OMB APPROVAL | ||||
OMB Number: | 3235-0059 | |||
Expires: | ||||
Estimated average burden hours per response |
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 | |
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)) | |
o Definitive Additional Materials | |
o Soliciting Material Pursuant to §240.14a-12 |
Payment of Filing Fee (Check the appropriate box):
o Fee computed on table below per Exchange Act Rules 14a-6(i) |
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. |
1. | To elect the nominees for Class | |
2. | To | |
3. | To ratify the appointment of Deloitte & Touche LLP as independent registered public accounting firm for the Company for | |
4. | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
• | Signing and returning the accompanying proxy card |
• | Voting by telephone or by the Internet. See proxy card for instructions. |
• | Voting in person at the meeting (if you are a stockholder of record) |
Page | ||||
PROPOSAL 1 | 1 | |||
6 | ||||
19 | ||||
31 | ||||
31 | ||||
A-1 | ||||
B-1 |
23, 2006
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. | |||||
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., Lincoln Educational Services Corporation and a number of privately-held companies. | |||||
Richard O. Schaum 2005 | 59 | Mr. Schaum was Vice President and General Manager of Vehicle Systems for WaveCrest Laboratories, Inc. from October 2003 until June 2005. He was Executive Vice President, Product Development for DaimlerChrysler Corporation from January 2000 until his retirement in March, 2003. | ||||
Thomas T. Stallkamp 2006 | 59 | Mr. Stallkamp has been an Industrial Partner in Ripplewood Holdings L.L.C., a New York private equity group, since July 2004. From 2003 to 2004, he served as Chairman of MSX International, Inc., a global provider of technology-driven engineering, business and specialized staffing services, and from 2000 to 2003 he served as Vice Chairman and Chief Executive Officer. From 1980 to 1999, Mr. Stallkamp held various positions with DaimlerChrysler Corporation and its predecessor Chrysler Corporation, the most recent of which were Vice Chairman and President. Mr. Stallkamp also serves as a Director of Baxter International, Inc. and MSX International, Inc. |
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. and Centillium Communications, Inc. |
2
2
Principal Occupation | ||||||
Class II Directors | Age | and Directorships | ||||
Timothy M. Manganello 2002 | 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. and the Federal Reserve Bank of Chicago, Detroit branch. | |||||
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 | ||||
Robin J. Adams | Mr. Adams has been Executive Vice President, Chief Financial Officer and Chief Administrative Officer since April 2004. He was Executive Vice President — Finance and Chief Financial Officer of American Axle & Manufacturing Holdings Inc. (“American Axle”) from July 1999 until April 2004. Prior to joining American Axle, he was Vice President and Treasurer and principal financial officer of BorgWarner Inc. from May 1993 until June 1999. Mr. Adams also is a member of the Supervisory Board of Beru AG. | |||||
David T. Brown 2004 | Mr. Brown has been President and Chief Executive Officer of Owens Corning since April 2002. He was Executive Vice President and Chief Operating Officer from January 2001 to March 2002. He was Vice President of Owens Corning and President, Insulating Systems Business from January 1997 to December 2000. Mr. Brown is also a director of Owens Corning. | |||||
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. | |||||
3
www.borgwarner.com.
3
• | a director who is an employee, or whose immediate family member is an executive officer, of the Company is not “independent” until three years after the end of such employment relationship. | |
• | 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 “independent” until three years after he or she ceases to receive more than $100,000 per year in such compensation. | |
• | 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 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.” |
2005.
2005.
4
4
With
Corporate Governance Committee by Mr. Manganello.
• | 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. |
5
2005.
5
6
6
• | satisfied itself as to Deloitte & Touche’s independence through a review of relationships and services that might affect the objectivity of the auditors, a review of the written disclosures and letter from Deloitte & Touche required by Independence Standards Board Standard No. 1 and discussions with Deloitte & Touche concerning their independence; | |
• | discussed with Deloitte & Touche all matters required to be discussed by Statement of Auditing Standards No. 61, as amended, “Communication with Audit Committees” and PCAOB Auditing Standard, No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements,” including any difficulties encountered in the course of the audit work, any restrictions on the scope of the activities or access to requested information and any significant disagreements with management of the Company; | |
• | discussed with the Company’s management and Deloitte & Touche the overall audit process, including audit reports; | |
• | discussed and reviewed management’s documentation, testing, remediation and evaluation of the Company’s internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations; | |
• | 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 preparation of the Company’s financial statements; | |
• | reviewed any significant reports to the Company’s management prepared by the Company’s internal auditing department and management’s responses; | |
• | established procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; | |
• | provided Deloitte & Touche full access to the Committee to report on any and all appropriate matters; |
7
• | was informed of and reviewed the oaths and certifications of the Chief Executive Officer and Chief Financial Officer required by the Securities and Exchange Commission General Order 4-460 and by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and was informed of the processes followed by management in supporting these oaths and certifications; and | |
• | recommended to the Board, subject to stockholder ratification, the reappointment of Deloitte & Touche as independent registered public accounting firm for the Company. The Board concurred with this recommendation. |
7
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 |
2005 | 2004 | |||||||
Audit Fees | $ | 3,672,300 | $ | 3,532,000 | ||||
Audit-Related Fees | $ | 248,500 | $ | 241,000 | ||||
Total Audit and Audit-Related Fees | $ | 3,920,800 | $ | 3,773,000 | ||||
Tax Fees | $ | 266,000 | $ | 217,000 | ||||
All Other Fees | $ | — | $ | — | ||||
Total Fees | $ | 4,186,800 | $ | 3,990,000 |
(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. | |
(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 | |
(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. |
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.
