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x Preliminary Proxy Statement | |
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Chicago, Illinois
1. | To elect the nominees for Class | |
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 | ||
To ratify the appointment of Deloitte & Touche LLP as the independent | ||
To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. | ||
• | Signing and returning the accompanying proxy |
OR | |
• | Voting by telephone or by the |
20, 200819, 2004Proxy Statementproxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of BorgWarner Inc. (the “Company”) for the 2004Company’s 2008 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, 200430, 2008 at 10:9:00 a.m., local time, or at any adjournments thereof. This Proxy Statementproxy statement and the accompanying form of proxy and our 2007 summary annual report are being mailed to stockholders beginning on or about March 19, 2004.20, 2008. The Company’s Summary Annual Report to Stockholders for the year ended December 31, 20032007 is enclosed.5, 20043, 2008 will be entitled to vote at the meeting. As of such date, there were 2x,xxx,xxx________ issued and 2x,xxx,xxx__________ outstanding shares of common stock. Each share of common stock entitles the holder to one vote. Assumingquorum is present, an abstention from voting ordirector nominee may serve on the board only if the nominee receives the favorable vote of more than 50% of the shares voted. In a contested election, directors are elected by a plurality vote. Withheld votes and broker non-vote has no effect on Proposals 1,non-votes will not affect the outcome of the election of directors.4. However, anthe proposed amendment to our certificate of incorporation: the approval and adoption of that amendment requires the affirmative vote of a majority of the outstanding shares of the Company’s common stock. An abstention or a broker non-votenonvote is the functional equivalent of a “no” vote on this proposal.same legal effectopportunity to opt out at any time by following the instructions on www.___________________. You do not have to re-elect Internet access each year.vote “against” Proposal 3.separate copy of the summary annual report, the proxy statement or Notice of Internet Availability of Proxy Materials, as applicable to any stockholder at a shared address to which a single copy of those documents was delivered. If you share an address with another stockholder and you wish to receive a separate copy of any of those documents you may inform the Company of your wish by contacting Mary Brevard, Vice President, Investor Relations, 3850 Hamlin Road, Auburn Hills, Michigan 48326 (tel: 248-754-9200). Similarly, if you share an address with another stockholder that is receiving multiple copies and wish to request that the number of copies of those documents being delivered to that address be reduced to a single copy, you may inform the Company of your wish by contacting Mary Brevard, Vice President, Investor Relations at the above address and telephone number.
PROPOSAL 1 —1— ELECTION OF DIRECTORS
Recommendation of the Board of Directors
The Board of Directors recommends a voteVOTE “FOR” the election of each of the Class II Directors — Jere A. Drummond, Timothy M. Manganello and Ernest Novak, Jr.
THE ELECTION OF EACH OF THE NOMINEES FOR CLASS III DIRECTOR —ROBIN J. ADAMS AND DAVID T. BROWN
Class I Directors | Age | Principal Occupation 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 | ||||||
Richard O. Schaum 2005 | 61 | Mr. Schaum served as the 2007 President of the Society of Automotive Engineers and has been General Manager, 3rd Horizon Associates LLC, a technology assessment and development company, since May 2003. He 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 | 61 | Mr. Stallkamp has been an Industrial Partner in Ripplewood Holdings LLC, 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 its Vice Chairman and Chief Executive Officer. From 1980 to 1999, Mr. Stallkamp held |
Class II Directors | Age | Principal Occupation 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. | |||||
Timothy M. Manganello 2002 | Mr. Manganello has been Chairman of the Board since June 2003 and Chief Executive Officer of the Company since February |
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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. |
Class III Directors | Age | Principal Occupation and Directorships | ||||
Robin J. Adams 2005 | Mr. | |||||
David T. Brown 2004 | 59 | Mr. Brown retired from Owens Corning on December 31, 2007. He was 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. |
www.borgwarner.com.
• | 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, |
3
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.” |
4
• | 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; | |
• | willingness to limit public company board service to four or fewer boards of public companies, unless the Corporate Governance Committee approves | |
• | agreement to tender promptly following their election an irrevocable resignation effective upon failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon acceptance of such resignation by the Board of Directors. |
Effective July 1, 2003, the annual retainer for non-employee directors was increased from $26,000 to $40,000 for service on the Board of Directors. Each non-employee director receives $1,000 for each Board meeting attended. Committee members also receive $1,000 ($1,500 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 for each committee meeting attended, since April 2003. 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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If the BorgWarner Inc. 2004 Stock Incentive Plan (the “2004 Plan”) is approved by stockholders (Proposal 2), starting in 2004, instead of annual stock option grants, non-employee directors will receive an annual grant of 400 shares of restricted stock pursuant to a resolution. (The amount of restricted shares will be adjusted, if necessary, to account for the effect of the stock split if Proposal 2 is approved.) Non-employee directors no longer receive automatic annual grants of options under the 1993 Plan.
REPORT OF THE BORGWARNER INC. FINANCE AND AUDIT COMMITTEE
The Finance and Audit Committee
With respect to the 2003 financial statements, the Committee, in conjunction with the Board, reviewed the 2003 financial results and financial condition with management. The Committee met with selected members of management and Deloitte & Touche LLP, (“Deloitte”), the Company’s independent auditors, to review theaudited financial statements (including quarterly reports)for the year ended December 31, 2007. The Audit Committee also has discussed with Deloitte & Touche LLP, the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Interim Auditing Standard AU Section 380, "Communication with Audit Committees." We have received from Deloitte & Touche LLP the written disclosures and the letter required by Independence Standards Board Standard No. 1. ("Independence Discussions with Audit Committees"), discussing such matters asand have discussed with Deloitte & Touche LLP their independence. The Audit Committee has concluded that Deloitte & Touche LLP's provision of audit and non-audit services to the Company is compatible with their independence.
In discharging its oversight responsibilities as to the audit process, the Committee:
6
TheAudit 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 opportunityhas direct access to meet with the Committee to discuss any matters desired.
Based on its workdesired, and the Director of Internal Audit presented an update of internal audit activity at each Committee meeting.
Company.
