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Exhibit 10.3
SETTLEMENT AND RELEASE AGREEMENT
This SETTLEMENT AND RELEASE AGREEMENT (the "SETTLEMENT AGREEMENT")
is
made and entered into as of April 2, 2007, by and among: (i)
Tecumseh Products
Company, a Michigan corporation (the "COMPANY"); (ii) Herrick
Foundation, a
Michigan nonprofit corporation, Todd W. Herrick and Toni Herrick,
each in their
capacity as trustee for the Ray W. Herrick and Hazel M. Herrick
Trusts u/a/d
February 26, 1949 and February 24, 1956 f/b/o Todd W. Herrick and
his
descendants and Ray W. Herrick and Hazel M. Herrick Trusts u/a/d
February 26,
1949 and February 24, 1956 f/b/o Toni Herrick and her descendants
(the "Herrick
Trusts"), Todd W. Herrick, Kent B. Herrick and Michael Indenbaum,
each in their
capacity as members of the Board of Trustees of Herrick Foundation,
Todd W.
Herrick, Kent B. Herrick, Michael Indenbaum, and Toni Herrick, each
in their
individual capacities (collectively referred to herein as the
"HERRICK
ENTITIES"); and (iii) Albert A. Koch, Peter Banks, and David M.
Risley, each in
their capacity as directors of the Company and collectively
referred to herein
as the "DEFENDANT DIRECTORS." The Company, the Herrick Entities and
the
Defendant Directors, and any subsequent Person that becomes a party
hereto in
accordance with the terms hereof, are each referred to herein as a
"PARTY," and
collectively, the "PARTIES."
WITNESSETH:
WHEREAS AlixPartners, LLP, through its affiliate AP Services,
LLC
("ALIXPARTNERS") is currently engaged to work on a turnaround plan
for the
Company;
WHEREAS James Bonsall has been appointed interim President and
Chief
Operating Officer ("COO") of the Company pending selection of a
Chief Executive
Officer (the "CEO"), the hiring of a CEO being a condition required
by that
certain Amended And Restated Second Lien Credit Agreement, dated as
of November
13, 2006 (as the same has heretofore been amended and as it may be
further
amended, supplemented or otherwise modified from time to time, the
"SECOND LIEN
CREDIT AGREEMENT") among the Company, Tricap Partners, LLC, as
Lender (the
"SECOND LIEN LENDER"), Tricap Partners II L.P. as Administrative
Agent (the
"SECOND LIEN ADMINISTRATIVE AGENT") and Citicorp USA, Inc., as
Collateral Agent
for the Secured Parties;
WHEREAS, on March 6, 2007, Herrick Foundation and Todd Herrick
commenced an action against the Company and the Defendant Directors
in the
Circuit Court for the County of Lenawee, State of Michigan, Case
No. 07-2525-CZ
(the "STATE COURT ACTION"), requesting that the court declare as
void and of no
force or effect resolutions passed by the Board of Directors of the
Company (the
"BOARD") on February 28, 2007 increasing the size of the Board to
seven members,
amending the Company's bylaws, and removing Todd Herrick as
Chairman of the
Board, but having him remain as a Board member;
WHEREAS, on March 15, 2007, the Company commenced an action
against
each of the Herrick Entities in the United States District Court
for the Eastern
District of Michigan, Case No. 2:07-cv-11144 (the "FEDERAL ACTION,"
and together
with the State Court Action, the "GOVERNANCE LAWSUITS") requesting
that the
court declare certain shareholder voting rights of Herrick
Foundation, the
Herrick Trusts and Todd Herrick suspended, and enjoin the Herrick
Entities from
exercising those rights;
WHEREAS, the Company, the Herrick Entities and the Defendant
Directors
have agreed to fully and finally settle all their disputes and
claims with
respect to the
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Governance Lawsuits, as set forth in this Settlement Agreement,
which global
settlement will be effected in the manner and subject to the
conditions set
forth herein; and
WHEREAS, this Settlement Agreement is being executed in
connection
with (i) Amendment No. 5 (the "FIRST LIEN AMENDMENT") to that
certain First Lien
Credit Agreement, dated as of February 6, 2006 (as the same has
heretofore been
amended and as it may be further amended, supplemented or otherwise
modified
from time to time, the "FIRST LIEN CREDIT AGREEMENT"), among the
Company, the
financial institutions from time to time a party thereto as lenders
(the "FIRST
LIEN LENDER"), the financial institutions from time to time a party
