EXHIBIT 10.3
FORM OF CONVERTIBLE BOND HEDGE TRANSACTION
Opening Transaction

     
To:
  BorgWarner Inc.
 
  3850 Hamlin Road
 
  Auburn Hills, MI 48326
 
   
From:
  Morgan Stanley & Co. Incorporated
 
  as Agent for Morgan Stanley & Co. International plc
 
  1585 Broadway
 
  4th Floor
 
  New York, NY 10036
 
   
Re:
  Convertible Bond Hedge Transaction
 
   
Ref. No:
  99AH24L39
 
   
Date:
  April 6, 2009

Dear Sir(s):
     The purpose of this communication (this “Confirmation”) is to set forth the
terms and conditions of the above-referenced transaction entered into on the
Trade Date specified below (the “Transaction”) between Morgan Stanley & Co.
International plc (“Dealer”) and BorgWarner Inc. (“Counterparty”). This
communication constitutes a “Confirmation” as referred to in the ISDA Master
Agreement specified below.
     This Confirmation is subject to, and incorporates, the definitions and
provisions of the 2006 ISDA Definitions (the “2006 Definitions”) and the
definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”, and together with the 2006 Definitions, the
“Definitions”), in each case as published by the International Swaps and
Derivatives Association, Inc. (“ISDA”). In the event of any inconsistency
between the 2006 Definitions and the Equity Definitions, the Equity Definitions
will govern. Certain defined terms used herein have the meanings assigned to
them in the Prospectus Supplement dated April 6, 2009 to the Prospectus dated
March 4, 2008 (the “Prospectus Supplement”) and the Supplemental Indenture, to
be dated as of the closing date of the initial issuance of the Convertible
Securities described below, to the Senior Indenture dated as of September 23,
1999 between Counterparty and The Bank of New York Trust Company, N.A., as
trustee (together, the “Indenture”), each relating to the USD325 million
principal amount of 3.50% convertible senior notes due April 15, 2012 (the
“Convertible Securities”). In the event of any inconsistency between the terms
defined in the Indenture or defined in the Prospectus Supplement and this
Confirmation, this Confirmation shall govern. For the avoidance of doubt,
references herein to provisions of the Indenture are based on the description of
the Convertible Securities set forth in the Prospectus Supplement. If any
relevant provisions of the Indenture differ in any material respect from those
described in the Prospectus Supplement, the parties will, if appropriate, amend
this Confirmation in good faith to preserve the economic intent of the parties.
The parties further acknowledge that references to the Indenture herein are
references to the Indenture as in effect on the date of its execution, and if
the Indenture is amended, modified or supplemented following its execution, any
such amendment, modification or supplement will be disregarded for purposes of
this Confirmation (other than for purposes of Section 8(b) below) unless the
parties agree otherwise in writing. The Transaction is subject to early unwind
if the closing of the Convertible Securities is not consummated for any reason,
as set forth below in Section 8(k).

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     Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in, or refrained from engaging in, substantial financial
transactions and has taken other material actions in reliance upon the parties’
entry into the Transaction to which this Confirmation relates on the terms and
conditions set forth below.
     This Confirmation evidences a complete and binding agreement between Dealer
and Counterparty as to the terms of the Transaction to which this Confirmation
relates. This Confirmation shall be subject to an agreement (the “Agreement”) in
the form of the 1992 ISDA Master Agreement (Multicurrency—Cross Border) as if
Dealer and Counterparty had executed an agreement in such form on the date
hereof (but without any Schedule except for (i) the election of Loss and Second
Method and US Dollars (“USD”) as the Termination Currency, (ii) the replacement
of the word “third” in the last line of Section 5(a)(i) of the Agreement with
the word “second,” (iii) the election that the “Cross Default” provisions of
Section 5(a)(vi) of the Agreement shall apply to Counterparty with a “Threshold
Amount” of USD25 million and (iv) such other elections as set forth in this
Confirmation.
     All provisions contained in, or incorporated by reference to, the Agreement
will govern this Confirmation except as expressly modified herein. In the event
of any inconsistency between this Confirmation and either the Definitions or the
Agreement, this Confirmation shall govern.
     The Transaction hereunder shall be the sole Transaction under the
Agreement. If there exists any ISDA Master Agreement between Dealer and
Counterparty or any confirmation or other agreement between Dealer and
Counterparty pursuant to which an ISDA Master Agreement is deemed to exist
between Dealer and Counterparty, then notwithstanding anything to the contrary
in such ISDA Master Agreement, such confirmation or agreement or any other
agreement to which Dealer and Counterparty are parties, the Transaction shall
not be considered a Transaction under, or otherwise governed by, such existing
or deemed ISDA Master Agreement.
     The Transaction constitutes a Share Option Transaction for purposes of the
Equity Definitions. The terms of the particular Transaction to which this
Confirmation relates are as follows:
General Terms:

     
Trade Date:
 
April 6, 2009
   
 
Effective Date:
 
The closing date of the initial issuance of the Convertible Securities.
   
 
Option Style:
 
Modified American, as described under “Procedures for Exercise” below.
   
 
Option Type:
 
Call
   
 
Seller:
 
Dealer
   
 
Buyer:
 
Counterparty
   
 
Shares:
 
The Common Stock of Counterparty, par value USD0.01 per share (Ticker Symbol:
“BWA”).
   
 
Number of Options:
 
The number of Convertible Securities in denominations of USD1,000 principal
amount issued by Counterparty on the closing date for the initial issuance of
the Convertible Securities; provided that the Number of Options shall be
automatically increased as of the date of exercise by Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated of the
underwriters’ option pursuant to Section 2 of the Underwriting Agreement dated
as of April 6, 2009,

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between Counterparty and Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Deutsche
Bank Securities Inc. as managers for the underwriters party thereto (the
“Underwriting Agreement”) by the number of Convertible Securities in
denominations of USD1,000 principal amount issued pursuant to such exercise
(such Convertible Securities, the “Additional Convertible Securities”). For the
avoidance of doubt, the Number of Options outstanding shall be reduced by each
exercise of Options hereunder.
   
 
Applicable Percentage:
 
50% 
   
 
Option Entitlement:
 
As of any date, a number of Shares per Option equal to the “Conversion Rate” (as
defined in the Indenture as described in the Prospectus Supplement under
“Description of Notes — Conversion Rights — General”), but without regard to any
adjustments to the Conversion Rate as set forth in the section of the Indenture
containing the provision described in the Prospectus Supplement under
“Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon
Conversion upon Certain Corporate Transactions” (a “Fundamental Change
Adjustment”) or a discretionary adjustment as set forth in the section of the
Indenture containing the provisions described in the fifth to last paragraph in
the Prospectus Supplement under “Description of Notes — Conversion Rights —
Conversion Rate Adjustments” (i.e., the paragraph commencing with “We are
permitted to increase...”) (a “Discretionary Adjustment”).
   
 
Strike Price:
 
As of any date, an amount in USD, rounded to the nearest cent (with 0.5 cents
being rounded upwards), equal to USD1,000 divided by the Option Entitlement as
of such date.
   
 
Number of Shares:
 
As of any date, the product of the Number of Options and the Option Entitlement
and the Applicable Percentage.
   
 
Premium:
 
USD24,553,750 (Premium per Option USD75.55); provided that if the Number of
Options is increased pursuant to the proviso to the definition of “Number of
Options” above, an additional Premium equal to the product of the number of
Options by which the Number of Options is so increased and the Premium per
Option shall be paid on the Additional Premium Payment Date.
   
