendations made by
executive officers, non-management directors, Boardroom Consultants, Inc. and
shareholders and evaluates candidates based on their resumes and through
references and personal interviews. The committee evaluates nominees suggested
by shareholders in the same manner it evaluates other nominees.
COMPENSATION COMMITTEE
(Note: Until December 17, 2007, the functions of our current Compensation
Committee were the responsibility of a combined Governance, Compensation, and
Nominating Committee.)
COMMITTEE FUNCTIONS; CHARTER
The Compensation Committee's functions include:
- Reviewing our general policies for compensating outside directors and,
if appropriate, making recommendations to the full board concerning
changes in those policies.
- After consultation with our President, establishing salaries for our
executive officers.
- Administering all plans and programs under which our executive
officers or directors are compensated.
- Periodically reviewing the operation of our executive and director
compensation programs to determine whether they are fulfilling their
purposes and considering and making recommendations to the board of
directors concerning changes or new compensation programs the
committee believes would benefit our company and shareholders.
- Providing the board with such other recommendations as it requests
about officer, employee, and director compensation.
PROCEDURES FOR DETERMINING EXECUTIVE AND DIRECTOR COMPENSATION
The committee has authority to fix the salaries of our principal executive
officer and other executive officers and to administer executive officer and
director compensation plans. It also has authority to make recommendations to
the full board about programs for compensating executives and directors. There
is no express authorization for it to delegate any of its authority to others.
- ----------
(1) Not admitted in Michigan. Admitted in Ohio.
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In determining the compensation of our executives other than the principal
executive officer, the committee considers recommendations made by the principal
executive officer.
Beginning during 2007, the committee has engaged Lyons, Benenson & Company
Inc. to provide advice and counsel to the committee and the board on all aspects
of executive and non-employee director compensation, including providing survey
data, analyzing data, and assisting in the design of various elements of the
compensation program. The consultant also reviews and makes recommendations on
the committee's charter, policies, and practices. Its fees are authorized by the
committee without input from management. The consultant is responsible to the
committee and conducts all of its work under the auspices of the committee. It
performs no other work for us.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the beginning of 2007, the Governance, Compensation, and Nominating
Committee consisted of Peter M. Banks, David M. Risley, and Kevin E. Sheehan. In
August 2007, Mr. Sheehan resigned from the board, and Jeffry N. Quinn became a
committee member. When the board established our separate Compensation Committee
in December 2007, it appointed as the new committee's members:
Jeffry N. Quinn, Chairman
David M. Risley
Steven J. Lebowski
No one who served on the Governance, Compensation, and Nominating Committee
or the Compensation Committee during 2007 is or ever has been an officer or
employee of Tecumseh Products Company or any of its subsidiaries.
During 2007, in connection with the corporate governance disputes and
related settlement and release agreement described above under "Related Party
Transactions," we paid approximately $263,000 in legal expenses incurred by Dr.
Banks, Mr. Koch, and Mr. Risley.
COMPENSATION COMMITTEE REPORT
This report is presented by the current members of the Compensation
Committee. Our names appear at the end of our report.
Our committee has reviewed and discussed the Compensation Discussion and
Analysis contained in Appendix B with management. Based on that review and those
discussions, our committee recommended to the board of directors that the
Compensation Discussion and Analysis be included in this proxy statement.
Presented by the members of the Compensation Committee of the Board of
Directors
Jeffry N. Quinn, Chairman
David M. Risley
Steven J. Lebowski
AUDIT COMMITTEE
CHARTER; MEMBERS' QUALIFICATIONS
The board has adopted a written charter specifying the powers and duties of
the Audit Committee. A copy is available to security holders at the Investor
Relations section of our website at www.tecumseh.com.
The board of directors has determined that the chairman of the committee,
David M. Risley, is an audit committee financial expert, as defined in the SEC's
rules. Mr. Risley and all of the other committee members are independent, as
independence is defined in the applicable SEC rules and Nasdaq listing
standards.
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AUDIT COMMITTEE REPORT
Our committee oversees Tecumseh Products Company's financial reporting
process on behalf of the board of directors and is comprised of outside
directors who are independent within the meaning of, and meet the experience
requirements of, the applicable Nasdaq rules. Management has primary
responsibility for the financial statements, reporting processes, and system of
internal controls. In fulfilling our oversight responsibilities, we reviewed the
audited financial statements for the fiscal year ended December 31, 2007 and
discussed them with management, including a discussion of the quality, not just
the acceptability, of the accounting principles, reasonableness of significant
judgments, and clarity of disclosures in the financial statements.
In performing our oversight function, we also discussed with the
independent accountants the matters required to be discussed by the statement on
Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1 AU
section 380), as adopted by the Public Company Accounting Oversight Board in
Rule 3200T. In addition, we received from the independent accountants the
written disclosures and letter required by Independence Standards Board Standard
No. 1 (Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees), as adopted by the Public Company Accounting Oversight
Board in Rule 3600T, and we discussed their independence with them.
Based on the reviews and discussions referred to above and such other
considerations as we determined to be appropriate, we recommended to the board
of directors (and the board approved) that the audited financial statements for
the fiscal year ended December 31, 2007 be included in the annual report to
shareholders and Form 10-K for that year.
Mr. Risley and Dr. Banks served on our committee throughout 2007. Kevin E.
Sheehan was a member from February 2007 until August 2007, when Messrs. Aziz and
Lebowski joined the committee.
Presented by the members of the Audit Committee of the Board of Directors
David M. Risley, Chairman
William E. Aziz
Peter M. Banks
Steven J. Lebowski
PROPOSAL 1:
ELECTION OF DIRECTORS
BACKGROUND
Our bylaws authorize the board of directors to determine the number of
directors that will make up the full board. Shareholders elected five directors
at last year's annual meeting.
Albert A. Koch resigned from the board in July 2007. Edwin L. Buker joined
the board when he became our new Chief Executive Officer in August 2007. Also in
August 2007, Kevin E. Sheehan resigned, and the board appointed three new
directors: William E. Aziz, Steven J. Lebowski, and Jeffry N. Quinn.
As a result, our board currently consists of seven directors. Based on the
Nominating Committee's recommendation, the board has nominated all seven for
reelection at this year's annual meeting.
PROXIES
If you return the enclosed proxy card or vote by telephone or on the
Internet, your shares will be voted for all seven of the board's nominees unless
you withhold authority to vote for one or more of them. If a nominee becomes
unable to serve, which we do not expect to happen, your proxy will
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be voted for a substitute determined in the best judgment of the proxy holders.
VOTING AND ELECTION PROCEDURES AT ANNUAL MEETING
From the persons duly nominated, directors will be elected by plurality
vote of the Class B shareholders present or represented at the meeting. This
means that, regardless of the number of Class B shares not voted for a nominee,
the nominees who receive the highest through seventh highest numbers of votes
will be elected.
THE BOARD'S NOMINEES FOR DIRECTOR
Edwin L. Buker (director since 2007, age 55). President and Chief Executive
Officer (since August 2007) and Chairman (since February 2008) of Tecumseh
Products Company. President and Chief Executive Officer (2002 to August 2007) of
Citation Corporation (supplier of metal components). Mr. Buker serves on our
Pension and Investment Committee.
Peter M. Banks (director since 1991, age 70). General Partner (since 2006)
of Red Planet Capital Partners (private investment firm). Independent business
consultant (2005). President (2004 to 2005), Institute for the Future
(non-profit technology forecasting and research organization); Partner (2000 to
2004), XR Ventures, L.L.C. (investments). He is Chairman of our Pension and
Investment Committee and also serves on our Audit Committee.
David M. Risley (director since 2003, age 63). Retired. Senior Vice
President and Chief Financial Officer (2001 to 2006), La-Z-Boy Incorporated
(residential furniture). Mr. Risley is Chairman of our Audit Committee. He also
serves on our Governance and Nominating Committee and our Compensation
Committee.
Kent B. Herrick (director since 2007, age 39). Vice President of Global
Business Development (2006 to 2007), Executive Vice President in the Office of
the Chairman (2005 to 2007), and Corporate Vice President (2002 to 2004) of
Tecumseh Products Company. Mr. Herrick serves on our Pension and Investment
Committee.
William E. Aziz (director since 2007, age 51). Managing Partner (since its
founding by Mr. Aziz in 2002) of BlueTree Advisors (operational, financial, and
strategic planning advisory services); Chief Financial Officer (since 2007) of
Hollinger Inc. (public company listed on Toronto Stock Exchange with subsidiary,
Sun-Times Media Group Inc. (operator of daily newspapers) listed on New York
Stock Exchange). Mr. Aziz is Chairman of our Governance and Nominating
Committee. He also serves on our Audit Committee.
Steven J. Lebowski (director since 2007, age 56). President and sole owner
(since 1983) of Steven J. Lebowski PC (attorney and certified public
accountant); Vice President and part owner (since 1990) of Architectural Door
and Millworks (wholesale distributor of doors). Mr. Lebowski serves on our Audit
and Compensation Committees.
Jeffry N. Quinn (director since 2007, age 49). Chairman of the Board,
President, and Chief Executive Officer (since 2004) and Chief Restructuring
Officer (2003 to 2004) of Solutia Inc. (specialty chemical and materials company
operating under Chapter 11 bankruptcy protection since late 2003). Mr. Quinn was
an executive officer of Solutia Inc. at the time it commenced its Chapter 11
case. He is Chairman of our Compensation Committee and also serves on our
Governance and Nominating Committee.
RECOMMENDATION OF THE BOARD
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES
NAMED ABOVE.
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PROPOSAL 2:
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Grant Thornton LLP was our independent accounting firm for the fiscal year
ended December 31, 2007, and the Audit Committee has selected the same firm as
our independent accountants for the fiscal year ending December 31, 2008. As a
matter of good corporate governance, the Audit Committee has determined to
submit its selection to shareholders for ratification. In the event the
committee's selection is not ratified by a majority of the Class B common shares
present or represented at the meeting, we will ask the Audit Committee to
reconsider its selection. Even if the selection is ratified, the Audit Committee
in its discretion may select a different public accounting firm at any time
during the year if it determines that such a change would be in the best
interests of Tecumseh Products Company and its shareholders.
CHANGE IN INDEPENDENT ACCOUNTANTS DURING 2007
On April 16, 2007, our Audit Committee approved the dismissal of
PricewaterhouseCoopers LLC as our independent registered public accounting firm,
effective immediately. PricewaterhouseCoopers LLC's reports on our financial
statements for the fiscal years ended December 31, 2005 and 2006 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principle, except for an explanatory
paragraph in the report of PricewaterhouseCoopers LLC on our financial
statements as of and for the year ended December 31, 2006, which disclosed that
our company had suffered recurring losses from operations and that management's
plans in regard to this matter were discussed in the footnotes. This explanatory
paragraph was subsequently removed from the report of PricewaterhouseCoopers LLC
on the financial statements as of and for the year ended December 31, 2006 when
it was reissued for inclusion in our 2007 Annual Report on Form 10-K.
