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.
/ / 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 by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the former schedule and the date of its filing.
(1) Amount paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Chicago, Illinois
March 26, 1999
To the Stockholders:
The Annual Meeting of Stockholders of Borg-Warner Automotive, Inc. will be
held on April 27, 1999, 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 III Directors to serve for the next three years;
2. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for 1999; and
3. 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 15, 1999 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 26, 1999
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 27, 1999, 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 26, 1999. The
Company's Annual Report to Stockholders for the year ended December 31, 1998 is
enclosed.
Only stockholders of record at the close of business on March 15, 1999,
will be entitled to vote at the meeting. As of such date, there were 26,202,268
issued and 25,861,968 outstanding shares of Common Stock (the "Common Stock").
Each share of Common Stock entitles the holder to one vote.
The enclosed proxy, if properly signed and returned, will be voted in
accordance with its terms. Any proxy returned without specification as to any
matter will be voted as to each proposal in accordance with the recommendation
of the Board of Directors. You may revoke your proxy at any time before the vote
is taken by delivering to the Secretary of the Company written revocation or a
proxy bearing a later date, or by attending and voting at the Annual Meeting.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitation of proxies by use of the mail, proxies may be solicited
by directors, officers and regularly engaged employees of the Company. Brokers,
nominees and other similar record holders will be requested to forward
solicitation material and will be reimbursed by the Company upon request for
their 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 III 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 I Directors") have terms expiring at the 2000
Annual Meeting of Stockholders and three other directors (the "Class II
Directors") have terms expiring at the 2001 Annual Meeting of Stockholders. Each
of the nominees for election as Class III 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 15, 1999, 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.
Principal Occupation
Class I Directors Age and Directorships
Andrew F. Brimmer
1997 72 Dr. Brimmer has been President of Brimmer &
Company, Inc., an economic and financial
consulting firm since July, 1976. He is a Director
of Airborne Express, CarrAmerica Realty
Corporation, BlackRock Investment Income Trust,
Inc. and other BlackRock funds.
James J. Kerley
1994 76 Mr. Kerley was Chairman of the Board of Rohr,
Inc.("Rohr"), a manufacturer of aircraft engine
components from January 1993 until his retirement
in December 1994. Mr. Kerley was interim President
and Chief Executive Officer of Rohr from January
1993 until May 1993. Mr. Kerley is a Director of
DT Industries, Inc. and Goss Graphic Systems, Inc.
Alexis P. Michas
1993 41 Mr. Michas has been the 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, Inc.
and Packard BioScience Company.
Principal Occupation
Class II Directors Age and Directorships
Jere A. Drummond
1996 59 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 69 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 and Arvin
Industries, Inc.
John F. Fiedler
1994 60 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 Dal-Tile International, Inc.
and Roadway Express, Inc.
Principal Occupation
Class III Directors Age and Directorships
John Rau
1997 50 Mr. Rau has been President and Chief Executive
Officer of Chicago Title Corporation, a provider
of real estate services, since January 1997.
FromJuly 1993 to December 1996, he was Dean of the
Indiana University School of Business. Mr. Rau is
also a Director of Chicago Title Corporation,
LaSalle National Bank, First Industrial Realty
Trust and Nicor, Inc.
Paul E. Glaske
1994 65 Mr. Glaske has been Chairman and Chief Executive
Officer since April 1992 and President since July
1986 of Blue Bird Corporation, a leading
manufacturer of school buses, motor homes and a
variety of other vehicles. Mr. Glaske is also a
Director of Suntrust Bank of Middle Georgia.
William E. Butler
1997 68 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 U.S.
Industries, Inc.
Meetings of the Board of Directors and Committees
The Board of Directors held four regular meetings and five special meetings
during 1998. Messrs. Brimmer, Butler, Fiedler, Glaske, Gorr, Kerley, Michas and
Rau attended at least 75% of the meetings of the Board of Directors and any
committee on which they served. Mr. Drummond was unable to attend 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), Butler, Drummond and Rau. 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 1998.
The present members of the Finance and Audit Committee are Messrs. Kerley
(Chairman), Brimmer, Michas and Rau. 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 five times
during 1998.
The present members of the Board Affairs Committee are Messrs. Gorr
(Chairman), Butler, Drummond and Glaske. 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 1998.
