SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended March 31, 1997
Commission file number: 1-12162
BORG-WARNER AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3404508
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
200 South Michigan Avenue, Chicago, Illinois 60604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 322-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO
On April 30, 1997 the registrant had 23,615,744 shares of Common Stock and
59,000 shares of Series I Non-Voting Common Stock outstanding.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1997
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Introduction . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 . . . . . .3
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 . . . . . 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 . . . . . .5
Notes to Consolidated Financial Statements .. . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . 10
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . .15
Item 2. Changes in Securities . . . . . . . . . . . . .16
Item 3. Defaults Upon Senior Securities . . . . . . . .16
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . .16
Item 5. Other Information . . . . . . . . . . . . . . .16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .18
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1997
PART I.
ITEM 1.
A. Borg-Warner Automotive, Inc. and Consolidated Subsidiaries'
Financial Statements
The financial statements of Borg-Warner Automotive, Inc. and Consolidated
Subsidiaries ("Company") have been prepared in accordance with the instructions
to Form 10-Q under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The statements are unaudited but include all adjustments,
consisting only of recurring items, except as noted, which the Company considers
necessary for a fair presentation of the information set forth herein. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire year. The
following financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
<S> <C> <C>
ASSETS 1997 1996
Cash and cash equivalents $ 13.2 $ 11.5
Receivables 144.9 124.6
Inventories 98.6 91.1
Prepayments 11.0 8.1
Deferred income tax asset 17.8 17.8
------- -------
Total current assets 285.5 253.1
Property, plant, and equipment at cost 868.8 863.1
Less accumulated depreciation 336.7 328.9
------- -------
Net property, plant and equipment 532.1 534.2
Investments and advances 135.0 135.9
Goodwill 551.0 555.7
Deferred income tax asset 34.6 35.4
Other noncurrent assets 110.5 109.3
------- -------
Total other assets 831.1 836.3
------- -------
$1,648.7 $1,623.6
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- -----------------------------------
Notes payable $ 36.7 $ 38.0
Accounts payable and accrued expenses 291.8 269.3
Income taxes payable 39.4 30.6
Total current liabilities 367.9 337.9
Long-term debt 264.0 279.3
Long-term retirement-related liabilities325.6 326.8
Other long-term liabilities 50.8 50.8
------- ------
Total long-term liabilities 376.4 377.6
Capital stock:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized
50,000,000 shares; issued and outstanding
shares of 23,611,972 in 1997 0.2 0.2
Non-voting common stock, $.01 par value;
authorized 25,000,000 shares; issued shares
of 2,520,000 in 1997 and outstanding shares
of 59,000 in 1997 -- --
Capital in excess of par value 564.3 563.9
Retained earnings 83.1 61.8
Currency translation adjustment 0.2 10.3
Minimum pension liability adjustment (7.4) (7.4)
------- -------
Total stockholders' equity 640.4 628.8
------- -------
$1,648.7 $1,623.6
============= ============
</TABLE>
See accompanying notes to consolidated financial statements<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(millions of dollars except share data)
Three Months Ended
March 31,
------------------------
1997 1996
------------ -----------
<TABLE>
<CAPTION>
<S> <C> <C>
Net sales $ 443.5 $ 348.9
Cost of sales 345.7 277.5
Depreciation 16.8 18.4
Selling, general and administrative expenses 36.0 30.8
Minority interest 0.7 0.7
Goodwill amortization 4.1 2.6
Equity in affiliate earnings and other income (4.0) (4.1)
---------- ---------
Earnings before interest and finance
charges and income taxes 44.2 23.0
Interest expense and finance charges 6.5 3.5
---------- ---------
Earnings before income taxes 37.7 19.5
Provision for income taxes 12.9 7.2
---------- ----------
Net earnings $ 24.8 $ 12.3
========== ===========
Net earnings per share $ 1.05 $ 0.52
========== ===========