thereto as
issuing banks (the "ISSUERS") and Citicorp USA, Inc., as
administrative agent
and collateral agent for the First Lien Lenders and the Issuers (in
such
capacities, the "FIRST LIEN ADMINISTRATIVE AGENT"), and (ii)
Amendment No. 2 to
the Second Lien Credit Agreement (the "SECOND LIEN AMENDMENT" and
together with
the First Lien Amendment, the "AMENDMENTS"), and it is a condition
precedent to
the effectiveness of each of the First Lien Amendment and the
Second Lien
Amendment that this Settlement Agreement be executed and delivered
to the First
Lien Administrative Agent and the Second Lien Administrative
Agent,
respectively;
WHEREAS, the First Lien Lender, the First Lien Administrative
Agent,
the Second Lien Lender, and the Second Lien Administrative Agent
(collectively,
the "LENDER PARTIES"), have agreed to provide the Amendments for
the benefit of
the Company and its shareholders;
WHEREAS, each of the Parties recognizes and is aware that a breach
of
this Settlement Agreement during the term of the First Lien Credit
Agreement and
the Second Lien Credit Agreement will constitute an "Event of
Default" under
each of the First Lien Credit Agreement and the Second Lien Credit
Agreement;
WHEREAS, each of the Parties has reviewed, or has had the
opportunity
to review, this Settlement Agreement with the assistance of their
respective
legal and financial advisors of their own choosing.
NOW, THEREFORE, in consideration of the premises and mutual
covenants
and agreements set forth herein and for other good and valuable
consideration,
the receipt and sufficiency of which are hereby acknowledged, the
Parties hereby
agree as follows:
Section 1. Composition of the Board.
(a) Resignation of Todd Herrick. Upon execution of this
Settlement
Agreement, Todd Herrick will immediately resign from his current
position as a
member of the Board, and the Company and the Defendant Directors
will cause the
Company's Board of Directors to appoint Todd Herrick as "Chairman
Emeritus"
during the term of this Settlement Agreement, subject to his
earlier death or
resignation, with Board observer rights, including the right (but
not the
obligation) to attend and participate in all meetings of the
Company's Board of
Directors (but not the right to vote at any such meeting) and the
right to
receive all notices of Board and Board committee meetings and a
copy of all
materials provided to any Board member (other than materials
provided to members
of standing committees in existence as of the date of this
Settlement Agreement
and as to which Todd Herrick does not have observer rights)
concurrently with
the provision of the same to any Board member and in the same
manner as provided
to such Board member.
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(b) Initial Five Member Board. The Board will initially be
comprised
of five members, as follows:
(i) Messrs Risley,
Banks and Kevin Sheehan will remain as
independent directors.
(ii) Kent Herrick will replace Todd Herrick as a member of the
Board and shall be nominated and recommended by the Company
for election as a director of the Company during the term of
this Settlement Agreement (including, without limitation, at
the 2007 Annual Meeting of Shareholders), subject only to
his earlier death or resignation.
(iii) Upon the
execution of this Settlement Agreement, a search
committee will be charged with immediately locating a
director with restructuring experience reasonably acceptable
to the independent members of the Board and who is not
affiliated with AlixPartners. Upon the earliest of (1) 60
days following the appointment of the CEO, but in no event
later than 120 days after the date of this Settlement
Agreement, and (2) such time as a replacement director with
restructuring experience and who is not affiliated with
AlixPartners is appointed, Albert Koch will resign from his
current position as a member of the Board and of all Board
committees of which he is a member and from all other
positions he holds with the Company or any of its
Subsidiaries; provided, however, that Mr. Koch's director
position must eventually be filled by a director with
restructuring experience who is reasonably acceptable to the
independent directors of the Board and in accordance with
the Company's bylaws.