John Rau, Chairman
7
17, 2004,14, 2008, certain information regarding beneficial ownership of common stock by allthose persons and entities that are known to the best knowledge of the Company as beneficially ownedowning more than the five percent of the Company’s common stock. Number of Percent of 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. 1,594,026 (b) 5.8 % 1290 Avenue of the Americas New York, NY 10104 Number of Percent of Shares Class UBS AG 15,036,076 (a) 12.9 % AXA Financial, Inc. 7,843,361 (b) 6.7 % (a) (a)Pursuant to a Schedule 13G filed13G/A dated February 14, 2008 on February 12, 2004, Wellington Management Company, LLP indicatedbehalf of UBS AG indicating that it had sharedsole voting power for 1,686,700 shares15,036,076 and shared dispositive power for 1,943,000 shares.16,354,032. (b) Pursuant to a Schedule 13G/A Schedule 13G was filed ondated February 10, 200414, 2008 on behalf of AXA Financial, Inc., AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle and AXA indicating that it had sole voting power for 1,198,4877,843,361 shares, shared voting power for 5,6501,446,274 shares, and sole dispositive power for 1,421,514 shares and shared dispositive power for 172,51212,300,398 shares.February 13, 2004,March 3, 2008, certain information regarding the beneficial ownership of common stock bystock. Each person who was a director of the Company’s directors andCompany at December 31, 2007, each nominee for election as a director, each executive officersofficer named in the Summary Compensation Table, and by allsuch directors and executive officers as a group. Amount(a) and Nature(b) Percent of Name of Beneficial Owner of Stock Ownership class John F. Fiedler(c) 6,977 * Timothy M. Manganello 24,934 * John J. McGill 18,142 * Alfred O. Weber 316 * F. Lee Wilson 19,140 * Roger S. Wood 6,985 * Phyllis O. Bonanno 6,235 * Andrew F. Brimmer 9,157 * William E. Butler 8,100 * Jere A. Drummond 12,719 * Paul E. Glaske 18,518 * Ivan W. Gorr 10,000 * Alexis P. Michas 44,468 * Ernest J. Novak, Jr. 648 * John Rau 11,329 * All directors and executive officers of the Company (21 persons) 263,542 .9 % Percent of Class Timothy M. Manganello 350,598.93 * Robin J. Adams 182,184.36 * Bernd Matthes 43,556.00 * Cynthia Niekamp 73,246.71 * Roger J. Wood 120,955.38 * Phyllis O. Bonanno 33,428.00 * David T. Brown 5,682.00 * Jere A. Drummond 37,704.00 * Paul E. Glaske (d) 71,322.00 * Alexis P. Michas 183,014.00 * Ernest J. Novak, Jr. 20,104.00 * Richard O. Schaum 7,568.00 * Thomas T. Stallkamp 6,674.00 * All directors and executive officers of the Company (18 persons) 1,737,264.16 1.48% * Represents less than one percent. (a) For purposes of the above table, the address for each named person is 3850 Hamlin Road, Auburn Hills, Michigan 48326. (a)(b) Includes the following number of shares issuable upon the exercise of options within the next 60 days: 28880,926 for Mr. Adams; 24,000 for Ms. Bonanno; 28,000 for Mr. Drummond; 28,000 for Mr. Glaske; 112,440 for Mr. Manganello; 5,00014,840 for Mr. Matthes; 24,000 for Mr. Michas; 28,000 for Ms. Bonanno; 7,000 for Dr. Brimmer; 7,000 for Mr. Butler;Niekamp; 8,000 for Mr. Drummond; 10,000Novak; 39,418 for Mr. Glaske; 9,000 for Mr. Gorr; 5,000 for Mr. Michas; 7,000 for Mr. Rau;Wood; and 103,327675,186 for all directors and executive officers of the Company.8(C) (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. (d) (c)Retired from the Company on May Retiring at April 30, 2003.2008 Annual Meeting of Stockholders 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 1,135.02 phantom stock units; Dr. Brimmer has 1,557.39 phantom stock units; Mr. Drummond has 3,719.87 phantom stock units; Mr. Glaske has 508.68 phantom stock units; Mr. Michas has 2,588.25 phantom stock units; Mr. Novak has 48.98 phantom stock units; and Mr. Rau has 2,329.66 phantom stock units.that the Company’s executive officers, directors and greaterpersons who beneficially own more than 10% stockholders10 percent of a registered class of the Company’s equity securities, to file certainwith the SEC initial reports with respect to beneficialof ownership and reports of changes in ownership of the Company’s equity securities. Based on information providedcommon stock. Such officers, directors and persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file with the SEC.each director and executive officer,the Company, or written representations from certain reporting persons that no Form 5s were required for those persons, the Company believes that all reports requiredfiling requirements applicable to be filed in 2003its directors, executive officers and greater than 10 percent stockholders were timely filed, except for forms relatingcomplied with during 2007.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, and Roger Wood.9Executive CompensationThe following table shows, for the years ended December 31, 2003, 2002 and 2001, the cash compensation paid byCompany. In addition, the Company has adopted a Code of Ethics for CEO and its subsidiaries, as well as certain other compensation paid or accrued for these years,Senior Financial Officers which applies to the Company’s Chief Executive Officer, Chief Financial Officer, Treasurer and certain executive officers.Controller. Each of these codes is posted on the Company’s website at www.borgwarner.com.SUMMARY COMPENSATION TABLEDISCUSSION AND ANALYSIS
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) | ||||||||||||||||||||||
John F. Fiedler(*) | 2003 | $ | 234,664 | $ | 1,034,120 | $ | 2,660,757 | (d) | 0 | $ | 956,000 | $ | 3,384,407 | (f) | |||||||||||||||
Chairman and CEO | 2002 | $ | 564,050 | $ | 1,520,666 | $ | 0 | 10,557 | $ | 1,471,000 | $ | 90,704 | |||||||||||||||||
(Retired) | 2001 | $ | 553,000 | $ | 291,401 | $ | 588,150 | (d) | 8,340 | $ | 567,035 | $ | 116,168 | ||||||||||||||||
Timothy M. Manganello | 2003 | $ | 538,144 | $ | 768,877 | $ | 69,548 | (e) | 0 | $ | 286,800 | $ | 146,743 | ||||||||||||||||
Chairman and CEO | 2002 | $ | 381,625 | $ | 624,109 | $ | 125,755 | (d) | 5,766 | $ | 382,460 | $ | 66,425 | ||||||||||||||||
2001 | $ | 253,000 | $ | 146,607 | $ | 13,993 | (d) | 576 | $ | 133,420 | $ | 69,972 | |||||||||||||||||
F. Lee Wilson | 2003 | $ | 247,600 | $ | 332,731 | $ | 402,956 | (d) | 0 | $ | 191,200 | $ | 26,471 | ||||||||||||||||
Vice President | 2002 | $ | 234,600 | $ | 403,263 | $ | 0 | 0 | $ | 205,940 | $ | 24,026 | |||||||||||||||||
2001 | $ | 230,000 | $ | 255,175 | $ | 0 | 0 | $ | 0 | $ | 24,943 | ||||||||||||||||||
John J. McGill | 2003 | $ | 247,600 | $ | 560,853 | $ | 190,914 | (d)(e) | 0 | $ | 248,560 | $ | 31,117 | ||||||||||||||||
Vice President | 2002 | $ | 234,600 | $ | 312,005 | $ | 0 | 0 | $ | 382,460 | $ | 22,789 | |||||||||||||||||
2001 | $ | 229,584 | $ | 34,446 | $ | 0 | 0 | $ | 0 | $ | 22,107 | ||||||||||||||||||
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 |
· | attract and retain the best possible executive talent, |
· | motivate these executives to achieve goals that support the Company’s business strategy (including growth and the creation of long term value), |
· | link executives’ and stockholders’ interests through equity-based plans, and |
· | provide a compensation package that is based on individual performance as well as overall business results. |
AMSTED Industries, Inc. | Fleetwood Enterprises, Inc. | Praxair Inc. |
Robert Bosch Corporation | ||
Ball Corporation | Harley-Davidson Motor Co. | The Sherwin-Williams Co. |
Brunswick Corporation | Illinois Tool Works Inc. | SPS Technologies Inc. |
Cummins Inc. | Intl Truck and Engine Corp. | Thyssen Krupp Budd Co. |
Dana Corporation | ITT Industries, Inc. | The Timken Company |
Denso Intl America, Inc. | Kennametal Inc. | TRW Automotive Inc. |
Donaldson Company Inc. | Metaldyne Corporation | Valmont Industries Inc. |
Dover Corporation | PACCAR Inc. | Worthington Industries Inc. |
Eastman Chemical Co. | Parker Hannifin Corporation | |
Year 1: 2005 | Year 2: 2006 | Year 3: 2007 | |
Base EV | Base EV | ||
Base + 2% of OI | Base + 3% of OI | ||
10
2008 | 2009 | 2010 | |
Threshold | Base EV | Base EV | Base EV |
Target | Base + 0.5% of OI | Base + 1% of OI | Base + 1.5% of OI |
Maximum | Base + 1% of OI | Base + 2% of OI | Base + 3% of OI |
BorgWarner Inc. | BERU* | Business Group | Business Unit | |
T. Manganello, CEO | 90% | 10% | ||
R. Adams, CFO | 90% | 10% | ||
R. Wood, President, Turbo/Emissions | 20% | 10% | 15% | 55% |
C. Niekamp, President, TorqTransfer Systems | 30% | 15% | 55% | |
B. Matthes, President, Transmission Systems | 30% | 15% | 55% |
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% | ||||||||||||||||||
Roger S. Wood | 3,663 | 1.1 | % | $ | 66.080 | 7/23/13 | $ | 152,225 | $ | 385,767 |
The following table sets forth information with respect tocase of performance shares) and growth in the named executive officers concerningCompany’s stock price (in the exercisecase of stock options during 2003 and concerning unexercisedperformance shares).
