def14a
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

  Filed by the Registrant   þ
  Filed by a Party other than the Registrant   o
 
  Check the appropriate box:

  o   Preliminary Proxy Statement
  o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  þ   Definitive Proxy Statement
  o   Definitive Additional Materials
  o   Soliciting Material Pursuant to §240.14a-12

American Axle & Manufacturing Holdings, Inc.


(Name of Registrant as Specified In Its Charter)


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

      Payment of Filing Fee (Check the appropriate box):

  þ   No fee required.
  o   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

        1) Title of each class of securities to which transaction applies:

        2) Aggregate number of securities to which transaction applies:

        3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

        4) Proposed maximum aggregate value of transaction:

        5) Total fee paid:

        o   Fee paid previously with preliminary materials.

        o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

        1) Amount Previously Paid:

        2) Form, Schedule or Registration Statement No.:

        3) Filing Party:

        4) Date Filed:

SEC 1913 (02-02) Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.


Table of Contents

One Dauch Drive
Detroit, Michigan 48211-1198
www.aam.com
(American Axle <DATA,ampersand> MFG
    Logo)
 
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 
April 24, 2008
 
American Axle & Manufacturing Holdings, Inc. (AAM)
 
 
Time and Date 3:00 p.m., local time, on Thursday, April 24, 2008
 
Place AAM World Headquarters Auditorium, One Dauch Drive, Detroit, Michigan
 
Items of Business
(1) Elect three members of the Board of Directors to serve until the Annual Meeting of Stockholders in 2011;
 
(2) Approve adoption of the American Axle & Manufacturing 2008 Long-Term Incentive Plan;
 
(3) Ratify the appointment of Deloitte & Touche LLP as AAM’s independent registered public accounting firm for the year ending December 31, 2008; and
 
(4) Attend to other business properly presented at the meeting.
 
Record Date You may vote if you were an AAM stockholder (NYSE: AXL) at the close of business on February 29, 2008.
 
Meeting Admission Admission may be limited to AAM stockholders as of the record date and holders of valid proxies. Please be prepared to present identification for admittance. Stockholders holding stock in brokerage accounts will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras and recording devices will not be permitted.
 
Voting Your vote is very important. To be sure that your shares are properly represented at the meeting, please vote by using the telephone, the Internet, or by signing, dating and returning the enclosed proxy card in the pre-addressed envelope provided. See Questions and Answers about Voting and the Annual Meeting in the proxy statement and the proxy card for further information.
 
By Order of the Board of Directors,
 
-s- Patrick S. Lancaster
Patrick S. Lancaster
Vice President, Chief Administrative Officer & Secretary
March 24, 2008


 

 
2008 ANNUAL MEETING OF STOCKHOLDERS
 
PROXY STATEMENT
 
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PROXY STATEMENT

Annual Meeting of Stockholders
To Be Held April 24, 2008

QUESTIONS AND ANSWERS ABOUT VOTING AND THE ANNUAL MEETING
 
Why am I receiving this proxy statement?
 
The Board of Directors of American Axle & Manufacturing Holdings, Inc. (AAM or the Company) is soliciting proxies for the 2008 annual meeting of stockholders. You are receiving a proxy statement because you owned shares of AAM common stock on February 29, 2008 (record date), which entitles you to vote at the meeting. By use of a proxy, you can vote whether or not you attend the meeting. This proxy statement describes the matters on which we would like you to vote and provides related information so that you can make an informed decision.
 
The notice of annual meeting, proxy statement, proxy card and 2007 annual report to stockholders are being mailed to stockholders on or about March 24, 2008.
 
What if I receive more than one proxy card?
 
Each proxy card represents shares held on the record date. You will receive multiple proxy cards if you hold your shares in different ways (e.g. trusts, AAM 401(k) plans, custodial accounts, joint tenancy) or in multiple accounts. If your shares are held in street name by a broker, bank, trustee or other custodian, follow the instructions on the proxy card(s) they provide. Vote the shares represented by each proxy card you receive.
 
What is the difference between holder of record and street name holder?
 
These terms describe how your shares are held. You are a holder of record if your shares are held directly in your name with AAM’s transfer agent, Computershare Trust Company, N.A. If your shares are held in the name of a broker, bank, trustee or other record holder, or through one of the AAM 401(k) plans, you are a street name holder.
 
How do I vote my shares?
 
If you are a holder of record, you may vote in person at the annual meeting or by proxy:
 
By mail.  Complete, sign, date and return your proxy card in the envelope provided
By telephone.  Call the toll free number shown on the enclosed proxy card.
  By Internet.  Use the website of AAM’s transfer agent, Computershare Trust Company, N.A., at the website address shown on the enclosed proxy card.
 
If you hold shares in street name, refer to the instructions provided by your broker, bank, trustee or other record holder for voting your shares by proxy. To vote these shares in person at the annual meeting, you must obtain a proxy from your broker, bank, trustee or other record holder.


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How many shares may vote at the meeting?
 
As of February 29, 2008, we had 53,502,317 shares of common stock outstanding and entitled to vote. A holder of common stock on the record date is entitled to one vote per share owned. Under AAM’s by-laws, a majority of these shares must be present in person or by proxy to hold the annual meeting and take any action during the meeting.
 
Can I change my vote?
 
You may change your vote at any time before the annual meeting by:
 
  •  revoking it by written notice to AAM’s Secretary at the address on the cover of this proxy statement;
  •  voting in person at the annual meeting; or
  •  delivering a later-dated proxy vote by mail, telephone or the Internet.
 
What are the Board’s recommendations on how I should vote my shares?
 
The Board recommends that you vote your shares as follows:
 
Proposal 1 — FOR the election of all three nominees with terms expiring at the 2011 annual meeting of stockholders.
 
Proposal 2 — FOR approval of the American Axle & Manufacturing 2008 Long-Term Incentive Plan
 
Proposal 3 — FOR ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2008.
 
What are my choices when voting?
 
Proposal 1 — You may vote for or withhold your vote on one or more of the nominees.
 
Proposal 2 — You may vote for or against the proposal, or you may abstain from voting your shares.
 
Proposal 3 — You may vote for or against the proposal, or you may abstain from voting your shares.
 
What vote is required to approve each proposal?
 
Proposal 1 — Requires a plurality of the votes cast to elect a director (i.e., the three nominees receiving the greatest number of shares voted in person or by proxy will be elected).
 
Proposal 2 — Requires the affirmative vote of a majority of the shares voted in person or by proxy
 
Proposal 3 — Requires the affirmative vote of a majority of the shares voted in person or by proxy.
 
Votes withheld and abstentions will be counted as present for purposes of determining whether a majority of shares is present to hold the annual meeting. Abstentions will not be counted in the tally of votes FOR or AGAINST a proposal. A WITHHELD vote has the same effect as an abstention.


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Who will count the votes be counted?
 
Representatives of Computershare Trust Company, N.A., AAM’s transfer agent, will count the votes and serve as our inspector of election. The inspector of election will attend the annual meeting.
 
What if I do not vote and do not attend the annual meeting?
 
If you are a holder of record and you do not vote your shares, your shares will not be voted. If you sign your proxy card without giving specific instructions, your shares will be voted as the Board recommends.
 
If you hold shares in street name and you do not give your broker, bank, trustee or other record holder specific voting instructions, the rules of the New York Stock Exchange (NYSE) permit your record holder to vote your shares on the election of directors and on the ratification of the appointment of the independent registered public accounting firm.
 
If you do not give your record holder specific voting instructions and your record holder does not vote, the votes will be broker non-votes. Broker non-votes will have no effect on the outcome of the election of directors and the other proposals. Broker non-votes will be counted as present for purposes of determining whether enough votes are present to hold the annual meeting.
 
 
Important Notice Regarding the Availability of Proxy Materials for the

Stockholder Meeting to be held on April 24, 2008.

The Proxy Statement and Annual Report to Stockholders are available at

www.edocumentview.com/AXL


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PROPOSAL 1: ELECTION OF DIRECTORS
 
AAM’s Board is divided into three classes with three of the directors standing for election each year. The term for directors elected this year will expire at the annual meeting of stockholders in 2011. Each of the nominees below has agreed to serve that term. If any nominee becomes unavailable prior to the annual meeting to serve as a director, the Board may select a replacement nominee or reduce the number of directors to be elected.
 
The Board proposes that nominees Richard E. Dauch, William P. Miller II and Larry K. Switzer be elected to the Board for terms expiring in 2011. The Board unanimously approved these nominations based on the outstanding achievements, special competencies and integrity of each nominee. A biographical summary of the principal occupation, professional background and experience of each nominee and returning director is provided.
 
Your Board unanimously recommends a vote FOR each of the nominees.


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Nominees for Director
 
         
(RICHARD E. DAUCH)   RICHARD E. DAUCH
Age 65
Richard E. Dauch is Co-Founder, Chairman of the Board & Chief Executive Officer of AAM, and is also Chairman of the Executive Committee of the Board. He has been Chief Executive Officer and a member of the Board since AAM began operations in March 1994. In October 1997, he was named Chairman of the Board of Directors. He was also President of AAM from March 1994 through December 2000. Prior to March 1994, he spent 12 years at Chrysler Corporation, where he established the just-in-time materials management system and the three-shift manufacturing vehicle assembly process. He is a retired officer from the Chrysler Corporation. Mr. Dauch’s last position at Chrysler, in 1991, was Executive Vice President of Worldwide Manufacturing. Mr. Dauch also served as Group Vice President of Volkswagen of America, where he established the manufacturing facilities and organization for the successful launch of the first major automotive transplant in the United States. Mr. Dauch has more than 43 years of experience in the automotive industry. Mr. Dauch was the 2006 recipient of the Shien-Ming Wu Foundation Manufacturing Leadership Award. In 2005, he received the CEO Legend Award from Automation Alley. In 2003, he received the Harvard Business School of Michigan Business Statesman Award, the Ernst & Young Entrepreneur of the Year Award, and the Northwood University Outstanding Business Leader Award. In 1999, he was named the Michiganian of the Year by The Detroit News and he was named the 1997 Manufacturer of the Year by the Michigan Manufacturers’ Association. In 1996, he was named Worldwide Automotive Industry Leader of the Year by the Automotive Hall of Fame. Mr. Dauch currently serves on the board of directors of the National Association of Manufacturers (N.A.M.), where he previously served as Chairman. He has lectured extensively on the subject of manufacturing and authored the book, Passion for Manufacturing, which is distributed in colleges and universities globally and in several languages.
  Director since 1994


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(WILLIAM P. MILLER  II)   WILLIAM P. MILLER II
Age 52
Mr. Miller has served as the Senior Investment Officer, Fund Management for the Ohio Public Employees Retirement System since August 2005. Previously he served as Senior Risk Manager for the Abu Dhabi Investment Authority from April 2003. Mr. Miller was a risk management advisor for the Rockefeller Foundation, a non-profit foundation, and an advisor to Africa Global from June 2002 to April 2003. From September 1996 to May 2002, he served as Senior Vice President and Independent Risk Oversight Officer for Commonfund Group, an investment management firm for educational institutions. Mr. Miller previously served as Director, Trading Operations and Asset Mix Management with General Motors Investment Management Corp. and as a Financial Analyst with the U.S. Department of Transportation.
  Director since 2005
         
    Mr. Miller is a director of the Chicago Mercantile Exchange and a director of the BTOP50 Managed Futures family of funds. He is a member of the Public Company Accounting Oversight Board’s Standing Advisory Group, a member of the advisory board for the Kent State University Master of Science in Financial Engineering program and the Investment Risk Committee of the International Association of Financial Engineers. Previously, Mr. Miller was a member of the Financial Accounting Standards Board’s User Advisory Council and a director of the Dubai International Financial Exchange. Mr. Miller is a Chartered Financial Analyst and member of the Institute of Chartered Financial Analysts.    
         
(LARRY K. SWITZER)   LARRY K. SWITZER
Age 64
Larry K. Switzer retired as Chief Executive Officer of DANKA PLC, London, England, a global independent distributor of office equipment, in 2000. From 1994 to 1998, Mr. Switzer was Senior Executive Vice President and Chief Financial Officer of Fruit of the Loom, Inc. Previously, he served as Executive Vice President and Chief Financial Officer for Alco Standard Corporation and, from 1989 to 1992, Senior Vice President and Chief Financial Officer for S.C. Johnson & Son, Inc. Mr. Switzer has also held senior executive positions at Bendix Corp., White Motor Corp. and Gencorp.
  Director since 2005


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Returning Directors
 
Directors — to hold office until 2009 Annual Meeting of Stockholders
 
         
(FOREST J. FARMER)   FOREST J. FARMER
Age 67
Forest J. Farmer has served as Chairman of the Board, Chief Executive Officer & President of The Farmer Group, a holding company for four technology and manufacturing corporations, since 1998. Mr. Farmer is the President of Trillium Teamologies, an IT solutions provider located in Royal Oak, Michigan, and is Chairman of the Board & Chief Executive Officer of Enerflex Solutions LLC. Enerflex is a joint venture between The Farmer Group and the Woodbridge Corporation of Woodbridge, Ontario, Canada. In 1994, he retired from Chrysler Corporation after 26 years of service, which included six years as President of its Acustar automotive parts subsidiary. Mr. Farmer serves on the Boards of Directors of a number of corporations and organizations, including The Lubrizol Corporation, St. John’s Hospital System and Saturn Electronics Corporation.
  Director since 1999
         
(RICHARD C. LAPPIN)   RICHARD C. LAPPIN
Age 63
Richard C. Lappin has served as Chairman of the Board & Chief Executive Officer of Clear Sky Power, an alternative energy company, since January 2007. He retired in 2004 as Chairman of the Board of Haynes International, Inc. Previously, Mr. Lappin served as Senior Managing Director of The Blackstone Group L.P., where he was a member of the Private Equity Group from 1998 to 2002. He also helped monitor the operations of Blackstone Capital Partners portfolio companies and evaluated business strategy options. From 1989 to 1998, Mr. Lappin served as President of Farley Industries, which included West Point-Pepperell, Inc., Acme Boot Company, Inc., Tool and Engineering, Inc., Magnus Metals, Inc. and Fruit of the Loom, Inc. He also served as President and Chief Executive Officer of Doehler-Jarvis and Southern Fastening Systems, and he has held senior executive positions with Champion Spark Plug Company and RTE Corporation.
  Director since 1999
         
(THOMAS K. WALKER)   THOMAS K. WALKER
Age 67
Thomas K. Walker is Chairman of the Board & Chief Executive Officer of Lackawanna Acquisition Corporation and is the former President of Amcast Automotive, where from 1995 to 1999 he directed all activities for the $300 million automotive group. Previously, he held senior executive positions with ITT Automotive and Allied-Signal Automotive Catalyst Co. He also served in various manufacturing and engineering leadership positions with Volkswagen of America and with General Motors Corporation, where he began his 40-year career in the automotive industry. Mr. Walker serves on the National Advisory Board for Michigan Technological University.
  Director since 1999


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Directors — to hold office until 2010 Annual Meeting of Stockholders
 
         
         
(JOHN A. CASESA)   JOHN A. CASESA
Age 45
John A. Casesa has served as Managing Partner of the Casesa Shapiro Group LLC since 2006. The Group makes actively-managed investments in targeted segments of the automotive industry and provides advisory services to corporate clients. Mr. Casesa served as Global Coordinator for Automotive Research and Managing Director at Merrill Lynch & Co. from 1999 to 2006. Previously, Mr. Casesa was a Managing Director and a member of the Investment Committee at the investment bank Wertheim Schroder & Co. He also served on the Marketing and Product Planning staff of General Motors. As one of Wall Street’s leading automotive analysts, Mr. Casesa has addressed numerous automotive industry conferences including the University of Michigan’s Management Briefing Seminars, the SAE Global Product Development Conference and the Automotive News World Congress. He is a past member of the Financial Accounting Standards Board User Advisor Council, the New York Stock Exchange Research Analyst Qualification Exam Committee and is a past president of the Automotive Analysts of New York.
  Director since 2007
         
(ELIZABETH A. CHAPPELL)   ELIZABETH A. CHAPPELL
Age 50
Elizabeth A. (Beth) Chappell has served as President and Chief Executive Officer of the Detroit Economic Club since 2002. Previously, she served as Executive Vice President, Corporate Communications & Investor Relations for Compuware Corporation. From 1995 to 2000, Ms. Chappell was President and Chief Executive Officer of a consulting firm she founded, The Chappell Group, Inc. For 16 years, Ms. Chappell held executive positions at AT&T. Since 1999, Ms. Chappell has served on the Board of Directors of the Handleman Company. She also serves on a number of civic boards, including Brother Rice High School, Citizens Research Council, Detroit Regional Chamber, Airport Authority-Citizen’s Review Council, United Way Tocqueville Committee and Michigan Economic Development Corporation. Ms. Chappell is a former board member of the Karmanos Cancer Institute, Michigan Economic Growth Authority and Hospice of Michigan.
  Director since 2004


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(DR. HENRY T. YANG)   DR. HENRY T. YANG
Age 67
Dr. Henry T. Yang is the Chancellor at the University of California, Santa Barbara, where he also serves as professor of mechanical engineering. Formerly the Dean of Engineering and Neil Armstrong Distinguished Professor in Aerospace Engineering at Purdue University, Dr. Yang is a nationally recognized expert in automotive and aerospace engineering. He holds a Ph.D. degree in engineering from Cornell University as well as four honorary doctorates. He is a member of the National Academy of Engineering. He is an active member of the Executive Committee of the American Association of Universities, the Steering Committee of the Association of Pacific Rim Universities and the Board of Trustees of University Research Association.
  Director since 2004


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CORPORATE GOVERNANCE
 
Corporate Governance Guidelines
 
The Board has adopted Corporate Governance Guidelines that meet or exceed the requirements of the NYSE listing standards. AAM’s Corporate Governance Guidelines are available on our website at http://investor.aam.com/index.cfm.
 
