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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
| Filed by the Registrant o | |
| Filed by a Party other than the Registrant o | |
| Check the appropriate box: |
| o Preliminary Proxy Statement | |
| o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| x Definitive Proxy Statement | |
| o Definitive Additional Materials | |
| o Soliciting Material Pursuant to §240.14a-12 |
BORGWARNER INC.
Payment of Filing Fee (Check the appropriate box):
| x No fee required. | |
| o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
| 1) Title of each class of securities to which transaction applies: |
| 2) Aggregate number of securities to which transaction applies: |
| 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4) Proposed maximum aggregate value of transaction: |
| 5) Total fee paid: |
| o Fee paid previously with preliminary materials. |
| o 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 Form or Schedule and the date of its filing. |
| 1) Amount Previously Paid: |
| 2) Form, Schedule or Registration Statement No.: |
| 3) Filing Party: |
| 4) Date Filed: |
| SEC 1913 (02-02) | Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
BORGWARNER INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Chicago, Illinois
Dear Stockholder:
BorgWarner Inc. will hold its Annual Meeting of Stockholders at the Company’s headquarters located at 200 South3850 Hamlin Road, Auburn Hills, Michigan, Avenue, Chicago, Illinois, 60604,48326, on April 21, 2004,27, 2005, at 10:9:00 a.m., local time, for the following purposes:
| 1. | To elect the nominees for Class | |
| 2. | To vote upon a proposal to approve the BorgWarner Inc. | |
| 3. | ||
| To ratify the appointment of Deloitte & Touche LLP as independent | ||
| 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 5, 20044, 2005 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 |
YOUR VOTE IS IMPORTANT!
YOU MAY VOTE BY:
| • | Signing and returning the accompanying proxy card |
| • | Voting by telephone or by the Internet. See proxy card for instructions. |
OR
| • | Voting in person at the meeting (if you are a stockholder of record) |
BORGWARNER INC.
PROXY STATEMENT
March 22, 2004
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of BorgWarner Inc. (the “Company”) for the 20042005 Annual Meeting of Stockholders to be held at the Company’s headquarters at 200 South3850 Hamlin Road, Auburn Hills, Michigan Avenue, Chicago, Illinois 6060448326 on April 21, 200427, 2005 at 10:9:00 a.m., local time, or at any adjournments thereof. This Proxy Statement and accompanying form of proxy are being mailed to stockholders beginning on or about March 22, 2004.24, 2005. The Company’s Annual Report to Stockholders for the year ended December 31, 20032004 is enclosed.
Record Date and Voting at the Annual Meeting
Only stockholders of record at the close of business on March 5, 20044, 2005 will be entitled to vote at the meeting. As of such date, there were 27,841,04756,478,010 issued and 27,840,02856,474,025 outstanding shares of common stock. Each share of common stock entitles the holder to one vote.
If you return your signed proxy card or vote by telephone or by the Internet before the Annual Meeting, we will vote your shares as you direct. 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 election inspectors will tabulate the votes cast prior to the meeting and at the meeting to determine whether a quorum is present. The presence in person or by proxy of the holders of a majority of common stock will constitute a quorum. A quorum is necessary to transact business at the Annual Meeting. Shares of common stock represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee which are represented at the Annual Meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as present and entitled to vote for purposes of determining the presence of a quorum. Assuming
With respect to the election of Directors, stockholders may vote (a) in favor of all nominees, (b) to withhold votes as to all nominees, or (c) to withhold votes to specific nominees. Directors are elected by a quorumplurality vote so that the four directors receiving the greatest number of votes will be elected. Withheld votes and broker non-votes will not affect the outcome of the election of directors.
For each other proposal, the affirmative vote of a majority of the votes cast is present,required for approval. Accordingly, an abstention from voting or a broker non-vote has no effect on Proposals 1, 2, and 4. However, an abstention or a broker non-vote will have the same legal effect asof a negative vote “against” Proposalon Proposals 2 and 3. Broker non-votes, however, will not be counted for purposes of determining the number of votes cast and, thus, will not affect the outcome of Proposals 2 and 3.
PROPOSAL 1 — ELECTION OF DIRECTORS
The Company’s Board of Directors is divided into three classes. Jere A. Drummond, Timothy M. ManganelloRobin J. Adams, David T. Brown, Paul E. Glaske, and Ernest J. Novak, Jr. (the “Class II Directors”)John Rau are the nominees for election as Class III Directors to the Board at this meeting. If elected, each nominee will serve for a term of three years and until their successors are elected and qualified. The Class IIII Directors have terms expiring at the 20052006 Annual Meeting of Stockholders and the Class III Directors have terms expiring at the 20062007 Annual Meeting of Stockholders. Each of the nominees for election as a Class IIIII Director is presently a director of the Company and has agreed to serve if elected. Except for Mr. Adams, all of the Class III Directors are
Recommendation of the Board of Directors
The Board of Directors recommends a vote “FOR” the election of each of the nominees for Class II DirectorsIII Director — Jere A. Drummond, Timothy M. ManganelloRobin J. Adams, David T. Brown, Paul E. Glaske and Ernest Novak, Jr.John Rau.
Information on Nominees for Directors and Continuing Directors
The following table sets forth as of February 13, 2004,March 4, 2005, 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 and directorships in other corporations:
| Principal Occupation | ||||||
| Class I Directors | Age | and Directorships | ||||
| Phyllis O. Bonanno 1999 | Ms. Bonanno has been President and CEO of International Trade Solutions, Inc., an international trade consulting firm, since March 2002. She was the President of TradeBuilders, Inc. from October 2000 until October 2001. She was President of Columbia College from July 1997 until March 2000. She is also a director of Adams Express Company, Mohawk Industries, Inc. and Petroleum & Resources Corporation. | |||||
| Andrew F. Brimmer 1997 | Dr. Brimmer has been President of Brimmer & Company, Inc., an economic and financial consulting firm, since July 1976. He is also a director of CarrAmerica Realty Corporation, BlackRock Investment Income Trust, Inc. and other BlackRock funds. | |||||
| Alexis P. Michas 1993 | Mr. Michas has been the Managing Partner since 1996 of Stonington Partners, Inc., an investment management firm. He is also a director of PerkinElmer, Inc. and a number of | |||||
| Principal Occupation | ||||||
| Class II Directors | Age | and Directorships | ||||
| Jere A. Drummond 1996 | Mr. Drummond retired from the BellSouth Corporation on December 31, 2001. He served as Vice Chairman of the BellSouth Corporation from January 2000 until his retirement. He was President and Chief Executive Officer of BellSouth Communications Group, a provider of traditional telephone operations and products, from January 1998 until December 1999. He was President and Chief Executive Officer of BellSouth Telecommunications, Inc. (“BellSouth”) from January 1995 until December 1997 and was elected a director of BellSouth in 1993. He is also a director of AirTran Holdings, Inc. | |||||
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| Principal Occupation | ||||||
| Class II Directors | Age | and Directorships | ||||
| Timothy M. Manganello 2002 | 55 | Mr. Manganello has been Chairman of the Board since June 2003 and Chief Executive Officer of the Company since February 2003. He was also President and Chief Operating Officer from February 2002 until February 2003. He was Executive Vice President from June 2001 until February 2002. He was Vice President of the Company from February 1999 until June 2001 and President and General Manager of BorgWarner TorqTransfer Systems Inc. (“TorqTransfer Systems”) from February 1999 until February 2002. He was appointed a director of the Company in February 2002. Mr. Manganello is also a director of Bemis Company, Inc. | ||||
| Ernest J. Novak, Jr. 2003 | Mr. Novak retired as a Managing Partner from Ernst & Young in June 2003. He was a Managing Partner from 1986 until June 2003. Mr. Novak is also a director of A. Schulman, Inc. and FirstEnergy Corp. | |||||
| Principal Occupation | ||||||
| Class III Directors | Age | and Directorships | ||||
| Mr. | ||||||
| David T. Brown 2004 | 56 | Mr. Brown has been President and Chief Executive Officer of | ||||
| Paul E. Glaske 1994 | Mr. Glaske was Chairman, President and Chief Executive Officer from April 1992 until his retirement in October 1999 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 Energy Transfer Partners, L.P. | |||||
| John Rau 1997 | Mr. Rau has been President and Chief Executive Officer of Miami Corporation, a private asset management firm, since January 2003. He has been Chairman of the Chicago Title and Trust Company Foundation since April 2000. He was President and Chief Executive Officer of Chicago Title Corporation from January 1997 until March 2000. Mr. Rau is also a director of First Industrial Realty Trust, Inc., Nicor, Inc. and | |||||
Board of Directors and Its Committees
The Board of Directors held four regular meetings and one special meeting during 2003.2004. All of the directors attended at least 75% of the meetings of the Board of Directors and any committee on which they served. Director NovakBrown was elected to the Board at the July 2003 meeting and attended all subsequent meetings. OurNovember 2004 meeting. The Company’s Corporate Governance Guidelines set forth ourthe Company policy that directors should use their best efforts to attend the Company’s annual meetingsmeeting of stockholders. All directors serving at the time of the 20032004 Annual Meeting of Stockholders attended the meeting.
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The Board of Directors has a standing Compensation Committee, Finance and Audit Committee, Corporate Governance Committee and Executive Committee. The Charters for each of our Board committees can be accessed on the Company’s website at www.bwauto.com.www.borgwarner.com.
The Board has determined that all Board members meet the independence requirements of the New York Stock Exchange (“NYSE”), with the exception of Timothy M.Mr. Manganello, Chairman and Chief Executive Officer.Officer and Mr. Adams, Executive Vice President, Chief Financial Officer and Chief Administrative Officer, if elected. Under the Company’s Corporate Governance Guidelines, a director will not be considered independent unless the Board determines that such director has no direct or indirect material relationship with the Company. In addition, the Company’s Corporate Governance Guidelines provide, among other things, that:
| • | a director who is an employee, or whose immediate family member is an executive officer, of the Company is not | |
| • | a director who receives, or whose immediate family member receives, more than $100,000 per year in direct compensation from the Company, other than director and committee fees or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not | |
| • | a director who is affiliated with or employed by, or whose immediate family member is affiliated with or employed in a professional capacity by, a present or former internal or external auditor of the Company |
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| is not “independent” until three years after the end of the affiliation or the employment or auditing relationship. | ||
| • | a director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not “independent” until three years after the end of such service or the employment relationship. | |
| • | a director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the listed company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, is not “independent” until three years after falling below such threshold. | |
| • | a director who is not considered independent by relevant statute or regulation is not “independent.” |
Compensation Committee.The present members of the Compensation Committee are Directors Glaske (Chairman), Butler, Drummond and Rau. The principal functions 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 fourseven times during 2003.2004.
Finance and Audit Committee.The present members of the Finance and Audit Committee are Directors Rau (Chairman), Bonanno, Brimmer, Michas and Novak. The Board of Directors has determined that Director Novak qualifies as an “audit committee financial expert” within the meaning of applicable SEC regulations. It is anticipated that Mr. Novak will become the Chairman of the Finance and Audit Committee during 2005. In addition, the Board has determined that each member of the Finance and Audit Committee is financially literate as required by applicable NYSE rules. The principal functions of the Finance and Audit Committee include: the engagement of the Company’s independent auditors;registered public accounting firm; determining the scope of services provided by the independent auditors;registered public accounting firm; reviewing the methodologies used by the Company in its accounting and financial reporting practices; reviewing the results of the annual audit and the Company’s annual financial statements; and overseeing the Company’s internal control and internal auditing services.functions. A copy of the Charter for the Finance and Audit Committee is attached as Appendix A. The Finance and Audit Committee met sixseven times during 2003.2004.
Corporate Governance Committee.The present members of the Corporate Governance Committee are Directors Butler (Chairman), Drummond Glaske and Gorr.Glaske. Director GorrButler intends to retire at the 20042005 Annual
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With the retirement of Mr. Butler at the 2005 Annual Meeting, and the addition of Mr. Brown and Mr. Adams to the Board, if elected, the composition of the Board committees will change.
Stockholders of record of the Company may recommend director candidates for inclusion by the Board in the slate of nominees which the Board recommends to stockholders for election. Appropriate biographical information and background material must be submitted to the “BorgWarner Inc. Corporate Governance Committee” c/o BorgWarner Inc. General Counsel, 200 South3850 Hamlin Road, Auburn Hills, Michigan Avenue, Chicago, IL 6060448326 in a timely manner. Assuming that appropriate biographical and background material is provided for candidates recommended by stockholders, the Corporate Governance Committee will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by Board members. The General Counsel will review the information and provide to the Chairman of the Corporate Governance Committee an assessment of the candidate’s independence, freedom from conflicts of interest and general suitability. If the Chairman of the Committee decides to submit the candidate to the entire Committee, each member will receive the candidate’s background information and will be afforded an opportunity to interview the candidate.
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In considering whether to recommend to the full Board any candidate for inclusion in the Board’s slate of recommended director nominees, the Corporate Governance Committee will consider, among other things, the following factors:
| • | personal and professional ethics, integrity and values; | |
| • | the education and breadth of experience necessary to understand business problems and evaluate and postulate solutions; | |
| • | interest and availability of time to be involved with the Company and its employees over a sustained period; | |
| • | stature to represent the Company before the public, stockholders and various others who affect the Company; | |
| • | willingness to objectively appraise management performance in the interest of the stockholders; | |
| • | open mindedness on policy issues and areas of activity affecting overall interests of the Company and its stockholders; | |
| • | involvement only in activities and interests that do not create a conflict with the director’s responsibilities to the Company and its stockholders; | |
| • | ability to evaluate strategic options and risks; | |
| • | contribution to the Board’s desired diversity and balance; and | |
| • | willingness to limit public company board service to four or fewer boards of public companies, unless the Corporate Governance Committee approves otherwise. |
The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. If the Corporate Governance Committee determines that a stockholder-nominated candidate is suitable and that the candidate should be recommended to the full Board, a quorum of the full
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Executive Committee.The present members of the Executive Committee are Directors Drummond, Manganello and Michas. The Executive Committee is empowered to act for the full Board during intervals between Board meetings when telephonic meetings cannot reasonably be arranged, with the exception of certain matters that by law may not be delegated. The Executive Committee did not meetmet one time during 2003.2004.
Executive Sessions.The non-employee directors meet in executive sessions without the presence of any corporate officer or member of management in conjunction with regular meetings of the Board. Director Butler is the presiding director of these executive sessions.sessions until his retirement at the 2005 Annual Meeting. After the 2005 Annual Meeting, Director Glaske will be the presiding director. Interested parties can make concerns known directly to the non-management directors on-line atwww.mysafeworkplace.comor by toll-free call to 1-800-461-9330.
DirectorsInvolvement in Certain Legal Proceedings
On October 5, 2000, Owens Corning and 17 of its United States subsidiaries filed petitions for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court in Wilmington, Delaware. Owens Corning stated that it took the action to address demands on its cash flow resulting from asbestos-related liability. David T. Brown, a director of the Company, was a Vice President of Owens Corning and President, Insulating Systems Business from January 1997 to December 2000, Executive Vice President and Chief Operating Officer of Owens Corning from January 2001 to March 2002, and has been President and Chief Executive Officer of Owens Corning since April 2002. Mr. Brown was also an executive officer of two of the 17 Owens Corning subsidiaries at the time of the filing of the bankruptcy petitions.
Director Compensation
Effective July 1, 2003, theThe annual retainer for non-employee directors was increased from $26,000 tois $40,000 for service on the Board of Directors. Each non-employee director receives $1,000$1,500 for each Board meeting attended. Committee members also receive $1,000$1,500 ($1,5003,000 if Chairman of the committee) for each committee meeting attended. In recognition of increased time commitments, the Chairman of the Finance and Audit Committee received $3,000$5,000 for each committee meeting attended since April 2003.January 1, 2005. The Company pays for the expenses associated with attendance at Board and committee meetings.