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 | ||||||||||||||||||
John F. Fiedler(*) | 180,382 | $ | 2,618,433 | — | — | $ | — | $ | — | |||||||||||||||
Timothy M. Manganello | — | $ | — | 288 | 6,054 | $ | 10,596 | $ | 209,061 | |||||||||||||||
John J. McGill | 5,000 | $ | 121,285 | 10,000 | 18,696 | $ | 428,850 | $ | 598,337 | |||||||||||||||
F. Lee Wilson | 10,000 | $ | 401,111 | 15,000 | 15,000 | $ | 901,150 | $ | 344,200 | |||||||||||||||
Roger S. Wood | — | $ | — | — | 3,683 | $ | — | $ | 69,940 | |||||||||||||||
Alfred O. Weber | 7,400 | $ | 152,096 | — | 12,000 | $ | — | $ | 418,680 |
BorgWarner TSR Percentile to Peer Group | Percent of Target Number of Performance Shares Earned |
Below 25th percentile | |
25th percentile | 25.000% |
35th percentile | |
50th percentile | 71.875% |
65th percentile | |
75th percentile | 130.000% |
90th percentile | 175.000% |
Long-Term Incentive Plans
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 | ($) | ($) | ($) | |||||||||||||||
John F. Fiedler(*) | 0 | 36 months | — | — | — | |||||||||||||||
Timothy M. Manganello | 700 | 36 months | 175,000 | 700,000 | 1,225,000 | |||||||||||||||
F. Lee Wilson | 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 |
11
AgreementsAgreements. The Company hasWe have entered into Change of Control Employment Agreements (the “Change of Control Employment Agreements”) with each of our Named Executive Officers. In establishing the Change of Control Agreements, our Board of Directors determined that it is in the best interests of the Company and its stockholders (i) to assure that we will have the continued dedication of our Named Executive Officers in the event of the threat or occurrence of a Change of Control, and (ii) to diminish the inevitable distraction of our Named Executive Officers by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control by agreeing to provide two to three years of compensation (depending on position) if the executive’s employment is terminated as a result of a Change of Control. See pages ___ and __ for further details of the Change of Control Agreements for our Named Executive Officers.Position Stock Ownership Guideline CEO Three times average salary plus bonus for prior three years CFO and Presidents Two times average salary plus bonus for prior three years officers. officers in the year that the compensation is paid). Compensation that is “performance-based compensation” generally does not count toward Section 162(m)’s $1 million limit.Name and Principle Position Year Salary Bonus (1) Stock Awards (2) Option Awards (3) Non-Equity Incentive Plan Compensation (4) Change in Pension Value and Non-Qualified Deferred Compensation Earnings (5) All Other Compensation Total ($) ($) ($) ($) ($) ($) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Timothy M. Manganello 2007 900,000 - 6,296,024 1,030,051 2,666,782 - 237,695 11,130,552 Chairman and CEO 2006 900,000 - 315,529 494,516 624,118 - 293,431 2,627,594 Robin J. Adams 2007 466,000 - 1,644,501 445,985 1,061,342 - 111,776 3,729,604 EVP, CFO and CAO 2006 466,000 - 167,811 295,042 215,686 - 150,336 1,294,875 Roger J. Wood 2007 395,000 - 1,271,210 254,809 709,924 - 158,982 2,789,925 President and GM, Turbo / Emission Systems 2006 395,000 - 117,169 123,333 329,835 - 249,738 1,215,075 Cynthia A. Niekamp 2007 365,000 - 1,032,589 213,575 875,385 - 58,724 2,545,274 President and GM, TorqTransfer Systems 2006 365,000 85,000 117,169 119,341 43,448 - 90,256 820,214 Bernd W. Matthes(6) 2007 365,000 - 1,032,589 198,144 326,478 - 321,672 2,243,883 President and GM, Transmission Systems 2006 - - - - - - - - (2) 2007 compensation expense of the 2005, 2006, and 2007 performance share awards. Assumptions used in the calculations of these amounts are included in the Company’s audited financial statements for the fiscal year ended December 31, 2007, included in the Company’s Summary Annual Report for 2008 filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). This also includes the 2007 compensation expense of the August 3, 2007 Recognition and Retention Grant to Mr. Manganello. Details of this grant were disclosed in an 8-K filing on August 7, 2007. The compensation expense reported for 2006 included the 2004 ESPP award and the 2005 and 2006 performance share awards. Assumptions used in the 2006 calculations were included in the Company’s 2006 Annual Report filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). (3) 2007 compensation expense of aggregate grant date fair value of the 2004, 2005, 2006, 2007 Stock Option awards, excluding forfeitures. Assumptions used in the calculations of these amounts are included in the Company’s audited financial statements for the fiscal year ended December 31, 2007, included in the Company’s Summary Annual Report for 2008 filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). The compensation expense reported for 2006 included the aggregate grant date fair values of the 2004, 2005, 2006 Stock Option awards, excluding forfeitures. Assumptions used in the 2006 calculations were included in the Company’s 2006 Annual Report filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). (4) Reflects the 2007 plan year payout, paid in February 2008, under the Management Incentive Plan (MIP), including Carryover Bonus payments of $691,606 for Mr. Manganello, $243,180 for Mr. Adams, $95,801 for Mr. Wood, $80,424 for Dr. Matthes, and $288,055 for Ms. Niekamp. The 2006 plan year payout under the MIP included Carryover Bonus payments of $2,582 for Mr. Manganello, $1,141 for Mr. Adams, $713 for Mr. Wood. No Carryover Bonus was paid to Ms. Niekamp for the 2006 plan year. (5) The actual change in the present value of the accumulated pension value decreased for Dr. Matthes by $98,908 in 2007 due to an increase in the discount rate used in 2007 compared to the rate used in 2006. Change in Pension Value for 2007 was converted from Euro to US Dollar using an exchange rate of 1 Euro = 1.4598 US Dollar. (6) Compensation is not reported for Dr. Matthes for 2006 as he was not a Named Executive Officer. Name Personal Use of Leased Vehicle Financial Counseling Personal Use of Company Aircraft Relocation Costs (1) Life Insurance Premiums Paid by Company Tax Reimbursement Registrant Contributions to Defined Contribution Plans (2) TOTAL of "All Other Compensation" ($) ($) ($) ($) ($) ($) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) Timothy M. Manganello 17,071 10,000 6,363 - 900 10,101 193,260 237,695 CEO Robin J. Adams 9,943 10,000 - - 839 7,250 83,744 111,776 CFO Roger J. Wood 9,674 10,000 997 28,917 711 8,944 99,739 158,982 President, TBS/E Cynthia A. Niekamp - 10,000 1,477 657 5,061 41,529 58,724 President, TTS Bernd W. Matthes 9,084 10,000 606 173,905 657 85,791 41,629 321,672 President, TS (2) Amounts contributed by the Company on behalf of its Named Executive officers during 2007 pursuant to the provisions of the RSP and the Excess Plan.
