Document:

EX-10.19

Exhibit
10.19

BORGWARNER INC.

2005 EXECUTIVE INCENTIVE PLAN

 

 

 

BORGWARNER INC.

2005 EXECUTIVE INCENTIVE PLAN

(as amended and restated effective January 1, 2009)

ARTICLE 1.     Establishment, Objectives, and Duration

          1.1 Establishment of the Plan. BorgWarner Inc., a Delaware corporation (the “Company”),
previously established this incentive compensation plan, known as the “BorgWarner Inc. 2005
Executive Incentive Plan” (the “Plan”), as set forth herein and as it may be amended from time to
time.

           The Plan became effective as of the date the stockholders first approved the Plan (the
“Effective Date”) on April 27, 2005, and shall remain in effect as provided in Section 1.3 hereof.
The effective date of this amendment and restatement is January 1, 2009.

           1.2 Objectives of the Plan. The primary objectives of the Plan are: (a) to attract,
motivate, and retain high-caliber individuals by providing competitive annual incentive
opportunities, (b) to provide an incentive to key Employees of the Company who have significant
responsibility for the success and growth of the Company, and (c) to satisfy the requirements of
Section 162(m) of the Internal Revenue Code.

           1.3 Duration of the Plan. The Plan shall commence on the Effective Date and shall remain
in effect, subject to the right of the Committee to amend or terminate the Plan at any time
pursuant to Article 9 hereof, for a period of ten (10) years, at which time the right to grant
Awards under the Plan shall terminate.

ARTICLE 2.     Definitions

           Whenever the following terms are used in the Plan, with their initial letter(s)
capitalized, they shall have the meanings set forth below:

           (a) “Award” means an award described in Article 5 hereof.

           (b) “Award Pool” means, with respect to a Plan Year, 2.25% of Operating Income for the Plan Year.

           (c) “Board” or “Board of Directors” means the Board of Directors of the Company.

           (d) “Code” means the Internal Revenue Code of 1986 as amended from time to time.

           (e) “Committee” means the Compensation Committee of the Board or any other committee appointed by the
Board to administer the Plan and Awards to Participants hereunder, as specified in Article 3 hereof.

           (f) “Company” means BorgWarner Inc., a Delaware corporation, and any successor thereto as provided in
Article 11 hereof.

           (g) “Director” means any individual who is a member of the Board.

           (h) “Effective Date” shall have the meaning ascribed to such term in Section 1.1 hereof.

 

 

           (i) “Employee” means any person who is expressly designated an employee by the Company or Subsidiary
by whom he or she is employed. A person who is not expressly designated an employee shall not be an employee
for purposes of this definition and the Plan, regardless of whether the Internal Revenue Service or a court
has or would designate such a person as an employee of the Company or of a Subsidiary under common law or
statutory principles. Directors who are employed by the Company or by a Subsidiary shall be considered
Employees under the Plan.

           (j) “Operating Income” means the amount reported on the Company’s Consolidated Statements of
Operations for the Plan Year.

           (k) “Participant” means a key Employee who has been selected to receive an Award or who holds an outstanding
Award.

           (l) “Performance-Based Exception” means the performance-based exception from the tax deductibility
limitation imposed by Code Section 162(m), as set forth in Code Section 162(m)(4)(C).

           (m) “Plan” means the BorgWarner Inc 2005 Executive Incentive Plan, as set forth herein and as it may
be amended from time to time.

           (n) “Plan Year” means the Company’s fiscal year, which is the calendar year.

           (o) “Subsidiary” means any corporation, partnership, john venture, or other entity in which the
Company, another entity qualifying as a Subsidiary within this definition, or a combination of any of them
has an ownership or other proprietary interest of more than fitly percent (50%).

ARTICLE 3.      Administration

           3.1 General. The Plan shall be administered by the Committee, which shall consist
exclusively of two (2) or more nonemployee directors who qualify as outside directors within the
meaning of Code Section 162(m) and the related regulations under the Code. The members of the
Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board.
The Committee shall have the authority to delegate administrative duties to officers or Directors
of the Company; provided that the Committee may not delegate its authority with respect to:
(a) non-ministerial actions with respect to Awards that are intended to qualify for the
Performance-Based Exception; and (b) certifying that any performance goals and other material terms
attributable to Awards intended to qualify for the Performance-Based Exception have been satisfied.

           3.2 Authority of the Committee. Except as limited by law or by the Certificate of
Incorporation or Bylaws of the Company, and subject to the provisions hereof, the Committee shall
have the power in its discretion to select key Employees who shall participate in the Plan;
determine the sizes and types of Award and the terms and conditions of Awards in a manner
consistent with the Plan; construe and interpret the Plan and any Award, document, or instrument
issued under the Plan; establish, amend, or waive rules and regulations for the Plan’s
administration; and (subject to the provisions of Article 9 hereof) amend the terms and conditions
of any outstanding Award as provided in the Plan. Further, the Committee shall make all other
determinations that may be necessary or advisable for the administration of the Plan.

           3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant
to the provisions of the Plan and all related orders and resolutions of the Committee shall be
final, conclusive, and binding on all persons, including the Company, its stockholders, Directors,
Employees, Participants, and their estates and beneficiaries.

 

 

           3.4 Performance-Based Awards. For purposes of the Plan, it shall be presumed, unless the
Committee indicates to the contrary, that all Awards are intended to qualify for the
Performance-Based Exception. If the Committee does not intend an Award to qualify for the
Performance-Based Exception, the Committee shall reflect its intent in its records in such manner
as the Committee determines to be appropriate.

ARTICLE 4.     Eligibility and Participation

           4.1 Eligibility. All Employees who are determined by the Committee to be key employees
are eligible to participate in the Plan.

           4.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from
time to time, select from all eligible key Employees those to whom Awards shall be granted and
shall determine the nature and amount of each Award.