In addition, under the terms of the BorgWarner Inc. 1993 Stock Incentive Plan, as Amended (the “1993 Plan”), which expired on December 31, 2003, each non-employee director of the Company received on the third Tuesday of each year an annual grant of options to purchase 2,000 shares of common stock having an
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IfUnder the BorgWarner Inc. 2004 Stock Incentive Plan (the “2004 Plan”) is approved by stockholders (Proposal 2), startingcommencing in 2004, instead of annual stock option grants,2005, each non-employee directorsdirector will receive an annual grant of 400 shares$165,000 worth of restricted stock pursuant to a resolution. (The amountat the beginning of restricted shares will be adjusted, if necessary, to account for the effecteach three-year term. One third of the stock split if Proposal 2 is approved.) Non-employeeamount will vest each year of the three-year term. For the Class I and Class II non-employee directors no longerwho have one year and two years remaining in their current terms, respectively, each non-employee director will receive automatic annual grantsa pro rata award in 2005 ($55,000 for each Class I director and $110,000 for each Class II director), which will vest evenly over the remainder of options under the 1993 Plan.their current terms.
REPORT OF THE BORGWARNER INC. FINANCE AND AUDIT COMMITTEE
The Finance and Audit Committee of the Board of Directors of BorgWarner Inc. is charged with assisting the full Board with respect to fulfilling the Board’s oversight responsibility regardingwith respect to the quality and integrity of the accounting, auditing and financial reporting practices of the Company. The Committee also has the responsibility for, among other things, selection and compensation of the independent registered public accounting firm, monitoring the independent auditor’sregistered public accounting firm’s qualifications, independence and independence,work (including resolving any disagreements between management of BorgWarner Inc. and the independent registered public accounting firm regarding financial reporting), pre-approving all audit services to be performed by the independent registered public accounting firm, monitoring the performance of the Company’s internal audit function and advising the Board on corporate financial policy and capital structure and reviewing capital expenditure plans, financing plans, pension plans and financing plans.risk management programs. The full chargeresponsibilities of the Committee isare set forth in its charter, which is reviewed and updated annually and approved byat least
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Each member of the Committee meets the independence requirements set by the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission. The Board of Directors has determined that Mr. Novak is a financial expert as defined by the rules and regulations of the Securities and Exchange Commission. None of the members of the Committee simultaneously serve on the audit committees of more than two other public companies.
With respect to the 20032004 financial statements, the Committee in conjunction with the Board, reviewed the 20032004 financial results and financial condition with management. The Committee met with selected members of management and Deloitte & Touche LLP, (“Deloitte”the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”), the Company’s independent auditors,registered public accounting firm appointed by the Committee, to review the financial statements (including quarterly reports), discussing such matters as the quality of earnings; estimates, reservesallowances and accruals; suitability of accounting principles; judgmentalother judgment areas; and audit adjustments, whether recorded or not. In addition, the Committee considered the quality and adequacy of the Company’s internal controls, taxation issues, information technology matters and other areas as appropriate to its oversight of the financial reporting and audit processes.
In discharging its oversight responsibilities as to the audit process, the Committee:
| • | ||
| • | ||
| • | discussed with the Company’s management and Deloitte & Touche the overall audit process, including audit reports; | |
| • | ||
| • | received written materials addressing Deloitte & Touche’s internal quality control procedures and other matters, as required by NYSE listing standards; | |
| • | discussed with the Company’s management and Deloitte & Touche significant reporting issues and judgments made in connection with the | |
| • | ||
| • | ||
| • | provided Deloitte & Touche full access to the Committee to report on any and all appropriate matters; |
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| • | ||
| • | recommended to the |
6Principal Accountant Fees and Services
Aggregate fees billed to us for the years ended December 31, 2004 and 2003, for professional services performed by Deloitte & Touche, were as follows:
| 2004 | 2003 | |||||||
| Audit Fees | $ | 3,532,000 | $ | 1,529,000 | ||||
| Audit-Related Fees | $ | 241,000 | $ | 366,000 | ||||
| Total Audit and Audit-Related Fees | $ | 3,773,000 | $ | 1,895,000 | ||||
| Tax Fees | $ | 217,000 | $ | 246,000 | ||||
| All Other Fees | $ | — | $ | 506,000 | ||||
| Total Fees | $ | 3,990,000 | $ | 2,647,000 | ||||
| (1) | Audit fees consist of fees for professional services performed to comply with the standards of the Public Company Accounting Oversight Board (United States), including the recurring audit of the Company’s consolidated financial statements. This category also includes fees for audits provided in connection with statutory and regulatory filings or services that generally only the principal auditor reasonably can provide to a client, such as procedures related to audit of income tax provisions and related reserves, consents and assistance with and review of documents filed with the Securities and Exchange Commission. In 2004, audit fees also include fees for professional services rendered for the audits of (i) management’s assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of internal control over financial reporting. |
| (2) | Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements. This category includes fees related to assistance in financial due diligence related to acquisitions, general assistance with implementation of the new requirements of the Securities and Exchange Commission rules pursuant to the Sarbanes Oxley Act of 2002, audits of financial statements of employee benefit plans and various attest services. |
| (3) | Tax fees primarily include the aggregate fees billed for professional services provided by Deloitte & Touche in connection with tax compliance and tax planning. |
| (4) | All other fees consist of fees for products and services other than the services reported above. During 2003, all other fees consisted of permitted information technology services related to financial information systems design and implementation. |
The Committee has concluded that the provision of the non-audit services, the fees of which are listed above as “All Other Fees,” is compatible with maintaining the auditors’ independence.
The Committee has adopted procedures for pre-approving all audit and non-audit services provided by the independent registered public accounting firm, including the fees and terms of such services. These procedures include reviewing detailed back-up documentation for audit and permitted non-audit services. The documentation includes a description of, and a budgeted amount for, particular categories of non-audit services that are recurring in nature and therefore anticipated at the time that the budget is submitted. Committee approval is required to exceed the pre-approved amount for a particular category of non-audit services and to engage the independent registered public accounting firm for any non-audit services not
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The Committee has the authority, to the extent that it deems appropriate, to retain independent legal, accounting or other advisors.
The Committee provided guidance and oversight to the internal audit function, including a review of the organization, the audit plan, and results of internal audit activity. The Director of Internal Audit had routine opportunity to meet with the Committee to discuss any matters desired.desired and met with the Committee at each meeting.
Based on its work and the information received as outlined above, the Committee recommended to the Board and the Board approvedthat the Company’s audited financial statements for 2003 tothe year ended December 31, 2004, including the disclosures made in management’s discussion and analysis, be included in the Annual Report to Stockholders on Form 10-K, for filing with the Securities and Exchange Commission. The Committee is satisfied that it has met its responsibilities for the year ended December 31, 20032004 under its charter and that the financial reporting and audit processes of the Company are functioning appropriately.
BORGWARNER INC. FINANCE AND AUDIT COMMITTEE
John Rau, Chairman
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 10, 2004,4, 2005, certain information regarding beneficial ownership of common stock by all entities that, to the best knowledge of the Company, beneficially owned more than the five percent of the common stock.
| Number of | Percent of | Number of | Percent of | |||||||||||||||
| Name and Address of Beneficial Owner | Name and Address of Beneficial Owner | Shares | Class | Name and Address of Beneficial Owner | Shares | Class | ||||||||||||
| Wellington Management Company, LLP | 1,943,000 | (a) | 7.08 | % | ||||||||||||||
| 75 State Street | ||||||||||||||||||
| Boston, MA 02109 | ||||||||||||||||||
| AXA Financial, Inc. | AXA Financial, Inc. | 3,862,841 | (b) | 14.1 | % | AXA Financial, Inc. | 8,917,210 | (a) | 15.9% | |||||||||
| 1290 Avenue of the Americas | 1290 Avenue of the Americas | |||||||||||||||||
| New York, NY 10104 | New York, NY 10104 | |||||||||||||||||
| (a) | |
| A Schedule 13G/A was filed on | |
The following table sets forth, as of February 13, 2004,March 4, 2005, 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.
| Amount(a) and Nature(b) | Percent of | Amount(a) and Nature(b) | Percent of | |||||||||||||
| Name of Beneficial Owner | of Stock Ownership | class | of Stock Ownership | class | ||||||||||||
| John F. Fiedler(c) | 6,977 | * | ||||||||||||||
| Timothy M. Manganello | 24,934 | * | 66,930 | * | ||||||||||||
| Robin J. Adams | 25,310 | * | ||||||||||||||
| John J. McGill | 18,142 | * | 38,861 | * | ||||||||||||
| Alfred O. Weber | 316 | * | ||||||||||||||
| F. Lee Wilson | 19,140 | * | 62,760 | * | ||||||||||||
| Roger S. Wood | 6,985 | * | ||||||||||||||
| Roger J. Wood | 17,000 | * | ||||||||||||||
| Phyllis O. Bonanno | 6,235 | * | 15,000 | * | ||||||||||||
| Andrew F. Brimmer | 9,157 | * | 20,000 | * | ||||||||||||
| David T. Brown | 600 | * | ||||||||||||||
| William E. Butler | 8,100 | * | 21,000 | * | ||||||||||||
| Jere A. Drummond | 12,719 | * | 48,000 | * | ||||||||||||
| Paul E. Glaske | 18,518 | * | 40,820 | * | ||||||||||||
| Ivan W. Gorr | 10,000 | * | ||||||||||||||
| Alexis P. Michas | 44,468 | * | 88,560 | * | ||||||||||||
| Ernest J. Novak, Jr. | 648 | * | 2,000 | * | ||||||||||||
| John Rau | 11,329 | * | 22,800 | * | ||||||||||||
| All directors and executive officers of the Company (21 persons) | 263,542 | .9 | % | |||||||||||||
| All directors and executive officers of the Company (25 persons) | 616,726 | 1.09 | % | |||||||||||||
| * | Represents less than one percent. |
| (a) | Includes the following number of shares issuable upon the exercise of options within the next 60 days: |
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| (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. |
(c) Mr. Butler will retire at the 2005 Annual Meeting.
In addition to the shares of Common Stock reported above, the following directors have acquired phantom stock units through the deferral of director fees under the Borg-Warner Automotive, Inc. Board of Directors Deferred Compensation Plan: Ms. Bonanno has 1,135.022,849.07 phantom stock units; Dr. Brimmer has 1,557.393,518.58 phantom stock units; Mr. Brown has 31.56 phantom stock units; Mr. Drummond has 3,719.878,260.78 phantom stock units; Mr. Glaske has 508.681,028.66 phantom stock units; Mr. Michas has 2,588.255,972.42 phantom stock units; Mr. Novak has 48.98283.65 phantom stock units; and Mr. Rau has 2,329.665,080.26 phantom stock units.
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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 20032004 were timely filed, except for forms relatingthat Mr. Glaske and Mr. McGill each reported one transaction late on Form 4.
Code of Ethics
The Company has long maintained a Code of Ethical Conduct which is applicable to options that were granted on July 25, 2003 which were reported on August 4, 2003 on behalfall directors, officers and employees of the following individuals: John Kalina, Robert Welding, William Cline, Anthony Hensel, Laurene Horiszny, John McGill,Company. In addition, the Company has adopted a Code of Ethics for CEO and Roger Wood.Senior Financial Officers which applies to the Company’s Chief Executive Officer, Chief Financial Officer, Treasurer and Controller. Each of these codes is posted on the Company’s website atwww.borgwarner.com.
9Equity Compensation Plan Information
As of December 31, 2004, the number of stock options outstanding under the Company’s equity compensation plans, the weighted average exercise price of outstanding options, and the number of securities remaining available for issuance were as follows:
| Number of Securities | ||||||||||||
| Remaining Available | ||||||||||||
| Number of Securities | for Future Issuance | |||||||||||
| to be Issued Upon | Weighted-Average | Under Equity | ||||||||||
| Exercise of | Exercise Price of | Compensation Plans | ||||||||||
| Outstanding Options, | Outstanding Options, | (excluding securities | ||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | reflected in column(a)) | |||||||||
| (a) | (b) | |||||||||||
| Equity compensation plans approved by security holders | 2,990,000 | $ | 33.30 | 1,637,000 | ||||||||
| Equity compensation plans not approved by security holders | 0 | N/A | 0 | |||||||||
| Total | 2,990,000 | 1,637,000 | ||||||||||
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Executive Compensation
The following table shows, for the years ended December 31, 2004, 2003 2002 and 2001,2002, 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 certain executive officers.
SUMMARY COMPENSATION TABLE
| Long Term | Long Term | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation | Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Awards(b) | Awards(b) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long Term | Long Term | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annual Compensation | Other Annual | Securities | Incentive | All Other | Annual Compensation | Other Annual | Securities | Incentive | All Other | |||||||||||||||||||||||||||||||||||||||||||||||||
| Name and Principal | Name and Principal | Compensation | Underlying | Plan | Compensation | Name and Principal | Compensation | Underlying | Plan | Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Position | Position | Year | Salary($) | Bonus($) | ($)(a) | Options(#) | Payouts | ($)(c) | Position | Year | Salary($) | Bonus($) | ($)(a) | Options(#) | Payouts | ($)(c) | ||||||||||||||||||||||||||||||||||||||||||
| John F. Fiedler(*) | 2003 | $ | 234,664 | $ | 1,034,120 | $ | 2,660,757 | (d) | 0 | $ | 956,000 | $ | 3,384,407 | (f) | ||||||||||||||||||||||||||||||||||||||||||||
| Timothy M. Manganello | Timothy M. Manganello | 2004 | $ | 600,000 | $ | 705,773 | $ | 0 | 12,536 | $ | 796,000 | $ | 173,559 | |||||||||||||||||||||||||||||||||||||||||||||
| Chairman and CEO | 2002 | $ | 564,050 | $ | 1,520,666 | $ | 0 | 10,557 | $ | 1,471,000 | $ | 90,704 | Chairman and CEO | 2003 | $ | 538,144 | $ | 768,877 | $ | 69,548 | (d) | 0 | $ | 286,800 | $ | 146,743 | ||||||||||||||||||||||||||||||||
| (Retired) | 2001 | $ | 553,000 | $ | 291,401 | $ | 588,150 | (d) | 8,340 | $ | 567,035 | $ | 116,168 | 2002 | $ | 381,625 | $ | 624,109 | $ | 0 | 5,766 | $ | 382,460 | $ | 66,425 | |||||||||||||||||||||||||||||||||
| Timothy M. Manganello | 2003 | $ | 538,144 | $ | 768,877 | $ | 69,548 | (e) | 0 | $ | 286,800 | $ | 146,743 | |||||||||||||||||||||||||||||||||||||||||||||
| Robin J. Adams | Robin J. Adams | 2004 | $ | 282,051 | $ | 435,780 | $ | 0 | 32,963 | $ | 222,880 | $ | 32,310 | |||||||||||||||||||||||||||||||||||||||||||||
| Exec. Vice President, CFO | 2003 | $ | — | $ | — | $ | — | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||
| 2002 | $ | — | $ | — | $ | — | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
| John J. McGill | John J. McGill | 2004 | $ | 247,600 | $ | 373,403 | $ | 0 | 7,778 | $ | 413,920 | $ | 34,524 | |||||||||||||||||||||||||||||||||||||||||||||
| Chairman and CEO | 2002 | $ | 381,625 | $ | 624,109 | $ | 125,755 | (d) | 5,766 | $ | 382,460 | $ | 66,425 | Vice President | 2003 | $ | 247,600 | $ | 560,853 | $ | 68,383 | (e) | 0 | $ | 248,560 | $ | 31,117 | |||||||||||||||||||||||||||||||
| 2001 | $ | 253,000 | $ | 146,607 | $ | 13,993 | (d) | 576 | $ | 133,420 | $ | 69,972 | 2002 | $ | 234,600 | $ | 312,005 | $ | 0 | 0 | $ | 382,460 | $ | 22,789 | ||||||||||||||||||||||||||||||||||
| F. Lee Wilson | F. Lee Wilson | 2003 | $ | 247,600 | $ | 332,731 | $ | 402,956 | (d) | 0 | $ | 191,200 | $ | 26,471 | F. Lee Wilson | 2004 | $ | 260,000 | $ | 342,301 | $ | 344,800 | (f) | 0 | $ | 413,920 | $ | 32,639 | ||||||||||||||||||||||||||||||
| Vice President | 2002 | $ | 234,600 | $ | 403,263 | $ | 0 | 0 | $ | 205,940 | $ | 24,026 | Vice President | 2003 | $ | 247,600 | $ | 332,731 | $ | 648,832 | (f) | 0 | $ | 191,200 | $ | 26,471 | ||||||||||||||||||||||||||||||||
| 2001 | $ | 230,000 | $ | 255,175 | $ | 0 | 0 | $ | 0 | $ | 24,943 | 2002 | $ | 234,600 | $ | 403,263 | $ | 323,605 | (f) | 0 | $ | 205,940 | $ | 24,026 | ||||||||||||||||||||||||||||||||||
| John J. McGill | 2003 | $ | 247,600 | $ | 560,853 | $ | 190,914 | (d)(e) | 0 | $ | 248,560 | $ | 31,117 | |||||||||||||||||||||||||||||||||||||||||||||
| Roger J. Wood | Roger J. Wood | 2004 | $ | 255,300 | $ | 291,637 | $ | 0 | 7,343 | $ | 366,160 | $ | 57,260 | |||||||||||||||||||||||||||||||||||||||||||||
| Vice President | 2002 | $ | 234,600 | $ | 312,005 | $ | 0 | 0 | $ | 382,460 | $ | 22,789 | Vice President | 2003 | $ | 232,100 | $ | 387,933 | $ | 0 | 3,663 | $ | 191,200 | $ | 69,626 | |||||||||||||||||||||||||||||||||
| 2001 | $ | 229,584 | $ | 34,446 | $ | 0 | 0 | $ | 0 | $ | 22,107 | 2002 | $ | 210,000 | $ | 336,949 | $ | 0 | 0 | $ | 147,100 | $ | 38,551 | |||||||||||||||||||||||||||||||||||
| Roger S. Wood | 2003 | $ | 232,100 | $ | 387,933 | $ | 0 | 3,663 | $ | 191,200 | $ | 69,626 | ||||||||||||||||||||||||||||||||||||||||||||||
| Vice President | 2002 | $ | 210,000 | $ | 336,949 | $ | 0 | 0 | $ | 147,100 | $ | 38,551 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2001 | $ | 200,000 | $ | 119,203 | $ | 0 | 0 | $ | 47,650 | $ | 30,924 | |||||||||||||||||||||||||||||||||||||||||||||||
| Alfred O. Weber | 2003 | $ | 211,000 | $ | 252,763 | $ | 221,851 | (d)(e) | 0 | $ | 0 | $ | 46,269 | |||||||||||||||||||||||||||||||||||||||||||||
| Vice President | 2002 | $ | 204,359 | $ | 211,043 | $ | 67,043 | (e) | 10,000 | $ | 0 | $ | 6,230 | |||||||||||||||||||||||||||||||||||||||||||||
| 2001 | $ | 133,683 | $ | 88,836 | $ | 0 | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 |
| (b) | No restricted stock awards were made in |
| (c) | Includes amounts contributed by the Company on behalf of the named executive officers during |
| (d) | |
| (e) | Includes |
| (f) | Includes |
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Stock Options
The following table sets forth information with respect to grants of stock options made during 20032004 to the named executive officers.