During the fiscal years ended December 31, 2006 and 2005 and through April
16, 2007, there were no disagreements with PricewaterhouseCoopers LLC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of PricewaterhouseCoopers LLC, would have caused
PricewaterhouseCoopers LLC to make reference to the subject matter of the
disagreements in connection with its reports on our financial statements for
those years.
During the fiscal years ended December 31, 2006 and 2005 and through April
16, 2007, there were no "reportable events," as defined in item 304(a)(1)(v) of
Regulation S-K, except for a material weakness related to interim period income
taxes included in our Annual Report on Form 10-K for the year ended December 31,
2006 and a material weakness related to inadequate design of access security
policies and segregation of duties requirements, as well as a lack of
independent monitoring of user access to financial application programs and
data, included in our Annual Report on Form 10-K for the year ended December 31,
2005. As a result of the material weakness related to interim period income
taxes, we restated the interim information (though not the full-year
information) in the financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2005, and we restated the financial
statements included in our Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2006 and June 30, 2006. Our Audit Committee discussed the subject
matter of each of these reportable events with PricewaterhouseCoopers LLC, and
we
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authorized PricewaterhouseCoopers LLC to respond fully to the inquiries of the
successor accountant concerning the subject matter for each of these reportable
events.
On April 16, 2007, our Audit Committee engaged Grant Thornton LLP as our
new independent registered public accounting firm. During the fiscal years ended
December 31, 2006 and 2005 and through April 16, 2007, we did not consult with
Grant Thornton LLP regarding either (1) the application of accounting principles
to any specific completed or proposed transaction, (2) the type of audit opinion
that might be rendered on our financial statements, or (3) any matters or
reportable events as set forth in Item 304(a)(1)(iv) or (v) of Regulation S-K.
ATTENDANCE AT ANNUAL MEETING
A representative of Grant Thornton LLP will be present at the annual
meeting and available to respond to appropriate questions from shareholders. The
representative will have an opportunity to make a statement if he or she so
desires.
AUDIT AND NON-AUDIT FEES
Please see Appendix C for information about the fees billed by our
independent public accounting firms for each of the last two fiscal years.
RECOMMENDATION OF THE BOARD
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT ACCOUNTING FIRM FOR 2008.
OTHER MATTERS
We know of no business to be acted on at the annual meeting other than the
matters listed in the accompanying notice. If any other matter does properly
come before the meeting, the proxy holders will vote on it in accordance with
their judgment.
SHAREHOLDER PROPOSALS IN OUR 2009 PROXY STATEMENT
In order for shareholder proposals for the 2009 annual meeting of
shareholders to be eligible to be included in our proxy statement under SEC Rule
14a-8, they must be received at our principal office no later than December 5,
2008. We retain the right to omit any proposal if it does not satisfy the
requirements of SEC Rule 14a-8.
ADVANCE NOTICE REQUIREMENTS
Our bylaws contain advance notice procedures which a shareholder must
follow to nominate a person for election to our board or to present any other
proposal at an annual meeting of shareholders. In general, 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 about the
nominee or other proposal and the shareholder proponent, and to be delivered or
sent by first class U.S. mail to our Secretary and received at our principal
office.
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), we must receive the nomination or
proposal no later than 60 days nor earlier than 90 days before the first
anniversary of the prior year's annual meeting. This means that any nomination
or proposal for next year's annual meeting must be received no later than March
1, 2009 and no earlier than January 30, 2009.
Management proxies for the 2009 annual meeting may confer discretionary
authority to vote on an untimely proposal without express direction from
shareholders giving the proxies.
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PROXY SOLICITATION EXPENSES
We will pay the expenses of this solicitation. We have engaged Georgeson
Shareholder Communications Inc. to assist in soliciting proxies--including
providing consulting and advisory services, review and assistance with
shareholder communications, vote projections, institutional investor lists, and
contacts, and call center hiring, training, and supervision--for which we will
pay approximately $11,500 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, our
directors, officers, and employees may solicit proxies in person or by
telephone, fax, email, or similar means.
YOUR VOTE IS VERY IMPORTANT.
If you are a Class B shareholder, please complete and return the enclosed
proxy card, or vote by telephone or on the Internet, as soon as possible, even
if you currently plan to attend the annual meeting in person.
By Order of the Board of Directors,
Lynn Dennison
Vice President, General Counsel,(1) and Secretary
Tecumseh, Michigan
April 4, 2008
- ----------
(1) Not admitted in Michigan. Admitted in Ohio.
-11-
APPENDIX A
SHARE OWNERSHIP
5% CLASS B SHAREHOLDERS
This table shows the Class B shares held by persons or groups we know to be
beneficial owners of more than 5% of the class. We obtained all of the
information in the table from Schedules 13D and 13G filed with the SEC. Unless
otherwise indicated, the other information is as of December 31, 2007.
Amount and Nature of Beneficial Ownership
-----------------------------------------------
Sole Sole Shared Shared
Voting Investment Voting Investment Percent
Power Power Power Power Total of Class
--------- ---------- --------- ---------- --------- --------
Todd W. Herrick (1)
3970 Peninsula Drive
Petoskey, MI 49770 21,906 21,906 2,157,539 2,157,539 2,179,445 42.9%
Herrick Foundation
c/o Michael Indenbaum
2290 First National Bldg.
660 Woodward Ave.
Detroit, MI 48226 1,269,426 1,269,426 1,269,426 25.0%
Toni L. Herrick (2)
7028 Foxmoor Court E
P.O. Box 19555
Kalamazoo, MI 49009 888,113 888,113 888,113 17.5%
Donald Smith & Co., Inc.
152 W. 57th St.
New York, NY 10019 445,834 500,196 500,196 9.9%
Tricap Partners II L.P. (3)
BCE Place, Suite 300,
181 Bay Street
P.O. Box 762
Toronto, Ont. M5J 2T3 500,000 500,000 500,000 9.8%
Aegis Financial Corporation (4)
1100 North Glebe Road
Suite 1040
Arlington, VA 22201 494,976 494,976 494,976 9.7%
Franklin Resources, Inc. (5)
One Franklin Parkway
San Mateo, CA 94403 322,799 322,799 322,799 6.4%
Brandes Investment
Partners, L.P. (6)
11988 El Camino Real
Suite 500
San Diego, CA 92130 239,710 269,083 269,083 5.3%
A-1
(1) Todd W. Herrick is one of three members of the board of trustees of Herrick
Foundation. The other two are Kent B. Herrick and Michael A. Indenbaum. Mr.
Herrick is also one of three trustees of family trusts for the benefit of
himself, his sister, Toni L. Herrick, and their descendants. The other two
trustees are Toni M. Herrick and Michael A. Indenbaum. Under the terms of
the trust documents, as amended, Mr. Indenbaum possesses no voting or
investment power over the trusts' shares. The shares for which Mr. Herrick
is shown as having shared voting and investment power consist of 1,269,426
shares owned by Herrick Foundation (500,000 of which are subject to a
currently exercisable option held by Tricap Partners II L.P.) and 888,113
shares owned by the Herrick family trusts. The information about Mr.
Herrick's beneficial ownership is based on a Schedule 13D amendment he and
Toni M. Herrick filed jointly on April 11, 2007 and a Schedule 13G
amendment Herrick Foundation filed on January 7, 2008.
(2) The shares for which Toni L. Herrick is shown as having shared voting and
investment power consist of the 888,113 shares owned by the Herrick family
trusts described in note (1). The information about Ms. Herrick's
beneficial ownership is based on a Schedule 13D amendment she and Todd W.
Herrick filed jointly on April 11, 2007.
(3) The shares for which Tricap Partners II L.P. is shown as beneficial owner
are owned by Herrick Foundation. Tricap Partners II L.P. has a currently
exercisable option to purchase them.
(4) The Schedule 13G filed by Aegis Financial Corporation was a joint filing
with William S. Berno, and Scott L. Barbee, each of whom reported having
shared voting and investment power over the shares shown in the table. Mr.
Barbee also reported having sole voting and investment power over an
additional 2,600 shares.
(5) The Schedule 13G filed by Franklin Resources, Inc. was a joint filing with
its affiliates, Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin
Advisory Services, LLC.
(6) The Schedule 13G filed by Brandes Investment Partners, L.P. was a joint
filing with its affiliates, Brandes Investment Partners, Inc., Brandes
Worldwide Holdings, L.P., Charles H. Brandes, Glenn R. Carlson, and Jeffrey
A. Busby.
A-2
MANAGEMENT'S BENEFICIAL OWNERSHIP
The table below shows the Class A and Class B shares beneficially owned by
each of our current directors and director nominees, each current and former
executive officer named in the Summary Compensation Table, and all current
directors and executive officers as a group.
Shares Beneficially Owned
as of March 7, 2008
-------------------------------------------
Class of Sole Voting Shared Voting
Common and Investment and Investment
Stock Power Power Total Percentage
-------- -------------- -------------- --------- ----------
Edwin L. Buker Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
William E. Aziz Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
Peter M. Banks Class B 600 -0- 600 *
Class A -0- -0- -0- -0-
Kent B. Herrick Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
Steven J. Lebowski Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
Jeffry N. Quinn Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
David M. Risley Class B -0- -0- -0- -0-
Class A 1,200 -0- 1,200 *
Todd W. Herrick (1) Class B 21,906 2,157,539 2,179,445 42.9%
Class A -0- 500,000 500,000 3.7%
James J. Bonsall Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
James S. Nicholson Class B 200 -0- 200 *
Class A 200 -0- 200 *
Michael R. Forman Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
Eric L. Stolzenberg Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
Ronald Pratt Class B -0- -0- -0- -0-
Class A -0- -0- -0- -0-
All current directors and
current executive officers Class B 800 -0- 800 *
as a group (9 persons) Class A 1,200 -0- 1,200 *
* less than 1%
A-3
(1) The shares for which Todd W. Herrick is shown as having shared voting and
investment power consist of 1,269,426 Class B shares and 331,347 Class A
shares owned by Herrick Foundation and 888,113 Class B shares and 168,653
Class A shares owned by the Herrick family trusts. Tricap Partners II L.P.
holds currently exercisable options to purchase 500,000 of Herrick
Foundation's Class B shares and all of Herrick Foundation's and the Herrick
family trusts' Class A shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, certain officers, and beneficial owners of more than 10% of the
Class B shares are required to file reports about their ownership of our 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 all 2007 filing requirements were met.
A-4
APPENDIX B
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
2007 was a transition year for our company in many respects, including our
leadership and our compensation practices.
During 2006 we began searching for a new chief executive officer to succeed
our long-time CEO, Todd W. Herrick. Reflecting the succession process, in
January 2007 Mr. Herrick ceased serving in a management capacity.
