SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT No. ___)
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement.
[x] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
[ ] Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)
(2)).
BORG-WARNER AUTOMOTIVE, INC.
(Name of Registrant as Specified in its Charter)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee if
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided in Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
or the former schedule and the date of its filing.
(1) Amount paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
BORG-WARNER AUTOMOTIVE, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Chicago, Illinois
March 20, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Borg-Warner Automotive, Inc. will be
held on April 28, 1998, at 11:00 a.m. at the Company's headquarters located at
200 South Michigan Avenue, Chicago, Illinois, 60604, for the following
purposes:
1. To elect the Class II Directors to serve for the next three years;
2. To approve the amendment of the Company's 1993 Stock Incentive Plan;
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for 1998; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders at the close of business on March 16, 1998 will be
entitled to vote at the meeting or any adjournment or postponement thereof.
By order of the Board of Directors
Laurene H. Horiszny
Secretary
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOUR
VOTE IS IMPORTANT.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
200 South Michigan Avenue
Chicago, Illinois 60604
----------------------
PROXY STATEMENT
----------------------
March 20, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Borg-Warner Automotive, Inc. (the
"Company") to be used at the Annual Meeting of Stockholders of the Company on
April 28, 1998, to be held at the Company's headquarters at 200 South Michigan
Avenue, Chicago, Illinois 60604. This Proxy Statement and accompanying form of
proxy are being mailed to stockholders beginning on or about March 20, 1998. The
Company's Annual Report to Stockholders for the year ended December 31, 1997 is
enclosed.
Only stockholders of record at the close of business on March 16, 1998,
will be entitled to vote at the meeting. As of such date, there were 23,753,365
issued and 23,610,409 outstanding shares of Common Stock (the "Common Stock").
Each share of Common Stock entitles the holder to one vote. Holders of the
Company's Non-Voting Common Stock are not entitled to notice of, or to vote at,
the Annual Meeting.
The enclosed proxy, if properly signed and returned, will be voted in
accordance with its terms. Any proxy returned without specification as to any
matter will be voted as to each proposal in accordance with the recommendation
of the Board of Directors. You may revoke your proxy at any time before the vote
is taken by delivering to the Secretary of the Company written revocation or a
proxy bearing a later date, or by attending and voting at the Annual Meeting.
The cost of solicitation of proxies will be borne by the Company. To assist
in the solicitation of proxies, the Company has retained Corporate Investor
Communications, Inc. at an estimated cost of $3,000. In addition to solicitation
of proxies by use of the mail, proxies may be solicited by directors, officers
and regularly engaged employees of the Company. Brokers, nominees and other
similar record holders will be requested to forward solicitation material and
will be reimbursed by the Company upon request for their reasonable out-of-
pocket expenses.
Votes cast by proxy or in person at the meeting will be tabulated by the
election inspectors appointed for the meeting and will determine whether a
quorum is present. Unless otherwise indicated herein, the election inspectors
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders for a vote.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
1. ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes. Three
nominees (the "Class II Directors") are to be elected at this meeting to serve
for a term of three years and until their successors are elected and qualified.
Three other directors (the "Class III Directors") have terms expiring at the
1999 Annual Meeting of Stockholders and three other directors (the "Class I
Directors") have terms expiring at the 2000 Annual Meeting of Stockholders. Each
of the nominees for election as Class II Director is presently a director of the
Company and has agreed to serve if elected. In the event that any nominee should
become unavailable for election, the Board of Directors may designate a
substitute nominee, in which event the shares represented by proxies at the
meeting will be voted for such substitute nominee unless an instruction to the
contrary is indicated on the proxy card. A plurality of votes of shares of
Common Stock present in person or by proxy at the meeting is required to elect a
director.
The following table sets
forth as of March 16, 1998, with respect to each nominee and each director
continuing to serve, their name, age, principal occupation, the year in which
they first became a director of the Company (if currently a director) and
directorships in other corporations.
Class I Directors Age Principal Occupation
and Directorships
- ------------------- -------- ------------------------
Andrew F. Brimmer
1997 71 Dr. Brimmer has been President of Brimmer &
Company,Inc., an economic and financial consulting
firm since July, 1976. He is a Director of E.I.
duPont de Nemours & Company, Airborne Express,
CarrAmerica Realty Corporation, Navistar
International Corporation, BlackRock Investment
Income Trust, Inc. and other BlackRock funds.
James J. Kerley
1994 75 Mr. Kerley was Chairman of the Board of Rohr, Inc.
("Rohr"), a manufacturer of aircraft engine
components from January 1993 until his retire-
ment in December 1994. Mr. Kerley was interim
President and Chief Executive Officer of Rohr
from January 1993 until May 1993. Mr. Kerley is
a Director of Atlantic Coast Airlines, Inc.,
DT Industries, Inc., and Goss Graphic Systems,
Inc.
Alexis P. Michas
1993 40 Mr. Michas has been a Managing Partner since 1996
and a Director of Stonington Partners, Inc., an
investment management firm, since 1993, and a
Managing Partner and a Director of Stonington
Partners, Inc. II since 1994. He has been a
Director of Merrill Lynch Capital Partners
("MLCP") since 1989 and a Consultant to MLCP since
1994. He was a Partner of MLCP from 1993 to
1994. He was also a Managing Director of the
Investment Banking Division of Merrill Lynch,
Pierce, Fenner & Smith Incorporated("MLPF&S")
from 1991 to 1994. He is a Director of Blue Bird
Corporation, Borg-Warner Security Corporation
("BW-Security"), Dictaphone Corporation, Goss
Graphic Systems, and Packard BioScience Company.
Class II Directors Age Principal Occupation
and Directorships
Jere A. Drummond
1996 58 Mr. Drummond has been President and Chief
Executive Officer of BellSouth Telecommunications,
Inc. since January 1995 and was elected a director
of BellSouth Telecommunications, Inc. in July
1993. He was Group President-Customer Operations
from March 1991 until December 1994.
Ivan W. Gorr
1995 68 Mr. Gorr was Chairman and Chief Executive Officer
of Cooper Tire & Rubber Company from 1989 until
his retirement in 1994. Mr. Gorr is a Director of
Amcast Industrial Corporation, Arvin Industries,
Inc. and Fifth Third Bancorp.
John F. Fiedler
1994 59 Mr. Fiedler has been Chairman of the Board since
March 1996 and Chief Executive Officer of the
Company since January 1995. He was President from
June 1994 to March 1996 and Chief Operating
Officer from June 1994 to December 1994. Mr.
Fiedler was Executive Vice President of The
Goodyear Tire & Rubber Company, in charge of the
North American Tire Division, from 1991 to 1994.
He is a Director of Navistar International
Corporation.
Class III Directors Age Principal Occupation
and Directorships
John Rau
1997 49 Mr. Rau has been President and Chief Executive
Officer of Chicago Title and Trust Company, a
provider of real estate services, since January
1997. From July 1993 to December 1996, he was Dean
of the Indiana University School of Business.
Mr. Rau is also a Director of the combined Board
of Directors of Chicago Title and Trust Company
and Chicago Title Insurance Co., and LaSalle
National Bank.