ARTICLE 5.     Covered Employee Annual Incentive Award

           5.1 Grant of Awards. All Awards under the Plan shall be granted upon terms approved by
the Committee. However, no Award shall be inconsistent with the terms of the Plan or fail to
satisfy the requirements of applicable law. Each Award shall relate to a designated Plan Year.

           5.2 Award Pool Limitation. The sum of the Awards for a single Plan Year shall not exceed
one hundred percent (100%) of the amount in the Award Pool for that Plan Year.

           5.3 Individual Maximum Awards. For any given Plan Year, no one Participant shall receive
an Award which is in excess of fifty percent (50%) of the Award Pool.

           5.4 Limitations on Committee Discretion. The Committee may reduce, but may not increase,
any of the following:

           (a) The maximum Award for any Participant; and

           (b) The size of the Award Pool.

           5.5 Payment, Payment of Awards shall be subject to the following:

           (a) Unless otherwise determined by the Committee in its sole discretion,
a Participant shall have no right to receive a payment under an Award for a
Plan Year unless the Participant is employed by the Company or a Subsidiary at
all times during the Plan Year.

           (b) As soon as possible after the determination of the Award Pool for a
Plan Year, the Committee shall calculate each Participant’s allocated portion
of the incentive pool based upon the percentage established at the beginning of
the Plan Year. Each Participant’s incentive award then shall be determined by
the Committee based on the Participant’s allocated portion of the incentive
pool subject to Section 5.3 and any downward adjustment, such downward
adjustment to be in the sole discretion of the Committee. In no event may the
portion of the incentive pool allocated to a Participant be increased in any
way, including as a result of the reduction of any other Participant’s
allocated portion. The Committee shall retain the discretion to adjust such
Awards downward.

           (c) Payments of Awards shall be wholly in cash no later than March 15 of
the calendar year following the

 

 

          calendar year for which the Award is made.

           (d) Each Award shall be paid on a date prescribed by the Committee,
unless the Participant has elected to defer payment in accordance with the
rules and regulations established by the Committee.

ARTICLE 6.     Beneficiary Designation

           Each Participant may, from time to time, name any beneficiary or beneficiaries (who may
be named contingently or successively) to whom any benefit under the Plan is to be paid in case of
the Participant’s death before the Participant receives any or all of such benefit. Each such
designation shall revoke all prior designations by the same Participant with respect to such
benefit, shall be in a form prescribed by the Company, and shall be effective only when filed by
the Participant in writing with the Company during the Participant’s lifetime. In the absence of
any such designation, any benefits remaining unpaid under the Plan at the Participant’s death shall
be paid to the Participant’s estate.

ARTICLE 7.     Deferrals

           The Committee may permit or require a Participant to defer such Participant’s receipt of
the payment of cash that would otherwise be due to such Participant in connection with any Awards.
If any such deferral election is required or permitted, the Committee shall establish rules and
procedures for such payment deferrals, which rules and procedures shall satisfy the requirements of
Code section 409A.

ARTICLE 8.     No Right to Employment or Participation

           8.1 Employment. The Plan shall not interfere with or limit in any way the right of the
Company or of any Subsidiary to terminate any Participant’s employment at any time, and the Plan
shall not confer upon any Participant the right to continue in the employ of the Company or of any
Subsidiary.

           8.2 Participation. No Employee shall have the right to be selected to receive an Award
or, having been so selected, to be selected to receive a future Award.

ARTICLE 9.     Amendment, Modification, and Termination

           9.1 Amendment, Modification, and Termination. Subject to the terms of the Plan, the
Committee may at any time and from time to time, alter, amend, suspend, or terminate the Plan in
whole or in part; provided that unless the Committee specifically provides otherwise, any revision
or amendment that would cause the Plan to fail to comply with any requirement of applicable law,
regulation, or rule if such amendment were not approved by the stockholders of the Company shall
not be effective unless and until stockholder approval is obtained.

           9.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events.
The Committee may make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events affecting the Company or the financial
statements of the Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be made available under
the Plan; provided that the Committee shall not be authorized to adjust an Award that the Committee
intends to qualify for the Performance-Based Exception if such adjustment (or the authority to make
such adjustment) would prevent the Award from qualifying for the Performance-Based Exception.

 

 

           9.3 Awards Previously Granted. Notwithstanding any other provision of the Plan to the
contrary (but subject to Section 1.1 hereof), no termination, amendment, or modification of the
Plan shall cause any previously granted Awards to be forfeited. After the termination of the Plan,
any previously granted Award shall remain in effect and shall continue to be governed by the terms
of the Plan and the Award.

ARTICLE 10.     Withholding

           The Company and its Subsidiaries shall have the power and the right to deduct or
withhold, or to require a Participant to remit to the Company or to a Subsidiary, an amount that
the Company or a Subsidiary reasonably determines to be required to comply with federal, state,
local, or foreign tax withholding requirements.

ARTICLE 11.     Successors

           All obligations of the Company under the Plan with respect to Awards granted hereunder
shall be binding on any successor to the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and assets of the Company.

ARTICLE 12.     Legal Construction

           12.1 Gender and Number. Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine, any feminine term used herein also shall include
the masculine, and the plural shall include the singular and the singular shall include the plural.

           12.2 Severability. If any provision of the Plan shall beheld illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

           12.3 Requirements of Law. The granting of Awards under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any governmental agencies as may
be required.

           12.4 Governing Law. The Plan and all Awards shall be construed in accordance with and
governed by the laws of the state of Delaware (without regard to the legislative or judicial
conflict of laws rules of any state), except to the extent superseded by federal law.

           12.5 Code Section 409A. Although the Company does not guarantee to the Participants any
particular tax treatment relating to Awards under the Plan, it is intended that the Awards be
exempt from Section 409A of Code and the regulations and guidance promulgated thereunder
(collectively, “Code Section 409A”), and the Plan shall be construed in a manner consistent with
the requirements for avoiding taxes or penalties under Code Section 409A. Notwithstanding anything
herein to the contrary, in no event whatsoever shall the Company be liable for any additional tax,
interest or penalties that may be imposed on a Participant by Code Section 409A or any damages for
failing to comply with Code Section 409A.EX-10.22

Exhibit 10.22

BORGWARNER INC.