Average shares outstanding (thousands) 23,657 23,495
========== ===========
Dividends declared per share $ 0.15 $ 0.15
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(millions of dollars)
Three Months Ended
March 31,
--------------
1997 1996
------ ------
<TABLE>
<CAPTION>
<S> <C> <C>
Operating
Net earnings $ 24.8 $ 12.3
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Non-cash charges (credits) to operations:
Depreciation 16.8 18.4
Goodwill amortization 4.1 2.6
Other, principally equity in affiliate earnings(3.9) (3.7)
Changes in assets and liabilities:
Increase in receivables (23.7) (21.5)
Increase in inventories (9.0) (11.2)
(Increase)decrease in prepayments (3.2) 1.0
Increase in accounts payable and accrued
expenses 25.4 14.5
Increase in income taxes payable 8.9 0.7
Net change in other long-term assets and liabilities 0.3 4.0
------- -------
Net cash provided by operating activities 40.5 17.1
------- --------
Investing
Capital expenditures (23.4) (11.6)
Investment in affiliates - (0.1)
Proceeds from other assets 0.4 0.7
-------- --------
Net cash used for investing activities (23.0) (11.0)
Financing
Net increase in notes payable 0.1 13.9
Additions to long-term debt - 0.2
Reduction in long-term debt (12.4) (12.9)
Proceeds from options exercised 0.4 0.7
Dividends paid (3.5) (3.6)
-------- -------
Net cash used for financing activities (15.4) (1.7)
Effect of exchange rate changes on cash and cash
equivalents (0.4) (0.1)
-------- ------
Net increase in cash and cash equivalents 1.7 4.3
Cash and cash equivalents at beginning of year 11.5 12.1
-------- -----
Cash and cash equivalents at end of period $13.2 $ 16.4
======= ========
Supplemental Cash Flow Information
Net cash paid during the period for:
Interest expense $ 4.1 $ 3.7
Income taxes 5.4 5.7
</TABLE>
See accompanying notes to consolidated financial statements<PAGE>
Borg-Warner Automotive, Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Research and development costs charged to expense for the three months
ended March 31, 1997 were $13.6 million. Costs charged to expense for the
three months ended March 31, 1996 were $11.7 million.
(2) Inventories consisted of the following (millions of dollars):
March 31, December 31,
1997 1996
--------- ------------
<TABLE>
<CAPTION>
<S> <C> <C>
Raw materials $ 40.7 $ 43.5
Work in progress 44.3 30.9
Finished goods 13.6 16.7
-------- -------------
Total inventories $ 98.6 $ 91.1
======== =============
</TABLE>
(3) The Company has a 50% interest in NSK-Warner K.K. ("NSK-Warner"),a joint
venture based in Japan that manufactures automatic transmission components.
The Company's share of the earnings or losses reported by NSK-Warner is
accounted for using the equity method of accounting. NSK-Warner has a fiscal
year-end of March 31.
The Company's investment in NSK-Warner was $124.4 million at March 31,
1997 and $127.1 million at December 31, 1996. The decrease in the investment
is due to the impact of the change in currency rates and dividends received.
Following are summarized financial data for NSK-Warner. Balance sheet data
is presented as of March 31, 1997 and March 31, 1996 and statement of income
data is presented for the three and twelve months ended March 31, 1997 and
1996. The Company's results include its share of NSK-Warner's results for the
three months ended February 28, 1997 and 1996.
March 31, March 31,
1997 1996
--------- -----------
<TABLE> (in millions)
<CAPTION>
<S> <C> <C>
Balance Sheet
Current assets $ 151.6 $ 156.5
Noncurrent assets 127.8 152.0
Current liabilities (excluding debt) 80.9 85.8
Noncurrent liabilities (excluding debt) 8.7 11.1
Total debt 7.4 22.7
</TABLE>
Three Months Ended
March 31,
----------------
1997 1996
------ -------
<TABLE> (in millions)
<CAPTION>
<S> <C> <C>
Statement of Income
----------------------
Net sales $ 75.7 $ 76.6
Gross profit 21.0 24.4
Net income 8.2 8.5
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
Statement of Income (in millions)
------------------------
Net sales $ 296.5 $ 302.4
Gross profit 79.1 79.6
Net income 29.7 31.2
</TABLE>
<PAGE>
(4) The Company's provision for income taxes for the three months ended March
31, 1997 and 1996 are based upon estimated annual tax rates for the year applied
to federal, state and foreign income. The effective rate differs from the U.S.
statutory rate primarily due to a)state income taxes, b)foreign rates which
differ from those in the U.S., and c) realization of certain business tax
credits, including foreign tax credits and research and development credits for
1997.