8
8
John Rau,
9
9
Number of | Percent of | ||||||||
Name and Address of Beneficial Owner | Shares | Class | |||||||
AXA Financial, Inc. | 8,917,210 | (a) | 15.9% | ||||||
1290 Avenue of the Americas | |||||||||
New York, NY 10104 |
Number of | Percent of | |||||||
Name and Address of Beneficial Owner | Shares | Class | ||||||
AXA Financial, Inc. | 8,704,218 | (a) | 15.5 | % | ||||
1290 Avenue of the Americas New York, NY 10104 | ||||||||
UBS AG | 3,531,564 | (b) | 6.2 | % | ||||
Bahnhofstrasse 45 PO Box CH-8021 Zurich, Switzerland |
(a) | A Schedule 13G/A was filed on February 14, | |
(b) | Pursuant to a Schedule 13G dated February 14, 2006, UBS AG indicted that it had sole voting power for 1,526,346 and shared dispositive power for |
4, 2005,8, 2006, 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 Name of Beneficial Owner of Stock Ownership class Timothy M. Manganello 66,930 * Robin J. Adams 25,310 * John J. McGill 38,861 * F. Lee Wilson 62,760 * Roger J. Wood 17,000 * Phyllis O. Bonanno 15,000 * Andrew F. Brimmer 20,000 * David T. Brown 600 * William E. Butler(c) 21,000 * Jere A. Drummond 48,000 * Paul E. Glaske 40,820 * Alexis P. Michas 88,560 * Ernest J. Novak, Jr. 2,000 * John Rau 22,800 * All directors and executive officers of the Company (25 persons) 616,726 1.09 % Amount(a) and Nature(b) Percent of of Stock Ownership Class Timothy M. Manganello 89,384 * Robin J. Adams 31,228 * Mark A. Perlick 2,178 * Alfred Weber 8,836 * Roger J. Wood 30,933 * Phyllis O. Bonanno 17,947 * Andrew F. Brimmer(c) 22,947 * David T. Brown 2,841 * Jere A. Drummond 26,694 * Paul E. Glaske 39,661 * Alexis P. Michas 91,507 * Ernest J. Novak, Jr. 5,894 * Richard O. Schaum 947 * Thomas T. Stallkamp 500 * All directors and executive officers of the Company (25 persons) 627,244 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: 6,91812,684 for Mr. Manganello; 14,00016,000 for Ms. Bonanno; 18,00020,000 for Dr. Brimmer; 18,000 for Mr. Butler; 20,00022,000 for Mr. Drummond; 18,000 for Mr. Glaske; 20,000 for Mr. McGill; 14,00016,000 for Mr. Michas; 18,0002,000 for Mr. Rau; 50,000Novak; 3,683 for Mr. Wilson;Wood; and 266,771232,911 for all directors and executive officers of the Company.
10
(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) | Dr. Brimmer will retire at the 2006 Annual Stockholders’ Meeting. |
(c) Mr. Butler will retire at the 2005 Annual Meeting.
10
filed.