| Potential Realizable | Potential Realizable | |||||||||||||||||||||||||||||||||||||||||||||||
| Value at Assumed | Value at Assumed | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Annual Rates of Stock | Number of | Annual Rates of Stock | |||||||||||||||||||||||||||||||||||||||||||||
| Securities | % of Total | Price Appreciation for | Securities | % of Total | Price Appreciation for | |||||||||||||||||||||||||||||||||||||||||||
| Underlying | Options Granted | Exercise | Option Term | Underlying | Options Granted | Exercise | Option Term | |||||||||||||||||||||||||||||||||||||||||
| Options Granted | to Employees in | Price | Expiration | Options Granted | to Employees in | Price | Expiration | |||||||||||||||||||||||||||||||||||||||||
| Name | (a) | Fiscal Year | ($/Sh) | Date | 5% | 10% | (a) | Fiscal Year | ($/Sh) | Date | 5% | 10% | ||||||||||||||||||||||||||||||||||||
| Roger S. Wood | 3,663 | 1.1 | % | $ | 66.080 | 7/23/13 | $ | 152,225 | $ | 385,767 | ||||||||||||||||||||||||||||||||||||||
| Timothy Manganello | 12,536 | 1.2 | % | $ | 44.56 | 7/28/14 | $ | 351,303 | $ | 890,271 | ||||||||||||||||||||||||||||||||||||||
| Robin J. Adams | 12,963 | 1.2 | % | $ | 44.56 | 7/28/14 | $ | 363,269 | $ | 920,595 | ||||||||||||||||||||||||||||||||||||||
| 20,000 | (b) | 1.9 | % | $ | 44.30 | 4/26/14 | $ | 557,201 | $ | 1,412,056 | ||||||||||||||||||||||||||||||||||||||
| John J. McGill | 7,778 | 0.7 | % | $ | 44.56 | 7/28/14 | $ | 217,967 | $ | 552,372 | ||||||||||||||||||||||||||||||||||||||
| F. Lee Wilson | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Roger J. Wood | 7,343 | 0.7 | % | $ | 44.56 | 7/28/14 | $ | 205,777 | $ | 521,479 | ||||||||||||||||||||||||||||||||||||||
| (a) | Options 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. |
| (b) | Mr. Adams received an option grant on April 26, 2004 upon his employment with the Company. |
The following table sets forth information with respect to the named executive officers concerning the exercise of stock options during 20032004 and concerning unexercised options held at December 31, 2003.2004.
| Number of Securities | Value of Unexercised | Number of Securities | Value of Unexercised | |||||||||||||||||||||||||||||||||||||||||||||
| Underlying Unexercised | In-the-Money Options | Underlying Unexercised | In-the-Money Options | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Options at FY-End | at FY-End(b) | Shares | Options at FY-End | at FY-End(b) | |||||||||||||||||||||||||||||||||||||||||||
| Acquired | Value | Acquired | Value | |||||||||||||||||||||||||||||||||||||||||||||
| Name | on Exercise | Realized | Exercisable | Unexercisable(a) | Exercisable | Unexercisable | on Exercise | Realized | Exercisable | Unexercisable(a) | Exercisable | Unexercisable | ||||||||||||||||||||||||||||||||||||
| John F. Fiedler(*) | 180,382 | $ | 2,618,433 | — | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Timothy M. Manganello | — | $ | — | 288 | 6,054 | $ | 10,596 | $ | 209,061 | — | $ | — | 6,918 | 18,302 | $ | 200,886 | $ | 286,762 | ||||||||||||||||||||||||||||||
| Robin J. Adams | — | $ | — | — | 32,963 | $ | — | $ | 321,974 | |||||||||||||||||||||||||||||||||||||||
| John J. McGill | 5,000 | $ | 121,285 | 10,000 | 18,696 | $ | 428,850 | $ | 598,337 | 20,000 | $ | 503,164 | 20,000 | 25,170 | $ | 588,700 | $ | 519,340 | ||||||||||||||||||||||||||||||
| F. Lee Wilson | 10,000 | $ | 401,111 | 15,000 | 15,000 | $ | 901,150 | $ | 344,200 | — | $ | — | 50,000 | 10,000 | $ | 1,654,800 | $ | 288,400 | ||||||||||||||||||||||||||||||
| Roger S. Wood | — | $ | — | — | 3,683 | $ | — | $ | 69,940 | |||||||||||||||||||||||||||||||||||||||
| Alfred O. Weber | 7,400 | $ | 152,096 | — | 12,000 | $ | — | $ | 418,680 | |||||||||||||||||||||||||||||||||||||||
| Roger J. Wood | — | $ | — | — | 14,709 | $ | — | $ | 226,210 | |||||||||||||||||||||||||||||||||||||||
| (a) | Represents shares that could not be acquired by the named executive officer as of December 31, |
| (b) | Represents the difference between the exercise price and the closing share price of |
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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 20032004 pursuant to the Company’s Executive Stock Performance Plan.
| Estimated Future Payouts | Estimated Future Payouts | |||||||||||||||||||||||||||||||||||||||
| Number | Performance | under Non-Stock | Number | Performance | under Non-Stock | |||||||||||||||||||||||||||||||||||
| of Shares | or Other | Price-Based Plans(b) | of Shares | or Other | Price-Based Plans(b) | |||||||||||||||||||||||||||||||||||
| Units or | Period Until | Units or | Period Until | |||||||||||||||||||||||||||||||||||||
| Rights | Maturation | Threshold | Target | Maximum | Rights | Maturation | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||
| Name | (#)(a) | or Payout | ($) | ($) | ($) | (#)(a) | or Payout | ($) | ($) | ($) | ||||||||||||||||||||||||||||||
| John F. Fiedler(*) | 0 | 36 months | — | — | — | |||||||||||||||||||||||||||||||||||
| Timothy M. Manganello | 700 | 36 months | 175,000 | 700,000 | 1,225,000 | 700 | 36 months | 175,000 | 700,000 | 1,225,000 | ||||||||||||||||||||||||||||||
| Robin J. Adams | 400 | 36 months | 100,000 | 400,000 | 700,000 | |||||||||||||||||||||||||||||||||||
| John J. McGill | 260 | 36 months | 65,000 | 260,000 | 455,000 | |||||||||||||||||||||||||||||||||||
| F. Lee Wilson | 260 | 36 months | 65,000 | 260,000 | 455,000 | 260 | 36 months | 65,000 | 260,000 | 455,000 | ||||||||||||||||||||||||||||||
| John J. McGill | 260 | 36 months | 65,000 | 260,000 | 455,000 | |||||||||||||||||||||||||||||||||||
| Roger S. Wood | 260 | 36 months | 65,000 | 260,000 | 455,000 | |||||||||||||||||||||||||||||||||||
| Alfred O. Weber | 230 | 36 months | 57,500 | 230,000 | 402,500 | |||||||||||||||||||||||||||||||||||
| All executive officers, as a group(11) | 1,710 | 36 months | 427,500 | 1,710,000 | 2,992,500 | |||||||||||||||||||||||||||||||||||
| Roger J. Wood | 260 | 36 months | 65,000 | 260,000 | 455,000 | |||||||||||||||||||||||||||||||||||
| (a) | Performance units with an initial value of $1,000 per unit. |
| (b) | 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 |
11
| 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. | |
Change of Control Employment Agreements
The Company has entered into Change of Control Employment Agreements (the “Change of Control Employment Agreements”) with each of its 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. If an excise tax is imposed under Section 4999 of the Internal Revenue Code on payments received by the executive due to a change of control of the Company or any interest or penalty is incurred by the executive with respect to such excise tax, the Company will pay the executive an amount that will net the executive the amount the executive would have received if the excise or penalty had not been imposed. 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) 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
14
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 of BorgWarner Inc. consists of four independent outside directors. The Committee 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 PolicyCompensation Philosophy
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 perform-
12
| • | 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 two billion to four 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 CommitteeIt determines the compensation of the CEOChief Executive Officer and the officers of the corporation,Company, reviews the policies and philosophy set for the next level of key executives (approximately 280)300), 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. Manganello), the Compensation Committee takes into account the views of Mr. Manganello.
Total compensation levels (including base salary, annual bonus, and long-term incentives) for BorgWarner’s executives are compared to the compensation paid to executives at similar companies in the durable manufacturing sector that have total sales in the range of $2 billion to $4 billion, 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 stockholder 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.
Components of Compensation
The key elements of the Company’s executive compensation program are base salary, annual bonus and long-term incentives that consist of cash compensation, Company stock, and stock options. The Compensation Committee’s policies with respectAnnual bonus
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Base SalarySalaries
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. Manganello became For 2004, the CEO of the Company on February 4, 2003. The Compensation Committee consideredset base salary levels for the scopeexecutive officers based primarily on external market data and complexitythe performance of Mr. Manganello’s position, the Company’s performanceeach executive officer 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. Expected long-term growth ($1.3 billion in anticipated new business over the next three years), his performance in his role as COO in 2002 and the Company’s increasing global presence were among the performance factors considered in determining Mr. Manganello’s salary for 2003. Mr. Manganello received a base salary of $538,143 during 2003.
Mr. Fiedler was CEO of the Company between January 1 and February 3, 2003; thereafter, he continued as Chairman of the Board until May 30, 2003. He earned $234,664 in salary for the portion of the year that he was employed by the Company.previous year.
Annual Bonus
2004 Annual Bonus Awards
The Company’s executive officers are eligible participantsto participate in an annual cash bonus plan. Performance objectives are established at the beginning of each year for the Company, Business Group and each of its business units. The performance objectives are based on the increase in economic value of the Company, Business Group and/or business unit over the prior year. Economic value is determined by a formula taking into account the after-tax operating income and the average operating investment of the Company, Business Group or business unit.
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Eligible executives are assigned threshold, target, and maximum bonus levels. For those executive officers responsible for the entire Company, 100%100 percent of their bonus opportunity is based on the increase in economic value for the Company; for those executive officers responsible for a business unit, 30%15 percent of the bonus opportunity is based on the increase in economic value of the Business Group (Engine or Drivetrain) of which the business unit is a part, 30 percent of the bonus opportunity is based on the increase in economic value for the Company and 70%55 percent is based on the increase in economic value of theirthe assigned group and business units.unit. If the threshold level of these performance measures is not met, no bonus is paid.
To encourage a longer-term perspective while continuing to reward participants for the achievement of annual goals, the bonus plan for executives includes a “Carryover Bonus” feature. Carryover Bonus allows participants in the bonus plan to earn — over a two-year period — any bonus opportunity (up to specified maximum limits) that was not attained during the current Plan Year.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 approximated 65th percentile of annual total cash compensation levels for similar positions as reported by comparable companies in the Compensation Surveys. In a given year, Carryover Bonus from prior years may increase the annual bonus opportunity of the executive officers above the regular target levels.
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-financialnonfinancial actions that the Compensation Committee believes will benefit long-term stockholder value.
After an analysis of the considerations set forth above, cash bonuses were paid to executive officers. The increase in economic value of the Company during 2003in 2004 resulted in a bonus payout between the target and the maximum opportunity level for the portion of individual bonuses based on overall corporate performance.
As more particularly described beginning on page 20 of this proxy, on February 2, 2005, the Board of Directors has approved, subject to stockholder approval, the BorgWarner Inc. 2005 Executive Incentive Plan,
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Likewise, Mr. Fiedler earned a $1,034,120annual cash bonus for the year; of this, $193,170 represents Carryover Bonus from 2001.plan.
Long-Term Incentive PlansIncentives
Executive Stock Performance Plan
The BorgWarner Inc. Executive Stock Performance Plan is a long-term incentive plan for selected top senior executives including the named executive officers. It is designed to provide competitive payouts at the end of a three yearthree-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 thatParticipants in this plan did not receive regular stock option grants under the ExecutiveBorgWarner Inc. 2004 Stock Performance Plan will help to focus key senior executives on the long-term overall value of the Company to the investor community.Incentive Plan.
The award levels under the Executive Stock Performance Plan arewere 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.
Awards under this plan are paid out in the form of stock and sufficient cash to meet tax-withholdingtax withholding requirements. Payments made under this plan are exempt from the provisions of Section 162(m) of the Code that limit the tax deductibility of compensation in excess of one million dollars.$1 million.
Full participants in this plan do not receive regular stock option grants.
This planThe Executive Stock Performance 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.
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For the period between January 1, 2001 to2002 and December 31, 2003,2004, Mr. Manganello had a target award of 300500 performance units at a par value of $1,000 per unit. At the end of the performance period, the Company’s TSR performance was at the 62nd86th percentile of the TSR performance of the Peer Group Companies. As a result, Mr. Manganello earned an award of $286,800.
For the period between January 1, 2002 to December 31, 2004, Mr. Manganello has a target award of 500 performance units at a value of $1,000 per unit. Depending upon the performance of the Company, Mr. Manganello’s final award can range from $0 per unit if the Company’s TSR performance is below the 25th percentile of the TSR performance of the Peer Group Companies to $1,750 per unit if the Company’s TSR performance is at the 90th percentile (or higher) of the TSR performance of the Peer Group Companies.$796,000.
For the period between January 1, 2003 toand December 31, 2005, Mr. Manganello has a target award of 700 performance units at a value of $1,000 per unit. Depending upon the performance of the Company, Mr. Manganello’s final award can range from $0 per unit if the Company’s TSR performance is below the 25th percentile of the TSR performance of the Peer Group Companies to $1,750 per unit 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, 2004 and December 31, 2006, Mr. Fiedler was a participant in the 2001-2003 cycle of the Executive Stock Performance Plan. Mr. Fiedler hadManganello has a target award of 1000700 performance units at a value of $1,000 per unit. AtDepending upon the endperformance of the performance period,Company, Mr. Manganello’s final award can range from $0 per unit if the Company’s TSR performance was atis below the 62nd25th percentile of the TSR performance of the Peer Group Companies; as a result, Mr. Fiedler earned anCompanies to $1,750 per unit if the Company’s TSR performance is at the 90th percentile (or higher) of the TSR performance of the Peer Group Companies.