1993 STOCK INCENTIVE PLAN

(Amended Effective November 8, 1995, April 29, 1997, April 28;1998,

February 7, 2002, and January 1, 2009)

 

 

SECTION 1. PURPOSE.

     The purpose of the Plan is to give the Company a significant advantage in attracting,
retaining and motivating officers, employees and directors and to provide the Company and its
subsidiaries with the ability to provide incentives more directly linked to the profitability of
the Company’s businesses and increases in stockholder value.

     For purposes of the Plan, the following terms are defined as set forth below:

     a. “Affiliate” means a corporation or other entity controlled by the Company and designated by
the Committee as such.

     b. “Award” means a Stock Appreciation Right, Stock Option or Restricted Stock.

     c. “Board” means the Board of Directors of the Company.

     d. “Cause” has the meaning set forth in Section 5(i).

     e. “Change in Control” and “Change in Control Price” have the meanings set forth in Sections
8(b) and (c), respectively.

     f. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any
successor thereto.

     g. “Commission” means the Securities and Exchange Commission or any successor agency.

     h. “Committee” means the Committee referred to in Section 2.

     i. “Company” means BorgWarner Inc., a Delaware corporation.

     j. “Disability” means permanent and total disability as determined under procedures
established by the Committee for purposes of the Plan.

     k. “Disinterested Person” shall mean a member of the Board who qualifies as a disinterested
person as defined in Rule 16b-3(c)(2), as promulgated by the Commission under the Exchange Act, or
any successor definition adopted by the Commission.

     l. “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and
any successor thereto.

     m. “Fair Market Value” means, except as provided in Sections 5(j) and 6(b)(ii)(2), as of any
given date, the mean between the highest and lowest reported sales prices of the Stock on the New
York Stock Exchange Composite Tape or, if not listed on such exchange, on any other national
securities exchange on which the Stock is listed or on NASDAQ. If there is no regular public
trading market for such Stock, the Fair Market Value of the Stock shall be determined by the
Committee in good faith.

 

 

     n. “Incentive Stock Option” means any Stock Option intended to be and designated as an
“incentive stock option” within the meaning of Section 422 of the Code.

     o. “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

     p. “Plan” means the BorgWarner Inc. 1993 Stock Incentive Plan, as set forth herein and as
hereinafter amended from time to time.

     q. “Restricted Stock” means an award granted under Section 7.

     r. “Retirement” means retirement from active employment under a pension plan of the Company,
any subsidiary or Affiliate, or under an employment contract with any of them, or termination of
employment at or after age 55 under circumstances which the Committee, in its sole discretion,
deems equivalent to retirement.

     s. “Rule 16b-3” means Rule 16b-3, as promulgated by the Commission under Section 16(b) of the
Exchange Act, as amended from time to time.

     t. “Stock” means Common Stock, par value $.01 per share, of the Company.

     u. “Stock Appreciation Right” means a right granted under Section 6.

     v. “Stock Option” means an option granted under Section 5.

     w. “Termination of Employment” means the termination of the participant’s employment with the
Company and any subsidiary or Affiliate. A participant employed by a subsidiary or an Affiliate
shall also be deemed to incur a Termination of Employment if the subsidiary or Affiliate ceases to
be such a subsidiary or Affiliate, as the case may be, and the participant does not immediately
thereafter become an employee of the Company or another subsidiary or Affiliate.

     In addition, certain other terms used herein have definitions given to them in the first place
in which they are used.

SECTION 2. ADMINISTRATION.

     The Plan shall be administered by the Compensation Committee of the Board or such other
committee of the Board, composed of not less than two Disinterested Persons, each of whom shall be
appointed by and serve at the pleasure of the Board. If at any time no Committee shall be in
office, the functions of the Committee specified in the Plan shall be exercised by the Board.

     The Committee shall have plenary authority to grant Awards pursuant to the terms of the Plan
to officers, employees and directors of the Company and its subsidiaries and Affiliates.

     Among other things, the Committee shall have the authority, subject to the terms of the Plan:

2

 

     (a) to select the officers, employees and directors to whom Awards may from time to time be
granted; provided that awards to non-employee directors may be made only in accordance with Section
13;

     (b) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights and Restricted Stock or any combination thereof are to be
granted hereunder;

     (c) to determine the number of shares of Stock to be covered by each Award granted hereunder;

     (d) to determine the terms and conditions of any Award granted hereunder (including, but not
limited to, the option price (subject to Section 5(a)), any vesting restriction or limitation and
any vesting acceleration or forfeiture waiver regarding any Award and the shares of Stock relating
thereto, based on such factors as the Committee shall determine);

     (e) to modify, amend or adjust the terms and conditions of any Award, at any time or from time
to time, including, but not limited to, with respect to performance goals and measurements
applicable to performance-based Awards pursuant to the terms of the Plan;

     (f) to determine to what extent and under what circumstances Stock and other amounts payable
with respect to an Award shall be deferred; and

     (g) to determine under what circumstances a Stock Option may be settled in cash or Stock under
Section 5(j).

     The Committee shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to
interpret the terms and provisions of the Plan and any Award issued under the Plan (and any
agreement relating thereto) and to otherwise supervise the administration of the Plan.

     The Committee may act only by a majority of its members then in office, except that the
members thereof may (i) delegate to an officer of the Company the authority to make decisions
pursuant to paragraphs (c), (f), (g), (h) and (i) of Section 5 (provided that no such delegation
may be made that would cause Awards or other transactions under the Plan to cease to be exempt from
Section 16(b) of the Exchange Act) and (ii) authorize any one or more of their number or any
officer of the Company to execute and deliver documents on behalf of the Committee.

