STOCK INCENTIVE PLANS

Under the Company's 1993 Stock Incentive Plan (“1993 Plan”), the Company granted options to purchase shares of the Company's common stock at the fair market value on the date of grant. The options vested over periods up to three years and have a term of 10 years from date of grant. As of December 31, 2003, there were no options available for future grants under the 1993 Plan. The 1993 Plan expired at the end of 2003 and was replaced by the Company's 2004 Stock Incentive Plan, which was amended at the Company's 2009 Annual Stockholders Meeting, among other things, to increase the number of shares available for issuance under the Plan. Under the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan (“2004 Stock Incentive Plan”), 12.5 million shares are authorized for grant, of which approximately 1.9 million shares are available for future issuance.

Stock Options A summary of the plans’ shares under option at December 31, 2012, 2011 and 2010 is as follows:



	Shares (thousands)		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value (in millions)
Outstanding at January 1, 2010	5,177		$	27.98	5.8	$	29.7
Exercised	(1,888	)	$	26.73		$	50.3
Forfeited	(36	)	$	33.95
Outstanding at December 31, 2010	3,253		$	28.64	4.9	$	142.2
Exercised	(1,033	)	$	27.15		$	48.4
Outstanding at December 31, 2011	2,220		$	29.36	4.1	$	76.3
Exercised	(784	)	$	26.86		$	40.1
Outstanding at December 31, 2012	1,436		$	30.65	3.4	$	58.8

Options exercisable at December 31, 2012	1,436		$	30.65	3.4	$	58.8

Proceeds from stock option exercises for the years ended December 31, 2012, 2011 and 2010 were as follows:



	Year Ended December 31,
(millions of dollars)	2012		2011		2010
Proceeds from stock options exercised — gross	$	20.9	$	28.6	$	55.4
Tax benefit	31.1		24.4		11.7
Proceeds from stock options exercised, net of tax	$	52.0	$	53.0	$	67.1

Restricted Stock At its November 2007 meeting, the Company's Compensation Committee decided that restricted common stock awards and stock units ("restricted stock") would be awarded in place of stock options for long-term incentive award grants to employees. Restricted stock granted to employees vests 50% after two years and the remainder after three years from the date of grant. Restricted stock granted to non-employee directors generally vests on the anniversary date of the grant.

The value of restricted stock is determined by the market value of the Company’s common stock at the date of grant. In 2012, restricted stock in the amount of 328,138 and 9,677 shares was granted to employees and non-employee directors, respectively, under the 2004 Stock Incentive Plan.The value of the awards is recorded as unearned compensation within capital in excess of par value in equity and is amortized as compensation expense over the restriction periods.

Restricted stock compensation expense recorded in the Consolidated Statements of Operations is as follows:



	Year Ended December 31,
(millions of dollars, except per share data)	2012		2011		2010
Restricted stock compensation expense	$	21.2	$	15.1	$	18.9
Restricted stock compensation expense, net of tax	$	15.5	$	11.4	$	14.7

A summary of the status of the Company’s nonvested restricted stock for employees and non-employee directors at December 31, 2012, 2011 and 2010 is as follows:



	Shares subject to restriction (thousands)		Weighted average price
Nonvested at January 1, 2010	1,547		$	29.90
Granted	603		$	36.16
Vested	(188	)	$	44.80
Forfeited	(91	)	$	27.10
Nonvested at December 31, 2010	1,871		$	30.55
Granted	274		$	70.57
Vested	(609	)	$	27.39
Forfeited	(106	)	$	38.05
Nonvested at December 31, 2011	1,430		$	39.02
Granted	338		$	78.41
Vested	(675	)	$	27.43
Forfeited	(61	)	$	54.35
Nonvested at December 31, 2012	1,032		$	58.77

Performance Share Plans The 2004 Stock Incentive Plan provides for awarding of performance shares to members of senior management at the end of successive three-year periods based on the Company's performance in terms of total shareholder return relative to a peer group of automotive companies. In the first quarter of 2012, the Company modified all outstanding Performance Share Award Agreements to allow for the payment of these awards entirely in the Company's common stock, rather than 40% in cash and 60% in the Company's common stock. Using the lattice model (Monte Carlo simulation) at the date of modification, the Company determined the first quarter 2012 compensation expense associated with the modification to be negligible. Within the Consolidated Statement of Cash Flows for the years ended December 31, 2011 and 2010, the Company's $19.6 million and $16.6 million of expense associated with the 40% cash portion of the award was included in the changes in accounts payable and accrued expenses and other non-current assets and liabilities line items.

The Company recognizes compensation expense relating to its performance share plans ratably over the performance period. Prior to the modification, compensation expense for the 60% stock component was based on the performance share's fair value at the date of grant using a lattice model (Monte Carlo simulation) and the 40% cash component was based on quarterly mark to market of the cash liability on a quarterly basis. After the first quarter 2012 modification, 100% of compensation expense associated with the performance share plans is calculated using a lattice model (Monte Carlo simulation). The amounts expensed under the plan and the share issuances for the three-year measurement periods ended December 31, 2012, 2011 and 2010 were as follows:



	Year Ended December 31,
(millions of dollars, except share data)	2012		2011		2010
Expense	$	35.5	$	26.3	$	23.9
Number of shares*	558,000		538,180		104,205

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*Shares are issued in February of the following year.

The restricted stock and performance share plan compensation expense disclosed above includes $7.0 million of expense related to the Company's fourth quarter 2012 decision to waive the forfeiture provisions of existing restricted stock and performance share grants made to certain retiring Named Executive Officers. The Company recorded this expense within other (income) expense in the Consolidated Statement of Operations.