Board Structure and Self-Evaluation
 
The Board has nine members and is equally divided into three classes. Directors serve for staggered three-year terms. The Board believes that the staggered election of directors helps to maintain continuity and ensures that a majority of directors at any given time will have in-depth knowledge of the Company. The Board and the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee each conduct an annual self-evaluation in order to monitor and continuously improve the effectiveness of the Board and its committees.
 
Director Independence
 
AAM’s Corporate Governance Guidelines provide that at least a majority of the members of the Board and each member of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee meet the independence criteria of the NYSE listing standards. In addition, the Board has established Director Independence Guidelines to assist in determining the independence of our directors. No director qualifies as independent unless the Board determines that the director has no direct or indirect material relationship with the Company. The Board considers all relevant facts and circumstances of which it is aware in making an independence determination. The Director Independence Guidelines are included in AAM’s Corporate Governance Guidelines, which are available on our website at http://investor.aam.com/index.cfm.
 
Based on the independence criteria of the NYSE listing standards and our Director Independence Guidelines, the Board affirmatively determined that each of the following directors are independent: John A. Casesa, Elizabeth A. (Beth) Chappell, Forest J. Farmer, Richard C. Lappin, William P. Miller II, Larry K. Switzer, Thomas K. Walker and Dr. Henry T. Yang. The Co-Founder, Chairman of the Board & CEO, Richard E. Dauch, is related to an AAM executive officer and is not independent under the criteria of the NYSE listing standards and our Director Independence Guidelines.
 
None of the directors who qualify as independent has a business, financial, family or other type of relationship with AAM (other than as a director and stockholder of AAM), except for one relationship that is immaterial under the independence standards. The director has a relationship with an entity that was reviewed by the Board under the Company’s categorical independence standard and the NYSE listing standard covering payments for properties or services exceeding the greater of $1 million or two percent of the annual consolidated gross revenues of the outside entity. In this instance, the director is an officer of a non-profit organization that received sponsorship fees from AAM that were significantly less than the NYSE listing standard or AAM categorical standard. The Board determined that the relationship was immaterial and does not impair the director’s independence.
 
If all nominees are elected by our stockholders at the 2008 annual meeting, AAM’s nine-member Board will have eight independent directors.
 
Executive Sessions of Non-Management and Independent Directors
 
Non-management directors, all of whom are independent, meet in executive session without AAM management present at the end of each scheduled Board meeting. Thomas K. Walker, an independent director, has been selected by the Board to preside at each executive session.


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Stockholder Communication with the Board
 
Stockholders or other interested parties may communicate with the Board through the Secretary of AAM by mail at One Dauch Drive, Detroit, Michigan 48211-1198 or by e-mail at AAMBoardofDirectors@aam.com.
 
The Board has instructed the Secretary to review all such communications and to exercise his discretion not to forward correspondence to the Board that is inappropriate, such as business solicitations, frivolous communications and advertising, routine business matters and personal grievances. However, any director may at any time request the Secretary to forward any communication received by the Secretary but not forwarded to the directors.
 
Code of Business Conduct
 
AAM has adopted a Code of Business Conduct that is designed to assist all AAM associates, executive officers and members of the Board in conducting AAM’s business with the highest standards of ethics and integrity. AAM has also adopted a Code of Ethics for our CEO, CAO, CFO and other Senior Financial Officers. The Board annually reviews the Code of Business Conduct and updates the Code as appropriate. AAM’s Code of Business Conduct and Code of Ethics for our CEO, CAO, CFO and other Senior Financial Officers are available on our website at http://investor.aam.com/index.cfm. A written copy also may be obtained by any stockholder without charge upon request to the AAM Investor Relations Department.
 
Related Person Transactions Policy
 
In October 2006, the Board adopted a policy and procedures for the review, approval and ratification of transactions involving AAM and “related persons” as defined in the policy. This policy supplements AAM’s other conflict of interest policies as set forth in AAM’s Code of Business Conduct. The Board has delegated to the Audit Committee the responsibility for reviewing, approving and ratifying all related person transactions in accordance with the policy.
 
Transactions covered by the policy include any financial transaction, arrangement or relationship or series of similar transactions, arrangements or relationships in which:
 
  •  AAM is or is expected to be a participant;
  •  the amount involved exceeds $100,000; and
  •  a related person has or will have a direct or indirect material interest.
 
A transaction between AAM and a related person is not subject to this policy if the transaction:
 
  •  is available to all employees generally;
  •  involves less than $5,000 when aggregated with all similar transactions; or
  •  involves compensation of an executive officer that is approved by the Compensation Committee.
 
A related person includes directors and executive officers and their immediate family members, stockholders owning more than five percent of the Company’s outstanding common stock as of the last completed fiscal year, and any entity owned or controlled by any one of these persons.
 
A related person transaction will be permitted only if the transaction is approved by the Audit Committee and is on terms comparable to those available to unrelated third parties. Any related person transaction involving a member of the Audit Committee must be presented to disinterested members of the full Board for review.


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In considering a transaction, the Audit Committee and/or the Board may consider the following factors, as applicable:
 
  •  the Company’s business reasons for entering into the transaction;
  •  the alternatives to entering into a related person transaction;
  •  the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflict;
  •  the extent of the related person’s interest in the transaction; and
  •  the transaction is in the best interests of AAM.
 
Every director and executive officer is required to report any existing or contemplated related person transaction to AAM’s Vice President, Chief Administrative Officer & Secretary. In addition, AAM’s directors and executive officers complete annual questionnaires designed to elicit information about potential related person transactions. As of the date of this Proxy Statement, no existing or contemplated related person transaction has been brought to the attention of the Secretary, the Audit Committee or the Board.
 
Board Committee Composition
 
The Board held four regularly scheduled meetings during 2007. Directors are expected to attend all Board meetings, meetings of the committees on which they serve and stockholder meetings. During 2007, all directors attended 100 percent of the meetings of the Board and the committees on which they served. All directors attended the 2007 annual meeting of stockholders. The following table shows the membership of the Board’s committees during 2007 and the number of committee meetings held during 2007.
 
COMMITTEE MEMBERSHIP IN 2007
 
                               
                  Nominating/
           
                  Corporate
           
      Audit
    Compensation
    Governance
    Executive
    Technology
Name of Director     Committee     Committee     Committee     Committee     Committee
Richard E. Dauch
                      Chairman      
John A. Casesa
          X                  
Elizabeth A. Chappell
          X                  
Forest J. Farmer
          Chairman     X     X      
Richard C. Lappin
                X           X
William P. Miller II
    Chairman                       X
Larry K. Switzer
    X                        
Thomas K. Walker
    X     X     Chairman     X     X
Dr. Henry T. Yang
                            Chairman
Number of Meetings in 2007
    4     6     4     0     4
                               


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Audit Committee
 
The Audit Committee provides assistance to the Board with respect to: the quality and integrity of our financial statements, our compliance with legal and regulatory requirements, our independent auditor’s qualifications and independence, and the performance of our internal audit function and independent auditors. The Audit Committee operates under a written charter that is available on AAM’s website at http://investor.aam.com/index.cfm.
 
The Board has determined that all Audit Committee members serving during 2007 are independent and financially literate under applicable NYSE listing standards. Mr. Miller and Mr. Switzer also qualify as audit committee financial experts as defined by SEC rules.
 
Compensation Committee
 
The Compensation Committee is responsible for the following:
 
  •  Establishing and reviewing AAM’s compensation philosophy and programs with respect to our executive officers;
  •  Approving executive officer compensation with a view to support AAM’s business strategies and objectives;
  •  Approving corporate goals and objectives relevant to executive officer compensation and evaluating executive officer performance in light of these criteria, in consultation with the CEO (in the case of our other executive officers) and with input from other independent directors (in the case of the CEO);
  •  Recommending to the Board the approval, amendment and termination of incentive compensation and equity-based plans and certain other compensation matters;
  •  Overseeing the preparation of the Compensation Discussion and Analysis for inclusion in our annual proxy statement or in our annual report filed on Form 10-K; and
  •  Producing the Compensation Committee Report for inclusion in our annual proxy statement or in our annual report filed on Form 10-K in accordance with applicable regulations.
 
The Compensation Committee operates under a written charter that is available on our website at http://investor.aam.com/index.cfm. In accordance with our Corporate Governance Guidelines, the Compensation Committee is also responsible for recommending non-employee director compensation and benefits for approval by the Board.
 
Role of Executive Officers.  Our CEO reviews the performance and compensation of our other executive officers, with input from the Vice President — Human Resources, and recommends to the Compensation Committee the compensation for this group. The Compensation Committee reviews and considers the CEO’s recommendations in its approval of annual salary, annual incentive payments and long-term incentive awards. Our Vice President — Human Resources is responsible for the implementation and day-to-day operation of our executive compensation programs, as approved by and subject to oversight of the Compensation Committee. Our Group Vice President — Finance & CFO is responsible for evaluating and presenting to the Compensation Committee the financial, accounting and tax aspects of compensation decisions.
 
Role of Compensation Consultant.  In performing its duties, the Compensation Committee from time to time directly engages Towers Perrin, an independent executive compensation consultant. Towers Perrin provides competitive market data and other information on current compensation practices and trends. Towers Perrin also makes objective recommendations to the Compensation Committee as to the design of AAM’s long-term incentive program, including the form and mix of award vehicles and the nature and level of potential performance criteria and targets. Management has also retained Towers Perrin to provide consulting and actuarial services regarding compensation, healthcare, welfare, pension and retiree medical benefits. The Compensation Committee does not believe that this affects the independence of the advice that Towers Perrin provides to the Committee.


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In 2007, the Compensation Committee engaged Towers Perrin to review the competitiveness of AAM’s executive officer compensation (excluding the CEO) and the structure of our long-term incentive program for executive officers. Towers Perrin was instructed to compare our executive officers’ base salaries, target annual incentives and long-term incentive award levels against those for similar positions at companies in a comparison group. The comparison group was selected with input from management and is described in Compensation Discussion & Analysis below. Towers Perrin also interviewed senior management in its review of our long-term incentive program for input concerning plan design, performance measures, share utilization levels, and for an understanding of AAM’s business objectives, among other matters.
 
Towers Perrin also provides the Compensation Committee with information on market practices and trends relating to non-employee director compensation and makes recommendations on the appropriate mix of cash and equity compensation for this group. In 2007, Towers Perrin completed a study to assess the competitiveness and design of our director compensation program, as described in 2007 Compensation of Non-Employee Directors below.
 
Nominating/Corporate Governance Committee
 
The Nominating/Corporate Governance Committee’s primary responsibilities are to:
 
  •  Identify qualified individuals to serve on the Board and committees;
  •  Review our Corporate Governance Guidelines and Code of Business Conduct and recommend changes as appropriate; and
  •  Oversee and approve the process for succession planning for the CEO and other executive officers.
 
The Nominating/Corporate Governance Committee operates under a written charter that is available on our website at http://investor.aam.com/index.cfm.
 
Selection Process for Director Nominees.  In consultation with the Chairman of the Board, the Nominating/Corporate Governance Committee identifies, evaluates and recommends potential candidates for membership on the Board. The Nominating/Corporate Governance Committee conducts all necessary and appropriate inquiries into the backgrounds and qualifications of the candidates, and considers questions of independence and possible conflicts of interest. Based on the Nominating/Corporate Governance Committee’s evaluation, candidates who meet the Board’s criteria may receive further consideration, which may include interviews with the Nominating/Corporate Governance Committee and other directors. The Nominating/Corporate Governance Committee then submits its recommendations for nominees for the Board’s approval.
 
Before the Board nominates an incumbent director for re-election by our stockholders, the incumbent director may be evaluated by the Nominating/Corporate Governance Committee and/or the Board. This evaluation is based on, among other things, the incumbent director’s meeting attendance record and contributions to the activities of the Board.
 
The Nominating/Corporate Governance Committee considers recommendations of potential candidates from the current directors of our Board, our CEO and our stockholders.
 
Director Qualifications.  AAM’s Corporate Governance Guidelines provide the qualifications for Board membership. Candidates for director nominees to the AAM Board are reviewed in consideration of the current composition of the Board, the operating requirements of the Company and the interests of stockholders. Although specific qualifications may vary from time to time, desired qualities and characteristics include:
 
  •  High ethical character and shared values with AAM;
  •  Loyalty to AAM and concern for its success and welfare;
  •  High-level leadership experience and achievement at a policy-making level in business or in educational or professional activities;


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  •  Knowledge of issues affecting AAM;
  •  The ability to contribute special competencies to Board activities, such as financial, technical, international business or other expertise, or industry knowledge;
  •  Willingness to apply sound, independent business judgment;
  •  Awareness of a director’s vital role in AAM’s good corporate citizenship and corporate image; and
  •  Sufficient time and availability to effectively carry out a director’s duties.
 
For director candidates recommended by stockholders, the Nominating/Corporate Governance Committee follows the procedures described below in Other Matters, Stockholder Proposals for 2009 Annual Meeting. The Nominating/Corporate Governance Committee will evaluate candidates recommended by stockholders using substantially the same criteria as it uses in evaluating director candidates recommended by our Board members or CEO.
 
Executive Committee
 
The Executive Committee exercises the authority of the Board during the intervals between Board meetings and does not meet on a regular basis. Its members are identified in the Committee Membership in 2007 table.
 
Technology Committee
 
The Technology Committee oversees and provides advice to AAM regarding AAM’s product, process and systems technology. Its members are identified in the Committee Membership in 2007 table.


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PROPOSAL NO. 2: APPROVAL OF 2008 LONG-TERM INCENTIVE PLAN
 
On January 31, 2008, the Board adopted the American Axle & Manufacturing 2008 Long-Term Incentive Plan (the “LTIP”), subject to the approval of stockholders at the annual meeting. The LTIP was adopted for two reasons. First, the LTIP will provide eligible individuals with opportunities to obtain a proprietary interest in AAM through the grant of equity-based awards, which will provide participants with incentives to contribute to AAM’s long-term growth and profitability. Second, the LTIP will assist AAM in attracting, retaining, and motivating highly qualified individuals who are in a position to make significant contributions to AAM.
 
We believe that the approval of the LTIP is essential to AAM’s continued success and that the awards provided under the LTIP are vital to our ability to attract and retain the highly skilled individuals who work for AAM and serve on the Board. The LTIP is intended to replace AAM’s current 1999 American Axle & Manufacturing Holdings, Inc. Stock Incentive Plan (as amended and restated) (the “Prior Plan”). Upon approval of the LTIP, no further awards will be granted under the Prior Plan. As described in greater detail below, a maximum of 5,000,000 shares will be available for issuance under the LTIP, plus any shares that are available (or become available) for issuance under the Prior Plan.
 
The following description is qualified by and should be read in conjunction with the full text of the LTIP. The text of the LTIP appears at the end of this Proxy Statement as Appendix A. On March 18, 2008, the closing market price of our common stock was $22.11 per share.


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Summary of the 2008 LTIP
 
Administration In general, the Compensation Committee will administer the LTIP. The Compensation Committee will determine who will be granted awards, the terms and conditions of awards and the number of shares subject to or the amount payable under an award. The Compensation Committee will have full authority to construe and interpret the plan and to make all other determinations necessary to implement the plan.
 
Eligible Individuals The officers, executives and other key employees, directors and non-employee directors of AAM or any parent or subsidiary of AAM will be eligible to be granted awards under the LTIP. At March 18, 2008, there were approximately 500 individuals who were eligible to receive LTIP awards.
 
Number of Shares
Available for Issuance
The maximum aggregate number of shares of AAM common stock that may be issued under the LTIP is 5,000,000, plus any shares that are available for issuance under the Prior Plan, or that become available for issuance upon cancellation or expiration of awards granted under the Prior Plan that have not been exercised or settled. Shares issued under the LTIP may be authorized and unissued shares or may be issued shares that have been reacquired by AAM.
 
Shares covered by awards granted under the LTIP that are forfeited or cancelled or otherwise expire without having been exercised or settled generally will become available for issuance pursuant to a new award. In addition, if an award is settled through the payment of cash or other non-share consideration, the shares subject to the award will become available for issuance pursuant to a new award. Shares that are tendered or withheld to pay the exercise price of an award will also be available for issuance pursuant to a new award.
 
Types of Awards;
Limits
The Compensation Committee may grant the following types of awards under the LTIP: options; restricted stock; restricted stock units; stock appreciation rights; performance stock; performance stock units; performance awards; and other awards based on, or related to, shares of AAM common stock. However, the LTIP contains various limits with respect to the types of awards, as follows:
 
• the maximum number of shares that may be issued pursuant to options and stock appreciation rights granted to any eligible individual in any calendar year is 1,500,000 shares; and
• the maximum amount of other awards (other than options and stock appreciation rights) that may be awarded to any eligible individual in any calendar year is $5,000,000 measured as of the date of grant (with respect to awards denominated in cash) and 500,000 shares measured as of the date of grant (with respect to awards denominated in shares).
 
Stock Options.  A stock option is the right to acquire shares of AAM common stock at a fixed exercise price for a fixed period of time. The exercise price is set by the Compensation Committee but cannot be less than 100% of the fair market value of AAM common stock on the date of grant. The only exception is for options granted in substitution for options held by employees of companies that AAM acquires. In that case, the exercise price generally preserves the economic value of the


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options granted to the acquired employee by the acquired company. The term of a stock option may not exceed ten years.
 
The Compensation Committee may grant either incentive stock options or nonqualified stock options. As described in detail below, incentive stock options entitle the participant, but not AAM, to preferential tax treatment. The Compensation Committee determines the rules and procedures for exercising options. The exercise price may be paid in cash, shares, a combination of cash and shares, through net settlement (meaning AAM withholds shares otherwise issuable upon exercise to pay the exercise price), or by any other means authorized by the Compensation Committee, including cashless exercise, a procedure whereby vested shares covered by the option are sold by a broker and a portion of the sale proceeds are delivered to AAM to pay the exercise price.
 