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 $26,000 for service on the Board of Directors and $1,000
for each Board meeting attended. Committee members also receive $750 ($1,500 if
Chairman of a committee) for each committee meeting attended.
In addition, under the terms of the Borg-Warner Automotive, Inc. 1993 Stock
Incentive Plan, as Amended (the "1993 Plan"), each director of the Company who
from and after February 1, 1993, is not otherwise an employee of the Company or
any of its subsidiaries or affiliates (as defined in the 1993 Plan) shall, on
the third Tuesday of each year, automatically receive an annual grant of options
to purchase 1,000 shares of Common Stock having an exercise price equal to the
fair market value of the Common Stock at the date of grant of such option. Each
director, upon joining the Board, will also receive an initial grant of options
to purchase 2,000 shares of Common Stock having an exercise price equal to the
fair market value of the Common Stock as of such date. All such options expire
ten years after the date of grant and become exercisable in installments on the
second and third anniversaries of the date of grant.
Stock Ownership
The following table sets forth as of March 15, 1999, 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.
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of
Name of Beneficial Owner shares class
- -------------------------------- ---------- -----------
<S> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co. 1,823,343(a) 7.8%
1585 Broadway
New York, NY 10036
Sound Shore Management, Inc. 1,610,100(b) 6.1%
8 Sound Shore Drive
Greenwich, CT 06836
Franklin Mutual Advisers, Inc. 1,785,600 (c) 7.6%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
<PAGE>
(a) Pursuant to a Schedule 13G/A dated February 10, 1999, Morgan Stanley, Dean
Witter & Co. indicated that it had shared voting power with respect to 1,482,043
shares and shared dispositive power with respect to 1,823,343 shares and Morgan
Stanley Dean Witten Investment Management Limited, indicated that it had shared
voting power with respect to 1,207,603 shares and shared dispositive power with
respect to 1,511,903 shares.
(b) Pursuant to a Schedule 13G dated January 22, 1999, Sound Shore Management,
Inc. indicated that it had sole voting power with respect to 1,437,500 shares,
voting power with respect to 41,100, and sole dispositive power with respect to
1,610,100 shares.
(c) Pursuant to a Schedule 13G dated January 27, 1999, Franklin Mutual
Advisers, Inc. indicated that it had sole dispositive and sole voting power with
respect to 1,785,600 shares.
The following table sets forth as of March 15, 1999 certain information
regarding beneficial ownership of Common Stock by the Company's directors and
executive officers named in the Summary Compensation Table and by all directors
and executive officers as a group.
<PAGE>
<TABLE>
<CAPTION>
Amount(a) and Nature Percent of
Name of Beneficial Owner (b) of Stock Ownership class
- ------------------------ ------------- -----------
<S> <C> <C>
John F. Fiedler 112,920 *
Gary P. Fukayama 56,135 *
Fred M. Kovalik** 12,035 *
Ronald M. Ruzic 59,603 *
Robert D. Welding 21,404 *
Andrew F. Brimmer 1,600 *
William E. Butler 500 *
Jere A. Drummond 900 *
James J. Kerley 5,500 *
Paul E. Glaske 9,500 *
Ivan W. Gorr 4,500 *
Alexis P. Michas 30,885 *
John Rau 2,000 *
All directors and executive
officers of the Company
(19 persons) 431,338 1.7%
</TABLE>
<PAGE>
*Represents less than one percent.
** Mr. Kovalik retired from the Company effective March 1, 1999.
(a) Includes the following number of shares issuable upon the exercise of
options within the next 60 days: 33,000 for Mr. Fiedler; 38,700 for
Mr. Fukayama; 37,500 for Mr. Ruzic; 8,200 for Mr. Welding; 1,000 for Dr.
Brimmer; 500 for Mr. Drummond; 4,500 for Mr. Kerley; 3,500 for Mr. Gorr;
4,500 for Mr. Glaske; and 216,100 for all directors and executive officers
of the Company.
(b) Includes all shares with respect to which each officer or director
directly, or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares the power to vote or to direct
voting of such shares or to dispose or to direct the disposition of such
shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers, directors and greater than 10% stockholders file
certain reports with respect to beneficial ownership of the Company's equity
securities. Based on information provided to the Company by each director and
executive officer, the Company believes all reports required to be filed in 1998
were timely filed, except that Mr. Fiedler reported one transaction late on Form
5/A.