Equity 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 |
11
Long Term | |||||||||||||||||||||||||||||
Compensation | |||||||||||||||||||||||||||||
Awards(b) | |||||||||||||||||||||||||||||
Long Term | |||||||||||||||||||||||||||||
Annual Compensation | Other Annual | Securities | Incentive | All Other | |||||||||||||||||||||||||
Name and Principal | Compensation | Underlying | Plan | Compensation | |||||||||||||||||||||||||
Position | Year | Salary($) | Bonus($) | ($)(a) | Options(#) | Payouts | ($)(c) | ||||||||||||||||||||||
Timothy M. Manganello | 2004 | $ | 600,000 | $ | 705,773 | $ | 0 | 12,536 | $ | 796,000 | $ | 173,559 | |||||||||||||||||
Chairman and CEO | 2003 | $ | 538,144 | $ | 768,877 | $ | 69,548 | (d) | 0 | $ | 286,800 | $ | 146,743 | ||||||||||||||||
2002 | $ | 381,625 | $ | 624,109 | $ | 0 | 5,766 | $ | 382,460 | $ | 66,425 | ||||||||||||||||||
Robin J. Adams | 2004 | $ | 282,051 | $ | 435,780 | $ | 0 | 32,963 | $ | 222,880 | $ | 32,310 | |||||||||||||||||
Exec. Vice President, CFO | 2003 | $ | — | $ | — | $ | — | — | $ | — | $ | — | |||||||||||||||||
2002 | $ | — | $ | — | $ | — | — | $ | — | $ | — | ||||||||||||||||||
John J. McGill | 2004 | $ | 247,600 | $ | 373,403 | $ | 0 | 7,778 | $ | 413,920 | $ | 34,524 | |||||||||||||||||
Vice President | 2003 | $ | 247,600 | $ | 560,853 | $ | 68,383 | (e) | 0 | $ | 248,560 | $ | 31,117 | ||||||||||||||||
2002 | $ | 234,600 | $ | 312,005 | $ | 0 | 0 | $ | 382,460 | $ | 22,789 | ||||||||||||||||||
F. Lee Wilson | 2004 | $ | 260,000 | $ | 342,301 | $ | 344,800 | (f) | 0 | $ | 413,920 | $ | 32,639 | ||||||||||||||||
Vice President | 2003 | $ | 247,600 | $ | 332,731 | $ | 648,832 | (f) | 0 | $ | 191,200 | $ | 26,471 | ||||||||||||||||
2002 | $ | 234,600 | $ | 403,263 | $ | 323,605 | (f) | 0 | $ | 205,940 | $ | 24,026 | |||||||||||||||||
Roger J. Wood | 2004 | $ | 255,300 | $ | 291,637 | $ | 0 | 7,343 | $ | 366,160 | $ | 57,260 | |||||||||||||||||
Vice President | 2003 | $ | 232,100 | $ | 387,933 | $ | 0 | 3,663 | $ | 191,200 | $ | 69,626 | |||||||||||||||||
2002 | $ | 210,000 | $ | 336,949 | $ | 0 | 0 | $ | 147,100 | $ | 38,551 |
Long-Term | ||||||||||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||
Awards(b) | ||||||||||||||||||||||||||||||||
Other Annual | Securities | All Other | ||||||||||||||||||||||||||||||
Name and Principal | Annual Compensation | Compensation | Underlying | LTIP | Compensation | |||||||||||||||||||||||||||
Position | Year | Salary($) | Bonus($) | (a)($) | Options/SARs(#) | Payouts($) | (c)($) | |||||||||||||||||||||||||
Timothy M. Manganello | 2005 | $ | 750,000 | $ | 1,190,322 | $ | — | 62,000 | $ | 1,225,000 | $ | 161,274 | ||||||||||||||||||||
Chairman and CEO | 2004 | $ | 600,000 | $ | 705,773 | $ | — | 12,536 | $ | 796,000 | $ | 173,559 | ||||||||||||||||||||
2003 | $ | 538,144 | $ | 768,877 | $ | 69,548 | (d) | 0 | $ | 286,800 | $ | 146,743 | ||||||||||||||||||||
Robin J. Adams | 2005 | $ | 424,000 | $ | 515,622 | $ | — | 15,000 | $ | 455,000 | $ | 99,332 | ||||||||||||||||||||
Exec. Vice President, CFO | 2004 | $ | 282,051 | $ | 435,780 | $ | — | 32,963 | $ | 222,880 | $ | 32,310 | ||||||||||||||||||||
Alfred Weber | 2005 | $ | 300,000 | $ | 391,204 | $ | 128,902 | (e) | 8,000 | $ | 402,500 | $ | 71,146 | |||||||||||||||||||
Vice President | 2004 | $ | 232,100 | $ | 278,045 | $ | 91,567 | (e)(f) | 0 | $ | 265,333 | $ | 56,926 | |||||||||||||||||||
2003 | $ | 211,000 | $ | 198,098 | $ | 71,746 | (f) | 0 | $ | 0 | $ | 46,769 | ||||||||||||||||||||
Roger J. Wood | 2005 | $ | 300,000 | $ | 317,784 | $ | — | 10,000 | $ | 455,000 | $ | 72,413 | ||||||||||||||||||||
Vice President | 2004 | $ | 255,300 | $ | 291,637 | $ | — | 7,343 | $ | 366,160 | $ | 57,260 | ||||||||||||||||||||
2003 | $ | 232,100 | $ | 387,933 | $ | — | 7,366 | $ | 191,200 | $ | 69,626 | |||||||||||||||||||||
Mark Perlick | 2005 | $ | 257,500 | $ | 306,587 | $ | — | 1,000 | $ | 218,750 | $ | 62,751 | ||||||||||||||||||||
Vice President | 2004 | $ | 196,055 | $ | 393,847 | $ | — | 10,000 | $ | — | $ | 33,287 | ||||||||||||||||||||
2003 | $ | 179,083 | $ | 97,974 | $ | — | 3,420 | $ | — | $ | — | |||||||||||||||||||||
F. Lee Wilson | 2005 | $ | 225,000 | $ | 296,662 | $ | 1,074,130 | (g) | 0 | $ | 455,000 | $ | 462,610 | (h) | ||||||||||||||||||
Vice President | 2004 | $ | 260,000 | $ | 342,301 | $ | 344,800 | (g) | 0 | $ | 413,920 | $ | 32,639 | |||||||||||||||||||
2003 | $ | 247,600 | $ | 332,731 | $ | 648,832 | (g) | 0 | $ | 191,200 | $ | 26,471 |
11
(a) | The amount reported in the Other Annual Compensation column reflects perquisites and other personal benefits | |
(b) | No restricted stock awards were made in | |
(c) | Includes amounts contributed by the Company on behalf of the named executive officers during | |
(d) | Mr. Manganello received $69,548 (including tax gross-up) for temporary corporate housing expenses in connection with the relocation of the BorgWarner Corporate Headquarters to Auburn Hills, MI. | |
(e) | Includes |
(f) | Includes the following amounts (including tax gross up) related to his relocation from Germany to the United States: $29,119 in 2004, $62,100 in 2003. |
(g) | Includes the following amounts (including tax gross-up) related to his international assignment for the establishment of Turbo Systems World Headquarters in Germany: $1,048,544 in 2005, $344,098 in 2004, $648,130 in | |
(h) | Includes $403,000 in |
12
Potential Realizable | ||||||||||||||||||||||||