Stock Appreciation Rights.  Stock appreciation rights are awards that entitle the participant to receive an amount equal to the excess, if any, of the fair market value on the exercise date of the number of shares for which the stock appreciation right is exercised over the grant price. The grant price is set by the Compensation Committee, but cannot be less than 100% of the fair market value of AAM common stock on the date of grant. The only exception is for stock appreciation rights granted in substitution for stock appreciation rights held by employees of companies that AAM acquires. In that case, the exercise price generally preserves the economic value of the stock appreciation rights granted to the acquired employee by the acquired company.
 
Payment to the participant on exercise may be made in cash or shares, as determined by the Compensation Committee. If the Compensation Committee determines at the time of grant that a stock appreciation right may be settled only in shares, the term may not exceed ten years. The Compensation Committee may grant stock appreciation rights in tandem with an option. If stock appreciation rights are granted in tandem with an option, the stock appreciation rights and the option will have the same exercise price and the same term and will cover the same number of shares. The employee may exercise either the option or the tandem stock appreciation rights, except that the number of shares exercised under one award will be cancelled under the other award.
 
Restricted Stock.  Restricted stock awards are shares of AAM common stock that are subject to cancellation, restrictions, and vesting conditions, as determined by the Compensation Committee. The shares may be either granted or sold to the participant.
 
Restricted Stock Units.  Restricted stock units entitle a participant to receive one or more shares of AAM common stock in the future upon satisfaction of vesting conditions determined by the Compensation Committee. The Compensation Committee determines whether restricted stock units will be settled through the delivery of shares, cash of equivalent value, or a combination of shares and cash.
 
Performance Stock, Performance Stock Units and Performance Awards.  Performance stock and performance stock units entitle a participant to a target number of shares if specified performance targets are achieved during a specified performance period. Likewise, performance awards entitle a participant to receive a cash target payment if


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specified performance targets are achieved during a specified performance period. The Compensation Committee sets the performance targets and performance period at the date of grant. Performance stock and performance units are settled through the delivery of shares of AAM common stock, cash of equivalent value, or a combination of shares and cash. Performance awards are paid in cash.
 
Other Awards.  The Compensation Committee also may grant other forms of awards that generally are based on the value of shares of AAM common stock. These other awards may provide for cash payments based in whole or in part on the value or future value of shares, may provide for the future delivery of shares to the participant, or may provide for a combination of cash payments and future delivery of shares.
 
Section 162(m) Performance-Based Awards.  The Compensation Committee may determine whether any award is a “performance-based” award for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Any awards designated to be performance-based compensation will be conditioned on the achievement of one or more specified performance goals established by the Compensation Committee at the date of grant. The performance goals will be comprised of specified levels of one or more of the following performance criteria, as the Compensation Committee deems appropriate: consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); net income or net income as a percentage of sales; operating income; earnings per share; book value per share; return on shareholders’ equity; total shareholder return; expense management; asset turns, inventory turns or fixed asset turns; return on assets; return on capital or return on invested capital; improvements in capital structure; profitability of an identifiable business unit or product; maintenance or improvement of profit margins; stock price; market share; revenues or sales; costs; cash flow or free cash flow or operating cash flow; and working capital. The criteria will be determined in accordance with generally accepted accounting principles, or derived from financial statements prepared in accordance with generally accepted accounting principles, consistently applied on a business unit, subsidiary or consolidated basis.
 
The performance goals may be described in terms of objectives that are related to the individual participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit. Performance goals may be measured on an absolute or cumulative basis, or on the basis of percentage of improvement over time. Performance goals may also be measured in terms of Company performance (or performance of the applicable subsidiary, division, department, region, function or business unit), or relative to selected peer companies or a market index.
 
Performance goals for an award will generally be established by the Compensation Committee within 90 days following the commencement of the performance period and the Compensation Committee will certify the attainment of the performance goals at the end of the performance period. Unless otherwise provided in an award agreement, the Compensation Committee may reduce the amount payable under a performance-based award even if the performance objectives are satisfied.


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However, the payment amount may not be increased and it may not exceed the award limits described above.
 
Amendment and Termination; Term Generally, the Board may terminate, amend, modify, or suspend the LTIP at any time. AAM must obtain stockholder approval of any termination, amendment, modification, or suspension if required by applicable law or NYSE rule. Subject to limited exceptions, no termination, amendment, modification, or suspension may materially impair the rights of a participant with respect to an outstanding award without the participant’s consent. Unless terminated earlier, the LTIP will expire in 2018, on the tenth anniversary of the effective date, and no additional awards may be granted after this date.
 
Change in Control In the event of a change of control of AAM, the Compensation Committee may take steps it considers appropriate, including accelerating vesting, modifying an award to reflect the change of control, or providing that outstanding awards will be assumed, or substituted for, by the surviving corporation or permitting or requiring participants to surrender options and stock appreciation rights in exchange for a cash payout equal to the difference between the highest price paid in the change of control and the exercise price. Generally, unless the Compensation Committee determines otherwise at the time of grant, the treatment of awards on a change of control is as follows:
 
• options and stock appreciation rights immediately vest in full and remain exercisable until the fifth anniversary of the participant’s termination of employment (or, if earlier, the expiration of the term of the award);
• restrictions imposed on restricted stock and restricted stock units immediately lapse;
• the performance goals with respect to performance stock, performance stock units, and performance awards, or other awards that vest upon satisfaction of performance objectives are deemed attained at target levels; and
• the vesting of all other awards that are denominated in shares is accelerated.
 
Under this definition in the LTIP, the following events generally result in a change of control:
 
• individual or entity acquires at least 20% of the voting power of AAM;
• a majority of AAM directors are replaced by directors not approved by the Board;
• there is a merger or consolidation of AAM that results in new stockholders having at least 49% of the voting power of AAM;
• there is a sale of 51% or more of AAM’s assets; or
• there is a liquidation or dissolution of AAM.
 
Under the Prior Plan, a change in control would require that one individual or entity acquire more than 50% of the voting power of AAM.
 
Other Provisions Dividends and Dividend Equivalents.  The Compensation Committee may provide participants with the right to receive dividends or payments equivalent to dividends or interest with respect to an outstanding award. The dividends or interest may be paid currently or may be deemed to


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have been reinvested in shares. No dividends or dividend equivalents may be paid with respect to options or stock appreciation rights.
 
Deferrals.  The Compensation Committee may permit participants to defer the payment or settlement of an award to one or more dates selected by the participant.
 
Repricing of Options and Stock Appreciation Rights.  Options and stock appreciation rights may not be repriced. For these purposes, to reprice an award means (i) to reduce the exercise or grant price, or (ii) to grant a new award with a lower exercise or grant price in exchange for the cancellation of the original award.
 
Adjustments or Changes in Capitalization.  In the event of a stock split, reverse stock split, stock dividend, extraordinary cash dividends, recapitalization, liquidation, merger or other corporate event affecting the shares of AAM common stock, the aggregate number of shares available for issuance under the LTIP, the various LTIP limits, and the number of shares subject to, and the exercise or grant price of, outstanding awards will be appropriately adjusted by the Compensation Committee.
 
Limited Transferability.  Generally, an award may only be transferred upon the participant’s death to a designated beneficiary or in accordance with the participant’s will or the laws of descent or distribution, and, except for incentive stock options, pursuant to a domestic relations order. The Compensation Committee also may permit limited transferability, generally to a participant’s family member, a trust for the benefit of a family member, or a charitable organization.


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New Plan Benefits
 
The number of options, restricted shares or other awards that an individual may receive under the LTIP is in the discretion of the Compensation Committee and cannot be determined in advance. As of the date of this Proxy Statement, no awards have been granted under the LTIP. The following table shows the awards granted under the Prior Plan during the 2007 fiscal year to the named executive officers, all current executive officers as a group, all current directors who are not executive officers as a group, and all other employees who are not executive officers:
 
                                                             
              Performance
         
              Accelerated
         
      Stock Options       Restricted Stock       Restricted Stock Units  
      Exercise
      Shares
                                 
      Price
      Underlying
      Dollar
              Dollar
         
      per Share
      Stock Options
      Value(1)
      Shares
      Value(2)
      Units
 
Name and Position     ($)       (#)       ($)       (#)       ($)       (#)  
                                                             
Richard E. Dauch
Co-Founder, Chairman &
Chief Executive Officer
      26.02         150,000         1,389,962         53,419         926,624         35,612  
Michael K. Simonte
Group Vice President —
Finance & Chief Financial Officer
      26.02         10,000         93,672         3,600         62,448         2,400  
Yogendra N. Rahangdale
Vice Chairman &
Chief Technology Officer
      26.02         40,000         374,688         14,400         249,792         9,600  
David C. Dauch
Executive Vice President &
Chief Operating Officer
      26.02         13,000         117,090         4,500         78,060         3,000  
Patrick S. Lancaster
Vice President, Chief Administrative Officer & Secretary
      26.02         9,500         85,866         3,300         57,244         2,200  
Executive officers
      26.02         296,000         3,206,158         123,219         1,826,916         70,212  
Directors (other than executive officers)
                                      501,072         17,600  
Employees (other than executive officers)(3)
      26.02         39,500         17,205,725         661,250         239,384         9,200  
                                                             
 
(1) Based on the closing market price of our common stock on March 14, 2007 of $26.02 per share.
 
(2) For executive officers, based on the closing market price of our common stock on March 14, 2007 of $26.02 per share. For directors, based on the closing market price of our common stock on April 26, 2007 of $28.47 per share.
 
(3) Includes awards of stock options, restricted stock units and performance accelerated restricted stock made to individuals who were executive officers on the grant date.


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U.S. Federal Income Tax Consequences
 
Nonqualified Stock Options and Stock Appreciation Rights.  The grant of a nonqualified stock option or stock appreciation right will not result in taxable income to the participant or a deduction to the Company. Upon exercise, the participant will recognize ordinary income equal to the amount by which the fair market value of the shares on the exercise date exceeds the exercise or grant price, and the Company will generally be entitled to a deduction in that amount. Upon subsequent sale of the acquired shares, any additional gain or loss will be capital gain or loss (either long-term or short-term, depending on the holding period of the shares).
 
Incentive Stock Options.  A participant will not recognize taxable income, and the Company will not be entitled to a deduction, when an incentive stock option is granted or exercised. However, the excess of the fair market value of the covered shares over the exercise price on the date of exercise is an item of tax preference for alternative minimum tax purposes. If the participant holds the shares acquired on exercise for more than two years following the date of grant and more than one year after the date of exercise of the option, the difference between the sale price and exercise price will be taxed to the participant as long-term capital gain or loss and no deduction will be allowed to the Company. If the participant sells the acquired shares before the end of the holding period, he or she will generally recognize ordinary income at the time of sale equal to the fair market value of the shares on the exercise date minus the exercise price of the option, and a corresponding deduction will be allowed to the Company.
 
Restricted Stock, Restricted Stock Units, Performance Stock, Performance Stock Units and Performance Awards.  Except as described below, a participant will not recognize taxable income, and the Company will not be entitled to a deduction, when a grant of restricted stock, restricted stock units, performance stock, performance stock units, or performance awards is made. Instead, the participant will recognize ordinary income at the time of vesting equal to the fair market value of the shares (or cash) received minus any amounts the participant paid for the award, and the Company will receive a deduction in that amount. If the participant receives shares under the award, any subsequent gain or loss will be capital gain or loss (either long-term or short-term, depending on the holding period of the shares). For restricted stock and performance stock, the participant may elect to be taxed at the time of grant and the long-term capital gains holding period will begin on the date of grant.
 
Section 162(m).  AAM generally will receive a deduction for any ordinary income recognized by a participant with respect to an award. However, special rules limit the deductibility of compensation paid to named executive officers and, under Section 162(m) of the Code, the annual compensation paid to named executive officers may not be deductible to the extent it exceeds $1,000,000. AAM may preserve the deductibility of compensation over $1,000,000 if certain conditions are met. These conditions include stockholder approval of the LTIP, setting limits on the number of shares that may be issued pursuant to awards, and, for awards other than options and stock appreciation rights, establishing performance criteria that must be met before the award will be paid or vest. As described above, the LTIP has been designed to permit the Compensation Committee to grant awards that qualify as “performance-based compensation” for purposes of Section 162(m) and to exclude the value of these awards from the $1,000,000 calculation.
 
The foregoing is not to be considered as tax advice to any person who may be a participant, and any such persons are advised to consult their own tax counsel. The foregoing is intended to be a general discussion and does not cover all aspects of an individual’s unique tax situation, such as the tax consequences of deferred compensation or state and local taxes.


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The following table summarizes information as of December 31, 2007 relating to our equity compensation plans pursuant to which grants of stock options, restricted stock, restricted stock units and other rights to acquire shares of our common stock may be made from time to time.
 
Equity Compensation Plan Information
 
                               
      (a)       (b)       (c)  
      Number of
              Number of securities
 
      securities to be
              remaining available
 
      issued upon
              for future issuance
 
      exercise of
      Weighted-average
      under equity
 
      outstanding
      exercise price of
      compensation plans
 
      options, warrants
      outstanding options,
      (excluding securities
 
Plan Category     and rights       warrants and rights       reflected in column (a))  
Equity compensation plans approved by security holders
      6,077,708       $ 24.16         2,543,800  
 
Equity compensation plans not approved by security holders
                       
 
Total
      6,077,708       $ 24.16         2,543,800  
 
 
Your Board unanimously recommends that you vote FOR approval of the 2008 American Axle & Manufacturing Long-Term Incentive Plan.


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COMPENSATION OF EXECUTIVE OFFICERS
 
Compensation Discussion and Analysis
 
Executive Summary
 
Our executives showed proactive leadership in returning AAM to profitability in 2007 as AAM continued to resize, restructure and recover from the rapid and unprecedented structural transformation of the highly competitive U.S. domestic automotive industry. Among AAM’s accomplishments in 2007, we significantly improved cash flow, reduced net debt levels, rationalized installed production capacity, accelerated growth in our foreign operations, expanded our customer base, enhanced our product portfolio and continued improvement in measurable quality, warranty, delivery and launch performance for our customers.
 
Global competition, combined with increased manufacturing costs and other factors, have put significant financial pressure on the U.S. domestic automotive industry. In this context, many automotive suppliers filed for bankruptcy protection over the past few years. Like many of our competitors and other automotive suppliers in the U.S., we have undertaken wide-scale restructuring actions to reduce costs. Our strong executive leadership is critical to our progress relating to these restructuring efforts in the U.S. and to the continued execution of our operational and strategic objectives in coming years.
 
Our restructuring efforts in the U.S. are focused on establishing a market competitive cost structure. AAM and the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) are currently negotiating a labor agreement that will cover approximately 3,650 associates at five facilities in the U.S. Due to the significance of these negotiations to AAM, we have postponed many of the regular compensation actions relating to our executive officers, pending the conclusion of our current contract negotiations with the UAW. Specifically, we have postponed consideration of the 2007 annual bonus payments for our executive officers. As a result, in determining the amounts of the payments, we will be able to take into account the results of our negotiations with the UAW, as well as factors relating to performance for 2007. We have also postponed consideration of long-term incentive awards and annual salary adjustments for our executive officers for 2008.
 
Executive Compensation Objectives
 
Our executive compensation programs reflect our results-oriented corporate culture that rewards achievement of aggressive goals. Our compensation program for executive officers is designed to attract, retain, motivate and reward talented executives who will advance our strategic, operational and financial objectives and thereby enhance stockholder value.
 
The following principles are considered in setting compensation programs and pay levels:
 
  •  Compensation and benefit programs offered by AAM should appropriately reflect the size and financial resources of our Company in order to maintain long-term viability. These programs should be increasingly market-based (rather than legacy) and competitive, without limiting our ability to adequately invest in our business. This approach supports our efforts to maintain a viable, profitable and sustainable enterprise for the future as we develop and expand our global footprint.
 
  •  Compensation should reward Company and individual performance. Our programs should strive to deliver competitive compensation for exceptional Company and individual performance as compared to companies in our competitor peer group and others with whom we compete for executive talent. As associates progress to higher levels in the Company and assume key leadership positions, a greater portion of their compensation should be linked to Company performance and stockholder returns. As discussed below, Company performance is measured against financial and operational objectives and stockholder return.


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  •  Compensation should foster the long-term focus required for success in the global automotive industry. We believe that long-term incentive compensation will motivate executive officers to deliver long-term value to our stockholders. Executives at higher levels in our Company should have a greater proportion of their compensation tied to longer-term performance because they are in a better position to influence longer-term results. This approach supports strategic decision-making and actions that will serve the long-term interest of AAM and aligns the interests of executive officers and stockholders.
 
  •  Executive officers should be AAM stockholders. Stock ownership aligns our executive officers’ interests with those of our stockholders. They should be required to maintain ownership of AAM stock at a level appropriate for their position in the Company. AAM’s long-term equity-based compensation program should facilitate stock ownership and link a portion of compensation to stock price appreciation.
 
  •  The objectives of rewarding performance and retention should be balanced. In periods of temporary downturns in Company performance, particularly when driven by unanticipated industry events or customer decisions, our compensation programs should continue to ensure that high-achieving, marketable executives remain motivated and committed to AAM. This principle is essential to our effort to encourage our strongest leaders to remain with AAM for long and productive careers.
 
  •  Compensation and benefit programs for executive officers should be fair in consideration of each executive’s level of responsibility and contribution to AAM. While individual pay levels and benefit packages will reflect differences in job responsibilities, geography and marketplace considerations, the overall structure of compensation and benefit programs should be broadly similar across the Company.
 
Competitive Compensation
 
Among other factors, we generally consider the competitive market in which we compete for executive officer talent in determining compensation. In July 2007, the Compensation Committee engaged Towers Perrin to review the competitiveness of compensation levels of 13 AAM executive officer positions (including our named executive officers other than the CEO). Towers Perrin’s review included an analysis of base salary, annual cash incentives and long-term incentives (total direct compensation) and perquisites offered by companies in a designated comparison group. The purpose of Towers Perrin’s review was to provide information that we may use in making compensation decisions for these executive officers in future years and in paying compensation to these executive officers that is competitive with market rates.
 