Paul E. Glaske
1994 64 Mr. Glaske has been Chairman and Chief Executive
Officer since April 1992 and President since July
1986 of Blue Bird Corporation, a leading manufac-
turer of school buses, motor homes and a variety
of other vehicles. Mr. Glaske is also a Director
of Trust Company Bank of Middle Georgia.
William E. Butler
1997 67 Mr. Butler was Chairman of the Board and Chief
Executive Officer of Eaton Corporation, a global
manufacturer of industrial, vehicle, construction,
commercial and aerospace products, from January
1992 until his retirement at the end of 1995. Mr.
Butler is a Director of Applied Industrial
Technologies, Ferro Corporation, The Goodyear Tire
& Rubber Company, Pitney Bowes, Inc. and Zurn
Industries, Inc.
Meetings of the Board of Directors and Committees
The Board of Directors held four regular meetings and two special meetings
during 1997. Messrs. Fiedler, Drummond, Glaske, Gorr, Kerley and Michas attended
at least 75% of the meetings of the Board of Directors and any committee on
which they served. After joining the Board during 1997, Messrs. Butler, Rau and
Brimmer attended at least 75% of the meetings of the Board of Directors.
The Board of Directors has a standing Compensation Committee, Finance and
Audit Committee and Board Affairs Committee.
The present members of the Compensation Committee are Messrs. Glaske
(Chairman), Gorr, Kerley and Drummond. The responsibilities of the Compensation
Committee include reviewing and approving executive appointments and
remuneration and supervising the administration of the Company's employee
benefit plans. The Compensation Committee met three times during 1997.
The present members of the Finance and Audit Committee are Messrs. Kerley
(Chairman), Gorr, Michas and Brimmer. The responsibilities of the Finance and
Audit Committee include: recommending to the Board of Directors the independent
certified public accountants to conduct the annual audit of the books and
accounts of the Company; reviewing the proposed scope of such audit and
approving the audit fees to be paid; and reviewing the adequacy and
effectiveness of the internal auditing, accounting and financial controls of the
Company with the independent certified public accountants and the Company's
financial and accounting staff. The Finance and Audit Committee met four times
during 1997. Dr. Brimmer did not attend at least 75% of the Finance and Audit
Committee meetings during 1997.
The present members of the Board Affairs Committee are Messrs. Gorr
(Chairman), Glaske, Kerley and Michas. The responsibilities of the Board Affairs
Committee include making recommendations to the Board of Directors regarding:
(i) Board composition and structure, (ii) the nature, duties and powers of Board
committees, (iii) term of office for members, (iv) qualified persons to be
nominated for election or re-election as directors, (v) stockholders'
suggestions for board nominations and (vi) the successor to the Chief Executive
Officer. The Board Affairs Committee also establishes criteria for board and
committee membership and evaluates Company policies relating to the recruitment
of directors. The Board Affairs Committee met four times during 1997.
In 1997, the Board adopted the Board of Directors Guidelines on Corporate
Governance Issues (the "Guidelines") which set forth the Board's position on
various corporate governance matters. The Guidelines, among other things,
describe the responsibilities of each of the Board's Committees, certain
procedures for Board meetings, the Board's policy on independent directors, and
the Company's preparation for succession and management development.
Stockholders may make suggestions for board nominations pursuant to
procedures set forth in the Company's By-Laws.
Compensation of Directors
Directors who are not employees of the Company or its subsidiaries received
an annual retainer of $22,000 for service on the Board of Directors and $1,000
for each Board meeting attended. Committee members also receive $750 ($1,500 if
Chairman of a committee) for each committee meeting attended.
Dr. Brimmer received $750 for attending a special orientation meeting in
1997.
In addition, under the terms of the Borg-Warner Automotive, Inc. 1993 Stock
Incentive Plan, as Amended (the "1993 Plan"), each director of the Company who
from and after February 1, 1993, is not otherwise an employee of the Company or
any of its subsidiaries or affiliates (as defined in the 1993 Plan) shall, on
the third Tuesday of each year, automatically receive an annual grant of options
to purchase 1,000 shares of Common Stock having an exercise price equal to the
fair market value of the Common Stock at the date of grant of such option. Each
director, upon joining the Board, will also receive an initial grant of options
to purchase 2,000 shares of Common Stock having an exercise price equal to the
fair market value of the Common Stock as of such date. All such options expire
ten years after the date of grant and become exercisable in installments on the
second and third anniversaries of the date of grant.
Stock Ownership
The following table sets forth as of March 16, 1998, certain information
regarding beneficial ownership of Common Stock by all entities that, to the best
knowledge of the Company, beneficially owned more than five percent of the
Common Stock.
Name of Beneficial Owner Number of shares Percent of class
Sound Shore Management, Inc 1,450,900(a) 6.1%
8 Sound Shore Drive
P.O. Box 1810
Greenwich, Connecticut 06036
Morgan Stanley, Dean Witter,
Discover & Co. 1,730,644(b) 7.3%
1585 Broadway
New York, New York 10036
- --------------
(a) As of March 16, 1998, Sound Shore Management, Inc. indicated that it had
sole voting power with respect to 1,354,500 shares, shared voting power with
respect to 71,100, and sole disposition power with respect to 1,529,100 shares.
(b) Pursuant to a Schedule 13G, dated February 13, 1998, Morgan Stanley, Dean
Witter, Discover & Co. indicated that it had shared voting power with respect to
1,254,944 shares and shared dispositive power with respect to 1,730,644 shares.
The following table sets forth as of March 16, 1998 certain information
regarding beneficial ownership of Common Stock by the Company's directors and
executive officers named in the Summary Compensation Table and by all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of shares(a) Percent of class
- ------------------------- -------------------- ----------
<S> <C> <C>
John F. Fiedler 98,217 *
Gary P. Fukayama 53,683 *
Fred M. Kovalik 9,583 *
Ronald M. Ruzic 57,151 *
Robert D. Welding 20,484 *
Andrew F. Brimmer 600 *
William E. Butler 500 *
Jere A. Drummond 0 *
James J. Kerley 4,500 *
Paul E. Glaske 8,500 *
Ivan W. Gorr 2,500 *
Alexis P. Michas 30,885 *
John Rau 2,000 *
All directors and executive
officers of the Company
(18 persons) 391,193 1.7%
- -----------------------
</TABLE>
* Represents less than one percent.
(a) Includes the following number of shares issuable upon the exercise of
options within the next 60 days: 25,000 for Mr. Fiedler; 38,700 for Mr.
Fukayama; 37,500 for Mr. Ruzic; 8,200 for Mr. Welding; 3,500 for Mr. Kerley;
1,500 for Mr. Gorr; 3,500 for Mr. Glaske; and 200,600 for all directors and
executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
executive officers, directors and greater than 10% stockholders file certain
reports with respect to beneficial ownership of the Company's equity securities.
Based on information provided to the Company by each director and executive
officer, the Company believes all reports required to be filed in 1997 were
timely filed.
Executive Compensation
The following table shows, for the years ending December 31, 1997, 1996 and
1995, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid or accrued for these years, to the Company's
Chief Executive Officer and the other persons who were serving as executive
officers at December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards(b)
Name and -------------
Principal
Position Annual Compensation Other Annual Securities
- --------- -------------------- Compensation Underlying LTID All Other
Year Salary($) Bonus($) ($)(a) Options(#) Payouts Compensation($)(c)
---- -------- -------- ------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John F.