The following table details the tax reimbursement amounts listed in Column (g) of the above table:Name Tax Reimbursement for Personal Use of Leased Vehicle Tax Reimbursement for Financial Counseling Services Tax Reimbursement for Personal Use of Company Aircraft Tax Reimbursement for Relocation Costs Total Tax Reimbursement ($) ($) ($) ($) ($) (a) (b) (c) (d) (e) (f) Timothy M. Manganello 2,846 6,828 427 - 10,101 CEO Robin J. Adams 2,846 4,404 - - 7,250 CFO Roger J. Wood 2,846 4,404 444 1,250 8,944 President, TBS/E Cynthia A. Niekamp - 4,404 657 - 5,061 President, TTS Bernd W. Matthes 2,798 4,404 270 78,319 85,791 President, TS All Other Option Awards: Number of Securities Underlying Option Non-Equity Incentive Plan Awards (1) Equity Incentive Plan Awards Threshold Target Maximum Threshold Target Maximum ($) ($) ($) (#) (#) (#) (#) (#) ($/Share) ($/Share) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) Timothy M. Manganello 562,500 1,125,000 2,250,000 CEO 2/6/2007 (2) 22,000 88,000 154,000 3,080,000 2/6/2007 (3) 114,840 34.95 35.00 1,208,117 8/3/2007 (5) 253,274 11,166,851 Robin J. Adams 233,000 466,000 932,000 - CFO 2/6/2007 (2) 8,350 33,400 58,450 1,169,000 2/6/2007 (3) 43,460 34.95 35.00 457,199 Roger J. Wood 167,900 335,800 671,500 - President, TBS/E 2/6/2007 (2) 5,200 20,800 36,400 728,000 2/6/2007 (3) 27,060 34.95 35.00 284,671 Cynthia A. Niekamp 155,150 310,300 620,500 - President, TTS 2/6/2007 (2) 3,800 15,200 26,600 532,000 2/6/2007 (3) 19,700 34.95 35.00 207,244 Bernd W. Matthes 155,100 310,300 620,500 - President, TS 2/6/2007 (2) 3,800 15,200 26,600 532,000 2/6/2007 (3) 19,700 34.95 35.00 207,244 (2) 2007 Performance Share Grant: Value of grant = number of target shares times the closing stock price on grant date of $35.00. All amounts reflect values after December 17, 2007 stock split. (3) 2007 Stock Option Grant: Stock options granted same day as approved by Compensation Committee of the Board of Directors. FMV at grant date = number of shares times $10.52, excluding forfeitures in accordance with FAS123R. All amounts reflect values after December 17, 2007 stock split. (4) Exercise Price is the average of the high and the low stock price on day of grant. Value is adjusted to reflect December 17, 2007 stock split. (5) 2007 Recognition and Retention Grant: Value of Grant = number of stock units times the average of the high and low stock price on August 3, 2007 of $44.09. Values are adjusted to reflect December 17, 2007 stock split. Details of this grant were disclosed in an 8-K filing on August 7, 2007.
The equity awards reflected in the Grants of Plan-Based Awards table are granted under the SIP. Further details regarding BorgWarner’s incentive plans can be found in our Compensation Discussion and Analysis on pages xx-xx. American Axle & Manufacturing Johnson Controls Inc. Tenneco Automotive Inc. ArvinMeritor Inc. Lear Corporation TRW Automotive Inc. Autoliv Inc. Magna International Inc. Visteon Corporation Gentex Corporation Modine Manufacturing Co. Option Awards Stock Awards Equity Incentive Plan Awards: Market or Payout of Unearned Shares, Units or Other Rights That Have Not Vested (1)(4) (#) (#) (#) (#) (#) ($) (#) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Timothy M. Manganello 114,840 34.95 02/06/2017 CEO 100,000 29.09 07/26/2016 62,000 62,000 29.04 07/27/2015 25,072 22.28 07/28/2014 23,064 12.66 07/24/2012 2,304 12.07 07/25/2011 253,698 12,281,514 311,500 15,079,715 Robin J. Adams 43,460 34.95 02/06/2017 CFO 40,000 29.09 07/26/2016 15,000 15,000 29.04 07/27/2015 25,926 22.28 07/28/2014 40,000 22.15 04/26/2014 100,450 4,862,785 Roger J. Wood 27,060 34.95 02/06/2017 President, TBS/E 28,000 29.09 07/26/2016 10,000 10,000 29.04 07/27/2015 14,686 22.28 07/28/2014 14,732 16.52 07/23/2013 74,900 3,625,909 Cynthia A. Niekamp 19,700 34.95 02/06/2017 President, TTS 21,000 29.09 07/26/2016 8,000 8,000 29.04 07/27/2015 20,000 22.28 07/28/2014 54,950 2,660,130 Bernd W. Matthes 19,700 34.95 02/06/2017 President, TS 21,000 29.09 07/26/2016 8,000 8,000 29.04 07/27/2015 6,840 22.28 07/28/2014 54,950 2,660,130 (2) The stock options noted with expiration dates of 2011, 2012, 2013, and 2014 are fully vested. Stock options with an expiration date of 2015 are 50% vested, with the other 50% vesting on July 27, 2008. Stock options with an expiration date of 2016 will vest 50% on July 26, 2008 and 50% on July 26, 2009. Stock options with an expiration date of 2017 will vest 50% on February 6, 2009 and 50% on February 6, 2010. (3) The values in columns (g) and (h) represent the number of shares granted and the year-end value of the August 3, 2007 Recognition and Retention stock grant to Mr. Manganello, valued at $48.41 per share, which is the closing stock price on December 31, 2007. Dividend equivalents earned on Novemeber 15, 2007 are included. Details of this grant were disclosed in an 8-K filing on August 7, 2007. (4) The values of columns (i) and (j) are comprised of performance share grants made under the SIP, issued for the performance periods of 2006-2008 and 2007-2009. Column (i) represents the number of all outstanding unearned performance shares that would be paid out at the end of each performance period if maximum TSR performance is achieved. The maximum value was assumed based on actual performance over the most recent period at maximum levels. Column (j) represents the number of performance shares in column (i) times the closing stock price of $48.41 on December 31, 2007. Actual future payouts will depend on several factors, including (i) the number of performance shares that are earned, as determined after the end of the performance period based on the level at which the applicable performance goals Option Awards Stock Awards Number of Shares Acquired on Exercise (1) Number of Shares Acquired on Vesting (2) Value Realized On Vesting (3) Name (#) ($) (#) ($) (a) (b) (c) (d) (e) Timothy M. Manganello - - 64,575 3,126,076 CEO Robin J. Adams - - 32,288 1,563,062 CFO Roger J. Wood - - 23,975 1,160,630 President, TBS/E Cynthia A. Niekamp - - 23,975 1,160,630 President, TTS Bernd W. Matthes 7,740 355,586 23,975 1,160,630 President, TS that were granted on July 23, 2003 and 3,420 shares granted on July 24, 2004. (2) Number of “shares” disclosed in column (d) represents the total number of performance shares earned for the 2005-2007 performance period and paid in 2008. The performance shares are actually paid 60% in stock and 40% in cash. (3) Amount in column (e) is equal to the number of units vested multiplied by $48.41, which is the closing stock price at the end of the performance period on December 31, 2007.