 
Premium Payment Date:
 
The Effective Date
   
 
Additional Premium Payment Date:
 
The closing date for the purchase and sale of the Additional Convertible
Securities.
   
 
Exchange:
 
New York Stock Exchange

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Related Exchange:
 
All Exchanges located in the United States.
   
 
Procedures for Exercise:  
 
   
 
Potential Exercise Dates:
 
Each Conversion Date.
   
 
Conversion Date:
 
Each “Conversion Date” (as defined in the Indenture as described in the
Prospectus Supplement under “Description of Notes — Conversion Rights —
General”) occurring during the Exercise Period for Convertible Securities each
in denominations of USD1,000 principal amount (such Convertible Securities, the
“Relevant Convertible Securities” for such Conversion Date).
   
 
Exercise Period:
 
The period from and excluding the Effective Date to and including the Expiration
Date.
   
 
Expiration Date:
 
The earlier of (i) the last day on which any Convertible Securities remain
outstanding and (ii) the second “Scheduled Trading Day” (as defined in the
Indenture as described in the Prospectus Supplement under “Description of Notes
— Conversion Rights — Settlement upon Conversion”) immediately preceding the
“Maturity Date” (as defined in the Indenture as described in the Prospectus
Supplement under “Description of Notes — General”).
   
 
Automatic Exercise on Conversion Dates:
 
Applicable; and means that on each Conversion Date, a number of Options equal to
the number of Relevant Convertible Securities for such Conversion Date in
denominations of USD1,000 principal amount shall be automatically exercised,
subject to “Notice of Exercise” below.
   
 
Notice Deadline:
 
In respect of any exercise of Options hereunder on any Conversion Date,
12:00 P.M., New York City time, on the Exchange Business Day prior to the first
“Scheduled Trading Day” of the “Cash Settlement Averaging Period” (each as
defined in the Indenture as described in the Prospectus Supplement under
“Description of Notes — Conversion Rights — Settlement upon Conversion” and, for
the avoidance of doubt, irrespective of whether Counterparty’s election of the
settlement method with respect to the Relevant Convertible Securities includes
any portion thereof to be delivered in cash) relating to the Convertible
Securities converted on the Conversion Date occurring on the relevant Exercise
Date; provided that in the case of any exercise of Options hereunder in
connection with the conversion of any Relevant Convertible Securities on any
Conversion Date occurring during the Final Convertibility Period (as defined
below), the Notice Deadline shall be 12:00 P.M., New York City time, on the
Exchange Business Day immediately following such Conversion Date.

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Notice of Exercise:
 
Notwithstanding anything to the contrary in the Equity Definitions, Dealer shall
have no obligation to make any payment or delivery in respect of any exercise of
Options hereunder unless Counterparty notifies Dealer in writing prior to
12:00 P.M., New York City time, on the Notice Deadline in respect of such
exercise of (i) the number of Options being exercised on such Exercise Date,
(ii) the scheduled settlement date under the Indenture for the Convertible
Securities converted on the Conversion Date corresponding to such Exercise Date,
(iii) whether such Relevant Convertible Securities will be settled by
Counterparty by delivery of cash, Shares or a combination of cash and Shares
and, if such a combination, the applicable “Specified Dollar Amount” (as defined
in the Indenture as described in the Prospectus Supplement under “Description of
Notes — Conversion Rights — Settlement upon Conversion”) and (iv) the first
“Scheduled Trading Day” of the “Cash Settlement Averaging Period” (each as
defined in the Indenture as described in the Prospectus Supplement under
“Description of Notes — Conversion Rights — Settlement upon Conversion”);
provided that in the case of any exercise of Options hereunder in connection
with the conversion of any Relevant Convertible Securities on any Conversion
Date occurring during the Final Convertibility Period, the contents of such
notice shall be as set forth in clause (i) above and, in the case of any
exercise of Options hereunder in connection with the conversion of any Relevant
Convertible Securities occurring on or after December 15, 2011, Counterparty
shall notify Dealer of the settlement method and the applicable “Specified
Dollar Amount” (as defined in the Indenture as described in the Prospectus
Supplement under “Description of Notes — Conversion Rights — Settlement upon
Conversion”) as provided in “Notice of Specified Dollar Amount for Conversions
during the Final Convertibility Period” below. Counterparty acknowledges its
responsibilities under applicable securities laws, and in particular Section 9
and Section 10(b) of the Exchange Act (as defined below) and the rules and
regulations thereunder, in respect of any election of a settlement method with
respect to the Convertible Securities. For the avoidance of doubt, if
Counterparty fails to give such notice when due in respect of any exercise of
Options hereunder, Dealer’s obligation to make any payment or delivery in
respect of such exercise shall be permanently extinguished, and late notice
shall not cure such failure; provided that notwithstanding the foregoing, such
notice (and the related exercise of Options) shall be effective if given after
the Notice Deadline, but prior to (x) in the case of the Final Convertibility
Period, 5:00 P.M., New York City time, on the

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Scheduled Trading Day immediately preceding the relevant Settlement Date and
(y) in all other cases, 5:00 P.M., New York City time, on the fifth Exchange
Business Day following the Notice Deadline, in which event, except in the case
of the Final Convertibility Period, the Calculation Agent shall have the right
to adjust the Delivery Obligation as appropriate to reflect the additional costs
(including, but not limited to, hedging mismatches and market losses) and
expenses incurred by Dealer in connection with its hedging activities (including
the unwinding of any hedge position) as a result of Dealer not having received
such notice on or prior to the Notice Deadline.
   
 
Notice of Specified Dollar Amount for Conversions during the Final
Convertibility Period:
 
Counterparty shall notify Dealer in writing before 5:00 P.M., New York City
time, on the “Scheduled Trading Day” (as defined in the Indenture as described
in the Prospectus Supplement under “Description of Notes — Conversion Rights —
Settlement upon Conversion”) immediately prior to December 15, 2011 of the
election by the Counterparty, in accordance with the provision of the Indenture
described in the Prospectus Supplement under “Description of Notes — Conversion
Rights — Settlement upon Conversion,” of the settlement method and, if
applicable, the “Specified Dollar Amount” (as defined in the Indenture as
described in the Prospectus Supplement under “Description of Notes — Conversion
Rights — Settlement upon Conversion”) applicable to the Relevant Convertible
Securities with a Conversion Date occurring on or after December 15, 2011 and
ending on, and including, the second “Scheduled Trading Day” immediately
preceding the “Maturity Date” (as defined in the Indenture as described in the
Prospectus Supplement under “Description of Notes — General”) (the “Final
Convertibility Period”). If Counterparty fails timely to provide such notice,
Counterparty shall be deemed to have notified Dealer of combination settlement
with a “Specified Dollar Amount” (as defined in the Indenture as described in
the Prospectus Supplement under “Description of Notes — Conversion Rights —
Settlement upon Conversion”) of USD1,000. Counterparty agrees that it shall
settle any Relevant Convertible Securities with a Conversion Date occurring
during the Final Convertibility Period in the same manner as provided in the
Notice of Specified Dollar Amount for Conversions during the Final
Convertibility Period it provides or is deemed to have provided hereunder.

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  Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact
Details for purpose of Giving Notice:   As specified in Section 6(b) below.