With input from management, Towers Perrin identified a comparison group of 35 broad industrial manufacturing companies, including seven automotive suppliers, from Tower Perrin’s 2007 Executive Compensation Database, for consideration by the Compensation Committee. The comparison group was selected to be representative of a broad industrial sector in which AAM competes for executive talent. The following companies were included:
 
         
A.O. Smith Corp.
ArvinMeritor, Inc.
Ball Corp.
Brady Corp.
Cameron International Corp.
Cooper Tire & Rubber Co.
Donaldson Company, Inc.
Dresser-Rand Group Inc.
Fleetwood Enterprises, Inc.
Flowserve Corp.
Harley-Davidson, Inc.
Harsco Corp.
  Hayes Lemmerz International, Inc.
HNI Corp.
IDEX Corp.
Johnson Controls, Inc.
Kennametal Inc.
Lear Corp.
MeadWestvaco Corp.
Monaco Coach Corp.
MSC Industrial Direct Co., Inc.
Navistar International Corp.
Owens-Illinois, Inc.
Rockwell Automation, Inc.
  Sonoco Products Co.
Steelcase Inc.
Thomas & Betts Corp.
The Timken Company
The Toro Company
Trinity Industries, Inc.
USG Corp.
Valmont Industries, Inc.
Visteon Corp.
W.W. Grainger, Inc.
Whirlpool Corp.


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Towers Perrin’s review indicated that AAM’s executive officers (other than the CEO) had total direct compensation in 2007 (consisting of base salary, target annual incentive and grant value of long-term incentive awards) that was, on average, significantly below the median of the comparison group. In addition, Towers Perrin found that base salaries for a number of our executive officers were not competitive with salaries paid for comparable positions at companies in the comparison group. Taking this into account, the Compensation Committee increased base salaries for Mr. Simonte, Mr. Rahangdale and Mr. D.C. Dauch by 12.3, 7.4 and 9.9 percent, respectively, in 2007.
 
Performance Considerations
 
A substantial amount of total direct compensation for our executive officers is at-risk, linking compensation to Company performance and stockholder returns. This design feature creates strong incentives for high levels of performance and for our executives to make a significant contribution to AAM.
 
As described below, we pay annual cash incentives to our named executive officers (other than the CEO) that are contingent on AAM’s achievement of net income as a percentage of sales, after-tax return on invested capital (ROIC) and net operating cash flow. Target performance levels under these measures are set by reference to the Company’s annual budget or are based on a review of the performance of the companies in our competitor peer group in prior years. In addition, the Compensation Committee intends to consider the results of our contract negotiations with the UAW, as described above, among the other performance factors to be taken into account in determining annual bonus payments for 2007.
 
Beginning in 2008, performance under long-term cash performance awards for our executive officers will be based on our relative total stockholder return, determined by reference to the total stockholder return for the companies in our competitor peer group during the performance period.
 
The following companies are included in our competitor peer group:
 
         
ArvinMeritor, Inc.
Autoliv, Inc.
BorgWarner, Inc.
Dana Corporation
  Delphi Corporation
Dura Automotive Systems, Inc.
Lear Corporation
  Magna International, Inc.
Tenneco Automotive, Inc.
Visteon Corporation
 
In addition, evaluations of individual performance, among other factors, affect the amount of the annual bonus payments approved under our Incentive Compensation Plan for Executive Officers. These factors are also taken into account each year when considering adjustments to base salaries and in determining the total grant value of long-term incentive awards. The Compensation Committee considers the CEO’s recommendation in approving these items and gives considerable weight to the CEO’s evaluation of executive officers due to his direct knowledge of each executive officer’s performance and contributions. Generally, the factors considered by the CEO include the individual’s job responsibilities and experience, time in position and potential for development, as well as the financial and operational performance of activities under the executive officer’s control and the financial performance of the Company. To a significant extent, the CEO’s recommendations reflect his discretion and judgment. No formal weightings are assigned to the particular factors that he considers in evaluating the executive officers in any year.
 
Elements of Compensation
 
The principal elements of compensation for our executive officers are:
 
  •  base salary;
  •  annual cash incentive;
  •  long-term equity-based incentives; and
  •  benefits and perquisites.


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There is no particular target proportion among these elements. Although all executive officers are eligible to participate in essentially the same compensation and benefit programs offered by AAM, our CEO’s compensation is generally governed by his employment agreement. The terms of Mr. R.E. Dauch’s employment agreement are described in Compensation of Co-Founder, Chairman & CEO and in the Narrative to Summary Compensation Table and Grants of Plan-Based Awards table below.
 
Compensation of Named Executive Officers other than the CEO
 
The discussion below of the elements of compensation applies to our named executive officers, other than Mr. R.E. Dauch, our Co-Founder, Chairman & CEO. Mr. R.E. Dauch’s compensation is discussed separately in Compensation of Co-Founder, Chairman & CEO below.
 
Base Salary.  Base salary is a fixed element of cash compensation for executive officers. The Compensation Committee reviews and adjusts executive officers’ base salaries through AAM’s annual merit program, in conjunction with the annual review process, changes in responsibilities or changes in competitive market trends. Salary increases for executive officers are included in the budget for the annual merit program for all U.S. salaried associates.
 
Under the annual merit program, the Compensation Committee establishes an average merit percentage for base salary in the fourth quarter of each year to pay merit salary increases for U.S. salaried associates in the following year. In determining the average merit percentage for the upcoming year, the Compensation Committee considers compensation surveys by recognized independent consultants and professional organizations that project salary budget increases for salaried employees at comparable companies, including members of AAM’s competitor peer group and other automotive suppliers with operations in the U.S. The average merit percentage serves as a framework for determining the individual base salary adjustment to be applied to each associate’s base salary in the relevant year. In October 2007, to remain competitive with industry pay averages, the Compensation Committee approved an average merit percentage equivalent to a 3.5 percent base salary increase for all U.S. salaried associates in 2008.
 
Individual base salary adjustments for the named executive officers are approved by the Compensation Committee following review and consideration of the recommendations presented by the CEO. We intend to consider base salary increases for our named executive officers for 2008 following the conclusion of our contract negotiations with the UAW, as discussed above.
 
Annual Cash Incentive.  Annual incentive compensation is designed to align executive officer pay with AAM’s annual performance, measured by our achievement of financial targets established under our Incentive Compensation Plan for Executive Officers. All executive officers, other than the CEO, participate in this plan. Under this plan, cash incentive awards for the named executives are permitted to the extent the Company meets or exceeds performance goals set annually by the Compensation Committee. Individual awards may be adjusted by the Compensation Committee, based on the CEO’s recommendation and taking into account the performance factors described above.
 
The performance factors used to measure performance and calculate bonus awards are (1) net income as a percentage of sales, (2) after-tax return on invested capital (ROIC) and (3) net operating cash flow. As discussed below, reliance on these performance factors in determining annual cash incentive compensation awards for executive officers support the overall performance goals and long-term strategic direction of the Company and align the interests of management and our stockholders. The calculations based on our audited financial information of 2007 ROIC and net operating cash flow, both of which are non-GAAP financial measures, are set forth in Supplemental Financial Data below.
 
Net income as a percentage of sales is a key indicator of the Company’s financial and operational performance. ROIC is an important performance measure for us because it reflects how efficiently and effectively we deploy our capital, which is particularly important given the cost competitive, capital intensive nature of our industry. We believe that sustained returns on invested capital in excess of our Company’s cost of capital create value for our stockholders over the long-term. Net


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operating cash flow is also a relevant performance measure for us because it is commonly used by management and investors to assess our ability to generate cash flow from business operations to repay debt and return capital to our stockholders and is a general measure of financial health.
 
In the fourth quarter of each year, the Compensation Committee determines the weighting and award levels for each of the performance factors for the upcoming year in conjunction with the approval by the Board of the annual budget for the upcoming year. For each of the performance factors, the Compensation Committee establishes target and threshold levels of performance and then designs a formula scaled to performance that can be more or less than target. Performance above the target level may result in a higher payout, with a maximum payout for net operating cash flow of 120 percent. There is no established maximum for net income as a percentage of sales and ROIC.
 
Target and threshold performance levels for net income as a percentage of sales and ROIC are established based on a review of our competitor peer group benchmarks for the three most recently completed years. The target performance level for net income as a percentage of sales is established to meet the performance of the top one-third of our competitor peer group for the three most recently completed fiscal years. The target level of performance for ROIC is set with the objective of being at least 200 basis points higher than our competitor peer group average for the same period. The target level of performance for net operating cash flow is based on the Board approved annual budget for the upcoming year.
 
Our competitor peer group serves as the benchmark for setting the threshold and target performance levels for net income as a percentage of sales and ROIC, as we compete with these companies for capital and operate under similar business conditions. In determining threshold and target performance levels for the 2007 performance year, peers in bankruptcy and Dura Automotive Systems, Inc. were excluded from the competitor peer group averages. The Compensation Committee determined that the distressed financial performance of these companies during this time period skewed the benchmarking results. Excluding these companies from the competitor peer group averages resulted in an increase in the threshold and target performance levels.
 
The threshold, target and maximum levels of performance set by the Compensation Committee for the 2007 performance period are shown in the following table:
 
                                                 
                Net Operating
 
    Net Income as a Percentage of Sales     ROIC     Cash Flow  
    Performance     Payout     Performance     Payout     Performance     Payout  
 
Threshold     1%       30%       4%       30%     $ 76 million       50%  
Target     3%       100%       9%       100%     $ 152 million       100%  
Maximum     >3%       >100%       >9%       >100%     $ 182 million       120%  
 
 
In the first quarter of each year, the Compensation Committee meets to review the Company’s financial results for the previous year and determines the degree to which financial performance targets have been achieved. Our Incentive Compensation Plan for Executive Officers gives the Compensation Committee discretion to adjust the method of calculating the attainment of performance goals in recognition of (1) unanticipated special charges or gains, (2) unanticipated industry-wide factors affecting Company performance or (3) unanticipated customer decisions affecting Company performance. The Compensation Committee also has discretion to adjust any award (upward or downward) to reflect individual performance or special achievements.


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In January 2008, the Compensation Committee reviewed 2007 Company performance for purposes of our Incentive Compensation Plan for Executive Officers and approved an adjustment for the following unanticipated special charges recorded in our 2007 consolidated financial statements:
 
  •  Buffalo Separation Program.  We recorded a special charge of $56.2 million for the postemployment costs related to a voluntary separation program offered to the hourly associates at our Buffalo Gear, Axle & Linkage facility in Buffalo, New York.
  •  Asset impairments.  We recorded an asset impairment charge of $11.6 million. The charge includes a $5.9 million reduction of the net book value of certain assets at our Buffalo Gear, Axle & Linkage facility in Buffalo, New York, which was production idled in the fourth quarter of 2007. This charge also includes a $5.7 million write-off of assets previously classified as held for sale.
  •  Debt refinancing and redemption costs.  We expensed $5.5 million of unamortized debt issuance costs and prepayment premiums related to the voluntary prepayment of our Term Loan due 2010.
 
With this adjustment taken into account, the achievement of ROIC and net operating cash flow goals were above target, net income as a percentage of sales was below target, and overall achievement based on our financial performance in 2007 was 104% of target. The Compensation Committee did not, however, approve the payment of annual bonuses on this basis and, as described above, postponed the consideration of the 2007 annual bonus payments for our executive officers, including the named executive officers. In determining the amount to be paid, the Compensation Committee intends to take into account the results of our contract negotiations with the UAW, together with the relevant performance considerations for 2007, as described above.
 
Long-Term Incentives.  Long-term incentive compensation is designed to:
 
  •  align executive officer and stockholder interests;
  •  facilitate stock ownership among executive officers;
  •  reward achievement of long-term performance goals; and
  •  provide incentives for executive retention.
 
In July 2007, the Compensation Committee engaged Towers Perrin to review AAM’s long-term incentive program for executive officers (excluding the CEO) and to recommend a strategy consistent with AAM’s compensation philosophies and objectives. As part of this review, Towers Perrin analyzed historical and current market long-term incentive grant practices and trends based on Towers Perrin’s 2002 and 2007 Long-Term Incentive Plan Reports and their analysis of Fortune 500 long-term incentive practices and trends. In addition, based on data from Towers Perrin’s 2007 Executive Compensation Database, Towers Perrin found that target long-term incentive award opportunities for our executive officers, on average, were not competitive with market rates. Taking into account input from senior management concerning the Company’s business objectives and plan design, Towers Perrin recommended a long-term incentive grant strategy based on a value and mix of award vehicles, including potential performance criteria and targets, that is consistent with market practices and trends.
 
The Compensation Committee considered the results of Towers Perrin’s analysis and the recommendations of Towers Perrin and senior management in approving a long-term incentive grant strategy for implementation in 2008. Under the approach approved by the Committee, executive officers would receive annually a combination of restricted stock, performance awards and stock options with a total award value to be established prior to the time of grant. Each component of the annual award is discussed in greater detail below.
 
Restricted stock.  Fifty-percent of the total award value generally would be in the form of restricted stock vesting in full on the third anniversary of the date of grant. Emphasizing retention, these awards require continued service with AAM during the vesting period. Restricted stock has value tied to share price at the time of vesting aligning the interests of our executives with those of our


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stockholders. Restricted stock also facilitates stock ownership and consists of issued and outstanding shares of common stock, with dividend and voting rights from the date of grant. Executives age 60 and over at the time of grant would receive additional restricted stock in lieu of a grant of performance awards described below. Restricted stock awarded to this group would vest in three approximately equal installments on the first, second and third anniversaries of the grant date.
 
Performance Awards.  Twenty-five percent of the executive’s award value would generally be in the form of performance awards, representing the right to a payment in cash based on our total shareholder return (TSR), relative to our competitor peer group, over a three-year performance period. Performance awards are designed to tie long-term incentive pay of executive officers more directly with long-term Company performance. We chose relative TSR as the measure of Company performance in order to motivate our executive officers to build long-term value for our stockholders above that of our competitor peer group. In addition, these awards emphasize retention, as they require continued service with AAM during the three-year performance period. Performance awards also are payable in cash rather than shares minimizing the dilution of stockholder interests. Executives age 60 and over at the time of grant would receive, in lieu of a grant of performance awards, an equivalent value in restricted stock.
 
The actual value realized under performance awards is equal to a percentage of the target payout based on relative TSR during the performance period. Following are the threshold, target and maximum levels of performance attainment and the related target level payouts:
 
                 
    Total
  Target
   
Shareholder Return
 
Level Payout
 
Threshold     35th percentile       50 %
Target     50th percentile       100 %
Maximum     75th percentile       200 %
 
Payout levels are linearly interpolated between percentiles. No performance awards may be earned unless relative TSR is at or above the threshold level of performance. If the Company’s TSR is negative over the three-year performance period, the maximum earned award would be 100% of the target award. TSR is measured for the Company and for each of the competitor peer group companies over the performance period and is defined as the cumulative appreciation (assuming reinvestment of dividends) of an investment in common stock.
 
Stock options.  Twenty-five percent of the total award value for each executive officer would be in the form of stock options vesting in three approximately equal installments on the first, second and third anniversaries of the grant date, Stock options align the interests of our executive officers and our stockholders as stock options only have value to the extent the price of our common stock on the exercise date exceeds the option grant price. We believe that stock options continue to provide motivation for our executive officers to focus on long-term stockholder value.
 
Each year, the Compensation Committee establishes guidelines for the target grant value of the long-term incentive awards to be made to executive officers other than the CEO and approves a total grant value for each executive officer based on the CEO’s recommendation for the year. In making his recommendations, the CEO considers, among other things, the executives’ level of responsibility and performance, market practices and trends, and the shares available under our Stock Incentive Plan. As discussed above, consideration of the actual long-term incentive awards to be made to our executive officers, including our named executive officers, for 2008 was postponed pending the conclusion of our contract negotiations with the UAW.
 
Equity Grant Practices.  AAM generally makes grants to its executive officers and other executives on an annual basis, subject to the approval of the Compensation Committee. Historically, grants have been made in the first quarter of each year to coincide with the communication to executive officers of their annual cash incentive awards for the previous year’s performance. This timing increases the impact of the awards by strengthening the link between pay and performance. AAM does not and


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has never permitted backdating, spring loading or other timing of option grants with the release of material, non-public information.
 
Benefits.  Our executive officers participate in the full range of benefits and retirement plans provided to U.S. salaried associates generally. We target our overall benefits package to be competitive with that of our competitor peer group and other companies with which we compete for associates.
 
The most senior executives of AAM, a group of approximately 50 individuals (including executive officers), participate in a program of supplemental benefits specific to this group. We provide these senior executives with supplemental life, supplemental disability, umbrella liability and travel accident insurance benefits. The benefits provided in this program are designed, in the aggregate, to be competitive with those provided to executives in comparable positions at companies in our competitor peer group.
 
Executive officers are eligible to participate in AAM’s qualified and nonqualified defined benefit pension plans and defined contribution plan. They are also eligible to participate in a nonqualified deferred compensation plan that permits deferrals of a portion of base salary and/or annual cash incentive compensation on a pre-tax basis. These plans are described in the Pension Benefits and Nonqualified Deferred Compensation sections below.
 
Perquisites.  AAM provides a limited number of perquisites for senior executives, including executive officers, which are described in the footnotes to the Summary Compensation Table. The most significant perquisite we provide is the use of a Company-provided vehicle that has substantial AAM content. This perquisite is common among automotive suppliers.
 