At the same time, we appointed James J. Bonsall interim President and Chief
Operating Officer, to serve as our principal executive officer until we
appointed a new permanent CEO. Before assuming that role, Mr. Bonsall had served
as president of our Engine and Power Train business unit. Mr. Bonsall was never
a Tecumseh employee but rather was employed by AP Services, LLC, a subsidiary of
AlixPartners, LLP, a corporate turnaround, performance improvement, and
financial advisory services firm. AP Services provided his services to us under
contract.
In August 2007, our succession process culminated in the appointment of
Edwin L. Buker as our new President and Chief Executive Officer.
Given the circumstances, we naturally engaged in completely different
processes and analysis in determining the compensation to be paid to each of the
three executives who served as principal executive officer during 2007.
Reflecting the transition in our company's top leadership role, our
practices for compensating other executive officers changed significantly during
2007 and 2008. We believe we now have executive compensation procedures and
structures in place that will serve us well as we move forward to implement our
new business model. But we intend to monitor those procedures and structures
closely and adjust them as appropriate if we conclude that doing so would better
serve our shareholders.
Mr. Herrick's 2007 Compensation
For 2007, we continued Mr. Herrick's salary at the same level as in 2006 in
accordance with his suggestion. Mr. Herrick thought, and the Compensation
Committee agreed, that it would not be appropriate to increase his salary at
that time given our financial performance. After he ceased to be an employee, he
began to receive payments under our pension plan and supplemental executive
retirement plan.
2007 Cost of Mr. Bonsall's Services
During 2007, we had a contract with AP Services, LLC, a subsidiary of
AlixPartners, LLC, under which AP Services personnel provided interim management
services, including the services of James J. Bonsall, who served as President of
our engine and power train business unit during a portion of 2007 and as our
interim President and Chief Operating Officer from January 2007 to August 2007.
The cost of Mr. Bonsall's services was the product of the time he worked and the
rates prescribed in the contract.
B-1
Mr. Buker's 2007 Compensation
Before Mr. Buker joined our company in August, we negotiated a three-year
employment agreement with him, which we later amended as described below. We
have summarized the agreement's terms below in the discussion following the
Summary Compensation Table.
Under his employment agreement, Mr. Buker receives an initial annual base
salary of $750,000 per year and has an annual target bonus opportunity of not
less than 100% of his salary (the actual bonus may range from zero to 200% of
salary), subject to the terms of our Annual Incentive Plan. For 2007, Mr. Buker
was guaranteed a minimum bonus of $375,000. Mr. Buker was also entitled to, and
received payment of, a "make-whole amount" of $500,000 representing payment for
compensation foregone at his former employer. Under the original terms of the
employment agreement, Mr. Buker was to receive initial long-term equity
incentive grants of restricted stock with a value of $1.5 million and stock
options with a Black-Scholes present value of $1.5 million. The original
employment agreement also provided that Mr. Buker would receive annual long-term
equity incentive grants equal to one times his annual salary plus his target
bonus then in effect. Both the initial and annual long-term equity grants were
to be made pursuant to a plan approved by shareholders, and in the event that
such a plan was not approved by shareholders, Mr. Buker was to receive
contingent cash awards of equivalent value.
Mr. Buker's 2007 compensation was principally established by the terms of
his employment agreement, which was recommended by the Compensation Committee
and approved by the board in July 2007 in connection with our hiring of Mr.
Buker. During its review and analysis of Mr. Buker's employment agreement, the
committee and the board consulted with Lyons, Benenson & Company Inc. regarding
Mr. Buker's compensation. Lyons, Benenson & Company provided the committee and
the board with calculations of the present value of Mr. Buker's compensation
package and assisted them in comparing his compensation package to compensation
packages of executives at other companies. As part of their deliberations, the
committee and the board considered the importance of aligning Mr. Buker's
interests with the interests of our shareholders and, to that end, allocated a
large portion of Mr. Buker's compensation to equity-based awards or their cash
equivalents tied to the company's stock price. The committee and the board
believed that weighting Mr. Buker's compensation package heavily with equity
awards or their contingent cash equivalents would align Mr. Buker's interests
with the interests of our shareholders by motivating him to increase shareholder
value and rewarding him when shareholder value increases.
Taking into account the input from Lyons, Benenson & Company and the goals
for alignment with shareholder interests, the board approved the various
components of compensation in Mr. Buker's employment agreement, including salary
(to address market data and provide a base level of compensation), bonus (to
address a pay-for-performance component), and stock options and restricted stock
or their cash equivalents (to address alignment with shareholder interests). In
analyzing the market for CEOs, we used a group of 13 companies engaged in
manufacturing that are comparable in size to Tecumseh. The companies included in
this group were Encore Wire Corporation, Federal Signal Corporation, FreightCar
America, Inc., Gardner Denver, Inc., Goodman Global, Inc., Mettler-Toledo
International, Inc., Monaco Coach Corporation, Park-Ohio Holdings Corp., Regal
Beloit Corporation, Sauer-Danfoss Inc., Tredegar Corporation, Wabash National
Corporation, and Watsco, Inc. The market data analysis from our consultants
showed that the base salary component of Mr. Buker's compensation was at the
58th percentile of market practice, which placed it 6% above the market median.
The market data analysis also indicated that Mr. Buker's annual bonus
opportunity was at the 75th percentile of
B-2
market practice, which placed it at 166% of the market median. The present value
of Mr. Buker's annual equity compensation grants registered at the 65th
percentile of market practice or 155% of the market median. This significant
allocation of his compensation to performance-oriented elements emphasizes the
importance of Mr. Buker's meeting specific performance objectives and increasing
shareholder value. For Mr. Buker's total compensation package to actually exceed
the market median for similarly situated officers of the group of companies we
used for comparison, specific performance targets must be achieved and the value
of our stock must rise significantly.
The Compensation Committee and the board also reviewed the potential effect
on and cost to us of severance and change-in-control scenarios under Mr. Buker's
employment agreement. In particular, the committee and the board believed that
the base salary and short- and long-term incentive compensation elements, as
well as the severance and change-in-control facets, of Mr. Buker's employment
agreement were essential requirements for us to be able to recruit him to our
company during a period of significant transition under very challenging market
and governance circumstances.
As noted above, Mr. Buker's original employment agreement required us to
make initial awards of Class A stock options having a Black-Scholes value of
$1,500,000 and restricted Class A stock having a value of $1,500,000, both
measured as of August 13, 2007 (the date Mr. Buker's employment began). These
awards were to be made under a long-term incentive equity award plan adopted by
the board of directors and submitted to shareholders as required by Nasdaq
rules. Our board adopted such a plan, subject to shareholder approval. Our Class
A shares closed at $16.75 on August 13, 2007. Based on this closing price, Mr.
Buker received an option to purchase 180,941 Class A shares at an exercise price
of $16.75 per share and an award of 89,552 restricted Class A shares, all
subject to shareholder approval of the plan.
The Compensation Committee and the board later concluded that it would not
be appropriate or prudent or in our company's and our shareholders' best
interest to further implement the long-term incentive equity award plan, so on
March 4, 2008 we terminated that plan and replaced it with our new Long-Term
Incentive Cash Award Plan, which permits us to grant stock appreciation rights
(SARs) and phantom shares that are the economic equivalents of options and
restricted stock, respectively, but are settleable solely in cash. In general,
the new cash plan's provisions closely parallel those of the terminated equity
plan, except that all awards under the new plan will be settled only in cash.
At the same time, we agreed with Mr. Buker to amend his employment
agreement to delete the requirements for stock options and restricted stock and
to substitute SARs and phantom shares. Under the amendment, the initial stock
options and restricted stock awarded to Mr. Buker last August were canceled, and
we replaced them with the following awards under the new plan:
- We awarded 89,552 phantom shares to replace the canceled award of
89,552 shares of restricted Class A stock. Subject to the terms and
conditions in the plan and the award agreement, the phantom shares
will vest on August 13, 2010.
- To replace the canceled option to purchase 180,941 Class A shares at
$16.75 per share, we awarded 325,002 SARs. We arrived at that number
by computing the total of (a) 180,941 and (b) the number of SARs
having a Black-Scholes value equal to the difference between the SARs'
strike price and $16.75 multiplied by 180,941, as computed by the
Compensation Committee's compensation consulting firm. The SARs have
the following terms:
B-3
- The strike price per share is $28.82. When it approved the award,
the Compensation Committee specified that the strike price would
be the higher of (a) the closing price of one Class A share on
March 4, 2008, the date we awarded the SARs, or (b) the closing
price of one Class A share on the third business day after we
filed our 2007 Form 10-K. The higher of these was $28.82, the
closing price on March 19, 2008, which was the third business day
after we filed our 2007 Form 10-K.
- Subject to the terms and conditions of the plan and the award
agreement, one-third of the SARs will become exercisable on
August 13, 2008, one-third on August 13, 2009, and one-third on
August 13, 2010.
- The SARs will expire on August 13, 2014.
The number of phantom shares awarded was the same as the number of shares
covered by the canceled restricted stock award because they are economic
equivalents.
The replacement SARs were more complicated. The market price of our Class A
stock had increased since the original stock option grant in August, yet tax and
accounting considerations, among others, required the replacement SARs to have a
strike price no lower than the then current market price. Simply awarding a
number of SARs equal to the number of shares covered by the canceled options,
but with a higher strike price, would not have been fair to Mr. Buker or within
the letter or spirit of his contract. To compensate for the increased market
price, we decided to award a number of SARs equal to the total of 180,941 (the
number of options canceled) and an additional number that represented the
increase in the value of 180,941 Class A shares that occurred between the date
we granted the options and the date as of which we fixed the strike price of the
substitute SARs.
Other Named Executive Officers' 2007 Compensation
For many years before 2007, our company maintained a practice of providing
executive officers with salaries that were judged reasonable, but modest, in
light of their experience. We continued this same practice when we initially
established executive officers' 2007 salaries by maintaining them at their 2006
levels, deeming increases inappropriate in light of our financial performance.
When Mr. Bonsall became our acting principal executive officer, however, he
recommended increasing salaries in order to retain key executives during that
important and challenging time. The Compensation Committee accepted his
recommendation and established salary increases retroactive to the beginning of
2007.
During the period of Mr. Bonsall's leadership, we also stopped issuing
awards under our old Management Incentive Plan, which no longer provided
appropriate incentives given the unusual challenges and rapid changes our
company was facing at that time. We replaced it with a new Key Employment Bonus
Plan under which our executives (including all executive officer serving at that
time other than Mr. Bonsall) had the opportunity to earn cash bonuses based on
2007 performance. We describe the main features of the Key Employee Bonus Plan
below in the narrative following the Summary Compensation Table.
