AMENDED
AND RESTATED
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT
by and between BorgWarner Inc., a Delaware corporation (the
“Company”) and
(the “Executive”) dated as of the
day of
200
.
The
Board of Directors of the Company (the “Board”), has
determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive’s full attention
and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives and in consideration of the
Executive’s covenants in Section 10, the Board has
caused the Company to enter into this Agreement.
NOW,
THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1.
Certain Definitions . (a) The “Effective
Date” shall mean the first date during the Change of Control
Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if (i) the
Executive’s employment with the Company is terminated by the
Company, (ii) the Date of Termination is prior to the date on
which a Change of Control occurs, and (iii) it is reasonably
demonstrated by the Executive that such termination of employment
(A) was at the request of a third party that has taken steps
reasonably calculated to effect a Change of Control or
(B) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the
“Effective Date” shall mean the date immediately prior
to such Date of Termination.
(b) The
“Change of Control Period” shall mean the period
commencing on the date hereof and ending on the third anniversary
of the date hereof; provided , however , that
commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the
“Renewal Date”), unless previously terminated, the
Change of Control Period shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not
be so extended.
2.
Change of Control . For the purpose of this Agreement, a
“Change of Control” shall mean:
(a) The
acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as
1
amended
(the “Exchange Act”)) (a “Person”) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or (ii) the
combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors
(the “Outstanding Company Voting Securities”);
provided , however , that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (W) any acquisition directly from the
Company, (X) any acquisition by the Company, (Y) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any entity controlled by
the Company, (Z) any acquisition pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section 2;
(b) Individuals
who, as of the date hereof, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided , however
, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company’s stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board;
(c) Consummation
by the Company of a reorganization, statutory share exchange,
merger or consolidation or similar transaction involving the
Company or any of its subsidiaries or sale or other disposition of
all or substantially all of the assets of the Company or the
acquisition of assets or stock of another entity by the Company or
any of its subsidiaries (each of the foregoing, a “Business
Combination”), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals
and entities that were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock (or, for
a non-corporate entity, equivalent securities) and the combined
voting power of the then outstanding voting securities entitled to
vote generally in the election of directors (or, for a
non-corporate entity, equivalent governing body), as the case may
be, of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock (or, for a non-corporate
entity, equivalent securities) of the entity resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such entity except to the extent
that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of
directors (or, for a non-corporate entity, equivalent governing
body) of the entity resulting
2
from
such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(d) Approval
by the stockholders of the Company of a complete liquidation or
dissolution of the Company.
3.
Employment Period . The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company subject to the terms and
conditions of this Agreement, for the period commencing on the
Effective Date and ending on the [second/third] anniversary of such
date (the “Employment Period”). The Employment Period
shall terminate upon the Executive’s termination of
employment for any reason.
4.
Terms of Employment . (a) Position and Duties .
(i) During the Employment Period, (A) the
Executive’s position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the
most significant of those held, exercised and assigned to the
Executive at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive’s
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During
the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive’s reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive’s responsibilities as an
employee of the Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive’s
responsibilities to the Company.
(b)
Compensation . (i) Base Salary . During the
Employment Period, the Executive shall receive an annual base
salary (“Annual Base Salary”), which shall be paid at
an annual rate, at least equal to twelve times the highest monthly
base salary paid or payable, including any base salary which has
been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs.
The Annual Base Salary shall be paid at such intervals as the
Company pays executive salaries generally. During the Employment
Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under
this
3
Agreement.
Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this
Agreement, the term “affiliated companies” shall
include any company controlled by, controlling or under common
control with the Company.
(ii)
Annual Bonus . In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the “Annual Bonus”)
in cash at least equal to the Executive’s average of the
bonuses paid or payable under the Company’s Management
Incentive Bonus Plan, or any comparable annual bonus under any
predecessor or successor plan, in respect of the last three full
fiscal years prior to the Effective Date (or, if the Executive was
first employed by the Company after the beginning of the earliest
of such three fiscal years, the average of the bonuses paid or
payable under such plan(s) in respect of the fiscal years ending
before the Effective Date during which the Executive was employed
by the Company, with such bonus being annualized with respect to
any such fiscal year if the Executive was not employed by the
Company for the whole of such fiscal year) (the “Recent
Average Bonus”). If the Executive has not been eligible to
earn such a bonus for any period prior to the Effective Date, the
“Recent Annual Bonus” shall mean the Executive’s
target annual bonus for the year in which the Effective Date
occurs. Each such Annual Bonus shall be paid no later than two and
a half months after the end of the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus pursuant to an arrangement that meets
the requirements of Section 409A of the Internal Revenue Code
of 1986, as amended (the “Code”).