(5) Following is a summary of notes payable and long-term debt:
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------- -------------------
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
DEBT (millions of dollars)
Bank borrowings $ 16.5 $ 44.1 $ 17.9 $ 56.5
Bank term loans due through 2001
(at an average rate of 5.2% at
March, 1997 and 5.1% at
December, 1996) 20.0 64.6 20.0 67.2
7% Senior Notes due 2006, net
of unamortized discount -- 149.6 -- 149.6
Capital lease liability 0.2 5.7 0.1 6.0
------- ------- -------- ---------
Total notes payable and
long-term debt $ 36.7 $ 264.0 $ 38.0 $ 279.3
======= ========== ========= ==========
</TABLE>
<PAGE>
The Company maintains a $350 million revolving credit facility. The
facility was unused at December 31, 1996. At March 31, 1997, there was $25
million outstanding. The facility is available through September 30, 2001.
The credit agreement contains numerous financial and operating covenants
including, among others, covenants requiring the Company to maintain certain
financial ratios and restricting its ability to incur additional foreign
indebtedness.
(6) The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency and certain state environmental
agencies and private parties as potentially responsible parties ("PRPs") at 25
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent state laws and, as
such, may be liable for the cost of clean-up and other remedial activities at
these sites. Responsibility for clean-up and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
Based on information available to the Company which, in most cases,
includes: an estimate of allocation of liability among PRPs; the probability
that other PRPs, many of whom are large, solvent public companies, will fully
pay the costs apportioned to them; currently available information from PRPs
and/or federal or state environmental agencies concerning the scope of
contamination and estimated remediation costs; estimated legal fees; and other
factors, the Company has established a reserve in its financial statements for
indicated environmental liabilities with a balance of approximately $8.6 million
at March 31, 1997. The Company expects this amount to be expended over the next
three to five years.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the
Company for past costs of approximately $2.3 million and for future costs
related to these environmental matters. At the time of the Spin-Off, BW-
Security maintained a letter of credit for approximately $9 million with respect
to the principal portion of such environmental matters. Although there can be
no assurance, based upon information currently available to the Company, the
Company does not believe that it is required to indemnify BW-Security under the
Distribution and Indemnity Agreement with respect to such liabilities. The
parties have agreed to submit this matter to binding arbitration which is
expected to be completed during 1997. The Company does not currently have
information sufficient to determine what its liability would be if it is
ultimately determined that it is required to indemnify BW-Security with respect
to such liabilities.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such matter.
As of March 31, 1997, the Company had sold $100 million of receivables
under an $102 million Receivables Transfer Agreement for face value without
recourse. The Company had sold receivables aggregating $100 million under
similar facilities at December 31, 1996.
(7) In April 1997, the Company announced that it plans to seek a buyer for the
powder metal engine connecting rod business and that Lehman Brothers has been
retained to solicit proposals. The connecting rod product line was acquired as
part of the Company's purchase of the Precision Forged Products Division from
Federal-Mogul corporation in 1995. The connecting rod business does not offer a
strategic fit with the Company's core business and although the business is
experiencing rapid growth and is a solid process-oriented business, management
has determined the Company's resources are better spent on the Company's core
technologies in highly engineered products and systems for drivetrain
applications. For the three months ended March 31, 1997, this business reported
net sales of $7.8 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Borg-Warner Automotive, Inc. (the "Company") operates as a leading, global
supplier primarily to original equipment manufacturers (OEMs") of passenger
cars, sport utility vehicles and light trucks in the North American, European
and Asian markets. Its products include a wide variety of highly engineered
components and systems primarily related to drivetrain applications. Examples
include "shift quality" automatic transmission components and systems, four-
wheel drive ("4WD") transfer cases, automotive chain and chain systems, engine
timing components and systems, and a variety of air and fluid control components
and systems for engine and fuel systems control.