Each executive officer participating in the Key Employee Bonus Plan had the
opportunity to earn a cash bonus based on our company's performance relative to
three corporate goals established for the year and his individual performance
relative to individual goals established for him. Each of the three corporate
goals accounted for 20% of each executive's potential bonus, and his individual
goals accounted for 40%. The corporate goals were:
B-4
- Compressor Group operating profit before interest, taxes, and
restructuring charges. We considered this the best measure of the
performance of the line of business we expected to retain in the long
term, and it was crucial in our efforts to comply with the financial
covenants in our domestic credit agreements.
- North American liquidity. We needed to maintain sufficient liquidity
to continue as a going concern.
- Compressor Group revenue per employee. Cost reductions, embodied in
decreasing headcount, were a key part of our plan to meet our credit
agreement covenants and return to profitability.
For bonus purposes, each corporate goal was considered on an all-or-nothing
basis. We achieved the first and third goals but not the second, so each
executive who participated in the plan received 40% (and did not receive 20%) of
his target bonus based on the corporate goals. The remaining 40% of each
participant's bonus depended on the level to which he achieved his personal
goals. The chart below shows the target and actual 2007 bonus computed under
these standards for each executive officer named in the Summary Compensation
Table who participated in the plan:
Target Actual
-------- --------
James S. Nicholson $150,000 $114,000
Michael R. Forman 50,000 39,000
2008 Executive Compensation Arrangements
Mr. Buker's 2008 salary is specified by his employment agreement. The
starting salary for James Wainright, our Vice President--Operations, who first
became an executive officer this year, is specified in his employment letter.
Mr. Nicholson's 2008 salary was recommended by Mr. Buker.
Beginning in 2008, our executive officers will have the opportunity to earn
cash bonuses based on performance during the year under our new Annual Incentive
Plan, which has replaced the Key Employee Bonus Plan used in 2007. Under the
Annual Incentive Plan, each participating executive will be eligible to earn a
cash bonus based on the company's and the executive's performance during a given
calendar year. For 2008, the Compensation Committee has established a target
bonus for each participating employee, expressed as a percentage of his or her
salary. We use a target bonus approach because it is a formal, goals-oriented
method of determining bonuses that is responsive to changing internal and
external business conditions from year to year. The target company bonus pool
will be the sum of all target bonuses for all employees participating in the
plan. The actual company bonus pool will be determined based on the company's
2008 performance measured against the following corporate goals:
- operating profit before interest, taxes, and restructuring charges
(55% weighting);
- moving production of three compressor lines to India from less
competitive locations (20% weighting);
- achieving specified cost reductions across all operations (15%
weighting); and
B-5
- increasing sales in the most profitable portions of our commercial
business segment (10% weighting).
For each goal, attaining a specified threshold level of performance will
yield a 50% payout, achieving the target level will yield a 100% payout, and
achieving better than target will yield up to a 200% payout.
The actual bonus pool will then be allocated among all participants based
in part on company performance relative to the goals described above and in part
on an evaluation of the individual's performance. The 2008 target bonus
percentages for our current executive officers and the portions that will be
allocated to them based on company and individual performance are:
Portion of Award Based on
-------------------------
Company Individual
Executive Officer Target Bonus Performance Performance
- ----------------- ---------------------- ----------- -----------
Edwin L. Buker 100% percent of salary 100% 0%
James S. Nicholson 60% percent of salary 90% 10%
James Wainright 75% percent of salary 90% 10%
The actual bonus percentage cannot exceed 200% of the participant's target
bonus percentage, and the total of all bonuses under the plan for a given year
(including bonuses for participants who are not executive officers) cannot
exceed the total company bonus pool for that year calculated as described above.
Under his employment agreement, Mr Buker's 2008 bonus cannot be less than
$375,000.
In addition, for 2008 the Compensation Committee has awarded SARs and
phantom shares to our current executive officers under our Long-Term Incentive
Cash Award Plan as follows:
- Mr. Buker: SARs corresponding to 49,472 shares of Class A stock (a
Black-Scholes value of $750,000) and 26,023 phantom shares (a face
value of $750,000);
- Mr. Nicholson: SARs corresponding to 7,718 shares of Class A stock (a
Black-Scholes value of $117,000) and 4,060 phantom shares (a face
value of $117,000); and
- Mr. Wainright: SARs corresponding to 10,389 shares of Class A stock (a
Black-Scholes value of $157,500) and 5,465 phantom shares (a face
value of $157,500).
The strike price for all the SARs is $28.82 per share, which was the higher
of (a) the closing price of one Class A share on March 4, 2008, the date we
awarded the SARs, or (b) the closing price of one Class A share on the third
business day after we filed our 2007 Form 10-K. One-third of each SAR award will
become exercisable on the first anniversary of the grant date, one-third on the
second anniversary, and one-third on the third anniversary. All of the SARs will
expire on the seventh anniversary of the grant date. The phantom shares will
vest and become payable on the third anniversary of the grant date.
The 2008 award to Mr. Buker was required under the terms of his employment
contract, and the award to Mr. Wainright was required under the terms of his
employment letter. Mr. Nicholson's award was recommended by Mr. Buker.
B-6
Compensation Philosophy for 2008 and the Future
The Compensation Committee has not yet adopted an explicit statement on
compensation philosophy, but the committee has been discussing compensation
philosophy extensively and expects to articulate the company's philosophy in
2008. In the absence of an explicit statement of philosophy, the committee has
been guided in its deliberations and discussions by certain fundamental
principles. First, the company is committed to paying competitive and equitable
compensation to all executives and associates. Second, the company is committed
to linking pay to performance through short- and long-term incentive
compensation programs that are tied to specific performance criteria and
achievement. Third, long-term improvement in shareholder value is a particularly
important focus of the compensation program.
Section 162(m) of the Internal Revenue Code
With some exceptions, Section 162(m) of the Internal Revenue Code of 1986
limits the annual deduction a public company can take for United States federal
income tax purposes for compensation paid to its named executive officers to $1
million each. We expect that, under this section, some of the compensation we
will pay to Mr. Buker and perhaps other executives in 2008 and future years will
not be deductible. While we consider minimizing federal income tax expense an
important goal in our financial planning process, it is not the only or even
most important goal. We believe the benefits our company and shareholders will
realize from paying the compensation required to attract, retain, and motivate
our key executives will outweigh any detriments resulting from the limitation on
deductibility imposed by Section 162(m).
B-7
SUMMARY COMPENSATION TABLE
This table provides compensation information for our principal executive
officers who served during 2007, our principal financial officer, and two other
executive officers who served during 2007.
2007 SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION
VALUE AND
NON-EQUITY NONQUALIFIED
INCENTIVE PLAN DEFERRED
SALARY COMPENSATION COMPENSATION ALL OTHER
(1) BONUS (2) EARNINGS COMPENSATION TOTAL
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($)
--------------------------- ---- -------- -------- -------------- ------------ ------------ ----------
Todd W. Herrick 2007 $ 27,100 $ -- $ 3,871 $ -- $ 140,419(4) $ 171,390
President and Chief Executive 2006 475,000 -- -- -- 6,622(5) 481,622
Officer (principal executive
officer) (3)
James J. Bonsall 2007 -- -- -- -- $1,703,000(7) $1,703,000
President and Chief Operating 2006 -- -- -- -- 1,760,540(7) 1,760,540
Officer (acting principal
executive officer) (6)
Edwin L. Buker 2007 $289,915 $875,000 -- $ 5,803 $ 15,469(9) $1,186,187
Chairman, President, and Chief
Executive Officer (principal
executive officer) (8)
James S. Nicholson 2007 $291,261 $ 50,000 $115,141 $11,346 $ 9,252(11) $ 477,000
Vice-President, Treasurer and 2006 280,000 20,000(10) 36,400 15,583 7,500(5) 359,483
Chief Financial Officer
(principal financial officer)
Michael R. Forman 2007 $154,006 $ -- $ 39,978 $32,451 $ 9,067(12) $ 235,502
Vice-President & Director of 2006 150,000 1,500 30,000 45,344 4,728(5) 231,572
Corporate Human Resources
Eric L. Stolzenberg 2007 $128,338 $ -- $ -- $ 838 $ 233(5) $ 129,409
President of Compressor 2006 280,000 -- -- 16,969 56,422(14) 353,391
Business Unit (13)
Ronald E. Pratt 2007 $140,000 $232,560 $ -- $ -- $ 4,786(5) $ 377,346
President of Electrical 2006 210,000 -- 7,875 20,100 6,300(5) 244,275
Components Business Unit (15)
(1) Salary includes any amounts deferred at the officer's election and
contributed on his behalf to our Retirement Savings Plan (a 401(k) plan).
(2) Non-equity incentive plan compensation consists of cash awards under Key
Employee Bonus Plan for 2007 and under Management Incentive Plan for 2006.
(3) Mr. Herrick's employment terminated January 19, 2007.
(4) Matching contribution to the Retirement Savings Plan. ($813), pension plan
payments ($51,327), and supplemental executive retirement plan payments
($88,279).
(5) Matching contribution to the Retirement Savings Plan.
(6) Mr. Bonsall became an executive officer March 29, 2006 as President of our
Engine and Power Train Business Unit. He became President and Chief
Operating Officer (and acting principal executive officer) January 19,
2007. He ceased serving as President of our Engine and Power Train Business
Unit on March 1, 2007 and ceased serving as President and Chief Operating
Officer on August 13, 2007, after which time he was no longer an executive
officer.
(7) Mr. Bonsall was not a Tecumseh Products Company employee. AP Services, LLC,
a subsidiary of AlixPartners, LLP, provided his services to us under
contract. The amounts shown are the amounts we accrued in 2007 and 2006 for
fees to AP Services, LLC for Mr. Bonsall's services in all capacities.
(8) Mr. Buker joined our company as President and Chief Executive Officer on
August 13, 2007. He became Chairman on February 5, 2008.
(9) Matching contribution to the Retirement Savings Plan. ($6,563),
reimbursement for relocation ($8,906)
(10) Bonus paid in 2006 for 2005 services and not reported in 2005 summary
compensation table.
(11) Matching contribution to the Retirement Savings Plan. ($7,098), unused
vacation ($2,154).
(12) Matching contribution to the Retirement Savings Plan. ($6,182), unused
vacation ($2,885).
(13) Mr. Stolzenberg resigned effective March 6, 2007.
(14) Reimbursement for relocation expenses.
(15) Mr. Pratt resigned when we sold the majority of our Electrical Components
business on August 31, 2007.
B-8
The material assumptions we used in computing the changes in pension value
shown in the Summary Compensation Table are listed after the Pension Benefits
Table below.
MR. BUKER'S EMPLOYMENT AGREEMENT
On August 31, 2007, we entered into an employment agreement with Edwin L.
Buker providing for his employment as our President and Chief Executive Officer
for a three-year period. We signed an amendment to the agreement on March 8,
2008. The following is a summary of the principal terms of the agreement, as
amended.