In connection with the review of executive officer compensation levels in 2007, Towers Perrin compared AAM’s perquisite offerings for executive officers against the companies in the comparison group for which current information was available. Towers Perrin reported that AAM’s perquisite offerings, while competitive, are on the lower end of the range at companies in the comparison group and recommended continuance of the current offerings. Taking into account Towers Perrin’s analysis, the Compensation Committee did not make any changes in 2007 to the perquisites offered by AAM.
 
AAM has never owned corporate aircraft and does not provide leased aircraft for personal use.
 
AAM does not pay for country club memberships.
 
Compensation of Co-Founder, Chairman & CEO
 
Mr. R.E. Dauch’s compensation is governed by an employment agreement that is described in the Narrative to Summary Compensation and Grants of Plan-Based Awards table below. The CEO’s compensation arrangements are structured in consideration of the breadth of responsibilities for the entire Company, his experience in the automotive industry and his extraordinary value of leadership and service to AAM since he co-founded the Company in 1994. As discussed above, consideration of Mr. R.E. Dauch’s 2007 bonus and salary adjustment for 2008 was postponed pending the resolution of our contract negotiations with the UAW. We also postponed the annual grant of equity awards under his employment agreement for 2008.
 
The primary elements of the CEO’s compensation are: (1) base salary; (2) annual cash bonus; (3) long-term equity-based incentives; and (4) benefits and perquisites.
 
Base Salary.  Base salary is determined by the Compensation Committee as part of our annual compensation review process. Annual adjustments to base salary are made at the discretion of the Compensation Committee in consideration of Company performance and Mr. R.E. Dauch’s achievements as CEO. The specific factors considered may differ from year to year. Base salary for 2007 and 2006 is shown in the Summary Compensation Table.
 
Annual Cash Bonus.  Mr. R.E. Dauch is eligible for an annual cash bonus as described in his employment agreement. See Narrative to Summary Compensation Table and Grants of Plan-Based


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Awards table below. As described in his employment agreement, the annual cash bonus is based on the Compensation Committee’s assessment of Company performance as compared to that of our competitor peer group. The Compensation Committee may use discretion and consider other factors in determining Mr. R.E. Dauch’s annual cash award. The specific factors may differ from year to year. The annual cash bonus earned in 2007 and 2006 is shown in the Summary Compensation Table.
 
Long-Term Incentives.  Mr. R.E. Dauch’s employment agreement was amended in 2008 to change the form of the annual equity award to be granted to Mr. R.E. Dauch from stock options to a mix of stock options and restricted stock. Under his amended employment agreement, Mr. R.E. Dauch is entitled to receive, each year, an award of 150,000 stock options and an award of restricted shares equal to the value of the option award. The terms of these awards are the same as those granted to other executive officers as described in Long-Term Incentives above. From 2005 through 2007, the Compensation Committee granted Mr. R.E. Dauch an annual combined award of stock options, PARS and RSUs. The terms of these awards are described in the Narrative to Summary Compensation Table and Grants of Plan-Based Awards table.
 
Benefits and Perquisites.  Mr. R.E. Dauch participates in the same benefit programs provided for other senior executives, including executive officers. In addition, under his employment agreement, AAM provides Mr. R.E. Dauch with the use of an additional Company vehicle and reimburses him for premiums under a $5,000,000 life insurance policy. The Company will also provide him postretirement health care benefits upon expiration of his employment agreement on December 31, 2009. Perquisites provided to the CEO in 2007 and 2006 are reported in the Summary Compensation Table.
 
Management’s Stock Ownership Requirements
 
The Compensation Committee established stock ownership requirements for executive officers in October 2004. Based on the market value of our common stock, ownership requirements are determined as a multiple of each executive officer’s base salary.
 
         
    Multiple of
Position   Base Salary
 
Co-Founder, Chairman & CEO
    5  
President; Vice Chairman
    3  
Executive Vice President; Group Vice President
    2  
Vice President
    1  
 
Stock ownership levels must be attained within five years from October 2004 or, for new appointments of executive officers, within five years from the date of becoming an officer or assuming a new officer position. If compliance is not achieved in five years, 50 percent of an executive officer’s annual cash incentive award will be awarded as restricted stock until the applicable level is attained. Ownership requirements must be maintained until retirement. Shares owned directly (including restricted stock) or through AAM’s Salaried Savings Plan are considered in determining stock ownership levels. Unexercised stock options and RSUs are not considered in determining stock ownership levels for executive officers.
 
Our Co-Founder, Chairman & CEO’s stock ownership exceeds the requirements for his position.
 
All other executive officers have met or are on target to meet the stock ownership requirements for their positions.


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Federal Income Tax Considerations
 
Deductibility of Executive Compensation.  In general, the compensation awarded to our named executive officers will be taxable to the executive and will give rise to a corresponding corporate deduction at the time the compensation is paid. Section 162(m) of the Internal Revenue Code (Code) denies a federal income tax deduction for certain compensation in excess of $1 million per year paid to the CEO or to any of the other named executive officers other than the CFO. The portion of the compensation in excess $1 million that we paid to our CEO in 2007 was not deductible for federal income tax purposes. Section 162(m) did not affect our ability to take a tax deduction for compensation paid to any of our other named executive officers in 2007.
 
We design our stock options and our cash performance awards so that the amount realized by the executive on exercise or payment will not be subject to the $1 million limitation under Section 162(m). Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. We believe that achieving our compensation objectives set forth above is more important than the benefit of tax deductibility. We reserve the right to maintain flexibility in how we compensate our executive officers, which may result in limiting the deductibility of amounts of compensation from time to time.
 
Section 280G.  Under our continuity agreements with named executive officers, discussed below, they are entitled to a gross-up payment for excise tax resulting from a change in control under Section 4999 of the Code. This is to ensure that the named executive officer receives the same net after-tax payment that he would have received had no excise tax been imposed, subject to certain limitations. If a named executive officer’s change in control benefits exceed the safe harbor amount (i.e., three times the historical five-year Form W-2 average) by greater than 10 percent, he will be entitled to a gross-up payment for the additional excise tax. If, however, the change in control benefits are less than or equal to 10 percent of the safe harbor amount, then the named executive officer’s benefit will be reduced until the sum of the payments equals the maximum amount that may be paid to him without the imposition of the excise tax.
 
Change-In-Control Payments and Benefits
 
Primarily as a protection for our senior management, and in order that they may remain focused on the management of the Company’s business in the event of a pending change in control, we have entered into continuity agreements with executive officers, including the named executive officers. These continuity agreements are described in Potential Payments Upon Termination or Change in Control below. Generally, the agreements provide enhanced severance benefits for executives if they terminate employment in specified circumstances following a change in control. Additionally, stock options and other equity awards granted to our executive officers vest upon the occurrence of a change in control, further aligning executives with shareholders.
 
Annually, the Compensation Committee reviews “tally sheets” for the named executive officers for purposes of reviewing total compensation and considering potential payments to executive officers upon termination of employment or a change in control. The elements and calculations reviewed are substantially similar to the information provided in the tabular disclosure for each named executive officer in Potential Payments Upon Termination or Change in Control below. The Compensation Committee did not recommend or approve changes to our named executive officers’ compensation based on its review of this information in October 2007 and continues to believe that the amounts payable in the event of a change in control are appropriate.


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SUPPLEMENTAL FINANCIAL DATA
 
The following supplemental financial data presented for the years ended December 31, 2007 and 2006 are the unadjusted calculations for two of the three performance factors (ROIC and net operating cash flow) under our Incentive Compensation Plan for Executive Officers. These performance factors are non-GAAP (generally accepted accounting principles) financial measures, which are intended to facilitate analysis of our business and operating performance. This information is not and should not be viewed as a substitute for financial measures determined under GAAP. Other companies may calculate these non-GAAP financial measures differently.
 
After-Tax Return on Invested Capital (ROIC)
 
                 
    2007     2006  
    (Dollars in millions)  
 
Net income (loss)
  $ 37.0     $ (222.5)  
Add: After-tax net interest expense(1)
    48.0       24.5  
                 
After-tax return
    85.0       (198.0)  
                 
Net debt(2)
    514.5       658.7  
Add: Stockholders’ equity
    890.7       813.7  
                 
Invested capital
               
End of year
    1,405.2       1,472.4  
Beginning of year
    1,472.4       1,480.3  
                 
Average invested capital(3)
    1,438.8       1,476.4  
After-tax ROIC(4)
    5.9%       (13.4%)  
                 
 
 
(1) After-tax net interest expense is equal to tax effecting net interest expense by the applicable effective income tax rate (excluding one-time items).
 
(2) Net debt is equal to total debt less cash and cash equivalents as reconciled as follows:
 
                 
    2007     2006  
    (Dollars in millions)  
 
Total debt
  $   858.1     $   672.2  
Less: Cash and cash equivalents
    343.6       13.5  
                 
Net debt
  $ 514.5     $ 658.7  
                 
 
(3) Average invested capital is equal to the average of beginning and ending invested capital.
 
(4) After-tax ROIC is equal to after-tax return divided by average invested capital.
 
Net Operating Cash Flow
 
                 
    2007     2006  
    (Dollars in millions)  
 
Net cash provided by operating activities
  $   367.9     $   185.7  
Less: Purchases of property, plant and equipment
    186.5       286.6  
                 
Net operating cash flow
  $ 181.4     $ (100.9 )
                 


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REPORT OF THE COMPENSATION COMMITTEE
 
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
 
Compensation Committee of the Board of Directors
 
Forest J. Farmer, Chairman
John A. Casesa
Elizabeth A. Chappell
Thomas K. Walker


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SUMMARY COMPENSATION TABLE
 
The following table summarizes the compensation of our named executive officers (Richard E. Dauch, Co-Founder, Chairman of the Board & Chief Executive Officer, Michael K. Simonte, Group Vice President — Finance & Chief Financial Officer, Yogendra N. Rahangdale, Vice Chairman & Chief Technology Officer, David C. Dauch, Executive Vice President & Chief Operating Officer and Patrick S. Lancaster, Vice President, Chief Administrative Officer & Secretary) for the fiscal years ended December 31, 2007 and December 31, 2006.
 
                                                                                 
                                              Change in
                 
                                              Pension Value
                 
                                              and
                 
                                              Nonqualified
                 
                                              Deferred
      All Other
         
                              Stock
      Option
      Compensation
      Compen-
         
Name and
            Salary
      Bonus(1)
      Awards(2)
      Awards(3)
      Earnings(5)
      sation(6)
      Total
 
Principal Position     Year       ($)       ($)       ($)       ($)       ($)       ($)       ($)  
                                                                                 
Richard E. Dauch
                                                                               
Co-Founder, Chairman
      2007         1,473,336                 5,597,764 (4)       2,401,038 (4)       608,372         94,684         10,175,194  
& Chief Executive
      2006         1,344,164         3,900,000         2,566,059         210,979         1,209,400         85,640         9,316,242  
Officer
                                                                               
Michael K. Simonte
Group Vice President — Finance & Chief Financial Officer
      2007
2006
        242,862
230,000
       
125,000
        93,069
70,609
        47,138
14,065
        88,404
14,280
        39,768
25,028
        511,241
478,982
 
Yogendra N. Rahangdale
Vice Chairman
& Chief Technology Officer
      2007
2006
        327,687
313,101
       
165,000
        315,015
167,862
        192,103
59,074
        213,563
116,917
        14,966
13,742
        1,063,334
835,696
 
David C. Dauch
Executive Vice President
& Chief Operating Officer
      2007
2006
        292,047
277,749
       
150,000
        119,653
91,499
        64,832
21,098
        195,198
14,444
        80,797
40,187
        752,527
594,977
 
Patrick S. Lancaster
Vice President, Chief Administrative Officer
& Secretary
      2007         258,600                 95,698         47,446         222,013         31,874         655,631  
                                                                                 
 
(1) The bonuses reported for 2006 for named executive officers other than Mr. R.E. Dauch, reflects the amounts of the discretionary cash incentive awards paid March 15, 2007 under the Incentive Compensation Plan for Executive Officers. The bonus reported for 2006 for Mr. R.E. Dauch reflects the annual cash bonus paid under the terms of his employment agreement. The amounts of the bonuses for 2007 are not calculable as of the date of this proxy statement and it is not possible to estimate the date that they are expected to be determined at this time.
 
(2) Reflects the amounts recognized in accordance with Statement of Financial Accounting Standards No. 123 (restated December 2004), Share-Based Payment (SFAS 123R), disregarding estimated forfeitures, for the fiscal years ended December 31, 2007 and December 31, 2006 for PARS and RSUs granted in and prior to 2007 and 2006, respectively. For PARS, the amounts recognized are based on the grant date fair value, calculated using the closing market price of AAM common stock on the date of grant. For RSUs, the amounts recognized are based on the fair value, calculated using the closing market price of AAM common stock, on December 31, 2007 and December 31, 2006, respectively.
 
(3) Reflects the amounts recognized in accordance with SFAS 123R, disregarding estimated forfeitures, for the fiscal years ended December 31, 2007 and December 31, 2006 for stock options granted in and prior to 2007 and in 2006, respectively. The amounts recognized are based on the grant date fair value, calculated using the Black-Scholes option pricing model. Assumptions used in the calculation of these amounts are shown in Note 7, Stock-Based Compensation, to our audited consolidated financial statements included in our 2007 Annual Report on Form 10-K filed with the SEC on February 21, 2008. No compensation is reported for stock options granted in 2004 and 2005, the vesting of which was accelerated, effective December 31, 2005, to avoid


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recognition in our financial statements of compensation expense associated with out-of-the- money stock options upon our adoption of SFAS 123R.
 
(4) Includes $3,627,945 for PARS and RSU awards and $1,989,538 for stock option awards recognized on Mr. R.E. Dauch’s attaining normal retirement age, in accordance with SFAS 123R, due to retirement vesting provisions of the awards.
 
(5) Reflects, for 2007, the annualized increase in pension value under the Salaried Retirement Program and SERP from September 30, 2006 to December 31, 2007. AAM changed its measurement date used for financial statement reporting purposes from September 30 to December 31 effective January 1, 2007. There are no above-market or preferential earnings on compensation deferred under our Executive Deferred Compensation Plan.
 
(6) Includes, for 2007, employer contributions under the Salaried Savings Plan, our tax-qualified defined contribution retirement plan; executive life insurance premiums; and personal umbrella liability insurance premiums. Also includes meals provided during business hours and personal use of Company-provided vehicles for Mr. R.E. Dauch, Mr. Simonte and Mr. Lancaster, and executive physical examinations for Mr. R.E. Dauch and Mr. Lancaster. Employer contributions under the Salaried Savings Plan consisted of matching contributions of $10,313 for Mr. R.E. Dauch, Mr. Rahangdale, Mr. D.C. Dauch and Mr. Lancaster, and $10,544 for Mr. Simonte; retirement contributions of $10,941 for Mr. D.C. Dauch and $9,000 for Mr. Simonte; and a one-time, corrective contribution of $57,404 for Mr. D.C. Dauch. The corrective contribution amount was based on employee contributions elected by Mr. D.C. Dauch, employer matching contributions and interest for prior years. The total for Mr. R.E. Dauch includes $58,048 for executive life insurance premiums.


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Grants of Plan-Based Awards
 
Long-term incentive awards granted in 2007 to the named executive officers are shown in the following table. The long-term incentive compensation programs are described in Compensation Discussion and Analysis and following the table below.
 
                                                   
              All Other
      All Other
              Grant  
 
              Stock
      Option
              Date  
 
              Awards:
      Awards:
              Fair Value  
 
              Number
      Number of
      Exercise or
      of Stock  
 
              of Shares
      Securities
      Base Price
      and  
 
              of Stock
      Underlying
      of Option
      Option  
 
              or Units
      Options
      Awards(1)
      Awards(2) 
 
Name     Grant Date       (#)       (#)       ($/Sh)       ($)    
                                                   
Richard E. Dauch
      3/14/2007         89,031         150,000         26.02         3,986,087  
Michael K. Simonte
      3/14/2007         6,000         10,000         26.02         267,420  
Yogendra N. Rahangdale
      3/14/2007         24,000         40,000         26.02         1,069,680  
David C. Dauch
      3/14/2007         7,500         13,000         26.02         339,840  
Patrick S. Lancaster
      3/14/2007         5,500         9,500         26.02         248,845  
                                                   
 
(1) Equal to the closing market price of AAM common stock on March 14, 2007, the date of grant.
 
(2) Grant date fair value is calculated in accordance with SFAS 123R and is generally the amount we would expense in our consolidated financial statements over the life of the award. The grant date fair value of option awards was $11.13 per share of common stock covered by the award, calculated using the Black-Scholes option pricing model. In determining the Black-Scholes value, the exercise price of $26.02 was used. The grant date fair value of stock awards was $26.02 per share of common stock covered by the award, the closing market price of AAM common stock on the date of grant. For additional information on the valuation assumptions, refer to Note 7, Stock-Based Compensation, to our audited consolidated financial statements included in our 2007 Annual Report on Form 10-K filed with the SEC on February 21, 2008.
 
Narrative to Summary Compensation Table and Grants of Plan-Based Awards table
 
CEO Employment Agreement
 
Our employment agreement with Mr. R.E. Dauch, as amended, provides for the following compensation and benefits during the term of the agreement:
 
  •  Annual base salary (currently $1,496,000), subject to annual adjustment by the Compensation Committee;
  •  Annual cash bonus in an amount determined by the Compensation Committee based on our financial performance, relative to our competitor peer group:
  •  equal to 3 times annual base salary if we continue to outperform our competitor peer group;
  •  greater than 3 times annual base salary if we outperform our competitor peer group by greater than the historical amount; or
  •  up to the amount of Mr. R.E. Dauch’s base salary if we do not outperform competitor peer group;
  •  Annual equity awards consisting of options to purchase 150,000 shares each year and restricted stock having an equivalent value, determined based on AAM’s standard valuation methodology for annual grant to the options granted for that year;
  •  Reimbursement of premiums under a $5 million life insurance policy purchased by Mr. R.E. Dauch;
  •  Annual executive physical examination and health and disability coverage as provided to other senior executives; and


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  •  Use and maintenance of two Company-provided automobiles and the perquisites and other benefits provided to our senior executives.
 