Fiedler
Chairman &
Chief
Executive
Officer 1997 $472,500 $552,528 $0 6,000 $961,748 $96,530
1996 $450,000 $428,828 $377,500(d)10,000 $0 $51,158
1995 $450,000 $415,752 $0 0 $0 $70,152
Gary P.
Fukayama
Executive
Vice
President 1997 $306,300 $155,319 $372,460(d)(e) 0 $339,441 $35,783
1996 $271,238 $199,600 $4,820(e) 0 $0 $32,126
1995 $212,000 $211,798 $0 0 $0 $27,445
Fred M.
Kovalik
Executive
Vice
President 1997 $246,900 $245,600 $596,750(d) 0 $339,441 $34,330
1996 $246,300 $177,940 $0 0 $0 $25,450
1995 $236,300 $36,155 $0 0 $0 $36,101
Ronald M.
Ruzic
Executive
Vice
President 1997 $249,792 $210,360 $0 0 $339,441 $69,326
1996 $231,000 $192,170 $600,469(d) 0 $0 $41,049
1995 $219,000 $197,413 $0 0 $0 $67,221
Robert D.
Welding
Vice
President 1997 $200,000 $164,217 $113,594(d) 0 $96,983 $38,189
1996 $168,779 $118,913 $0 0 $0 $20,305
1995 $125,572 $57,642 $6,946(e) 0 $0 $20,646
- -----------
</TABLE>
<PAGE>
(a) Excludes certain non-cash benefits that are deemed compensation for federal
income tax purposes. These non-cash benefits are provided by the Company to its
executive officers and include group term life insurance and automobiles. The
net cost to the Company of such benefits during 1995, 1996, or 1997 did not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus for
each named executive officer.
(b) No restricted stock awards or long-term incentive plan payouts were made in
1995, 1996, or 1997.
(c) Includes amounts contributed by the Company on behalf of the named
executive officers during 1995, 1996 and 1997 pursuant to the provisions of the
Borg-Warner Automotive, Inc. Retirement Savings Plan and credits made pursuant
to the Borg-Warner Automotive, Inc. Retirement Savings Excess Benefit Plan.
(d) Represents gain on stock option exercise(s).
(e) Represents gross-up to cover taxes incurred for relocation expense
reimbursement.
Stock Options
The following table sets forth information with respect to the named executive
officers concerning grants of stock options made during 1997 and concerning
unexercised options held as of December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Number of Rates of Stock
Securities % of Total Price Appreciation
Underlying Options Granted Exercise for Option Term
Options Grantedto Employees Price Expiration
Name (#)(a) in Fiscal Year ($/Sh) Date 5%($) 10%($)
- ------------ --------- -------------- ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
John F. Fiedler 6,000 5.3% $38.750 1/2/07 $146,218 $370,545
Gary P. Fukayama 0 0.0% $ 0.000 n.a. $0 $0
Fred M. Kovalik 0 0.0% $ 0.000 n.a. $0 $0
Ronald M. Ruzic 0 0.0% $ 0.000 n.a. $0 $0
Robert D. Welding0 0.0% $ 0.000 n.a. $0 $0
- -------------
</TABLE>
(a) Options granted in 1997 are exercisable starting 24 months after the grant
date, with 50% of the shares covered thereby becoming exercisable at that time
and with the remaining 50% of the option shares becoming exercisable on the
third anniversary date. The options were granted for a term of 10 years,
subject to earlier termination in certain events related to termination of
employment.
The following table sets forth information with respect to the named executive
officers concerning the exercise of stock options during 1997 and concerning
unexercised options held at December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at FY-End(#) at FY-End($)(b)
on Exercise Value --------------------- -------------------
Name (#) Realized($) ExercisableUnexercisable(a)ExercisableUnexercisable
- ------- ------ ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John F.
Fiedler 0 $ 0 20,000 16,000 $ 568,750 $ 278,875
Gary P.
Fukayama 6,300 $278,775 40,700 0 $ 1,276,248 $ 0
Fred M.
Kovalik 25,000 $596,750 0 0 $ 0 $ 0
Ronald M.
Ruzic 0 $ 0 40,500 0 $ 1,282,585 $ 0
Robert D.
Welding 2,500 $113,594 8,200 0 $ 245,003 $ 0
- --------------
</TABLE>
(a) Represents shares that could not be acquired by the named executive
officer as of December 31, 1997 and that become exercisable based upon
the satisfaction of certain periods of employment.
(b) Represents the difference between the exercise price and the share price
of Common Stock as of December 31, 1997.
Long-Term Incentive Plans
The following table sets forth information with respect to the named executive
officers concerning long-term incentive plan awards made during 1997 pursuant
to the Company's Executive Stock Performance Plan.
<TABLE>
<CAPTION>
Estimated Future Payouts
Number of under Non-Stock
Shares, Performance or Price-Based Plans(c)
Units Other Period ---------------------
or Other Until Maturation Threshold Target Maximum
Name Rights(#)(a) or Payout(b) ($) ($) ($)
- ---------------- ------------- -------------------------- ------ -----
<S> <C> <C> <C> <C> <C>
John F. Fiedler 595 36 months 148,750 595,000 1,041,250
Gary P. Fukayama 300 36 months 75,000 300,000 525,000
Fred M. Kovalik 210 36 months 52,500 210,000 367,500
Ronald M. Ruzic 210 36 months 52,500 210,000 367,500
Robert D. Welding 210 36 months 52,500 210,000 367,500
All executive
officers, as a
group (10) 1,975 36 months 493,750 1,975,000 3,456,250
All employees,
who are not
executive
officers (3) 140 36 months 35,000 140,000 245,000
- -----------
</TABLE>
<PAGE>
(a) Performance units with an initial value of $1,000 per unit.
(b) The performance period for the 1997-1999 cycle is January 1, 1997 through
December 31, 1999.
(c) Payouts under the Company's Executive Stock Performance Plan are based
upon the percentile rank of the total stockholder return of the
Company among the total stockholder returns of a peer group of
companies. Total stockholder return is based on a formula relating to
market price appreciation of the Company's common stock and dividend
return as compared to the peer group companies' stock market price
appreciation and dividend return.
Employment Agreements
The Company has entered into an employment agreement, effective January 1,
1998 (the "Agreement"), with Mr. Fiedler which provides, among other things, for
Mr. Fiedler's full-time employment until December 30, 2002 at an annual salary
of not less than $500,000. Subject to the terms and conditions of the Agreement,
Mr. Fiedler will be eligible for annual performance bonuses and awards under the
Company's Executive Stock Performance Plan at target levels no less than those
set for 1997. In addition, the Company granted Mr. Fiedler a Non-Qualified Stock
Option, subject to the provisions of the 1993 Plan and the terms and conditions
of a Non-Qualified Stock Option Agreement, to purchase from the Company 75,000
shares of Common Stock at the fair market value per share on January 27, 1998,
such option to be exercisable for the entire 75,000 shares on December 30, 2002.