The following discussion covers the results of operations for the three months
ended March 31, 1997 and 1996 and financial condition as of March 31, 1997 and
December 31, 1996.
RESULTS OF OPERATIONS
The Company's products fall into four operating groups: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. Net sales by
operating group for the three months ended March 31, 1997 and 1996 are as
follows (in millions of dollars):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------- -------
<S> <C> <C>
Powertrain Systems $155.2 $139.0
Automatic Transmission Systems 127.8 119.3
Morse TEC 79.4 66.0
Air/Fluid Systems 95.4 33.8
------ -------
457.8 358.1
Intergroup eliminations (14.3) (9.2)
------- -------
Net sales $443.5 $348.9
======= =======
</TABLE>
<PAGE>
Sales for the quarter ended March 31, 1997 were up 27% from the same period in
the prior year continuing the Company's trend of growth exceeding that of world
automobile production. Adjusted for the effect of the manual transmission sale
in December 1996 and the acquisition of the Holley Automotive, Coltec Automotive
and Performance Friction Products businesses ("Coltec") in June 1996, sales
increased 19%, compared with North American production which was up 7%, Japanese
production which increased by 10% and a European market which decreased by 2%.
Strong sales of 4WD transfer cases, engine timing chain systems, transmission
chain, and automatic transmission components drove the increase for the quarter.
Revenue growth continued from the Company's presence on sport-utility vehicles
and light trucks, which continue to outpace the overall growth in the automotive
marketplace. Of the quarterly sales increase, $63 million or 67% of the sales
gain was contributed by the Coltec businesses, acquired in June 1996.
Powertrain Systems realized a $16.2 million increase in sales over the same
period of 1996, a 12% improvement despite the loss of manual transmission
revenues ($28 million for the first quarter of 1996). Excluding 1996 manual
transmission revenues, the sales gain was 40%. The sales increase was driven by
significant volume increases in the transfer case business. Large transfer case
unit sales increased 43% due to sales of new large transfer cases for the Ford
Expedition and F-150 pickups introduced in late 1996. Small transfer case unit
sales increased 32% due to a higher percentage of total Ford Explorer production
incorporating 4WD. Automatic Transmission Systems sales increased 7%,
principally from volume increases by the Company's OEM customers reflective of
strong first quarter production. Additionally, first quarter 1996 results were
tempered by the General Motors strike in March of 1996. Morse TEC sales rose
20%, reflecting increased sales of engine timing systems and MORSE GEMINI(TM)
Chain Systems to GM which commenced in the third quarter of 1996. Additionally,
the group benefited from engine timing chain system sales for Ford's new 4-liter
overhead cam engine produced in Germany which commenced in late 1996. Air/Fluid
Systems sales, excluding the Coltec units, rose 3%, with increased sales of its
various valve products, clutch coils used in transfer case production and
transmission solenoids.
The Company has increased its spending on research and development by $1.9
million to $13.6 million for the three months ended March 31, 1997 primarily due
to additional spending related to the Coltec businesses acquired in June 1996
and to maintain and expand its technological expertise in both product and
process. Spending represented 3.1% of sales for the first quarter of 1997
compared with 3.4% of sales for the first quarter of 1996. Selling, general and
administrative spending was held in line with 1996 levels except for the effect
of acquisitions. Such costs were 8.1% of sales for the first quarter of 1997
compared to 8.8% of sales for the first quarter of 1996.
For the three months ended March 31, 1997 and 1996, the Company's portion of
NSK-Warner's earnings was $3.5 million and $3.7 million, respectively. NSK-
Warner earnings declined despite an increase in yen denominated operating
results due to continued weakening of the yen against the dollar of
approximately 12% for the first quarter of 1997.
The Company's provision for income taxes for the three months ended March 31,
1997 and 1996 are based upon estimated annual tax rates for the year applied to
federal, state and foreign income. The effective rate differs from the U.S.
statutory rate primarily due to a)state income taxes, b)foreign rates which
differ from those in the U.S., and c) realization of certain business tax
credits, including foreign tax credits and research and development credits for
first quarter 1997. As research and development credits were not effective
until June 1996, the effective rate for first quarter 1996 was slightly higher
than the rate for first quarter 1997.