Compensation. Mr. Buker's is entitled to compensation as follows:
- $750,000 annual salary, which may be increased but not decreased
during the agreement's term;
- annual cash bonus targeted at 100% of salary, but that may vary
between zero and 200% of salary (and must be at least $375,000 in each
of 2007 and 2008), based on achievement of performance objectives;
- participation in benefit plans and programs on the same terms as
similarly situated executives;
- $5,000,000 of term life insurance;
- reimbursement for relocation expenses if approved in advance;
- reimbursement for up to $20,000 in attorney fees incurred in
connection with the employment agreement;
- reimbursement for up to $500,000 of payments he would be ineligible to
receive from his former employer as a result of accepting employment
with us, subject to presentation of appropriate documentation; and
- the following grants under our Long-Term Incentive Cash Award Plan:
- an initial grant of SARs corresponding to 325,002 Class A shares
with a strike price of $28.82 per share, one-third of which vest
on August 13 in each of the years 2008, 2009, and 2010,
exercisable until August 13, 2014;
- an initial phantom share award corresponding to 89,552 Class A
shares, vesting on August 13, 2010; and
- annual grants, valued at the time of grant, equal to the sum of
his then current salary and target cash bonus.
Termination Payments. Mr. Buker may terminate his employment with good
reason, good reason on change of control, or voluntarily. We may terminate his
employment due to his disability, for cause, or without cause. The payments and
other benefits to which Mr. Buker would be entitled if his employment terminates
under various scenarios is described below.
If Mr. Buker voluntarily terminates his employment without good reason or
without good reason on change of control, then he will be entitled to receive:
- a cash payment equal to the total of his unpaid salary and unused
vacation days;
- settlement of any then vested phantom share awards; and
B-9
- the ability to exercise any then vested SARs.
In this event, all unvested SARs and phantom share awards will be canceled.
If Mr. Buker terminates his employment for good reason, then:
- He will be entitled to receive a cash payment equal to the total of--
- his unpaid salary,
- his unused vacation days,
- his target bonus on a pro rata basis through the termination
date,
- one and one-half times his salary then in effect, and
- one times his annual target bonus.
- If his good reason termination occurs within the first twelve months
of employment, 50% of his initial and any annual SAR and phantom share
grants will become immediately vested, and he will have 180 days from
his termination date to exercise the vested SARs. If his good reason
termination occurs after the first twelve months of employment, 100%
of his initial and annual SAR and phantom share grants will become
immediately vested, and he will have 180 days from his termination
date to exercise the vested SARs.
- He will be entitled to continuation of company-paid health insurance
for one year to the extent the company is then providing health
insurance.
If we terminate Mr. Buker's employment for cause, then he will be entitled
to receive a cash payment equal to the total of his unpaid salary and unused
vacation days. All SARs and phantom shares, whether or not vested, will be
forfeited and immediately canceled.
If we terminate Mr. Buker's employment without cause, then he will be
entitled to receive:
- a cash payment equal to the total of--
- his unpaid salary,
- his unused vacation days,
- his target bonus on a pro rata basis through the termination
date,
- one and one-half times his salary then in effect; and
- one times his annual target bonus;
- the ability to exercise any then vested options for up to 180 days
after his termination date; and
- continuation of company-paid health insurance for one year to the
extent the company is then providing health insurance.
If a change of control occurs, 50% (if the change of control occurs during
the first twelve months of employment) or 100% (if it occurs later) of Mr.
Buker's SARs and phantom shares will become immediately vested. In addition, if
Mr. Buker is terminated without cause on a change of control or he terminates
his employment for good reason on a change of control, then he will be entitled
to receive the same compensation as if he had terminated his employment for
B-10
good reason, except that his cash payment will include two (rather than one and
one-half) times his salary then in effect and two (rather than one) times his
annual target bonus.
If we terminate Mr. Buker due to his disability, then he will be entitled
to receive:
- a cash payment equal to the total of--
- his unpaid salary,
- his unused vacation days, and
- his target bonus on a pro rata basis through the termination
date;
- settlement of any then vested phantom share awards;
- the immediate vesting of the next tranche of SARs that would have
vested after the termination date; and
- the ability to exercise any then vested SARs.
In this event, all of his unvested SARs and phantom shares will be canceled.
Noncompetition Agreement. Mr. Buker agrees that he will not engage in
competitive activities while employed and, in the event his employment is
terminated voluntarily by him or without cause by us, for a period after his
employment terminates equal to the longer of twelve months or the period during
which he receives salary and benefits under the agreement.
KEY EMPLOYEE BONUS PLAN
In April 2007, we adopted a new Key Employee Bonus Plan providing for
annual performance-based cash bonuses for key employees. The Key Employee Bonus
Plan replaced our Management Incentive Plan, which had been in effect for
several years and under which employees could receive both cash bonuses and
restricted phantom shares of Class A common stock. The Key Employee Bonus Plan
was only in effect for 2007. For 2008 and later years, we replaced it with the
Annual Incentive Plan and the Long-Term Incentive Cash Award Plan described in
the Compensation Discussion and Analysis above.
Under the Key Employee Bonus Plan, in April 2007 we established a potential
bonus amount and personalized 2007 goals for each participating employee. At the
same time, we established three corporate goals for the year:
- Compressor Group operating profit before interest, taxes, and
restructuring charges;
- North American liquidity; and
- Compressor Group revenue per employee.
Each participating employee's actual bonus was computed on the basis of our
2007 results measured against these three corporate goals (20% each) and on
achievement of his or her personal goals (40%). For the executive officers
listed in the Summary Compensation Table, that computation resulted in the cash
awards shown in the "Non-Equity Incentive Plan Compensation" column of the
Summary Compensation Table for 2007.
MANAGEMENT INCENTIVE PLAN
Under the Management Incentive Plan as implemented for 2006, our executive
officers (other than Mr. Bonsall, who was not a company employee) and other plan
participants had the
B-11
opportunity to earn awards valued at up to 80% of their 2006 salaries. Early in
2006, our Governance, Compensation, and Nominating Committee established two
sets of criteria for awards that would be made to executive officers and other
plan participants in 2007 based on 2006 performance, one for executives in the
corporate office group, which included Mr. Herrick and Mr. Nicholson, and
another for business unit executives, which included Mr. Stolzenberg and Mr.
Pratt.
Under these criteria, executives in the corporate office group had the
opportunity to earn:
- phantom stock awards valued at up to 20% of salary based on
company-wide return on equity, both in absolute terms and in relation
to historical performance;
- phantom stock awards valued at up to 40% of salary based on four
functional metrics (achievement of purchase savings target,
improvement in net days of accounts receivable less accounts payable,
improvement in total cost of quality, and successful implementation of
schedule Oracle go-live sites); and
- cash awards of up to 20% of salary based on achievement of individual
goals and objectives.
Executives in business units had the opportunity to earn:
- phantom stock awards valued at up to 5% of salary based on
company-wide return on equity in relation to historical performance;
- phantom stock awards valued at up to 40% of salary based on the
business unit's cash return on assets, both in absolute terms and in
relation to historical performance, and business plan attainment;
- cash awards of up to 25% of salary based on reporting unit criteria
measuring quality, growth, and a basket of other strategic scorecard
metrics (revenue per employee, productivity, days of inventory on
hand, and on-time delivery); and
- cash awards of up to 10% of salary based on achievement of individual
goals and objectives.
Applying the performance criteria established at the beginning of the year
to the measures of actual 2006 performance resulted in the cash awards shown in
the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation
Table for 2006 and no phantom stock awards.
No phantom stock units awarded in previous years remained outstanding at
the end of 2007. The table below shows the phantom stock units awarded to
executive officers named in the Summary Compensation Table in previous years
that vested in 2007 and were paid out.
B-12
PHANTOM STOCK VESTED IN 2007
PHANTOM STOCK AWARDS
------------------------
NUMBER OF
UNITS THAT AMOUNT PAID
VESTED OUT ON
NAME (1) (#) VESTING ($)
---- ---------- -----------
Todd W. Herrick 234.8 $3,800
James J. Bonsall -- --
Edwin L. Buker -- --
James S. Nicholson 69.2 $1,100
Michael R. Forman 59.3 $ 977
Eric L. Stolzenberg -- --
Ronald E. Pratt -- --
B-13
RETIREMENT PLANS
Our retirement plan, which is a broad-based defined benefit and (since
1985) noncontributory plan, and our supplemental retirement plan (commonly
referred to as a SERP), 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.
These plans provide retirement benefits 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 some benefits payable under the
supplemental retirement plan by a percentage of Social Security benefits.
As of April 30, 2007 the defined benefit plan was terminated and replaced
with a new defined benefit plan. The new plan will provide a retirement benefit
in the form of a lifetime pension, the amount of which will be equal to the lump
sum value of 10.5% 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), actuarially adjusted to an equivalent
annuity payable at age 65. A second part of the retirement benefit under the new
plan will provide a continuation of the old benefit formula based on pay
increases after termination of the old plan.
The automatic form of benefit for a married participant is the joint and
50% survivor benefit or the joint and 100% survivor benefit as selected by the
participant. However, the participant, with the consent of his or her spouse,
may elect to have his benefit paid in the form of an annuity with 120 payments
certain. The financial effect of these alternate payment forms on the amount of
the participant's monthly benefit payment depends upon the ages of the
participant and his or her spouse.
The automatic payment form for an unmarried participant is the single life
annuity. Alternatively, the participant may elect to have his benefit paid in
the form of an annuity with 120 payments certain. If the benefit is paid in the
form of an annuity with 120 payments certain rather than a single life annuity,
the monthly benefit will be reduced.
The table below shows benefit information under the plans for each
executive officer named in the Summary Compensation Table. Mr. Bonsall was not
an employee and does not participate in the plans.
B-14
2007 PENSION BENEFITS TABLE
PRESENT VALUE OF PAYMENTS
NUMBER OF ACCUMULATED DURING LAST
YEARS CREDITED BENEFIT FISCAL
NAME PLAN NAME SERVICE (#) ($) YEAR ($)
---- ------------------- -------------- ---------------- -----------
Todd W. Herrick Former Pension Plan 42.9 $ 968,148 --
New Pension Plan -- -- --
Frozen SERP 42.9 $1,569,043 --
James J. Bonsall -- -- --
Edwin L. Buker Former Pension Plan -- -- --
New Pension Plan 0.4 $ 5,803 --
James S. Nicholson Former Pension Plan 5.2 $ 49,774 --
New Pension Plan 0.7 $ 9,056 --
Frozen SERP 5.2 $ 4,858 --
Michael R. Forman Former Pension Plan 17.2 $ 314,785 --
New Pension Plan 0.7 $ 19,187 --
Eric L. Stolzenberg Former Pension Plan 1.4 $ 16,389 --
New Pension Plan 0.2 $ 3,363 --
Ronald E. Pratt Former Pension Plan 2.5 $ 32,799 --
New Pension Plan 0.4 $ 5,515 --
The material assumptions we used in computing the present values of pension
benefits shown in the table above and the changes in pension value shown in the
Summary Compensation Table were:
- Pre-retirement Assumptions
- FAS 87 Discount Rate: 6.27% for 2007
- FAS 87 Discount Rate: 5.71% for 2006
- Mortality Table: RP-2000 Combined Healthy Participant Table
- Turnover: None
- Post-retirement Assumptions
- Interest Rate: 6.27% for 2007
- Interest Rate: 5.71% for 2006
- Mortality Table: RP-2000 Combined Healthy Participant Table
POTENTIAL PAYMENTS ON TERMINATION OR CHANGE IN CONTROL
Mr. Buker's Employment Agreement
As described above under "Mr. Buker's Employment Agreement," his employment
agreement, as amended, provides for payments and benefits of various types if
his employment terminates in specified circumstances.