Value at Assumed | ||||||||||||||||||||||||
Number of | Annual Rates of Stock | |||||||||||||||||||||||
Securities | % of Total | Price Appreciation for | ||||||||||||||||||||||
Underlying | Options Granted | Exercise | Option Term | |||||||||||||||||||||
Options Granted | to Employees in | Price | Expiration | |||||||||||||||||||||
Name | (a) | Fiscal Year | ($/Sh) | Date | 5% | 10% | ||||||||||||||||||
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 |
Potential Realizable | ||||||||||||||||||||||||
Value at Assumed | ||||||||||||||||||||||||
Number of | % of Total | Annual Rates of Stock | ||||||||||||||||||||||
Securities | Options Granted | Exercise | Price Appreciation For | |||||||||||||||||||||
Underlying | to Employees in | Price | Expiration | Option Term | ||||||||||||||||||||
Name | Options Granted(a) | Fiscal Year | ($/Sh) | Date | 5% | 10% | ||||||||||||||||||
Timothy M. Manganello | 62,000 | 6.4 | % | $ | 58.08 | 7/27/15 | $ | 2,264,624 | $ | 5,739,003 | ||||||||||||||
Robin J. Adams | 15,000 | 1.6 | % | $ | 58.08 | 7/27/15 | $ | 547,893 | $ | 1,388,468 | ||||||||||||||
Alfred Weber | 8,000 | 0.8 | % | $ | 58.08 | 7/27/15 | $ | 292,210 | $ | 740,516 | ||||||||||||||
Roger J. Wood | 10,000 | 1.0 | % | $ | 58.08 | 7/27/15 | $ | 365,262 | $ | 925,646 | ||||||||||||||
Mark Perlick | 1,000 | 0.1 | % | $ | 58.08 | 7/27/15 | $ | 36,526 | $ | 92,565 | ||||||||||||||
F. Lee Wilson | — | — | $ | — | — | $ | — | $ | — |
(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. | |
20042005 and concerning unexercised options held at December 31, 2004. Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Shares Options at FY-End at FY-End(b) Acquired Value Name on Exercise Realized Exercisable Unexercisable(a) Exercisable Unexercisable Timothy M. Manganello — $ — 6,918 18,302 $ 200,886 $ 286,762 Robin J. Adams — $ — — 32,963 $ — $ 321,974 John J. McGill 20,000 $ 503,164 20,000 25,170 $ 588,700 $ 519,340 F. Lee Wilson — $ — 50,000 10,000 $ 1,654,800 $ 288,400 Roger J. Wood — $ — — 14,709 $ — $ 226,210 Number of Securities Value of Unexercised Shares Underlying Unexercised In-the-Money Options Acquired Value Options at FY-End (#) at FY-End ($) (b) on Exercise Realized Exercisable Unexercisable(a) Exercisable Unexercisable Timothy M. Manganello — $ — 12,684 74,536 $ 449,877 $ 364,026 Robin J. Adams — $ — — 47,963 $ — $ 576,043 Alfred Weber 10,000 $ 346,950 — 8,000 $ — $ 20,880 Roger J. Wood — $ — 3,683 21,026 $ 101,835 $ 246,378 Mark Perlick 12,050 $ 349,279 — 12,710 $ — $ 211,192 F. Lee Wilson 60,000 $ 2,227,718 — — $ — $ —
12
(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 Common Stock on December 31, |
13
Estimated Future Payouts | ||||||||||||||||||||
Number | Performance | under Non-Stock | ||||||||||||||||||
of Shares | or Other | Price-Based Plans(b) | ||||||||||||||||||
Units or | Period Until | |||||||||||||||||||
Rights | Maturation | Threshold | Target | Maximum | ||||||||||||||||
Name | (#)(a) | or Payout | ($) | ($) | ($) | |||||||||||||||
Timothy M. Manganello | 700 | 36 months | 175,000 | 700,000 | 1,225,000 | |||||||||||||||
Robin J. Adams | 400 | 36 months | 100,000 | 400,000 | 700,000 | |||||||||||||||
John J. McGill | 260 | 36 months | 65,000 | 260,000 | 455,000 | |||||||||||||||
F. Lee Wilson | 260 | 36 months | 65,000 | 260,000 | 455,000 | |||||||||||||||
Roger J. Wood | 260 | 36 months | 65,000 | 260,000 | 455,000 |
Number | Performance | Estimated Future Payouts | ||||||||||||||||||
of Shares | or Other | under Non-Stock | ||||||||||||||||||
Units or | Period Until | Price-Based Plans(b) | ||||||||||||||||||
Other Rights | Maturation | Threshold | Target | Maximum | ||||||||||||||||
Name | (#)(a) | or Payout | ($) | ($) | ($) | |||||||||||||||
Timothy M. Manganello | 18450 | 36 months | 175,000 | 700,000 | 1,225,000 | |||||||||||||||
Robin J. Adams | 9225 | 36 months | 87,500 | 350,000 | 612,500 | |||||||||||||||
Alfred Weber | 6850 | 36 months | 64,972 | 259,889 | 454,806 | |||||||||||||||
Roger J. Wood | 6850 | 36 months | 64,972 | 259,889 | 454,806 | |||||||||||||||
Mark Perlick | 4000 | 36 months | 37,940 | 151,760 | 265,580 | |||||||||||||||
F. Lee Wilson | 0 | — | — | — | — |
(a) | Performance | |
(b) | Payouts under the |
“Change
13
“Cause”
“Good
14
• | 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. |
14
15
On an overall basis, base salaries for the top senior executive group were slightly below the median of the Compensation Surveys.
15
As more particularly described beginning on page 20 of this proxy, on February 2, 2005,
16
Long-Term Incentives
The award levels under the Executive Stock Performance Plan were 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 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 $1 million.
The 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.
$1,225,000.
16
For the period between January 1, 2004 and December 31, 2006, 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.
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 stock options, stock appreciation rights, restricted stock, stock units, performance shares and performance units.
17
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 contributions. 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.
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.
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 Code which limit the tax deductibility of compensation in excess of $1 million.