In addition, subject to the terms and conditions of the Agreement, and a non-
negotiable full recourse Promissory Note dated January 30, 1998 (the "Note"),
the Company has loaned Mr. Fiedler $2 million to be used exclusively for the
purchase of the Company's Common Stock. The entire loan, including all
accumulated interest, will be forgiven by the Company if Mr. Fiedler remains
employed by the Company through December 30, 2002 or as of earlier termination
by reason of death, "disability," or involuntary termination other than for
"cause." The Note will also be forgiven in the event of a "Change of Control"
as defined below.
The Company has entered into Change of Control Employment Agreements (the
"Change of Control Employment Agreements") with each of the named executive
officers. Below is a general description of certain terms and conditions of the
Change of Control Employment Agreements.
In the event of a "Change of Control" of the Company followed within three
years by (1) the termination of the executive's employment for any reason other
than death, disability, or "Cause" or (2) the termination of the executive's
employment by the executive for "Good Reason", the Change of Control Employment
Agreements provide that the executive shall be paid a lump sum cash amount equal
to three times the executive's annual base salary and recent average bonus, and
a lump sum cash amount equal to three times the Company's retirement
contributions which would have been made on behalf of the executive in the first
year after termination of employment. In addition, the executive is entitled to
continued employee welfare benefits for three years after termination of
employment.
"Change of Control" means (a) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934) of beneficial ownership of 20% or more of either (i) the
then outstanding shares of Common Stock of the Company or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors, (b) a change in the majority of
the Board, or (c) a major corporate transaction, such as a merger, sale of
substantially all of the Company's assets or a liquidation, which results in a
change in the majority of the Board or a majority of stockholders.
"Cause" means the willful and continued failure of the executive to perform
substantially the executive's duties or the willful engaging by the executive in
illegal conduct or gross misconduct materially injurious to the Company.
"Good Reason" means the diminution of responsibilities, assignment to
inappropriate duties, failure of the Company to comply with compensation or
benefit provisions, transfer to a new work location more than 35 miles from the
executive's previous work location, a purported termination of the Change of
Control Employment Agreement by the Company other than in accordance with the
Change of Control Employment Agreement, or failure of the Company to require any
successor to the Company to comply with the Change of Control Employment
Agreement.
Mr. Fiedler's Change of Control Employment Agreement was amended effective
January 30, 1998 to provide that the Note would be forgiven with respect to all
outstanding principal and accumulated interest thereon in the event of his
termination of employment by reason of a Change of Control, death or disability,
as defined in the Change of Control Employment Agreement. The amendment to the
Employment Agreement further provides that if Mr. Fiedler's employment is
terminated for Cause or if he voluntarily terminates employment other than for
Good Reason, the outstanding principal and accumulated interest thereon under
the Note will become immediately due and payable in full.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings by
reference, including this Proxy Statement, in whole or in part, the following
Compensation Committee Report on Executive Compensation and Performance Graph
shall not be incorporated by reference into any such filings.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
setting and administering the policies that govern base salary, annual bonus,
long-term incentives and stock ownership programs for the executive officers of
the Company.
Overall Policy
The Company's executive compensation program is designed to link executive
compensation to corporate performance. To this end, the Company has developed an
overall compensation strategy and specific compensation plans that tie executive
compensation to the Company's success in meeting specified performance goals.
The overall objectives of this strategy are to attract and retain the best
possible executive talent, to motivate these executives to achieve goals that
support the Company's business strategy, to link executive and stockholder
interests through equity-based plans, and to provide a compensation package that
is based on individual performance as well as overall business results.
The Compensation Committee reviews the Company's executive compensation
program annually. The review includes a comparison of current total compensation
levels (including base salary, annual bonus and long-term incentives) to those
provided in similar companies in the durable manufacturing sector that have
total sales in the range of one billion to three billion dollars, with data
being collected from several prominent executive compensation surveys (the
"Compensation Surveys"). In addition to the Compensation Surveys, the
Compensation Committee also considers the compensation reported for executives
by the companies included in a peer group of automotive companies (the "Peer
Group Companies"). Financial results of the Peer Group Companies are used to
compare shareholder returns on the performance graph. The Compensation Committee
may adjust compensation levels based upon information obtained from the
Compensation Surveys and the Peer Group Companies.
The Compensation Committee determines the compensation of the five most highly
compensated corporate executives, reviews the policies and philosophy set for
the next level of key executives (approximately 150), and evaluates and
recommends to the Board of Directors all long-term incentive plans. This process
is designed to ensure congruity throughout the executive compensation program.
In reviewing the individual performance of the executives whose compensation is
detailed in this proxy statement (other than Mr. Fiedler), the Compensation
Committee takes into account the views of Mr. Fiedler.
The key elements of the Company's executive compensation program are base
salary, annual bonus and long-term incentives which consist of stock options,
Company stock and cash compensation. The Compensation Committee's policies with
respect to each of these elements, including the basis for the compensation
awarded to Mr. Fiedler, the Company's CEO during 1997, are discussed below.
Base Salary
Annual salary adjustments are determined by the Compensation Committee by
examining each executive officer's current responsibilities, the executive
officer's individual and business unit performance, and by comparing the
executive officer's current base salary to competitive median salaries as
reported in the Compensation Surveys and by the Peer Group Companies.
Mr. Fiedler was CEO of the Company in 1997. The Compensation Committee
considered the scope and complexity of Mr. Fiedler's position, the Company's
performance during the preceding year, his prior salary, and the median salaries
paid for similar positions as reported in the Compensation Surveys and by the
Peer Group Companies. Sales growth, profitability, and achievement of strategic
business objectives were among the factors considered in determining the
performance of the Company. Mr. Fiedler received a base salary of $472,500
during 1997, which represents an increase of 5% over the previous year. He also
received a grant of 6,000 stock options.
Annual Bonus
The Company's executive officers are eligible participants in an annual cash
bonus plan. Performance objectives are established at the beginning of each year
for the Company and each of its business units. The performance objectives are
based on the increase in value of the Company or business unit over the prior
year. Value is determined by a formula taking into account the current earning
power of the Company or business unit as well as cash flow.
Eligible executives are assigned threshold, target and maximum bonus levels.
For those executive officers responsible for the entire Company, 100% of their
bonus opportunity is based on the increase in value for the Company; for those
executive officers responsible for a business unit, 20% of the bonus opportunity
is based on the increase in value for the Company, and 80% is based on the
increase in value for the business unit. If the threshold level of these
performance measures is not met, no bonus is paid.
Executive officers are also eligible for an additional bonus payment under the
carryover feature of the annual bonus plan (the "Carryover Bonus"). The
Compensation Committee believes that the Carryover Bonus encourages a longer
term perspective while continuing to reward participants for the achievement of
annual goals. Carryover Bonus allows participants in the bonus plan to earn
over a two year period - any bonus opportunity which was not attained during the
current Plan Year. Executives can earn the balance of the unattained bonus
opportunity whenever cumulative value targets are achieved during the subsequent
two years. No Carryover Bonus from a prior year is earned if the threshold level
of performance for the current year is not achieved.
The potential annual total cash compensation (base salary plus bonus) for each
executive officer is targeted at the 65th percentile of annual total cash
compensation levels for similar positions as reported by comparable companies in
the Compensation Surveys. Carryover Bonus from prior years may increase the
annual bonus opportunity of the executive officers above the target level.
