Management Stock Option Plan

THE AMERICAN AXLE & MANUFACTURING OF MICHIGAN, INC.
MANAGEMENT STOCK OPTION PLAN


This Management Stock Option Plan is hereby adopted by the Board of Directors of American Axle & Manufacturing of Michigan, Inc., a corporation organized under the laws of Michigan (the "Company"), as of October 29, 1997.


ARTICLE I


PURPOSE OF PLAN


The Plan is adopted by the Board for certain management Employees as a part of the compensation and incentive arrangements for such Employees. The Plan is intended to advance the Company's best interests by allowing such Employees to acquire an ownership interest in the Company, thereby motivating them to contribute to the success of the Company and to remain in the employ of the Company and its Subsidiaries. It is anticipated that the availability of Options under the Plan will also enhance the Company's ability to attract and retain individuals of exceptional talent to contribute to the progress, growth and profitability of the Company and its Subsidiaries.


ARTICLE II


DEFINITIONS


For purposes of the Plan, except where the context clearly indicates otherwise, the following terms shall have the meanings set forth below:


"Acceleration Event" shall mean an event with respect to which the Plan provides for the acceleration of the vesting of Options, as provided in Section 5.3.


"Affiliate" shall mean, with respect to any Person, (i) any other Person that directly or indirectly Controls, is Controlled by or is under common Control with, such Person, or (ii) any director, officer, partner, member or employee of such Person or any Person specified in clause (i) above; provided, that officers, directors or employees of the Company (or one of its Subsidiaries) shall be deemed not to be Affiliates of Blackstone for purposes hereof solely by reason of being officers, directors or employees of the Company (or one of its Subsidiaries).


"Blackstone" shall mean collectively, Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore Capital Partners II L.P., The Blackstone Group L.P., Blackstone Family Investment Partnership II L.P. and their Affiliates (other than the Company and its Subsidiaries).


2


"Board" shall mean the Board of Directors of the Company.


"Cause" shall mean (i) neglect of or willful and continuing refusal to perform one's duties (other than due to Disability), (ii) a breach of any non-competition/no raid covenants the Participant is subject to, (iii) engaging in conduct which is demonstrably injurious to the Company, the Company's Subsidiaries or Affiliates, or Blackstone (including, without limitation, a breach of any confidentiality covenant the Participant is subject to), or (iv) a conviction or plea of guilty or nolo contendere to a felony or a misdemeanor involving moral turpitude, dishonesty or theft, in each case as determined in the sole discretion of the Board.


"Change of Control" shall mean the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions, other than Blackstone, employees or directors of the Company or their respective Affiliates, of ownership of fifty percent (50%) or more of the combined voting power of the Company's then outstanding voting securities entitled to vote generally.


"Class I Performance Options" shall mean the management case performance options described in Section 5.2(c) hereof.


"Class II Performance Options" shall mean the performance options described in Section 5.2(d) hereof.


"Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statute.


"Committee" shall mean the Compensation Committee of the Board.


"Common Stock" shall mean the common shares of the Company.


"Company" shall mean American Axle & Manufacturing of Michigan, Inc., a corporation organized under the laws of Michigan.


"Control" (including, with correlative meaning, all conjugations thereof) shall mean with respect to any Person, the ability of another Person to control or direct the actions or policies of such first Person, whether by ownership of voting securities, by contract or otherwise.


"Cumulative EBITDA" shall mean with respect to any Performance Option, the sum of the EBITDA for the period commencing on the January 1 of the year following the Grant Date and ending on the Determination Date of the Plan Year.


"Cumulative EBITDA Targets" shall mean with respect to any Performance Option, the sum of the relevant EBITDA Targets for the period commencing on the January 1 of the year following the Grant Date and ending on the Determination Date of the Plan Year.


3


"Determination Date" shall mean the last day of the Plan Year.


"Disability" shall mean the inability of a Participant to perform in all material respects his duties and responsibilities to the Company, or any Subsidiary of the Company, by reason of a physical or mental disability or infirmity which inability is reasonably expected to be permanent and has continued (i) for a period of six consecutive months or (ii) such shorter period as the Board may reasonably determine in good faith. The Disability determination shall be in the sole discretion of the Board and a Participant (or his Representative) shall furnish the Board with medical evidence documenting the Participant's disability or infirmity which is satisfactory to the Board.