Under the terms of the Executive Stock Performance Plan, no awards may be granted after December 31, 2004. Accordingly, the final three-year period for which awards have been granted under the Executive Stock Performance Plan was for the three-year period beginning January 1, 2004 and ending on December 31, 2006.
BorgWarner Inc. 2004 Stock Incentive Plan
In 2004, the stockholders approved the BorgWarner Inc. 2004 Stock Incentive Plan. The BorgWarner Inc. 2004 Stock Incentive Plan provides for the award of $956,000. As noted instock options, stock appreciation rights, restricted stock, stock units, performance shares and performance units.
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Executives may receive annual stock option awards based on competitive market conditions, their level of responsibility for the 2003 Compensation Committee Report,management and growth of the numberCompany, and individual contributions. Current base salary and annual incentive opportunity, as well as the size and timing of units granted to Mr. Fiedler under the 2002-2004 cycle was reduced to 500 units to reflect a shorter period of participation in the plan as a result of his retirement in 2003.
Stock Options
Regular Stock Option Awardsprevious stock option awards, are also considered when determining annual stock option awards.
For other executives not eligible for the Executive Stock Performance Plan, the Company uses stock options under the BorgWarner Inc. 2004 Stock Incentive Plan to align the interests of this next level of executives with those of the stockholders and to retain and motivate these executives to continue the long-term focus required for the Company’s future success.
Executives may receive annual stock option awards based on competitive market conditions, 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 the size and timing of previous stock option awards, are also considered when determining annual stock option 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 recipient is determined by an analysis of median competitive data provided in the Compensation Surveys. The analysis is based on the current discounted market value of the Company’s stock and the annualized cash value of competitive grants. All options granted by the Company have vesting requirements and a ten-year term.
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.$1 million.
No regular stock option grants were awarded to either Mr. Manganello or Mr. Fiedler in 2003.2004.
Beginning with the 2005 fiscal year, the Company will grant awards of Performance Shares and Non-Qualified Stock Options to the top senior executives under the BorgWarner Inc. 2004 Stock Incentive Plan. Such grants will be made in place of awards under the Executive Stock Performance Plan. The Performance Shares will be granted for a three-year period beginning January 1, 2005 and will be based on total shareholder return relative to the Company’s Peer Group during the three-year performance period that begins on January 1, 2005 and ends on December 31, 2007. The Non-Qualified Stock Option Awards will have the same terms and conditions as are established for the other participants in the plan. In the future, the Company’s philosophy for long-term incentives is to provide the top senior executives with an economic opportunity, at grant, that matches the 65th percentile.
Redesign for 2005
The Compensation Committee has been working directly with its executive compensation consultant to implement a proposed new long-term incentive design for executive officers, to be effective in 2005. The proposed design was developed following an extensive review of the Company’s business strategy, executive compensation goals, and past executive pay practices.
Ownership Guidelines
The Company has established stock ownership guidelines for the senior officers of the Company. These guidelines are maintained in order to strengthen the link between long-term corporate performance and executive rewards. Mr. Manganello is expected to own three times the average of his annualized salary and target bonus for the prior three years; the other officers named in this proxy are expected to own two times the average of their annualized salary and target bonus for the prior three years.
If a senior executive owns more BorgWarner stock than required by these guidelines, the executive is then eligible to receive an additional award of stock options equal to the value of the ownership above the
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Neither Mr. Manganello nor Mr. Fiedler received an award of 12,536 stock options in 20032004 for stock ownership above the required level. In addition, eight other executives also exceeded the ownership requirements. The only named officer that receivedcombined total of options to be granted to these eight executives amounted to 44,417 options.
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2004 Compensation for the Chief Executive Officer
The Compensation Committee meets without the Chief Executive Officer present to evaluate his performance and establish his compensation. Compensation for the Company’s Chief Executive Officer is based on the same basic factors as described above for the other members of senior management. Mr. Manganello participates in the same executive compensation plans available to other executive officers.
In establishing the base salary, cash incentive awards, and stock optionsawards for ownership2004, the Compensation Committee considered BorgWarner’s overall performance. For 2004, Mr. Manganello had a base salary of $600,000 an increase of 9.09 percent from 2003. Mr. Manganello earned an annual bonus of $705,773 for performance in 2003fiscal 2004; of this, $35,343 represents Carryover Bonus from 2003.
This represented a payout above target and is the result of BorgWarner exceeding its financial performance targets set prior to the start of 2004. In addition, as was Roger Wood; he received 3,663 stock options.disclosed earlier, for the period between January 1, 2002 and December 31, 2004, Mr. Manganello had a target award of 500 performance units at a par value of $1,000 per unit. At the end of the performance period, the Company’s TSR performance was at the 86th percentile of the TSR performance of the Peer Group Companies. As a result, Mr. Manganello earned an award of $796,000.
Deductible Compensation of Officers
Section 162(m) of the Code provides that compensation in excess of $1 million paid to the chief executive officer and the other most highly compensated executive officers of a public company will generally be nondeductible for federal income tax purposes, subject to certain exceptions. The Committee intends to structure compensation arrangements in a manner that will avoid the deduction limitations imposed by Section 162(m) in appropriate circumstances. However, the Committee believes that it is important and necessary that the Committee retain the right and flexibility to provide and revise compensation arrangements, such as base salary and cash bonus incentive opportunities, that may not qualify under Section 162(m) if, in the Committee’s view, such arrangements are in the best interests of the Company and its stockholders.
During 2003,2004, Mr. Manganello received compensation in excess of the one$1 million dollar limitation on deductibility under Section 162(m) of the Code. Consequently, $307,021$305,773 of the compensation earned by Mr. Manganello in 20032004 was not deductible by the Company.
Compensation subject to the one$1 million dollar limitation on deductibility under Section 162(m) of the Code was not paid in 20032004 to any of the other named executive officers.
The Compensation Committee periodically reviews the executive compensation plans of the Company to determine their compliance with Section 162(m) of the Code. The Compensation Committee may, as was the case in 2003, recommend that compensation that is non-deductible be paid to executive officers when such compensation is deemed in the best interest of stockholders.
Other
After Mr. Manganello became CEO of the Company on February 4, 2003, Mr. Fiedler continued on as Chairman of the Board until his retirement on May 30, 2003. Per the terms of an employment agreement entered into on January 27, 1998 (and amended on January 3, 2001), Mr. Fiedler earned additional compensation upon completing a commitment to postpone his retirement and to lead the Company for five years beyond 1997.
Between 1997 and 2003, the Company grew significantly and profitably. Full year sales for 1997 were $1.7 billion;Submitted by the time Mr. Fiedler retired, world-wide sales were over $2.7 billion. The total shareholder return during this period was 61%. Considering the sound financial condition of the Company at the time of his retirement, the Compensation Committee and the Board as a whole determined that Mr. Fiedler had honorably fulfilled his contractual obligation to lead the Company.
In further settlement of his employment agreement, Mr. Fiedler received a cash payment of $435,841. In addition, as provided under the terms of the promissory note dated January 30, 1998, the principal and interest on his loan totaling $2,758,682, which was used to buy Company stock, was forgiven.
Compensation Committee
Paul E. Glaske, Chairman
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Comparison of Cumulative Total Return
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |||||||||
| BORGWARNER(2) | 100.0 | 73.48 | 73.78 | 97.67 | 95.32 | 162.68 | ||||||||
| SIC CODE INDEX(3) | 100.0 | 80.93 | 61.41 | 74.54 | 70.13 | 101.46 | ||||||||
| PEER GROUP INDEX(4) | 100.0 | 85.94 | 67.99 | 86.89 | 74.23 | 111.93 | ||||||||
| S&P 500 INDEX(5) | 100.0 | 121.04 | 110.02 | 96.95 | 75.52 | 97.18 | ||||||||
| 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||
| BORGWARNER(2) | 100.0 | 100.42 | 132.93 | 129.73 | 221.40 | 285.08 | ||||||||
| SIC CODE INDEX(3) | 100.0 | 68.86 | 89.92 | 73.55 | 109.99 | 111.84 | ||||||||
| PEER GROUP INDEX(4) | 100.0 | 82.76 | 110.84 | 93.50 | 138.42 | 154.74 | ||||||||
| S&P 500 INDEX(5) | 100.0 | 90.89 | 80.09 | 62.39 | 80.29 | 89.02 | ||||||||
| (1) | Assumes $100 invested on December 31, |
| (2) | BorgWarner Inc. (As compiled by |
| (3) | Standard Industrial Code (“SIC”) 3714 — Motor Vehicle Parts & Accessories (As compiled by |
| (4) | Peer Group Companies — Consists of the following companies: ArvinMeritor, Inc., Autoliv, Inc., Cummins Engine, Inc., Dana Corporation, Delphi |
| (5) | S&P 500 — Standard & Poor’s 500 Total Return Index (As compiled by |
Certain Relationships and Related Transactions
The Company entered into an employment agreement, effective January 1, 1998 with Mr. Fiedler which provided, 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 his agreement, Mr. Fiedler was 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
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Effective November 8, 2000, the Company entered into an addendum to the employment agreement with Mr. Fiedler which provided that Mr. Fiedler would continue to serve as Chairman of the Board of Directors until May 30, 2003 (subject to annual approval by the Board of Directors and re-election by the stockholders). Under the addendum, 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 25,000 shares of common stock, such option was exercisable starting on May 30, 2003.
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 was evidenced by a non-negotiable full recourse promissory note, as amended, which matured on May 30, 2003. The note accrued interest at the rate of 5.84% per annum, compounded semiannually. The largest aggregate amount outstanding during 2003 and the amount outstanding under the note as of May 30, 2003 was $2,758,682. As provided under the note, the entire obligation was forgiven because Mr. Fiedler remained with the Company through May 30, 2003.
On or about June 5, 2003, in further settlement of its obligations under the employment agreement, the Company paid Mr. Fiedler the sum of $435,841 of which amount represented Mr. Fiedler’s income tax liability associated with forgiveness of the note less the after tax gain he realized upon exercise of the options just mentioned.
PROPOSAL 2 — APPROVAL OF THE BORGWARNER INC. 2004 STOCK2005 EXECUTIVE INCENTIVE PLAN
At its February 4, 2004 meeting,The Board recommends that stockholders approve the BorgWarner Inc. 2005 Executive Incentive Plan (the “Plan”), which was adopted by the Board of Directors unanimously adopted the BorgWarner Inc. 2004 Stock Incentive Plan (the “2004 Plan”),at its February 2, 2005 meeting, subject to stockholder approval. The Plan will not become effective, and awards will not be granted under the Plan unless stockholder approval thereof by the stockholdersis obtained. One of the Company at the Annual Meeting. A copy of the 2004 Plan is attached to this proxy statement as Appendix B. If approved by the stockholders, the 2004 Plan will replace the 1993 Plan, which expired on December 31, 2003. The favorable vote of a majority of the shares of common stock represented at the Annual Meeting is requiredprimary reasons for seeking stockholder approval of the 2004 Plan.
The Board of Directors recommends that stockholders vote “FOR” the 2004 Plan.
Description of the 2004 Plan
The following description of the material terms of the 2004 Plan is intended as a summary only and is qualified in its entiretyto satisfy the performance-based compensation exception from the tax deduction limit imposed by reference to the text of the attached 2004 Plan.
Administration.The 2004 Plan will be administered by the Compensation Committee of the Company’s Board of Directors, or such other committee comprised of members of the Board that the Board appoints (“Committee”). If the Compensation Committee has not been designated as the Committee, members of the Committee must be “non-employee directors” within the meaning of Section 16 of the Securities Exchange Act of 1934 (“Exchange Act”) and “independent directors” within the meaning of any applicable stock exchange rule. In addition, to the extent that the Committee intends that an award granted under the 2004 Plan constitutes “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code (“Code”(the “Code”) (discussed below), membersfor compensation paid by the Company to
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Each of the executive officers of the Company listed on page 12 of this proxy and in the Table of New Plan Benefits below will be “outside directors” withineligible for awards under the meaningPlan, and accordingly, has a substantial interest in the Plan becoming approved.
Objectives of the Plan
The primary objectives of the Plan are: (i) to attract, motivate, and retain high-caliber individuals by providing competitive annual incentive opportunities, (ii) to provide an incentive to key employees of the Company who have significant responsibility for the success and growth of the Company; and (iii) to satisfy the requirements of Section 162(m) of the Code.
In the case of awards granted to membersAdministration of the Board who are not officers or employees of the Company or an affiliate, the 2004Plan
The Plan willshall be administered by the Compensation Committee subject to the approval of a majority of all members(“Committee”) of the Board who are “non-employee directors” within the meaning of Section 16Directors, which consists exclusively of the Exchange Act, and “independent directors” within the meaning of any applicable stock exchange rule.
two (2) or more nonemployee directors. The Committee may authorizeshall have full power in its discretion to, among other things: (i) select key employees who shall participate in the chief executive officerPlan; (ii) determine the sizes and types of awards (“Awards”); (iii) determine the Company to grant awards underterms and conditions of Awards; (iv) construe and interpret the 2004Plan; and (v) amend or terminate the Plan of up to 10,000 shares of common stock per individual per year to officers andin whole or in part.
Participation
All employees of the Company and its affiliatessubsidiaries who are not executive officers subject to Section 16 of the Exchange Act or “covered
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For purposes of the remaining portions of this description of the 2004 Plan, references to the Committee shall also refer (i) in the case of awards to directors who are not employees of the Company or a subsidiary, to the Committee, as approved by a majority of all members of the Board who are “non-employee directors” within the meaning of Section 16 of the Exchange Act, and “independent directors” within the meaning of any applicable stock exchange rule, and (ii) in the case of awards granted to employees by the chief executive officer pursuant to an authorizationdetermined by the Committee to be key employees are eligible to participate in the chief executive officer.
Under the 2004 Plan, the Committee has full authority to select the eligible individuals to whom awards will be granted, the types of awards to be granted, the number of shares to be subject to an award, the exercise price (in the case of a stock option) and other terms and conditions of awards, to interpret the 2004 Plan, and to prescribe, amend and rescind the rules and regulations relating to the 2004 Plan.
Term, Amendment and Termination.If not terminated sooner by the Board of Directors, the 2004 Plan will terminate on the date immediately preceding the tenth anniversary of the 2004 Plan’s effective date, and no awards will be granted after that date. Awards granted and outstanding as of the date the 2004 Plan terminates will not be effected or impaired by such termination.
The Board of Directors may amend, alter or discontinue the 2004 Plan at any time. However, no amendment, alteration or discontinuation of the 2004 Plan may impair the rights of an award recipient with respect to awards previously granted without such recipient’s consent (except that no consent is necessary for amendments made to cause the 2004 Plan to qualify for the exemption provided by Rule 16b-3 of the Exchange Act or for awards to qualify for the “qualified performance-based compensation” exception under Code section 162(m), discussed below). No amendment may be made that would disqualify the 2004 Plan from the exemption provided by Rule 16b-3 of the Exchange Act or to extend the term of the 2004 Plan. No amendment can be made to the 2004 Plan without the consent of the Company’s stockholders to the extent that such approval is required by law or agreement.
The Committee may amendselect from all eligible key Employees those to whom Awards shall be granted in any given Plan Year and shall determine the termsamount of any outstanding award, either prospectively or retroactively, except that an amendment that would impair the rights of the award holder requires the holder’s consent (except that no consent in necessary for amendments made to cause the 2004 Plan to qualify for the exemption provided by Rule 16b-3 of the Exchange Act or for awards to qualify for the “qualified performance-based compensation” exception under Code section 162(m), discussed below).
No Repricing of Stock Options or Stock Appreciation Rights. Except for adjustments for certain corporate events as described below, the 2004 Plan expressly prohibits the Committee from repricing stock options or stock appreciation rights once they are granted.
Shares Subject to the 2004 Plan. Subject to adjustments as described below, up to 1,350,000 shares of the Company’s common stock, par value of $0.01 per share, will be available for issuance for awards under the 2004 Plan, including with respect to incentive stock options. Shares subject to an award may be authorized and unissued shares, treasury shares, or shares of common stock purchased on the open market.each Award. As of February 13, 2004, the closing price of a share of common stock was $93.49.