Although annual bonuses depend primarily on the achievement of performance
objectives as described above, the Compensation Committee may adjust bonus
measures and awards based on other financial or non-financial actions that the
Compensation Committee believes will benefit long-term stockholder value.
In 1997, the increase in value of the Company resulted in a bonus payout in
between the target opportunity and the maximum opportunity. As a result Mr.
Fiedler earned a $522,528 cash bonus for the year; of this amount $31,522 was
earned from Carryover Bonus opportunity from prior years. Mr. Fiedler's target
total cash (i.e., base salary and target bonus) compensation plan for 1997 was
near the 50th percentile of total cash compensation for CEOs as reported in the
Compensation Surveys.
<PAGE>
Long-Term Incentive Plans
Stock Options
The Company uses stock options to align the interests of executives with those
of the stockholders and to motivate the executives to continue the long-term
focus required for the Company's future success. Executives are granted stock
awards based on their level of responsibility for the management and growth of
the Company and individual contribution. Current base salary and annual
incentive opportunity, as well as size and timing of previous stock awards, are
also considered when determining stock awards.
All stock options are granted at no less than the fair market value of the
stock on the date of grant. The number of shares awarded to each executive
officer is determined by an analysis of median competitive data provided in the
Compensation Surveys. The analysis is based on the Company's current stock price
and the projected stock price appreciation rate.
The gains on stock options granted by the Company are exempt from the
provisions of Section 162(m) of the Internal Revenue Code (the "Code") which
limit the tax deductibility of compensation in excess of one million dollars.
As noted above, Mr. Fiedler received a grant of 6,000 options in 1997. None of
the other named executive officers received an option grant in 1997.
Executive Stock Performance Plan
The Borg-Warner Automotive, Inc. Executive Stock Performance Plan is a long-term
incentive plan for selected top executives including the named executive
officers. It is designed to provide competitive payouts at the end of a three
year period relative to how well the Company performs against the Peer Group
Companies in terms of total shareholder return ("TSR"). The Compensation
Committee believes that the Executive Stock Performance Plan will help to focus
key senior executives on the long-term overall value of the Company to the
investor community.
The award levels under the Executive Stock Performance Plan are targeted to
pay at approximately the 65th percentile of total direct compensation (as
reported by the Compensation Surveys) for 65th percentile TSR performance
relative to the TSR performance of the Peer Group Companies.
Payments made under this plan are exempt from the provisions of Section 162(m)
of the Code which limit the tax deductibility of compensation in excess of one
million dollars.
This plan is administered by a committee which consists solely of two or more
"outside directors" as defined by Section 162(m) of the Code and the regulations
thereunder.
For the period between April 16, 1995 to December 31, 1997, The Company's TSR
performance was at the 87th percentile of the TSR performance of the Peer Group
Companies. As a result, Mr. Fiedler earned an award of $961,748.
For the period between January 1, 1996 to December 31, 1998, Mr. Fiedler has a
target award of 595 performance units at a value of $1,000 per unit. Depending
upon the performance of the Company, Mr. Fiedler's final award can range from $0
if the Company's TSR performance is below the 25th percentile of the TSR
performance of the Peer Group Companies to $1,041,250 if the Company's TSR
performance is at the 90th percentile(or higher)of the TSR performance of the
Peer Group Companies.
For the period between January 1, 1997 to December 31, 1999, Mr. Fiedler has a
target award of 595 performance units at a value of $1,000 per unit. Depending
upon the performance of the Company, Mr. Fiedler's final award can range from $0
if the Company's TSR performance is below the 25th percentile of the TSR
performance of the Peer Group Companies to $1,041,250 if the Company's TSR
performance is at the 90th percentile(or higher)of the TSR performance of the
Peer Group Companies.
Other
Compensation subject to the one million dollar limitation on deductibility
under Section 162(m) of the Code was not paid in 1997 to any of the named
executive officers.
The Compensation Committee will periodically review the executive compensation
plans of the Company to determine their compliance with Section 162(m) of the
Code. The Compensation Committee may, however, recommend that compensation that
is non-deductible be paid to executive officers when such compensation is deemed
in the best interest of shareholders.
Compensation Committee
Paul E. Glaske, Chairman
Ivan W. Gorr
James J. Kerley
Jere A. Drummond
<PAGE>
<TABLE>
<CAPTION>
Performance Graph
Comparison of Cumulative Total Return
Among Company, Peer Group and S&P 500 Index(1)
Measurement Period
(Fiscal Year PEER GROUP
Covered) BWA (2) SIC 3714 (3) (4) S&P 500 (5)
- -------------- --------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
8/13/93 100 100 100 100
12/31/93 112.00 114.40 121.07 105.39
12/30/94 102.70 96.63 104.27 106.78
12/29/95 133.70 106.00 122.62 146.91
12/31/96 163.69 130.79 144.79 180.64
12/31/97 223.93 168.96 183.30 240.91
- -----------------
</TABLE>
(1) Assumes $100 invested on August 13, 1993; assumes dividends reinvested
for period of August 13, 1993 through December 31, 1997.
(2) BWA - Borg-Warner Automotive, Inc. (As compiled by Media General
Financial Services of Richmond, VA).
(3) SIC Code 3714 - Motor Vehicle Parts & Accessories (As compiled by
Media General Financial Services of Richmond, VA).
(4) Peer Group - Consists of the following companies: Arvin Industries,
Inc., Chrysler Corporation, Cummins Engine, Inc., Dana Corporation,
Detroit Diesel Corporation, Eaton Corporation, Ford Motor Company,
General Motors Corporation, Johnson Controls, Inc., Lear Corporation,
LucasVarity PLC,Magna International, Inc. Class A, Mark IV Industries,
Inc., Mascotech, Inc., Modine Manufacturing Co., SPX Corporation,
Timken Company, Tower Automotive, Inc. and TRW, Inc. (As compiled by
Media General Financial Services of Richmond, VA).
(5) S&P 500 Standard & Poor's 500 Total Return Index (As compiled by
Media General Financial Services of Richmond, VA).
Certain Relationships and Related Transactions
On January 30, 1998, the Company loaned Mr. Fiedler $2 million for the
exclusive purpose of Mr. Fiedler purchasing the Company's Common Stock. The loan
is evidenced by a non-negotiable full recourse promissory note (the "Note"),
which matures on December 30, 2002 (the "Maturity Date"). The Note accrues
interest at the rate of 5.84% per annum, compounded semiannually, on the unpaid
balance until paid. In the event of Mr. Fiedler's voluntary termination of
employment with the Company prior to the Maturity Date (other than upon his
"disability") or his involuntary termination of employment with the Company
prior to the Maturity Date for "cause," Mr. Fiedler will be obligated to prepay
his entire obligation under the Note within ten days. The entire obligation
under the Note will be forgiven if Mr. Fiedler remains employed by the Company
through December 30, 2002 or as of earlier termination by reason of death,
"disability," or involuntary termination other than for "cause." The Note will
also be forgiven in the event of a "Change of Control" as defined in the Change
of Control Employment Agreement.