Executive Compensation
The following table shows, for the years ending December 31, 1998, 1997 and
1996, 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, 1998.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards(b)
-----------
Name and Other Annual Securities All Other
Principal Annual Compensation Compensation Underlying LTIPCompensation
Position Year Salary($) Bonus($) ($)(a) Options(#) Payouts($)(c)
- -------------- ---- -------- --------- ---- ---- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Fiedler1998 $500,000 $245,549 $0 75,000 $610,143 $109,117
Chairman and 1997 $472,500 $552,528 $0 6,000 $961,748 $96,530
Chief Executive1996 $450,000 $428,828 $377,500(d)10,000 $0 $51,158
Officer
Gary P.Fukayama1998 $315,489 $249,472 $111,125 0 $215,345 $41,984
Executive Vice 1997 $306,300 $155,319 $372,460 (d)(e)0 $339,441 $35,783
President 1996 $271,238 $199,600 $4,820 (e) 0 $0 $32,126
Fred M. Kovalik1998 $254,307 $ 28,377 $0 0 $215,345 $38,746
Executive Vice 1997 $246,900 $245,600 $596,750 (d) 0 $339,441 $34,330
President 1996 $246,300 $177,940 $0 0 $0 $25,450
Ronald M. Ruzic1998 $268,070 $287,522 $0 0 $215,345 $75,179
Executive Vice 1997 $249,792 $210,360 $0 0 $339,441 $69,326
President 1996 $231,000 $192,170 $600,469 (d) 0 $0 $41,049
Robert D.
Welding 1998 $224,717 $128,392 $0 0 $61,527 $35,854
Executive Vice1997 $200,000 $164,217 $113,594 (d) 0 $96,983 $38,189
President 1996 $168,779 $118,913 $0 0 $0 $20,305
/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 1996,
1997, or 1998 did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for each named executive officer.
(b) No restricted stock awards or long-term incentive plan payouts were made in
1996, 1997, or 1998.
(c) Includes amounts contributed by the Company on behalf of the named
executive officers during 1996, 1997 and 1998 pursuant to the provisions of
the Borg-Warner Automotive, Inc. Retirement Savings Plan and credits made
pursuant to the Borg-Warner Automotive, Inc. Retirement Savings Excess
Benefit Plan.
(d) Represents gain on stock option exercise(s).
(e) Represents gross-up to cover taxes incurred for relocation expense
reimbursement.
Stock Options
The following table sets forth information with respect to the named
executive officers concerning grants of stock options made during 1998 and
concerning unexercised options held as of December 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted Exercise Price Appreciation for
Options to Employees Price Expiration Option Term
Name Granted(#)(a) in Fiscal Year ($/Sh) Date 5%($) 10%($)
- ----- ---------- ------------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
John F.
Fiedler 75,000 31.0% $54.438 1/27/08 $2,567,659 $6,506,952
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.
Welding 0 0.0% $0.000 n.a. $0 $0
/TABLE
<PAGE>
(a) Options granted in 1998 are exercisable starting 24 months after the grant
date, with 50% of the shares covered thereby becoming exercisable at that
time and with the remaining 50% of the option shares becoming exercisable
on the third anniversary date. The options were granted for a term of 10
years, subject to earlier termination in certain events related to
termination of employment.
The following table sets forth information with respect to the named
executive officers concerning the exercise of stock options during 1998 and
concerning unexercised options held at December 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options
on Exercise Value Options at FY-End(#) at FY-End($)(b)
Name (#) Realized($)ExercisableUnexercisable(a)Exercisable Unexercisable
- ------- ---------- ----------- ---- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
John F. Fiedler 0 $0 25,000 86,000 $767,658 $412,692
Gary P. Fukayama 2,000 $111,125 38,700 0 $1,335,841 $ -
Fred M. Kovalik 0 $0 0 0 $ - $ -
Ronald M. Ruzic 3,000 $168,844 37,500 0 $1,290,415 $ -
Robert D. Welding0 $0 8,200 0 $277,547 $ -
/TABLE
<PAGE>
(a) Represents shares that could not be acquired by the named executive officer
as of December 31, 1998 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, 1998.