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If an award granted under the 2004 Plan expires, terminates, is cancelled, or lapses for any reason without the issuance of shares of common stock, or if any shares of restricted stock awarded under the 2004 Plan are forfeited, the shares covered by such award or such restricted stock will again be available for awards under the 2004 Plan. In addition, if an award recipient tenders previously-acquired shares of the Company’s common stock to satisfy applicable withholding obligations with respect to an award, or if shares of the Company’s common stock are withheld to satisfy applicable withholding obligations, such shares will again be available for further awards under the 2004 Plan. Also, if an award recipient tenders previously-acquired shares of the Company’s common stock in payment of the option price upon exercise of a stock option awarded under the 2004 Plan, or if shares of common stock are withheld in payment of the option price, the number of shares tendered or withheld will again be available for further awards under the 2004 Plan.
Individual Limitations. Subject to adjustments as described below, no individual may be granted, within one fiscal year of the Company, awards covering more than 100,000 shares of common stock or common stock equivalents (in the case of awards of stock appreciation rights, stock units, and performance shares). Additionally, no individual may be granted within one fiscal year of the Company, Performance Units that could exceed $500,000 when paid in cash or in shares of common stock.
If there is a change in the common stock of the Company through the declaration of stock dividends, or through recapitalization resulting in stock split-ups, or combinations or exchanges of shares, or otherwise, the 2004 Plan authorizes the Committee to make appropriate adjustments in the number of shares authorized for grants, in the exercise prices of outstanding stock options, in the base prices of stock appreciation rights, and in the limits described above on the number of shares available for grant to individuals per fiscal year.
Eligibility and Types of Awards.The Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, stock units, performance units, and performance shares. Participation in the 2004 Plan is open to officers,2, 2005, approximately 16 key employees and directors of the Company, as selected by the Committee. However, directors who are not employees of the Company or of a subsidiary are not eligible to receive grants of incentive stock options, performance units, or performance shares under the 2004 Plan. As of February 13, 2004, approximately 300 employees, including 11 officers, and nine directors who are not employees of the Company or any subsidiary would have been eligible to receive awards under the 2004 Plan.
Awards
Stock Options.Officers, employeesThe Compensation Committee shall (1) establish an Award Pool equal to two and directorsa quarter percent (2 1/4%) of the Company and its subsidiaries may be granted options to acquireCompany’s operating income, as disclosed in the Company’s common stockConsolidated Statements of Operations, and (2) award key employees selected for participation a percentage of the Award Pool. The Compensation Committee may, in its discretion, decrease the size of the Award Pool or the Award for any Participant. The total amount of all Awards under the 2004 Plan either alone or in conjunction with other awards under the 2004 Plan. However, as noted above, directors who are not employees of the Company or a subsidiary of the Company are not eligible to receive grants of incentive stock options (“ISOs”).
Under the 2004for any Plan stock options may be either ISOs or nonqualified stock options. The exercise price of a stock option is determined at the time of grant but may not be less than the fair market value per share of common stock on date of grant. Stock options are exercisable at the times and upon the conditions that the Committee may determine, as reflected in the applicable stock option agreement. The exercise period of a stock option is determined by the Committee andYear may not exceed 10 years from the date of grant.
The holder of a stock option generally has a one-year period following the grantee’s termination of employment or service with the Company and its subsidiaries (but not to exceed the stock option’s term), in which to exercise a stock option that was exercisable as of such termination. An extended exercise period (generally three years, but not to exceed the stock option’s term) may apply following a termination of employment or service by reason of disability or retirement. The 2004 Plan authorizes the Committee to accelerate the schedules or installments on which stock options become exercisable.
The exercise price of a stock option must be paid in full at the time of exercise and is payable in cash. However, if (and to the extent) provided by the related award agreement, the option exercise price may also be paid: (i) by the surrender of common stock already owned by the optionee, (ii) by requesting the Company to withhold, from the number of shares of common stock otherwise issuable upon exerciseone hundred percent (100%) of the stock option, shares having an aggregate fair market value onamount in the date of exercise equal to the exercise price, or (iii)Award Pool for that Plan Year. The maximum Award for any Participant in a combinationgiven Plan Year may not exceed fifty percent (50%) of the foregoing, as provided by the award agreement. Additionally, if permitted by the
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applicable Award Pool. If permitted by the related award agreement, an optionee may surrender shares of restricted stock in payment of the exercise price of a nonqualified stock option. Where restricted stock is so surrendered, an equal number of shares received upon the exercise of the nonqualified stock option shall be subject to the same forfeiture restrictions as the shares surrendered.
ISOs are exercisable only by the optionee duringemployee selected for participation forfeits his or her lifetime and are not assignable or transferableAward for that year, the Awards for the other than by will or byparticipants for that year cannot be increased.
Payment of Awards
Payment of all Awards under the application of the laws of inheritance. Nonqualified stock optionsPlan shall be made wholly in cash. Such payment may be assigned during the optionee’s lifetime to one or more of the optionee’s immediate family members or to a trust benefiting one or more family members exclusively, or to the optionee’s spouse or former spouse pursuant to a qualified domestic relations order.
Upon receipt of a notice of exercise, the Committee may elect to cash out all or part of a stock option that is being exercised by paying the optionee cash or common stock equal to the difference between the exercise price and the fair market value of the Company’s common stock.
In the event of a change in control (as defined in the 2004 Plan), all stock options outstanding as of the date on which the change in control occurs become fully exercisable and vested. Unless otherwise provided in the related award agreement, during the 60-day period following a change in control, the holder of a stock 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 2004 Plan) and the exercise price. Under the 2004 Plan, such a cash out may automatically occur in the case of an officer who is subject to Section 16(b) of the Exchange Act with respect to a grant of stock options in instances where the 60-day period ends within six months of the date of the stock option’s grant, with the cash out occurring immediately following the close of the six-month period.
Stock Appreciation Rights.A stock appreciation right (“SAR”) may be granted (i) to employees or directors in conjunction with all or any part of an option granteddeferred under the company’s 2004 Plan (a “Tandem SAR”), or (ii) without relationship to an option (a “Freestanding SAR”). Tandem SARs may be granted either at or after the time of grant of such options in the case of a nonqualified stock option, but must be granted at the time such option is granted in the case of an ISO. A Tandem SAR is only exercisable at the time and to the extent that the related option is exercisable. Upon the exercise of a Tandem SAR, the holder thereof is entitled to receive, in cash or common stock, as provided in the related award agreement, the excess of the fair market value of the share for which the right is exercised (calculated as of the exercise date) over the exercise price per share of the related option. Stock options are no longer exercisable to the extent that a related Tandem SAR has been exercised, and a Tandem SAR is no longer exercisable upon the forfeiture, termination or exercise of the related stock option. A Freestanding SAR entitles the holder to a cash payment equal to the difference between the base price and the fair market value of a share of common stock on the date of exercise. The base price is the fair market value of a share of common stock on the date of the Freestanding SAR’s grant.
In the event of a change in control (as defined in the 2004 Plan), all stock appreciation rights outstanding as of the date on which the change in control occurs shall become fully exercisable and vested.
SARs may not be sold, assigned, transferred, pledged or otherwise encumbered.
Restricted Stock. Officers, employees and directors of the Company and its subsidiaries may be granted restricted stock under the 2004 Plan, either alone or in combination with other awards. Restricted stock are shares of the Company’s common stock that are subject to forfeiture by the recipient if the conditions to vesting that are set forth in the related restricted stock agreement are not met. Vesting may be based on the continued service of the recipient, one or more performance goals (described below), or such other factors or criteria as the Committee may determine.
Unless otherwise provided in the related restricted stock agreement, the grant of a restricted stock award will entitle the recipient to vote the shares of Company common stock covered by such award and to receive
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During the period that shares of stock are restricted, the recipient cannot sell, assign, transfer, pledge or otherwise encumber the shares of restricted stock. If a recipient’s employment or service with the Company and its subsidiaries terminates, the recipient will forfeit all rights to the unvested portion of the restricted stock award. However, if the participant’s service is involuntarily terminated other than for cause (as defined in the 2004 Plan), the Committee may waive any remaining restrictions upon the stock in effect upon such termination.
In the event of a change in control (as defined in the 2004 Plan), the restrictions applicable to any outstanding restricted stock will lapse and the restricted stock will become fully vested to the full extent of the grant.
Stock Units.Officers, employees and directors of the Company and its subsidiaries may be granted stock units under the 2004 Plan, either alone or in combination with other awards. A stock unit is a right to receive a share of common stock of the Company or the fair market value in cash of a share of common stock in the future, under terms and conditions established by the Committee. Under the 2004 Plan, the Committee may make grants of stock units that are immediately vested or may make grants of stock units that are subject to vesting requirements, such as continued service.
Except to the extent otherwise provided in the applicable award agreement, if a participant’s employment with the Company terminates prior to the date on which the participant’s stock units become vested, the participant will forfeit the stock units. The Committee has the discretion to waive in whole or in part, any payment limitations for stock units that remain outstanding at a participant’s retirement, or if the participant’s employment is involuntarily terminated (other than for cause, as defined in the 2004 Plan).
Prior to an actual delivery of shares of common stock in settlement of a stock units grant, a participant acquires no rights of a shareholder. Stock units may not be sold, assigned, transferred or pledged or otherwise encumbered, but a participant may designate one or more beneficiaries to whom shares of common stock covered by a grant of stock units will be transferred in the event of the participant’s death.
Deferred Compensation Plan. The Committee may, in its discretion, provide inauthorize payment to a stock units award agreementParticipant of less than the Participant’s maximum Award or may provide that a participant will be entitled toParticipant may receive dividend equivalents with respect to his or her restricted stock units. Dividend equivalents may, inno Award at all. In exercising its downward discretion, the discretion of theCompensation Committee be paid in cash or credited to the participantshall consider such factors as additional restricted stock units, or any combination of cashit deems appropriate.
Amendment, Modification, and additional restricted stock units. The amount that can be paid to a recipient as a dividend equivalent cannot exceed the amount that would be payable as a dividend if the stock unit were actually a share of common stock. If credited to the participant as additional stock units, the additional stock units will vest at the same time as the stock units to which they relate.Termination
At the time specified in the applicable award agreement, stock units will be settled by the delivery to the participant of shares of common stock equal in number to the number of the participant’s stock units that are vested as of the specified date or event, or cash equal to the fair market value of such shares. The Committee may in its discretion allow a stock unit recipient to defer such delivery of common stock to a later date, under such terms and conditions established by the Committee.
In the event of a change in control (as defined in the 2004 Plan), the restrictions applicable to any outstanding stock units will lapse and the stock units will become fully vested to the full extent of the grant.
Performance Units.Officers and employees of the Company and its subsidiaries may be granted performance units under the 2004 Plan, either alone or in combination with other 2004 Plan awards.
A performance unit is a contingent right to receive cash or shares of common stock of the Company, in the future, pursuant to the terms of a grant made under the 2004 Plan and the related award agreement. The value of a performance unit is establishedUnless terminated earlier by the Committee, based on cash or on property other than common stockthe Plan will remain in effect for a period of ten (10) years from the date of stockholder approval. Upon termination of the Company. For anyPlan, the right to grant of performance units,Awards under the Committee will establish (i) one or more performance goals, and (ii) a performance period of not less than one year. The performance goals will bePlan
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Except to the extent otherwise provided in the applicable award agreement, if a performance unit recipient’s employment or service with the Company terminates during the performance period or before the performance goals are satisfied, the recipient will forfeit the performance units granted with respect to such performance period. The Committee has the discretion to waivePlan, in whole or in part, any payment limitations for performance units that remain outstanding at a participant’s retirement or if the participant’s employment or is involuntarily terminated (other than for cause, as defined in the 2004 Plan).
In the event of a change in control (as defined in the 2004 Plan), the performance goals of all outstanding performance units granted under the 2004 Plan shall be deemed to have been achieved at target levels, and a recipient shall be entitled to a pro rata distribution of shares of common stock or cash in settlement of the performance units, based upon the number of whole months during the performance period that have elapsed prior to the date of the change in control.
Prior to an actual delivery of shares of common stock in settlement of a performance units grant, a recipient acquires no rights of a shareholder. Performance units may not be sold, assigned, transferred or pledged or otherwise encumbered, but a recipient may designate one or more beneficiaries to whom shares of common stock covered by a grant of performance units will be transferred in the event of the recipient’s death.
If approved by the Committee, a participant may elect to defer the delivery of cash or shares in payment of performance units for a specified period or until a specified event. Such an election must generally be made prior to the commencement of the performance period for such performance units.
Performance Shares.Officers and employees of the Company and its subsidiaries may be granted performance shares under the 2004 Plan, either alone or in combination with other 2004 Plan awards.
A performance share is a contingent right to receive a share of common stock of the Company or the fair market value in cash of a share of common stock, in the future, pursuantsubject to the terms of a grant made under the 2004Plan. Any amendment or revision that would cause the Plan andto fail to comply with any requirement of applicable law, regulation, or rule if it were not approved by stockholders will not be effective unless the related award agreement. For any grant of performance shares, the Committee will establish (i) one or more performance goals, and (ii) a performance period of not less than one year. The performance goals will be based on one or more performance criteria set forth in the 2004 Plan and described below. At the expiration of the performance period, the Committee will determine and certify the extent to which the performance goals were achieved. The Committee will then determine the number of performance shares to which a recipient of performance shares under the grant is entitled, based upon the number of performance shares originally granted to the recipient and the level of performance achieved. Performance shares will be settled by the delivery of shares of common stockstockholders of the Company approve the amendment or cash equal to the fair market value of such shares as soon as practicable after the close of the performance period.
Except to the extent otherwise provided in the applicable award agreement, if a performance share recipient’s employment with the Company terminates during the performance period or before the performance goals are satisfied, the recipient will forfeit the performance shares granted with respect to such performance period. The Committee has the discretion to waive in whole or in part, any payment limitations for performance shares that remain outstanding at a participant’s retirement or if the participant’s employment is involuntarily terminated (other than for cause, as defined in the 2004 Plan).
In the event of a change in control (as defined in the 2004 Plan), the performance goals of all outstanding performance shares granted under the 2004 Plan shall be deemed to have been achieved at target levels, and a recipient shall be entitled to a pro rata distribution of shares of common stock or cash in settlement of the
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Prior to an actual delivery of shares of common stock in settlement of a performance shares grant, a recipient acquires no rights of a shareholder. Performance shares may not be sold, assigned, transferred or pledged or otherwise encumbered, but a recipient may designate one or more beneficiaries to whom shares of common stock covered by a grant of performance shares will be transferred in the event of the recipient’s death.
If approved by the Committee, a participant may elect to defer the delivery of cash or shares in payment of performance shares for a specified period or until a specified event. Such an election must generally be made prior to the commencement of the performance period for such performance shares.
Rescission of Awards.Under the 2004 Plan, the Committee may cancel or declare forfeited or rescind awards upon its determination that a participant has violated the terms of the 2004 Plan or the award agreement under which the award has been made. In addition, for a period of one year following the exercise, payment or delivery of an award, the Committee may rescind the award upon its determining that the participant has committed a breach of conduct (as defined in the 2004 Plan) prior to the exercise, payment or delivery of the award or within six months thereafter.
Certain Federal Income Tax Considerations
The following is a brief and general summary of the federal income tax consequences of transactions under the 2004 Plan based on federal income tax laws in effect on January 1, 2004. The summary does not purport to be complete, and does not address the tax consequences of a participant’s death or the state, local and foreign tax laws that may also be applicable to awards and transactions involving awards.
Stock Options. Stock options granted under the 2004 Plan may be either “Incentive Stock Options,” as defined in Section 422 of the Code, or Nonstatutory Stock Options.
Incentive Stock Options.Incentive Stock Options granted under the 2004 Plan will be subject to the applicable provisions of the Code, including Code section 422. If shares of common stock are issued to an optionee upon the exercise of an ISO, and if no “disqualifying disposition” of such shares is made by such optionee within one year after the exercise of the ISO or within two years after the date the ISO was granted, then (i) no income will be recognized by the optionee at the time of the grant of the ISO, (ii) no income, for regular tax purposes, will be realized by the optionee at the date of exercise, (iii) upon sale of the shares of the common stock acquired by exercise of the ISO, any amount realized in excess of the option price will be taxed to the optionee, for regular tax purposes, as a capital gain (at varying rates depending upon the optionee’s holding period in the shares and income level) and any loss sustained will be a capital loss, and (iv) no deduction will be allowed to the Company for federal income tax purposes. If a “disqualifying disposition” of such shares is made, the optionee will realize taxable ordinary income in an amount equal to the excess of the fair market value of the shares purchased at the time of exercise over the exercise price (the “bargain purchase element”) and the Company will generally be entitled to a federal income tax deduction equal to such amount. The amount of any gain in excess of the bargain purchase element realized upon a “disqualifying disposition” will be taxable as capital gain to the holder (at varying rates depending upon such holder’s holding period in the shares and income level), for which the Company will not be entitled to a federal income tax deduction. Upon exercise of an ISO, the optionee may be subject to alternative minimum tax.