For the quarter ended March 31, 1997, the Company reported net earnings of $24.8
million, an increase of $12.5 million compared to $12.3 million for the same
period of 1996. The increase was primarily the result of increased sales
volume, and an improvement in gross profit margin from 20.4% to 22.1%. The
margin improvement is the result of volume gains and the effect from the sale of
the manual transmission business in 1996 tempered by price reductions from
customers. The increased earnings were partially offset by increases in
goodwill amortization and interest related to the Coltec acquisition.
FINANCIAL CONDITION AND LIQUIDITY
There were few significant changes in the March 31, 1997 balance sheet as
compared to December 31, 1996. Net working capital, excluding notes payable,
increased by $1.1 million. Increases in receivables, inventories and accounts
payable and accrued expenses were commensurate with the increase in level of
business. Investments and advances declined slightly despite current year
earnings because of the impact of the change in currency rates on the Company's
Japanese joint venture. Equity increased by $11.6 million primarily as a result
of net earnings of $24.8 million offset by $3.5 million of dividends and $10.1
million of translation adjustments primarily due to the strength of the dollar
against the German mark and Japanese yen.
Cash generated from operations for the three months ended March 31, 1997 totaled
$40.5 million primarily from net earnings of $24.8 million and non-cash items
including $16.8 million of depreciation and $4.1 million of goodwill
amortization. The decrease in depreciation is due to the sale of the manual
transmission business and certain assets acquired in the 1987 leveraged buyout
being fully depreciated in May of 1996. The increase in goodwill amortization
is a result of the Coltec acquisition. Capital spending increased $11.8 million
to $23.4 million for the three months ended March 31, 1997 compared to $11.6
million for the same period of 1996. The increase is due to increased spending
to increase capacities and to fund existing and new programs. The Company
anticipates that capital spending for full-year 1997 will be higher than full-
year 1996 due to a full year of spending on the Coltec businesses acquired and
to continue to fund existing and new programs. The Company believes that the
combination of cash from its operations and available credit facilities will be
sufficient to satisfy cash needs for the remainder of 1997.
As of March 31, 1997 and December 31, 1996, the Company had sold $100 million of
receivables under an $102 million Receivables Transfer Agreement for face value
without recourse.
OTHER
In April 1997, the Company announced that it plans to seek a buyer for the
powder metal engine connecting rod business and that Lehman Brothers has been
retained to solicit proposals. The connecting rod product line was acquired as
part of the Company's purchase of the Precision Forged Products Division from
Federal-Mogul Corporation in 1995. The connecting rod business does not offer a
strategic fit with the Company's core business and although the business is
experiencing rapid growth and is a solid process-oriented business, it has been
determined the Company's resources are better spent on the Company's core
technologies in highly-engineered products and systems for drivetrain
applications. For the three months ended March 31, 1997, this business reported
net sales of $7.8 million.
As discussed more fully in Note 6 of the Supplemental Notes to the Consolidated
Financial Statements, various claims and suits arising in the ordinary course of
business and seeking money damages have been filed against the Company. In each
of these cases, the Company believes that it has a defendable position or has
made adequate provisions to protect the Company from material losses. The
Company believes that it has established adequate provisions for litigation
liabilities in its financial statements in accordance with generally accepted
accounting principles. These provisions include both legal fees and possible
outcomes of legal proceedings.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the
Company for past costs of approximately $2.3 million and for future costs
related to these environmental matters. At the time of the Spin-Off, BW-Secur-
ity maintained a letter of credit for approximately $9 million with respect
to the principal portion of such environmental matters. Although there can be
no assurance, based upon information currently available to the Company, the
Company does not believe that it is required to indemnify BW-Security under the
Distribution and Indemnity Agreement with respect to such liabilities. The
parties have agreed to submit this matter to binding arbitration which is
expected to be completed during 1997. The Company does not currently have
information sufficient to determine what its liability would be if it is
ultimately determined that it is required to indemnify BW-Security with respect
to such liabilities.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRP's although no assurance can be given with respect to the ultimate
outcome of any such matter.
On April 7, 1997, the Company declared a $0.15 per share dividend to be paid on
May 15, 1997 to shareholders of record on May 1, 1997.