"EBITDA" shall mean, with respect to the Company and its Subsidiaries on a consolidated basis for any period, the net income of the Company and its Subsidiaries for such period, plus the following (only to the extent used in calculating net income for such period): (a) net interest expense; (b) tax expense; (c) expenses related to Blackstone's monitoring and management fees; (d) any one time charge or gain relating to the Recapitalization; (e) any gain or loss on the sale of fixed assets; and (f) depreciation and amortization of tangible and intangible assets, all as determined in accordance with generally accepted accounting principles, with appropriate adjustments for non-recurring events as determined by the Board.


"EBITDA Target" shall mean, with respect to each fiscal year, the EBITDA amount that must be achieved to become vested in Criteria I as described in Section 5.2.


"EBITDA Target (Class I)" shall mean, with respect to each fiscal year, the amount set forth in the following table opposite such year:


Fiscal Year Ending EBITDA Target (Class I)
(in millions)
1998 $253.1
1999 $306.2
2000 $328.2
2001 $339.7
2002 $339.7


and such other targets as are established by the Committee with respect to subsequent years. The Board shall make equitable adjustments to such targets in the event (i) the fiscal year is modified or (ii) there are changes in the Company's accounting policies. The Board may make adjustments to the above targets to the extent that the expenses incurred by the Company, with respect to new operating leases entered into after October 29, 1997 ("New Operating Leases"), differ from the expenses projected for New Operating Leases in the Confidential Information


4


Memorandum relating to the Senior Secured Credit Facilities, dated October 1997.


"EBITDA Target (Class II)" shall mean with respect to each fiscal year, the amount set forth in the following table opposite such year:


Fiscal Year Ending EBITDA Target (Class II)
(in millions)
1998 $291.1
1999 $352.1
2000 $377.4
2001 $390.7
2002 $390.7


and such other targets as are established by the Committee with respect to subsequent years. The Board shall make appropriate adjustments to such targets in the event (i) the fiscal year is modified or (ii) there are changes in the Company's accounting policies. The Board may make adjustments to the above targets to the extent that the expenses incurred by the Company, with respect to new operating leases entered into after October 29, 1997 ("New Operating Leases"), differ from the expenses projected for New Operating Leases in the Confidential Information Memorandum relating to the Senior Secured Credit Facilities, dated October 1997.


"Employee" shall mean any employee of the Company or any of its Subsidiaries.


"Employment Agreement" shall mean any employment agreement between a Participant and the Company, as amended from time to time.


"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.


"Exercise Price" shall mean the amount that a Participant must pay to exercise an Option with respect to one Option Share subject to such Option.


"Fair Market Value" shall mean, with respect to any Common Stock:


(i) prior to an initial Public Offering, the fair market value of the
Common Stock as determined in good faith by the Board based on the
value of the Company as a going concern, but without any discount
with respect to the minority ownership represented by such shares or
the contractual restrictions on the Transfer of the Shares; or


(ii) on and after an initial Public Offering, the average of its
closing price for the 20 trading days immediately preceding the day
of the valuation.


5


"Financing Default" shall mean an event which would constitute (or with notice or lapse of time or both would constitute) an event of default by the Company or any of its Subsidiaries (which event of default has not been cured or waived) under any of the following as they may be amended from time to time: (i) The Credit Agreement (the "Credit Agreement") dated on or about the Recapitalization Closing Date, among the Company, American Axle & Manufacturing, Inc ("AAM"), The Chase Manhattan Bank, The Chase Manhattan Bank Delaware and any other financial institutions party thereto, and any extensions, renewals, refinancing or refundings thereof in whole or in part; (ii) any other agreement under which an amount of indebtedness (in excess of $5,000,000) of the Company or any of its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancing or refundings thereof in whole or in part; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) and (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancing or refundings thereof in whole or in part.


"Good Reason" shall mean a material reduction in base salary, or a material reduction in bonus, in either case as determined in the sole discretion of the Board. The Participant shall be deemed to have voluntarily terminated employment with Good Reason if he Retires on or after the third anniversary of the Recapitalization Closing Date. However, if a Participant Retires prior to the third anniversary, he shall be deemed to have voluntarily terminated employment without Good Reason.


"Grant Date" shall mean the date an Option is granted pursuant to this Plan.


"Option" shall mean, with res ...