SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (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 Rule 14a-11(c) or Rule 14a-12
BORG-WARNER AUTOMOTIVE, INC.
(Name of Registrant as Specified in its Charter)
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid 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 former schedule and the date of its filing.
(1) Amount paid:
(2) form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
BORG- WAGNER AUTOMOTIVE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Chicago, Illinois
March 21, 1997
To the Stockholders:
The Annual Meeting of Stockholders of Borg-Warner Automotive, Inc. will be held
on April 29, 1997, at 11:00 a.m. at the Company's headquarters located at 200
South Michigan Avenue, Chicago, Illinois, 60604, for the following purposes:
1. To elect the Class I Directors to serve for the next three years;
2. To approve the amendment of the Company's 1993 Stock Incentive Plan;
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for 1997; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders at the close of business on March 17, 1997, will be
entitled to vote at the meeting or any adjournment or postponement thereof.
By order of the Board of Directors
Laurene H. Horiszny
Secretary
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOUR
VOTE IS IMPORTANT.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
200 South Michigan Avenue
Chicago, Illinois 60604
PROXY STATEMENT
March 21, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Borg-Warner Automotive, Inc. (the
"Company") to be used at the Annual Meeting of Stockholders of the Company on
April 29, 1997, to be held at the Company's headquarters at 200 South Michigan
Avenue, Chicago, Illinois 60604. This Proxy Statement and accompanying form of
proxy are being mailed to stockholders beginning on or about March 21, 1997. The
Company's Annual Report to Stockholders for the year ended December 31, 1996 is
enclosed.
Only stockholders of record at the close of business on March 17, 1997,
will be entitled to vote at the meeting. As of such date, there were 23,611,972
shares of Common Stock (the "Common Stock") issued and outstanding. Each share
of Common Stock entitles the holder to one vote. Holders of the Company's
Non-Voting Common Stock are not entitled to notice of, or to vote at, the Annual
Meeting.
The enclosed proxy, if properly signed and returned, will be voted in
accordance with its terms. Any proxy returned without specification as to any
matter will be voted as to each proposal in accordance with the recommendation
of the Board of Directors. You may revoke your proxy at any time before the
vote is taken by delivering to the Secretary of the Company written revocation
or a proxy bearing a later date, or by attending and voting at the Annual
Meeting.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitation of proxies by use of the mail, proxies may be solicited
by directors, officers and regularly engaged employees of the Company. Brokers,
nominees and other similar record holders will be requested to forward
solicitation material and will be reimbursed by the Company upon request for
their out-of-pocket expenses.
Votes cast by proxy or in person at the meeting will be tabulated by the
election inspectors appointed for the meeting and will determine whether a
quorum is present. Unless otherwise indicated herein, the election inspectors
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders for a vote.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
1. ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes. Three
nominees (the "Class I Directors") are to be elected at this meeting to serve
for a term of three years and until their successors are elected and qualified.
Three other directors (the "Class II Directors") have terms expiring at the 1998
Annual Meeting of Stockholders and two other directors (the "Class III
Directors") have terms expiring at the 1999 Annual Meeting of Stockholders.
Each of the nominees for election as Class I Director has agreed to serve if
elected. Messrs. Kerley and Michas are presently directors of the Company. In
the event that any nominee should become unavailable for election, the Board of
Directors may designate a substitute nominee, in which event the shares
represented by proxies at the meeting will be voted for such substitute nominee
unless an instruction to the contrary is indicated on the proxy card. A
plurality of votes of shares of Common Stock present in person or by proxy at
the meeting is required to elect a director.
The following table sets forth as of March 17, 1997, with respect to each
nominee and each director continuing to serve, their name, age, principal
occupation, the year in which they first became a director of the Company (if
currently a director) and directorships in other corporations.
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Class I Directors(1) Age and Directorships
- --------------------- ----- ---------------------------------------
<S> <C> <C>
Andrew F. Brimmer 70 Dr. Brimmer has been President of Brimmer &
Company, Inc., an economic and financial con-
sulting firm since July, 1976. He is a
Director of E.I. duPont de Nemours & Company,
Airborne Express, Bank America Corporation,
GannettCompany, CarrAmerica Realty Corporation,
Navistar International Corporation, BlackRock
Investment Income Trust, Inc. and
PHH Corporation.
James J. Kerley 74 Mr. Kerley was Chairman of the Board of Rohr, Inc.
1994 (Rohr), a manufacturer of aircraft engine
components from January 1993 until his retirement
in December 1994. Mr. Kerley was interim
President and Chief Executive Officer of Rohr
from January 1993 until May 1993. From September
1981 until his retirement in December 1985, he
was Vice Chairman and Chief Financial Officer
of Emerson Electric Company, a manufacturer of
electronic, electrical and other products. Mr.
Kerley is a Director of DT Industries, Inc. and
Goss Graphic Systems, Inc.
Alexis P. Michas 39 Mr. Michas has been a Managing Partner since 1996
1993 and a Director of Stonington Partners, Inc., an
investment management firm, since 1993, and a
Managing Partner and a Director of Stonington Par-
tners, Inc. II since 1994. He has been a Director
of Merrill Lynch Capital Partners ("MLCP") since
1989 and a Consultant to MLCP since 1994. He
was a Partner of MLCP from 1993 to 1994 and
Senior Vice President of MLCP from 1989 to 1993.
He was also a Managing Director of the Investment
Banking Division of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") from 1991
to 1994 and a Director in the Investment Banking
Division of MLPF&S from 1990 to 1991. He is a
Director of Blue Bird Corporation, Borg-Warner
Security Corporation ("BW-Security"), Dictaphone
Corporation, Goss Graphic Systems, Inc. and
Packard BioScience Company.
Principal Occupation
Class II Directors Age and Directorships
- ------------------- ---- ---------------------------------------------
Jere A. Drummond 57 Mr. Drummond has been President and Chief Executive
1996 Officer of BellSouth Telecommunications, Inc. since
January 1, 1995 and was elected a director of that
Company in July, 1993. He was Group President
- Customer Operations from March, 1991 until December
1994, and from April 1989 until February 1991, Mr.
Drummond was the Executive Vice President- Market-
ing, Network and Planning for BellSouth Services
Incorporated.
Ivan W. Gorr 67 Mr. Gorr was Chairman and Chief Executive Officer
1995 of Cooper Tire & Rubber Company from 1989 until his
retirement in 1994 and President of the Company
from 1982 until 1989. Mr. Gorr is a Director of
Amcast Industrial Corporation, Arvin Industries,
Inc., Fifth Third Bancorp and OHM Corporation.
John F. Fiedler 58 Mr. Fiedler has been Chairman of the Board since
1994 March 1996 and Chief Executive Officer of the Company
since January 1995. He was President from June 1994
to March 1996 and Chief Operating Officer from June
1994 to December 1994. Mr. Fiedler was Executive
Vice President of Goodyear Tire & Rubber Company,
in charge of the North American Tire Division from
1991 to 1994. He is a Director of Navistar
International Corporation.
</TABLE>
(1) Mr. Donald C. Trauscht, a Class I Director, will not stand for re-election
to the Board but will serve the remainder of his term, which expires on
April 29, 1997, the date of the annual meeting of stockholders.
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Class III Directors Age and Directorships
- --------------------- ------ -------------------------------------------
<S> <C> <C>
Albert J. Fitzgibbons, III 51 Mr. Fitzgibbons has been a Partner and a
1993 Director of Stonington Partners, Inc., an
investment management firm, since 1993,
and a Partner and a Director of Stonington
Partners, Inc. II since 1994. He has
been a Director of MLCP since 1988 and a
Consultant to MLCP since 1994. He was
a Partner of MLCP from 1993 to 1994 and
Executive Vice President of MLCP from
1988 to 1993. He was also a Managing
Director of the Investment Banking
Division of MLPF&S from 1978 to July 1994.
He is a Director of Rykoff-Sexton, Inc.,
BW-Security, Dictaphone Corporation and
United Artists Theatre Circuit, Inc.
Paul E. Glaske 63 Mr. Glaske has been Chairman and Chief Exec-
1994 utive Officer since April 1992 and President
since July 1986 of Blue Bird Corporation, a
leading manufacturer of school buses, motor
homes and a variety of other vehicles. Mr.
Glaske is also a Director of Trust Company
Bank of Middle Georgia.
/TABLE
<PAGE>
Meetings of the Board of Directors and Committees
The Board of Directors held four regular meetings and five special meetings
during 1996. Messrs. Fiedler, Fitzgibbons, Glaske, Gorr, Kerley, Michas, and
Trauscht attended at least 75% of the meetings of the Board of Directors and any
committee on which they served. After joining the Board during 1996, Mr.
Drummond also attended at least 75% of the meetings of the Board of Directors.
The Board of Directors has a standing Compensation Committee, Finance and
Audit Committee and Board Affairs Committee.
The present members of the Compensation Committee are Paul E. Glaske,
(Chairman), Ivan W. Gorr and James J. Kerley. The responsibilities of the
Compensation Committee include reviewing and approving executive appointments
and remuneration and supervising the administration of the Company's employee
benefit plans. The Compensation Committee met two times during 1996.
The present members of the Finance and Audit Committee are James J. Kerley
(Chairman), Ivan W. Gorr, Alexis P. Michas and Donald C. Trauscht. The
responsibilities of the Finance and Audit Committee include: recommending to the
Board of Directors the independent certified public accountants to conduct the
annual audit of the books and accounts of the Company; reviewing the proposed
scope of such audit and approving the audit fees to be paid; and reviewing the
adequacy and effectiveness of the internal auditing, accounting and financial
controls of the Company with the independent certified public accountants and
the Company's financial and accounting staff. The Finance and Audit Committee
met four times during 1996.
The present members of the Board Affairs Committee are Ivan W. Gorr
(Chairman), Paul E. Glaske, James J. Kerley and Alexis P. Michas. The
responsibilities of the Board Affairs Committee include making recommendations
to the Board of Directors regarding: (i) Board composition and structure, (ii)
the nature, duties and powers of Board committees, (iii) term of office for
members, (iv) qualified persons to be nominated for election or re-election as
directors, (v) stockholders' suggestions for board nominations and (vi) the
successor to the Chief Executive Officer. The Board Affairs Committee also
establishes criteria for board and committee membership and evaluates Company
policies relating to the recruitment of directors.
Stockholders may make suggestions for board nominations pursuant to
procedures set forth in the Company's By-Laws.
The Board Affairs Committee met one time during 1996.
Compensation of Directors
Directors who are not employees of the Company or its subsidiaries receive
an annual retainer of $22,000 for service on the Board of Directors and $1,000
for each Board meeting attended. Committee members also receive $750 ($1,500 if
Chairman of a committee) for each committee meeting attended.