Change in Control and Severance Agreements with Other Executive Officers
We have entered into change in control agreements with some of our
executives, including all current executive officers named in the Summary
Compensation Table other than
B-15
Mr. Buker. All of the agreements are substantially identical. Among other
things, each provides for the following payments and benefits if the executive's
employment terminates in the circumstances described:
- Voluntary termination without good reason on change in control:
- cash payment equal to the sum of--
- accrued but unpaid salary, and
- unused vacation days;
- ability to exercise any vested SARs for period of 180 days; and
- all unvested SAR and phantom share awards canceled.
- Involuntary termination without cause:
- cash payment equal to the sum of--
- accrued but unpaid salary,
- unused vacation days,
- one year's base salary (paid in installments over
twelve-month period), and
- one times executive's then applicable annual target bonus
under Annual Incentive Plan (paid at same time other bonuses
paid);
- ability to exercise any vested SARs for period of 180 days;
- all unvested SAR and phantom share awards canceled; and
- one year of medical insurance coverage for executive and family.
- Involuntary termination without cause following change in control, or
voluntary termination for good reason following change in control:
- cash payment equal to the sum of--
- accrued but unpaid salary,
- unused vacation days,
- one year's base salary (paid in lump sum), and
- one times executive's then applicable annual target bonus
under Annual Incentive Plan (paid in lump sum);
- immediate vesting of 100% of existing SAR and phantom share
awards;
- ability to exercise vested SARs for period of 180 days; and
- one year of medical insurance coverage for executive and family.
- Involuntary termination with cause:
- cash payment equal to the sum of--
- accrued but unpaid salary, and
B-16
- unused vacation days; and
- all unvested SAR and phantom share awards, and all vested but
unexercised SARs, canceled.
- Termination on disability:
- cash payment equal to the sum of--
- accrued but unpaid salary,
- unused vacation days,
- pro rata portion of executive's then applicable annual
target bonus under Annual Incentive Plan (paid in lump sum);
- immediate vesting of next tranche of any SAR or phantom share
award that would have vested after termination date;
- ability to exercise vested SARs in accordance with their terms;
and
- one year of medical insurance coverage for executive and family.
Each agreement has a three-year term and will renew automatically for
successive three-year terms unless we give the executive notice of non-renewal
at least 60 days before the scheduled expiration date. Each agreement contains
confidentiality, noncompetition, and non-disparagement provisions.
Hypothetical Termination Benefits Tables
The tables below show the estimated amounts of benefits each current
executive officer named in the Summary Compensation Table would have received
under the applicable agreement if his employment had terminated on December 31,
2007 in various circumstances. Although we did not enter into our current Change
of Control and Severance Agreements with Messrs. Nicholson and Forman until
after December 31, 2007, the tables below show the amounts that would have been
payable under them if they had been effect on that date. We previously had a
contingent severance agreement with Mr. Nicholson, which terminated when we
entered into the current agreement and which is not reflected in the table
below.
B-17
HYPOTHETICAL DECEMBER 31, 2007 TERMINATION BENEFITS
PAYABLE TO MR. BUKER UNDER EMPLOYMENT AGREEMENT
COST OF VALUE OF UNVESTED VALUE OF UNVESTED
ONE YEAR VALUE OF VESTED, DEEMED OPTIONS DEEMED RESTRICTED
OF MEDICAL UNEXERCISED DEEMED VESTING ON SHARES VESTING ON
TYPE OF TERMINATION CASH PAYMENT INSURANCE OPTIONS (1) TERMINATION (1) TERMINATION (1) TOTAL
------------------- ------------ ---------- ------------------ ----------------- ----------------- ----------
Voluntary, without good
reason (whether or not
there is a change in
control) $ -0- n/a $-0- n/a n/a $ -0-
Voluntary, with good reason
(no change in control) $1,875,000(2) $13,245 $-0- $602,534(3) $1,048,206(4) $3,538,985
Involuntary, for cause $ -0- n/a n/a n/a n/a $ -0-
Involuntary, without cause
(no change in control) $1,875,000(2) $13,245 $-0- n/a n/a $1,888,245
Involuntary, without
cause, on change in $2,250,000(5) $13,245 $-0- $602,534(3) $1,048,206(4) $3,913,985
control
Voluntary, with good
reason, on change in
control $2,250,000(5) $13,245 $-0- $602,534(3) $1,048,206(4) $3,913,985
Disability $-0- n/a $-0- $397,672(6) n/a $ 397,672
(1) No options or restricted shares were actually issued to Mr. Buker, but
under the terms of his employment agreement as in effect on December 31,
2007 he was entitled to have received Class A stock options and restricted
Class A stock in specified amounts as of August 13, 2007 or to receive the
economic equivalent in SARs and phantom shares. Amounts in these columns
are computed as if he had received the specified stock options and
restricted shares as of August 13, 2007 in accordance with his employment
agreement and based on the closing price of our Class A stock on the last
trading day of 2007 ($23.41 per share). As described elsewhere in this
proxy statement, Mr. Buker's employment agreement has since been amended to
substitute SARs and phantom shares for the options and restricted shares
called for by the original agreement.
(2) 1.5 times then current salary ($750,000) plus 1.0 times 2007 target bonus
($750,000).
(3) Built-in gain on one-half of deemed option to purchase 180,941 Class A
shares at $16.75 per share.
(4) Value of one-half of 89,552 deemed restricted Class A shares.
(5) 2.0 times then current salary ($750,000) plus 1.0 times 2007 target bonus
($750,000).
(6) Built-in gain on one-third of deemed option to purchase 180,941 Class A
shares at $16.75 per share.
B-18
HYPOTHETICAL DECEMBER 31, 2007 TERMINATION BENEFITS
PAYABLE TO MR. NICHOLSON UNDER CHANGE OF CONTROL
AND SEVERANCE AGREEMENT
COST OF VALUE OF UNVESTED VALUE OF UNVESTED
ONE YEAR VALUE OF VESTED, SARS PHANTOM SHARES
OF MEDICAL UNEXERCISED VESTING ON VESTING ON
TYPE OF TERMINATION CASH PAYMENT INSURANCE SARS TERMINATION TERMINATION TOTAL
------------------- ------------ ---------- ---------------- ----------------- ----------------- ----------
Voluntary, without good
reason, on change in
control $ -0- n/a n/a n/a n/a $ -0-
Involuntary, without cause $445,000(1) $9,913 n/a n/a n/a $454,913
Involuntary, without
cause, following change
in control; or
voluntary, for good
reason, following change
in control $445,000(1) $9,913 n/a n/a n/a $454,913
Involuntary, with cause $ -0- n/a n/a n/a n/a $ -0-
Disability $ -0- $9,913 n/a n/a n/a $ 9,913
(1) 1.0 times then current salary ($295,000) plus 1.0 times 2007 target bonus
($150,000).
HYPOTHETICAL DECEMBER 31, 2007 TERMINATION BENEFITS
PAYABLE TO MR. FORMAN UNDER CHANGE OF CONTROL
AND SEVERANCE AGREEMENT
COST OF VALUE OF UNVESTED VALUE OF UNVESTED
ONE YEAR VALUE OF VESTED, SARS PHANTOM
OF MEDICAL UNEXERCISED VESTING ON SHARES VESTING ON
TYPE OF TERMINATION CASH PAYMENT INSURANCE SARS TERMINATION TERMINATION TOTAL
------------------- ------------ ---------- ----------------- ----------------- ----------------- ----------
Voluntary, without good
reason, on change in
control $ -0- n/a n/a n/a n/a $ -0-
Involuntary, without cause $204,000(1) $13,124 n/a n/a n/a $217,124
Involuntary, without
cause, following change
in control; or
voluntary, for good
reason, following change
in control $204,000(1) $13,124 n/a n/a n/a $217,124
Involuntary, with cause $ -0- n/a n/a n/a n/a $ -0-
Disability $ -0- $13,124 n/a n/a n/a $ 13,124
(1) 1.0 times then current salary ($154,000) plus 1.0 times 2007 target bonus
($50,000).
B-19
DIRECTOR COMPENSATION
We do not pay employees any separate compensation for serving as directors.
At the beginning of 2008, we changed our outside director compensation
structure. Both the old and new arrangements are described below. We reimburse
all directors for reasonable travel expenses.
2007 Director Compensation
In 2007, we continued to compensate our outside directors under a program
established in 2005 after considering the Governance, Compensation, and
Nominating Committee's recommendations and a report and recommendations
presented by Watson Wyatt Worldwide, the compensation consultant engaged by the
committee. The program was designed to be conservative but market competitive.
Specifically, at that time we targeted the components of the pay package at
market 40th percentile levels for guaranteed pay elements with the opportunity
to earn above market 50th percentile payments based on activity requirements
(e.g., number of meetings) and/or the company's performance.
For 2007, we paid all non-employee directors a monthly retainer ($2,800 for
the Chair of our Audit Committee, $2,700 for the Chair of our Governance,
Compensation, and Nominating Committee, and $2,500 for all others), a $1,500 fee
for each board meeting attended, and a $1,200 fee ($1,400 for committee chairs)
for each committee meeting attended.
Our non-employee directors were also eligible for phantom share awards
under our Director Retention Phantom Share Plan, which was administered by the
Governance, Compensation, and Nominating Committee. Under the plan, each
non-employee director received an annual award denominated in phantom Class A
shares. The minimum award was $5,000, and the maximum was 100% of the director's
annual retainer fee. Under this plan, the board of directors made 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 by the committee for that year. We credited awards to
directors' accounts, together with deemed dividends on the phantom shares in the
accounts. Subject to some limitations, the plan provided that one-half of each
award will be paid out three years after grant and the other half five years
after grant, except that if a director leaves the board, or if there is a
"change in control" of Tecumseh Products Company, we will pay the director cash
in an amount equal to the fair market value of the phantom shares in his or her
account at that time. We compute all dollar amounts under this plan using the
average of the high and low sales prices of our Class A shares on the Nasdaq
Stock Market on the date of computation.