Settlement Terms:

         
 
  Settlement Date:   In respect of an Exercise Date occurring on a Conversion
Date, the settlement date for the cash and Shares (if any) to be delivered in
respect of the Relevant Convertible Securities converted on such Conversion Date
pursuant to the section of the Indenture containing the provisions described in
the Prospectus Supplement under “Description of Notes — Conversion Rights —
Settlement upon Conversion”; provided that the Settlement Date will not be prior
to the latest of (i) the date that is one Settlement Cycle following the final
day of the relevant Cash Settlement Averaging Period (as modified herein),
(ii) the Exchange Business Day immediately following the date on which
Counterparty gives notice to Dealer of such Settlement Date prior to 5:00 P.M.,
New York City time and (iii) the Exchange Business Day immediately following the
date Counterparty provides the Notice of Delivery Obligation prior to
12:00 P.M., New York City time.
 
       
 
  Delivery Obligation:   In lieu of the obligations set forth in Sections 8.1
and 9.1 of the Equity Definitions, and subject to “Notice of Exercise” above, in
respect of an Exercise Date occurring on a Conversion Date, Dealer will deliver
to Counterparty, on the related Settlement Date, a number of Shares and/or
amount of cash in USD equal to the product of (i) the Applicable Percentage and
(ii) the aggregate number of Shares (and cash in lieu of fractional Shares) that
Counterparty would be obligated to deliver to the holder(s) of the Relevant
Convertible Securities converted on such Conversion Date pursuant to the section
of the Indenture containing the provisions described in the Prospectus
Supplement under “Description of Notes — Conversion Rights — Settlement upon
Conversion” and/or the aggregate amount of cash, if any, in excess of USD1,000
per Convertible Security (in denominations of USD1,000) that Counterparty would
be obligated to deliver to holder(s) pursuant to the section of the Indenture
containing the provisions described in the Prospectus Supplement under
“Description of Notes — Conversion Rights — Settlement upon Conversion” and cash
in lieu of fractional Shares, if any, as if Counterparty had elected to satisfy
its conversion obligation in respect of such Relevant Convertible Securities by
the Convertible Security Settlement Method, notwithstanding any different actual
election by Counterparty with respect to the settlement of such

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      Relevant Convertible Securities (the “Convertible Obligation”); provided
that such obligation shall be determined excluding any Shares and/or cash that
Counterparty is obligated to deliver to holder(s) of the Relevant Convertible
Securities as a result of any adjustments to the Conversion Rate pursuant to a
Fundamental Change Adjustment or a Discretionary Adjustment. Notwithstanding the
foregoing, in all events the Delivery Obligation shall be capped so that the
value of the Delivery Obligation does not exceed the Applicable Percentage of
the value of the Convertible Obligation (with the Convertible Obligation
determined based on the actual settlement method elected by Counterparty with
respect to such Relevant Convertible Securities instead of the Convertible
Security Settlement Method and with the value of any Shares included in either
the Delivery Obligation or such Convertible Obligation determined by the
Calculation Agent using the VWAP Price on the last day of the relevant Cash
Settlement Averaging Period (as modified herein)).
 
       
 
  Convertible Security Settlement Method:   For any Relevant Convertible
Securities, if Counterparty has notified Dealer in the related Notice of
Exercise (or in the Notice of Specified Dollar Amount for Conversions during the
Final Convertibility Period, as the case may be) that it has elected (or been
deemed to have elected) to satisfy its conversion obligation in respect of such
Relevant Convertible Securities in cash or in a combination of cash and Shares
in accordance with the section of the Indenture containing the provisions
described in the Prospectus Supplement under “Description of Notes — Conversion
Rights — Settlement upon Conversion” (a “Cash Election”) with a “Specified
Dollar Amount” (as defined in the Indenture as described in the Prospectus
Supplement under “Description of Notes — Conversion Rights — Settlement upon
Conversion”) of at least USD1,000, the Convertible Security Settlement Method
shall be the settlement method actually so elected or deemed to have been
elected by Counterparty in the related Notice of Exercise or the related Notice
of Specified Dollar Amount, as the case may be, in respect of such Relevant
Convertible Securities; otherwise, the Convertible Security Settlement Method
shall (i) assume Counterparty had made a Cash Election with respect to such
Relevant Convertible Securities with a “Specified Dollar Amount” (as defined in
the Indenture as described in the Prospectus Supplement under “Description of
Notes — Conversion Rights — Settlement upon Conversion”) of USD1,000 per
Relevant Convertible Security and (ii) be calculated as if the relevant “Cash
Settlement Averaging Period” consisted of 80 “Trading Days” (each, as defined in
the Indenture as described in the

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      Prospectus Supplement under “Description of Notes — Conversion Rights —
Settlement upon Conversion”) commencing on (x) the third “Scheduled Trading Day”
(as defined in the Indenture as described in the Prospectus Supplement under
“Description of Notes — Conversion Rights — Settlement upon Conversion”) after
the Conversion Date for conversions occurring prior to the Final Convertibility
Period or (y) the 82nd “Scheduled Trading Day” (as defined in the Indenture as
described in the Prospectus Supplement under “Description of Notes — Conversion
Rights — Settlement upon Conversion”) prior to the “Maturity Date” (as defined
in the Indenture as described in the Prospectus Supplement under “Description of
Notes — General”) for conversions occurring during the Final Convertibility
Period.
 
       
 
  Notice of Delivery Obligation:   No later than the second Exchange Business
Day immediately following the last day of the relevant Cash Settlement Averaging
Period (as modified herein), Counterparty shall give Dealer notice of the final
number of Shares and/or cash comprising the Convertible Obligation; provided
that, with respect to any Exercise Date occurring during the Final
Convertibility Period, Counterparty may provide Dealer with a single notice of
an aggregate number of Shares and/or cash comprising the Convertible Obligations
for all Exercise Dates occurring in such period (it being understood, for the
avoidance of doubt, that the requirement of Counterparty to deliver such notice
shall not limit Counterparty’s obligations with respect to Notice of Exercise or
Notice of Specified Dollar Amount for Conversions during the Final
Convertibility Period.
 
       
 
  Other Applicable Provisions:   To the extent Dealer is obligated to deliver
Shares hereunder, the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11
(except that the Representation and Agreement contained in Section 9.11 of the
Equity Definitions shall be modified by excluding any representations therein
relating to restrictions, obligations, limitations or requirements under
applicable securities laws arising as a result of the fact that Counterparty is
the Issuer of the Shares) and 9.12 of the Equity Definitions will be applicable
as if “Physical Settlement” applied to the Transaction.

Adjustments:

         
 
  Method of Adjustment:   Notwithstanding Section 11.2 of the Equity
Definitions, upon the occurrence of any event or condition set forth in the
sections of the Indenture containing the provisions described in the Prospectus
Supplement under “Description of Notes — Conversion Rights — Conversion Rate
Adjustments” other than any event or condition that would result in a
Fundamental Change Adjustment or a

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      Discretionary Adjustment or a Merger Event (as defined below) (each an
“Adjustment Event”), the Calculation Agent shall make the corresponding
adjustment in respect of any one or more of the Number of Options, the Option
Entitlement and any other variable relevant to the exercise, settlement, payment
or other terms of the Transaction, to the extent an analogous adjustment is made
under the Indenture. Promptly upon the occurrence of any Adjustment Event
Counterparty shall notify the Calculation Agent of such Adjustment Event; and
once the adjustments to be made to the terms of the Indenture and the
Convertible Securities in respect of such Adjustment Event have been determined,
Counterparty shall promptly notify the Calculation Agent in writing of the
details of such adjustments. The Calculation Agent shall, promptly after
receiving such notice, make any corresponding adjustments to the terms of the
Transaction and promptly notify Dealer and Counterparty thereof.