No regular stock option grants were awarded to Mr. Manganello in 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.
If a senior executive owns more BorgWarner stock than required by these guidelines,
Mr. Manganello received an award of 12,536 stock options in 2004awards for stock ownership levels above the required level. In addition, eight other executives also exceededguidelines as it has done in the ownership requirements. The combined total of options to be granted to these eight executives amounted to 44,417 options.
18
past.
2003 and 2004.
$1,225,000.
During 2004, Mr. Manganello received
Compensation subject to the $1 million limitation on deductibility under Section 162(m) of the Code was not paid in 20042005 to any of the other named executive officers.
Paul E. Glaske, Chairman
17
19
Comparison of Cumulative Total Return
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 | ||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||||||
BORGWARNER INC.(2) | 100.00 | 132.37 | 129.19 | 220.48 | 283.89 | 321.13 | ||||||||||||||||||||||||
S&P 500(3) | 100.00 | 88.12 | 68.64 | 88.33 | 97.94 | 102.75 | ||||||||||||||||||||||||
SIC CODE INDEX(4) | 100.00 | 128.82 | 107.21 | 154.99 | 168.64 | 133.36 | ||||||||||||||||||||||||
FORMER PEER GROUP(5) | 100.00 | 133.70 | 114.10 | 169.05 | 188.97 | 158.34 | ||||||||||||||||||||||||
PEER GROUP(6) | 100.00 | 154.57 | 143.42 | 216.49 | 224.80 | 212.74 | ||||||||||||||||||||||||
(1) | Assumes | |
(2) | BorgWarner Inc. | |
(3) | S&P 500 — Standard & Poor’s 500 Total Return Index. | |
(4) | Standard Industrial Code (“SIC”) | |
Former Peer Group Companies — Consists of the following companies: ArvinMeritor, Inc., Autoliv, Inc., Cummins Engine, Inc., Dana Corporation, Delphi Corporation, Dura Automotive Systems, Inc., Eaton Corporation, Johnson Controls, Inc., Lear Corporation, Magna International, Inc. | ||
Peer Group Companies — | ||
As shown above, the Company has revised the peer group because of changes in the automotive supply industry. The Company believes that the revised Peer Group Companies Index |
18
The
• | Section 4(a) of the Plan has been amended to increase the number of shares authorized to be issued by 2,300,000 shares. | |
• | Section 4(b) of the Plan has been amended to increase the total number of shares that may be granted to a “covered employee” (as defined in Code section 162(m)) in any fiscal year in the form of stock options, stock appreciation rights, restricted stock, stock units or performance shares from one hundred thousand (100,000) to three hundred thousand (300,000). Section 4(b) of the Plan has also been amended to increase the total value of Performance Units that may be granted to a “covered employee” in any fiscal year from five hundred thousand dollars ($500,000) to three million dollars ($3,000,000). | |
• | The definition of “Stock” under the Plan has been amended to include only the highest-value class of common stock of the Company. Sections 6 and 7 of the Plan, providing for awards of stock options and stock appreciation rights, respectively, have been amended to prohibit the modification of such stock options or stock appreciation rights after the applicable award date if such modification would result in the stock option or stock appreciation right being treated as deferred compensation for purposes of Code section 409A. These amendments are designed to prevent stock options and stock appreciation rights granted under the Plan from being treated as deferred compensation subject to Code section 409A. | |
• | Sections 9, 10, and 11 of the Plan providing for awards of stock units, performance units, and performance shares, respectively, have been amended to eliminate provisions that previously allowed participants to elect to defer receipt of payment of such awards beyond the times or events originally specified in their award agreements. Instead, payment of these awards must now occur on the original times or events specified in the applicable award agreement. For stock units, these payment times or events generally include the vesting date, the date of the award recipient’s termination of employment, or a specified date. For performance units and performance shares, payment generally must occur by March 15 of the year after the year in which the applicable performance period ends. However, in certain circumstances, performance units and performance shares may also be paid earlier upon an award recipient’s termination of employment, if such termination of employment occurs after the Company experiences a change in control. For all three types of awards, payment upon a termination of employment is delayed for six months if the award recipient meets the definition of a “Specified Employee.” Each of these amendments is for the purpose of having share units, performance units, and performance shares comply with relevant aspects of Code section 409A. | |
• | The Plan has been amended in certain other respects for the purpose of complying with Code section 409A, including in respect to the definitions of “Disability” and “Retirement,” and in other aspects as generally discussed below. |
19
20
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 eligible for awards under the Plan, 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.
Administration of the Plan
Participation