In 2007, based on our return on equity for 2006, each non-employee director
received the minimum $5,000 phantom share award. We will not make any further
awards under this plan.
2008 Director Compensation
During the past year, the committee undertook a review of non-employee
director compensation in order to determine whether the 2007 director
compensation program was competitive and appropriate and to assess whether any
changes were warranted in the program going forward. In connection with that
review, Lyons, Benenson & Company Inc., the committee's compensation consultant,
compiled data on the director compensation practices of the same group of
companies used to determine the competitiveness of the company's CEO
compensation package.
B-20
The review revealed that our director compensation program had not kept
pace with the changes that had occurred and were continuing to occur among the
group of comparable companies as well as industry in general. Our 2007 annual
board service retainer fell below the 25th percentile of the surveyed companies;
the Audit Committee chair retainer level fell below the 25th percentile; and the
Governance, Compensation, and Nominating Chair retainer level was just above the
25th percentile. Two-thirds of the surveyed companies paid a significant portion
of their annual retainers in some form of equity, and, in all but one company in
this group, the equity component was more than 50% of the total retainer.
In response to these findings, and at the recommendation of its consultant,
the committee revised our director compensation program. Beginning January 1,
2008, the annual retainer fee for non-employee directors is $80,000, payable
one-half in cash and one-half in deferred stock units. Our Lead Director is
entitled to an additional annual retainer fee of $20,000, payable one-half in
cash and one-half in deferred stock units. Chairs and members of the following
committees are entitled to the following additional annual cash retainer fees:
Audit Committee:
Chair..................................... $20,000
Other members............................. $10,000
Other standing committees:
Chair..................................... $10,000
Other members............................. $ 5,000
We will not pay meeting fees will for up to ten board meetings per calendar
year and up to six meetings of each committee per calendar year. If a
non-employee director attends more than ten board meetings in a calendar year,
he or she will receive a cash meeting fee in the amount of $1,500 for each
meeting attended in excess of ten. If a non-employee director who is a member of
a standing committee attends more than six meetings of that committee in a
calendar year, he or she will receive a cash meeting fee in the amount of $1,500
for each meeting of the committee attended in excess of six.
The deferred stock units are awarded under our new Outside Directors'
Deferred Stock Unit Plan. Effective on January 1 of each year, beginning with
2008, each non-employee director then in office receives an allocation of
deferred stock units under the plan in a dollar amount equal to one-half of his
or her annual retainer fee, as specified above. A new non-employee director who
takes office after January 1 receives a pro rata allocation of deferred stock
units. In each case, the number of deferred stock units is determined by
dividing the dollar amount the director is entitled to receive by the average of
the high and low sale prices for a share of our Class A stock on the last
trading day before the allocation date. If dividends are paid on the Class A
stock, each non-employee director's account under the plan will be credited with
a number of additional deferred stock units having a corresponding value based
on the then current market value of the stock. Each award under the plan is
fully vested when made, except that a director will forfeit his or her account
if the director's service on the Board is terminated, voluntarily or otherwise,
for any "reason," as defined in the plan. We will pay out the deferred stock
units in a director's account in cash, based on the then current market value of
the Class A stock, promptly after he or she ceases to be a non-employee director
for any reason.
B-21
Deferred Compensation Plan
Our non-employee directors can elect to defer receipt of a portion of their
retainers and meeting fees under our Outside Directors' Voluntary Deferred
Compensation Plan. The plan provides that deferred amounts are to be recorded in
bookkeeping accounts we maintain and that the amount in each account will be
adjusted from time to time to reflect the results of a hypothetical investment
in our Class A shares or based on the current yield of the Dow Jones Corporate
Bond Index, as selected by the director. Amounts payable to directors under the
plan are general unsecured claims against the company. No director had any
balance in an account under the plan at any time during 2007.
Director Compensation Table
The table below shows the compensation received by each director who served
during 2007 other than Todd W. Herrick and Edwin L. Buker, whose compensation
for service as director is fully reflected in the Summary Compensation Table and
other executive compensation information provided above.
B-22
2007 DIRECTOR COMPENSATION TABLE
FEES EARNED
OR PAID IN STOCK
CASH (1) AWARDS (2) TOTAL
NAME ($) ($) ($)
---- ----------- ---------- --------
William E. Aziz (3) $ 26,600 -- $ 26,600
Peter M. Banks $121,300 $5,000 $126,300
Kent B. Herrick (4) $ 54,900 $5,000 $ 59,900
Albert A. Koch (5) $ 50,800 $5,000 $ 55,800
Steven J. Lebowski (3) $ 27,800 -- $ 27,800
Jeffry N. Quinn (3) $ 30,400 -- $ 30,400
David M. Risley $126,400 $5,000 $131,400
Kevin E. Sheehan (6) $ 62,000 $5,000 $ 67,000
(1) Retainer and meeting fees
(2) Phantom share awards under Director Retention Phantom Share Plan, valued at
amount recognized for financial statement reporting purposes
(3) Became a director on August 13, 2007
(4) Became a director on April 10, 2007
(5) Director until July 31, 2007
(6) Director until August 12, 2007
B-23
APPENDIX C
AUDIT AND NON-AUDIT FEES
The table below shows the fees billed to us for the last two fiscal years
by PricewaterhouseCoopers LLP, our independent registered public accounting firm
until April 16, 2007, and by Grant Thornton LLP, our independent registered
public accounting firm since April 16, 2007. All of the services were performed
under engagements approved by our Audit Committee before we entered into them.
The fees included in the Audit category are fees billed for the fiscal years for
the audit of our annual consolidated financial statements included in our annual
report to shareholders on Form 10-K and review of our consolidated financial
statements included in Forms 10-Q and related matters within that category. The
fees included in each of the other categories are fees billed in the fiscal
years.
PricewaterhouseCoopers LLP Grant Thornton LLP
-------------------------- ------------------
2006 2007 2007
---------- -------- ------------------
Audit fees........... $3,773,000 $ -- $1,446,000
Audit-related fees... 16,000 -- --
Tax fees............. 79,000 113,500 --
All other fees....... 45,000 -- --
---------- -------- ----------
Total............. $3,913,000 $113,500 $1,446,000
Audit fees were for professional services rendered for the audits of our
consolidated financial statements, quarterly reviews of the financial statements
included in our quarterly reports on Form 10-Q, for auditing our internal
controls, and assistance with and review of documents we filed with the SEC.
Audit-related fees were for foreign pension and other regulatory services.
Tax fees were for services related to U.S. customs law and foreign tax
compliance and consulting services.
All other fees were for software licensing fees for accounting research
software.
The Audit Committee's current policy requires pre-approval of all audit and
non-audit services provided by the Independent Registered Public Accounting Firm
before the engagement of Independent Registered Public Accounting Firm to
perform them. Audit, tax, and some types of audit-related and other services may
be pre-approved generally, through approval of frameworks of services to be
rendered. Services not covered by a general pre-approval require specific
pre-approval. The committee may delegate authority to its chairman to
pre-approve the engagement of the Independent Registered Public Accounting Firm
when the entire committee is unable to do so. The chairman must report all such
pre-approvals to the entire committee at the next committee meeting.
C-1
APPENDIX D
TECUMSEH PRODUCTS COMPANY
CORPORATE GOVERNANCE GUIDELINES
The guidelines are subject to future refinement or changes as the Board may
find necessary or advisable for the Company.
GENERAL PHILOSOPHY AND FUNCTIONS
1. Board Philosophy. The business of Tecumseh Products Company is conducted
by its employees and officers, under the direction of the Chief Executive
Officer and the oversight of the Board, to enhance the long-term value of the
Company for its shareholders. The Board of Directors is elected by the
shareholders to oversee management and to assure that the long-term interests of
the shareholders are being served. To fulfill its responsibilities and to
discharge its duties, the Board of Directors follows the procedures and
standards set forth in these guidelines.
2. Board Functions. In addition to its general oversight of management, the
Board also performs a number of specific functions, including:
- selecting, evaluating, and compensating the CEO and overseeing CEO
succession planning;
- providing counsel and oversight on the selection, evaluation,
development, and compensation of senior management;
- reviewing, monitoring, and, where appropriate, approving fundamental
financial and business strategies and major corporate actions;
- assessing major risks facing the Company--and reviewing options for
their mitigation; and
- ensuring processes are in place for maintaining the integrity of the
Company--the integrity of the financial statements, the integrity of
compliance with law and ethics, the integrity of relationships with
customers and suppliers, and the integrity of relationships with other
stakeholders.
- Board Composition and Selection
3. Board Size. The Board believes five to ten members is an appropriate
size based on the Company's present circumstances. The Board periodically
evaluates whether a larger or smaller slate of directors would be preferable.
4. Selection of Board Members. All Board members are elected annually by
the Company's shareholders, except for Board action to fill vacancies. The
Governance and Nominating Committee is responsible for recommending to the Board
director candidates for nomination and election. The Governance and Nominating
Committee annually reviews with the Board the applicable skills and
characteristics required of Board nominees in the context of current Board
composition and Company circumstances. In making its recommendations to the
Board, the Governance and Nominating Committee considers, among other things,
the qualifications of individual director candidates in light of the Board
membership criteria described below.
The Governance and Nominating Committee will consider candidates
recommended by shareholders. Shareholders wishing to suggest director candidates
should submit their
D-1
suggestions in writing to the attention of the Corporate Secretary of the
Company, providing the candidate's name and qualifications for service as a
Board member, a document signed by the candidate indicating the candidate's
willingness to serve if elected, and evidence of the shareholder's ownership of
Company shares. Recommendations received before December 31 will be considered
for the following year's annual meeting. The Governance and Nominating Committee
will evaluate any candidates recommended by shareholders in the same manner that
it evaluates candidates recommended by others.
5. Board Membership Criteria. The Governance and Nominating Committee works
with the Board to determine the appropriate characteristics, skills, and
experience for Board members with the objective of having a Board with diverse
backgrounds and experience. In evaluating the suitability of individual Board
members, the Board takes into account many factors, including general
understanding of disciplines relevant to the success of a publicly traded
company, understanding of the Company's business, and the individual's
educational and professional background and personal accomplishment. In
determining whether to recommend a director for reelection, the Governance and
Nominating Committee also considers the director's past attendance at meetings
and participation in and contributions to the activities of the Board.
6. Board Composition-Majority of Independent Directors. The Board intends
that a substantial majority of its directors will be independent. In determining
the independence of a director, the Board will apply the definition of
"independent director" in the listing standards for the Nasdaq Stock Market and
applicable laws and regulations.
7. Term Limits. The Board does not believe it should limit the number of
terms for which an individual may serve as a director.