In addition, under the terms of the Borg-Warner Automotive, Inc. 1993 Stock
Incentive Plan, as Amended (the "1993 Plan"), each director of the Company who
from and after February 1, 1993, is not otherwise an employee of the Company or
any of its subsidiaries or affiliates (as defined in the 1993 Plan) shall, on
the third Tuesday of each year, automatically receive an annual grant of options
to purchase 1,000 shares of Common Stock having an exercise price equal to the
fair market value of the Common Stock at the date of grant of such option. Each
director, upon joining the Board, will also receive an initial grant of options
to purchase 2,000 shares of Common Stock having an exercise price equal to the
fair market value of the Common Stock as of such date. All such options expire
ten years after the date of grant and become exercisable in installments on the
second and third anniversaries of the date of grant.
In 1996, Mr. Kerley undertook a special project on behalf of the Board of
Directors concerning BW-Security's request for indemnification of the Emerson
environmental liabilities. Mr. Kerley worked on the project over a twenty week
period and received additional compensation in the amount of $28,000.
Mr. Kerley and Mr. Gorr received $750 each for attending a special finance
meeting in August, 1996.
Stock Ownership
To the knowledge of the Company, as of March 17, 1997, no entity
beneficially owned more than five percent of the Common Stock.
The following table sets forth as of March 17, 1997 certain information
regarding beneficial ownership of Common Stock by the Company's directors and
executive officers named in the Summary Compensation Table and by all directors
and executive officers as a group.
<PAGE>
<TABLE>
<CAPTION>
Number Percent
of of
Name of Beneficial Owner shares(a) class
- ------------------------------- --------- ---------
<S> <C> <C>
John F. Fiedler 25,000 *
Fred M. Kovalik 25,000 *
Gary P. Fukayama 56,000 *
Ronald M. Ruzic 56,168 *
Robert D. Welding 19,346 *
Albert J. Fitzgibbons, III (b) 0 *
Alexis P. Michas (b) 12,188 *
Donald C. Trauscht 6,500 *
James J. Kerley 3,500 *
Paul E. Glaske 6,500 *
Ivan W. Gorr 1,000 *
Jere A. Drummond 0 *
All directors and executive officers of
the Company (17 persons) 304,232 1.2%
</TABLE>
<PAGE>
* Represents less than one percent.
(a) Includes the following number of shares issuable upon the exercise of
options within the next 60 days: 25,000 for Mr. Kovalik; 47,000 for Mr.
Fukayama; 40,500 for Mr. Ruzic; 10,700 for Mr. Welding; 3,500 for Mr. Trauscht;
2,500 for Mr. Kerley; 1,500 for Mr. Glaske; and 215,200 for all directors and
executive officers of the Company.
(b) Messrs. Fitzgibbons and Michas are directors of the Company as well as
MLCP. Messrs. Fitzgibbons and Michas disclaim beneficial ownership of shares
beneficially owned by ML IBK Positions, Inc. (150,000 shares) and ML Employees
LBO Partnership No. I (82,948 shares).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers, directors and greater than 10% stockholders file
certain reports with respect to beneficial ownership of the Company's equity
securities. A report on Form 3, Initial Statement of Beneficial Ownership of
Securities, on behalf of Jere A. Drummond, a Director, was filed late. A report
on Form 3, Initial Statement of Beneficial Ownership of Securities, on behalf of
Robert D. Welding, an executive officer, was filed late.
Executive Compensation
The following table shows, for the years ending December 31, 1996, 1995 and
1994, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid or accrued for these years, to the Company's
Chief Executive Officer and the other persons who were serving as executive
officers at December 31, 1996.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation (a)
Name and ------------------ Other Annual
Principal Position Year Salary($) Bonus($) Compensation ($)(b)
- ------------------- ----- -------- --------- -------------------
<S> <C> <C> <C> <C>
John F. Fiedler 1996 $450,000 $428,828 $0
Chairman and 1995 $450,000 $415,752 $0
Chief Executive 1994 $221,282 $200,000 $14,287(e)
Officer
Gary P. Fukayama 1996 $271,238 $199,600 $4,820 (e)
Executive Vice 1995 $212,000 $211,798 $0
President 1994 $192,100 $224,266 $0
Fred M. Kovalik 1996 $246,300 $177,940 $0
Executive Vice 1995 $236,300 $36,155 $0
President 1994 $187,500 $228,300 $24,700(e)
Ronald M. Ruzic 1996 $231,000 $192,170 $0
Executive Vice 1995 $219,000 $197,413 $0
President 1994 $197,469 $250,343 $0
Robert D. Welding 1996 $168,779 $118,913 $0
Vice President 1995 $125,572 $57,642 $0
1994 $118,686 $52,201 $0
</Table
</TABLE>
<TABLE>
<CAPTION>
Long-Term
Compensation Awards(c)
----------------------
Name Securities Underlying All Other
Principal Position Year Options (#) Compensation ($)(d)
- ------------------- ----- -------------------- -------------------
<S> <C> <C> <C>
John F. Fiedler 1996 10,000 $51,158
1995 0 $70,152
1994 40,000 $0
Gary P. Fukayama 1996 0 $32,126
1995 0 $27,445
1994 0 $36,673
Fred M. Kovalik 1996 0 $25,450
1995 0 $36,101
1994 25,000 $8,250
Ronald M. Ruzic 1996 0 $41,049
1995 0 $67,220
1994 0 $70,311
Robert D. Welding 1996 0 $20,305
1995 0 $20,646
1994 0 $19,964
</TABLE>
<PAGE>
(a) Each of the CEO and the named executive officers are participants in the
Company's Executive Stock Performance Plan. Awards made pursuant to the plan in
1996 are set forth in the Long Term Incentive Plan Table on page 8 of this Proxy
Statement.
(b) Excludes certain non-cash benefits that are deemed compensation for federal
income tax purposes. These non-cash benefits are provided by the Company to its
executive officers and include group term life insurance and automobiles. The
net cost to the Company of such benefits during 1996, 1995 and 1994 did not
exceed the lesser of $50,000 or 10% of the total of annual salary and bonus for
each named executive officer.
(c) No restricted stock awards or long-term incentive plan payouts were made in
1996, 1995 or 1994.
(d) Includes amounts contributed by the Company on behalf of the named
executive officers during 1996, 1995 and 1994 pursuant to the provisions of the
Borg-Warner Automotive, Inc. Retirement Savings Plan and credits made pursuant
to the Borg-Warner Automotive, Inc. Retirement Savings Excess Benefit Plan.
(e) Represents gross-up to cover taxes incurred for relocation expense
reimbursement.
Stock Options
The following table sets forth information with respect to the named executive
officers concerning grants of stock options made during 1996.
<PAGE>
<TABLE>
Number of
Secur- % of Total
ities Underlying Options Granted Exercise Expira-
Options Granted to Employees Price tion
Name (#)(a) in Fiscal Year ($/Sh) Date
- ---------------- ---------------- ---------------- ---------- -------
<S> <C> <C> <C> <C>
John F. Fiedler 10,000 100.0% $32.063 12/31/06
Gary P. Fukayama 0 0.0% $ 0.00 n.a.
Fred M. Kovalik 0 0.0% $ 0.00 n.a.
Ronald M. Ruzic 0 0.0% $ 0.00 n.a.
Robert D. Welding 0 0.0% $ 0.00 n.a.
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable Value At Assumed Annual
Rates of Stock Price Appreciation for Option Term
--------------------------------------------------
5%($) 10%($)
------------- -----------
<S> <C> <C>
John F. Fiedler $201,642 $831,311
Gary P. Fukayama $0 $0
Fred M. Kovalik $0 $0
Ronald M. Ruzic $0 $0
Robert D. Welding $0 $0
</TABLE>
(a) Options granted under the Company's 1993 Stock Incentive Plan. Options
granted were granted at the fair market value of a share of Common Stock on the
date of grant. Options become exercisable in equal installments on the second
and third anniversaries of the grant date. In the event of a change in control,
all options become fully exercisable.
The following table sets forth information with respect to exercised and
unexercised options held by the named executive officers at the end of 1996.
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised
Acquired Options at FY-End(#)
on Exercise Value ---------------------------
Name (#) Realized($) Exercisable Unexercisable(a)
- -------------- -------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
John F. Fiedler 20,000 $377,500 0 30,000
Gary P. Fukayama 0 $0 47,000 0
Fred M. Kovalik 0 $0 12,500 12,500
Ronald M. Ruzic 17,500 $600,469 40,500 0
Robert D. Welding 0 $0 10,700 0
</TABLE>
<TABLE>
<CAPTION>
Value of Unexercised In-the-Money Options at FY-End($)(b)
Exercisable Unexercisable
------------- -------------
<S> <C> <C>
John F. Fiedler $0 $363,125
Gary P. Fukayama $937,848 $0
Fred M. Kovalik $98,375 $98,375
Ronald M. Ruzic $735,835 $0
Robert D. Welding $218,053 $0
</TABLE>
<PAGE>
(a) Represents shares that could not be acquired by the named executive officer
as of December 31, 1996 and that become exercisable based upon the satisfaction
of certain periods of employment.
(b) Represents the difference between the exercise price and the share price of
Common Stock as of December 31, 1996.
Long Term Incentive Plans
The following table sets forth information with respect to the named executive
officers concerning long-term incentive plan awards made during 1996 pursuant to
the Company's Executive Stock Performance Plan.
<PAGE>
<TABLE>
<CAPTION>
Estimated Future Payouts
under Non-Stock
Number of Performance or Price-Based Plans (c)
Shares, Units Other Period ------------------------
Or Other Until Maturation Threshold Target Maximum
Name Rights (#)(a) or Payout (b) ($) ($) ($)
- -------------- --------------- ------------------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
John F. Fiedler 595 36 months 148,750 595,000 1,041,250
Gary P. Fukayama 210 36 months 52,500 210,000 367,500
Fred M. Kovalik 210 36 months 52,500 210,000 367,500
Ronald M. Ruzic 210 36 months 52,500 210,000 367,500
Robert D. Welding 60 36 months 15,000 60,000 105,000
All executive offi-
cers, as a group(10)1,735 36 months 443,750 1,735,000 3,036,250
All employees, who
are not executive
officers (3) 140 36 months 35,000 140,000 245,000
</TABLE>
<PAGE>
(a) Performance units with an initial value of $1,000 per unit.
(b) The performance period for the 1996-1998 cycle is January 1, 1996 through
December 31, 1998.
(c) Payouts under the Company's Executive Stock Performance Plan are based upon
the percentile rank of the total stockholder return of the Company
among the total stockholder returns of a peer group of companies. Total
stockholder return is based on a formula relating to market price appreciation
of the Company's common stock and dividend return as compared to the peer
group companies' stock market price appreciation and dividend return.
Employment Agreements
The Company has an employment agreement (the "Agreement") with Mr. Fiedler
which expires on June 30, 1997 and that provides for, among other things, a lump
sum payment to be made to Mr. Fiedler if his employment is terminated for
reasons other than expiration of the three year term of the Agreement, death,
"disability", "cause" (as those terms are defined in the Agreement) or
resignation. The lump sum payment shall be the greater of one and one-half
(1-1/2) times the annual base salary on the date of termination or the balance
ofsalary which would be paid for the remaining term of employment. Mr. Fiedler
has agreed not to compete with the Company for a period of two years after
termination of employment or to disclose confidential information.