As part of a recapitalization, BW-Security distributed all of the outstanding
Common Stock of the Company to BW-Security's stockholders of record as of
January 22, 1993 in the Spin-Off. In connection with the Spin-Off, the Company
and BW-Security entered into certain agreements, including, but not limited to,
a Distribution and Indemnity Agreement (the "Distribution Agreement"), and a
Service Agreement. The terms of such agreements were approved by the Board of
Directors of the Company.
The Distribution Agreement provides for, among other things, the principal
corporate transactions required to effect the Spin-Off and certain other
agreements governing the relationship between the Company and BW-Security with
respect to or in consequence of the Spin-Off. Subject to certain exceptions, the
Distribution Agreement provides for certain cross-indemnities designed
principally to place financial responsibility for the liabilities of BW-Security
and its subsidiaries with BW-Security, and financial responsibility for the
liabilities of the Company, or related to its automotive business, with the
Company.
The Service Agreement provides that the Company will sublease office space
from BW-Security until May 31, 1999 (or, if earlier, the expiration or
termination of BW-Security's current lease), with the amounts payable under such
sublease to be equal to 50% of the rent and common overhead expenses payable by
BW-Security related to its lease of the premises. In 1997, such amounts paid to
BW-Security aggregated approximately $541,000.
The Company has agreed to indemnify BW-Security (but not its stockholders)
against any liability resulting from any transaction after the date of the Spin-
Off involving the stock or assets, or any combination thereof, of the Company or
any of its subsidiaries which causes the Spin-Off to fail to qualify as tax-free
under Section 355 of the Code.
2. APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1993 STOCK INCENTIVE PLAN
General
At the meeting there will be presented to the stockholders a proposal to
approve and ratify the adoption by the Board of Directors of certain amendments
to the Company's 1993 Stock Incentive Plan (the "1993 Plan"). The 1993 Plan was
originally adopted by the Board of Directors and approved by the stockholders in
August 1993.
On November 8, 1995, February 6, 1997 and January 27, 1998, the Board of
Directors adopted certain amendments to the 1993 Plan. The principal changes to
the 1993 Plan are as follows:
1. The first sentence of Section 3 of the 1993 Plan shall be amended as
follows:
"Subject to adjustment as provided herein, the total number of shares of Stock
of the Company available for grant under the Plan shall be 1,500,000; provided
that no 'covered employee,' as such term is defined in Section 162(m) of the
Code, shall be granted more than 100,000 shares of Stock in any taxable year."
2. Subsections (i) and (iii) of Section 8(b) of the 1993 Plan shall be amended
to read in their entirety as follows:
"(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 subsection (b), the
following acquisitions shall not constitute a Change in Control: (W) any
acquisition directly from the Company, (X) any acquisition by the Company, (Y)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (Z)
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
(iii) Consummation by 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 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 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 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;"
Description of 1993 Plan, as Amended
The following description of the material terms of the 1993 Plan, as amended,
is intended as a summary only and is qualified in its entirety by reference to
the 1993 Plan itself. A copy of the 1993 Plan is set forth in Appendix A hereto.
The 1993 Plan provides that the total number of shares available for grant
shall be 1,500,000. Shares subject to an option or award may be authorized and
unissued shares or may be treasury shares. If an award granted under the 1993
Plan expires, terminates or lapses for any reason, without the issuance of
shares of Common Stock thereunder, such shares will again be available under the
1993 Plan.
The Compensation Committee of the Board of Directors administers the 1993 Plan
and determines the terms and conditions of any award. Awards are granted to
officers and other employees of the Company, and its affiliates, as from time to
time designated by the Compensation Committee. The Compensation Committee may
delegate to the Company's Chief Executive Officer the authority to grant options
for up to 3,000 shares of Common Stock in any calendar year to any eligible
employee other than an executive officer subject to Section 16 of the Securities
Exchange Act of 1934. Directors of the Company are also eligible to participate,
but in the case of directors who are not also employees, only pursuant to an
automatic grant.
The 1993 Plan terminates on December 31, 2003. Under the 1993 Plan, options to
purchase shares of Common Stock ("Options") or other awards granted and
outstanding as of the date the 1993 Plan terminates will not be affected or
impaired by such termination.
The exercise price to be paid by a participant is determined by the
Compensation Committee and will be set forth in an Option agreement between the
Company and the participant. The exercise price cannot be less than 100% of the
fair market value of the Common Stock on the date on which the Option is
granted.
The 1993 Plan authorizes the Compensation Committee to grant stock
appreciation rights ("SARs") in connection with all or part of any Option. An
SAR entitles its holder to receive from the Company, at the time of exercise of
such right, an amount equal to the excess of the fair market value (determined
in accordance with procedures to be established by the Compensation Committee)
at the date of exercise of a share of Common Stock over the previously specified
exercise price multiplied by the number of shares as to which the holder is
exercising the SAR. The exercise price of an SAR is equal to the exercise price
of the related Option. The amount payable may be paid by the Company in shares
of Common Stock (valued at its fair market value on the date of exercise), cash
or a combination thereof, as the Compensation Committee may determine, which
determination may be made after considering any preference expressed by the
holder. To the extent an SAR is exercised, the related Option will be cancelled
and, to the extent the related Option is exercised, the SAR will be cancelled.
Incentive stock options (within the meaning of Section 422 of the Code) may be
granted at the discretion of the Compensation Committee under the 1993 Plan.
The form of Option and SAR agreement to be used under the 1993 Plan (the
"Option Agreement") will provide that Options and SARs will become fully
exercisable upon a "Change in Control" (as defined in the 1993 Plan). Otherwise,
the Option Agreement provides that if such participant's employment by the
Company or its subsidiaries is terminated for any reason, other than death,
disability or retirement, such participant may exercise an Option or SAR to the
extent then exercisable, or on such accelerated basis as the Compensation
Committee may determine, within the period ending on the earlier of three months
after such termination or the date the Option or SAR expires in accordance with
its terms; provided that if the optionee dies within such three-month period,
any unexercised Option or SAR held by such optionee shall, notwithstanding the
expiration of such three-month period, continue to be exercisable to the extent
to which it was exercisable at the time of death for a period of twelve months
from the date of such death or until the expiration of the stated term of such
Option or SAR, whichever period is shorter. However, if a participant's
employment is terminated for cause, such participant's Option or SAR terminates
immediately upon such termination of employment.
If an optionee's employment terminates by reason of disability, any Option or
SAR held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of termination or on such accelerated
basis as the Compensation Committee may determine, for a period of three years
(or such shorter period as the Compensation Committee may specify at grant) from
the date of such termination of employment or until the expiration of the stated
term of such Option or SAR, whichever period is shorter, provided that if the
optionee dies within such three-year period (or such shorter period), any
unexercised Option or SAR held by such optionee shall, notwithstanding the
expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of twelve months from the date of such death or until the expiration of
the stated term of such Option or SAR, whichever period is shorter.
If an optionee's employment terminates by reason of retirement, any Option or
SAR held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of such retirement or on such accelerated
basis as the Compensation Committee may determine, for a period of three years
(or such shorter period as the Compensation Committee may specify at grant) from
the date of such termination of employment or until the expiration of the stated
term of such Option or SAR, whichever period is shorter, provided that if the
optionee dies within such three-year period (or such shorter period), any
unexercised Option or SAR held by such optionee shall, notwithstanding the
expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of twelve months from the date of such death or until the expiration of
the stated term of such Option or SAR, whichever period is shorter.