As previously stated in the Compensation Discussion and Analysis, the granting of performance shares is designed to provide competitive payouts at the end of a three-year period relative to how well the Company performs against its Peer Group Companies in TSR.Name Plan Name Number of Years Credited Service Present Value of Accumulated Benefit (1) Payment During Last Fiscal Year (#) ($) ($) (a) (b) (c) (d) (e) Timothy M. Manganello - - - C CEO Robin J. Adams - - - CFO Roger J. Wood - - - President, TBS/E Cynthia A. Niekamp - - - President, TTS Bernd W. Matthes BorgWarner Transmission Systems GmbH Pension Plan 11.8 593,026 - President, TS (1) Converted from Euro to US Dollar using an exchange rate of 1 Euro = 1.4598 US Dollar for SFAS 87/158 disclosure purposes. . Mortality Tables: Heubeck 2005G . Discount Rate: 5.75% . Retirement Age: 65 . Annual Pension Increase: 1.75% Name Executive Contributions in Last FY Registrant Contributions in Last FY Aggregate Earnings in Last FY Aggregate Withdrawals/ Distributions Aggregate Balance at Last FYE ($) ($) ($) ($) ($) (a) (b) (c) (d) (e) (f) Timothy M. Manganello CEO (1) - - - - - (2 ) - 169,385 292,008 - 1,795,324 Robin J. Adams CFO (1) - - - - - (2 ) - 59,369 74,161 - 347,086 Roger J. Wood President, TBS/E (1) - - 21,313 - 273,551 (2 ) - 72,476 60,144 - 486,045 Cynthia A. Niekamp President, TTS (1) - - - - - (2 ) - 21,206 12,309 - 120,009 Bernd W. Matthes President, TS (1) - - - - - (2 ) - 20,279 2,879 - 62,004 (2) Excess Plan No Deferred Compensation elections were made by Named Executive Officers for fiscal year 2007 Barclays Equity Index: 5.38% Barclays Life Path 2010: 5.08% Barclays Life Path 2015: 4.73% Barclays Life Path 2020: 4.42% Barclays Life Path 2025: 4.01% Barclays Life Path 2030: 3.82% Barclays Life Path 2035: 3.52% Barclays Life Path 2040: 3.34% Barclays Life Path 2045: 3.06% Barclays Life Path RET: 5.24% BGI US Debt Index: 6.95% BorgWarner Company Stock: 65.41% Buffalo Small Cap: (.33%) Harbor International Fund: 21.82% 4.73% Vanguard Mid Cap Index: 6.22% Name Payment Triggering Events Not In Connection with a Change of Control ("CoC") Payment Triggering Events In Connection with a CoC Involuntary Termination Voluntary Termination Involuntary Termination Voluntary Termination with Cause (1) without Cause (2) with Good Reason (3) without Good Reason (3) Retirement (2) Death (4) Disability (2) CoC only with Cause (6) without Cause (5) For Good Reason (5) without Good Reason (7) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) Timothy M. Manganello 1,795,324 10,259,153 4,559,606 4,559,606 14,938,414 12,305,474 11,805,474 - - 34,949,750 34,949,750 - CEO Robin J. Adams 347,086 4,943,330 2,365,582 2,365,582 6,591,869 5,994,519 5,528,519 - - 8,232,553 8,232,553 - CFO Roger J. Wood 759,596 3,642,755 1,806,845 1,806,845 4,741,778 4,402,118 4,007,118 - - 6,612,416 6,612,416 - President, TBS/E Cynthia A. Niekamp 120,009 2,798,941 797,569 797,569 3,624,882 3,429,202 3,064,202 - - 4,486,334 4,486,334 - President, TTS Bernd W. Matthes 62,004 2,026,886 574,422 574,422 2,852,827 2,622,147 2,292,147 - - 4,492,694 4,492,694 �� - President, TS (1) Includes vested balance of the Excess Plan and vested balance of the Deferred Compensation Plan (Mr. Wood only). (2) Includes 2007 MIP payment, value of vested stock options, 2005-2007 PSP payment, vested balance of the Excess Plan, and vested balance of the Deferred Compensation Plan (Mr. Wood only). (3) Includes value of vested stock options, vested balance of the Excess Plan, and vested balance of the Deferred Compensation Plan (Mr. Wood only). (4) Includes 2007 MIP payment, value of vested stock options, 2005-2007 PSP payment, vested balance of the Excess Plan, vested balance of the Deferred Compensation Plan (Mr. Wood only), and life insurance. (5) Includes cash severance payment based on three times the average of base plus bonus, 2007 MIP payment, stock option payment, 2007 stock unit payment, 2006-2008 and 2007-2009 performance share payment, retirement benefit based on three times the 2007 Company contributions to the RSP, value of welfare benefits (i.e. health care, life insurance, and disability insurance coverage for 3 years), outplacement services, and excise tax and tax gross-up payment. (6) While there are no additional payments associated with Involuntary Termination for Cause associated with a Change of Control, each Named Executive Officer would be eligible for the same payments listed under footnote (1) above. (7) While there are no additional payments associated with Voluntary Termination without Good Reason associated theour existing Change of Control Employment Agreements.a “Change of Control”Control of the Company is followed within three years by (1) the termination of the executive’sa Named Executive Officer’s employment for any reason other than death, disability, or “Cause”Cause or (2) the termination of the executive’ssuch Named Executive Officer terminates his or her employment by the executive for “GoodGood Reason,” then under the Change of Control Employment Agreements, provide that the executiveNamed Executive Officer shall be paid a lump sum cash amount equal to three times the executive’shis or her annual base salary and average annual bonus for the most recent average bonus,three years, and a lump sum cash amount equal to three times the Company’s retirement contributions which would have been made on his or her 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 Named Executive Officer due to a Change of Control of the Company or any interest or penalty is incurred by the Named Executive Officer with respect to such excise tax, the Company will pay the Named Executive Officer an amount that will net the Named Executive Officer the amount the Named Executive Officer would have received if the excise or penalty had not been imposed. In addition, the executiveNamed Executive Officer is entitled to continued employee welfare benefits for three years after termination of employment.Common Stock of the Companyour common stock or (ii) the combined voting power of theour then outstanding voting securities of the Company entitled to vote generally in the election of our directors, (b) a change in the majority of theour Board orof Directors, (c) a major corporate transaction, such as a merger or sale of substantially all of the Company’sour assets, or a liquidation, which results in a change in the majority of theour Board of Directors or a majority of stockholders. “Cause”stockholders or (d) a complete liquidation or dissolution of the Company.the Company. “Goodus. of the Company to comply with compensation or benefit provisions, transfer to a new work location more than 35 miles from the executive’s previous work location, a purported termination of the Change of Control Employment Agreement by the Companyus other than in accordance with the Change of Control Employment Agreement, or our failure of the Company to require any successor to the Companyus to comply with the Change of Control Employment Agreement. Notwithstanding anything tocontrary 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 filingscompensation earned by reference, including this Proxy Statement, in whole or in part, the following Compensation Committee Reporteach non-employee director who served on Executive Compensation and Performance Graph shall not be incorporated by reference into any such filings.Compensation Committee Report on Executive Compensation The Compensation Committee of the Board of Directors is responsiblein 2007. Directors who are employees of BorgWarner are not compensated for setting and administeringtheir service on the policies that govern base salary, annual bonus, long-term incentives and stock ownership programsBoard:Name Fees Earned or Paid in Cash Option Awards Non-Equity Incentive Plan Compensation Changes in Pension Value and Nonqualified Deferred Compensation Earnings All Other Compensation Total ($) ($) ($) (# ) ($) ($) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) Phyllis O. Bonanno 55,000 80,284 - 27,782 - - - 135,284 David T. Brown 55,000 55,002 - 1,894 - - - 110,002 Jere A. Drummond 73,000 80,276 - 32,316 - - - 153,276 Paul E. Glaske 58,000 61,933 - 29,894 - - - 119,933 Alexis P. Michas 53,500 80,284 - 27,782 - - - 133,784 Ernest J. Novak, Jr. 85,000 80,276 - 12,316 - - - 165,276 Richard O. Schaum 57,000 73,353 - 3,782 - - - 130,353 Thomas T. Stallkamp 56,500 55,019 - 3,782 - - - 111,519 (2) Aggregate number of outstanding shares of restricted stock and outstanding vested and unvested stock options at fiscal year-end. Values reflect 12/17/2007 stock split. the executive officersour non-employee directors for 2007 was comprised of the Company.Overall Policy The Company’s executivefollowing components: annual retainer, Board meeting fees, Committee meeting fees, and equity compensation, program is designed to link executiveconsisting of restricted stock. Our non-employee directors were not granted any Stock Option Awards and did not receive any Non-Equity Incentive Plan Compensation for 2007. After review of non-employee director compensation paid by peer and other corporations, the Board approved an increase in non-employee director compensation to corporate performance. To this end,be effective January 1, 2008, the Company has developed an overall compensation strategyfirst increase since 2005.specific compensation plans that tie executive compensation to the Company’s success in meeting specified perform-12ance goals. The overall objectivesRestated 2004 Stock Incentive Plan, each non-employee director received $165,000 worth of this strategy are to attract and retain the best possible executive talent, to motivate these executives to achieve goals that support the Company’s business strategy, to link executive and stockholder interests through equity-based plans, and to provide a compensation package that is based on individual performance as well as overall business results. The Compensation Committee reviews the Company’s executive compensation program annually. The review includes a comparison of current total compensation levels (including base salary, annual bonus and long-term incentives) to those provided in similar companiesrestricted stock in the durable manufacturing sector that have total sales in the rangeinitial year of each three-year term. In April 2007, 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 reportednon-employee directors (Drummond and Novak) were elected for executives by the companies included in a peer groupthree-year term. These two directors were each awarded 2,158 shares of automotive companies (the “Peer Group Companies”). Financial results of the Peer Group Companies are used to compare shareholder returns on the performance graph. The Compensation Committee may adjust compensation levels based upon information obtained from the Compensation Surveys and the Peer Group Companies. The Compensation Committee determines the compensation of the CEO and the officers of the corporation, reviews the policies and philosophy set for the next level of key executives (approximately 280), 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. The key elements of the Company’s executive compensation program are base salary, annual bonus and long-term incentives that consist of cash compensation, Companyrestricted common stock, and stock options. The Compensation Committee’s policies with respect to each of these elements, including the basis for the compensation awarded to Mr. Fiedler, the Company’s CEO from January 1 to February 3, 2003, and Mr. Manganello, the Company’s CEO thereafter in 2003, are discussed below.Base Salary Annual salary adjustments are determined by dividing 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 the CEO of the Company on February 4, 2003. The Compensation Committee considered the scope and complexity of Mr. Manganello’s position, the Company’s performance during the preceding year, his prior salary, and the median salaries paid for similar positions as reported in the Compensation Surveys and by the Peer Group Companies. 