The Company has entered into Change of Control Employment Agreements (the
"Employment Agreements") with each of the named executive officers. Below is a
general description of certain terms and conditions of the Employment
Agreements.
In the event of a "Change of Control" of the Company followed within three
years by (1) the termination of the executive's employment for any reason other
than death, disability, or "Cause" or (2) the termination of the executive's
employment by the executive for "Good Reason", the Employment Agreements provide
that the executive shall be paid a lump sum cash amount equal to three times the
executive's annual base salary and recent average bonus, and a lump sum cash
amount equal to three times the Company's retirement contributions which would
have been made on behalf of the executive in the first year after termination of
employment. In addition, the executive is entitled to continued employee
welfare benefits for three years after termination of employment.
"Change of Control" means (a) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934) of 20% or more of either (i) the then outstanding shares
of common stock of the Company or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors, (b) a change in the majority of the board of directors,
and (c) a major corporate transaction, such as a merger, sale of substantially
all of the Company's assets or a liquidation, which results in a change in the
majority of the Board or a majority of stockholders.
"Cause" means the willful and continued failure of the executive to perform
substantially the executive's duties or the willful engaging by the executive in
illegal conduct or gross misconduct materially injurious to the Company.
"Good Reason" means the diminution of responsibilities, assignment to
inappropriate duties, failure of the Company to comply with compensation or
benefit provisions, transfer to a new work location more than 35 miles from the
executive's previous work location, a purported termination of the Employment
Agreement by the Company other than in accordance with the Employment Agreement,
or failure of the Company to require any successor to the Company to comply with
the Employment Agreement.
Messrs. Fukayama and Ruzic are "Executives" as defined in the Borg-Warner
Automotive, Inc. Transitional Income Guidelines for Executive Employees (the
"Guidelines") and are eligible to receive Transitional Income (as defined in the
Guidelines) if their employment is terminated as a result of (1) a reduction in
workforce, (2) elimination of their job position, or (3) an inability to perform
the duties of their job for reasons beyond their control. Transitional Income
will also be paid if employment is terminated within one year after a "Change of
Control" or "Sale of the Company." An Executive eligible for Transitional Income
shall receive up to 12 monthly payments in an amount equal to the Executive's
monthly salary at the time of termination and a lump sum payment based upon the
Executive's most recent annual bonus award. Other benefits provided pursuant to
the guidelines include life, medical, dental, health, accident and disability
insurance coverage for up to 12 months after termination of employment.
Payments under the Guidelines will not be made where termination of employment
is as a result of a Change of Control of the Company and the executive officer
has entered into a Change of Control Employment Agreement.
Compensation Committee Interlocks and Insider Participation
Mr. Trauscht, formerly an executive officer of the Company, was a member of
the Compensation Committee of the Board of Directors through April 22, 1996.
- ------------------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings by
reference, including this Proxy Statement, in whole or in part, the following
Compensation Committee Report on Executive Compensation and Performance Graph
shall not be incorporated by reference into any such filings.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
setting and administering the policies that govern base salary, annual bonus,
long-term incentives and stock ownership programs for the executive officers of
the Company.
Overall Policy
The Company's executive compensation program is designed to link executive
compensation to corporate performance. To this end, the Company has developed
an overall compensation strategy and specific compensation plans that tie
executive compensation to the Company's success in meeting specified performance
goals. The overall objectives of this strategy are to attract and retain the
best possible executive talent, to motivate these executives to achieve goals
that support the Company's business strategy, to link executive and stockholder
interests through equity-based plans, and to provide a compensation package that
is based on individual performance as well as overall business results.
The Compensation Committee reviews the Company's executive compensation
program annually. The review includes a comparison of current total
compensation levels (including base salary, annual bonus and long-term
incentives) to those provided at other companies of similar size and complexity
in the durable manufacturing sector, with data being collected primarily from
several prominent compensation surveys (the "Compensation Surveys"). In
addition to survey information, the Company also considers the compensation
reported for executives by the companies included in a peer group of automotive
companies (the "Peer Group Companies"). Financial results of the Peer Group
Companies are used to compare stockholder returns on the performance graph (the
"Peer Group Companies"). The Compensation Committee may adjust compensation
levels based upon information obtained from the Compensation Surveys and the
Peer Group Companies.
The Compensation Committee determines the compensation of the five most
highly compensated corporate executives, reviews the policies and philosophy set
for the next level of key executives (approximately 150), and evaluates and
recommends all long-term incentive plans. This process is designed to ensure
congruity throughout the executive compensation program. In reviewing the
individual performance of the executives whose compensation is detailed in this
proxy statement (other than Mr. Fiedler), the Compensation Committee takes into
account the views of Mr. Fiedler.
The key elements of the Company's executive compensation program are base
salary, annual bonus and long-term incentives which consist of stock options,
Company stock awarded pursuant to the Executive Stock Performance Plan and cash
compensation. The Compensation Committee's policies with respect to each of
these elements, including the basis for the compensation awarded to Mr. Fiedler,
the Company's CEO during 1996, are discussed below.
Base Salary
Annual salary adjustments are determined by the Compensation Committee by
examining each executive officer's current responsibilities and performance and
by comparing the officer's current base salary to competitive median salaries as
reported in the Compensation Surveys.
Mr. Fiedler was CEO of the Company in 1996, with a base salary of $450,000.
The Compensation Committee considered the scope and complexity of Mr. Fiedler's
position, the Company's recent performance, his prior salary, and the median
salaries paid for similar positions as reported in the Compensation Surveys. In
lieu of a salary increase in 1996, Mr. Fiedler received a grant of 10,000 stock
options.
Annual Bonus
The Company's executive officers are eligible participants in an annual
cash bonus plan. Performance objectives are established at the beginning of
each year for the Company and each of its business units. The performance
objectives are based on the increase in value of the Company or business unit
over the prior year. Value is determined by a formula taking into account the
current earning power of the Company or business unit as well as cash flow.
Eligible executives are assigned threshold, target and maximum bonus
levels. For those executive officers responsible for the entire Company, 100%
of their bonus opportunity is based on the increase in value for the Company;
for those executive officers responsible for a business unit, 20% of the bonus
opportunity is based on the increase in value for the Company, and 80% is based
on the increase in value for the business unit. If the threshold level of these
performance measures is not met, no bonus is paid.
Executive officers are also eligible for an additional bonus payment under
the carryover feature of the annual bonus plan (the "Carryover Bonus"). The
Compensation Committee believes that the Carryover Bonus encourages a longer
term perspective while continuing to reward participants for the achievement of
annual goals. Carryover Bonus allows participants in the bonus plan to earn --
over a two year period -- any bonus opportunity which was not attained during
the current Plan Year. Executives can earn the balance of the unattained bonus
opportunity whenever cumulative value targets are achieved during the subsequent
two years. No Carryover Bonus from a prior year is earned if the threshold
level of performance for the current year is not achieved.
The potential annual total cash compensation (base salary plus bonus) for
each executive officer is targeted at the 65th percentile of annual total cash
compensation levels as reported in the Compensation Surveys for similar
positions. Carryover Bonus from prior years may increase the annual bonus
opportunity of the executive officers above the target level.
Although annual bonuses depend primarily on the achievement of performance
objectives as described above, the Compensation Committee may adjust bonus
awards based on other financial or non-financial actions that the Compensation
Committee believes will benefit long-term stockholder value.
In 1996, the increase in value of the Company resulted in a bonus payout in
between the target opportunity and the maximum opportunity. As a result Mr.
Fiedler earned a $428,828 cash bonus for the year. There was no Carryover Bonus
opportunity from prior years. Mr. Fiedler's total cash compensation (salary and
bonus) for 1996 approximates the 50th percentile of total cash compensation for
CEO's as reported in the Compensation Surveys.
Long-term Incentive Plans
Stock Options
The Company uses stock incentives in the form of stock options to align the
executives' interests with those of the stockholders and to motivate the
executives to continue the long-term focus required for the Company's future
success. Executives are granted stock awards based on their level of
responsibility for the management and growth of the Company and individual
contribution. Current base salary and annual incentive opportunity, as well as
size and timing of previous stock awards, are also considered when determining
stock awards.
All stock options are granted at no less than the fair market value of the
stock on the date of grant. The number of shares awarded to each executive
officer is determined by an analysis of median competitive data provided in the
Compensation Surveys. The analysis is based on the Company's current stock
price and the projected stock price appreciation rate.
Mr. Fiedler received a grant of 10,000 options in 1996. None of the other
named executive officers received an option grant in 1996.
Executive Stock Performance Plan
The Borg-Warner Automotive, Inc. Executive Stock Performance Plan is a
long-term incentive plan for selected top executives including the named
executive officers. It is designed to provide competitive payouts at the end of
a three year period relative to how well the Company performs against a peer
group of automotive companies in terms of total stockholder return ("TSR"). The
Compensation Committee believes that the Executive Stock Performance Plan will
help to focus key senior executives on the long-term overall value of the
Company to the investor community.
The award levels under the Executive Stock Performance Plan are targeted to
pay at approximately the 65th percentile of total direct compensation (as
reported by the Compensation Surveys) when the Company's TSR performance is at
the 65th percentile relative to the TSR performance of the Peer Group Companies.
This plan is administered by a committee which consists solely of two or
more "outside directors" as defined by Section 162(m) of the Internal Revenue
Code (the "Code" or "IRC") and the regulations thereunder.
For the period between January 1, 1996 to December 31, 1998, Mr. Fiedler
has a proposed target award of 595 performance units at a value of $1,000 per
unit. Depending upon the performance of the Company, Mr. Fiedler's final award
can range from $0 if the Company's TSR performance is below the 25th percentile
of the TSR performance of the Peer Group Companies to $1,041,250 if the
Company's TSR performance is at the 90th percentile (or higher) of the TSR
performance of the Peer Group Companies.
Other
Because the taxable cash compensation (salary and bonus) of any of the
named executives is not anticipated to exceed one million dollars in 1997, the
Compensation Committee does not believe that the limitation on the tax
deductibility of executive compensation in excess of one million dollars (IRC
section 162(m)) will impact the Company during 1997.
The Compensation Committee will periodically review its compensation plans
to determine their compliance with IRC section 162(m). The Compensation
Committee may, however, recommend that compensation be paid to executive
officers that may not be deductible when such payments are deemed in the best
interest of stockholders.
Compensation Committee
Paul E. Glaske, Chairman
Ivan W. Gorr, James J. Kerley
<PAGE>
<TABLE>
<CAPTION>
Performance Graph
Comparison of Forty-One Month Cumulative Total Return
Among Company, S&P 500 Index and Peer Groups (1)
[PASTE-UP CHART]
DATE BORG-WARNER(2) SIC CODE 3714(3) PEER GROUP(4) S&P 500(5)
<S> <C> <C> <C> <C>
08/13/1993 100.00 100.00 100.00 100.00
09/30/1993 105.50 106.50 100.41 102.99
12/31/1993 112.00 114.40 121.12 105.39
03/31/1994 119.99 109.22 117.08 101.39
06/30/1994 91.39 100.34 110.80 101.82
09/30/1994 103.04 99.99 105.70 106.79
12/30/1994 102.70 97.08 102.65 106.78
03/31/1995 99.73 96.42 102.42 117.17
06/30/1995 117.92 106.61 113.10 128.36
09/29/1995 133.00 105.40 116.34 138.56
12/29/1995 133.70 103.47 121.76 146.91
03/29/1996 139.65 115.08 133.92 154.79
06/28/1996 166.55 118.04 131.90 161.74
09/30/1996 150.34 117.89 126.33 166.74
12/31/1996 163.69 128.44 142.56 180.64
</TABLE>
<PAGE>
(1) Assumes $100 invested on August 13, 1993; assumes dividends reinvested for
period of August 13, 1993 through December 31, 1996.