Nonqualified Stock Options.With respect to nonqualified 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 nonqualified stock option will constitute wages for which withholding will be required.
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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 at the same time and 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 “nonqualified stock options.”
Restricted Stock.A recipient will not realize taxable income at the time of grant of a restricted stock award, assuming that the restrictions constitute a substantial risk of forfeiture for Federal income tax purposes. Upon the vesting of shares of Company common stock subject to an award, the recipient will realize ordinary income in an amount equal to the excess of the fair market value of such shares at such time over the amount paid by the recipient, if any. The Company will be entitled to a deduction equal to the amount of ordinary income realized by the recipient in the taxable year in which the amount is included in the recipient’s income. Dividends paid to the recipient during the restriction period will be taxable as compensation income to the recipient at the time paid and will be deductible at such time by the Company. The recipient of a restricted stock award may, by filing an election with the Internal Revenue Service within 30 days of the date of grant of the restricted stock award, elect to be taxed at the time of grant of the award on the excess of the then fair market value of the shares of Company common stock over the amount paid by the recipient, if any, in which case (1) the Company will be entitled to a deduction equal to the amount of ordinary income realized by the recipient in the taxable year in which the amount is included in the recipient’s income, (2) dividends paid to the recipient during the restriction period will be taxable as dividends to the recipient and not deductible by the Company, and (3) there will be no further tax consequences to either the recipient or the Company when the restrictions lapse. 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.
Stock Units, Performance Units, and Performance Shares. An employee who is awarded one or more stock units, performance units and/or performance shares will not recognize income and the Company will not be allowed a deduction at the time the award is made. When an employee receives payment for such awards in cash or shares of common stock, the amount of the cash and the fair market value of the shares of common stock received will be ordinary income to the employee and will be allowed as a deduction for federal income tax purposes to the Company. If the receipt of payment is deferred, as allowable under the 2004 Plan and as may be permitted by the Committee, the recipient will realize, in the year when paid, ordinary income equal to the amount of the cash received or the fair market value of any shares issued or transferred, determined as of the date of delivery or transfer. The Company will be entitled to a deduction equal in amount to the ordinary income realized by the recipient in the year paid. In the case of a recipient who is an employee, any amount included in income will constitute wages for which withholding will be required.
Section 162(m) Limit.Section 162(m) of the Code generally limits a public company’s federal income tax deduction for compensation paid to any of its executive officers to $1,000,000 per year. However, certain “performance-based compensation” paid to such officers is exempt from the $1,000,000 annual deduction limit.
The 2004 Plan is designed to enable the Company to provide grants of stock options, stock appreciation rights and performance units under the 2004 Plan to the Company’s executive officers that will satisfy the requirements of the exception of Section 162(m) for performance-based compensation. The 2004 Plan is also designed so that awards of restricted stock under the 2004 Plan may be made in a manner which satisfies the performance-based compensation exception of Section 162(m). Accordingly, (i) the right to receive a share of common stock or cash in payment of a stock option, stock appreciation right or performance share award, and, (ii) if the Committee intends that a restricted stock award satisfy the performance-based compensation exception, the vesting of such stock, will be contingent upon the achievement of objective performance goals established by the Committee at the time of grant.
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Under the 2004 Plan, a performance goal will be based on one or more of the following criteria: earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); net or operating income; earnings per share; expense reductions; return on investment; combined net worth; debt to equity ratio; operating cash flow; return on total capital, equity, or assets; total shareholder return; economic value; or changes in the market price of the Company’s common stock. The criteria selected by the Committee from the foregoing list may relate to the Company, one or more of its affiliates, divisions, units, or any combination of the Company, its affiliates, divisions, or units. Performance goals may be based on the performance of the Company generally or relative to peer company performance and may be based on a comparison of actual performance during a performance period against budget for such period. A performance goal may include a threshold level of performance below which no vesting or payout will occur, target levels at which full vesting or a full payout will occur and (or) a maximum level at which specified additional vesting or a specified additional payout will occur. The level of achievement of a performance goal will be determined in accordance with generally accepted accounting principles and shall be subject to certification by the Committee. Under the 2004 Plan, the Committee does have the discretion, to the extent such discretion is consistent with the “qualified performance-based exception” of the Code and its regulations, to make equitable adjustments to performance goals in recognition of unusual or non-recurring events affecting the Company or a subsidiary or the financial statements of the Company or any subsidiary, or for changes in the law or accounting principles. Once a performance goal is established, the Committee will have no discretion to increase the amount of compensation that would otherwise be payable to a recipient upon attainment of the performance goal.
Income Tax Withholding.Upon an employee’s realization of income from an award, the Company is generally obligated to withhold against the employee’s Federal and state income and employment tax liability. Payment of the withholding obligation can be made from other amounts due from the Company to the award recipient or with shares of Company common stock owned by the recipient. If the recipient elects to tender shares of Company common stock or to reduce the number of shares the recipient is otherwise entitled to receive to satisfy the withholding obligation, the shares tendered or reduced will be treated as having been sold to the Company.
Capital Gains.Generally, under law in effect as of January 1, 2004, net capital gain (net long-term capital gain minus net short-term capital loss) is taxed at a maximum rate of 15%.
New Plan Benefits
As described in “Directors Compensation” on pages 5-6, on November 12, 2003,The following table shows the Board approved a resolution providing for annual grants of restricted stock under the 2004 Plan to each directorpercentage allocations of the Company who is not otherwise an employee of2005 Award Pool for the Company or any of its subsidiaries or Affiliates (“Non-Executive Director Group”), subjectindividuals and groups referred to the approval of the 2004 Plan by the Company’s stockholders at the Annual Meeting. The Board believes that equity compensation enhances alignment of the interests of the Non-Executive Director Group with those of other stockholders. The following New Plan Benefits table provides certain information with respect to such grants of restricted stock:
New Plan Benefitsbelow.
BorgWarner Inc. 2004 Stock2005 Executive Incentive Plan
| Dollar Value | Percent Of | ||||||||||||||||
| Name and Position | Dollar Value($)(a) | Number of Shares(b) | Name and Position | ($)(a) | Pool (b) | ||||||||||||
| Timothy M. Manganello | Timothy M. Manganello | $ | 2,086,425 | 30% | |||||||||||||
| Chairman and Chief Executive Officer | |||||||||||||||||
| Robin J. Adams | Robin J. Adams | $ | 1,390,950 | 20% | |||||||||||||
| Executive Vice President, Chief Financial Officer and Chief Administrative Officer | |||||||||||||||||
| Mark A. Perlick | Mark A. Perlick | $ | 695,475 | 10% | |||||||||||||
| President | |||||||||||||||||
| Transmission Systems | |||||||||||||||||
| Cynthia A. Niekamp | Cynthia A. Niekamp | $ | 695,475 | 10% | |||||||||||||
| President | |||||||||||||||||
| TorqTransfer Systems | |||||||||||||||||
| Alfred Weber | Alfred Weber | $ | 695,475 | 10% | |||||||||||||
| President | |||||||||||||||||
| Emission/ Thermal Systems | |||||||||||||||||
| F. Lee Wilson | F. Lee Wilson | $ | 695,475 | 10% | |||||||||||||
| President | |||||||||||||||||
| Turbo Systems | |||||||||||||||||
| Roger J. Wood | Roger J. Wood | $ | 695,475 | 10% | |||||||||||||
| President | |||||||||||||||||
| Morse TEC | |||||||||||||||||
| Executive Group | Executive Group | $ | 6,954,750 | 100% | |||||||||||||
| Non-Executive Director Group | 37,396 | 400 | Non-Executive Director Group | None | None | ||||||||||||
| Non-Executive Officer Group | Non-Executive Officer Group | None | None | ||||||||||||||
| (a) | Based on | |
| (b) | The |
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Other than the restricted stock grants to the Non-Executive Director Group shown above on the New Plan Benefits table, no awards have been made to date under the 2004 Plan. Awards for which benefits that may be paid under the 2004 Plan are made at the discretion of the Committee, subject to the maximum plan and maximum individual limitations described above. In addition, the actual benefits that will be paid under the 2004 Plan will depend upon a number of factors, including the market value of the Company’s common stock on future dates, and in the case of performance units, performance shares and restricted stock with vesting based on the achievement of one or more performance goals, actual performance of the Company (both absolutely, and in some cases, as measured against the performance of peer companies), and decisions made by recipients. Since these factors are not known at this time, the benefits or amounts paid under the 2004 Plan, and the market value of such awards, other than the grants to the Non-Executive Director Group shown above, are not yet determinable. In addition, because of these unknown variables, it is not possible to determine any other benefits that might be received by recipients under the 2004 Plan.
Effective Date.If approved by the shareholders, the 2004 Plan described above will be effective as of the date of approval.
As of December 31, 2003, the number of stock options outstanding under our equity compensation plans, the weighted average exercise price of outstanding options, and the number of securities remaining available for issuance were as follows:
Equity Compensation Plan Information
| Number of Securities | ||||||||||||
| Remaining Available | ||||||||||||
| Number of Securities | for Future Issuance | |||||||||||
| to be Issued Upon | Weighted-Average | Under Equity | ||||||||||
| Exercise of | Exercise Price of | Compensation Plans | ||||||||||
| Outstanding Options, | Outstanding Options, | (excluding securities | ||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | reflected in column(a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 1,340,260 | 52.88 | 0 | |||||||||
| Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||||||
| Total | 1,340,260 | 52.88 | 0 | |||||||||
Vote required and Board of Directors’ Recommendation
Approval of the 2004 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.
Recommendation
The Board of Directors has unanimously approved the 2004 Plan and the reservation of shares of common stockrecommends a vote “FOR” approval of the Company for issuance under the 2004 Plan and recommends that shareholders vote “FOR” the 2004 Plan and the reservation of shares for issuance thereunder.BorgWarner Inc. 2005 Executive Incentive Plan.
The Board of Directors proposes that stockholders authorize the amendment of the Company’s Restated Certificate of Incorporation to increase the Company’s authorized shares of common stock. The amendment would increase the authorized shares of common stock from 50,000,000 shares to 150,000,000 shares.
The proposed increase in authorized shares will permit a 2-for-1 split of all of the Company’s common stock. The proposed stock split was approved by the Board of Directors on February 4, 2004, subject to stockholder approval of this proposal to increase authorized shares. The Restated Certificate currently authorizes the issuance of up to 50,000,000 shares of common stock. As of March 5, 2004, there were
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The remaining shares of authorized common stock will provide the Company with flexibility in the future by assuring the availability of sufficient authorized but unissued common stock for valid corporate proposes such as financings, future stock splits or stock dividends, and mergers and acquisitions. The newly authorized common stock would be available for issuance without further action by stockholders except as required by law or applicable NYSE requirements. Any such issuance could have the effect of diluting existing stockholders.
The Company has no current plan or commitment to issue shares of stock for purposes other than those discussed above, including any plan or intention to issue such shares as a takeover defense. Nevertheless, the additional authorized shares could be used to discourage persons from gaining control of the Company or make more difficult the removal of management. For example, additional shares could be issued to dilute the voting power of a party attempting to gain control of the Company. The Company is not currently aware of any specific effort to obtain control of the Company by means of a merger, tender offer, or otherwise.
If the amendment to increase the number of authorized shares of common stock is approved, the first sentence of Article IV of the Restated Certificate will read in its entirety as follows:
Approval of the amendment to the Restated Certificate of Incorporation will require the affirmative vote of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting. If such approval is obtained, the stock split will be effected by the issuance on May 17, 2004, of one share of common stock for each share outstanding at the close of business on May 3, 2004, the record date for the stock split.
Recommendation
The Board has unanimously determined that the amendment to the Restated Certificate is advisable and in the best interests of the stockholders of the Company and recommend that shareholders vote “FOR” this proposal.
PROPOSAL 4 — 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, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte”) to serve as the Company’s independent auditorsregistered public accounting firm for the 20042005 fiscal year. The Board of Directors anticipates that representatives of Deloitte will be present at
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Principal Accounting Firm Fees
Aggregate fees billed to the Company for the fiscal years ended December 31, 2003 and December 31, 2002 by Deloitte, are as follows:
| 2003 | 2002 | |||||||
| Audit Fees | $ | 1,529,000 | $ | 1,393,000 | ||||
| Audit-Related Fees | $ | 366,000 | $ | 206,000 | ||||
| Total Audit and Audit-Related Fees | $ | 1,895,000 | $ | 1,599,000 | ||||
| Tax Fees | $ | 246,000 | $ | 387,000 | ||||
| All Other Fees | $ | 506,000 | $ | 483,000 | ||||
| Total Fees | $ | 2,647,000 | $ | 2,469,000 | ||||
Audit Fees
These fees are for professional services rendered for the audit of the Company’s annual financial statements for the fiscal year ended December 31, 2003, including foreign statutory audit requirements, and for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for that fiscal year.
Audit-Related Fees
These fees are for professional services rendered in connection with the audit of the Company’s employee benefit plans and for Sarbanes-Oxley Act, Section 404 advisory services in 2003.
Tax Fees
These fees relate to federal, state and foreign tax compliance services.
All Other Fees
Fees for all other services consisted of permitted information technology services related to financial information systems design and implementation.
The Finance and Audit Committee has considered whether the provision of non-audit services is compatible with maintaining Deloitte’s independence.
The Finance and Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy which requires the Committee’s pre-approval of audit and non-audit services performed by the independent auditor to assure that the provision of such services does not impair the auditor’s independence. For the fiscal year ended December 31, 2003, the Finance and Audit Committee pre-approved all of the audit and non-audit services rendered by Deloitte and listed above.
The Board of Directors recommends a vote “FOR” the appointment of Deloitte & Touche LLP as the independent auditors.registered public accounting firm.
OTHER INFORMATION
The Company has no reason to believe that any other business will be presented at the Annual Meeting of Stockholders, 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.
Expenses of Solicitation
The cost of solicitation of proxies will be borne by the Company. The Company has retained Mellon Investor Services LLC to assist in the solicitation of proxies. The Company will pay Mellon $9,500 plus reimbursement of reasonable expenses in connection with the solicitation. In addition to solicitation of proxies by use of the mail, proxies may be solicited by directors, officers and regularly engaged employees of the
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Stockholder Proposals
Stockholder proposals which are intended to be presented at the 20052006 Annual Meeting of Stockholders pursuant to SEC Rule 14a-8 must be received by the Company on or before November 19, 2004,22, 2005, for inclusion in the proxy statement relating to that meeting.
A stockholder who intends to present business, including the election of a director, at the 20052006 Annual Meeting of Stockholders other than pursuant to Rule 14a-8 must comply with the requirements set forth in the Company’s Amended and Restated 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 90 days and not more than 120 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 December 28, 2004,2005, and no later than January 21, 2005.27, 2006. The notice should contain (a) as to each person whom the stockholder proposes to nominate for election as director, all information that is required to be disclosed in solicitations of proxies for election of directors under the securities laws, including the person’s written consent to serve as a director if elected and (b) as to any other business, the reason for conducting such business; any material interest in such business the stockholder has; the name and address of the stockholder proposing such business as it appears in the Company’s books; and the number of shares of the Company that are beneficially owned by the stockholder. Stockholders should consult the Company’s Amended and Restated By-Laws to ensure that all of the specific requirements of such notice are met.