The current term continues through December 31, 2009 and may be automatically extended for successive one-year terms, unless either party gives notice of termination at least 60 days prior to the end of the applicable term. The potential payments and benefits upon termination of Mr. R.E. Dauch’s employment are described in Potential Payments Upon Termination or Change in Control.
 
Equity Awards
 
We granted nonqualified stock options, PARS and RSUs to each named executive officer in 2007 under our Stock Incentive Plan.
 
Stock Options.  Options vest in three approximately equal installments on the first, second and third anniversaries of the grant date. Generally, vesting may accelerate upon termination of employment due to death, disability, retirement or upon a change of control. The award is forfeited if employment is terminated for any other reason prior to vesting. Vested options expire ten years after the grant date and may be exercised any time before the earliest of: (1) the expiration of the grant, (2) five years following termination of employment (one year following termination for options granted before 2002) due to death, disability, retirement or a change of control, (3) 90 days following termination of employment without cause and (4) termination of employment for cause.
 
Performance Accelerated Restricted Stock and Restricted Stock Units.  PARS and RSUs vest on the fifth anniversary of the grant date unless vesting is accelerated on the third or fourth anniversaries of the grant date based on our total shareholder return. Vesting may also accelerate upon termination of employment due to death, disability or upon a change in control. If the named executive officer’s employment is terminated for any other reason, he will forfeit his unvested PARS and RSUs.
 
Vesting is accelerated on the third anniversary of the grant date if AAM’s total shareholder return for the preceding three-year period meets or exceeds the 66th percentile of our competitor peer group. If vesting is not accelerated on the third anniversary, then vesting is accelerated on the fourth anniversary of the grant date if shareholder return exceeds the 66th percentile of our competitor peer group for the preceding four years. Total shareholder return is defined as the cumulative appreciation (assuming reinvestment of dividends) of an investment in common stock. Vesting will not accelerate unless AAM has positive total stockholder return.
 
PARS consist of issued and outstanding shares of AAM common stock, subject to forfeiture and transfer restrictions prior to vesting of the awards, and carry voting and dividend rights from the date of grant. RSUs consist of the right to receive, upon vesting of the award, an amount in cash equal to the fair market value of the number of shares of common stock covered by the award. RSUs carry the right to receive dividend equivalent payments from the date of grant, payable in the calendar quarter when dividends are paid on our common stock.
 
Salaried Savings Plan
 
Employer Matching Contributions.  The Salaried Savings Plan, our tax-qualified defined contribution retirement plan, provides a long-term savings vehicle that allows for pre-tax and post-tax contributions by eligible U.S. salaried associates, including our named executive officers, and tax-deferred earnings. The maximum employer match under the Salaried Savings Plan is 50 percent of the employee’s contributions, up to 10 percent of base salary, for the year. All named executive officers participate in this plan and are fully vested in Company matching contributions.
 
Employer Retirement Contributions.  Participants in the Salaried Savings Plan whose benefits were frozen under the Salaried Retirement Program (as described following the Pension Benefits table), receive employer retirement contributions under the Salaried Savings Plan equal to between three and five percent of annual salary, depending on years of service. Mr. Simonte and Mr. D.C. Dauch received employer retirement contributions in 2007.


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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
 
                                                             
      Option Awards       Stock Awards  
                                              Market
 
                                      Number of
      Value of
 
                                      Shares
      Shares
 
      Number of
      Number of
                      or Units
      or Units
 
      Securities
      Securities
                      of Stock
      of Stock
 
      Underlying
      Underlying
                      That
      That
 
      Unexercised
      Unexercised
      Option
              Have
      Have
 
      Options
      Options
      Exercise
      Option
      Not
      Not
 
      Exercisable
      Unexercisable
      Price
      Expiration
      Vested
      Vested(11)
 
Name     (#)       (#)       ($)       Date       (#)       ($)  
Richard E. Dauch
      215,000                   15.32         5/19/2010         180,000 (4)       3,351,600  
        240,000                   8.85         4/2/2011         120,000 (5)       2,234,400  
        300,000                   24.15         1/23/2012                      
        300,000                   23.73         1/22/2013                      
        300,000                   38.70         2/2/2014                      
        150,000 (1)                 26.65         3/15/2015                      
        49,500         100,500 (2)       15.58         3/15/2016                      
                  150,000 (3)       26.02         3/14/2017                      
Michael K. Simonte
      39,664                   15.56         2/2/2011         3,300 (6)(8)       61,446  
        7,500                   15.32         5/19/2010         2,200 (7)(8)       40,964  
        10,000                   8.85         4/2/2011         3,600 (6)(9)       67,032  
        9,500                   24.15         1/23/2012         2,400 (7)(9)       44,688  
        10,000                   23.73         1/22/2013         3,600 (6)(10)       67,032  
        8,500                   38.70         2/2/2014         2,400 (7)(10)       44,688  
        9,000 (1)                 26.65         3/15/2015                      
        3,300         6,700 (2)       15.58         3/15/2016                      
                  10,000 (3)       26.02         3/14/2017                      
Yogendra N. Rahangdale
      40,000                   24.15         1/23/2012         4,200 (6)(8)       78,204  
        39,000                   23.73         1/22/2013         2,800 (7)(8)       52,136  
        45,000                   38.70         2/2/2014         15,000 (6)(9)       279,300  
        12,000 (1)                 26.65         3/15/2015         10,000 (7)(9)       186,200  
        13,860         28,140 (2)       15.58         3/15/2016         14,400 (6)(10)       268,128  
                  40,000 (3)       26.02         3/14/2017         9,600 (7)(10)       178,752  
David C. Dauch
      7,260                   8.85         4/2/2011         4,200 (6)(8)       78,204  
        16,750                   24.15         1/23/2012         2,800 (7)(8)       52,136  
        28,000                   23.73         1/22/2013         4,800 (6)(9)       89,376  
        28,000                   38.70         2/2/2014         3,200 (7)(9)       59,584  
        12,000 (1)                 26.65         3/15/2015         4,500 (6)(10)       83,790  
        4,950         10,050 (2)       15.58         3/15/2016         3,000 (7)(10)       55,860  
                  13,000 (3)       26.02         3/14/2017                      
Patrick S. Lancaster
      124,856                   4.26         10/28/2009         3,600 (6)(8)       67,032  
        18,000                   15.32         5/19/2010         2,400 (7)(8)       44,688  
        35,000                   8.85         4/2/2011         3,900 (6)(9)       72,618  
        40,000                   24.15         1/23/2012         2,600 (7)(9)       48,412  
        30,000                   23.73         1/22/2013         3,300 (6)(10)       61,446  
        25,000                   38.70         2/2/2014         2,200 (7)(10)       40,964  
        9,000 (1)                 26.65         3/15/2015                      
        3,630         7,370 (2)       15.58         3/15/2016                      
                  9,500 (3)       26.02         3/14/2017                      
                                                             


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(1) Vesting was accelerated, effective December 31, 2005, to avoid recognition in our financial statements of compensation expense associated with out-of-the-money stock option awards upon our adoption of SFAS 123R.
 
(2) Granted under the Stock Incentive Plan on March 15, 2006. Approximately one-half of the shares vest on each of March 15, 2008 and March 15, 2009.
 
(3) Granted under the Stock Incentive Plan on March 14, 2007. Approximately one-third of the shares vest on each of March 14, 2008, March 14, 2009 and March 14, 2010.
 
(4) Reflects restricted stock awarded in connection with Mr. R.E. Dauch’s employment agreement extension in 2005. The restricted stock vests on December 31, 2009, contingent upon Mr. R.E. Dauch serving the extended term of his employment agreement.
 
(5) Reflects restricted stock units awarded in connection with Mr. R.E. Dauch’s employment agreement extension in 2005. The restricted stock units vest on December 31, 2009, contingent upon Mr. R.E. Dauch serving the extended term of his employment agreement.
 
(6) Reflects PARS granted under the Stock Incentive Plan. PARS vest on the fifth anniversary of the grant date, unless vesting is accelerated at the end of the third or fourth years after the grant date. Accelerated vesting is contingent upon our achievement of predetermined performance goals, measured by our total stockholder return relative to our competitor peer group. Vesting will not be accelerated unless stockholder return is positive.
 
(7) Reflects RSUs granted under the Stock Incentive Plan. RSUs vest on the fifth anniversary of the grant date, unless vesting is accelerated at the end of the third or fourth years after the grant date. Accelerated vesting is contingent upon our achievement of predetermined performance goals, measured by our total stockholder return relative to our competitor peer group. Vesting will not be accelerated unless stockholder return is positive.
 
(8) Granted on March 15, 2005. The PARS and RSUs vest on March 15, 2010, unless vesting is accelerated on March 15, 2008 or March 15, 2009. Vesting of these awards did not accelerate on March 15, 2008.
 
(9) Granted on March 15, 2006. The PARS and RSUs vest on March 15, 2011, unless vesting is accelerated on March 15, 2009 or March 15, 2010.
 
(10) Granted on March 14, 2007. The PARS and RSUs vest on March 14, 2012, unless vesting is accelerated on March 14, 2010 or March 14, 2011.
 
(11) Reflects the closing market value on December 31, 2007 ($18.62), of the number of shares of AAM common stock covered by outstanding PARS, RSUs, restricted stock and restricted stock unit awards on December 31, 2007.


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Options Exercised and Stock Vested
 
                                         
      Option Awards       Stock Awards  
      Number of
              Number of
         
      Shares
      Value
      Shares
      Value  
 
      Acquired on
      Realized on
      Acquired on
      Realized on   
 
      Exercise
      Exercise(1)
      Vesting(2)
      Vesting(3)  
 
Name     (#)       ($)       (#)       ($)    
Richard E. Dauch
                      267,093         7,670,911  
Michael K. Simonte
                               
Yogendra N. Rahangdale
      35,000         535,500                  
David C. Dauch
                               
Patrick S. Lancaster
                               
                                         
 
(1) For Mr. Rahangdale, reflects the number of shares received upon exercise of stock options multiplied by the difference between the sale price and the exercise price for such options.
 
(2) Reflects the removal of the transfer and forfeiture restrictions under awards of PARS granted to Mr. R.E. Dauch in March 2005, 2006 and 2007, and the acceleration of tandem RSUs. The restrictions were removed in connection with Mr. R.E. Dauch attaining normal retirement age under the Salaried Retirement Program in order to align the vesting of these awards with the recognition of taxable income under the Internal Revenue Code.
 
(3) Reflects the number of PARS received and RSUs accelerated upon Mr. R.E. Dauch attaining normal retirement age, multiplied by the closing market price of AAM common stock on the vesting date.
 
Pension Benefits
 
The following table shows the value of the benefits accumulated by the named executive officers and their years of credited service under AAM’s Salaried Retirement Program and the SERP. The years of credited service are through December 31, 2007, AAM’s fiscal year-end measurement date used for financial statement reporting purposes. The values shown are based on unreduced benefits deferred to the earliest age at which unreduced benefits are payable. The assumptions used to calculate the actuarial present value of accumulated benefits are the same assumptions used in our audited consolidated financial statements for the fiscal year ended December 31, 2007, except that the values in the table do not reflect assumptions for future compensation increases and assume continued employment until retirement age is attained.
 
                           
            Number of
      Present
 
            Years
      Value of
 
            Credited
      Accumulated
 
            Service
      Benefit
 
Name     Plan Name     (#)       ($)  
Richard E. Dauch(1)     AAM Retirement Program for Salaried Employees
AAM Supplemental Executive Retirement Program
      13.8333
13.8333
(2)       628,727
10,228,924
 
                           
Michael K. Simonte     AAM Retirement Program for Salaried Employees       8.0833 (3)       79,465  
      AAM Supplemental Executive Retirement Program       9.0833         111,265  
                           
Yogendra N. Rahangdale(4)     AAM Retirement Program for Salaried Employees
AAM Supplemental Executive Retirement Program
      12.4167
12.4167
        406,143
411,595
 
                           
David C. Dauch     AAM Retirement Program for Salaried Employees       11.5000 (3)       119,298  
      AAM Supplemental Executive Retirement Program       12.5000         245,684  
                           
Patrick S. Lancaster(5)     AAM Retirement Program for Salaried Employees
AAM Supplemental Executive Retirement Program
      13.5833
13.5833
        555,979
256,274
 
                           


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(1) Mr. R.E. Dauch was eligible to retire on December 31, 2007 with full benefits under the Salaried Retirement Program and the SERP.
 
(2) We agreed to credit Mr. R.E. Dauch with 20 years of service under the SERP, effective December 31, 2009, provided he serves the extended term of his employment agreement extension dated November 3, 2005.
 
(3) Benefits were frozen, effective December 31, 2006, under the Salaried Retirement Program for Mr. Simonte and Mr. D.C. Dauch.
 
(4) Mr. Rahangdale was eligible to retire on December 31, 2007 under both the Salaried Retirement Program and the SERP, as he is over 55 years of age and has more than 10 years of credited service. He qualifies for a reduced benefit of approximately 64% of the unreduced benefit under the Salaried Retirement Program and qualifies for the basic form of benefit under the SERP.
 
(5) Mr. Lancaster was eligible to retire on December 31, 2007 under both the Salaried Retirement Program and the SERP, as he is over 55 years of age and has more than 10 years of credited service. He qualifies for a reduced benefit of approximately 89% of the unreduced benefit under the Salaried Retirement Program and qualifies for the basic form of benefit under the SERP.
 
We provide pension benefits for our named executive officers under our Salaried Retirement Program, a broad-based defined benefit pension plan open to substantially all of our U.S. salaried associates hired prior to January 1, 2002, and our SERP. As discussed below, benefits under the Salaried Retirement Program were frozen, effective December 31, 2006. The purpose of the SERP is to provide eligible associates with total retirement benefits at a competitive level with executives of other major industrial companies.
 
Salaried Retirement Program.  All named executive officers have elected to participate in the contributory portion of our Salaried Retirement Program and made monthly contributions to the program. The annual retirement benefit payable to the executive, commencing on retirement at or after age 65, equals the sum of the executive’s contributions plus an additional benefit based on the executive’s average monthly salary (determined as the average of the executive’s base salary in the highest 60 months during his final 10 years of service) and years of credited service. The amount of compensation that may be taken into account for determining benefits is limited under the Internal Revenue Code. The maximum annual compensation under this limit was $225,000 for the year ended December 31, 2007.
 
Benefits under the Salaried Retirement Program may be paid as a single life annuity or, if elected by the participant, in the form of a joint and survivor annuity with a reduction in the amount of the annual benefit.
 
Effective December 31, 2006, we amended the Salaried Retirement Program to freeze benefits for associates who will not be eligible to retire by December 1, 2011. Mr. R.E. Dauch, Mr. Rahangdale and Mr. Lancaster, all of whom are currently eligible to retire, are grandfathered and will continue to accrue benefits under the program through the earlier of (i) December 31, 2011 or (ii) the date of their retirement or other termination of employment.
 
Supplemental Executive Retirement Program.  Except for Mr. Simonte and Mr. D.C. Dauch, our named executive officers are eligible to receive the basic form of pension benefit under our SERP upon retirement at or after age 55. In addition, they are eligible to receive the alternative form of benefit, if greater than the basic benefit, upon retirement at or after age 62. The executive must have at least 10 years of credited service to receive either form of benefit under the SERP.
 
The total monthly benefit payable under the basic form of SERP is equal to the following amount:
 
  •  Two percent of the executive’s average monthly salary (as determined for the Salaried Retirement Program), multiplied by the executive’s years of credited service; less


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  •  The benefit payable to the executive under the Salaried Retirement Program (without reduction for survivor benefits), plus two percent of the maximum monthly social security benefit payable at age 65 multiplied by the executive’s years of credited service.
 
The Compensation Committee has discretion to reduce or eliminate the amount payable under the alternative form of benefit. Subject to the Compensation Committee’s exercise of its discretion, the total monthly benefit payable under the alternative form of SERP is equal to the following amount:
 
  •  1.5 percent of the executive’s average monthly salary (as determined for the Salaried Retirement Program) and average monthly incentive compensation (determined as the average of the highest five of the executive’s last 10 annual cash incentive awards, divided by 12) multiplied by the executive’s years of credited service; less
  •  The benefit payable to the executive under the Salaried Retirement Program (without reduction for survivor benefits), plus the maximum monthly social security benefit payable at age 65.
 
SERP benefits payable under the basic and alternative forms are generally paid as a single life annuity. If the executive’s spouse is eligible for survivor benefits under the Salaried Retirement Program, however, the executive’s monthly SERP benefit will be reduced and paid in the form of a joint and survivor annuity.
 
Effective January 1, 2007, we amended the SERP to change the benefit accrual formulae for executives who are not grandfathered under the Salaried Retirement Program. Because they are grandfathered, Mr. R.E. Dauch, Mr. Rahangdale and Mr. Lancaster may continue to accrue SERP benefits under the basic and alternative forms through December 31, 2011.
 
Mr. Simonte and Mr. D.C. Dauch, who are not grandfathered under the Salaried Retirement Program, are eligible to receive a new defined contribution benefit, payable six months after retirement in a lump sum. The amount of the benefit will be equal to 12.5 percent of the executive’s final average compensation (determined as the executive’s average annual base salary and cash incentive for the highest five consecutive years), multiplied by the executive’s years of credited service, less the sum of the actuarially equivalent value of the executive’s benefits payable pursuant to our Salaried Retirement Program and the balance of the executive’s retirement contribution account under our Salaried Savings Plan.
 
Nonqualified Deferred Compensation
 
The following table summarizes the named executive officers’ compensation under the Executive Deferred Compensation Plan for the 2007 fiscal year. All of the named executive officers are fully vested in any applicable Company matching contributions.
 