Extraordinary Events:

         
 
  Merger Events:   Notwithstanding Section 12.1(b) of the Equity Definitions, a
“Merger Event” means the occurrence of any event or condition set forth in the
section of the Indenture containing the provisions described in the eighth to
last paragraph in the Prospectus Supplement under “Description of Notes —
Conversion Rights — Conversion Rate Adjustments” (i.e., the paragraph commencing
with “In the event of: any reclassification...”).
 
       
 
  Consequences of Merger Events:   Notwithstanding Section 12.2 of the Equity
Definitions, upon the occurrence of a Merger Event, the Calculation Agent shall
make the corresponding adjustment in respect of any adjustment under the
Indenture to any one or more of the nature of the Shares, the Number of Options,
the Option Entitlement and any other variable relevant to the exercise,
settlement, payment or other terms of the Transaction, to the extent an
analogous adjustment is made under the Indenture in respect of such Merger
Event; provided that such adjustment shall be made without regard to any
adjustment to the Conversion Rate pursuant to a Fundamental Change Adjustment or
a Discretionary Adjustment; and provided further that if, with respect to a
Merger Event, the consideration for the Shares includes (or, at the option of a
holder of Shares, may include) shares (or depositary receipts with respect to
shares) of an entity or person not organized under the laws of the United
States, any State thereof or the District of Columbia, Cancellation and Payment
(Calculation Agent Determination) shall apply.

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  Notice of Merger Consideration and Consequences:   Upon the occurrence of a
Merger Event that causes the Shares to be converted into the right to receive
more than a single type of consideration (determined based in part upon any form
of stockholder election), Counterparty shall reasonably promptly (but in any
event on or prior to the relevant merger date) notify the Calculation Agent of
(i) the type and amount of consideration that a holder of Shares would have been
entitled to in the case of reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions that cause Shares to be converted into
the right to receive more than a single type of consideration, (ii) the weighted
average of the types and amounts of consideration to be received by the holders
of Shares that affirmatively make such an election (or if no holders of Shares
affirmatively make such an election, the types and amount of consideration
actually received by such holders), and (iii) the details of the adjustment to
be made under the Indenture in respect of such Merger Event.
 
       
 
  Nationalization, Insolvency or Delisting:   Cancellation and Payment
(Calculation Agent Determination); provided that in addition to the provisions
of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a
Delisting if the Exchange is located in the United States and the Shares are not
immediately re-listed, re-traded or re-quoted on any of the New York Stock
Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their
respective successors); if the Shares are immediately re-listed, re-traded or
re-quoted on any such exchange or quotation system, such exchange or quotation
system shall thereafter be deemed to be the Exchange.
 
       
 
  Additional Disruption Events:    
 
       
 
       (a) Change in Law:   Applicable; provided that Section 12.9(a)(ii) of the
Equity Definitions is hereby amended by (i) replacing the phrase “the
interpretation” in the third line thereof with the phrase “or announcement or
statement of the formal or informal interpretation” and (ii) immediately
following the word “Transaction” in clause (X) thereof, adding the phrase “in
the manner contemplated by Hedging Party on the Trade Date.”
 
       
 
       (b) Failure to Deliver:   Applicable
 
       
 
       (c) Insolvency Filing:   Applicable
 
       
 
       (d) Hedging Disruption:   Applicable
 
       
 
       (e) Increased Cost of Hedging:   Applicable
 
       
 
  Hedging Party:   Dealer for all applicable Additional Disruption Events
 
       
 
  Determining Party:   Dealer for all applicable Additional Disruption Events

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  Non-Reliance:   Applicable
 
       
 
  Agreements and Acknowledgments Regarding Hedging Activities:   Applicable
 
       
 
  Additional Acknowledgments:   Applicable
 
       
 
  Calculation Agent:   Dealer. All determinations made by the Calculation Agent
shall be made in good faith and in a commercially reasonable manner. Following
any calculation by the Calculation Agent hereunder, upon a prior written request
by Counterparty, the Calculation Agent will provide to Counterparty by e-mail to
the e-mail address provided by Counterparty in such prior written request a
report (in a commonly used file format for the storage and manipulation of
financial data) displaying in reasonable detail the basis for such calculation,
it being understood that the Calculation Agent shall not be obligated to
disclose any proprietary models used by it for such calculation. No transferee
of Dealer with respect to any Options in accordance with the terms of this
Confirmation shall act as Calculation Agent with respect to such transferred
Options without the prior consent of Counterparty, such consent not to be
unreasonably withheld or delayed.

     Account Details:
          Dealer Payment Instructions:
               To be provided by Dealer.
          Counterparty Payment Instructions:
               To be provided by Counterparty.
     Offices:
          The Office of Dealer for the Transaction is:
               Morgan Stanley & Co. Incorporated, as agent for
               Morgan Stanley & Co. International plc
               1585 Broadway
               4th Floor
               New York, NY 10036
          The Office of Counterparty for the Transaction is:
     Inapplicable. Counterparty is not a Multibranch Party.
     Notices: For purposes of this Confirmation:
     (a) Address for notices or communications to Counterparty:

         
 
  To:   BorgWarner Inc.
 
      3850 Hamlin Road
 
      Auburn Hills, MI 48326
 
  Attn:   Anthony D. Hensel,
 
      Vice President and Treasurer
 
  Telephone:   248-754-0861
 
  Facsimile:   248-754-9069

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     (b) Address for notices or communications to Dealer:

         
 
  To:   Morgan Stanley & Co. Incorporated, as agent for
 
      Morgan Stanley & Co. International plc
 
      1585 Broadway
 
      4th Floor
 
      New York, NY 10036
 
  Attn:   Jonathan Ross
 
  Telephone:   212-761-2035
 
  Facsimile:   212-507-2441
 
  Email:   Jonathan.M.Ross@morganstanley.com
 
       
 
  With a copy to:   Morgan Stanley & Co. Incorporated, as agent for
 
      Morgan Stanley & Co. International plc
 
      1221 Avenue of the Americas
 
      34th Floor
 
      New York, NY 10020
 
  Attn:   Anthony Cicia
 
  Telephone:   212-762-4828
 
  Facsimile:   212-507-4338
 
  Email:   Anthony.Cicia@morganstanley.com

     Representations, Warranties and Agreements:
     (a) In addition to the representations and warranties in the Agreement and
those contained elsewhere herein, Counterparty represents and warrants to and
for the benefit of, and agrees with, Dealer as follows:
     (i) On the Trade Date, and as of the date of any election by Counterparty
of the Share Termination Alternative under (and as defined in) Section 8(c)
below, none of Counterparty and its executive officers and directors is aware of
any material nonpublic information regarding Counterparty or the Shares. On the
Trade Date, all reports and other documents filed by Counterparty with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended (the “Exchange Act”) when considered as a whole (with the more
recent such reports and documents deemed to amend inconsistent statements
contained in any earlier such reports and documents), do not contain any untrue
statement of a material fact or any omission of a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.
     (ii) (A) On the Trade Date, the Shares or securities that are convertible
into, or exchangeable or exercisable for Shares, are not, and shall not be,
subject to a “restricted period,” as such term is defined in Regulation M under
the Exchange Act (“Regulation M”) and (B) Counterparty shall not engage in any
“distribution,” as such term is defined in Regulation M, other than a
distribution meeting the requirements of the exceptions set forth in sections
101(b)(10) and 102(b)(7) of Regulation M, until the second Exchange Business Day
immediately following the Trade Date.
     (iii) Without limiting the generality of Section 13.1 of the Equity
Definitions, Counterparty acknowledges that neither Dealer nor any of its
affiliates is making any representations or warranties or taking a position or
expressing any view with respect to the treatment of the Transaction under any
accounting standards, including FASB Statements 128, 133 (as amended), 149 or
150, EITF Issue No. 00-19, 01-6, 03-6 or 07-5 (or any successor issue
statements) or under the FASB’s Liabilities & Equity Project.
     (iv) Without limiting the generality of Section 3(a)(iii) of the Agreement,
the Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange
Act.