(2) BWA--Borg-Warner Automotive, Inc. (As compiled by Media General Financial
Services of Richmond, VA).
(3) SIC Code 3714--Motor Vehicle Parts & Accessories (As compiled by Media
General Financial Services of Richmond, VA).
(4) Peer Group - Consists of the following companies: Arvin Industries, Inc.,
Chrysler Corporation, Coltec Industries, Cummins Engine, Inc., Dana Corporation,
Detroit Diesel Corporation, Eaton Corporation, Ford Motor Company, General
Motors Corporation, Johnson Controls, Inc., Lear Seating Company, Magna
International, Inc. Class A, Mascotech, Inc., Smith AO Corporation Class A, SPX
Corporation, Timken Company and TRW, Inc. (As compiled by Media General
Financial Services of Richmond, VA).
(5) S&P 500--Standard & Poor's 500 Total Return Index (As compiled by Media
General Financial Services of Richmond, VA).
Certain Relationships and Related Transactions
In 1996, the Company made a loan in the amount of $366,047.79 to, and
received a Promissory Note from, Gary P. Fukayama, an executive officer of the
Company. As of March 17, 1997, the balance of the loan payable was $48,219.
Interest at 7 1/2% on amounts outstanding under the Promissory Note is payable
upon default (as defined in the Promissory Note). The loan was to assist Mr.
Fukayama in purchasing a home at his new employment location in Michigan prior
to the sale of his existing home in Illinois.
As part of a recapitalization, BW-Security distributed all of the
outstanding Common Stock of the Company to BW-Security's stockholders of record
as of January 22, 1993 in the Spin-Off. The affiliates of MLCP (the "ML
Group"), which until February 26, 1997 controlled approximately 21.8% of the
voting power of the Company is also the controlling stockholder of BW-Security.
In connection with the Spin-Off, the Company and BW-Security entered into
certain agreements, including, but not limited to, a Distribution and Indemnity
Agreement, a Service Agreement and a Tax Sharing Agreement. The terms of such
agreements were approved by the Board of Directors of the Company. Subsequent
to the Spin-Off, the Company and BW-Security entered into an Administrative
Services Agreement.
The Distribution and Indemnity Agreement (the "Distribution Agreement")
provides for, among other things, the principal corporate transactions required
to effect the Spin-Off and certain other agreements governing the relationship
between the Company and BW-Security with respect to or in consequence of the
Spin-Off. Subject to certain exceptions, the Distribution Agreement provides
for certain cross-indemnities designed principally to place financial
responsibility for the liabilities of BW-Security and its subsidiaries with
BW-Security, and financial responsibility for the liabilities of the Company, or
related to its automotive business, with the Company.
The Service Agreement provides that the Company will sublease office space
from BW-Security until May 31, 1999 (or, if earlier, the expiration or
termination of BW-Security's current lease), with the amounts payable under such
sublease to be equal to 50% of the rent and common overhead expenses payable by
BW-Security related to its lease of the premises. In 1996, such amounts paid to
BW-Security aggregated approximately $393 million.
Generally, the Tax Sharing Agreement provides that if any Internal Revenue
Service audit adjustment results in a Tax Benefit (as defined in the Tax Sharing
Agreement) to the Company, the Company must pay to BW-Security the amount of
such Tax Benefit and if any audit adjustment results in a Tax Detriment (as
defined in the Tax Sharing Agreement), BW-Security must pay to the Company the
amount of such Tax Detriment.
The Company has agreed to indemnify BW-Security (but not its stockholders)
against any liability resulting from any transaction after the date of the
Spin-Off involving the stock or assets, or any combination thereof, of the
Company or any of its subsidiaries which causes the Spin-Off to fail to qualify
as tax-free under Section 355 of the Code.
During 1996, BW-Security, pursuant to the Administrative Services
Agreement, performed services for the Company relating to risk management. The
Company paid BW-Security approximately $80,400 in 1996, which was approximately
50% of BW-Security's costs and expenses incurred in maintaining the staff
required to perform such services.
2. APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1993 STOCK INCENTIVE PLAN
General
At the meeting there will be presented to the stockholders a proposal to
approve and ratify the adoption by the Board of Directors of certain amendments
to the Company's 1993 Stock Incentive Plan (the "1993 Plan"). The 1993 Plan was
originally adopted by the Board of Directors and approved by the stockholders in
August 1993.
On November 8, 1995 and February 6, 1997, the Board of Directors adopted
certain amendments to the 1993 Plan. A Summary description of the 1993 Plan, as
amended, follows. The principal change to the 1993 Plan is as follows:
(a) no "covered employee" (as defined in the Code) shall be granted more
than 50,000 shares of Stock in any taxable year.
The foregoing limitation is subject to adjustment in the event of a stock split,
stock dividend or other change in the Company's capitalization.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA") added Section 162(m)
to the Code which limits the allowable deduction for compensation paid or
accrued with respect to the chief executive officer and each of the four most
highly compensated executive officers of a publicly-held corporation to no more
than $1,000,000 per year for taxable years beginning on or after January 1,
1994. In general, this limitation does not apply to compensation attributable
to stock options, stock appreciation rights or restricted stock if, among other
things, the option plan includes limits on grants to such persons, such as the
limitation described in (a) above.
Description of 1993 Plan, as amended
The following description of the material terms of the 1993 Plan, as
amended, is intended as a summary only and is qualified in its entirety by
reference to the 1993 Plan itself. A copy of the amended 1993 Plan is set forth
in Appendix A hereto.
The 1993 Plan provides that the total number of shares available for grant
shall be equal to 500,000. Shares subject to an option or award may be
authorized but unissued shares or treasury shares. If an award granted under
the 1993 Plan expires, terminates or lapses for any reason, without the issuance
of shares of Common Stock thereunder, such shares will again be available under
the 1993 Plan.
The Compensation Committee of the Board of Directors administers the 1993
Plan and determines the terms and conditions of any award. Awards are granted
to officers and other employees of the Company, and its affiliates, as from time
to time designated by the Compensation Committee. The Compensation Committee
may delegate to the Company's Chief Executive Officer the authority to grant
options for up to 3,000 shares of Common Stock in any calendar year to any
eligible employee other than an executive officer subject to Section 16 of the
Securities Exchange Act of 1934. Directors of the Company are also eligible to
participate, but in the case of directors who are not also employees, only
pursuant to an automatic grant.
The 1993 Plan terminates on December 31, 2003. Under the 1993 Plan,
options to purchase shares of Common Stock ("Options") or other awards granted
and outstanding as of the date the 1993 Plan terminates will not be affected or
impaired by such termination.
The exercise price to be paid by a participant is determined by the
Compensation Committee and will be set forth in an Option agreement between the
Company and the participant. The exercise price cannot be less than 100% of the
fair market value of the Common Stock on the date on which the Option is
granted.
The 1993 Plan authorizes the Compensation Committee to grant stock
appreciation rights ("SARs") in connection with all or part of any Option. An
SAR entitles its holder to receive from the Company, at the time of exercise of
such right, an amount equal to the excess of the fair market value (determined
in accordance with procedures to be established by the Compensation Committee)
at the date of exercise of a share of Common Stock over the previously specified
exercise price multiplied by the number of shares as to which the holder is
exercising the SAR. The exercise price of an SAR is equal to the exercise price
of the related Option. The amount payable may be paid by the Company in shares
of Common Stock (valued at its fair market value on the date of exercise), cash
or a combination thereof, as the Compensation Committee may determine, which
determination may be made after considering any preference expressed by the
holder. To the extent an SAR is exercised, the related Option will be canceled
and, to the extent the related Option is exercised, the SAR will be canceled.
Incentive stock options (within the meaning of Section 422 of the Code) may
be granted at the discretion of the Compensation Committee under the 1993 Plan.
The form of Option and SAR agreement to be used under the 1993 Plan (the
"Option Agreement") will provide that Options and SARs will become fully
exercisable upon a "Change in Control" (as defined in the 1993 Plan).
Otherwise, the Option Agreement provides that if such participant's employment
by the Company or its subsidiaries is terminated for any reason, other than
death, disability or retirement, such participant may exercise an Option or SAR
to the extent then exercisable, or on such accelerated basis as the Compensation
Committee may determine, within the period ending on the earlier of three months
after such termination or the date the Option or SAR expires in accordance with
its terms; provided that if the optionee dies within such three-month period,
any unexercised Option or SAR held by such optionee shall, notwithstanding the
expiration of such three-month period, continue to be exercisable to the extent
to which it was exercisable at the time of death for a period of twelve months
from the date of such death or until the expiration of the stated term of such
Option or SAR, whichever period is shorter. However, if a participant's
employment is terminated for cause, such participant's Option or SAR terminates
immediately upon such termination of employment.
If an optionee's employment terminates by reason of disability, any Option
or SAR held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of termination or on such accelerated
basis as the Compensation Committee may determine, for a period of three years
(or such shorter period as the Compensation Committee may specify at grant) from
the date of such termination of employment or until the expiration of the stated
term of such Option or SAR, whichever period is shorter, provided that if the
optionee dies within such three-year period (or such shorter period), any
unexercised Option or SAR held by such optionee shall, notwithstanding the
expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of twelve months from the date of such death or until the expiration of
the stated term of such Option or SAR, whichever period is shorter.
If an optionee's employment terminates by reason of retirement, any Option
or SAR held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of such retirement or on such accelerated
basis as the Compensation Committee may determine, for a period of three years
(or such shorter period as the Compensation Committee may specify at grant) from
the date of such termination of employment or until the expiration of the stated
term of such Option or SAR, whichever period is shorter, provided that if the
optionee dies within such three-year period (or such shorter period), any
unexercised Option or SAR held by such optionee shall, notwithstanding the
expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of twelve months from the date of such death or until the expiration of
the stated term of such Option or SAR, whichever period is shorter.
The 1993 Plan also permits the Compensation Committee to grant shares of
restricted stock to a participant subject to the terms and conditions imposed by
the Compensation Committee. The Compensation Committee may require that a
certificate for such shares be deposited with the Company. There will be
established for each award of restricted stock a restriction period of such
length as is determined by the Compensation Committee. Shares of restricted
stock may not be sold, assigned, transferred, pledged or otherwise encumbered,
except as described below, during the restriction period. Except for such
restrictions on transfer and such other restrictions as the Compensation
Committee may impose, the participant will have all the rights of a holder of
Common Stock as to such restricted stock including, if applicable, the right to
vote the shares and to receive any dividends. Except as provided by the
Compensation Committee at the time of grant or otherwise, upon a termination of
employment for any reason during the restriction period, all shares still
subject to restriction are forfeited by the participant. The form of restricted
stock agreement intended to be used under the 1993 Plan provides that shares of
restricted stock will cease to be subject to restrictions on transfer upon a
Change in Control.