                                         
      Aggregate
      Aggregate
      Aggregate 
      Aggregate 
 
      Contributions
      Earnings
      Withdrawals/ 
      Balance at 
 
      in Last FY(1)
      In Last FY(2)
      Distributions(3) 
      Last FYE
 
 Name     ($)       ($)       ($)       ($)  
Richard E. Dauch
              330,875                 4,495,053  
Michael K. Simonte
                               
Yogendra N. Rahangdale
      49,500         84,489                 1,149,542  
David C. Dauch
              25,232                 242,990  
Patrick S. Lancaster
              25,315         160,991         395,981  
                                         
 
(1) For Mr. Rahangdale, reflects a portion of his 2006 incentive compensation award paid March 15, 2007 and is included in the bonus column of the Summary Compensation Table for 2006.
 
(2) Reflects hypothetical accrued earnings during 2007 on notional investments designed to track the performance of funds similar to those available to participants in the Salaried Savings Plan. None


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of the earnings shown in this column are reported as compensation in the Summary Compensation Table.
 
(3) For Mr. Lancaster, reflects a lump-sum interim distribution from his deferral of a portion of his 2000 base salary and bonus.
 
Under AAM’s Executive Deferred Compensation Plan, a nonqualified, tax-deferred savings plan, certain executives, including our named executive officers, may elect to defer the payment of six to 75 percent of their base salary and/or their annual incentive compensation award during any plan year. Base salary deferred into the Executive Deferred Compensation Plan receives a three percent Company match. The amounts deferred are unfunded and unsecured obligations of AAM.
 
Amounts deferred or credited into this plan are represented in the executive’s notional account and are “invested” among funds similar to those available under the Salaried Savings Plan. Forty percent of deferral elections are automatically and irrevocably allocated to the restricted investment benchmark, the PIMCO Total Return Fund. The remaining 60 percent of deferral elections may be allocated by the executive to any of the investments available under the plan and may be reallocated on a daily basis among any of the investments available under the plan. Although the executive has no actual or constructive ownership of shares in the investment funds, the return on the executive’s account is determined as if the amounts were notionally invested in these funds.
 
The table below shows the investment fund options available under the Executive Deferred Compensation Plan and the annual rates of return for the calendar year ended December 31, 2007.
 
                       
      Rate of
            Rate of 
Name of Fund     Return     Name of Fund       Return 
Fidelity Retirement Money Market Portfolio
    5.12%       Fidelity Freedom Income Fund       4.83%
PIMCO Total Return Fund
    9.07%       Fidelity Freedom 2000 Fund       5.32%
PIMCO High Yield Fund
    3.73%       Fidelity Freedom 2005 Fund(1 )     7.27%
Fifth Third Disciplined Large Cap Value Fund(1)
    1.58%       Fidelity Freedom 2010 Fund       7.43%
Domini Social Equity Fund
    1.87%       Fidelity Freedom 2015 Fund(1 )     7.82%
Spartan U.S. Equity Index Fund
    5.43%       Fidelity Freedom 2020 Fund       8.54%
American Funds Growth Fund of America(1)
    11.26%       Fidelity Freedom 2025 Fund(1 )     8.64%
Fidelity Growth Company Fund
    19.89%       Fidelity Freedom 2030 Fund       9.27%
Fidelity Low-Priced Stock Fund
    3.16%       Fidelity Freedom 2035 Fund(1 )     9.27%
First American Mid Cap Growth Opportunities(1)
    17.06%       Fidelity Freedom 2040 Fund       9.31%
American Beacon Small Cap Value Fund
    (6.44)%       Fidelity Freedom 2045 Fund(1 )     9.50%
Munder Small Cap Value Fund
    (8.65)%       Fidelity Freedom 2050 Fund(1 )     9.77%
Fidelity Diversified International Fund
    16.03%                
                       
 
(1) Reflects investment fund options added to the Executive Deferred Compensation Plan in the first quarter of 2007.
 
Distributions can be received (i) upon retirement in a lump sum or in annual payments over a period of five or ten years, (ii) in a lump sum upon death, disability, termination of employment, change in control or (iii) if elected by the executive, during employment at a specified date after a minimum deferral period. The minimum deferral period is at least three years following the end of the plan year to which the deferral election relates, and distributions during employment consist of employee deferrals and related earnings or losses (not the Company contributions and related earnings or losses).


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Potential Payments Upon Termination or Change in Control
 
Under the employment agreement with our CEO and the continuity agreements and other arrangements covering our named executive officers, our named executive officers will be entitled to certain payments and benefits in the event of termination of employment.
 
The following tables show the estimated potential payments and benefits that each of the named executive officers would receive upon termination of employment under different scenarios, assuming that the termination was effective on December 31, 2007.
 
CEO Continuity Agreement
 
Under our continuity agreement with Mr. R.E. Dauch, he will be entitled to the following benefits if the Company terminates his employment other than for cause, or if he resigns for good reason, within two years following a change in control:
 
  •  a lump-sum severance payment equal to 3.5 times his (1) annual base salary plus (2) the highest of his average annual bonus for the three years preceding the year of termination or the three years preceding the year of the change in control, or his target bonus for the year of termination or the change in control;
  •  a prorated portion of his annual cash bonus for the year of termination and any unpaid portion of the bonuses earned for prior years;
  •  accelerated vesting of outstanding equity awards;
  •  a lump-sum payment of $3 million for each annual grant of equity awards that he would have received had he remained employed through December 31, 2009;
  •  continuation of medical, dental, vision, disability and life insurance coverage for 3.5 years;
  •  continuation of the perquisites under his employment agreement (including a Company-paid annual executive physical examination and reimbursement of premiums for his purchase of a $5 million executive life insurance policy for 3.5 years);
  •  3.5 years of additional age and service credit under our nonqualified employee pension and welfare benefit plans for purposes of benefit accrual, matching contributions, vesting and retirement eligibility;
  •  continued use of two Company-provided vehicles for 3.5 years;
  •  outplacement services of up to 10 percent of annual base salary or, if greater, $40,000; and
  •  reasonable legal fees in connection with enforcement of the continuity agreement if he prevails in a dispute.
 
These payments are contingent upon Mr. R.E. Dauch’s execution of a general release of claims against AAM and compliance with non-disclosure, confidentiality, non-competition and non-solicitation covenants for 3.5 years following termination of employment. He would be prohibited from directly or indirectly engaging in any business competitive with AAM and our products, and any business that AAM plans to enter into within the following year. He is also prohibited from soliciting our employees and customers.
 
Generally, the following events are considered to be a change in control under the continuity agreement:
 
  •  an acquisition of 20 percent or more of AAM stock by an unrelated third party;
  •  a merger, business combination, sale, liquidation or dissolution, where preexisting shareholders do not own at least 51 percent of the surviving entity; or
  •  a change in the majority of our incumbent Board within any 24-month period.


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The definitions of “cause and good reason” under Mr. R.E. Dauch’s Continuity Agreement have the same definitions as under this employment agreement, as described below.
 
CEO Employment Agreement
 
Under our employment agreement with Mr. R.E. Dauch, the Company may terminate his employment with or without cause, or upon his disability. Cause exists if he:
 
  •  is convicted of a felony involving an intentional act;
  •  engages in dishonesty or fraud; or
  •  breaches any of his material obligations to AAM, including willful neglect or misconduct of his duties or willful and material breach of any of the terms and conditions of his employment agreement.
 
In addition, he may resign for good reason, meaning the Company:
 
  •  reduces his base salary or bonus opportunity;
  •  substantially reduces his duties, responsibilities or reporting responsibilities; or
  •  relocates him outside of the Detroit-metropolitan area.
 
If his employment is terminated for cause, Mr. R.E. Dauch will be entitled to accrued but unpaid amounts as of the termination date.
 
If his employment is terminated without cause, or if he resigns for good reason, he will be entitled to:
 
  •  severance payments equal to two years of his annual base salary;
  •  continuation of his health care benefits for two years;
  •  bonus payments accrued as of the termination date; and
  •  reimbursement of premiums for his purchase of a $5 million executive life insurance policy for two years.
 
If he resigns without good reason, Mr. R.E. Dauch will be entitled to (i) accrued but unpaid amounts as of the termination date and (ii) reimbursement of premiums for two years for a $5 million executive life insurance policy purchased by Mr. R.E. Dauch.
 
Under the employment agreement, Mr. R.E. Dauch is subject to:
 
  •  a non-disclosure and confidentiality provision which extends for the term of the agreement and for two years following termination or expiration of the agreement;
  •  a non-competition covenant, which prohibits him, throughout the term of the employment agreement and for two years following the termination or expiration of the agreement, from directly or indirectly engaging in any business competitive with AAM and our products and business plans; and
  •  a covenant prohibiting solicitation of our employees and customers for two years following the termination or expiration of the agreement.
 
If AAM terminates his employment due to disability, Mr. R.E. Dauch will be entitled to accrued benefits under applicable benefit plans and programs (such as our Deferred Compensation Plan, Salaried Retirement Plan and SERP) and reimbursement of life insurance premiums as described above. Should Mr. R.E. Dauch die during the term of his employment agreement, his estate and/or spouse would be entitled to accrued benefits under applicable benefit plans and programs.
 
Continuity Agreements with Named Executives Officers (other than CEO)
 
Under our continuity agreements with the named executive officers (other than the CEO), each named executive officer will be entitled to the following benefits if the Company terminates his


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employment without cause, or if he resigns with good reason, within two years following a change in control:
 
  •  a lump sum severance payment equal to 2.5 times his (1) annual base salary plus (2) the highest of his average annual bonus for the three years preceding the year of termination or the three years preceding the year of the change in control, or his target bonus for the year of termination or the change in control;
  •  a prorated portion of his incentive compensation award for the year of termination and any unpaid portion of the awards earned for prior years;
  •  acceleration of vesting of outstanding equity awards;
  •  continuation of medical, dental, vision, disability and life insurance coverage for 2.5 years;
  •  2.5 years of additional age and service credit under our nonqualified employee pension and welfare benefit plans for purposes of benefit accrual, matching contributions, vesting, and retirement eligibility;
  •  continued use of a Company-provided vehicle for six months;
  •  outplacement services of up to 10 percent of annual base salary or, if greater, $40,000; and
  •  reasonable legal fees in connection with enforcement of the continuity agreement if the named executive prevails in a dispute.
 
These payments are contingent upon the executive’s execution of a general release of claims against AAM and compliance with his non-disclosure, confidentiality, non-competition and non-solicitation covenants for 2.5 years following the termination of employment. The named executive would be prohibited from directly or indirectly engaging in any business competitive with AAM and our products and any business that AAM plans to enter into within the following year, and from soliciting our employees and customers.
 
Cause is generally defined as the named executive officer’s:
 
  •  willful and continued failure to perform substantially all of his duties for 10 days following written demand from the Board;
  •  conviction or no-contest plea with respect to a felony or a misdemeanor involving moral turpitude; or
  •  willful inaction or misconduct in connection with his duties, or any act or omission which is injurious to the financial condition or business reputation of AAM or our affiliates.
 
Good reason is generally defined as:
 
  •  any material and adverse diminution in the named executive’s duties, title or responsibilities from those in effect immediately prior to the change in control;
  •  any reduction in annual base salary or annual cash bonus percentage target from those in effect immediately prior to the change in control;
  •  any requirement that the named executive be based at a location more that 50 miles from the location at which he was based immediately prior to the change in control; and
  •  any failure by the Company to obtain from any successor to the Company an agreement reasonably satisfactory to the named executive to assume and perform the continuity agreement.
 
Change in control under the continuity agreements with named executives has the same definition as in the CEO’s continuity agreement described above.
 
Non-Competition Agreements
 
The named executive officers have each entered into a non-competition agreement that prohibits, following termination of employment for any reason, the named executive from:
 
  •  directly or indirectly engaging in any business or activity that is in competition with AAM and its products for one year following termination;


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  •  recruiting, soliciting or inducing (or attempting to recruit, solicit or induce) any of our employees to leave AAM, or offer employment to our employees or otherwise interfere with our relationship with our employees, agents or consultants; and
  •  using, exploiting, disclosing or communicating our confidential information to any third party without our prior written consent.
 
Richard E. Dauch
 
The following table shows estimated potential payments upon termination, retirement and a change in control for Richard E. Dauch, Co-Founder, Chairman of the Board & Chief Executive Officer as of December 31, 2007. Mr. R.E. Dauch was eligible to retire on December 31, 2007. The assumptions used to determine retirement benefits are the same assumptions used in our audited consolidated financial statements for the fiscal year ended December 31, 2007.
 
                                                   
              Not for
                      Involuntary/
 
              Cause/By
                      Good Reason
 
              Employee for
                      Termination
 
      For Cause
      Good Reason
      Disability
              (Change in
 
      Termination
      Termination
      Retirement(1)
      Retirement
      Control)
 
      ($)       ($)       ($)       ($)       ($)  
Compensation:
                                                 
Bonus(2)
              3,199,998         3,199,998         3,199,998         3,199,998  
Severance(3)
              2,992,000                         16,435,993  
Retirement Plans:
                                                 
Defined Benefit
                                                 
Retirement Program(4)
                      628,727         628,727         628,727  
SERP(5)
                      10,228,924         10,228,924         13,682,598  
Welfare Benefit(6)
                      747,197         747,197         747,197  
Equity:
                                                 
Stock Options(7)
                      305,520         305,520         6,305,520  
11/3/2005 Awards(8)
              5,586,000         5,586,000                 5,586,000  
Other Benefits:
                                                 
Deferred Compensation(9)
      4,495,053         4,495,053         4,495,053         4,495,053         4,495,053  
Health care(10)
              23,242                         2,905  
Life Insurance(11)
              47,780         47,780         47,780         83,615  
Use of Vehicles(12)
                                      145,584  
Other(13)
                                      149,600  
280G Tax Gross-Up
                                       
Total
      4,495,053         16,344,073         25,239,199         19,653,199         51,462,790  
                                                   
 
(1) Assumes retirement due to total and permanent disability on December 31, 2007.
 
(2) Reflects a cash bonus earned in 2007 using the average of the last three cash bonuses paid for the years ended December 31, 2006, 2005 and 2004.
 
(3) Upon termination without cause or for good reason (defined in employment agreement), Mr. R.E. Dauch would receive severance equal to two years’ annual base salary payable semimonthly. Upon termination under a change in control, Mr. R.E. Dauch would receive a lump-sum severance payment.
 
(4) Reflects the present value of a joint and survivor annuity benefit payable monthly.


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(5) The present value calculated under the alternative form assuming a joint and survivor annuity benefit payable monthly. The present value calculated with an additional 3.5 years of credited service under the alternative form assuming a joint and survivor annuity benefit payable monthly under a change in control.
 
(6) Reflects benefits for Mr. R.E. Dauch and his spouse assuming retirement on December 31, 2007 as set forth in his employment agreement.
 
(7) Generally, stock option awards vest upon termination of employment due to death, disability, retirement or upon a change in control. The value of stock options reflects the excess of the fair market value of the underlying shares over the exercise or base price of unvested options. Upon a change in control, Mr. R.E. Dauch would receive $3 million in a lump sum for each grant of equity awards he would have received annually had he remained employed through December 31, 2009.
 
(8) The November 3, 2005 awards vest on December 31, 2009, contingent upon Mr. R.E. Dauch serving the extended term of his employment agreement. Vesting is accelerated upon termination of employment without cause, disability or upon a change in control. The value of these grants reflects the fair market value of the unvested awards.
 
(9) Assumed payable in a lump sum upon occurrence of termination event.
 
(10) Upon termination without cause or for good reason (defined in his employment agreement), Mr. R.E. Dauch would receive two years of health care benefits. Upon termination under a change in control, benefits for annual executive physical examination continue for 3.5 years.
 
(11) Represents reimbursement for the premiums associated with Mr. R.E. Dauch’s purchase of a $5 million executive life insurance policy for two years under all scenarios except upon a change in control. Upon termination under a change in control, reimbursement continues for 3.5 years.
 
(12) Reflects lease payments and administrative fees for the use of two Company-provided vehicles for 3.5 years.
 
(13) Reflects professional outplacement services equal to 10% of base salary.


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Michael K. Simonte
 
The following table shows estimated potential payments upon resignation, termination, disability and a change in control for Michael K. Simonte, Group Vice President — Finance & Chief Financial Officer as of December 31, 2007. Mr. Simonte was not eligible to retire as of December 31, 2007.
 
                                                   
                      Not for
              Involuntary/
 
                      Cause/By
              Good Reason
 
                      Employee for
              Termination
 
              For Cause
      Good Reason
      Disability
      (Change in
 
      Resignation
      Termination
      Termination
      Retirement(1)
      Control)
 
      ($)       ($)       ($)       ($)       ($)  
Compensation:
                                                 
Bonus(2)
                              270,000         270,000  
Severance(3)
                                      1,350,000  
Equity:
                                                 
Stock Options(4)
                              20,368         20,368  
PARS and RSUs(5)
                              325,850         325,850  
Other Benefits:
                                                 
Health care(6)
                              181,359         21,487  
Disability(7)
                              2,265,070          
Life Insurance(8)
                              37,014         2,784  
Use of Vehicles(9)
                                      7,300  
Other(10)
                                      40,000  
280G Tax Gross-Up
                                      690,374  
Total
                              3,099,661         2,728,163  
                                                   
 
(1) Assumes total and permanent disability on December 31, 2007. Assumes Mr. Simonte remains on leave as an employee until retirement.
 
(2) Reflects a cash bonus earned at target in 2007.
 
(3) Reflects a lump-sum severance payment upon termination under a change in control.
 
(4) Generally, stock option awards vest upon termination of employment due to death, disability, retirement or upon a change in control. The value of stock options reflects the excess of the fair market value of the underlying shares over the exercise or base price of unvested options.
 
(5) PARS and RSU awards vest upon termination of employment due to death, disability or upon a change in control. The value for PARS and RSUs reflects the fair market value of unvested awards.
 