Annual ReportAvailable Information on Form 10-KCorporate Governance and SEC Filings
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, 2003, as filed with the Securities and Exchange Commission. Requests for copies of such report should be directed in writing to Mary Brevard, Vice President, Investor Relations and Communications Department, 200 South Michigan Avenue, Chicago, Illinois 60604 or by telephone at 312-322-8683. In addition, throughThrough its website (www.bwauto.com)(www.borgwarner.com), the Company makes available, free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and other filings with the Securities and Exchange Commission.Commission, as soon as reasonably practicable after they are filed. The Company also makes the following documents available on its website: the Finance and Audit Committee Charter; the Compensation Committee Charter; the Corporate Governance Committee Charter; the Company’s Corporate Governance Guidelines; the Company’s Code of Ethical Conduct; and the Company’s Code of Ethics for CEO and Senior Financial Officers. You may also obtain a copy of any of the foregoing documents, free of charge, if you submit a written request to Mary Brevard, Vice President, Investor Relations and Corporate Communications, 3850 Hamlin Road, Auburn Hills, Michigan 48326.
BORGWARNER INC.
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APPENDIXAppendix A
CHARTER
BORGWARNER INC.
The BorgWarner Inc. Finance and Audit Committee (the “Committee”) is responsible for providing assistance to the Board of Directors in monitoring (i) the integrity of the financial statements of the Corporation, (ii) the independent auditor’s qualifications and independence, (iii) the performance of the Corporation’s internal audit function and independent auditors, and (iv) the compliance by the Corporation with legal and regulatory requirements.
The Committee shall be composed of three or more directors who are free of any relationship that, in the opinion of the Board of Directors, would interfere with their individual exercise of independent judgment as a Committee member and who meet the independence and experience requirements of the New York Stock Exchange.Exchange and applicable regulations of the Securities and Exchange Commission (the “Commission”). All members of the Committee shall be generally knowledgeable in financial and auditing matters and at least one member of the Committee shall be a“an audit committee financial expertexpert” as defined by the Securities and Exchange Commission. Audit committeeCommittee members shall not simultaneously serve on the audit committees of more than two other public corporations.
In its finance capacity, the Committee is responsible for:
1. Advising the Board of Directors on corporate financial policy;
2. Advising the Board of Directors on capital structure and related corporate financial matters;
3. Recommending dividend policy to the Board of Directors;
4. Reviewing capital expenditure plans;
5. Reviewing financing plans; and
In its audit capacity, the Committee shall provide assistance to the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Corporation. The Committee shall report regularly to the Board and establish and maintain free and open communication between the directors, the independent accountants, the internal auditors and the financial management of the Corporation. The Committee will:
| 1. | Be directly responsible for the selection of, and compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the | |
| 2. | Preapprove all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Corporation by its independent auditor. Discuss and consider the independence of the independent auditors, including the auditors’ written affirmation of independence. | |
| 3. | Discuss and review with the independent auditors and financial management of the Corporation the proposed scope of the audit for the current year and the nature and thoroughness of the audit process; and at the conclusion thereof, receive and review audit reports including any comments or recommendations of the independent auditors. |
A-1
| 4. | Review with the independent auditor any audit problems or difficulties and management’s response. | |
| 5. | Adopt hiring policies for employees or former employees of the independent auditor who participated in any capacity in the audit of the Corporation. | |
| 6. | Review with the independent auditors, the Corporation’s Director of Internal Audit and with the Corporation’s financial and accounting managers, the adequacy and effectiveness of the Corporation’s internal auditing, accounting and financial policies, procedures and controls; and elicit any recommendations for the improvement of existing internal control procedures or the establishment of controls or procedures. Particular emphasis should be given to the adequacy of the internal controls to expose payments, transactions or procedures which might be deemed illegal or otherwise improper. | |
| Review the internal audit function of the Corporation including proposed audit plans for the coming year, the coordination of its programs with the independent auditors and the results of the internal programs. |
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| Review and discuss recurring financial statements (including quarterly reports and disclosures made in management’s discussion and analysis) to be issued to the shareholders or the public with management and the independent auditor and recommend to the Board the inclusion of the Corporation’s audited financial statements in the Corporation’s Annual Report on Form 10-K. | ||
| Review and discuss: |
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| Discuss with management the Corporation’s earnings press releases, including the use of “proforma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be | ||
| Investigate any matter brought to its attention within the scope of its duties and retain outside counsel or other experts for this or any other purpose, if, in its judgment, such retention is appropriate. The Corporation shall provide appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the |
| Report Committee activities to the full Board and annually issue a summary report (including appropriate oversight conclusions) suitable for submission to | ||
| Review disclosures made to the Committee by the Corporation’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a role in the Company’s internal controls. | ||
| Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. | ||
| Obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent auditor and the Corporation. Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, taking into account the opinions of management and internal auditors. The Committee shall present its conclusions with respect to the independent auditor to the Board. | ||
| 16. | Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. |
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| Discuss with the Corporation’s General Counsel legal matters that may have a material impact on the financial statements or the Corporation’s compliance policies. |
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| 18. | Discuss with management the Corporation’s risk assessment and risk management policies. |
In its finance capacity, the Committee is responsible for:
| 1. | Advising the Board of Directors on corporate financial policy; | |
| 2. | Advising the Board of Directors on capital structure and related corporate financial matters; | |
| 3. | Recommending dividend policy to the Board of Directors; | |
| 4. | Reviewing capital expenditure plans; | |
| 5. | Reviewing financing plans; and | |
| 6. | Recommending to the Board of Directors the investment policy for those investment portfolios specified in resolutions adopted from time to time by the Board and monitoring the investment performance thereof. |
The Committee’s charter, policies and procedures will be reassessed at least annually to allow reaction to changing conditions and environment and to assure that the Corporation’s accounting and reporting practices are in accordance with all requirements and are of the highest quality. The Committee may amend or repeal its charter, policies and procedures, as the Committee deems appropriate. The Committee shall annually review the Committee’s own performance.
The Committee shall meet as often as it determines necessary, but not less frequently than quarterly. At all meetings ofThe Committee shall meet periodically with management, the Committee, sufficient opportunity shall be made available forinternal auditors and the external auditors to meet with the members of the Committee without members of management present and for management to meet independently with the Committee members.independent auditor in separate executive sessions. These meetings shall include the independent auditors’ evaluation of the Corporation’s financial, accounting and auditing personnel and an assessment of the cooperation the independent auditors received during the review. The Committee may request any officer or employee of the Corporation or the Corporation’s outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee shall be presented to the full Committee at its next scheduled meeting.
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APPENDIXAppendix B
BORGWARNER INC.
2004 STOCK2005 EXECUTIVE INCENTIVE PLAN
SECTIONBORGWARNER INC.
ARTICLE 1. Purpose.Establishment, Objectives, and Duration
1.1 Establishment of the Plan. BorgWarner Inc., a Delaware corporation (the “Company”), hereby establishes an incentive compensation plan to be known as the “BorgWarner Inc. 2005 Executive Incentive Plan” (the “Plan”), as set forth herein and as it may be amended from time to time.
Subject to approval by the Company’s stockholders, the Plan shall become effective as of the date the stockholders first approve the Plan (the “Effective Date”), and shall remain in effect as provided in Section 1.3 hereof.
1.2 Objectives of the Plan.The purposeprimary objectives of the Plan isare: (a) to giveattract, motivate, and retain high-caliber individuals by providing competitive annual incentive opportunities, (b) to provide an incentive to key Employees of the Company awho have significant advantage in attracting, retainingresponsibility for the success and motivating officers, employees and directors and to providegrowth of the Company, and its subsidiaries with(c) to satisfy the ability to provide incentives more directly linkedrequirements of Section 162(m) of the Internal Revenue Code.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date and shall remain in effect, subject to the profitabilityright of the Company’s businesses and increases in stockholder value.Committee to amend or terminate the Plan at any time pursuant to Article 9 hereof, for a period of ten (10) years, at which time the right to grant Awards under the Plan shall terminate.
SECTIONARTICLE 2. Definitions.Definitions
For purposes of the Plan,Whenever the following terms are defined asused in the Plan, with their initial letter(s) capitalized, they shall have the meanings set forth below:
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In addition, certain other terms used herein have definitions given to them in the first place in which they are used.
SECTIONARTICLE 3. Administration.Administration
3.1 General. The Plan shall be administered by the Compensation Committee, of the Board or such other committee of the Board, composed of not less than three (3) members of the Board, each of whom shall be appointed by and serve at the pleasure of the Board and who shall also be “non-employee directors” within the meaning of Rule 16b-3, “independent directors” within the meaning of any applicable stock exchange rule, and to the extent that the Committee has resolved to take actions necessary to enable compensation arising with respect to Awards under the Plan to constitute performance-based compensation for purposes of Section 162(m) of the Code, “outside directors” within the meaning of Section 162(m) of the Code.
With respect to Awards granted to members of the Board who are not officers or employees of the Company, a subsidiary, or an Affiliate, the Plan shall be administered by the Committee subject to the approval of a majority of all members of the Board (including members of the Committee) who are “non-employee directors” within the meaning of Rule 16b-3, and “independent directors” with the meaning of any applicable stock exchange rule. With respect to such Awards, all references to the “Committee” contained in the Plan shall be deemed and construed to mean the Committee, the decisions of which shall be subject to the approvalconsist exclusively of a majority of such members of the Boardtwo (2) or more nonemployee directors who are both “non-employee directors” within the meaning of Rule 16b-3 and “independent directors” within the meaning of any applicable stock exchange rule.
The Committee shall have full authority to grant Awards pursuant to the terms of the Plan to officers, employees andqualify as outside 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:
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The Committee may authorize the CEO to grant Awards pursuant to the terms of the Plan covering up to ten thousand (10,000) shares of Stock per individual, per year, to officers and employees of the Company and its subsidiaries and Affiliates who are not (i) subject to Section 16 of the Exchange Act, nor (ii) “covered employees” within the meaning of Code Section 162(m)(3). Any such authorization so made shall be consistent with recommendations made by and the Board’s Compensation Committee torelated regulations under the Board regarding non-CEO compensation, incentive-compensation plans and equity-based plans. When such authorization is so made by the Committee, the CEO shall have the authorityCode. The members of the Committee described in Sections 3(a), 3(b), 3(c),shall be appointed from time to time by, and 3(d)shall serve at the discretion of, the Plan with respect to the granting of such Awards; provided, however, that the Committee may limit or qualify such authorization in any manner it deems appropriate.
The Committee may also authorize the CEO to grant Awards pursuant to the terms of the Plan covering up to ten thousand (10,000) shares of Stock per individual, as an inducement to an individual to accept an offer of employment, including Awards to individuals who may become, upon accepting an offer of employment, (i) officers of the Company and its subsidiaries and Affiliates who are subject to Section 16 of the Exchange Act, or (ii) “covered employees” within the meaning of Code Section 162(m)(3). Any such authorization so made shall be consistent with recommendations made by the Board’s Compensation Committee to the Board regarding non-CEO compensation, incentive-compensation plans and equity-based plans. When such authorization is so made by the Committee, the CEO shall have the authority of the Committee described in Sections 3(a), 3(b), 3(c), and 3(d) of the Plan with respect to the granting of such Awards; provided, however, that the Committee may limit or qualify such authorization in any manner it deems appropriate.
Board. The Committee shall have the authority to adopt, alterdelegate administrative duties to officers or Directors of the Company; provided that the Committee may not delegate its authority with respect to: (a) non-ministerial actions with respect to Awards that are intended to qualify for the Performance-Based Exception; and repeal such administrative rules, guidelines(b) certifying that any performance goals and practices governingother material terms attributable to Awards intended to qualify for the PlanPerformance-Based Exception have been satisfied.
3.2 Authority of the Committee. Except as itlimited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions hereof, the Committee shall from timehave the power in its discretion to time, deem advisable, to interpretselect key Employees who shall participate in the Plan; determine the sizes and types of Award and the terms and provisionsconditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any Award, document, or instrument issued under the Plan (andPlan; establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 9 hereof) amend the terms and conditions of any agreement relating thereto) and to otherwise superviseoutstanding Award as provided in the Plan. Further, the Committee shall make all other determinations that may be necessary or advisable for 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 all or a portion of the administration of the Plan to one or more officers of the Company, 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 or to cease to constitute “qualified performance-based compensation within the meaning of Section 1.162-27(e) of the Income Tax Regulations in instances where the Committee has intended that an Award so qualify,3.3 Decisions Binding. All determinations 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 determinationdecisions 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 discretionand all related orders and resolutions 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, conclusive, and binding on all persons, including the Company, its stockholders, Directors, Employees, Participants, and Plan participants.their estates and beneficiaries.
In addition3.4 Performance-Based Awards. For purposes of the Plan, it shall be presumed, unless the Committee indicates to such other rights of indemnification from the Company as they may have,contrary, that all Awards are intended to qualify for the members ofPerformance-Based Exception. If the Committee does not intend an Award to qualify for the Performance-Based Exception, the Committee shall reflect its intent in its records in such manner as the Committee determines to be indemnified by the Company against reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected
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SECTIONARTICLE 4. Stock Subject to Plan; Individual Limitations.Eligibility and Participation
(a) Subject to adjustment as provided herein, the total number of shares of Stock of the Company available for Awards under the Plan, including with respect to Incentive Stock Options, shall be one million three hundred fifty thousand (1,350,000) shares.
(b) No “covered employee,” as such term is defined in Section 162(m) of the Code, shall in any fiscal year of the Company be granted Stock Options, Stock Appreciation Rights, Restricted Stock, Stock Units, or Performance Shares covering more than one hundred thousand (100,000) shares of Stock (including grants of Stock Options, Stock Appreciation Rights, Stock Units, or Performance Shares that are paid or payable in cash), but excluding from this limitation (i) any additional shares of Stock credited to the participant as dividend equivalents on Awards during an Elective Deferral Period, (ii) cash or stock dividends on Restricted Stock that are paid or credited to a participant as additional Restricted Stock, and (iii) dividend equivalents that are paid or credited to a participant on Stock Units prior to an Elective Deferral Period. No “covered employee,” as such term is defined in Section 162(m) of the Code, shall in any fiscal year of the Company be granted Performance Units of a value exceeding when paid five hundred thousand dollars ($500,000) in cash or in property other than Stock, but excluding from this limitation including any additional amounts credited to the participant as interest or dividend equivalents during an Elective Deferral Period.
(c) The Stock to be delivered under the Plan may be made available from authorized but unissued shares of Stock, treasury stock, or shares of Stock purchased on the open market.
(d) With respect to Awards under the Plan,
(e) 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
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SECTION 5.4.1 Eligibility.
Officers, employees and directors of the Company, its subsidiaries and Affiliates All Employees who are responsible for or contribute to the management, growth and profitability of the business of the Company, its subsidiaries and Affiliates, as determined by the Committee to be key employees are eligible to be granted Awards underparticipate in the Plan. However, no grant of Incentive Stock Options, Performance Units, or Performance Shares shall be made
4.2 Actual Participation. Subject to a director who is not an officer or a salaried employeethe provisions of the Company, a subsidiary, or an Affiliate.
SECTION 6. 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.
A Stock Optionselect from all eligible key Employees those to whom Awards shall entitle the optionee to purchase one or more shares of Stock, pursuant to the terms and provisions of the Plan and the applicable Award Agreement. The Committee shall have the authority to grant participants Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights), provided however, that Incentive Stock Options may be granted only to employeesand shall determine the nature and amount of the Company and its subsidiaries (within the meaningeach Award.
ARTICLE 5. Covered Employee Annual Incentive Award
5.1 Grant 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.
Stock Options shall be evidenced by Award Agreements, the terms and provisions of which may differ. An Award Agreement providing for the grant of Stock Options 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 Award Agreement or Award Agreements shall be duly executed and delivered by the Company to 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 grantedAwards. All Awards under the Plan shall be subject togranted upon terms approved by the following terms and conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:
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SECTION 7. Stock Appreciation Rights.
(a) Grant and Exercise.Stock Appreciation Rights may be granted as Awards under the Plan as either Freestanding Stock Appreciation Rights or Tandem Stock Appreciation Rights. Freestanding Stock Appreciation Rights may be granted alone or in addition to other Awards under the Plan. Tandem 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, Tandem Stock Appreciation Rights may be granted either at or after the time of grant of such Stock Option. In the case of an Incentive Stock Option, Tandem Stock Appreciation Rights may be granted only at the time of grant of such Stock Option. Each grant of a Stock Appreciation Right shall be confirmed by, and be subject toinconsistent with the terms of anthe Plan or fail to satisfy the requirements of applicable law. Each Award Agreement.