(iv) Each Board member shall have the right to attend and
participate in all meetings of the Company's Board of
Directors and the right to receive all notices of Board and
Board committee meetings and a copy of all materials
provided to any Board member (other than materials provided
to members of standing committees in existence as of the
date of this Settlement Agreement as to which the receiving
Board member is not a member) concurrently with the
provision of the same to any Board member and in the same
manner as provided to such Board member.
(c) Expansion to Seven Member Board. Upon the hiring of a CEO,
the
Board will expand and be comprised of two additional members, for a
total of
seven members, for the term of this Settlement Agreement, as
follows:
(i) The CEO will be
appointed to the Board and will become the
Chairman of the Board.
(ii) So long as, at the time of his appointment, Steven
Lebowski
qualifies as an "independent" director, Steven Lebowski will
be appointed to the Board and shall be nominated and
recommended by the Company for election as a director of the
Company during
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the term of this Settlement Agreement, subject only to his
earlier death or resignation. The Company and the Defendant
Directors acknowledge that, based on materials provided to
date in support of Steven Lebowski's nomination to the
Board, they are not aware of any facts and circumstances
that would lead them to conclude that Mr. Lebowski is not
"independent." The Parties agree, however, that between the
date hereof and the time of his proposed appointment, Mr.
Lebowski will meet with the members of the Board and provide
any additional materials the Board reasonably requests. If,
after receiving the requested information, the Board is
unable to determine Mr. Lebowski's independence, the Parties
agree to defer the matter to mutually acceptable counsel
and, so long as an opinion of reputable counsel is delivered
to the Company stating that it would be reasonable for the
Board to conclude that Mr. Lebowski is independent, he shall
be appointed to the Board. If Steven Lebowski is not
determined to be "independent," Kent Herrick will propose
two nominees to fill the seventh Board seat. The independent
directors will select
one of the proposed nominees, whose
independence shall be determined in accordance with the
protocol described in this paragraph. In the event such
nominee is determined not to be independent, the nomination
and independence determination process set forth in this
paragraph recommences until such time as a candidate is
appointed.
(d) Conduct of Board Business. For the term of this Settlement
Agreement all of the Company's business and affairs conducted by
members of the
Board of Directors as directors of the Company shall be conducted
at meetings of
the Board of Directors (or actions by unanimous written consent in
lieu of such
meetings), except for (i) business conducted through the standing
committees of
the Board of Directors in existence as of the date of this
Settlement Agreement
and consistent with their authority as of the date of this
Settlement Agreement
or (ii) business conducted by committees hereafter created upon
unanimous Board
approval (collectively, the "Permitted Committees"). For purposes
of this
provision, any committee appointed pursuant to section 1(b)(iii) of
this
Settlement Agreement (for the purpose of finding a replacement
director with
restructuring experience) shall be created by a majority vote of
the Board of
Directors and shall be included in the definition of Permitted
Committees.
Section 2. Management Roles.
(a) CEO. The search for a CEO will continue and all information
relating to potential candidates will be shared with all members of
the Board.
The selection of a CEO will be decided by a vote of the full five
member Board
as set forth in Section 1(b) hereto; provided, however, that the
provisions of
this Section 2(a) shall not be deemed to amend or otherwise alter
the provisions
of Section 7.14 of the Second Lien Credit Agreement. James Bonsall
shall not be
the CEO.
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(b) AlixPartners. Mr. Bonsall will remain interim President and COO
of
the Company, and AlixPartners will continue to provide turnaround
services to
the Company, at the discretion of the Company's Board of Directors
until such
time as the CEO has been transitioned. Thereafter, the continued
provision of
services by Mr. Bonsall and AlixPartners to the Company, if any,
will be subject
to the discretion of the Company's Board of Directors and shall be
conducted at
the discretion of the CEO subject to the terms of the Company's
agreement with
AlixPartners.
(c) Todd Herrick. The Parties agree that Todd Herrick will serve as
a
consultant to the Company in su