In the event of a Change in Control: (i) any Options and SARs outstanding
as of the date such Change in Control is determined to have occurred and not
then exercisable and vested shall become fully exercisable and vested to the
full extent of the original grant; and (ii) the restrictions applicable to any
shares of restricted stock shall lapse, and such restricted stock shall become
free of all restrictions and become fully vested and transferable to the full
extent of the original grant. The 1993 Plan further provides that during the
60-day period following a Change in Control, the holder of an Option has the
right to surrender such option for cash in an amount equal to the difference
between the "change in control price" (as defined in the 1993 Plan) and the
exercise price.
The Board of Directors of the Company may amend the 1993 Plan (including
amendments which have the effect of increasing the cost of the 1993 Plan to the
Company) or discontinue the 1993 Plan. No amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
Shares called for by the 1993 Plan were registered on August 24, 1993.
Each director of the Company who from and after August 1, 1993 is not
otherwise an employee of the Company or any of its subsidiaries or affiliates
shall, on the third Tuesday of each year, automatically receive an annual grant
of Options to purchase 1,000 shares of Common Stock having an exercise price
equal to the fair market value of the Common Stock at the date of grant of such
Option. Each director, upon joining the Board, will also receive an initial
grant of Options to purchase 2,000 shares of Common Stock having an exercise
price equal to the fair market value of the Common Stock as of such date. Each
holder of a director stock option granted pursuant to this provision will also
have the rights in the event of a Change in Control as described above.
Certain Federal Income Tax Considerations
The following is a brief summary of the federal income tax consequences of
transactions under the 1993 Plan based on federal income tax laws in effect on
January 1, 1997. This summary is not intended to be exhaustive and does not
discuss the tax consequences of a participant's death or provisions of the
income tax laws of any municipality, state or foreign country in which an
optionee may reside.
Options granted under the 1993 Plan may be either "Incentive Stock
Options," as defined in section 422 of the Code, or Nonstatutory Stock Options.
Incentive Stock Options. The optionee does not recognize taxable income
upon grant or exercise of an Incentive Stock Option unless the alternative
minimum tax rules apply. If Common Stock is issued to an optionee pursuant to
the exercise of an Incentive Stock Option, and if no disqualifying disposition
of such shares is made by such optionee within two years after the date of grant
or within one year after the transfer of such shares to such optionee, then upon
sale of such shares, any amount realized in excess of the option exercise price
will be treated as a long-term capital gain and any loss sustained will be a
long-term capital loss, and no deduction will be allowed to the Company for
federal income tax purposes. The exercise of an Incentive Stock Option may
result in alternative minimum tax liability for the optionee.
If Common Stock acquired upon the exercise of an Incentive Stock Option is
disposed of before the expiration of either holding period described above (i.e.
a disqualifying disposition), generally the optionee will recognize ordinary
income in the year of disposition in an amount equal to the excess (if any) of
the fair market value of the shares at exercise (or, if less, the amount
realized on the disposition of the shares) over the option exercise price paid
for such shares, and the Company is entitled to a tax deduction in the same
amount. Any further gain or loss realized by the participant will be taxed as
short-term or long-term capital gain or loss, as the case may be, and will not
result in any deduction by the Company. Different rules may apply if shares are
purchased by an optionee who is also an officer, director or more than 10%
stockholder. See discussion below of "Special Rules Applicable to Corporate
Insiders and Restricted Stock Purchasers."
Nonstatutory Stock Options. Except as noted below, with respect to
Nonstatutory Stock Options, (i) no income is recognized by the optionee at the
time the option is granted; (ii) generally, at exercise, ordinary income is
recognized by the optionee in an amount equal to the difference between the
option exercise price paid for the shares and the fair market value of the
shares on the date of exercise, and the Company is entitled to a tax deduction
in the same amount; and (iii) at disposition, any gain or loss is treated as
capital gain or loss. In the case of an optionee who is also an employee, any
income recognized upon exercise of a Nonstatutory Stock Option will constitute
wages for which withholding will be required. However, different rules may
apply if restricted stock is purchased or if shares are purchased by an optionee
who is also an officer, director or more than 10% stockholder. See discussion
below of "Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers."
Stock Appreciation Rights. No income will be recognized by a recipient in
connection with the grant of an SAR. When an SAR is exercised, the recipient
will generally be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any Common Stock received on the exercise. In the case of a recipient
who is also an employee, any income recognized upon exercise of an SAR will
constitute wages for which withholding will be required. The Company will be
entitled to a tax deduction in the same amount. If the optionee receives Common
Stock upon the exercise of an SAR, any gain or loss on the sale of such stock
will be treated in the same manner as discussed above under "Nonstatutory Stock
Options." See also "Special Rules Applicable to Corporate Insiders and
Restricted Stock Purchasers."
Restricted Stock. Generally, no income will be recognized by a recipient
in connection with the grant of restricted stock, unless an election under
Section 83(b) of the Code is filed with the IRS within 30 days of the date of
grant. Otherwise, at the time the restricted stock vests, the recipient will
generally recognize compensation income in an amount equal to the fair market
value of the award at the time of vesting. Generally, the recipient will be
subject to the tax consequences discussed under "Nonstatutory Stock Options."
In the case of a recipient who is also an employee, any amount included in
income will constitute wages for which withholding will be required. The
Company will be entitled to a tax deduction in the same amount and at the time
the recipient recognizes ordinary income with respect to an award of restricted
stock.
Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers. Generally, individuals subject to Section 16(b) of the Exchange Act
("Insiders") and individuals who purchase restricted stock may have their
recognition of compensation income and the beginning of their capital gains
holding period deferred for up to six months after option exercise (for
Insiders), or until the restrictions lapse (for restricted stock purchasers)
(the "Deferral Date"), with the excess of the fair market value of the stock
determined as of the Deferral Date over the purchase price being taxes as
ordinary income, and the tax holding period for any subsequent gain or loss
beginning on the Deferral Date. However, an Insider or restricted stock
purchaser who so elects under Section 83(b) of the Code on a timely basis may
instead be taxed on the difference between the excess of the fair market value
on the date of transfer over the purchase price, with the tax holding period
beginning on such date. Similar rules apply for alternative minimum tax
purposes with respect to the exercise of an Incentive Stock Option by an
Insider.
Capital Gains. Generally, under law in effect as of January 1, 1994, net
capital gain (net long-term capital gain minus net short-term capital loss) is
taxed at a maximum rate of 28%. Capital losses are allowed in full against
capital gains plus up to $3,000 of other income.
Participation in the 1993 Plan
The grant of awards under the 1993 Plan to employees, including the
executive officers named in the Summary Compensation Table, is subject to the
discretion of the Compensation Committee. As of the date of this proxy
statement, the only awards that have been granted under the 1993 Plan are non-
qualified stock options, each of which has a term of ten years and an exercise
price equal to the fair market value of the Common Stock on the date of grant.
There has been no determination by the Compensation Committee with respect to
future awards under the 1993 Plan.
Vote required and Board of Directors' Recommendation
Approval of the amendments to the 1993 Plan requires the affirmative vote
of the holders of a majority of the shares of Common Stock represented and
voting in person or by proxy at the Annual Meeting.
The Board of Directors believes that approval of the amended 1993 Plan is
in the best interests of all stockholders and, accordingly, recommends a vote
FOR the proposed amendments. Your proxy will be so voted unless you specify
otherwise.
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors proposes that the stockholders approve the selection
by the Finance and Audit Committee of Deloitte & Touche LLP to serve as the
Company's independent auditors for the 1997 fiscal year. The Board of Directors
anticipates that representatives of Deloitte & Touche LLP will be present at the
meeting to respond to appropriate questions, and will have an opportunity, if
they desire, to make a statement.
The Board of Directors recommends a vote FOR the appointment of Deloitte &
Touche LLP as the independent auditors and your proxy will be so voted unless
you specify otherwise.
OTHER INFORMATION
The Company has no reason to believe that any other business will be
presented at the Annual Meeting, but if any other business shall be presented,
votes pursuant to the proxy will be cast thereon in accordance with the
discretion of the persons named in the accompanying proxy.
Stockholder proposals to be presented at the 1998 Annual Meeting must be
received by the Company on or before November 21, 1997, for inclusion in the
proxy statement relating to that meeting. Proposals should be sent to the
attention of the Corporate Secretary. In addition, the Company's By-laws
contain certain requirements with respect to the submission of proposals and the
nomination of directors at any stockholder meeting.
The Company will furnish, without charge, to each person whose proxy is
being solicited, upon request of such person, one copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, as filed with the
Securities and Exchange Commission. Requests for copies of such report should
be directed to the Communications Department, 200 South Michigan Avenue,
Chicago, Illinois 60604.
BORG-WARNER AUTOMOTIVE, INC.
<PAGE>
APPENDIX A
BORG-WARNER AUTOMOTIVE, INC.
1993 STOCK INCENTIVE PLAN
(Amended Effective November 8, 1995 and Further Amended April 29, 1997)
<PAGE>
SECTION 1. Purpose; Definitions.
The purpose of the Plan is to give the Company a significant advantage in
attracting, retaining and motivating officers, employees and directors and to
provide the Company and its subsidiaries with the ability to provide incentives
more directly linked to the profitability of the Company's businesses and
increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Committee as such.
b. "Award" means a Stock Appreciation Right, Stock Option or Restricted
Stock.
c. "Board" means the Board of Directors of the Company.
d. "Cause" has the meaning set forth in Section 5(i).
e. "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 8(b) and (c), respectively.
f. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
g. "Commission" means the Securities and Exchange Commission or any
successor agency.
h. "Committee" means the Committee referred to in Section 2.
i. "Company" means Borg-Warner Automotive, Inc., a Delaware corporation.
j. "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
k. "Disinterested Person" shall mean a member of the Board who qualifies
as a disinterested person as defined in Rule 16b-3(c)(2), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
m. "Fair Market Value" means, except as provided in Sections 5(j) and
6(b)(ii)(2), as of any given date, the mean between the highest and lowest
reported sales prices of the Stock on the New York Stock Exchange Composite Tape
or, if not listed on such exchange, on any other national securities exchange on
which the Stock is listed or on NASDAQ. If there is no regular public trading
market for such Stock, the Fair Market Value of the Stock shall be determined by
the Committee in good faith.
n. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
o. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
p. "Plan" means the Borg-Warner Automotive, Inc. 1993 Stock Incentive
Plan, as set forth herein and as hereinafter amended from time to time.
q. "Restricted Stock" means an award granted under Section 7.
r. "Retirement" means retirement from active employment under a pension
plan of the Company, any subsidiary or Affiliate, or under an employment
contract with any of them, or termination of employment at or after age 55 under
circumstances which the Committee, in its sole discretion, deems equivalent to
retirement.
s. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
t. "Stock" means Common Stock, par value $.01 per share, of the Company.
u. "Stock Appreciation Right" means a right granted under Section 6.
v. "Stock Option" means an option granted under Section 5.
w. "Termination of Employment" means the termination of the participant's
employment with the Company and any subsidiary or Affiliate. A participant
employed by a subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the subsidiary or Affiliate ceases to be such a
subsidiary or Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. Administration.