Allthe case of awards to directors who are not employees of the Company and its subsidiariesor a subsidiary, to the Committee, as approved by a majority of all members of the Board who are determined“non-employee directors” within the meaning of Section 16 of the Securities Exchange Act of 1934, 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 authorization, by the Committee, to the chief executive officer.
20
21
Awards
22
Payment of Awards
Payment of all Awardsoption granted under the Plan (a “Tandem SAR”), or (ii) without relationship to an option (a “Freestanding SAR”). Tandem SARs must be granted at the time such option is granted. A Tandem SAR is only exercisable at the time and to the extent that the related option is exercisable. The base price of a Tandem SAR must be and may never become less than the exercise price of the option to which it relates. 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 must be equal to and may never become less than the fair market value of a share of common stock on the date of the Freestanding SAR’s grant.
23
Amendment, Modification,Company, in the future, pursuant to the terms of a grant made under the Plan and Termination
Unless terminated earlierthe related award agreement. The value of a performance unit is established by the Committee based on cash or on property other than common stock of the Company. For any grant of performance units, 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 Plan will remain in effect for a period of ten (10) years fromand described below. At the date of stockholder approval. Upon terminationexpiration of the Plan,performance period, the rightCommittee will determine and certify the extent to grant Awardswhich the performance goals were achieved. The Committee will then determine the number of performance units to which a recipient of performance units under the Plangrant is entitled, and the value of such performance units (if the value is based on the level of achievement) based upon the number of performance units originally granted to the recipient and the level of performance achieved. Performance units will be settled by payment of the cash value of the performance units to which the recipient is entitled or delivery of shares of common stock of the Company with a fair market value equal to the cash value of such performance units. Performance units
24
21
25
26
27
28
29
performance shares:
Dollar Value | Percent Of | ||||||||
Name and Position | ($)(a) | Pool (b) | |||||||
Timothy M. Manganello | $ | 2,086,425 | 30% | ||||||
Chairman and Chief Executive Officer | |||||||||
Robin J. Adams | $ | 1,390,950 | 20% | ||||||
Executive Vice President, Chief Financial Officer and Chief Administrative Officer | |||||||||
Mark A. Perlick | $ | 695,475 | 10% | ||||||
President | |||||||||
Transmission Systems | |||||||||
Cynthia A. Niekamp | $ | 695,475 | 10% | ||||||
President | |||||||||
TorqTransfer Systems | |||||||||
Alfred Weber | $ | 695,475 | 10% | ||||||
President | |||||||||
Emission/ Thermal Systems | |||||||||
F. Lee Wilson | $ | 695,475 | 10% | ||||||
President | |||||||||
Turbo Systems | |||||||||
Roger J. Wood | $ | 695,475 | 10% | ||||||
President | |||||||||
Morse TEC | |||||||||
Executive Group | $ | 6,954,750 | 100% | ||||||
Non-Executive Director Group | None | None | |||||||
Non-Executive Officer Group | None | None |
Dollar Value | Number of | |||||||
Name and Position | ($)(a) | Units/Shares(b) | ||||||
Tim Manganello | $ | 1,782,832 | 45,000 | |||||
Chairman and CEO | ||||||||
Robin J. Adams | $ | 475,422 | 12,000 | |||||
Executive Vice President and CFO | ||||||||
Roger J. Wood | $ | 435,803 | 11,000 | |||||
Vice President | ||||||||
Alfred Weber | $ | 364,490 | 9,200 | |||||
Vice President | ||||||||
Mark A. Perlick | $ | 174,321 | 4,400 | |||||
Vice President | ||||||||
Executive Group | $ | 5,237,564 | 132,200 | |||||
Non-Executive Director Group | $ | 660,000 | (c) | |||||
Non-Executive Officer Employee Group | — | — |
(a) | This number represents the target dollar value of performance shares awarded. The actual dollar value will depend on | |
(b) | This number represents the | |
(c) | For the restricted stock awards to the |
30
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 | 3,194,473 | $ | 42.48 | 436,552 | ||||||||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||||||
Total | 3,194,473 | $ | 42.48 | 436,552 |
22
31
32
23
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 Committee. | |
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. | |
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. | |
7. | 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. |
A-1
8. | 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 |
A-1
the independent auditor and recommend to the Board the inclusion of the Corporation’s audited financial statements in the Corporation’s Annual Report onForm 10-K. |
9. | Review and discuss: |
(a) | All critical accounting policies and practices to be used. |
(b) | All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor. |
(c) | Other material written communication between the independent auditor and management, such as any management letter or schedule of unadjusted differences. |
10. | 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 made). | |
11. | 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 Committee and for other expenses necessary or appropriate in carrying out its duties. | |