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.Annual Bonus The Company’s executive officers are eligible participants in an annual cash bonus plan. Performance objectives are established at the beginning of each year for the Company and each of its business units. The performance objectives are based on the increase in economictotal value of the Company or business unit over the prior year. Economic value is determined$165,000 by a formula taking into account the after-tax operating income and the average operating investment of the Company or business unit.13 Eligible executives are assigned threshold, target and maximum bonus levels. For those executive officers responsible for the entire Company, 100% of their bonus opportunity is based on the increase in economic value for the Company; for those executive officers responsible for a business unit, 30% of the bonus opportunity is based on the increase in economic value for the Company, and 70% is based on the increase in economic value of their assigned group and business units. 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. 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-financial actions that the Compensation Committee believes will benefit long-term stockholder value. The increase in economic value of the Company during 2003 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 a result Mr. Manganello earned a $628,877 cash bonus for the year; of this, $82,987 represents Carryover Bonus from 2001. In recognition of a particularly distinguished performance during 2003, the Compensation Committee authorized a supplemental discretionary bonus of $370,000 to be allocated by Mr. Manganello among 10 executives, and the Committee authorized a similar bonus of $140,000 to be paid to Mr. Manganello. Likewise, Mr. Fiedler earned a $1,034,120 cash bonus for the year; of this, $193,170 represents Carryover Bonus from 2001.Long-Term Incentive PlansExecutive Stock Performance Plan The BorgWarner Inc. Executive Stock Performance Plan is a long-term incentive plan for selected top executives including the named executive officers. It is designed to provide competitive payouts at the end of a three year period relative to how well the Company performs against the Peer Group Companies in terms of total shareholder return (“TSR”). The Compensation Committee believes that the Executive Stock Performance Plan will help to focus key senior executives on the long-term overall value of the Company to the investor community. The award levels under the Executive Stock Performance Plan are targeted to pay at approximately the 65th percentile of total direct compensation (as reported by the Compensation Surveys) for 65th percentile TSR performance relative to the TSR performance of the Peer Group Companies. 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 one million dollars. Full participants in this plan do not receive regular stock option grants. This plan is administered by a committee which consists solely of two or more “outside directors” as defined by Section 162(m) of the Code and the regulations thereunder.14 For the period between January 1, 2001 to December 31, 2003, Mr. Manganello had a target award of 300 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 62nd 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. For the period between January 1, 2003 to 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. Mr. Fiedler was a participant in the 2001-2003 cycle of the Executive Stock Performance Plan. Mr. Fiedler had a target award of 1000 performance units at a value of $1,000 per unit. At the end of the performance period, the Company’s TSR performance was at the 62nd percentile of the TSR performance of the Peer Group Companies; as a result, Mr. Fiedler earned an award of $956,000. As noted in the 2003 Compensation Committee Report, the number 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 OptionsRegular Stock Option Awards For other executives not eligible for the Executive Stock Performance Plan, the Company uses stock options 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. No regular stock option grants were awarded to either Mr. Manganello or Mr. Fiedler in 2003.Ownership Guidelines The Company has established stock ownership guidelines for the senior officers of the Company. Mr. Manganello is expected to own three times the average of his annualized salarythe high 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 valuelow of the ownership above the15required level divided by the CompanyCompany’s stock price at the time this award is computed; the maximum number of option shares that can be granted in one year to an executive for ownership above the required level is 100,000 shares. Neither Mr. Manganello nor Mr. Fiedler received stock options in 2003 for stock ownership above the required level. The only named officer that received stock options for ownership in 2003 was Roger Wood; he received 3,663 stock options.Deductible Compensation of Officers During 2003, Mr. Manganello received compensation in excess of the grant. The restrictions on the shares of stock will expire over the three-year term, one million dollar limitation on deductibility under Section 162(m)third in each year and the Compensation Committee has the authority to accelerate vesting in the event of retirement. During the period that the restrictions are in place, directors have all of the Code. Consequently, $307,021rights of the compensation earned by Mr. Manganello in 2003 was not deductible by the Company. Compensation subject to the one million dollar limitation on deductibility under Section 162(m) of the Code was not paid in 2003 to any of the other named executive officers. The Compensation Committee periodically reviews the executive compensation plansa stockholder of the Company holding the same class or series of stock as the restricted stock, including the right to determine their compliance with Section 162(m)vote the shares and the right to receive any cash dividends. Non-employee directors elected to new terms in 2008 will receive $258,000 worth 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 deemedrestricted stock in the best interestinitial year 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; 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 CommitteePaul E. Glaske, ChairmanWilliam E. Butler Jere A. Drummond John Rau16Comparison of Cumulative Total ReturnAmong Company, Industry Index, Peer Group and S&P 500 Index(1) 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 (1) Assumes $100 invested on December 31, 1998; assumes dividends reinvested for period of December 31, 1998 through December 31, 2003.(2) BorgWarner Inc. (As compiled by Media General Financial Services of Richmond, VA).(3) Standard Industrial Code (“SIC”) 3714 — Motor Vehicle Parts & Accessories (As compiled by Media General Financial Services of Richmond, VA).(4) Peer Group Companies — Consists of the following companies: ArvinMeritor, Inc., Autoliv, Inc., Cummins Engine, Inc., Dana Corporation, Delphi Automotive Systems Corp., Dura Automotive Systems, Inc., Eaton Corporation, Johnson Controls, Inc., Lear Corporation, Magna International, Inc. Class A, Modine Manufacturing Co., Tenneco Automotive, Inc., Tower Automotive, Inc., and Visteon Corporation (As compiled by Media General Financial Services of Richmond, VA).(5) S&P 500 — Standard & Poor’s 500 Total Return Index (As compiled by Media General Financial Services of Richmond, VA).Certain Relationships and Related Transactions 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 Stock17Option, subject to the provisions of the 1993 Plan and the terms and conditions of a Non-Qualified Stock Option Agreement, to purchase from the Company 75,000 shares of common stock at the fair market value per share on January 27, 1998, such option to be exercisable starting on December 30, 2002. Effective November 8, 2000, the Company entered into an addendum to the employment agreement with Mr. Fiedler which provided that Mr. Fiedler would continueeach three-year term. Non-employee directors continuing to serve as Chairman ofwithout re-election will receive pro-rated increases in equity compensation to equalize the equity compensation increase.Directors until May 30, 2003 (subjectDirectors. Beginning January 1, 2008 the annual retainer for non-employee directors was increased to $55,000. The annual approvalretainer is prorated when a new member joins or a current member leaves our Board. Mr. Glaske will retire from the Board at the 2008 Annual Meeting in accordance with retirement guidelines adopted by the Board. When a qualified candidate is identified, a new director will be appointed to Class III by the Board of Directors and re-election byDirectors.stockholders). Under the addendum, the Company granted Mr. Fiedler a Non-Qualified Stock Option, subject to the provisionsChairman of the 1993 Plancommittee) for each committee meeting attended. In recognition of increased time commitments, the Chairman of the Audit Committee received $5,000 for each committee meeting attended since January 1, 2005. Meeting 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, theattendance fees were not changed for 2008. The Company loaned Mr. Fiedler $2 millionpays 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 interestexpenses associated with attendance at Board and Committee meetings and other functions attended at the raterequest of 5.84% per annum, compounded semiannually.the Company. The largest aggregate amount outstanding during 2003 and the amount outstandingCompany maintains a directors’ deferred compensation plan under which directors may defer receipt of retainer fees only. Four directors deferred fees 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,plan 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.2007.