     Any determination made by the Committee or pursuant to delegated authority pursuant to the
provisions of the Plan with respect to any Award shall be made in the sole discretion of the
Committee or such delegate at the time of the grant of the Award or, unless in contravention of any
express term of the Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding
on all persons, including the Company and Plan participants.

3

 

SECTION 3. STOCK SUBJECT TO PLAN.

     Subject to adjustment as provided herein, the total number of shares of Stock of the Company
available for grant under the Plan shall be 1,500,000; provided that no “covered employee”, as such
term is defined in Section 162(m) of the Code, shall be granted more than 100,000 shares of Stock
in any taxable year. Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares.

     If any shares of Restricted Stock are forfeited for which the participant did not receive any
benefits of ownership (as such phrase is construed by the Commission or its Staff), or if any Stock
Option (and related Stock Appreciation Right, if any) terminates without being exercised, or if any
Stock Appreciation Right is exercised for cash, shares subject to such Awards shall again be
available for distribution in connection with Awards under the Plan.

     In the event of any merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, extraordinary distribution with respect to the Stock or other change in corporate
structure affecting the Stock, the Committee or Board may make such substitution or adjustments in
the aggregate number and kind of shares reserved for issuance under the Plan, in the number, kind
and option price of shares subject to outstanding Stock Options and Stock Appreciation Rights, in
the number and kind of shares subject to other outstanding Awards granted under the Plan and/or
such other substitution or adjustments in the consideration receivable upon exercise as it may
determine to be appropriate in its sole discretion; provided, however, that the number of shares
subject to any Award shall always be a whole number. Such adjusted option price shall also be used
to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right
associated with any Stock Option.

SECTION 4. ELIGIBILITY.

     Officers, employees and directors of the Company, its subsidiaries and Affiliates who are
responsible for or contribute to the management, growth and profitability of the business of the
Company, its subsidiaries and Affiliates are eligible to be granted Awards under the Plan. Except
as expressly authorized by Section 13 of the Plan, however, no grant shall be made to a director
who is not an officer or a salaried employee.

SECTION 5. STOCK OPTIONS.

     Stock Options may be granted alone or in addition to other Awards granted under the Plan and
may be of two types: Incentive Stock Options and Non-Qualified Stock Options. Any Stock Option
granted under the Plan shall be in such form as the Committee may from time to time approve.

     The Committee shall have the authority to grant any optionee Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock
Appreciation Rights). Incentive Stock Options may be granted only to employees of the Company and
its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock
Option is not designated as an Incentive Stock Option or even if so designated does not qualify as
an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.

4

 

     The Committee may authorize the Chief Executive Officer of the Corporation, who need not be a
Disinterested Person, to grant in any calendar year a Non-Qualified Stock Option (with or without
Stock Appreciation Rights) for up to 3,000 shares of Stock to any employee of the Company who is
not an executive officer of the Company subject to Section 1.6 of the Exchange Act. The Committee
may limit or qualify such authorization in any manner it deems appropriate. Stock Options granted
by the Chief Executive Officer shall have the terms and conditions determined by the Committee and
the Committee shall periodically review such grants.

     Stock Options shall be evidenced by option agreements, the terms and provisions of which may
differ. An option agreement shall indicate on its face whether it is intended to be an agreement
for an Incentive Stock Option or a Non-Qualified Stock Option. The grant of a Stock Option shall
occur on the date the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Stock to be subject to such Stock
Option to be granted to such individual and specifies the terms and provisions of the Stock Option.
The Company shall notify a participant of any grant of a Stock Option, and a written option
agreement or agreements shall be duly executed and delivered by the Company to the participant.
Such agreement or agreements shall become effective upon execution by the participant.

     Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to
Incentive Stock Options shall be interpreted, amended or altered nor shall any discretion or
authority granted under the Plan be exercised so as to disqualify the Plan under Section 422 of the
Code or, without the consent of the optionee affected, to disqualify any Incentive Stock Option
under such Section 422.

     Stock Options granted under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions as the Committee shall deem desirable:

     (a) Option Price. The option price per share of Stock purchasable under a Stock
Option shall be determined by the Committee and set forth in the option agreement, and shall not be
less than the Fair Market Value of the Stock subject to the Stock Option on the date of grant,
except that any Stock Options granted on the effective date of the Company’s initial public
offering of Common Stock shall have an option price per share equal to the price per share paid by
the public in such offering.

     (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but
no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted.

     (c) Exercisability. Except as otherwise provided herein, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions as shall be determined
by the Committee. If the Committee provides that any Stock Option is exercisable only in
installments, the Committee may at any time waive such installment exercise provisions, in whole or
in part, based on such factors as the Committee may determine. In addition, the Committee may at
any time, in whole or in part, accelerate the exercisability of any Stock Option.

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     (d) Method of Exercise. Subject to the provisions of this Section 5, Stock Options
may be exercised, in whole or in part, at any time during the option term by giving written notice
of exercise to the Company specifying the number of shares of Stock subject to the Stock Option to
be purchased.

     The option price of Stock to be purchased upon exercise of any Option shall be paid in full in
cash (by certified or bank check or such other instrument as the Company may accept) or, if and to
the extent set forth in the option agreement, may also be paid by one or more of the following: (i)
in the form of unrestricted Stock already owned by the optionee (and, in the case of the exercise
of a Non-Qualified Stock Option, Restricted Stock subject to an Award hereunder) based in any such
instance on the Fair Market Value of the Stock on the date the Stock Option is exercised; provided,
however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Stock may be authorized only at the time the Stock Option is granted; (ii)
by requesting the Company to withhold from the number of shares of Stock otherwise issuable upon
exercise of the Stock Option that number of shares having an aggregate fair market value on the
date of exercise equal to the exercise price for all of the shares of Stock subject to such
exercise; or (iii) by a combination thereof, in each case in the manner provided in the option
agreement

     In the discretion of the Committee, payment for any shares subject to a Stock Option may also
be made by delivering a properly executed exercise notice to the Company, together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan
proceeds to pay the purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.