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     (v) Prior to the Trade Date, Counterparty shall deliver to Dealer a
resolution of Counterparty’s board of directors authorizing the Transaction and
such other certificate or certificates as Dealer shall reasonably request.
     (vi) Counterparty is not entering into this Confirmation to create actual
or apparent trading activity in the Shares (or any security convertible into or
exchangeable for Shares) or to raise or depress or otherwise manipulate the
price of the Shares (or any security convertible into or exchangeable for
Shares) or to otherwise violate the Exchange Act.
     (vii) Counterparty is not, and after giving effect to the transactions
contemplated hereby will not be, required to register as, an “investment
company” as such term is defined in the Investment Company Act of 1940, as
amended.
     (viii) On each of the Trade Date, the Premium Payment Date and the
Additional Premium Payment Date, if any, Counterparty is not “insolvent” (as
such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11
of the United States Code) (the “Bankruptcy Code”)) and Counterparty would be
able to purchase the Shares hereunder in compliance with the laws of the
jurisdiction of Counterparty’s incorporation.
     (ix) Counterparty understands no obligations of Dealer to it hereunder will
be entitled to the benefit of deposit insurance and that such obligations will
not be guaranteed by any governmental agency.
     (b) Each of Dealer and Counterparty agrees and represents that it is an
“eligible contract participant” as defined in Section 1a(12) of the U.S.
Commodity Exchange Act, as amended.
     (c) Each of Dealer and Counterparty acknowledges that the offer and sale of
the Transaction to it is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), by virtue of
Section 4(2) thereof. Accordingly, Counterparty represents and warrants to
Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its investment
and its investments in and liabilities in respect of the Transaction, which it
understands are not readily marketable, are not disproportionate to its net
worth, and it is able to bear any loss in connection with the Transaction,
including the loss of its entire investment in the Transaction, (ii) it is an
“accredited investor” as that term is defined in Regulation D as promulgated
under the Securities Act, (iii) it is entering into the Transaction for its own
account and without a view to the distribution or resale thereof, (iv) the
assignment, transfer or other disposition of the Transaction has not been and
will not be registered under the Securities Act and is restricted under this
Confirmation, the Securities Act and state securities laws, and (v) its
financial condition is such that it has no need for liquidity with respect to
its investment in the Transaction and no need to dispose of any portion thereof
to satisfy any existing or contemplated undertaking or indebtedness and is
capable of assessing the merits of and understanding (on its own behalf or
through independent professional advice), and understands and accepts, the
terms, conditions and risks of the Transaction.
     (d) Subject to Section 8(j): Each of Dealer and Counterparty agrees and
acknowledges that Dealer is a “financial institution,” “swap participant” and
“financial participant” within the meaning of Sections 101(22), 101(53C) and
101(22A) of the Bankruptcy Code. The parties hereto further agree and
acknowledge (A) that this Confirmation is (i) a “securities contract,” as such
term is defined in Section 741(7) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder or in connection herewith is a “termination
value,” “payment amount” or “other transfer obligation” within the meaning of
Section 362 of the Bankruptcy Code and a “settlement payment” within the meaning
of Section 546 of the Bankruptcy Code, and (ii) a “swap agreement,” as such term
is defined in Section 101(53B) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder or in connection herewith is a “termination
value,” “payment amount” or “other transfer obligation” within the meaning of
Section 362 of the Bankruptcy Code and a “transfer” within the meaning of
Section 546 of the Bankruptcy Code, and (B) that Dealer is entitled to the
protections afforded by, among other sections, Sections 362(b)(6), 362(b)(17),
362(b)(27), 362(o), 546(e), 546(g), 546(j), 548(d)(2), 555, 560 and 561 of the
Bankruptcy Code.
     (e) Counterparty shall deliver to Dealer (i) an incumbency certificate,
dated as of the Trade Date, of Counterparty in customary form and (ii) an
opinion of counsel, dated as of the Trade Date and

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reasonably acceptable to Dealer in form and substance, with respect to due
incorporation, existence and good standing of the Counterparty in Delaware, its
qualifications as a foreign corporation and good standing in Michigan, the due
authorization, execution and delivery of the Confirmation, and the absence of
conflict of the execution and delivery of the Confirmation with any material
agreement required to be filed as any exhibit to the Counterparty’s Annual
Report on Form 10-K and the Counterparty’s charter documents.
     (f) Each party acknowledges and agrees to be bound by the Conduct Rules of
the National Association of Securities Dealers, Inc. applicable to transactions
in options, and further agrees not to violate the position and exercise limits
set forth therein.
     8. Other Provisions:
     (a) Right to Extend. Dealer may postpone any Exercise Date or Settlement
Date or any other date of valuation or delivery by Dealer, with respect to some
or all of the relevant Options (in which event the Calculation Agent shall make
appropriate commercially reasonable adjustments to the Delivery Obligation), if
Dealer determines, in its reasonable discretion, that such extension is
reasonably necessary or appropriate to preserve Dealer’s hedging or hedge unwind
activity hereunder in light of existing liquidity conditions in the cash market,
the stock borrow market or other relevant market or to enable Dealer to effect
purchases of Shares in connection with its hedging, hedge unwind or settlement
activity hereunder in a manner that would, if Dealer were Counterparty or an
affiliated purchaser of Counterparty, be in compliance with applicable legal,
regulatory or self-regulatory requirements, or with related policies and
procedures applicable to Dealer.
     (b) Additional Termination Events. The occurrence of (i) an “Event of
Default” with respect to Counterparty under the terms of the Convertible
Securities as set forth in the Indenture as described in the Prospectus
Supplement under “Description of Notes — Events of Default,” or (ii) an
Amendment Event shall be an Additional Termination Event with respect to which
the Transaction is the sole Affected Transaction and Counterparty is the sole
Affected Party, and Dealer shall be the party entitled to designate an Early
Termination Date pursuant to Section 6(b) of the Agreement and to determine the
amount payable pursuant to Section 6(e) of the Agreement.
     “Amendment Event” means that Counterparty amends, modifies, supplements or
obtains a waiver in respect of any term of the Indenture or the Convertible
Securities governing the principal amount, coupon, maturity, a repurchase
obligation of Counterparty, a redemption right of Counterparty, any term
relating to conversion of the Convertible Securities (including changes to the
conversion price, conversion settlement dates or conversion conditions), or any
term that would require consent of the holders of not less than 100% of the
principal amount of the Convertible Securities to amend, in each case without
the prior consent of Dealer.
     (c) Alternative Calculations and Payment on Early Termination and on
Certain Extraordinary Events. If Dealer shall owe Counterparty any amount
pursuant to “Consequences of Merger Events” above or Sections 12.6, 12.7 or 12.9
of the Equity Definitions (except in the event of an Insolvency, a
Nationalization or a Merger Event, in each case, in which the consideration or
proceeds to be paid to holders of Shares consists solely of cash) or pursuant to
Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in
which Counterparty is the Defaulting Party or a Termination Event in which
Counterparty is the Affected Party, that resulted from an event or events within
Counterparty’s control) (a “Payment Obligation”), Counterparty shall have the
right, in its sole discretion, to require Dealer to satisfy any such Payment
Obligation by the Share Termination Alternative (as defined below) by giving
irrevocable telephonic notice to Dealer, confirmed in writing within one
Scheduled Trading Day, between the hours of 8:00 A.M. and 4:00 P.M. New York
City time on the relevant merger date, Announcement Date, Early Termination Date
or date of cancellation or termination in respect of an Additional Disruption
Event, as applicable (“Notice of Share Termination”); provided that if
Counterparty does not require Dealer to satisfy its Payment Obligation by the
Share Termination Alternative, Dealer shall have the right, in its sole
discretion, to elect to satisfy its Payment Obligation by the Share Termination
Alternative, notwithstanding Counterparty’s failure to elect or election to the
contrary. Upon such Notice of Share Termination or such Dealer election, the
following provisions shall apply on the Scheduled Trading Day immediately
following the relevant merger date, Announcement Date,