PART II
Item 1. Legal Proceedings
The Company is presently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business. In certain such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company believes that it has established adequate reserves for
litigation liabilities in its financial statements in accordance with generally
accepted accounting principles. These provisions include both legal fees and
possible outcomes of legal proceedings.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the
Company for past costs of approximately $2.3 million and for future costs
related to these environmental matters. At the time of the Spin-Off, BW-
Security maintained a letter of credit for approximately $9 million with respect
to the principal portion of such environmental matters. Although there can be
no assurance, based upon information currently available to the Company, the
Company does not believe that it is required to indemnify BW-Security under the
Distribution and Indemnity Agreement with respect to such liabilities. In
addition, the Company does not currently have information sufficient to
determine what its liability would be if it is ultimately determined that it is
required to indemnify BW-Security with respect to such liabilities.
Centaur Insurance Company ("Centaur"), Borg-Warner Security's
("BW-Security") discontinued property and casualty insurance subsidiary, ceased
writing insurance in 1984 and has been operating under rehabilitation since
September 1987. Rehabilitation is a process supervised by the Illinois Director
of Insurance to attempt to compromise liabilities at an aggregate level that is
not in excess of the subsidiary's assets. In the rehabilitation, Centaur's
assets are currently being used to satisfy claim liabilities under direct
insurance policies written by Centaur. Any remaining assets will be applied to
Centaur's obligations to other insurance companies under reinsurance contracts.
The foregoing has resulted in several lawsuits seeking substantial dollar
amounts being filed against BW-Security, and in some cases the Company, for
recovery of alleged damages from the failure of Centaur to satisfy its
reinsurance obligations. All of these lawsuits, except one to which the Company
is not currently a party, have been settled. The defense of this litigation is
being managed by BW-Security and the Company is indemnified by BW-Security for
any losses or expenses arising out of the litigation.
It is the opinion of the Company that the various asserted claims and
litigation in which the Company is currently involved will not materially affect
its financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome for any such claim or litigation.
Item 2. Changes in Securities
Inapplicable.
Item 3. Defaults Upon Senior Securities
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable
Item 5. Other Information
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit No. 3.1 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993).
3.2 By-laws of the Company (incorporated by reference to Exhibit
No. 3.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993).
10.1 Borg-Warner Automotive, Inc., 1993 Stock Incentive Plan
as amended effective November 8, 1995 and as further
amended effective April 29, 1997.
27.0 Financial data schedule
(b) Reports on Form 8-K
A report on Form 8-K dated February 6, 1997 was filed with the
Commission under Item 5, Other Events, during the first quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
BORG-WARNER AUTOMOTIVE, INC.
(Registrant)
By: /s/ William C. Cline
----------------------------
WILLIAM C. CLINE
(Signature)
William C. Cline
Vice President and Controller
(Principal Accounting Officer)
Date: May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition as of March 31, 1997
(unaudited) and the Condensed Consolidated Statement of Income for the Three
Months Ended March 31, 1997 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,4
<SECURITIES> 3,8
<RECEIVABLES> 144,9
<ALLOWANCES> 0
<INVENTORY> 98,6
<CURRENT-ASSETS> 285,5
<PP&E> 868,8
<DEPRECIATION> 336,7
<TOTAL-ASSETS> 1,648,7
<CURRENT-LIABILITIES> 367,9
<BONDS> 376,4
0
0
<COMMON> ,2
<OTHER-SE> 640,2
<TOTAL-LIABILITY-AND-EQUITY> 1,648,7
<SALES> 443,5
<TOTAL-REVENUES> 443,5
<CGS> 345,7
<TOTAL-COSTS> 345,7
<OTHER-EXPENSES> 53,6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,5
<INCOME-PRETAX> 37,7
<INCOME-TAX> 12,9
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,8
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
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-Quali-
fied 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.
<TABLE>
<CAPTION>
Column (i) Column (ii)
Cumulative Percentage
Exercisable of Exercisable
Date Stock Option
------------------- -----------------------------
<S> <C>
August 12, 1995 50%
August 12, 1996 100%
</TABLE>
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.
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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