     If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in
part in the form of Restricted Stock, the number of shares of Stock to be received upon such
exercise equal to the number of shares of Restricted Stock used for payment of the option exercise
price shall be subject to the same forfeiture restrictions to which such Restricted Stock was
subject, unless otherwise determined by the Committee.

     No shares of Stock shall be issued until full payment therefor has been made. Subject to any
forfeiture restrictions that may apply if a Stock Option is exercised using Restricted Stock, an
optionee shall have all of the rights of a stockholder of the Company holding the Stock that is
subject to such Stock Option (including, if applicable, the right to vote the shares and the right
to receive dividends), when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in Section 11(a).

     (e) Non-transferability of Stock Options. No Stock Option shall be transferable by
the optionee other than (i) by will or by the laws of descent and distribution or (ii) in the case
of a Non-Qualified Stock Option, pursuant to a qualified domestic relations order (as defined in
the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder). All Stock Options shall be exercisable, during the optionee’s lifetime, only by
the optionee or by the guardian or legal representative of the optionee or, in the case of a
Non-Qualified Stock Option, its alternate payee pursuant to such qualified domestic relations
order, it being understood that the terms “holder” and “optionee” include the guardian and legal
representative of the optionee named in the option agreement and any person to whom an option

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is transferred by will or the laws of descent and distribution or, in the case of a
Non-Qualified Stock Option, pursuant to a qualified domestic relations order.

     (f) Termination by Death. If an optionee’s employment terminates by reason of death,
any Stock Option held by such optionee may thereafter be exercised, to the extent then exercisable,
or on such accelerated basis as the Committee may determine, for a period of one year (or such
other period as the Committee may specify in the option agreement) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period is the shorter. In
the event of termination of employment due to death, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Non-Qualified Stock Option.

     (g) Termination by Reason of Disability. If an optionee’s employment terminates by
reason of Disability, any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of termination, or on such accelerated basis
as the Committee may determine, for a period of three years (or such shorter period as the
Committee may specify in the option agreement) from the date of such termination of employment or
until the expiration of the stated term of such Stock Option, whichever period is the shorter;
provided, however, that if the optionee dies within such three-year period (or such shorter
period), any unexercised Stock Option held by such optionee shall, notwithstanding the expiration
of such three-year (or such shorter) period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of Disability, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.

     (h) Termination by Reason of Retirement. If an optionee’s employment terminates by
reason of Retirement, any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of such Retirement or on such accelerated
basis as the Committee may determine, for a period of three years (or such shorter period as the
Committee may specify in the option agreement) from the date of such termination of employment or
until the expiration of the stated term of such Stock Option, whichever period is the shorter;
provided, however, that if the optionee dies within such three-year (or such shorter) period, any
unexercised Stock Option held by such optionee shall, notwithstanding the expiration of such
three-year (or such shorter) period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the shorter. In the event
of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Non-Qualified Stock Option.

     (i) Other Termination. Unless otherwise determined by the Committee, if an optionee
incurs a Termination of Employment for any reason other than death, Disability or Retirement, any
Stock Option held by such Optionee shall thereupon terminate, except that such Stock Option, to the
extent then exercisable, or on such accelerated basis as the Committee may

7

 

determine, may be exercised for the lesser of one year from the date of such Termination of
Employment or the balance of such Stock Option’s term if such Termination of Employment of the
optionee is involuntary and without Cause; provided, however, that if the optionee dies within such
one-year period, any unexercised Stock Option held by such optionee shall notwithstanding the
expiration of such one-year period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the shorter. In the event
of Termination of Employment for any reason other than death, Disability or Retirement, if an
Incentive Stock Option is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option. Unless otherwise determined by the Committee, for the purposes of the
Plan “Cause” shall mean (i) the conviction of the optionee for committing a felony under Federal
law or the law of the state in which such action occurred, (ii) dishonesty in the course of
fulfilling the optionee’s employment duties or (iii) willful and deliberate failure on the part of
the optionee to perform his employment duties in any material respect.

     (j) Cashing Out of Stock Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of the shares of Stock for which a Stock
Option is being exercised by paying the optionee an amount, in cash or Stock, equal to the excess
of the Fair Market Value of the Stock over the option price times the number of shares of Stock for
which to the Option is being exercised on the effective date of such cash out.

     Cash outs pursuant to this Section 5(j) relating to options held by optionees who are actually
or potentially subject to Section 16(b) of the Exchange Act shall comply with the “window period”
provisions of Rule 16b-3(e), to the extent applicable, and, in the case of cash outs of
Non-Qualified Stock Options held by such optionees, the Committee may determine Fair Market Value
under the pricing rule set forth in Section 6(b)(ii)(2).

     (k) Change in Control Cash Out. Notwithstanding any other provision of the Plan,
during the 60-day period from and after a Change in Control (the “Exercise Period”), unless the
Committee shall determine otherwise at the time of grant, an optionee shall have the right, whether
or not the Stock Option is fully exercisable and in lieu of the payment of the exercise price for
the shares of Stock being purchased under the Stock Option and by giving notice to the Company, to
elect (within the Exercise Period) to surrender all or part of the Stock Option to the Company and
to receive cash, within 30 days of such notice, in an amount equal to the amount by which the
Change in Control Price per share of Stock on the date of such election shall exceed the exercise
price per share of Stock under the Stock Option (the “Spread”) multiplied by the number of shares
of Stock granted under the Stock Option as to which the right granted under this Section 5(k) shall
have been exercised; provided, however, that if the Change in Control is within six months of the
date of grant of a particular Stock Option held by an optionee who is an officer or director of the
Company and is subject to Section 16(b) of the Exchange Act no such election shall be made by such
optionee with respect to such Stock Option prior to six months from the date of grant.
Notwithstanding any other provision hereof, if the end of such 60-day period from and after a
Change in Control is within six months of the date of grant of a Stock Option held by an optionee
who is an officer or director of the Company and is subject to Section 16(b) of the Exchange Act,
such Stock Option shall be cancelled in exchange for a cash payment to the optionee, effected on
the day which is six months and one day after the date of grant of

8

 

such Option, equal to the Spread multiplied by the number of shares of Stock granted under the
Stock Option.