(b) Freestanding Stock Appreciation Rights.A Freestanding Stock Appreciation Right granted pursuant to Section 7(a), shall be exercisable as determined by the Committee, but in no event after ten years from the date of grant. The base price of a Freestanding Stock Appreciation Right shall be the Fair Market Value of a share of Stock on date of grant. A Freestanding Stock Appreciation Right shall entitle the holder, upon receipt of such right,relate to a cash payment determined by multiplying (i) the difference between the base price of the Stock Appreciation Right and the Fair Market Value of a share of Stock on the date of exercise of the Freestanding Stock Appreciation Right, by (ii) the number of shares of Stock as to which such Freestanding Stock Appreciation Right shall have been exercised. A Freestanding Stock Appreciation Right may be exercised by giving written notice of exercise to the Company or its designated agent specifying the number of shares of Stock as to which Freestanding Stock Appreciation Right is being exercised.Plan Year.
(c) Tandem Stock Appreciation Rights.A Tandem Stock Appreciation Right may be exercised by an optionee in accordance with Section 7(d) by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee. Upon exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 7(d). Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Tandem Stock Appreciation Right have been exercised.
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(d)5.2 Tandem Stock Appreciation Rights Terms and Conditions.Award Pool Limitation.Tandem Stock Appreciation Rights The sum of the Awards for a single Plan Year shall be subject to such terms and conditions asnot exceed one hundred percent (100%) of the amount in the Award Pool for that Plan Year.
5.3 Individual Maximum Awards. For any given Plan Year, no one Participant shall be determined byreceive an Award which is in excess of fifty percent (50%) of the Award Pool.
5.4 Limitations on Committee includingDiscretion. The Committee may reduce, but may not increase, any of the following:
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SECTION 8.5.5 Restricted Stock.
(a) Administration.SharesPayment, Payment of Restricted Stock may be granted either alone or in addition to other Awards granted under the Plan. The Committee shall determine the officers, employees, and directors 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 8(c). Each grant of Restricted Stock shall be confirmed by, and be subject to the terms of a Restricted Stock Agreement.
The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance measures 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. Where the grant or vesting of Restricted Stock is subject to the attainment of one or more Performance Goals, such shares of Restricted Stock shall be released from such restrictions only after the attainment of such Performance Goals has been certified by the Committee.
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:
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(c) Terms and Conditions.Shares of Restricted Stock shall be subject to the following terms and conditions:following:
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SECTION 9.ARTICLE 6. Stock Units.Beneficiary Designation
Each Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of the Participant’s death before the Participant receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant with respect to such benefit, shall be in a form prescribed by the Company, and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such designation, any benefits remaining unpaid under the Plan at the Participant’s death shall be paid to the Participant’s estate.
ARTICLE 7. Deferrals
The Committee may permit or require a Participant to defer such Participant’s receipt of the payment of cash that would otherwise be due to such Participant in connection with any Awards. If any such deferral election is required or permitted, the Committee shall establish rules and procedures for such payment deferrals, which rules and procedures shall satisfy the requirements of Code section 409A.
ARTICLE 8. No Right to Employment or Participation
(a)8.1 Administration.Employment.A Stock Unit is The Plan shall not interfere with or limit in any way the grantright of athe Company or of any Subsidiary to terminate any Participant’s employment at any time, and the Plan shall not confer upon any Participant the right to continue in the employ of the Company or of any Subsidiary.
8.2 Participation. No Employee shall have the right to be selected to receive an Award or, having been so selected, to be selected to receive a sharefuture Award.
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ARTICLE 9. Amendment, Modification, and Termination
9.1 Amendment, Modification, and Termination. Subject to the terms of Stock or the Fair Market Value in cash of a share of Stock, inPlan, the future,Committee may at suchany time and upon such terms asfrom time to time, alter, amend, suspend, or terminate the Plan in whole or in part; provided that unless the Committee specifically provides otherwise, any revision or amendment that would cause the Plan to fail to comply with any requirement of applicable law, regulation, or rule if such amendment were not approved by the stockholders of the Company shall establish. Stock Units maynot be granted either aloneeffective unless and until stockholder approval is obtained.
9.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or in addition to other Awards granted under the Plan.Nonrecurring Events. The Committee shall determinemay make adjustments in the officers, employees, and directors to whom and the time or times at which grants of Stock Units will be awarded, the number of Stock Units 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, and the criteria included in, Awards in addition to those contained in Section 9(b). The provisionsrecognition of Stock Units Awards need not beunusual or nonrecurring events affecting the same with respect to each recipient. Each grant of Stock Units shall be confirmed by, and be subject to,Company or the terms of an Award Agreement.
(b) Terms and Conditions.Stock Units shall be subject to the following terms and conditions.
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SECTION 10. Performance Units.
(a) Administration.Performance Units may be awarded to officers and employeesfinancial statements of the Company its subsidiaries and Affiliates, either alone or of changes in additionapplicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments ate appropriate in order to other Awardsprevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. ThePlan; provided that the Committee shall determinenot be authorized to adjust an Award that the officers and employeesCommittee intends to whom, andqualify for the time or times at which, Performance Units shall be awarded,Performance-Based Exception if such adjustment (or the number of Performance Unitsauthority to be awarded to any participant,make such adjustment) would prevent the duration ofAward from qualifying for the Performance Period and any other terms and conditions of the Award, in addition to those contained in Section 10(b). Each grant of Performance Units shall be confirmed by, and be subject to, the terms of an Award Agreement.— Based Exception.
(b)9.3 Terms and Conditions.Performance Units shall be subject to the following terms and conditions.
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SECTION 11. Performance Shares.
(a) Administration.Performance Shares may be awarded to officers and employees of the Company, its subsidiaries and Affiliates, either alone or in addition to other Awards under the Plan. The Committee shall determine the officers and employees to whom, and the time or times at which, Performance Shares shall be awarded, the number of Performance Shares to be awarded to any participant, the duration of the Performance Period and any other terms and conditions of the Award, in addition to those contained in Section 11(b). Each grant of Performance Shares shall be confirmed by, and be subject to, the terms of an Award Agreement.
(b) Terms and Conditions.Previously Granted.Performance Shares shall be subject to the following terms and conditions.
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SECTION 12. 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:
(b) Definition of Change in Control.For purposes(but subject to Section 1.1 hereof), no termination, amendment, or modification of the Plan a “Change in Control” shall meancause any previously granted Awards to be forfeited. After the happening of any of the following events:
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(c) Change in Control Price.For purposestermination of the Plan, “Changeany previously granted Award shall remain in Control Price” meanseffect and shall continue to be governed by the higherterms of (i) the highest reported sales price, regular way,Plan and the Award.
ARTICLE 10. Withholding
The Company and its Subsidiaries shall have the power and the right to deduct or withhold, or to require a Participant to remit to the Company or to a Subsidiary, an amount that the Company or a Subsidiary reasonably determines to be required to comply with federal, state, local, or foreign tax withholding requirements.
ARTICLE 11. Successors
All obligations of a sharethe Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of 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 sixty-day (60-day) period prior to and including the date of a Change in Control or (ii) if the Change in Controlsuccessor is the result of a tenderdirect or exchange offerindirect purchase, merger, consolidation, or a Business Combination, the highest price per shareotherwise, of Stock paid in such tenderall 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 directorsubstantially all of the Companybusiness and is subject to Section 16(b)assets of the Exchange ActCompany.
ARTICLE 12. Legal Construction
12.1 Gender and (II) was granted within two hundred forty (240) daysNumber. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, any feminine term used herein also shall include the masculine, and the plural shall include the singular and the singular shall include the plural.
12.2 Severability. If any provision of the Change in Control, then the Change in Control PricePlan shall beheld illegal or invalid for any reason, such Stock Option shall be the Fair Market Value of the Stock on the date such Stock Option is exercisedillegality 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.
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SECTION 13. Term, Amendment and Termination.
Unless terminated sooner by the Board, the Plan will terminate on the date that immediately precedes the tenth (10th) anniversary of the Plan’s effective date. Awards outstanding as of the date on which the Plan terminatesinvalidity shall not be affected or impaired byaffect the terminationremaining parts of the Plan.
The Board may amend, alter, or discontinue the Plan at any time, but no amendment, alteration or discontinuation shall be made which would (i) impair the rights of a participant under an Award theretofore granted without the participant’s consent, except such an amendment made to cause the Plan to qualify for the exemption provided by Rule 16b-3 or for Awards to qualify for the “qualified performance-based compensation” exception provided by Section 1.162-27(e) of the Income Tax Regulations (where the Committee has intended that such Awards qualify for the exception), (ii) disqualify the Plan from the exemption provided by Rule 16b-3, or (iii) extend the term of the Plan. 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 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 or for the Award to qualify for the “qualified performance-based compensation” exception provided by Section 1.162-27(e) of the Income Tax Regulations (where the Committee has intended that such Award qualify for the exception).
Subject to the above provisions, the Board shall have the authority to amend the Plan, and the terms of any Award theretofore granted to take into account changes in lawPlan shall be construed and tax and accounting rules.
SECTION 14. Unfunded Status of Plan.enforced as if the illegal or invalid provision had not been included.
It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation.12.3 Requirements of Law. The Committee may authorize the creationgranting 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 15. Cancellation and Rescission of Awards.
The Committee may cancel, declare forfeited, or rescind any unexercised, undelivered, or unpaid Award upon its determining that (i) a participant has violated the terms of the Plan or the Award Agreement under which such Award has been made, or (ii) the participant has committed a Breach of Conduct. In addition, for a period of one (1) year following the exercise, payment or delivery of an Award, the Committee may rescind any such exercise, payment or delivery of an Award upon its determining that the participant committed a Breach of Conduct prior to the exercise, payment or delivery of the Award, or within six (6) months thereafter.
In the case of an Award’s cancellation, forfeiture, or rescission due to a Breach of Conduct by reason of the participant’s conviction of, or entering a guilty plea, no contest plea or nolo contendre plea to any felony or to any crime involving dishonesty or moral turpitude, the Committee’s determination that a participant has committed a Breach of Conduct, and its decision to require rescission of an Award’s exercise, payment or delivery shall be conclusive, binding, and final on all parties. In all other cases, the Committee’s determination that a participant has violated the terms of the Plan or the Award, or has committed a Breach of Conduct, and the Committee’s decision to cancel, declare forfeited or rescind an Award or to require rescission of an Award’s exercise, payment or delivery shall be conclusive, binding, and final on all parties unless the participant makes a written request to the Committee to review such determination and decision within thirty (30) days of the Committee’s written notice of such actions to the participant. In the event of such a written request, the members of the Board who are “independent directors” within the meaning of the applicable stock exchange rule (including members of the Committee) shall review the Committee’s determination no later than the next regularly scheduled meeting of the Board. If, following its review, such directors approve,
B-16
In the event an Award is rescinded, the affected participant shall repay or return to the Company any cash amount, Stock, or other property received from the Company upon the exercise, payment or delivery of such Award (or, if the participant has disposed of the Stock or other property received and cannot return it, its cash value at the time of exercise, payment or delivery), and, in the case of Stock or other property delivered to the participant, any gain or profit realized by the participant in a subsequent sale or other disposition of such Stock or other property. Such repayment and (or) delivery shall be on such terms and conditions as the Committee shall prescribe.
SECTION 16. 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 deliveredAwards under the Plan shall be subject to such stock transfer ordersall applicable laws, rules, 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. The Company shall have no obligation to issue or deliver certificates for shares of Stock under the Plan prior to (i) obtaining approval fromapprovals by any governmental agency which the Company determines is necessary or advisable, (ii) admission of such shares to listing on the stock exchange on which the Stockagencies as may be listed, and (iii) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body which the Company determines to be necessary or advisable.required.
(b) Notwithstanding any other provisions of this Plan, the following shall apply to any person subject to Section 16 of the Exchange Act, except in the case of death or disability or unless Section 16 shall be amended to provide otherwise than as described below, in which event this Plan shall be amended to conform to Section 16, as amended:
(c) Nothing contained in the Plan shall prevent the Company or any subsidiary or Affiliate from adopting other or additional compensation arrangements for its employees.
(d) 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.
(e) 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
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(f) 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.
(g) The reinvestment of cash dividends in additional shares of Restricted Stock, and the crediting of dividend equivalents or interest equivalents (if such interest equivalents are payable in Stock when distributed) on Stock Units or on the deferred payment of Stock Units, Performance Units or Performance Shares shall only be permissible if sufficient shares of Stock are available under Section 4 (taking into account then outstanding Awards).
(h) 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.
(i) It is intended that payments under the Stock Options, Stock Appreciation Rights, Performance Units, and Performance Shares provisions of the Plan to recipients who are “covered officers” within the meaning of Section 162(m)(3) of the Internal Revenue Code (“Code”) constitute “qualified performance-based compensation” within the meaning of 1.162-27(e) of the Income Tax Regulations. Awards of Restricted Stock may be designated by the Committee as intended to constitute “qualified performance-based compensation” in the relevant Award Agreement. To the maximum extent possible, the Plan and the terms of any Stock Options, Stock Appreciation Rights, Performance Units, Performance Shares, and, where applicable, Restricted Stock, shall be so interpreted and construed.
(j) Except for adjustments as permitted by Section 4(e), once granted hereunder, no Stock Option or Stock Appreciation Right shall be repriced.
(k) If any provision of this Plan is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be impaired or affected thereby.
(l)12.4 Governing Law. The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with and governed by the laws of the Statestate of Delaware without taking into account its(without regard to the legislative or judicial conflict of laws provisions.
SECTION 17. Effective Daterules of Plan.any state), except to the extent superseded by federal law.
The Plan shall be effective on the date it is approved by the shareholders of the Company.
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This Proxy is Solicited by the Board of Directors in Connection
With the Annual Meeting of Stockholders
10:9:00 A.M. (C.S.T.(E.S.T.)
April 21, 200427, 2005
| PLACE: | BorgWarner Inc. | |||
| 3850 Hamlin Road | ||||
| Auburn Hills, Michigan |
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 5, 20044, 2005 at the Annual Meeting of Stockholders of BorgWarner 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
Address Change/Comments (Mark(Mark the corresponding box on the reverse side)
You can now access your BorgWarner account online.
Access your BorgWarner stockholder account online via Investor ServiceDirect® (ISD).
Mellon Investor Services LLC, Transfer Agent for BorgWarner, now makes it easy and convenient to get current information on your stockholder account.
| • View account status | • View payment history for dividends | |
| • View certificate history | • Make address changes | |
| • View book-entry information | • Obtain a duplicate 1099 tax form | |
| • Establish/change your PIN |
Visit us on the web at http://www.melloninvestor.com
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor ServiceDirect® is a registered trademark of Mellon Investor Services LLC
1. Election of three Class II Directors: 2. To vote upon a proposal to approve the BorgWarner Inc. 2004 Stock Incentive Plan. FOR
o AGAINST
o ABSTAIN
o 01 Jere A. Drummond,
02 Timothy M. Manganello,
03 Ernest J. Novak, Jr. FOR all nominees
listed (except as
indicated)
o WITHHOLD
AUTHORITY
to vote for all
nominees listed
o 3. To vote upon a proposal to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized common stock of the Company in order to permit, among other things, a 2-for-1 stock split. FOR
o AGAINST
o ABSTAIN
o 4. To ratify the appointment of Deloitte & Touche LLP as independent auditors for the Company for 2004. FOR
o AGAINST
o ABSTAIN
o 5. 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. | Please Mark Here for Addresso Change or Comments SEE REVERSE SIDE |
| 1. | Election of four Class III Directors: | for all nominees | withhold authority | |||
| listed (except as indicated) | to vote for all nominees listed | |||||
| 01 Robin J.Adams | o | o | ||||
| 02 David T. Brown | ||||||
| 03 Paul E. Glaske | ||||||
| 04 John Rau |
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee’s name on the space provided below.)
| FOR | AGAINST | ABSTAIN | ||||||
| 2. | To vote upon a proposal to approve the BorgWarner Inc. 2005 Executive Incentive Plan. | o | o | o |
| FOR | AGAINST | ABSTAIN | ||||||
| 3. | To ratify the appointment of Deloitte & Touche LLP as Independent Registered Public Accounting Firm for the Company for 2005. | o | o | o | ||||
| 4. | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. | |||||||
ChooseMLinkSM for Fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on toInvestor ServiceDirect®at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment.
| , 2005 | ||||||
| | ||||||
| Signature | ||||||
Please sign exactly as your 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.
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 1111:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
http:// Use the Have your proxy card in hand when you access the web site. | OR | Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. | OR | Mail Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. |
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the internetInternet at www.bwauto.comwww.borgwarner.com