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 1998
pursuant to the Company's Executive Stock Performance Plan.
<PAGE>
<TABLE>
<CAPTION>
Performance
or Other
Number Period Estimated Future Payouts
of Shares Until under Non-Stock
Units or Maturation Price-Based Plans(c)
Rights or Threshold Target Maximum
Name (#)(a) 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 300 36 months 75,000 300,000 525,000
Robert D. Welding 210 36 months 52,500 210,000 367,500
All executive officers,
as a group (10) 2,065 36 months 516,250 2,065,000 3,613,750
All employees, who
are not executive
officers (3) 240 36 months 60,000 240,000 420,000
</TABLE>
<PAGE>
(a) Performance units with an initial value of $1,000 per unit.
(b) The performance period for the 1998-2000 cycle is January 1, 1998 through
December 31, 2000.
(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
returns.
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 160), 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 1998, 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 1998. 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 $500,000
during 1998, which represents an increase of 5.8% over the previous year. He
also received a grant of 75,000 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, 30% of the bonus
opportunity is based on the increase in value for the Company, and 70% 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 1998, the increase in value of the Company resulted in a bonus payout in
between the threshold opportunity and the target opportunity. As a result Mr.
Fiedler earned a $245,549 cash bonus for the year; there was no Carryover Bonus
opportunity in 1998. Mr. Fiedler's target total cash (i.e., base salary and
target bonus) compensation plan for 1998 was near the 50th percentile of total
cash compensation for CEOs as reported in the Compensation Surveys.
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 75,000 options in 1998.
None of the other named executive officers received an option grant in 1998.
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 January 1, 1996 to December 31, 1998, the Company's
TSR performance was at the 68th percentile of the TSR performance of the Peer
Group Companies. As a result, Mr. Fiedler earned an award of $610,143.
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.
For the period between January 1, 1998 to December 31, 2000, 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 1998 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
William E. Butler Jere A. Drummond John Rau
Performance Graph
Comparison of Cumulative Total Return
Among Company, Industry Index, Peer Group, and S&P 500 Index(1)
[data points] 1993 1994 1995 1996 1997 1998
Borg-Warner Automotive(2)100.0 91.69 119.38 146.15 199.94 217.09
SIC Code Index (3) 100.0 84.47 92.66 114.33 147.69 147.18
Peer Group Index (4) 100.0 84.06 100.35 117.62 150.46 200.04
S&P 500 Index (5) 100.0 101.32 139.40 171.41 228.59 293.92
(1) Assumes $100 invested on August 13, 1993; assumes dividends reinvested for
period of August 13, 1993 through December 31, 1998.
(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.,
Cummins Engine, Inc., Dana Corporation, Detroit Diesel Corporation, Eaton
Corporation, Ford Motor Company, General Motors Corporation, Johnson
Controls, Inc., Lear Seating Company, 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 1998, such amounts paid to
BW-Security aggregated approximately $309,400.
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. 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 1999 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 which are intended to be presented at the 2000 Annual
Meeting pursuant to SEC Rule 14a-8 must be received by the Company on or before
November 21, 1999, for inclusion in the proxy statement relating to that
meeting.
A stockholder who intends to present business at the 2000 Annual Meeting
other than pursuant to Rule 14a-8 must comply with the requirements set forth in
the Company's By-Laws. Among other things, to bring business before an annual
meeting, a stockholder must give written notice to the Secretary of the Company
no less than 60 days and not more than 90 days prior to the first anniversary of
the preceding year's annual meeting. Therefore, for stockholder proposals other
than pursuant to Rule 14a-8, the Company must receive notice no sooner than
January 28, 2000, and no later than February 27, 2000.
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, 1998, 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>
[BORGWARNER 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 27, 1999
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 15, 1999 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
- --------------------------------------------------------------------------------
1.Election of three Class III Directors: William E. Butler, Paul E. Glaske, John
Rau
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. Ratify the appointment of Deloitte & Touche LLP as independent auditors for
the Company for 1999.
FOR AGAINST ABSTAIN
/ / / / / /
3. 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" proposal 2 in accordance with the recommendations
of a majority of the Board of Directors.
Date----------------, 1999
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.