     (l) Modification. Notwithstanding any provision of this Plan or any stock option
agreement to the contrary, no Modification shall be made in respect to any Stock Option if such
Modification would result in the Stock Option constituting a deferral of compensation or having an
additional deferral feature.

     (m) Subject to Subjection (n) below, a “Modification” for purposes of Subsection (l), above,
shall mean any change in the terms of a Stock Option (or change in the terms of the Plan or
applicable stock option agreement) that may provide the holder of the Stock Option with a direct or
indirect reduction in the exercise price of the Stock Option or an additional deferral feature, or
an extension or renewal of the Stock Option, regardless of whether the holder in fact benefits from
the change in terms. An extension of a Stock Option refers to the granting to the holder of an
additional period of time within which to exercise the Stock Option beyond the time originally
prescribed. A renewal of a Stock Option is the granting by the Company of the same rights or
privileges contained in the original stock option agreement for the Stock Option on the same terms
and conditions.

     (n) Notwithstanding Subsection (m) above, it shall not be a Modification to change the terms
of a Stock Option in any of the ways or for any of the purposes specifically described in published
guidance of the Internal Revenue Service as not resulting in a modification, extension or renewal
of a stock right or the granting of a new stock right.

     (o) Subsequent to its grant, the exercise period of a Stock Option shall not be extended to a
date that is later than the earlier of (i) the date on which the Option would expire by its
original terms, or (ii) the 10th anniversary of the original date of grant.

     (p) Except for adjustments as permitted by Section 3, once granted hereunder, the option price
of a Stock Option shall not be adjusted. The substitutions and adjustments permitted by Section 3
shall be limited to those substitutions and adjustments which will not result in the Stock Option,
as substituted or adjusted, constituting a “deferral of compensation” within the meaning of Code
Section 409A.

SECTION 6. STOCK APPRECIATION RIGHTS.

     (a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of grant of such Stock Option. In
the case of an Incentive Stock Option, such rights may be granted only at the time of grant of such
Stock Option. A Stock Appreciation Right shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option.

     A Stock Appreciation Right may be exercised by an optionee in accordance with Section 6(b) by
surrendering the applicable portion of the related Stock Option in accordance with procedures
established by the Committee. Upon such exercise and surrender, the optionee shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b). Stock

9

 

Options which have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised.

     (b) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:

          (i) Stock Appreciation Rights shall be exercisable only at such time or times and to the
extent that the Stock Options to which they relate are exercisable in accordance with the
provisions of Section 5 and this Section 6.

          (ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive
an amount in cash, shares of Stock or both equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the related Stock Option multiplied
by the number of shares in respect of which the Stock Appreciation Right shall have been exercised,
with the Committee having the right to determine the form of payment.

In the case of Stock Appreciation Rights relating to Stock Options held by optionees who are
actually or potentially subject to Section 16(b) of the Exchange Act, the Committee:

               (1) may require that such Stock Appreciation Rights be exercised for cash only in accordance
with the applicable “window period” provisions of Rule 16b-3; and

               (2) in the case of Stock Appreciation Rights relating to Non-Qualified Stock Options, may
provide that any amount to be paid in cash upon exercise of such Stock Appreciation Rights during a
Rule 16b-3 “window period” shall be based on the highest of the daily means between the highest and
lowest reported sales prices of the Stock on the New York Stock Exchange or other national
securities exchange on which the shares are listed or on NASDAQ, as applicable, occurring during
such “window period”.

          (iii) Stock Appreciation Rights shall be transferable only to permitted transferees of the
underlying Stock Option in accordance with Section 5(e)

     (c) Modification. Notwithstanding any provision of this Plan or any stock
appreciation rights agreement to the contrary, no Modification shall be made in respect to any
Stock Appreciation Right if such Modification would result in the Stock Appreciation Right
constituting a deferral of compensation or having an additional deferral feature.

     (d) Subject to Subjection (e) below, a “Modification” for purposes of Subsection (c), above,
shall mean any change in the terms of an Stock Appreciation Right (or change in the terms of the
Plan or applicable stock appreciation rights agreement) that may provide the holder of the Stock
Appreciation Right with a direct or indirect reduction in the base price of the Stock Appreciation
Right, or an additional deferral feature, or an extension or renewal of the Stock Appreciation
Right, regardless of whether the holder in fact benefits from the change in terms. An extension of
a Stock Appreciation Right refers to the granting to the holder of an additional period of time
within which to exercise the Stock Appreciation Right beyond the time originally prescribed. A
renewal of a Stock Appreciation Right is the granting by the Company of the same

10

 

rights or privileges contained in the original stock appreciation rights agreement for the
Stock Appreciation Right on the same terms and conditions.

     (e) Notwithstanding Subsection (d) above, it shall not be a Modification to change the terms
of a Stock Appreciation Right in any of the ways or for any of the purposes specifically described
in published guidance of the Internal Revenue Service as not resulting in a modification, extension
or renewal of a stock right or the granting of a new stock right.

     (f) Subsequent to its grant, no Stock Appreciation Right shall be extended to a date that is
later than the earlier of (i) the date on which the Stock Appreciation Right would expire by its
original terms, or (ii) the 10th anniversary of the original date of grant.

     (g) Except for adjustments as permitted by Section 3, once granted hereunder, the base price
of a Stock Appreciation Right shall not be adjusted. The substitutions and adjustments permitted
by Section 3 shall be limited to those substitutions and adjustments which will not result in the
Stock Appreciation Right, as substituted or adjusted, constituting a “deferral of compensation”
within the meaning of Code Section 409A.