12. | Report Committee activities to the full Board and annually issue a summary report (including appropriate oversight conclusions) suitable for submission to | |
13. | Review disclosures made to the Committee by the Corporation’s CEO and CFO during their certification process for theForm 10-K andForm 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. | |
14. | 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. | |
15. | 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. | |
17. | 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. |
A-2
18. | Discuss with management the Corporation’s risk assessment and risk management policies. |
In its finance capacity, the Committee is responsible for:
A-2
A-3
Appendix B
BORGWARNER INC.
2005 EXECUTIVE INCENTIVE PLAN
1.1 Establishment
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”),time, and shall remain in effect as provided in Section 1.3 hereof.
1.2 Objectives of the Plan. The primary objectives of the Plan are: (a) to attract, motivate, and retain high-caliber individuals by providing competitive annual incentive opportunities, (b) to provide an incentive to key Employees of the Company who have significant responsibility for the success and growth of the Company, and (c) to satisfy the requirements 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 right of the 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.successor thereto.
B-1
ARTICLE 2. Definitions
Whenever the following terms are used in the Plan, with their initial letter(s) capitalized, they shall have the meanings set forth below:
B-1
ARTICLE 3. Administration
3.1 General. The Planadministereddetermined by the Committee which shall consist exclusively of two (2) or more nonemployee directors who qualifyin good faith.outside directorsan “incentive stock option” within the meaning of Code Section 162(m) and the related regulations under422 of the Code. The membersappointed from timesubject to timecertification by and shall serve at the discretion of,Committee; provided that the Board. The Committee shall have the authority, to delegate 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 (b) certifying that any performance goals and other material terms attributable to Awards intended to qualify for the Performance-Based Exception have been satisfied.3.2 Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions hereof, the Committee shall have the power in its discretion to select key Employees who shall participate in the Plan; determine the sizes and types of Award and the terms and conditions of Awards in a mannerextent consistent with the Plan; construe“qualified performance-based compensation” exception of Section 162(m) of the Code and interpretSection 1.162-27(e) of the Plan and any Award, document, or instrument issued under the Plan; establish, amend, or waive rules and regulations for the Plan’s administration; and (subjectIncome Tax Regulations, to make equitable adjustments to the provisions of Article 9 hereof) amend the terms and conditions of any outstanding 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.3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Directors, Employees, Participants, and their estates and beneficiaries.3.4 Performance-Based Awards. For purposes of the Plan, it shall be presumed, unless the Committee indicates to the contrary, that all Awards are intended to qualify for the Performance-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 appropriate.ARTICLE 4. Eligibility and Participation4.1 Eligibility. All Employees who are determined by the Committee to be key employees are eligible to participate in the Plan.4.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible key Employees those to whom Awards shall be granted and shall determine the nature and amount of each Award.ARTICLE 5. Covered Employee Annual Incentive Award5.1 Grant of Awards. All Awards under the Plan shall be granted upon terms approved by the Committee. However, no Award shall be inconsistent with the terms of the Plan or fail to satisfy the requirements of applicable law. Each Award shall relate to a designated Plan Year.B-25.2 Award Pool Limitation. The sum of the Awards for a single Plan Year shall not 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 receive an Award which is in excess of fifty percent (50%) of the Award Pool.5.4 Limitations on Committee Discretion. The Committee may reduce, but may not increase, any of the following: (a) The maximum Award for any Participant; and (b) The size of the Award Pool.5.5 Payment, Payment of Awards shall be subject to the following: (a) Unless otherwise determined by the Committee in its sole discretion, a Participant shall have no right to receive a payment under an Award for a Plan Year unless the Participant is employed by the Company or a Subsidiary at all times during the Plan Year. (b) As soon as possible after the determination of the Award Pool for a Plan Year, the Committee shall calculate each Participant’s allocated portion of the incentive pool based upon the percentage established at the beginning of the Plan Year. Each Participant’s incentive award then shall be determined by the Committee based on the Participant’s allocated portion of the incentive pool subject to Section 5.3 and any downward adjustment, such downward adjustment to be in the sole discretion of the Committee. In no event may the portion of the incentive pool allocated to a Participant be increased in any way, including as a result of the reduction of any other Participant’s allocated portion. The Committee shall retain the discretion to adjust such Awards downward. (c) Payments of Awards shall be wholly in cash. (d) Each Award shall be paid on a date prescribed by the Committee, unless the Participant has elected to defer payment in accordance with the rules and regulations established by the Committee.ARTICLE 6. 