8. Director Who Changes Employment Status. The Company's Bylaws provide
that any director who ceases to have the same employment he or she had when
elected must submit a resignation from the Board within 60 days and that the
Governance and Nominating Committee (excluding that director if he or she is a
member of the committee) will decide whether or not to accept it. If the
Governance and Nominating Committee does not accept the resignation within 60
days after it is submitted, the resignation is deemed rejected.
9. Selection of CEO and Chairman; Lead Director. The Board selects the
Company's CEO and Chairman in the manner it determines to be in the best
interests of the Company's shareholders. The Board does not have a policy as to
whether the Chairman should be a non-management director or a member of
management. When the Chairman is a member of Company management, the Board
generally will designate a non-management director as Lead Director, as provided
in the Company's Bylaws, who will be responsible for calling, establishing an
agenda for, and moderating executive sessions of independent directors.
10. Other Boards and Audit Committees. Without specific approval from the
Board, no director may serve on more than five public company boards (including
the Company's Board), and no member of the Audit Committee may serve on more
than three public company audit committees (including the Company's Audit
Committee). In addition, a director who also serves as CEO or in an equivalent
position of a public company generally should not serve on more than two public
company boards, including the Company's Board, in addition to his or her
employer's board. In calculating service on a public company board or audit
committee, service on a board or audit committee of a parent and its
substantially owned subsidiary counts as service on a single board or audit
committee. Any Audit Committee member's service on more than three public
company audit committees will be subject to the Board's determination that the
D-2
member is able to serve effectively on the Company's Audit Committee, and the
disclosure of that determination in the Company's annual proxy statement. The
Governance and Nominating Committee and the Board will take into account the
nature of and time involved in a director's service on other boards in
evaluating the suitability of individual directors and making its
recommendations to Company shareholders. Service on boards and/or committees of
other organizations should be consistent with the Company's conflict of interest
policies.
BOARD MEETINGS; ACCESS TO SENIOR MANAGEMENT AND INDEPENDENT ADVISORS
11. Board Meetings-Frequency. The Board will generally have at least six
regularly scheduled meetings per year and hold additional special meetings as
necessary. Each director is expected to attend both scheduled and special
meetings of the Board and of committees on which he or she serves, except if
unusual circumstances make attendance impractical.
12. Board Meetings-Agenda. The Chairman of the Board will set the agenda
for each Board meeting, taking into account suggestions from the Lead Director
and other members of the Board. The agenda will be distributed in advance to
each director.
13. Advance Distribution of Materials. All information relevant to matters
to be discussed at an upcoming Board meeting should be distributed in writing or
electronically to all members in advance whenever feasible and appropriate. Each
director is expected to review this information before the meeting to facilitate
the efficient use of meeting time. The Board recognizes that certain items to be
discussed at Board meetings are of an extremely sensitive nature and that the
distribution of materials on these matters before meetings may not be
appropriate.
14. Access to Employees. The Board should have access to Company employees
in order to ensure that directors can ask all questions and obtain all
information necessary to fulfill their duties. Management is encouraged to
invite Company personnel to any Board meeting at which their presence and
expertise would help the Board have a full understanding of matters being
considered.
15. Access to Independent Advisors. The Board and its committees have the
right at any time to retain independent outside auditors and financial, legal,
or other advisors, and the Company will provide appropriate funding, as
determined by the Board or any committee, to compensate those independent
outside auditors or advisors, as well as to cover the ordinary administrative
expenses incurred by the Board and its committees in carrying out their duties.
16. Executive Sessions of Non-Management Directors. The non-management
directors of the Company will meet regularly in executive session, i.e., with no
management directors or management present, at least four times each year.
Executive sessions of the independent directors will be called and chaired by
the Lead Director if there is a Lead Director. Executive session discussions may
include such topics as the non-management directors determine.
COMMUNICATIONS WITH SHAREHOLDERS
17. Shareholder Communications to the Board. Shareholders may send
communications to the Board of Directors by mailing them to:
D-3
Board of Directors
c/o General Counsel & Secretary
100 East Patterson Street
Tecumseh, Michigan 49286
The General Counsel & Secretary will review each communication and, after
consulting with the Chairman if he or she thinks it advisable, will forward the
communication to the person he or she deems appropriate to deal with it. He or
she also will provide a copy of each communication to the Lead Director.
Concerns about questionable accounting or auditing matters or possible
violations of the Company's Code of Conduct or Code of Ethics for Financial
Managers should be reported using the procedures described in the Ethics
Reporting Policy available on the Company's web site.
18. Attendance at Annual Meeting. Each director is encouraged to attend the
Company's annual meeting of shareholders.
PERFORMANCE EVALUATION; SUCCESSION PLANNING
19. Annual Evaluation of Board Performance by Governance and Nominating
Committee. The Governance and Nominating Committee annually reports to the Board
of Directors the committee's assessment of the Board's performance. The
Committee provides this report after the financial statements for each fiscal
year have been completed and at the same time as it presents its review of Board
membership needs. The report is discussed with the full Board and addresses the
Board's contribution as a whole (rather than criticizing any particular
directors), including discussion of specific areas where the committee believes
the Board's contribution could be improved.
20. Succession Planning. As part of the annual officer evaluation process,
the Governance and Nominating Committee should work with the CEO to plan for CEO
succession, as well as to develop plans for interim succession for the CEO in
the event of an unexpected occurrence.
COMPENSATION
21. Board Compensation Philosophy. The Company believes in establishing a
conservative, but market competitive, non-employee director compensation
program. Compensation should consist partly of guaranteed elements and partly of
elements providing an opportunity to earn additional compensation based on the
Company's performance.
COMMITTEES
22. Number and Types of Committees. The Board has four standing committees:
the Audit Committee, the Governance and Nominating Committee, the Finance
Committee, and the Pension and Investment Committee. The Board may add new
committees or remove existing committees as it deems advisable. Each committee
performs the duties assigned to it in the Board resolution establishing the
committee.
The duties of the Audit Committee and the Governance and Nominating
Committee are described in their charters, which can be viewed on the Company's
web site.
The Finance Committee is responsible for advising the Board of Directors
about strategies, plans, policies, and actions related to corporate finance. The
Pension and Investment
D-4
Committee is responsible for the control and management of all pension and
retirement plans the Company sponsors.
23. Composition of Committees; Committee Chairs. The Audit Committee and
the Governance and Nominating Committee consist solely of independent directors.
The Board is responsible for the appointment of committee members and committee
chairs.
24. Committee Meetings and Agendas. The chair of each committee, working in
cooperation with the appropriate members of management, is responsible for
setting the agendas for committee meetings. The chair and committee members
determine the frequency and length of committee meetings consistent with the
Board resolutions establishing each committee.
MISCELLANEOUS
25. Director Orientation and Continuing Education. The Governance and
Nominating Committee is responsible for new-director orientation programs and
for director continuing education programs to assist directors in maintaining
skills necessary or appropriate for the performance of their responsibilities.
26. Insurance and Indemnification. The Company will purchase reasonable
directors' and officers' liability insurance, as determined by the Board after
consulting with management, for the benefit of its directors and management. In
addition, directors and management are entitled to indemnification to the
fullest extent permitted by Michigan law and the Company's Articles of
Incorporation.
27. Review of Governance Guidelines. The practices memorialized in these
guidelines have developed over a period of years. The Board expects to review
these guidelines from time to time as appropriate.
D-5
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
TECUMSEH PRODUCTS COMPANY
THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 30, 2008
PROXY
By signing on the reverse, I (or, if more than one person signs, we) --
- - authorize either of Edwin L. Buker or James S. Nicholson to act as my (or
our) proxy at the Annual Meeting of Shareholders of Tecumseh Products
Company to be held on Wednesday, April 30, 2008 and at any adjournments of
that meeting,
- - give each proxy full power to name another person to substitute for him as
proxy,
- - 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
- - direct the proxies to vote as specified on the reverse side 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
2008 ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 30, 2008
The Sheraton Four Points
(TECUMSEH LOGO) 3200 Boardwalk
TECUMSEH PRODUCTS COMPANY Ann Arbor, Michigan 48108
- ------------------------------------------------------------------------------------------------------------------------------------
INSTRUCTIONS FOR VOTING YOUR PROXY
This proxy covers all Class B Shares of Tecumseh Products Company held of record.
THERE ARE THREE WAYS TO VOTE YOUR PROXY
TELEPHONE VOTING INTERNET VOTING VOTING BY MAIL
This method of voting is available for Visit the Internet voting Web site at Simply mark, sign and date your proxy
residents of the U.S. and Canada. On a HTTP://PROXY.GEORGESON.COM. Enter the card and return it in the postage-paid
touch tone telephone, call TOLL FREE COMPANY NUMBER AND CONTROL NUMBER shown envelope to Georgeson Inc. Wall Street
1-877-260-0394, 24 hours a day, 7 days a below and follow the instructions on your Station, P.O. Box 1102, New York NY
week. You will be asked to enter ONLY screen. You will incur only your usual 10269-0667. If you are voting by
the CONTROL NUMBER shown below. Have Internet charges. Available 24 hours a telephone or the Internet, please do not
this proxy card ready, then follow the day, 7 days a week until 5:00 p.m. mail your proxy card.
prerecorded instructions. Your vote will Eastern Daylight Time on April 29, 2008.
be confirmed and cast as you directed.
Available 24 hours a day, 7 days a week
until 5:00 p.m. Eastern Daylight Time on
April 29, 2008.
COMPANY NUMBER CONTROL NUMBER
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK YOUR
[X] VOTES AS IN
THIS EXAMPLE.
1. To elect the following persons to FOR ALL 2. To ratify the selection of Grant FOR AGAINST ABSTAIN
the Board of Directors of the FOR WITHHOLD EXCEPT Thornton LLP as the Corporation's [ ] [ ] [ ]
Corporation to hold office until [ ] [ ] [ ] independent accountants for the
the next Annual Meeting of fiscal year ending December 31,
Shareholders or until their 2008.
successors are elected and
qualified. If you sign and return this proxy, the proxies will vote
your shares as specified above. IF YOU DO NOT SPECIFY HOW TO
Edwin L. Buker, Peter M. Banks, David M. Risley, Kent B. VOTE, THE PROXIES WILL VOTE YOUR SHARES FOR THE ELECTION AS
Herrick, William E. Aziz, Steven J. Lebowski, and Jeffry N. DIRECTORS OF ALL NOMINEES LISTED ABOVE, FOR PROPOSAL 2, AND IN
Quinn THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY COME BEFORE THE
MEETING.
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.
------------------------------------------------------------
WE APPRECIATE YOUR PROMPT ACTION
IN SIGNING AND RETURNING THIS PROXY.
------------------------------------------------------
Signature
------------------------------------------------------
Signature
DATED: _________________________________________, 2008
NOTE: Please sign 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 Inc., our Proxy Solicitor at 1-866-203-1198.