The 1993 Plan also permits the Compensation Committee to grant shares of
restricted stock to a participant subject to the terms and conditions imposed by
the Compensation Committee. The Compensation Committee may require that a
certificate for such shares be deposited with the Company. There will be
established for each award of restricted stock a restriction period of such
length as is determined by the Compensation Committee. Shares of restricted
stock may not be sold, assigned, transferred, pledged or otherwise encumbered,
except as described below, during the restriction period. Except for such
restrictions on transfer and such other restrictions as the Compensation
Committee may impose, the participant will have all the rights of a holder of
Common Stock as to such restricted stock including, if applicable, the right to
vote the shares and to receive any dividends. Except as provided by the
Compensation Committee at the time of grant or otherwise, upon a termination of
employment for any reason during the restriction period, all shares still
subject to restriction are forfeited by the participant. The form of restricted
stock agreement intended to be used under the 1993 Plan provides that shares of
restricted stock will cease to be subject to restrictions on transfer upon a
Change in Control.
In the event of a Change in Control: (i) any Options and SARs outstanding as
of the date such Change in Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable and vested to the full
extent of the original grant; and (ii) the restrictions applicable to any shares
of restricted stock shall lapse, and such restricted stock shall become free of
all restrictions and become fully vested and transferable to the full extent of
the original grant. The 1993 Plan further provides that during the 60-day period
following a Change in Control, the holder of an Option has the right to
surrender such option for cash in an amount equal to the difference between the
"change in control price" (as defined in the 1993 Plan) and the exercise price.
The Board of Directors of the Company may amend the 1993 Plan (including
amendments which have the effect of increasing the cost of the 1993 Plan to the
Company) or discontinue the 1993 Plan. No amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
Each director of the Company who from and after August 1, 1993 is not
otherwise an employee of the Company or any of its subsidiaries or affiliates,
on the third Tuesday of each year, shall automatically receive an annual grant
of Options to purchase 1,000 shares of Common Stock having an exercise price
equal to the fair market value of the Common Stock at the date of grant of such
Option. Each director, upon joining the Board, will also receive an initial
grant of Options to purchase 2,000 shares of Common Stock having an exercise
price equal to the fair market value of the Common Stock as of such date. Each
holder of a director stock option granted pursuant to this provision will also
have rights in the event of a Change in Control as described above.
Certain Federal Income Tax Considerations
The following is a brief summary of the federal income tax consequences of
transactions under the 1993 Plan based on federal income tax laws in effect on
January 1, 1998. This summary is not intended to be exhaustive and does not
discuss the tax consequences of a participant's death or provisions of the
income tax laws of any municipality, state or foreign country in which an
optionee may reside.
Options granted under the 1993 Plan may be either "Incentive Stock Options,"
as defined in Section 422 of the Code, or Nonstatutory Stock Options.
Incentive Stock Options. The optionee does not recognize taxable income upon
grant or exercise of an Incentive Stock Option unless the alternative minimum
tax rules apply. If Common Stock is issued to an optionee pursuant to the
exercise of an Incentive Stock Option, and if no disqualifying disposition of
such shares is made by such optionee within two years after the date of grant or
within one year after the transfer of such shares to such optionee, then upon
sale of such shares, any amount realized in excess of the option exercise price
will be treated as a long-term capital gain and any loss sustained will be a
long-term capital loss, and no deduction will be allowed to the Company for
federal income tax purposes. The exercise of an Incentive Stock Option may
result in alternative minimum tax liability for the optionee.
If Common Stock acquired upon the exercise of an Incentive Stock Option is
disposed of before the expiration of either holding period described above (i.e.
a disqualifying disposition), generally the optionee will recognize ordinary
income in the year of disposition in an amount equal to the excess (if any) of
the fair market value of the shares at exercise (or, if less, the amount
realized on the disposition of the shares) over the option exercise price paid
for such shares, and the Company is entitled to a tax deduction in the same
amount. Any further gain or loss realized by the participant will be taxed as
short-term or long-term capital gain or loss, as the case may be, and will not
result in any deduction by the Company. Different rules may apply if shares are
purchased by an optionee who is also an officer, director or more than 10%
stockholder. See discussion below of "Special Rules Applicable to Corporate
Insiders and Restricted Stock Purchasers."
Nonstatutory Stock Options. Except as noted below, with respect to
Nonstatutory Stock Options, (i) no income is recognized by the optionee at the
time the option is granted; (ii) generally, at exercise, ordinary income is
recognized by the optionee in an amount equal to the difference between the
option exercise price paid for the shares and the fair market value of the
shares on the date of exercise, and the Company is entitled to a tax deduction
in the same amount; and (iii) at disposition, any gain or loss is treated as
capital gain or loss. In the case of an optionee who is also an employee, any
income recognized upon exercise of a Nonstatutory Stock Option will constitute
wages for which withholding will be required. However, different rules may apply
if restricted stock is purchased or if shares are purchased by an optionee who
is also an officer, director or more than 10% stockholder. See discussion below
of "Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers."
Stock Appreciation Rights. No income will be recognized by a recipient in
connection with the grant of an SAR. When an SAR is exercised, the recipient
will generally be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any Common Stock received on the exercise. In the case of a recipient
who is also an employee, any income recognized upon exercise of an SAR will
constitute wages for which withholding will be required. The Company will be
entitled to a tax deduction in the same amount. If the optionee receives Common
Stock upon the exercise of an SAR, any gain or loss on the sale of such stock
will be treated in the same manner as discussed above under "Nonstatutory Stock
Options." See also "Special Rules Applicable to Corporate Insiders and
Restricted Stock Purchasers."
Restricted Stock. Generally, no income will be recognized by a recipient in
connection with the grant of restricted stock, unless an election under Section
83(b) of the Code is filed with the IRS within 30 days of the date of grant.
Otherwise, at the time the restricted stock vests, the recipient will generally
recognize compensation income in an amount equal to the fair market value of the
award at the time of vesting. Generally, the recipient will be subject to the
tax consequences discussed under "Nonstatutory Stock Options." In the case of a
recipient who is also an employee, any amount included in income will constitute
wages for which withholding will be required. The Company will be entitled to a
tax deduction in the same amount and at the time the recipient recognizes
ordinary income with respect to an award of restricted stock.
Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers. Generally, individuals subject to Section 16(b) of the Exchange Act
("Insiders") and individuals who purchase restricted stock may have their
recognition of compensation income and the beginning of their capital gains
holding period deferred for up to six months after option exercise (for
Insiders), or until the restrictions lapse (for restricted stock purchasers)
(the "Deferral Date"), with the excess of the fair market value of the stock
determined as of the Deferral Date over the purchase price being taxed as
ordinary income, and the tax holding period for any subsequent gain or loss
beginning on the Deferral Date. However, an Insider or restricted stock
purchaser who so elects under Section 83(b) of the Code on a timely basis may
instead be taxed on the difference between the excess of the fair market value
on the date of transfer over the purchase price, with the tax holding period
beginning on such date. Similar rules apply for alternative minimum tax purposes
with respect to the exercise of an Incentive Stock Option by an Insider.