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Early Termination Date or date of cancellation or termination in respect of an
Additional Disruption Event, as applicable:

     
Share Termination Alternative:
  Applicable and means that Dealer shall deliver to Counterparty the Share
Termination Delivery Property on the date on which the Payment Obligation would
otherwise be due pursuant to “Consequences of Merger Events” above, Section 12.7
or 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as
applicable, or such later date as the Calculation Agent may reasonably determine
(the “Share Termination Payment Date”), in satisfaction of the Payment
Obligation.
 
   
Share Termination Delivery
   
Property:
  A number of Share Termination Delivery Units, as calculated by the Calculation
Agent, equal to the Payment Obligation divided by the Share Termination Unit
Price. The Calculation Agent shall adjust the Share Termination Delivery
Property by replacing any fractional portion of a security therein with an
amount of cash equal to the value of such fractional security based on the
values used to calculate the Share Termination Unit Price.
 
   
Share Termination Unit Price:
  The value of property contained in one Share Termination Delivery Unit on the
date such Share Termination Delivery Units are to be delivered as Share
Termination Delivery Property, as determined by the Calculation Agent in its
discretion by commercially reasonable means and notified by the Calculation
Agent to Dealer at the time of notification of the Payment Obligation.
 
   
Share Termination Delivery Unit:
  In the case of a Termination Event, Event of Default, Delisting or Additional
Disruption Event, one Share or, in the case of an Insolvency, Nationalization or
Merger Event, a unit consisting of the number or amount of each type of property
received by a holder of one Share (without consideration of any requirement to
pay cash or other consideration in lieu of fractional amounts of any securities)
in such Insolvency, Nationalization or Merger Event. If such Insolvency,
Nationalization or Merger Event involves a choice of consideration to be
received by holders, such holder shall be deemed to have elected to receive the
maximum possible amount of cash.
 
   
Failure to Deliver:
  Applicable
 
   
Other applicable provisions:
  If Share Termination Alternative is applicable, the provisions of Sections
9.8, 9.9, 9.10, 9.11 (except that the Representation and Agreement contained in
Section 9.11 of the Equity Definitions shall be modified by excluding any
representations therein relating to restrictions, obligations, limitations or
requirements under applicable securities laws arising as a result of the fact
that Counterparty is the Issuer of the Shares) and 9.12 of the Equity
Definitions will be applicable as if “Physical Settlement” applied to the
Transaction, except that all references to “Shares” shall be read as references
to “Share Termination Delivery Units.”

     (d) Disposition of Hedge Shares. Counterparty hereby agrees that if, in the
good faith reasonable judgment of Dealer or Counterparty, based on the advice of
counsel, the Shares (the “Hedge Shares”) acquired by Dealer for the purpose of
hedging its obligations pursuant to the Transaction cannot be sold in the U.S.
public market by Dealer without registration under the Securities Act,
Counterparty shall, at its election within two Exchange Business Days after a
party’s written notice to the other party of such judgment: (i) in order to
allow Dealer to sell the Hedge Shares in a registered offering, make available
to Dealer an effective registration statement under the Securities Act to cover
the resale of such Hedge

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Shares and (A) enter into an agreement, in form and substance satisfactory to
Dealer, substantially in the form of an underwriting agreement for underwritten
follow-on offerings of equity securities of companies of comparable size,
maturity and lines of business, (B) provide accountant’s “comfort” letters in
customary form for underwritten follow-on offerings of equity securities,
(C) provide disclosure opinions of nationally recognized outside counsel to
Counterparty as are customarily requested in connection with underwritten
follow-on offerings of equity securities of companies of comparable size,
maturity and lines of business, (D) provide other customary opinions,
certificates and closing documents customary in form for underwritten follow-on
offerings of equity securities of companies of comparable size, maturity and
lines of business and (E) afford Dealer a reasonable opportunity to conduct a
“due diligence” investigation with respect to Counterparty customary in scope
for underwritten follow-on offerings of equity securities of companies of
comparable size, maturity and lines of business; provided, however, that if
Dealer, in its sole commercially reasonable discretion, is not satisfied with
access to due diligence materials, the results of its due diligence
investigation, or the procedures and documentation for the registered offering
referred to above, then clause (ii) or clause (iii) of this Section 8(d) shall
apply at the election of Counterparty, provided that with respect to such
registered offering Dealer has given the Counterparty reasonable notice of its
determination and provided the Counterparty with reasonable opportunity to
satisfy Dealer’s concerns; (ii) in order to allow Dealer to sell the Hedge
Shares in a private placement, enter into a private placement agreement
substantially similar to private placement purchase agreements customary for
private placements of equity securities of companies of comparable size,
maturity and lines of business, in form and substance reasonably satisfactory to
Dealer, including customary representations, covenants, blue sky and other
governmental filings and/or registrations, indemnities to Dealer, due diligence
rights (for Dealer or any designated buyer of the Hedge Shares from Dealer),
opinions and certificates and such other documentation as is customary for
private placements agreements, all reasonably acceptable to Dealer (in which
case, the Calculation Agent shall make any adjustments to the terms of the
Transaction that are necessary, in its reasonable judgment, to compensate Dealer
for any discount from the public market price of the Shares incurred on the sale
of Hedge Shares in a private placement); or (iii) purchase the Hedge Shares from
Dealer at the VWAP Price on such Exchange Business Days, and in the amounts,
requested by Dealer. For the avoidance of doubt, unless the Counterparty elects
to repurchase the Hedge Shares pursuant to clause (iii) of this Section 8(d),
nothing in this Confirmation shall be interpreted as requiring the Counterparty
to repurchase the Hedge Shares and under no circumstances shall the Counterparty
be required to repurchase the Hedge Shares. “VWAP Price” means, on any Exchange
Business Day, the per Share volume-weighted average price as displayed under the
heading “Bloomberg VWAP” on Bloomberg Screen BWA.N <equity> AQR (or any
successor thereto) in respect of the period from 9:30 a.m. to 4:00 p.m. (New
York City time) on such Exchange Business Day (or if such volume-weighted
average price is unavailable, the market value of one Share on such Exchange
Business Day, as determined by the Calculation Agent using a volume-weighted
method).
     (e) Repurchase and Conversion Rate Adjustment Notices. Counterparty shall,
at least two Exchange Business Days prior to any day on which Counterparty
effects any repurchase of Shares or consummates or otherwise engages in any
transaction or event (a “Conversion Rate Adjustment Event”) that could
reasonably be expected to lead to an increase in the Conversion Rate, give
Dealer a written notice of such repurchase or Conversion Rate Adjustment Event
(a “Repurchase Notice”) on such day if, following such repurchase or Conversion
Rate Adjustment Event, the Notice Percentage would reasonably be expected to be
greater by 0.5% than the Notice Percentage included in the immediately preceding
Repurchase Notice (or, in the case of the first such Repurchase Notice, greater
than the Notice Percentage as of the date hereof). The “Notice Percentage” as of
any day is the fraction, expressed as a percentage, the numerator of which is
the number of Shares underlying all Convertible Securities outstanding on such
day and the denominator of which is the number of Shares outstanding on such
day. In the event that Counterparty fails to provide Dealer with a Repurchase
Notice on the day and in the manner specified in this Section 8(e) then, to the
extent permitted by applicable law, Counterparty agrees to indemnify and hold
harmless Dealer, its affiliates and their respective directors, officers,
employees, agents and controlling persons (Dealer and each such person being an
“Indemnified Party”) from and against any and all losses, claims, damages and
liabilities (or actions in respect thereof), joint or several, to which such
Indemnified Party is subject under applicable securities laws, including without
limitation, Section 16 of the Exchange Act or under any state or federal law,
regulation or regulatory order, as a result of such failure. If for any reason
the foregoing indemnification is unavailable to any Indemnified Party or
insufficient to hold