PROPOSAL 2 REGISTERED PUBLIC ACCOUNTING FIRM — APPROVAL – TO VOTE TO APPROVE AN AMENDMENT TO THE COMPANY’S RESTATED CERTIFICATE OFBORGWARNER INC. 2004 STOCK INCENTIVE PLAN At itsCOMPANY4, 2004 meeting, the7, 2008, your Board of Directors unanimously adoptedapproved a proposal to increase the BorgWarner Inc. 2004 Stock Incentive Plan (the “2004 Plan”), subjectauthorized capital stock of the Company. If approved by our stockholders, the proposed increase in our authorized capital stock will be accomplished through an amendment to the approval thereof byCompany’s restated certificate of incorporation that will increase the stockholderstotal authorized common stock of the Company at the Annual Meeting.from 150,000,000 shares to 400,000,000 shares. A copy of the 2004 Planproposed amendment is attached to this proxy statement as AppendixAnnex 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 theOn March 3, 2008 there were _______issued and ________outstanding shares of common stock represented at the Annual Meeting is requiredand 9,117,590 shares reserved for approval of the 2004 Plan. Thebusiness purposes, including for equity compensation awards in accordance with shareholder approved equity plans.recommends that stockholders vote “FOR”approved 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 qualifiedproposed increase in its entirety 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 Boardauthorized common stock because it believes 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”) (discussed below), members of the Committee must be “outside directors” within the meaning of Section 162(m) of the Code. In the case of awards granted to members of the Board who are not officers or employees of the Company or an affiliate, the 2004 Plan will be administered by the Committee subject to the approval of 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. The Committee may authorize the chief executive officer of the Company to grant awards under the 2004 Plan of up to 10,000 shares of common stock per individual per year to officers and employees of the Company and its affiliates who are not executive officers subject to Section 16 of the Exchange Act or “covered18employees” under Code section 162(m). In addition, the Committee may authorize the chief executive officer of the Company to grant awards under the 2004 Plan of up to 10,000 shares of common stock per individual as an inducement for an individual to accept an offer of employment with the Company or an affiliate. Recipients of such employee inducement awards may include individuals who are executive officers subject to Section 16 of the Exchange Act or “covered employees” under Code section 162(m). Whenever the Committee has granted the chief executive officer the authority to make such awards under the 2004 Plan, the chief executive officer has the authority under the 2004 Plan to select the employees (or prospective employees) to whom awards will be given, determine the type of awards to be granted and the number of shares to be covered by an award, and determine the terms and conditions of an award, subject however, to any limits or qualifications on such powers as the Committee may establish. The 2004 Plan also provides that any such authorizations to the chief executive officer must be consistent with recommendations made by the Board’s Compensation Committee to the Board regarding non-CEO compensation, incentive compensation, and equity-based plans. 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 authorization by the Committee, to 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 amend the terms 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 $.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. As of February 13, 2004, the closing price of a share of common stock was $93.49.19 If an award granted under the 2004 Plan expires, terminates, is cancelled, or lapses for any reason without the issuancecontinued availability of shares of common stock is advisable to provide the Company with the flexibility to take advantage of opportunities to issue such stock to obtain capital, or if anyas consideration for possible acquisitions or for other purposes (including, without limitation, the issuance of additional shares of restrictedcommon stock awarded underthrough stock splits and stock dividends in appropriate circumstances). There are, at present, no plans, understandings, agreements or arrangements concerning 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-acquiredissuance of additional shares of the Company’s common stock to satisfy applicable withholding obligations with respect to an award, or if sharespreferred stock.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 sharesbest interests of the Company’s common stock in paymentBorgWarner and its stockholders and unanimously recommends that you vote FOR this proposal.the option price upon exercise of a stock option awarded under the 2004 Plan, or ifour outstanding shares of common stock are withheld in payment ofvoted FOR the option price,amendment, then the number ofamendment will be approved.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 changeare held 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, employees and directors of the Company, as selected by the Committee. However, directors who are not employees of the Company orname of a subsidiary arenominee and you do not eligibletell the nominee by ______ how to receive grants of incentive stock options, performance units, or performancevote your 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.Stock Options.Officers, employees and directors of the Company and its subsidiaries may be granted options to acquire the Company’s common stock 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 2004 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 butthen your nominee 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 and 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 exercise of the stock option, shares having an aggregate fair market value on the date of exercise equal to the exercise price, or (iii) a combination of the foregoing, as provided by the award agreement. Additionally, if permitted by the20Committee and allowable by law, payment of the exercise price may be made through a broker-facilitated cashless exercise. 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 during his or her lifetime and are not assignable or transferable other than by will or by the application of the laws of inheritance. Nonqualified stock options 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 granted under the 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 receive21the dividends thereon. Under the 2004 Plan, a restricted stock agreement may provide that cash dividends paid on restricted stock will be automatically deferred and reinvested in additional restricted stock and dividends payable in stock will be paid in the form of restricted stock. 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. The Committee may, in its discretion, provide in a stock units award agreement that a participant will be entitled to receive dividend equivalents with respect to his or her restricted stock units. Dividend equivalents may, in the discretion of the Committee, be paid in cash or credited to the participant as additional restricted stock units, or any combination of cash 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. 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 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 be22based 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 units to which a recipient of performance units under the grant 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. 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 waive 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, pursuant to the terms of a grant made under the 2004 Plan and 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 stock of the Company 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 the23performance shares, 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 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 theyour 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.24Stock 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 taxthis proposal (a so-called “broker nonvote”). For 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.25 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 Board approved a resolution providing for annual grants of restricted stock under the 2004 Plan to each director of the Company who is not otherwise an employee of the Company or any of its subsidiaries or Affiliates (“Non-Executive Director Group”), subject 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 BenefitsBorgWarner Inc. 2004 Stock Incentive Plan Name and Position Dollar Value($)(a) Number of Shares(b) Non-Executive Director Group 37,396 400 (a)Based on a closing price of $93.49 on February 13, 2004. The actual dollar value will be determined by the fair market value of stock, as defined in the 2004 Plan, on the grant date which is expected to be in July 2005.(b)The number of restricted shares will be adjusted to reflect the 2-for-1 stock split if Proposal 3 is approved by stockholders.26 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 277,046 52.88 0 Equity compensation plans not approved by security holders 0 0 0 Total 277,046 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.RecommendationThe Board of Directors has unanimously approved the 2004 Plan and the reservation of shares of common stock 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.PROPOSAL 3 — APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OFINCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK 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 authorizesa broker nonvote and an abstention are the issuance of up to 50,000,000 shares of common stock. As of March 5, 2004, there were2727,xxx,xxx shares of common stock issued and 27,xxx,xxx shares outstanding. The current authorization of 50,000,000 shares of common stock is insufficient to permit a 2-for-1 stock split. If this proposal is approved and after the 2-for-1 stock split, there will be approximately 5x,xxx,xxx shares issued and 5x,xxx,xxx shares outstanding. 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. 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:The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 180,000,000 shares, consisting of 150,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”), 25,000,000 shares of Non-Voting Common Stock, par value $0.01 per share (“Non-Voting Common Stock” and, together with the Common Stock, the “Junior Stock”), and 5,000,000 shares of Preferred Stock, par value $0.01 per share (“Preferred Stock”). Approval of the amendment to the Restated Certificate of Incorporation will require the affirmative votefunctional equivalents 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“no” vote.AUDITORS 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 20042008 fiscal year. Thiswill requireis in the affirmativebest interests of BorgWarner and its stockholders and unanimously recommends that you vote of a majority of the shares represented at the Annual Meeting.FOR this proposal.