The Plan shall be administered by the Compensation Committee of the Board
or such other committee of the Board, composed of not less than two
Disinterested Persons, each of whom shall be appointed by and serve at the
pleasure of the Board. If at any time no Committee shall be in office, the
functions of the Committee specified in the Plan shall be exercised by the
Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to officers, employees and directors of the Company and its
subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select the officers, employees and directors to whom Awards may
from time to time be granted; provided that awards to non-employee directors may
be made only in accordance with Section 13;
(b) to determine whether and to what extent Incentive Stock Options, Non-
Qualified Stock Options, Stock Appreciation Rights and Restricted Stock or any
combination thereof are to be granted hereunder;
(c) to determine the number of shares of Stock to be covered by each Award
granted hereunder;
(d) to determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)), any
vesting restriction or limitation and any vesting acceleration or forfeiture
waiver regarding any Award and the shares of Stock relating thereto, based on
such factors as the Committee shall determine);
(e) to modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including, but not limited to, with respect to
performance goals and measurements applicable to performance-based Awards
pursuant to the terms of the Plan;
(f) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred; and
(g) to determine under what circumstances a Stock Option may be settled in
cash or Stock under Section 5(j).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may (i) delegate to an officer of the Company
the authority to make decisions pursuant to paragraphs (c), (f), (g), (h) and
(i) of Section 5 (provided that no such delegation may be made that would cause
Awards or other transactions under the Plan to cease to be exempt from Section
16(b) of the Exchange Act) and (ii) authorize any one or more of their number or
any officer of the Company to execute and deliver documents on behalf of the
Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
SECTION 3. Stock Subject to Plan.
Subject to adjustment as provided herein, the total number of shares of
Stock of the Company available for grant under the Plan shall be 500,000;
provided that no "covered employee", as such term is defined in Section 162(m)
of the Code, shall be granted more than 50,000 shares of Stock in any taxable
year. Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares.
If any shares of Restricted Stock are forfeited for which the participant
did not receive any benefits of ownership (as such phrase is construed by the
Commission or its Staff), or if any Stock Option (and related Stock Appreciation
Right, if any) terminates without being exercised, or if any Stock Appreciation
Right is exercised for cash, shares subject to such Awards shall again be
available for distribution in connection with Awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
the Committee or Board may make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and option price of shares subject to outstanding Stock Options and
Stock Appreciation Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other substitution or
adjustments in the consideration receivable upon exercise as it may determine to
be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Award shall always be a whole number. Such adjusted
option price shall also be used to determine the amount payable by the Company
upon the exercise of any Stock Appreciation Right associated with any Stock
Option.
SECTION 4. Eligibility.
Officers, employees and directors of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan. Except as expressly
authorized by Section 13 of the Plan, however, no grant shall be made to a
director who is not an officer or a salaried employee.
SECTION 5. Stock Options.
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and Non-
Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
The Committee may authorize the Chief Executive Officer of the Corporation,
who need not be a Disinterested Person, to grant in any calendar year a Non-
Qualified Stock Option (with or without Stock Appreciation Rights) for up to
3,000 shares of Stock to any employee of the Company who is not an executive
officer of the Company subject to Section 16 of the Exchange Act. The Committee
may limit or qualify such authorization in any manner it deems appropriate.
Stock Options granted by the Chief Executive Officer shall have the terms and
conditions determined by the Committee and the Committee shall periodically
review such grants.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Stock to be subject
to such Stock Option to be granted to such individual and specifies the terms
and provisions of the Stock Option. The Company shall notify a participant of
any grant of a Stock Option, and a written option agreement or agreements shall
be duly executed and delivered by the Company to the participant. Such
agreement or agreements shall become effective upon execution by the
participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee and set forth in the option
agreement, and shall not be less than the Fair Market Value of the Stock subject
to the Stock Option on the date of grant, except that any Stock Options granted
on the effective date of the Company's initial public offering of Common Stock
shall have an option price per share equal to the price per share paid by the
public in such offering.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
<PAGE>
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time, in whole or in part, accelerate the exercisability of any Stock
Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Stock subject to the Stock Option to be purchased.
The option price of Stock to be purchased upon exercise of any Option shall
be paid in full in cash (by certified or bank check or such other instrument as
the Company may accept) or, if and to the extent set forth in the option
agreement, may also be paid by one or more of the following: (i) in the form of
unrestricted Stock already owned by the optionee (and, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock subject to an Award
hereunder) based in any such instance on the Fair Market Value of the Stock on
the date the Stock Option is exercised; provided, however, that, in the case of
an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Stock may be authorized only at the time the Stock Option is
granted; (ii) by requesting the Company to withhold from the number of shares of
Stock otherwise issuable upon exercise of the Stock Option that number of shares
having an aggregate fair market value on the date of exercise equal to the
exercise price for all of the shares of Stock subject to such exercise; or (iii)
by a combination thereof, in each case in the manner provided in the option
agreement.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay the
purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
If payment of the option exercise price of a Non-Qualified Stock Option is
made in whole or in part in the form of Restricted Stock, the number of shares
of Stock to be received upon such exercise equal to the number of shares of
Restricted Stock used for payment of the option exercise price shall be subject
to the same forfeiture restrictions to which such Restricted Stock was subject,
unless otherwise determined by the Committee.
No shares of Stock shall be issued until full payment therefor has been
made. Subject to any forfeiture restrictions that may apply if a Stock Option
is exercised using Restricted Stock, an optionee shall have all of the rights of
a stockholder of the Company holding the Stock that is subject to such Stock
Option (including, if applicable, the right to vote the shares and the right to
receive dividends), when the optionee has given written notice of exercise, has
paid in full for such shares and, if requested, has given the representation
described in Section 11(a).
(e) Non-transferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Non-Qualified Stock Option, pursuant
to a qualified domestic relations order (as defined in the Code or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder). All Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or by the guardian or legal representative of the
optionee or, in the case of a Non-Qualified Stock Option, its alternate payee
pursuant to such qualified domestic relations order, it being understood that
the terms "holder" and "optionee" include the guardian and legal representative
of the optionee named in the option agreement and any person to whom an option
is transferred by will or the laws of descent and distribution or, in the case
of a Non-Qualified Stock Option, pursuant to a qualified domestic relations
order.
(f) Termination by Death. If an optionee's employment terminates by
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable, or on such accelerated basis as the
Committee may determine, for a period of one year (or such other period as the
Committee may specify in the option agreement) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment due to death, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year period (or such shorter period), any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-year (or such shorter) period, continue to be exercisable to the extent to
which it was exercisable at the time of death for a period of 12 months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
terminates by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year (or such shorter) period, any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such three-year
(or such shorter) period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such Optionee shall thereupon
terminate, except that such Stock Option, to the extent then exercisable, or on
such accelerated basis as the Committee may determine, may be exercised for the
lesser of one year from the date of such Termination of Employment or the
balance of such Stock Option's term if such Termination of Employment of the
optionee is involuntary and without Cause; provided, however, that if the
optionee dies within such one-year period, any unexercised Stock Option held by
such optionee shall notwithstanding the expiration of such one-year period,
continue to be exercisable to the extent to which it was exercisable at the time
of death for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of Termination of Employment for any reason other than
death, Disability or Retirement, if an Incentive Stock Option is exercised after
the expiration of the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option. Unless otherwise determined by the Committee, for the purposes of the
Plan "Cause" shall mean (i) the conviction of the optionee for committing a fel-
ony under Federal law or the law of the state in which such action occurred,
(ii) dishonesty in the course of fulfilling the optionee's employment duties or
(iii) willful and deliberate failure on the part of the optionee to perform his
employment duties in any material respect.
(j) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Stock for which a Stock Option is being exercised by paying the op-
tionee an amount, in cash or Stock, equal to the excess of the Fair Market Value
of the Stock over the option price times the number of shares of Stock for which
to the Option is being exercised on the effective date of such cash out.
Cash outs pursuant to this Section 5(j) relating to options held by
optionees who are actually or potentially subject to Section 16(b) of the
Exchange Act shall comply with the "window period" provisions of Rule 16b-3(e),
to the extent applicable, and, in the case of cash outs of Non-Qualified Stock
Options held by such optionees, the Committee may determine Fair Market Value
under the pricing rule set forth in Section 6(b)(ii)(2).
(k) Change in Control Cash Out. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), unless the Committee shall determine otherwise at the time
of grant, an optionee shall have the right, whether or not the Stock Option is
fully exercisable and in lieu of the payment of the exercise price for the
shares of Stock being purchased under the Stock Option and by giving notice to
the Company, to elect (within the Exercise Period) to surrender all or part of
the Stock Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change in Control Price
per share of Stock on the date of such election shall exceed the exercise price
per share of Stock under the Stock Option (the "Spread") multiplied by the
number of shares of Stock granted under the Stock Option as to which the right
granted under this Section 5(k) shall have been exercised; provided, however,
that if the Change in Control is within six months of the date of grant of a
particular Stock Option held by an optionee who is an officer or director of the
Company and is subject to Section 16(b) of the Exchange Act no such election
shall be made by such optionee with respect to such Stock Option prior to six
months from the date of grant. Notwithstanding any other provision hereof, if
the end of such 60-day period from and after a Change in Control is within six
months of the date of grant of a Stock Option held by an optionee who is an
officer or director of the Company and is subject to Section 16(b) of the
Exchange Act, such Stock Option shall be cancelled in exchange for a cash
payment to the optionee, effected on the day which is six months and one day
after the date of grant of such Option, equal to the Spread multiplied by the
number of shares of Stock granted under the Stock Option.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be
entitled to receive an amount in cash, shares of Stock or both equal in value to
the excess of the Fair Market Value of one share of Stock over the option price
per share specified in the related Stock Option multiplied by the number of
shares in respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of payment.
In the case of Stock Appreciation Rights relating to Stock Options held by
optionees who are actually or potentially subject to Section 16(b) of the
Exchange Act, the Committee:
(1) may require that such Stock Appreciation Rights be exercised for
cash only in accordance with the applicable "window period" provisions of Rule
16b-3; and
(2) in the case of Stock Appreciation Rights relating to Non-Qualified
Stock Options, may provide that any amount to be paid in cash upon exercise of
such Stock Appreciation Rights during a Rule 16b-3 "window period" shall be
based on the highest of the daily means between the highest and lowest reported
sales prices of the Stock on the New York Stock Exchange or other national
securities exchange on which the shares are listed or on NASDAQ, as applicable,
occurring during such "window period".
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be awarded either
alone or in addition to other Awards granted under the Plan. The Committee
shall determine the officers and employees to whom and the time or times at
which grants of Restricted Stock will be awarded, the number of shares to be
awarded to any participant, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards, in
addition to those contained in Section 7(c).