SECTION 7. RESTRICTED STOCK.

     (a) Administration. Shares of Restricted Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine the officers and
employees to whom and the time or times at which grants of Restricted Stock will be awarded, the
number of shares to be awarded to any participant, the time or tunes within which such Awards may
be subject to forfeiture and any other terms and conditions of the Awards, in addition to those
contained in Section 7(c).

     The Committee may condition the grant of Restricted Stock upon the attainment of specified
performance goals of the participant or of the Company or subsidiary, division or department of the
Company for or within which the participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.

     (b) Awards and Certificates. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may deem appropriate, including book-entry registration or issuance of one
or more stock certificates. Any certificate issued in respect of shares of Restricted Stock shall
be registered in the name of such participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award, substantially in the following form:

“The transferability of this certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture) of the 1993 Stock
Incentive Plan and a Restricted Stock Agreement. Copies of such Plan and Agreement
are on file at the offices of Borg-Warner Automotive, Inc., 200 South Michigan
Avenue, Chicago, Illinois 60604.”

The Committee may require that the certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of

11

 

Restricted Stock, the participant shall have delivered a stock power, endorsed in blank, relating
to the Stock covered by such Award.

     (c) Terms and Conditions. Shares of Restricted Stock shall be subject to the
following terms and conditions:

          (i) Subject to the provisions of the Plan and the Restricted Stock Agreement referred to in
Section 7(c)(vi), during a period set by the Committee, commencing with the date of such Award (the
“Restriction Period”), the participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock. The Committee may provide for the lapse of such
restrictions in installments or otherwise and may accelerate or waive such restrictions, in whole
or in part, in each case based on period of service, performance of the participant or of the
Company or the subsidiary, division or department for which the participant is employed or such
other factors or criteria as the Committee may determine.

          (ii) Except as provided in this paragraph (ii) and Section 7(c)(i) and the Restricted Stock
Agreement, the participant shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class or series of Stock that is the subject of
the Restricted Stock, including, if applicable, the right to vote the shares and the right to
receive any cash dividends. If so determined by the Committee in the applicable Restricted Stock
Agreement and subject to Section 11(f) of the Plan, (1) cash dividends on the shares of Stock that
are the subject of the Restricted Stock Award shall be automatically deferred and reinvested in
additional Restricted Stock, and (2) dividends payable in Stock shall be paid in the form of
Restricted Stock. Absent such a provision regarding dividends in the applicable Restricted Stock
Agreement, any dividend payable with respect to Restricted Stock shall be paid to the Participant
no later than the end of the calendar year in which the same dividends on Stock are paid to
shareholders of Stock, or if later, the 15th day of the third month following the date on which the
same dividends on Stock are paid to the Stock’s shareholders.

          (iii) Except to the extent otherwise provided in the applicable Restricted Stock Agreement and
Sections 7(c)(i), 7(c)(iv) and 8(a)(ii), upon a participant’s Termination of Employment for any
reason during the Restriction Period, all shares still subject to restriction shall be forfeited by
the participant.

          (iv) Except to the extent otherwise provided in Section 8(a)(ii), in the event of an
involuntary Termination of Employment of a participant for any reason (other than for Cause), the
Committee shall have the discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such participant’s shares of Restricted Stock.

          (v) If and when the Restriction Period expires without a prior forfeiture of the Restricted
Stock subject to such Restriction Period, unlegended certificates for such shares shall be
delivered to the participant.

          (vi) Each Award shall be confirmed by, and be subject to the terms of, a Restricted Stock
Agreement.

12

 

SECTION 8. CHANGE IN CONTROL PROVISIONS.

     (a) Impact of Event. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control:

          (i) Any Stock Options and Stock Appreciation Rights outstanding as of the date such Change in
Control is determined to have occurred and not then exercisable and vested shall become fully
exercisable and vested to the full extent of the original grant.

          (ii) The restrictions applicable to any Restricted Stock shall lapse, and such Restricted
Stock shall become free of all restrictions and become fully vested and transferable to the full
extent of the original grant.

     (b) Definition of Change in Control. For purposes of the Plan, a “Change in Control”
shall mean the happening of any of the following events:

          (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of 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 (A) the then outstanding shares
of common stock of the Company (the “Outstanding Company Common Stock”) or (B) 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 (b), the following acquisitions shall not constitute a Change in
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 corporation controlled by the Company, or (Z) any acquisition by any corporation pursuant to
a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section
8(b); or

          (ii) 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 shareholders, 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; or

          (iii) Consummation by the Company of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or the acquisition of
assets of another corporation (each of the foregoing, a “Business Combination”), in each case,
unless, following such Business Combination, (A) all or substantially all of the individuals and
entities who 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 and the combined voting

13

 

power of the then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation 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, (B) no Person (excluding 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 of the corporation resulting from such Business Combination or the combined voting power of
the then outstanding voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (C) at least a majority of the members of the board
of directors of the corporation resulting 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

          (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of
the Company.

     (c) Change in Control Price. For purposes of the Plan, “Change in Control Price”
means the higher of (i) the highest reported sales price, regular way, of a share of Common Stock
in any transaction reported on the New York Stock Exchange Composite Tape or other national
exchange on which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control or (ii) if the Change in Control is the result of a
tender or exchange offer or a Business Combination, the highest price per share of Common Stock
paid in such tender or exchange offer or Business Combination; provided, however, that (X) in the
case of a Stock Option which (I) is held by an optionee who is an officer or director of the
Company and is subject to Section 16(b) of the Exchange Act and (II) was granted within 240 days of
the Change in Control, then the Change in Control Price for such Stock Option shall be the Fair
Market Value of the Stock on the date such Stock Option is exercised or cancelled and (Y) in the
case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options,
the Change in Control Price shall be in all cases the Fair Market Value of the Stock on the date
such Incentive Stock Option or Stock Appreciation Right is exercised. To the extent that the
consideration paid in any such transaction described above consists all or in part of securities or
other non-cash consideration, the value of such securities or other non-cash consideration shall be
determined in the sole discretion of the Board.