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 Participation8.1 Employment. The Plan shall not interfere with or limit in any way the right of the 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 future Award.B-3ARTICLE 9. Amendment, Modification, and Termination9.1 Amendment, Modification, and Termination. Subject to the terms of the Plan, the Committee may at any time and from 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 not be effective unless and until stockholder approval is obtained.9.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, AwardsPerformance Goals in recognition of unusual or nonrecurring events affecting the Company or any Affiliate or the financial statements of the Company or ofany Affiliate in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, wheneverprinciples. Once a Performance Goal is established, the Committee determinesshall have no discretion to increase the amount of compensation that would otherwise be payable to a recipient upon attainment of a Performance Goal.
B-2
B-3
B-4
B-5
B-6
B-7
B-8
B-9
B-10
B-11
B-12
B-13
B-14
B-15
B-16
B-17
ARTICLE 10. Withholding
The Company and its Subsidiaries shall have the power and the rightCommittee’s decision to deductcancel, declare forfeited or withhold,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 Participantwritten request to remitthe 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, by a majority vote, (i) the Committee’s determination that the participant violated the terms of the Plan or the Award or committed a Breach of Conduct, and (ii) the Committee’s decision to cancel, declare forfeited, or rescind the Award, such determination and decision shall thereupon be conclusive, binding, and final on all parties.
B-18
ARTICLE 11. Successors
Allobligations may be settled with Stock, including Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan with respect to Awards granted hereunder shall be bindingconditional on such payment or arrangements, and the Company, its subsidiaries and its Affiliates shall, to the extent permitted by law, have the right to deduct any successorsuch taxes from any payment otherwise due to the participant. The Committee may establish such procedures as it deems appropriate, including the making of irrevocable elections, for the settlement of withholding obligations with Stock.
B-19
ARTICLE 12. Legal Construction
12.1 GenderCommittee’s waiver of payment limitations prior to the end of the applicable Performance Period satisfy the requirements of Code Sections 409A(2) through (a)(4) in all material respects. This Plan shall be interpreted for all purposes and Number. Except where otherwise indicated byoperated to the context, any masculine term used herein also shall includeextent necessary in order to comply with 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.intent expressed in this paragraph.
12.3 Requirements of Law. The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies as may be required.
12.4 Governing Law.affected thereby.
B-20
B-4
9:00 A.M. (E.S.T.)
April 27, 2005
Please Mark Here for Address Change or Comments |
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 4, 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 SIDEPLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
Address Change/Comments(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.
o | ||||||
Visit us on the web at http://www.melloninvestor.com
For Technical Assistance Call 1-877-978-7778 between 9am-7pmMonday-Friday Eastern Time
Investor ServiceDirect® is a registered trademark of Mellon Investor Services LLC
SEE REVERSE SIDE |
1. | Election of four Class | |||||||
listed (except as | to vote for all nominees listed | |||||||
indicated) | ||||||||
01 02 Alexis P. Michas 03 Richard O. Schaum 04 Thomas T. Stallkamp | o | o | ||||||
FOR | AGAINST | ABSTAIN | ||||||
2. | To vote upon a proposal to approve the amendment to the BorgWarner Inc. | 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 | o | o | o | ||||
4. | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
Dated: | , | |||
Signature | ||||
Signature if held jointly | ||||
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. |
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.
24 Hours a Day, 7 Days a Week
the day prior to annual meeting day.
manner
as if you marked, signed and returned your proxy card. Telephone Mail 1-866-540-5760 Mark, sign and date Use the internet to vote your proxy. Use any touch-tone telephone to your proxy card and Have your proxy card in hand when OR vote your proxy. Have your proxy OR return it in the you access the web site. OR Telephone1-866-540-5760Use any touch-tone telephone tovote your proxy. Have your proxycard in hand when you call. OR MailMark, sign and dateyour proxy card andreturn it in theenclosed postage-paid envelope.
PLACE: | BorgWarner Inc. | |
3850 Hamlin Road | ||
Auburn Hills, Michigan 48326 |
• 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 |