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals of the participant or of the Company
or subsidiary, division or department of the Company for or within which the
participant is primarily employed or upon such other factors or criteria as the
Committee shall determine. The provisions of Restricted Stock Awards need not
be the same with respect to each recipient.
(b) Awards and Certificates. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may deem appropriate, including book-
entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of the
1993 Stock Incentive Plan and a Restricted Stock Agreement. Copies of such Plan
and Agreement are on file at the offices of Borg-Warner Automotive, Inc., 200
South Michigan Avenue, Chicago, Illinois 60604."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Stock covered
by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during a period set by the Committee,
commencing with the date of such Award (the "Restriction Period"), the
participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock. The Committee may provide for
the lapse of such restrictions in installments or otherwise and may accelerate
or waive such restrictions, in whole or in part, in each case based on period of
service, performance of the participant or of the Company or the subsidiary,
division or department for which the participant is employed or such other
factors or criteria as the Committee may determine.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i) and the
Restricted Stock Agreement, the participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a stockholder of the Company
holding the class or series of Stock that is the subject of the Restricted
Stock, including, if applicable, the right to vote the shares and the right to
receive any cash dividends. If so determined by the Committee in the applicable
Restricted Stock Agreement and subject to Section 11(f) of the Plan, (1) cash
dividends on the shares of Stock that are the subject of the Restricted Stock
Award shall be automatically deferred and reinvested in additional Restricted
Stock, and (2) dividends payable in Stock shall be paid in the form of Re-
stricted Stock.
(iii) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement and Sections 7(c)(i), 7(c)(iv) and 8(a)(ii), upon a
participant's Termination of Employment for any reason during the Restriction
Period, all shares still subject to restriction shall be forfeited by the
participant.
(iv) Except to the extent otherwise provided in Section 8(a)(ii), in the
event of an involuntary Termination of Employment of a participant for any
reason (other than for Cause), the Committee shall have the discretion to waive
in whole or in part any or all remaining restrictions with respect to any or all
of such participant's shares of Restricted Stock.
(v) If and when the Restriction Period expires without a prior forfeiture
of the Restricted Stock subject to such Restriction Period, unlegended
certificates for such shares shall be delivered to the participant.
(vi) Each Award shall be confirmed by, and be subject to the terms of, a
Restricted Stock Agreement.
SECTION 8. Change In Control Provisions.
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of the
date such Change in Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable and vested to the full
extent of the original grant.
(ii) The restrictions applicable to any Restricted Stock shall lapse, and
such Restricted Stock shall become free of all restrictions and become fully
vested and transferable to the full extent of the original grant.
(b) Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this section (b), the
following acquisitions shall not constitute a Change in Control: (V) any
acquisition directly from the Company other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted was
itself acquired directly from the Company by the holder exercising such
conversion privilege, (W) any acquisition by the Company, (X) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, (Y) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A), (B) and
(C) of subsection (iii) of this Section 8(b), or (Z) any acquisition of
beneficial ownership under the first clause of this subsection (i) of this
Section 8(b) where the percentage of acquired beneficial ownership of
Outstanding Company Common Stock or Outstanding Company Voting Securities is
less than the lesser of (I) the percentage of Outstanding Company Common Stock
or Outstanding Company Voting Securities, as applicable, owned by Merrill Lynch
KECALP L.P. 1986, Merrill Lynch KECALP L.P. 1987, Merchant Banking L.P. No. 1,
ML Venture Partners II, L.P., Merrill Lynch Capital Appreciation Partnership No.
VIII L.P., ML Offshore LBO Partnership No. VIII, L.P., ML Employees LBO
Partnership No. I, L.P., ML IBK Positions, Inc. (the "ML Entities") immediately
prior to the date of such acquisition and (II) the percentage beneficially owned
by the ML Entities as of August 30, 1995; provided, that if after an event
described in clause (Z) of this subsection (i), the percentage of Outstanding
Company Common Stock or Outstanding Company Voting Securities owned by the ML
Entities decreases such that if such event described in clause (Z) had occurred
immediately after such decrease, such event would have been a Change in Control,
then such decrease shall be a Change in Control; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii)Approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another corporation
(each of the foregoing, a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% (or such higher percentage as may
equal the lesser of (I) the percentage of Outstanding Company Common Stock or
Outstanding Company Voting Securities, as applicable, owned by the ML Entities
immediately prior to such Business Combination and (II) the percentage
beneficially owned by the ML Entities as of August 30, 1995; provided, that if
after a Business Combination, the percentage of Outstanding Company Common Stock
or Outstanding Company Voting Securities owned by the ML Entities decreases such
that if such Business Combination had occurred immediately after such decrease,
such event would have been a Change in Control, then such decrease shall be a
Change in Control) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular way, of
a share of Common Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which such shares are
listed or on NASDAQ during the 60-day period prior to and including the date of
a Change in Control or (ii) if the Change in Control is the result of a tender
or exchange offer or a Business Combination, the highest price per share of
Common Stock paid in such tender or exchange offer or Business Combination;
provided, however, that (X) in the case of a Stock Option which (I) is held by
an optionee who is an officer or director of the Company and is subject to
Section 16(b) of the Exchange Act and (II) was granted within 240 days of the
Change in Control, then the Change in Control Price for such Stock Option shall
be the Fair Market Value of the Stock on the date such Stock Option is exercised
or cancelled and (Y) in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, the Change in Control
Price shall be in all cases the Fair Market Value of the Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Board.
SECTION 9. Term, Amendment and Termination.
The Plan will terminate on December 31, 2003. Under the Plan, Awards
outstanding as of December 31, 2003 shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
an optionee under a Stock Option or a recipient of a Stock Appreciation Right or
Restricted Stock Award theretofore granted without the optionee's or recipient's
consent, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without
the approval of the Company's stockholders to the extent such approval is
required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent except such an
amendment made to cause the Plan or Award to qualify for the exemption provided
by Rule 16b-3. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher option prices.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 10. Unfunded Status of Plan.
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver Stock or make payments; provided, however, that, unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
SECTION 11. General Provisions.
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed and any applicable Federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The adoption of the Plan shall not confer upon any employee any right
to continued employment nor shall it interfere in any way with the right of the
Company or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be settled with Stock, including Stock
that is part of the Award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company, its Subsidiaries and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant. The Committee may establish such
procedures as it deems appropriate, including the making of irrevocable
elections, for the settlement of withholding obligations with Stock.
(e) At the time of grant, the Committee may provide in connection with any
grant made under the Plan that the shares of Stock received as a result of such
grant shall be subject to a right of first refusal pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell at the then Fair Market Value of the Stock, subject
to such other terms and conditions as the Committee may specify at the time of
grant.
(f) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(g) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
SECTION 12. Effective Date of Plan.
The Plan shall be effective on the date it is approved by the shareholders
of the Company.
SECTION 13. Director Stock Options.
(a) Each director of the Company who is not otherwise an employee of the
Company or any Affiliate from and after August 1, 1993 shall, on the third
Tuesday of each year during such director's term, automatically be granted Non-
Qualified Stock Options to purchase 1,000 shares of Stock having an exercise
price per share equal to 100% of the Fair Market Value of the Stock at the date
of grant of such Non-Qualified Stock Option. Each such director, upon joining
the Board, shall also be awarded an initial grant of Non-Qualified Stock Options
to purchase 2,000 shares of Stock having an exercise price equal to 100% of the
Fair Market Value of the Stock as of such date.
(b) An automatic director Stock Option shall be granted hereunder only if
as of each date of grant (or, in the case of any initial grant, from and after
the effective date of the Plan) the director (i) is not otherwise an employee of
the Company, any Affiliate or Merrill Lynch Capital Partners, Inc., (ii) has not
been an employee of the Company or any subsidiary for any part of the preceding
fiscal year, and (iii) has served on the Board continuously since the com-
mencement of his term.
(c) Each holder of a Stock Option granted pursuant to this Section 13
shall also have the rights specified in Section 5(k).
(d) In the event that the number of shares of Stock available for future
grant under the Plan is insufficient to make all automatic grants required to be
made on such date, then all non-employee directors entitled to a grant on such
date shall share ratably in the number of options on shares available for grant
under the Plan.
(e) The provisions of paragraph (a) of this Section 13 may not be amended
more often than once every six months. Except as expressly provided in this
Section 13, any Stock Option granted hereunder shall be subject to the terms and
conditions of the Plan as if the grant were made pursuant to Section 5 hereof.
<PAGE>
Exhibit C
NON-QUALIFIED STOCK OPTION AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT dated this 12th day of August 1993
provides for the granting of an option by Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company") under the Borg-Warner Automotive, Inc. 1993
Stock Incentive Plan (the "Plan") to _____________ (the "Optionee"), an
employee of the Company or of an Affiliate (as such term is defined in the Plan)
of the Company, to buy shares of the Company's Common Stock par value $.01 per
share (the "Shares");
1. Grant, Number of Shares, Option Price. In accordance with Section 5
of the Plan, the Company hereby grants to the Optionee a Non-Qualified Stock
Option (as such term is defined in the Plan) to purchase from the Company ______
Shares at a price of $25.00 per Share (the "Option Price") pursuant to and
subject to the provisions of the Plan and the terms and conditions hereinafter
provided (the "Stock Option").
2. Period of Stock Option and Conditions of Exercise.
(a) Unless the Stock Option is previously terminated pursuant to this Non-
Qualified Stock Option Agreement, the term of the Stock Option and of this Non-
Qualified Stock Option Agreement shall commence on the date hereof (the "Date of
Grant") and terminate upon the expiration of ten years from the Date of Grant.
Upon the termination of the Stock Option, all rights of the Optionee hereunder
shall cease.
(b) The Stock Option shall become exercisable as of the date set forth in
column (i) below according to the percentage set forth in column (ii) opposite
such date, provided that at all times during the period between the Date of
Grant and the Exercisable Date the Optionee has been employed by either the
Company or an Affiliate (hereinafter collectively referred to as the "Borg-
Warner Companies") or by Borg-Warner Security Corporation or any of its
subsidiaries ("BW-Security") after becoming (at the request of the Company) an
employee of BW-Security.
Column (i) Column (ii)
Cumulative Percentage
Exercisable of Exercisable
Date Stock Option
------------------- -----------------------------
August 12, 1995 50%
August 12, 1996 100%
The Committee (as such term is defined in the Plan) has, in its sole
discretion, the authority to, in whole or in part, accelerate the exercisability
of the Stock Option.
(c) The Stock Option may be exercised only to purchase whole Shares, and
in no case may a fraction of a Share be purchased.
(d) The right of the Optionee to purchase Shares may be exercised in whole
at any time or in part from time to time after the Stock Option has become
exercisable in accordance with Section 2(b) above and prior to the tenth anni-
versary of the Date of Grant; provided, however, that no portion of the Stock
Option shall be exercisable unless (except as hereinafter provided in this
Section 2) the Optionee at the time of such exercise is, and at all times from
the Date of Grant has been employed by either the Borg-Warner Companies or by
BW-Security after becoming (at the request of the Company) an employee of BW-
Security. A Termination of Employment (as such term is defined in the Plan)
shall not be deemed to have occurred if (i) the transfer, promotion,
reassignment or similar personnel move of the Optionee, at the request of the
Company, from any one entity within the Borg-Warner Companies to another entity
within the Borg-Warner Companies results in the Optionee being immediately
employed with such other entity or (ii) the Optionee becomes (at the request of
the Company), an employee of BW-Security.