(iii)
Incentive, Savings and Retirement Plans . During the
Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during
the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(iv)
Welfare Benefit Plans . During the Employment Period, the
Executive and/or the Executive’s family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs)
(“Company Welfare Benefit Plans”) to the extent
applicable generally to other peer executives of the Company and
its affiliated companies, but if the Company Welfare Benefit Plans
provide the Executive with benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the
4
Effective
Date (the “Former Company Welfare Benefit Plans”), the
Company shall provide the Executive with supplemental arrangements
(such as individual insurance coverage purchased by the Company for
the Executive) such that the Company Welfare Benefit Plans together
with such supplemental arrangements provide the Executive with
benefits which are at least as favorable, in the aggregate, as
those provided by the Former Company Welfare Benefit
Plans.
(v)
Expenses . During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vi)
Fringe Benefits . During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club
dues, and, if applicable, use of an automobile and payment of
related expenses, in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies; provided , that such fringe
benefits may be provided in cash or in kind, so long as the
after-tax benefits to the Executive of such fringe benefits are not
diminished in the aggregate.
(vii)
Office and Support Staff . During the Employment Period, the
Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to personal
secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company
and its affiliated companies at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(viii)
Vacation . During the Employment Period, the Executive shall
be entitled to paid vacation as well as paid days off for the
period between Christmas and January 1, in each case in
accordance with the most favorable plans, policies, programs and
practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 365-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
5.
Termination of Employment . (a) Death or Disability .
The Executive’s employment shall terminate automatically upon
the Executive’s death during the Employment Period. If the
Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to
the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive’s
employment.
5
In
such event, the Executive’s employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the “Disability Effective Date”),
provided that, within the 30 days after such receipt,
the Executive shall not have returned to full-time performance of
the Executive’s duties. For purposes of this Agreement,
“Disability” shall mean the absence of the Executive
from the Executive’s duties with the Company on a full-time
basis for 180 consecutive business days (or for 180 business days
in any consecutive 365 days) as a result of incapacity due to
mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive’s legal
representative.
(b)
Cause . The Company may terminate the Executive’s
employment during the Employment Period with or without Cause. For
purposes of this Agreement, “Cause” shall
mean:
(i)
the willful and continued failure of the Executive to perform
substantially the Executive’s duties with the Company or one
of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness or following the
Executive’s delivery of a Notice of Termination for Good
Reason), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in
which the Board or Chief Executive Officer of the Company believes
that the Executive has not substantially performed the
Executive’s duties, or
(ii)
the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company.
For
purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered “willful” unless
it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or
omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board, or if the Company is not the ultimate
parent entity and is not publicly-traded, the board of directors
(or, for a non-corporate entity, equivalent governing body) of the
ultimate parent of the Company (the “Applicable
Board”)or upon the instructions of the Chief Executive
Officer of the Company or a senior officer of the Company or based
upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Applicable
Board (excluding the Executive if the Executive is a member of the
Applicable Board) at a meeting of the Applicable Board called and
held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with
counsel for the Executive, to be heard before the Applicable
Board), finding that, in the good faith
6
opinion
of the Applicable Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c)
Good Reason . The Executive’s employment may be
terminated by the Executive for Good Reason or by the Executive
voluntarily without Good Reason. For purposes of this Agreement,
“Good Reason” shall mean:
(i)
the assignment to the Executive of any duties inconsistent in any
respect with the Executive’s position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement,
or any other diminution in such position, authority, duties or
responsibilities (whether or not occurring solely as a result of
the Company’s ceasing to be a publicly traded entity),
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(ii)
any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii)
the Company’s requiring the Executive to be based at any
office or location other than as provided in
Section 4(a)(i)(B) hereof or the Company’s requiring the
Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective
Date;
(iv)
any purported termination by the Company of the Executive’s
employment otherwise than as expressly permitted by this Agreement;
or
(v)
any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
For
purposes of this Section 5(c), any good faith determination of
“Good Reason” made by the Executive shall be
conclusive.
(d)
Incapacity . The Executive’s mental or physical
incapacity following the occurrence of an event described above in
clauses (i) through (v) of Section 5(c) shall not affect
the Executive’s ability to terminate employment for Good
Reason and the Executive’s death following delivery of a
Notice of Termination for Good Reason shall not affect the
entitlement of the estate of the Executive to severance payments or
benefits provided hereunder upon a termination of employment for
Good Reason.
(e)
Notice of Termination . Any termination of employment by the
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a “Notice of Termination”
means a written notice which (i) indicates the specific
termination provision in this Agreement
7
relied
upon, (ii) to the extent applicable, sets fo
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