FORM OF
ISSUER WARRANT TRANSACTION
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BorgWarner
Inc.
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3850 Hamlin
Road
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Auburn Hills,
MI 48326
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Bank of
America, N.A.
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c/o Banc of
America Securities LLC
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Bank of America
Tower at One Bryant Park
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New York, NY
10036
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Issuer Warrant
Transaction
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NY-38451
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April 6,
2009
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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 Bank of America, N.A. (“ Dealer ”) and
BorgWarner Inc. (“ Issuer ”). 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. For
purposes of the Equity Definitions, each reference herein to a
Warrant shall be deemed to be a reference to a Call Option or an
Option, as context requires.
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
Issuer 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 Issuer 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 Issuer with a “Threshold Amount” of
USD25 million and (iv) such other elections as set forth
in this Confirmation.
1
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 Issuer or
any confirmation or other agreement between Dealer and Issuer
pursuant to which an ISDA Master Agreement is deemed to exist
between Dealer and Issuer, then notwithstanding anything to the
contrary in such ISDA Master Agreement, such confirmation or
agreement or any other agreement to which Dealer and Issuer are
parties, the Transaction shall not be considered a Transaction
under, or otherwise governed by, such existing or deemed ISDA
Master Agreement.
The Transaction is
a Warrant Transaction, which shall be considered a Share Option
Transaction for purposes of the Equity Definitions. The terms of
the particular Transaction to which this Confirmation relates are
as follows:
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April 6,
2009
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April 9,
2009, or such other date as agreed between the parties, subject to
Section 8(k) below.
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The Transaction
will be divided into individual Components, each with the terms set
forth in this Confirmation, and, in particular, with the Number of
Warrants and Expiration Date set forth in this Confirmation. The
payments and deliveries to be made upon settlement of the
Transaction will be determined separately for each Component as if
each Component were a separate Transaction under the
Agreement.
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European
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Call
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Issuer
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Dealer
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The Common
Stock of Issuer, par value USD0.01 per share (Ticker Symbol:
“BWA”).
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For each
Component, as provided in Annex A to this Confirmation.
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One Share per
Warrant
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USD38.61
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USD13,585,001
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The Effective
Date
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New York Stock
Exchange
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All Exchanges
located in the United States.
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In
respect of any Component:
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Valuation
Time
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2
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As provided in
Annex A to this Confirmation (or, if such date is not a
Scheduled Trading Day, the next following Scheduled Trading Day
that is not already an Expiration Date for another Component);
provided that if that date is a Disrupted Day, the
Expiration Date for such Component shall be the first succeeding
Scheduled Trading Day that is not a Disrupted Day and is not or is
not deemed to be an Expiration Date in respect of any other
Component of the Transaction hereunder; and provided further
that if the Expiration Date has not occurred pursuant to the
preceding proviso as of the Final Disruption Date, the Calculation
Agent shall have the right to elect, in its reasonable discretion,
that the Final Disruption Date shall be the Expiration Date
(irrespective of whether such date is an Expiration Date in respect
of any other Component for the Transaction). “ Final
Disruption Date ” means October 19, 2012.
Notwithstanding the foregoing and anything to the contrary in the
Equity Definitions, if a Market Disruption Event occurs on any
Expiration Date, the Calculation Agent may reasonably determine
that such Expiration Date is a Disrupted Day only in part, in which
case the Calculation Agent shall make adjustments to the Number of
Warrants for the relevant Component for which such day shall be the
Expiration Date and shall designate the Scheduled Trading Day
determined in the manner described in the immediately preceding
sentence as the Expiration Date for the remaining Warrants for such
Component and shall determine the VWAP Price based on transactions
in the Shares effected before the relevant Market Disruption Event
occurred and/or after the relevant Market Disruption Event ended.
Section 6.6 of the Equity Definitions shall not apply to any
Valuation Date occurring on an Expiration Date.
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Section 6.3(a) of the Equity Definitions is
hereby amended by deleting the words “during the one hour
period that ends at the relevant Valuation Time, Latest Exercise
Time, Knock-in Valuation Time or Knock-out Valuation Time, as the
case may be,” in clause (ii) thereof.
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Section 6.3(d) of the Equity Definitions is
hereby amended by deleting the remainder of the provision following
the term “Scheduled Closing Time” in the fourth line
thereof. Any Scheduled Trading Day on which the Exchange is
scheduled to close prior to its normal close of trading shall be
deemed to be a Disrupted Day in full.
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Applicable; and
means that the Number of Warrants for the corresponding Expiration
Date will be deemed to be automatically exercised at the Expiration
Time on such Expiration Date unless Dealer notifies Seller (by
telephone or in writing) prior to the Expiration
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3
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Time on such
Expiration Date that it does not wish Automatic Exercise to occur,
in which case Automatic Exercise will not apply to such Expiration
Date.
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Issuer’s Telephone Number
and
Telex and/or Facsimile Number
and Contact Details for purpose
of Giving Notice:
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To: BorgWarner
Inc.
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Attn: Anthony
D. Hensel,
Vice
President and Treasurer
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Telephone:
248-754-0861
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Facsimile:
248-754-9069
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In
respect of any Component:
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USD
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On each
Settlement Date, Issuer shall deliver to Dealer a number of Shares
equal to the Number of Shares to be Delivered for such Settlement
Date to the account specified by Dealer and cash in lieu of any
fractional Share valued at the VWAP Price on the Valuation Date
corresponding to such Settlement Date. If, in the reasonable
judgment of Issuer or Dealer, based on advice of counsel, for any
reason, the Shares deliverable upon Net Share Settlement would not
be immediately freely transferable by Dealer under Rule 144
under the Securities Act of 1933, as amended (the “
Securities Act ”), then Dealer may elect to either
(x) accept delivery of such Shares notwithstanding any
restriction on transfer or (y) have the provisions set forth
in Section 8(b) below apply.