(e) If the Optionee dies while employed by the Borg-Warner Companies, the
Optionee's estate shall be permitted to exercise the Stock Option to the extent
exercisable on the date of the Optionee's death or to the extent that the
exercisability of the Stock Option may be accelerated by the Committee. The
Stock Option may be exercised for a period of one year from the date of such
death or until the expiration of the Stock Option, whichever period is shorter.
(f) If the Optionee's employment terminates from the Borg-Warner Companies
by reason of Disability or Retirement (as such terms are defined in the Plan),
the Optionee shall be permitted to exercise the Stock Option to the extent
exercisable at the time of the termination or to the extent that the
exercisability of the Stock Option may be accelerated by the Committee. The
Stock Option may be exercised for a period of three years from the date of such
termination or until the expiration of the Stock Option, whichever period is the
shorter; provided, however, that if the three year period is the applicable
period and the Optionee dies within such three year period, any unexercised
Stock Option held by such Optionee shall, notwithstanding the expiration of such
three year period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve (12) months from the
date of such death or until the expiration of the Stock Option, whichever period
is the shorter.
(g) If the Optionee incurs a Termination of Employment and such
Termination of Employment is involuntary and without Cause (as such term is
defined in the Plan), the Optionee shall be permitted to exercise the Stock
Option to the extent exercisable at the time of the termination or to the extent
that the exercisability of the Stock Option may be accelerated by the Committee.
The Stock Option may be exercised for the period of one year from the date of
such termination or until the expiration of the Stock Option, whichever period
is the shorter; provided, however, that if the one year period is the applicable
period and the Optionee dies within such one year period, any unexercised Stock
Option held by such Optionee shall, notwithstanding the expiration of such one
year period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve (12) months from the
date of such death or until the expiration of the Stock Option, whichever period
is the shorter.
(h) If the Optionee incurs a Termination of Employment for any reason
other than as set forth in Sections 2(e), (f) and (g) above and such Termination
of Employment is without Cause, the Optionee shall be permitted to exercise the
Stock Option to the extent exercisable at the time of the Termination of
Employment. The Stock Option may be exercised for a period of thirty (30) days
from the date of such termination or until the expiration of the Stock Option,
whichever period is the shorter.
(i) If the Optionee incurs a Termination of Employment which is for Cause,
the Stock Option held by the Optionee shall terminate at the time of the
Optionee's Termination of Employment.
(j) If the Optionee becomes (at the request of the Company) an employee of
BW-Security and thereafter terminates employment with BW-Security by reason of
an event described in Sections 2(e) through 2(i) (including the term Termination
of Employment, which for purposes of this Section 2(j) shall mean termination of
employment from BW-Security), the Optionee shall be permitted to exercise the
Stock Option to the extent exercisable at the time of the termination from BW-
Security or to the extent that the exercisability of the Stock Option may be
accelerated by the Committee for the period which would have been applicable to
the Optionee for the same event had he or she terminated employment with the
Borg-Warner Companies.
3. Non-Transferability of Stock Option. The Stock Option and this Non-
Qualified Stock Option Agreement shall not be transferable other than by will or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order (as such term is described in the Plan). The Stock Option shall
be exercised, during the Optionee's lifetime, only by the Optionee, by the
guardian or legal representation of the Optionee, or by an alternate payee
pursuant to a qualified domestic relations order.
4. Exercise of Stock Option; Payment.
(a) If the Optionee is then employed by the Borg-Warner Companies or by
BW-Security and elects to exercise all or part of the Stock Option which is
exercisable, he or she shall deliver to the Company a written notice, substan-
tially in the form set forth as Exhibit A hereto, specifying the number of
Shares to be purchased under the Stock Option and an exercise date, not more
than thirty days after the date of such notice, upon which such Shares shall be
purchased and payment therefor shall be made.
(b) If the Optionee's employment with the Borg-Warner Companies is
terminated for any of the reasons set forth in Section 2(e) through (h) above or
with BW-Security as set forth in Section 2(j), then any election to exercise all
or part of the Stock Option which is exercisable shall be done in the following
manner: the Optionee or his or her estate shall deliver to the Company a
written notice, substantially in the form set forth in Exhibit A hereto,
specifying the number of Shares to be purchased under the Stock Option and an
exercise date, within the exercise period set forth for such reason in Section
2(e) through (h) above and not more than thirty days after the date of such
notice, upon which such Stock Option Shares shall be purchased and payment
therefor shall be made.
(c) On the exercise date the Optionee has specified in the notice
described in Section 4(a) or 4(b) above, the Optionee or his or her estate shall
deliver to the Company (i) cash or a check payable to the order of the Company
in an amount equal to the product of the number of Shares specified to be
purchased in such notice and the Option Price (the "Option Exercise Amount") and
within five days thereafter payment, by cash or a check payable to the order of
the Company, in such amount as the Company in its sole discretion deems
necessary to satisfy its liability to withhold federal, state or local income or
other taxes incurred by reason of the exercise of the Stock Option or the trans-
fer of Shares thereupon (collectively the "Applicable Tax"), or (ii)
unrestricted Shares owned by the Optionee for more than six months prior to the
exercise date, the value of which in whole Shares shall not exceed the Option
Exercise Amount, and within 5 days thereafter unrestricted Shares owned by the
Optionee, the value of which in whole Shares shall not exceed the Applicable
Tax, the value of such Shares for the purpose of paying the Option Exercise
Amount and the Applicable Tax (collectively the "Option Payment Amount") being
the Fair Market Value (as such term is defined in the Plan) of the Shares on the
exercise date, or (iii) a written request to the Company to withhold, from the
number of Shares otherwise issuable upon the exercise of the Stock Option, that
whole number of Shares having an aggregate Fair Market Value which does not
exceed the Applicable Tax, or (iv) a combination of the above described forms of
payment that equals the Option Payment Amount; provided that if the Optionee is
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), then (y) such Optionee shall have the right to make payment of
the Option Payment Amount only at the time and in the manner specified in
Section 16 of the Exchange Act and the rules and regulations thereunder and (z)
the Company shall have the right to retain or sell without notice, or to demand
surrender of, Shares or Shares issuable upon the exercise of the Stock Option
which have a Fair Market Value on the exercise date equal to the amount
determined by the Company as necessary to satisfy any Applicable Tax. Upon
receipt in full of the Option Payment Amount (including in the case of payment
by check, the receipt by the Company of collected funds), the Optionee or his or
her estate shall be deemed to be the owner of Shares so purchased and
certificates representing such Shares shall thereupon be delivered to the
Optionee or his or her estate. If the Company has entered into an agreement(s)
with one or more brokerage firms to enable the Optionee to facilitate payment
for the Shares through such brokerage firm(s), the Optionee or his or her estate
may make use of such coordinated procedure if he or she elects.
5. Specific Restrictions Upon Shares. The Optionee hereby agrees with
the Company as follows:
(a) The Optionee shall acquire the Shares issuable upon the exercise of
the Stock Option (the "Stock Option Shares") for investment purposes only and
not with a view to resale or other distribution thereof to the public in viola-
tion of the Securities Act of 1933, as amended (the "1933 Act"), and shall not
dispose of any Stock Option Shares in transactions which, in the opinion of
counsel to the Company, violate the 1933 Act, or the rules and regulations
thereunder, or any applicable state securities or "blue sky" laws;
(b) If any Stock Option Shares shall be registered under the 1933 Act, no
public offering (otherwise than on a national securities exchange, as defined in
the Exchange Act) of any such Stock Option Shares shall be made by the Optionee
(or any other person) under such circumstances that he or she (or such other
person) may be deemed an underwriter, as defined in the 1933 Act; and
(c) The Company shall have the authority to endorse upon the certificate
or certificates representing the Stock Option Shares such legends referring to
the foregoing restrictions.
6. Change in Control Cash Out. During the sixty (60) day period from and
after a Change in Control (as such term is defined in the Plan), the Optionee
shall have the right, whether or not the Stock Option is fully exercisable and
in lieu of the payment of the exercise price for the Shares being purchased
under this Stock Option, to elect to surrender, by giving notice to the Company,
all or part of this Stock Option to the Company and to receive cash, payable by
the Company, within thirty (30) days of such notice, in an amount equal to the
amount by which the Change in Control Price (as such term is defined in the
Plan) per Share on the date of such election shall exceed the Option Price
multiplied by the number of Shares surrendered under this Stock Option; less
such amount as the Company deems necessary to satisfy its liability to withhold
federal, state or local income or other taxes incurred by reason of the number
of Shares surrendered; provided, however, that if the Change in Control is
within six (6) months of the Date of Grant to an Optionee who is an officer or
director of the Company and subject to Section 16(b) of the Exchange Act, then
no such election shall be made by such Optionee with respect to this Stock
Option prior to six (6) months from the Date of Grant.
7. Notices. Any written notice required or permitted under this Non-
Qualified Stock Option Agreement shall be deemed given when delivered
personally, as appropriate, either to the Optionee or to the Corporate
Compensation Department of the Company, or when deposited in a United States
Post Office as registered mail, postage prepaid, addressed, as appropriate,
either to the Optionee at his or her address set forth below or such other
address as he or she may designate in writing to the Company, or to the
Attention: Corporate Compensation, Borg-Warner Automotive, Inc., 200 South
Michigan Avenue, Chicago, Illinois 60604 or such other address as the Company
may designate in writing to the Employee.
8. Failure to Enforce Not a Waiver. The failure of the Company to
enforce at any time any provision of this Non-Qualified Stock Option Agreement
shall in no way be construed to be a waiver of such provision or of any other
provision hereof.
9. Governing Law. All questions concerning the construction, validity
and interpretation of this Non-Qualified Stock Option Agreement shall be
governed by and construed according to the internal law, and not the law of
conflicts, of the State of Illinois, except that questions concerning the
relative rights of the Company and the Optionee with respect to the Shares,
shall be governed by the corporate law of the State of Delaware.
<PAGE>
10. Provisions of Plan. The Stock Option provided for herein is granted
pursuant to the Plan, and said Stock Option and this Non-Qualified Stock Option
Agreement are in all respects governed by the Plan and subject to all of the
terms and provisions thereof, whether such terms and provisions are incorporated
in this Non-Qualified Stock Option Agreement solely by reference or are
expressly cited herein.
IN WITNESS WHEREOF, the Company has executed this Non-Qualified Stock
Option Agreement in duplicate on the day and year first above written.
BORG-WARNER AUTOMOTIVE, INC.
By:---------------------------------------------
Chairman
The undersigned hereby accepts, and agrees to, all terms and provisions of the
foregoing Non-Qualified Stock Option Agreement.
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Signature
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Print Name
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Social Security Number
Address: --------------------------------------------------
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