Principal Accounting Firm Fees
performed by Deloitte & Touche, were as follows:the Companyus for the fiscal years ended December 31, 20032007 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 are2006, 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, and28for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for that fiscal year.
2007 2006 Audit Fees and Expenses $ 4,268,900 $ 4,236,600 Audit-Related Fees $ 253,700 $ 348,900 Tax Fees $ 362,000 $ 346,700 All Other Fees $ — $ — Totals $ 4,884,600 $ 4,932,200 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 Your Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy which requires the Committee’s pre-approval ofprocedures for pre-approving all audit and non-audit services performedprovided by the independent auditor to assureregistered 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 provisionbudget is submitted. Audit 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 included in those pre-approved amounts. For both types of pre-approval, the Audit Committee considers whether such services does not impairare consistent with the rules on auditor independence promulgated by the SEC and the PCAOB. The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, based on such reasons as the auditor’s independence. Forfamiliarity with the fiscal year ended December 31, 2003,Company’s business, people, culture, accounting systems, risk profile, and whether the Financeservices enhance the Company’s ability to manage or control risks and improve audit quality. The Audit Committee pre-approved allmay form and delegate pre-approval authority to subcommittees consisting of one or more members of the auditAudit Committee, and non-auditsuch subcommittees must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All of the services renderedprovided 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 were pre-approved by your Audit Committee.
OTHER INFORMATION
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Annual ReportForm 10-KThe 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 SecuritiesCorporate Governance and Exchange Commission.SEC Filings 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 electronically filed with, or furnished to, the SEC. The Company also makes the following documents available on its website: the 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, 3850 Hamlin Road, Auburn Hills, Michigan 48326.BORGWARNER INC.30APPENDIX ACHARTERFINANCE AND
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
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. | ||
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. |
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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. |
Review with the independent auditors, the |
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. |
Review and discuss recurring financial statements (including quarterly reports and disclosures made in management’s discussion and analysis) to be issued to the |
Review and discuss: |
(a) | ||
(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. |
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.) |
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. |
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. |
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. |
18. | Discuss with management the Corporation’s risk assessment and risk management policies. |
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APPENDIX B
BORGWARNER INC.
2004 STOCK INCENTIVE PLAN
SECTION 1. Purpose.
The purpose of the Plan is to give the Company a significant advantage in attracting, retaining and motivating officers, employees and directors and to provide the Company and its subsidiaries with the ability to provide incentives more directly linked to the profitability of the Company’s businesses and increases in stockholder value.
SECTION 2. Definitions.
For purposes of the Plan, the following terms are defined as 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.
SECTION 3. Administration.
The Plan shall be administered by the Compensation Committee of the Board or such other committee of the Board, composed of not less than 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 approval of a majority of such members of the Board 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.
Among other things, the Committee shall haveestablish such rules for the authority, subjectCommittee and its members as may from time to time be necessary and proper for the conduct of the Committee’s business, in conformity with applicable laws, rules and regulations.
The total number of | |
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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 employeesall classes of stock which 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 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.
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.
The CommitteeCorporation shall have the authority to adopt, alterissue is 430,000,000 shares, consisting of 400,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”), 25,000,000 shares of Non-Voting Common Stock, par value $0.01 per share (“Non-Voting Common Stock” and, repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office, except that the members thereof may (i) delegate 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, and (ii) authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee.
Any determination made by the Committee or pursuant to delegated authority pursuant to the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Committee or such delegate at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee or any appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.
In addition to such other rights of indemnification from the Company as they may have, the members of the Committee shall be indemnified by the Company against reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connectiontogether 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 withCommon Stock, the Plan or any Award granted thereunder,“Junior Stock”), and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected
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SECTION 4. Stock Subject to Plan; Individual Limitations.
(a) Subject to adjustment as provided herein, the total number of5,000,000 shares of Preferred 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 apar 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. Eligibility.
Officers, employees and directors of the Company, its subsidiaries and Affiliates who are responsible for or contribute to the management, growth and profitability of the business of the Company, its subsidiaries and Affiliates, as determined by the Committee, are eligible to be granted Awards under the Plan. However, no grant of Incentive Stock Options, Performance Units, or Performance Shares shall be made to a director who is not an officer or a salaried employee 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 Option 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 employees of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
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 granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:
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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 to the terms of, an 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, 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.
(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) Tandem Stock Appreciation Rights Terms and Conditions.Tandem Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following:
SECTION 8. Restricted Stock.
(a) Administration.Shares 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:
SECTION 9. Stock Units.
(a) Administration.A Stock Unit is the grant of a right to receive a share of Stock or the Fair Market Value in cash of a share of Stock, in the future, at such time and upon such terms as the Committee shall establish. Stock Units 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 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 the Awards in addition to those contained in Section 9(b). The provisions of Stock Units Awards need not be the same with respect to each recipient. Each grant of Stock Units shall be confirmed by, and be subject to, 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 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 Units shall be awarded, the number of Performance Units 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 10(b). Each grant of Performance Units shall be confirmed by, and be subject to, the terms of an Award Agreement.
(b) 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.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 of the Plan, a “Change in Control” shall mean the happening of any of the following events:
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(c) Change in Control Price.For purposes of the Plan, “Change in Control Price” means the higher of (i) the highest reported sales price, regular way, of a share of 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 Control is the result of a tender or exchange offer or a Business Combination, the highest price$0.01 per share of Stock paid in such tender or exchange offer or Business Combination; provided, however, that (X) in the case of a Stock Option which (I) is held by an optionee who is an officer or director of the Company and is subject to Section 16(b) of the Exchange Act and (II) was granted within two hundred forty (240) days of the Change in Control, then the Change in Control Price for such Stock Option shall be the Fair Market Value of the Stock on the date such Stock Option is exercised or cancelled and (Y) in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, the Change in Control Price shall be in all cases the Fair Market Value of the Stock on the date such Incentive Stock Option or Stock Appreciation Right is exercised. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the sole discretion of the Board.(“Preferred Stock”).
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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 terminates shall not be affected or impaired by the termination 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 law and tax and accounting rules.
SECTION 14. Unfunded Status of Plan.
It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.
SECTION 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,
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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 delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the Stock is then listed and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Company shall have no obligation to issue or deliver certificates for shares of Stock under the Plan prior to (i) obtaining approval from 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 Stock 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.
(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) The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware without taking into account its conflict of laws provisions.
SECTION 17. Effective Date of Plan.
The Plan shall be effective on the date it is approved by the shareholders of the Company.
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(local time) 10:(C.S.T.)21, 200430, 2008 PLACE:PLACE: BorgWarner Inc. 200 South3850 Hamlin Road Auburn Hills, Michigan AvenueChicago, Illinois 6060448326 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, 20043, 2008 at the Annual Meeting of Stockholders of BorgWarner Inc. or at any adjournment(s) or postponement(s) of the meeting, on each of the items on the reverse side and in accordance with the directions given therein.meeting.(Mark(Mark the corresponding box on the reverse side)
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IF NO CHOICE IS SPECIFIED, this Proxy will be voted “FOR” the election of all listed nominees, “FOR” proposals 2 and 3, all in accordance with the recommendations of the Board of Directors. | Please Mark Here for Address Change or Comments SEE REVERSE SIDE |
1. | Election of two Class III Directors: | for all nominees | withhold authority | |||
listed (except as indicated) | to vote for all nominees listed | |||||
01 Robin J. Adams | | | ||||
02 David T. Brown | ||||||
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.
FOR | AGAINST | ABSTAIN | ||||||
2. | To approve the Amendment to the Company’s Restated Certificate of Incorporation to increase the authorized common stock of the Company from 150,000,000 shares to 400,000,000 shares. | | | | ||||
FOR | ABSTAIN | |||||||
3. | To ratify the | |||||||
| | |||||||
| ||||||||
4. | To transact such other business as may properly come before the meeting or any adjourment or postponement thereof. |
Dated: | __________________________________________2008 | |||
__________________________________________ | ||||
60; Signature | ||||
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