Capital Gains. Generally, under law in effect as of January 1, 1998, net
capital gain (net long-term capital gain minus net short-term capital loss) is
taxed at a maximum rate of 20%. Capital losses are allowed in full against
capital gains plus up to $3,000 of other income.
Participation in the 1993 Plan
The grant of awards under the 1993 Plan to employees, including the executive
officers named in the Summary Compensation Table, is subject to the discretion
of the Compensation Committee. As of the date of this proxy statement, the only
awards that have been granted under the 1993 Plan are non- qualified stock
options, each of which has a term of ten years and an exercise price equal to
the fair market value of the Common Stock on the date of grant. There has been
no determination by the Compensation Committee with respect to future awards
under the 1993 Plan.
Vote required and Board of Directors' Recommendation
Approval of the amendments to the 1993 Plan requires the affirmative vote of
the holders of a majority of the shares of Common Stock represented and voting
in person or by proxy at the Annual Meeting.
The Board of Directors believes that approval of the amended 1993 Plan is in
the best interests of all stockholders and, accordingly, recommends a vote FOR
the proposed amendments. Your proxy will be so voted unless you specify
otherwise.
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors proposes that the stockholders approve the selection by
the Finance and Audit Committee of Deloitte & Touche LLP to serve as the
Company's independent auditors for the 1998 fiscal year. The Board of Directors
anticipates that representatives of Deloitte & Touche LLP will be present at the
meeting to respond to appropriate questions, and will have an opportunity, if
they desire, to make a statement.
The Board of Directors recommends a vote FOR the appointment of Deloitte &
Touche LLP as the independent auditors and your proxy will be so voted unless
you specify otherwise.
OTHER INFORMATION
The Company has no reason to believe that any other business will be presented
at the Annual Meeting, but if any other business shall be presented, votes
pursuant to the proxy will be cast thereon in accordance with the discretion of
the persons named in the accompanying proxy.
Stockholder proposals to be presented at the 1999 Annual Meeting must be
received by the Company on or before November 23, 1998, for inclusion in the
proxy statement relating to that meeting. Proposals should be sent to the
attention of the Corporate Secretary. In addition, the Company's By-laws contain
certain requirements with respect to the submission of proposals and the
nomination of directors at any stockholder meeting.
The Company will furnish, without charge, to each person whose proxy is being
solicited, upon request of such person, one copy of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, as filed with the Securities
and Exchange Commission. Requests for copies of such report should be directed
to the Investor Relations and Communications Department, 200 South Michigan
Avenue, Chicago, Illinois 60604.
BORG-WARNER AUTOMOTIVE, INC.
<PAGE>
APPENDIX A
BORG-WARNER AUTOMOTIVE, INC.
1993 STOCK INCENTIVE PLAN
(Amended Effective November 8, 1995, April 29, 1997 and Further Amended April
28, 1998)
<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 1,500,000; provided
that no "covered employee", as such term is defined in Section 162(m) of the
Code, shall be granted more than 100,000 shares of Stock in any taxable year.
Shares subject to an Award under the Plan may be authorized and unissued shares
or may be treasury shares.
If any shares of Restricted Stock are forfeited for which the participant did
not receive any benefits of ownership (as such phrase is construed by the
Commission or its Staff), or if any Stock Option (and related Stock Appreciation
Right, if any) terminates without being exercised, or if any Stock Appreciation
Right is exercised for cash, shares subject to such Awards shall again be
available for distribution in connection with Awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, stock split, extraordinary distribution with respect to the
Stock or other change in corporate structure affecting the Stock, the Committee
or Board may make such substitution or adjustments in the aggregate number and
kind of shares reserved for issuance under the Plan, in the number, kind and
option price of shares subject to outstanding Stock Options and Stock
Appreciation Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other substitution or
adjustments in the consideration receivable upon exercise as it may determine to
be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Award shall always be a whole number. Such adjusted option
price shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility.
Officers, employees and directors of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan. Except as expressly authorized
by Section 13 of the Plan, however, no grant shall be made to a director who is
not an officer or a salaried employee.
SECTION 5. Stock Options.
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and Non-
Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options (in each
case with or without Stock Appreciation Rights). Incentive Stock Options may be
granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
The Committee may authorize the Chief Executive Officer of the Corporation,
who need not be a Disinterested Person, to grant in any calendar year a Non-
Qualified Stock Option (with or without Stock Appreciation Rights) for up to
3,000 shares of Stock to any employee of the Company who is not an executive
officer of the Company subject to Section 16 of the Exchange Act. The Committee
may limit or qualify such authorization in any manner it deems appropriate.
Stock Options granted by the Chief Executive Officer shall have the terms and
conditions determined by the Committee and the Committee shall periodically
review such grants.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Stock to be subject
to such Stock Option to be granted to such individual and specifies the terms
and provisions of the Stock Option. The Company shall notify a participant of
any grant of a Stock Option, and a written option agreement or agreements shall
be duly executed and delivered by the Company to the participant. Such agreement
or agreements shall become effective upon execution by the participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions as the
Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee and set forth in the option
agreement, and shall not be less than the Fair Market Value of the Stock subject
to the Stock Option on the date of grant, except that any Stock Options granted
on the effective date of the Company's initial public offering of Common Stock
shall have an option price per share equal to the price per share paid by the
public in such offering.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
(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
felony 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 optionee 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
Restricted 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 subsection (b), the
following acquisitions shall not constitute a Change in Control: (W) any
acquisition directly from the Company, (X) any acquisition by the Company, (Y)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (Z)
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
(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) Consummation by 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 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.
<PAGE>
PROXY CARD
[BORG WARNER AUTOMOTIVE LOGO]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS IN CONNECTION
WITH THE ANNUAL MEETING OF STOCKHOLDERS
11:00 A.M. (C.S.T.)
APRIL 28, 1998
PLACE: BORG-WARNER AUTOMOTIVE, INC.
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
PROXY: LAURENE H. HORISZNY and VINCENT M. LICHTENBERGER and each of them, are
hereby appointed by the undersigned as attorneys and proxies with full power of
substitution, to vote all the shares of Common Stock held of record by the
undersigned on March 16, 1998 at the Annual Meeting of Stockholders of Borg-
Warner Automotive, Inc. or at any adjournment(s) of the meeting, on each of the
items on the reverse side and in accordance with the directions given therein.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
----------------------------------------------------------
[FOLD AND DETACH HERE]
<PAGE>
1. Election of three Class II Directors: Jere A. Drummond, John F. Fiedler,
Ivan W. Gorr
FOR all nominees WITHHOLD AUTHORITY
listed above (except as To vote for all nominees
marked to the contrary) listed
/ / / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
-----------------------------------
2. Approve the Amendment of the Company's 1993 Stock Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
3. Ratify the appointment of Deloitte & Touche LLP as independent auditors
for the Company for 1998.
FOR / / AGAINST / / ABSTAIN / /
4. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED (FOR) THE ELECTION OF ALL
LISTED NOMINEES, AND (FOR)PROPOSALS 2 AND 3 IN ACCORDANCE WITH THE
RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS.
DATE ----------------------, 1998
- ---------------------------
Signature
- ---------------------------
Signature
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
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[FOLD AND DETACH HERE]