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The Number of
Shares to be Delivered shall be delivered by Issuer to Dealer no
later than 12:00 noon (local time in New York City) on the relevant
Settlement Date.
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Number of Shares to be
Delivered:
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In respect of
any Exercise Date, subject to the last sentence of Section 9.5
of the Equity Definitions, the product of (i) the number of
Warrants exercised or deemed exercised on such Exercise Date,
(ii) the Warrant Entitlement and (iii) (A) the excess of
the VWAP Price on the Valuation Date occurring on such Exercise
Date over the Strike Price (or, if there is no such excess, zero)
divided by (B) such VWAP Price.
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For any
Exchange Business Day, as reasonably determined by the Calculation
Agent based on the New York Stock Exchange Volume Weighted Average
Price per Share for the regular trading session (including any
extensions thereof) of the Exchange on such Exchange Business Day
(without
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regard to
pre-open or after hours trading outside of such regular trading
session), as published by Bloomberg at 4:15 P.M., New York City
time (or 15 minutes following the end of any extension of the
regular trading session), on such Exchange Business Day, on
Bloomberg page “BWA.N <Equity> AQR” (or any
successor thereto) (or if such published volume weighted average
price is unavailable or is manifestly incorrect, the market value
of one Share on such Exchange Business Day, as reasonably
determined by the Calculation Agent using a volume weighted
method).
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Other Applicable
Provisions:
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The provisions
of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 and 9.12 of the
Equity Definitions will be applicable as if “Physical
Settlement” applied to the Transaction; provided 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 that
exist as a result of the fact that Issuer is the issuer of the
Shares.
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In
respect of any Component:
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Calculation
Agent Adjustment; provided that the parties agree that open
market Share repurchases at prevailing market prices or accelerated
share repurchases, forward contracts or similar transactions on
customary terms (including without limitation any discount to
average VWAP prices) shall not be considered Potential Adjustment
Events. For the avoidance of doubt, Calculation Agent Adjustment
shall continue to apply until the obligations of the parties
(including any obligations of Issuer pursuant to Section 8(e)
below) under the Transaction have been satisfied in
full.
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In the
definition of New Shares in Section 12.1(i) of the Equity
Definitions, the text in clause (i) shall be deleted in its
entirety and replaced with “publicly quoted, traded or listed
on any of the New York Stock Exchange, The NASDAQ Global Market or
The NASDAQ Global Select Market (or their respective
successors)”.
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Consequences of Merger
Events:
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Modified
Calculation Agent Adjustment
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Cancellation
and Payment (Calculation Agent Determination)
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Cancellation
and Payment (Calculation Agent Determination); provided that
the Calculation Agent may elect Component Adjustment for all or
part of the Transaction.
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Applicable;
provided that for the purposes of Section 12.1(d) of
the Equity Definitions, references in the definition of Tender
Offer to 10% shall be replaced with 20%.
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Consequences of Tender
Offers:
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Modified
Calculation Agent Adjustment
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Modified
Calculation Agent Adjustment
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Modified
Calculation Agent Adjustment
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Upon the
occurrence of any Merger Event pursuant to which the holders of
Issuer’s Shares would be entitled to receive cash, securities
or other property for their Shares and for which Modified
Calculation Agent Adjustment would apply, if, as a result of such
Merger Event, Issuer would be different from the issuer of the
Shares under this Confirmation, then, on or prior to the effective
date of such Merger Event, the Issuer and the issuer of the Shares
under this Confirmation will enter into a supplemental confirmation
as a condition precedent to the adjustments contemplated in
Section 12.2(e)(i) of the Equity Definitions, with such
supplemental confirmation containing representations, warranties
and agreements relating to securities law and other issues as
reasonably requested by Dealer that Dealer has determined, in its
reasonable discretion, to be reasonably necessary or appropriate to
allow Dealer to continue as a party to the Transaction, as adjusted
under Section 12.2(e)(i) of the Equity Definitions, and to preserve
its hedging or hedge unwind activities in connection with the
Transaction in a manner compliant with applicable legal, regulatory
or self-regulatory requirements, or with related policies and
procedures applicable to Dealer, and if such conditions are not met
in all material respects or if the Calculation Agent determines
that no adjustment that it could make under Section 12.2(e)(i)
of the Equity Definitions will produce a commercially reasonable
result, then the consequences set forth in Section 12.2(e)(ii)
of the Equity Definitions shall apply.
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Nationalization, Insolvency
or Delisting:
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Cancellation
and Payment (Calculation Agent Determination); provided that
in addition to the provisions of Section 12.6(a)(iii) of the
Equity Definitions, it shall 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
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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.
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Additional Disruption
Events:
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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.”
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Not
Applicable
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Applicable
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Applicable
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(e) Increased Cost
of Hedging:
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Applicable
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(f) Loss of Stock
Borrow:
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Applicable
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2.00% per
annum
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(g) Increased Cost
of Stock
Borrow:
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Applicable
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0.25% per
annum
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Dealer for all
applicable Additional Disruption Events.
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Dealer for all
applicable Additional Disruption Events.
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Applicable
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Agreements and
Acknowledgments Regarding
Hedging Activities:
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Applicable
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Additional
Acknowledgments:
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Applicable
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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 Issuer, the Calculation
Agent will provide to Issuer by e-mail to the e-mail address
provided by Issuer in such prior written request a report (in a
commonly used file format for the storage and m
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