SECTION 9. TERM, AMENDMENT AND TERMINATION.

     The Plan will terminate on December 31, 2003. Under the Plan, Awards outstanding as of
December 31, 2003 shall not be affected or impaired by the termination of the Plan.

     The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made which would (i) impair the rights of an optionee under a Stock Option
or a recipient of a Stock Appreciation Right or Restricted Stock Award theretofore granted without
the optionee’s or recipient’s consent, except such an amendment made to cause

14

 

the Plan to qualify for the exemption provided by Rule 16h-3, or (ii) disqualify the Plan from
the exemption provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Company’s stockholders to the extent such approval is required by law or agreement.

     The Committee may amend the terms of any Stock Option or other Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of any holder without
the holder’s consent except such an amendment made to cause the Plan or Award to qualify for the
exemption provided by Rule 16b-3. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options having higher option
prices.

     Subject to the above provisions, the Board shall have authority to amend the Plan to take into
account changes in law and tax and accounting rules, as well as other developments and to grant
Awards which qualify for beneficial treatment under such rules without stockholder approval.

SECTION 10. UNFUNDED STATUS OF PLAN.

     It is presently intended that the Plan constitute an “unfunded” plan for incentive and
deferred compensation. The Committee may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Stock or make payments; provided, however,
that, unless the Committee otherwise determines, the existence of such trusts or other arrangements
is consistent with the “unfunded” status of the Plan.

SECTION 11. GENERAL PROVISIONS.

     (a) The Committee may require each person purchasing or receiving shares pursuant to an Award
to represent to and agree with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on transfer.

     All certificates for shares of Stock or other securities delivered under the Plan shall be
subject to such stock transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Commission, any stock exchange upon
which the Stock is then listed and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

     (b) Nothing contained in the Plan shall prevent the Company or any subsidiary or Affiliate
from adopting other or additional compensation arrangements for its employees.

     (c) The adoption of the Plan shall not confer upon any employee any right to continued
employment nor shall it interfere in any way with the right of the Company or any subsidiary or
Affiliate to terminate the employment of any employee at any time.

     (d) No later than the date as of which an amount first becomes includible in the gross income
of the participant for Federal income tax purposes with respect to any Award under the

15

 

Plan, the participant shall pay to the Company, or make arrangements satisfactory to the
Company regarding the payment of, any Federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part of the Award that
gives rise to the withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company, its Subsidiaries and its Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the participant. The Committee may establish such procedures as it deems
appropriate, including the making of irrevocable elections, for the settlement of withholding
obligations with Stock.

     (e) At the time of grant, the Committee may provide in connection with any grant made under
the Plan that the shares of Stock received as a result of such grant shall be subject to a right of
first refusal pursuant to which the participant shall be required to offer to the Company any
shares that the participant wishes to sell at the then Fair Market Value of the Stock, subject to
such other terms and conditions as the Committee may specify at the time of grant.

     (f) The reinvestment of dividends in additional Restricted Stock at the time of any dividend
payment shall only be permissible if sufficient shares of Stock are available under Section 3 for
such reinvestment (taking into account then outstanding Stock Options and other Awards).

     (g) The Committee shall establish such procedures as it deems appropriate for a participant to
designate a beneficiary to whom any amounts payable in the event of the participant’s death are to
be paid.

     (h) The Plan and all Awards made and actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware.

     (i) It is intended that Stock Options awarded pursuant to Section 5, Stock Appreciation Rights
awarded pursuant to Section 6, and Restricted Stock awarded pursuant to Section 7 not constitute a
“deferral of compensation within the meaning of Code Section 409A. This Plan shall be interpreted
for all purposes and operated to the extent necessary in order to comply with the intent expressed
in this paragraph.

SECTION 12. EFFECTIVE DATE OF PLAN.

     The Plan shall be effective on the date it is approved by the shareholders of the Company.

SECTION 13. DIRECTOR STOCK OPTIONS.

     (a) Each director of the Company who is not otherwise an employee of the Company or any
Affiliate from and after August 1, 1993 shall, on the third Tuesday of each year during such
director’s term, automatically be granted Non-Qualified Stock Options to purchase 2,000 shares of
Stock having an exercise price per share equal to 100% of the Fair Market Value of the Stock at the
date of grant of such Non-Qualified Stock Option. Each such director, upon joining the Board,
shall also be awarded an initial grant of Non-Qualified Stock Options to purchase

16

 

2,000 shares of Stock having an exercise price equal to 100% of the Fair Market Value of the
Stock as of such date.

     (b) An automatic director Stock Option shall be granted hereunder only if as of each date of
grant (or, in the case of any initial grant, from and after the effective date of the Plan) the
director (i) is not otherwise an employee of the Company, any Affiliate or Merrill Lynch Capital
Partners, Inc., (ii) has not been an employee of the Company or any subsidiary for any part of the
preceding fiscal year, and (iii) has served on the Board continuously since the commencement of his
term.

     (c) Each holder of a Stock Option granted pursuant to this Section 13 shall also have the
rights specified in Section 5(k).

     (d) In the event that the number of shares of Stock available for future grant under the Plan
is insufficient to make all automatic grants required to be made on such date, then all
non-employee directors entitled to a grant on such date shall share ratably in the number of
options on shares available for grant under the Plan.

     (e) The provisions of paragraph (a) of this Section 13 may not be amended more often than once
every six months. Except as expressly provided in this Section 13, any Stock Option granted
hereunder shall be subject to the terms and conditions of the Plan as if the grant were made
pursuant to Section 5 hereof.

17

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