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harmless any Indemnified Party, then Counterparty shall contribute, to the
maximum extent permitted by law, to the amount paid or payable by the
Indemnified Party as a result of such loss, claim, damage or liability. In
addition, Counterparty will reimburse any Indemnified Party for any reasonable
expenses (including reasonable counsel fees and expenses) as they are incurred
(after notice to Counterparty) in connection with the investigation of,
preparation for or defense or settlement of any pending or threatened claim or
any action, suit or proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto and whether or not such claim, action, suit
or proceeding is initiated or brought by or on behalf of Counterparty. This
indemnity shall survive the completion of the Transaction contemplated by this
Confirmation and any assignment and delegation of the Transaction made pursuant
to this Confirmation or the Agreement shall inure to the benefit of any
permitted assignee of Dealer.
     (f) Transfer and Assignment. Either party may transfer any of its rights or
obligations under the Transaction with the prior written consent of the
non-transferring party, such consent not to be unreasonably withheld or delayed;
provided that Dealer may transfer or assign without any consent of Counterparty
its rights and obligations hereunder, in whole or in part, to any person, or any
person whose obligations would be guaranteed by a person, in either case, of
credit quality equivalent to Dealer’s (or its guarantor’s), but in no event with
a rating for its long term, unsecured and unsubordinated indebtedness of less
than A- by Standard and Poor’s Ratings Services or its successor (“S&P”), and
less than A3 by Moody’s Investors Service, Inc. or its successor (“Moody’s”),
or, if either S&P or Moody’s ceases to rate such debt, less than an equivalent
rating by a substitute agency mutually agreed by Counterparty and Dealer. Dealer
shall as soon as reasonably practicable notify Counterparty of any such transfer
or assignment. If at any time at which (1) the Equity Percentage exceeds 8.0% or
(2) Dealer, Dealer Group (as defined below) or any person whose ownership
position would be aggregated with that of Dealer or Dealer Group (Dealer, Dealer
Group or any such person, a “Dealer Person”) under Section 203 of the Delaware
General Corporation Law (the “DGCL Takeover Statute”) or other federal, state or
local regulations or regulatory orders applicable to ownership of Shares
(“Applicable Laws”), owns, beneficially owns, constructively owns, controls,
holds the power to vote or otherwise meets a relevant definition of ownership in
excess of a number of Shares equal to (x) the number of Shares that would give
rise to reporting or registration obligations or other requirements (including
obtaining prior approval by a state or federal regulator) of a Dealer Person
under Applicable Laws (including, without limitation, “interested stockholder”
or “acquiring person” status under the DGCL Takeover Statute) and with respect
to which such requirements have not been met or the relevant approval has not
been received minus (y) 1% of the number of Shares outstanding on the date of
determination (either such condition described in clause (1) or (2), an “Excess
Ownership Position”), Dealer, in its discretion, is unable to effect a transfer
or assignment to a third party after its commercially reasonable efforts on
pricing terms and within a time period reasonably acceptable to Dealer such that
an Excess Ownership Position no longer exists, Dealer may designate any
Scheduled Trading Day as an Early Termination Date with respect to a portion
(the “Terminated Portion”) of the Transaction, such that an Equity Ownership
Position no longer exists following such partial termination. In the event that
Dealer so designates an Early Termination Date with respect to a portion of the
Transaction, a payment shall be made pursuant to Section 6 of the Agreement and
Section 8(c) of this Confirmation as if (i) an Early Termination Date had been
designated in respect of a Transaction having terms identical to the Terminated
Portion of the Transaction, (ii) Counterparty were the sole Affected Party with
respect to such partial termination, (iii) such portion of the Transaction were
the only Terminated Transaction and (iv) Dealer were the party entitled to
designate an Early Termination Date pursuant to Section 6(b) of the Agreement
and to determine the amount payable pursuant to Section 6(e) of the Agreement.
The “Equity Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the number of Shares that Dealer and
any of its affiliates subject to aggregation with Dealer for purposes of the
“beneficial ownership” test under Section 13 of the Exchange Act and all persons
who may form a “group” (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act) with Dealer (collectively, “Dealer Group”) “beneficially own”
(within the meaning of Section 13 of the Exchange Act) without duplication on
such day and (B) the denominator of which is the number of Shares outstanding on
such day. In the case of a transfer or assignment by Counterparty of its rights
and obligations hereunder and under the Agreement, in whole or in part (any such
Options so transferred or assigned, the “Transfer Options”), to any party,
withholding of such consent by Dealer shall not be considered unreasonable if
such transfer or assignment does not meet the following reasonable conditions
that Dealer may impose:

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     (A) With respect to any Transfer Options, Counterparty shall not be
released from its notice and indemnification obligations pursuant to Section
8(e) or any obligations under Section 2 (regarding Extraordinary Events) or 8(d)
of this Confirmation;
     (B) Any Transfer Options shall only be transferred or assigned to a third
party that is a U.S. person (as defined in the Internal Revenue Code of 1986, as
amended);
     (C) Such transfer or assignment shall be effected on terms, including any
reasonable undertakings by such third party (including, but not limited to,
undertakings with respect to compliance with applicable securities laws in a
manner that, in the reasonable judgment of Dealer, will not expose Dealer to
material risks under applicable securities laws) and execution of any
documentation and delivery of legal opinions with respect to securities laws and
other matters by such third party and Counterparty as are requested and
reasonably satisfactory to Dealer;
     (D) Dealer will not, as a result of such transfer and assignment, be
required to pay the transferee on any payment date an amount under
Section 2(d)(i)(4) of the Agreement greater than an amount that Dealer would
have been required to pay to Counterparty in the absence of such transfer and
assignment;
     (E) An Event of Default, Potential Event of Default or Termination Event
will not occur as a result of such transfer and assignment;
     (F) Without limiting the generality of clause (B), Counterparty shall have
caused the transferee to make such Payee Tax Representations and to provide such
tax documentation as may be reasonably requested by Dealer to permit Dealer to
determine that results described in clauses (D) and (E) will not occur upon or
after such transfer and assignment; and
     (G) Counterparty shall be responsible for all reasonable costs and
expenses, including reasonable counsel fees, incurred by Dealer in connection
with such transfer or assignment.
     (g) Staggered Settlement. Dealer may, by notice to Counterparty on or prior
to any Settlement Date (a “Nominal Settlement Date”), elect to deliver the
Shares on two or more dates (each, a “Staggered Settlement Date”) or at two or
more times on the Nominal Settlement Date as follows:
     (i) in such notice, Dealer will specify to Counterparty the related
Staggered Settlement Dates (each of which will be on or prior to such Nominal
Settlement Date, but not prior to the beginning of the related Cash Settlement
Averaging Period (as modified herein)) or delivery times and how it will
allocate the Shares it is required to deliver under “Delivery Obligation”
(above) among the Staggered Settlement Dates or delivery times; and
     (ii) the aggregate number of Shares that Dealer will deliver to
Counterparty hereunder on all such Staggered Settlement Dates and delivery times
will equal the number of Shares that Dealer would otherwise be required to
deliver on such Nominal Settlement Date.
     (h) Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to Counterparty relating to such tax treatment and tax structure.
     (i) No Netting and Set-off. The provisions of Section 2(c) of the Agreement
shall not apply to the Transaction. Each party waives any and all rights it may
have to set-off payment obligations it owes to the other party under the
Transaction against any payment obligations owed to it by the other party,
whether arising under the Agreement, under any other agreement between parties
hereto, by operation of law or otherwise.
     (j) Equity Rights. Dealer acknowledges and agrees that this Confirmation is
not intended to convey to it rights with respect to the Transaction that are
senior to the claims of common stockholders in the event of Counterparty’s
bankruptcy. For the avoidance of doubt, the parties agree that the preceding
sentence shall not apply at any time other than during Counterparty’s bankruptcy
to any claim arising as a result of a breach by Counterparty of any of its
obligations under this Confirmation or the Agreement.

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     (k) Early Unwind. In the event the sale by Counterparty of the Convertible
Securities is not consummated pursuant to the Underwriting Agreement for any
reason by the close of business in New York on April 9, 2009 (or such later date
as agreed upon by the parties, which in no event shall be later than five
business days after April 9, 2009) (April 9, 2009 or such later date being the
“Early Unwind Date”), the Transaction shall automatically terminate (the “Early
Unwind”) on the Early Unwind Date and the Transaction and all of the respective
rights and obligations of Dealer and Counterparty hereunder shall be cancelled
and terminated and Counterparty shall pay to Dealer, other than in cases
involving a breach of the Underwriting Agreement by the underwriters, an amount
in cash equal to the aggregate amount of reasonable costs and expenses relating
to the unwinding of Dealer’s hedging activities in respect of the Transaction
(including market losses incurred in reselling any Shares purchased by Dealer or
its affiliates in connection with such hedging activities, unless Counterparty
agrees to purchase any such Shares at the cost at which Dealer purchased such
Shares). Following such termination and cancellation and payment, each party
shall be released and discharged by the other party from, and agrees not to make
any claim against the other party with respect to, any obligations or
liabilities of either party arising out of, and to be performed in connection
with, the Transaction either prior to or after the Early Unwind Date. Dealer and
Counterparty represent and acknowledge to the other that upon an Early Unwind
and following the payment referred to above, all obligations with respect to the
Transaction shall be deemed fully and finally discharged.
     (l) Payments by Counterparty upon Early Termination. The parties hereby
agree that, notwithstanding anything to the contrary herein, in the Definitions
or in the Agreement, following the payment of the Premium and the Additional
Premium, if any, in the event that an Early Termination Date (whether as a
result of an Event of Default or an Amendment Event or a Termination Event)
occurs or is designated with respect to the Transaction or the Transaction is
terminated or cancelled pursuant to Article 12 of the Equity Definitions and, as
a result, Counterparty would owe to Dealer an amount calculated under Section
6(e) of the Agreement or Article 12 of the Equity Definitions, such amount shall
be deemed to be zero.
     (m) Waiver of Trial by Jury. EACH OF COUNTERPARTY AND DEALER HEREBY
IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THE TRANSACTION OR THE ACTIONS OF DEALER OR ITS
AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.
     (n) Governing Law; Jurisdiction. THE AGREEMENT, THIS CONFIRMATION AND ALL
MATTERS ARISING IN CONNECTION WITH THE AGREEMENT AND THIS CONFIRMATION SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REFERENCE TO ITS CHOICE OF LAW DOCTRINE, OTHER THAN
TITLE 14 OF THE NEW YORK GENERAL OBLIGATIONS LAW). THE PARTIES HERETO
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK IN CONNECTION WITH ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO
THE LAYING OF VENUE IN, AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO,
THESE COURTS.
     (o) Amendment. This Confirmation and the Agreement may not be modified,
amended or supplemented, except in a written instrument signed by Counterparty
and Dealer.
     (p) Counterparts. This Confirmation may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
     (q) Designation by Dealer. Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing Dealer to purchase, sell,
receive or deliver any Shares or other securities to or from Counterparty,
Dealer may designate any of its affiliates to purchase, sell, receive or deliver
such Shares or other securities and otherwise to perform Dealer’s obligations in
respect of the Transaction and any such designee may assume such obligations.
Dealer shall be discharged of its obligations to Counterparty to the extent of
any such performance.

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     (r) Delivery of Cash. For the avoidance of doubt, nothing in this
Confirmation shall be interpreted as requiring the Counterparty to deliver cash
in respect of the settlement of the Transaction, except in circumstances where
the required cash settlement thereof is permitted for classification of the
contract as equity by EITF 00-19 as in effect on the relevant Settlement Date.
     (s) Credit Support Provider and Credit Support Document. Morgan Stanley
shall be a Credit Support Provider with respect to Dealer and the guarantee of
Dealer’s obligations hereunder by Morgan Stanley shall be a Credit Support
Document with respect to Dealer.
     (t) Agent of Dealer. Morgan Stanley & Co. Incorporated (“MS&CO”) is acting
as agent for both parties but does not guarantee the performance of either
party. Neither Dealer nor Counterparty shall contact the other with respect to
any matter relating to the Transaction without the direct involvement of MS&CO;
(ii) MS&CO, Dealer and Counterparty each hereby acknowledges that any
transactions by Dealer or MS&CO with respect to Shares will be undertaken by
Dealer as principal for its own account; (iii) all of the actions to be taken by
Dealer and MS&CO in connection with the Transaction shall be taken by Dealer or
MS&CO independently and without any advance or subsequent consultation with
Counterparty; and (iv) MS&CO is hereby authorized to act as agent for
Counterparty only to the extent required to satisfy the requirements of
Rule 15a-6 under the Exchange Act in respect of the Transaction.

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     Counterparty hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing (in the exact
form provided by Dealer) correctly sets forth the terms of the agreement between
Dealer and Counterparty with respect to the Transaction, by manually signing
this Confirmation or this page hereof as evidence of agreement to such terms and
providing the other information requested herein and immediately returning an
executed copy to us.

            Yours faithfully,

MORGAN STANLEY & CO. INCORPORATED,
as agent
      By:           Name:           Title:           MORGAN STANLEY & CO.
INTERNATIONAL PLC
      By:           Name:           Title:        

          Agreed and Accepted By:    
 
        BORGWARNER INC.    
 
       
By:
       
 
 
 
Name:    
 
  Title:    

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