(6) Under the disability scenario, reflects health care benefits to retirement. Upon termination under a change in control, health care benefits continue for 2.5 years.
 
(7) Reflects benefits equal to 100% of base salary for year one and 662/3% of base salary to retirement.
 
(8) Under the disability scenario, reflects basic and supplemental life insurance benefits to retirement. Upon termination under a change in control, basic and supplemental life insurance benefits continue for 2.5 years.


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(9) Reflects lease payments and administrative fees for the use of a Company-provided vehicle for six months.
 
(10) Reflects professional outplacement services.
 
Yogendra N. Rahangdale
 
The following table shows estimated potential payments upon termination, retirement and a change in control for Yogendra N. Rahangdale, Vice Chairman & Chief Technology Officer as of December 31, 2007. Mr. Rahangdale was eligible to retire on December 31, 2007. The assumptions used to determine retirement benefits are the same assumptions used in our audited consolidated financial statements for the fiscal year ended December 31, 2007.
 
                                                   
              Not for
                      Involuntary/
 
              Cause/By
                      Good Reason
 
              Employee for
                      Termination
 
      For Cause
      Good Reason
      Disability
              (Change in
 
      Termination
      Termination
      Retirement(1)
      Retirement
      Control)
 
      ($)       ($)       ($)       ($)       ($)  
Compensation:
                                                 
Bonus(2)
                      360,000         360,000         360,000  
Severance(3)
                                      1,800,000  
Retirement Plans:
                                                 
Defined Benefit
                                                 
Retirement Program(4)
                      617,422         383,638         383,638  
SERP(5)
                      176,298         411,595         990,677  
Welfare Benefit(6)
                      124,096         124,096         124,096  
Equity:
                                                 
Stock Options(7)
                      85,546         85,546         85,546  
PARS and RSUs(8)
                      1,042,720                 1,042,720  
Other Benefits:
                                                 
Deferred Compensation(9)
      1,149,542         1,149,542         1,149,542         1,149,542         1,149,542  
Use of Vehicles(10)
                                      12,025  
Other(11)
                                      40,000  
280G Tax Gross-Up
                                      1,265,306  
Total
      1,149,542         1,149,542         3,555,624         2,514,417         7,253,550  
                                                   
 
(1) Assumes retirement due to total and permanent disability on December 31, 2007.
 
(2) Reflects a cash bonus earned at target in 2007.
 
(3) Reflects a lump-sum severance payment upon termination under a change in control.
 
(4) Reflects the present value of a joint and survivor annuity benefit payable monthly. Under the retirement and change in control scenarios, reflects a reduced benefit of approximately 64% of the unreduced benefit.
 
(5) The present value calculated under the basic form assuming a joint and survivor annuity benefit payable monthly under the disability and retirement scenarios. The present value calculated with an additional 2.5 years of credited service under the alternative form assuming a joint and survivor annuity benefit payable monthly under a change in control.


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(6) Reflects benefits for Mr. Rahangdale and his spouse assuming retirement on December 31, 2007 under the welfare plan effective January 1, 2007.
 
(7) Generally, stock option awards vest upon termination of employment due to death, disability, retirement or upon a change in control. The value of stock options reflects the excess of the fair market value of the underlying shares over the exercise or base price of unvested options.
 
(8) PARS and RSU awards vest upon termination of employment due to death, disability or upon a change in control. The value for PARS and RSUs reflects the fair market value of unvested awards.
 
(9) Assumed payable in a lump sum upon occurrence of termination event.
 
(10) Reflects lease payments and administrative fees for the use of a Company-provided vehicle for six months.
 
(11) Reflects professional outplacement services.
 
David C. Dauch
 
The following table shows estimated potential payments upon resignation, termination, disability and a change in control for David C. Dauch, Executive Vice President & Chief Operating Officer as of December 31, 2007. Mr. D.C. Dauch was not eligible to retire as of December 31, 2007, except due to total and permanent disability.
 
                                                   
                                      Involuntary/
 
                      Not for Cause/By
              Good Reason
 
                      Employee for
              Termination
 
              For Cause
      Good Reason
      Disability
      (Change in
 
      Resignation
      Termination
      Termination
      Retirement(1)
      Control)
 
      ($)       ($)       ($)       ($)       ($)  
Compensation:
                                                 
Bonus(2)
                              330,000         330,000  
Severance(3)
                                      1,650,000  
Equity:
                                                 
Stock Options(4)
                              30,552         30,552  
PARS and RSUs(5)
                              418,950         418,950  
Other Benefits:
                                                 
Deferred Compensation(6)
      242,990         242,990         242,990         242,990         242,990  
Health care(7)
                              183,863         21,487  
Disability(8)
                              2,542,558          
Life Insurance(9)
                              46,257         3,403  
Use of Vehicles(10)
                                      10,050  
Other(11)
                                      40,000  
280G Tax Gross-Up
                                       
Total
      242,990         242,990         242,990         3,795,170         2,747,432  
                                                   
 
(1) Assumes total and permanent disability on December 31, 2007. Because Mr. D.C. Dauch has more than 10 years of service, he is eligible to retire due to total and permanent disability and receive pension benefits. Amounts assume Mr. D.C. Dauch remains on leave as an employee until retirement.
 
(2) Reflects a cash bonus earned at target in 2007.


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(3) Reflects a lump-sum severance payment upon termination under a change in control.
 
(4) Generally, stock option awards vest upon termination of employment due to death, disability or retirement or upon a change in control. The value of stock options reflects the excess of the fair market value of the underlying shares over the exercise or base price of unvested options.
 
(5) PARS and RSU awards vest upon termination of employment due to death, disability or upon a change in control. The value for PARS and RSUs reflects the fair market value of unvested awards.
 
(6) Assumed payable in a lump sum upon occurrence of termination event.
 
(7) Under the disability scenario, reflects health care benefits to retirement. Upon termination under a change in control, health care benefits continue for 2.5 years.
 
(8) Reflects benefits equal to 100% of base salary for year one and 60% of base salary to retirement.
 
(9) Under the disability scenario, reflects basic and supplemental life insurance benefits to retirement. Upon termination under a change in control, basic and supplemental life insurance benefits continue for 2.5 years.
 
(10) Reflects lease payments and administrative fees for the use of a Company-provided vehicle for six months.
 
(11) Reflects professional outplacement services.


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Patrick S. Lancaster
 
The following table shows the estimated potential payments upon termination, retirement and a change in control for Patrick S. Lancaster, Vice President, Chief Administrative Officer & Secretary as of December 31, 2007. Mr. Lancaster was eligible to retire on December 31, 2007. The assumptions used to determine retirement benefits are the same assumptions used in our audited consolidated financial statements for the fiscal year ended December 31, 2007.
 
                                                   
              Not for
                      Involuntary/
 
              Cause/By
                      Good Reason
 
              Employee for
                      Termination
 
      For Cause
      Good Reason
      Disability
              (Change in
 
      Termination
      Termination
      Retirement(1)
      Retirement
      Control)
 
      ($)       ($)       ($)       ($)       ($)  
Compensation:
                                                 
Bonus(2)
                      258,600         258,600         258,600  
Severance(3)
                                      1,293,000  
Retirement Plans:
                                                 
Defined Benefit
                                                 
Retirement Program(4)
                      646,245         561,441         561,441  
SERP(5)
                      67,424         149,846         628,299  
Welfare Benefit(6)
                      100,648         100,648         100,648  
Equity:
                                                 
Stock Options(7)
                      22,405         22,405         22,405  
PARS and RSUs(8)
                      335,160                 335,160  
Other Benefits:
                                                 
Deferred Compensation(9)
      395,981         395,981         395,981         395,981         395,981  
Use of Vehicles(10)
                                      8,199  
Other(11)
                                      40,000  
280G Tax Gross-Up
                                      782,509  
Total
      395,981         395,981         1,826,463         1,488,921         4,426,242  
                                                   
 
(1) Assumes retirement due to total and permanent disability on December 31, 2007.
 
(2) Reflects a cash bonus earned at target in 2007.
 
(3) Reflects a lump-sum severance payment upon termination under a change in control.
 
(4) Reflects the present value of a joint and survivor annuity benefit payable monthly. Under the retirement and change in control scenarios, reflects a reduced benefit of approximately 89% of the unreduced benefit.
 
(5) The present value calculated under the basic form assuming a joint and survivor annuity benefit payable monthly under the disability and retirement scenarios. The present value calculated with an additional 2.5 years of credited service under the alternative form assuming a joint and survivor annuity benefit payable monthly under a change in control.
 
(6) Reflects benefits for Mr. Lancaster and his spouse assuming retirement on December 31, 2007 under the welfare benefit plan effective January 1, 2007.
 
(7) Generally, stock option awards vest upon termination of employment due to death, disability, retirement or upon a change in control. The value of stock options reflects the excess of the fair market value of the underlying shares over the exercise or base price of unvested options.


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(8) PARS and RSU awards vest upon termination of employment due to death, disability or upon a change in control. The value for PARS and RSUs reflects the fair market value of unvested awards.
 
(9) Assumed payable in a lump sum upon occurrence of termination event.
 
(10) Reflects lease payments and administrative fees for the use of a Company-provided vehicle for six months.
 
(11) Reflects professional outplacement services.
 
2007 Compensation of Non-Employee Directors
 
Annual compensation of non-employee directors for 2007 was comprised of cash and equity compensation. Each of these components is described in more detail below. Total 2007 compensation of our non-employee directors is shown in the Director Compensation table below. Employee directors do not receive compensation in connection with director service.
 
Elements of Compensation
 
Our non-employee director compensation program in effect during 2007 consisted of the following elements:
 
  •  annual retainer and meeting attendance fees; and
  •  annual award of restricted stock units (upon election to the Board and annually thereafter during each director’s service on the Board).
 
2007 annual retainer and meeting attendance fees
 
         
Annual retainer
  $ 40,000  
Board meeting attendance fee
    1,500  
Committee meeting attendance fee
       
Committee chairman
    3,000  
Other committee members
    2,000  
Committee chairman attendance at meetings at the Company for committee-related business
    1,000  
 
In January 2008, the Board approved changes to the annual retainer for non-employee directors, as recommended to the Board by the Compensation Committee. Beginning in 2008, the annual retainer is $50,000.
 
Equity awards
 
In 2007, each continuing non-employee director received an annual award of restricted stock units under our Stock Incentive Plan on the date of our annual meeting of stockholders. On April 26, 2007, each non-employee director was awarded 2,200 restricted stock units, having an aggregate value of approximately $60,000, based on the closing market price of AAM common stock ($28.47) on the grant date.
 
Generally, restricted stock units awarded to non-employee directors vest in three approximately equal annual installments on the first, second and third anniversaries of the grant date, subject to earlier vesting upon death, disability or upon a change in control. The restricted stock units carry dividend rights from the grant date, payable when AAM pays dividends on common stock.
 
In January 2008, the Board approved a change in the value and timing of equity grants to non-employee directors. Beginning in 2008, restricted stock unit awards will be granted upon election (or re-election) to the Board with an aggregate value of approximately $210,000 vesting in three approximately equal installments on the first, second and third anniversaries of the grant date. Since


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the Company began awarding restricted stock units in 2006, all non-employee directors received annual grants with an approximate value of $50,000 vesting in three approximately equal installments on the first, second and third anniversaries of the grant date.
 
For those non-employee directors who are currently serving their Board terms as of the 2008 annual stockholders’ meeting, a transition grant will be awarded prorated in value based on the remaining years of his or her current term of office. Non-employee directors who have two years remaining in their term will receive a grant of restricted stock units having an aggregate value of approximately $140,000 vesting in two approximately equal annual installments on the first and second anniversaries of the grant date. Non-employee directors who have one year remaining in their term will receive a grant of restricted stock units on the date of our 2008 annual stockholders’ meeting, having an aggregate value of approximately $70,000 vesting on the first anniversary of the grant date.
 
The annual cash compensation and award values approved by the Board in January 2008 are at the levels recommended by Towers Perrin, the Compensation Committee’s independent compensation consultant, as a result of a market study completed in 2007 to assess the competitiveness of AAM’s non-employee director compensation program. The same comparison group used in the 2007 executive officer competitive market analysis was used, except for companies that had not filed their 2007 proxy statements at the time of Towers Perrin’s analysis. The manufacturing companies that were not included in the comparison group were ArvinMeritor, Inc., Brady Corporation, Donaldson Company, Inc., Fleetwood Enterprises, Inc., Johnson Controls, Inc., MSC Industrial Direct Company, Inc., Navistar International Corporation and Rockwell Automation, Inc. See Compensation Discussion and Analysis for a complete listing of the comparison group.
 
Deferral
 
Directors may elect to defer, on a pre-tax basis, a portion of their retainer and meeting fees and receive tax-deferred earnings (or losses) on the deferrals under AAM’s Executive Deferred Compensation Plan. The rate of return on deferred amounts is based on the performance of selected benchmark funds identified in the plan, which is described in Nonqualified Deferred Compensation above. Directors may also elect to defer settlement of restricted stock units until retirement from the Board.
 
Stock Ownership Guidelines
 
In February 2006, the Board amended the stock ownership guidelines for non-employee directors to increase the recommended minimum ownership from 1,000 to 4,000 shares of AAM common stock. Vested grants of restricted stock units are counted as owned. Directors have six years to meet the revised guidelines.


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Director Compensation
 
                                         
      Fees Earned or
                         
      Paid in Cash
      Stock Awards(1)
      Option Awards(2)
      Total
 
 Name     ($)       ($)       ($)       ($)  
John A. Casesa
      36,500         13,919                 50,419  
Elizabeth A. Chappell
      59,500         29,951         8,750         98,201  
Forest J. Farmer
      73,500         29,951                 103,451  
Richard C. Lappin
      66,500         29,951                 96,451  
William P. Miller II
      66,500         29,951         26,250         122,701  
Larry K. Switzer
      55,500         29,951         26,250         111,701  
Thomas K. Walker
      89,500         29,951                 119,451  
Dr. Henry T. Yang
      59,500         29,951         16,525         105,976  
                                         
 
(1) Reflects the amounts recognized in accordance with SFAS 123R for the fiscal year ended December 31, 2007 for restricted stock units granted in 2007 and earlier. Grant date fair value is calculated using the closing market price of AAM common stock on the date of grant. The grant date fair value of awards granted in 2007 was $28.47 per share. As of December 31, 2007, each non-employee director had 4,600 outstanding restricted stock units except for John A. Casesa who had 2,200 outstanding restricted stock units.
 
(2) Reflects the amounts recognized in accordance with SFAS 123R for the fiscal year ended December 31, 2007 for stock options granted prior to 2007. Grant date fair value is calculated using the Black-Scholes option pricing model. Grants of stock options to non-employee directors ceased after 2005. As of December 31, 2007, each non-employee director had the following number of stock options outstanding: Mr. Casesa -0-; Ms. Chappell 5,000; Mr. Farmer 13,500; Mr. Lappin 7,500; Mr. Miller 7,500; Mr. Switzer 7,500; Mr. Walker 7,500; and Dr. Yang 7,500.


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SECURITY OWNERSHIP
 
The following tables show the number of shares of AAM common stock beneficially owned as of February 29, 2008 by:
 
  •  each person known to us who beneficially owns more than 5% of AAM common stock;
  •  each of our non-employee directors;
  •  our Co-Founder, Chairman of the Board & Chief Executive Officer and the other named executive officers; and
  •  all directors and executive officers (as of February 29, 2008) as a group.
 
A beneficial owner of stock is a person who has voting power, meaning the power to control voting decisions, or investment power, meaning the power to cause the sale of the stock. All individuals listed in the tables have sole voting and investment power over the shares unless otherwise noted.
 
The beneficial ownership calculation includes 53,502,317 shares of AAM common stock outstanding on February 29, 2008 and assumes the exercise of vested options to purchase 245,210 shares that were granted before AAM’s initial public offering in 1999.
 
MORE THAN 5% BENEFICIAL OWNERS
 
The following persons have filed reports with the SEC for the period ending December 31, 2007, stating that they beneficially own more than 5% of AAM’s common stock.
 
                 
    Shares of
   
    Common Stock
  Percent of
    Beneficially
  Shares
Name and Address
  Owned   Outstanding
 
Barrow, Hanley, Mewhinney & Strauss, Inc.(1)     2,799,600       5.23  
2200 Ross Avenue, 31st Floor
Dallas, TX 75201
               
Dimensional Fund Advisors LP(2)     4,084,642       7.63  
1299 Ocean Avenue
Santa Monica, CA 90401
               
FMR LLC(3)     7,904,296       14.77  
82 Devonshire Street
Boston, MA 02109
               
Sandra J. Dauch Gift Trust dated May 25,1998(4)     6,260,702       11.70  
One Dauch Drive
Detroit, MI 48211
               
 
 
(1) Based on the Schedule 13G filed by Barrow, Hanley, Mewhinney & Strauss, Inc., reporting shared voting power over 1,606,600 shares, sole voting power over 1,193,000 shares, and sole investment power over 2,799,600 shares.
 
(2) Based on the Schedule 13G/A filed by Dimensional Fund Advisors LP, reporting sole voting and investment power over 4,084,642 shares.
 
(3) Based on the Schedule 13G/A filed jointly by FMR LLC and Edward C. Johnson 3d, reporting sole voting power over 45,300 shares and sole investment power over 7,904,296 shares.
 
(4) Based on the Schedule 13G filed by the Sandra J. Dauch Gift Trust, indicating sole voting and investment power over 6,260,702 shares. The trustee is Richard E. Dauch’s spouse.


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DIRECTORS AND EXECUTIVE OFFICERS
 
                         
    Shares
             
    Beneficially
    Options
       
    Owned
    Exercisable
    Percent
 
    Excluding
    Within 60
    of
 
    Options     Days     Class  
 
Directors(1)
                       
John A. Casesa
    4,733             *  
Elizabeth A. Chappell
    8,333       5,000       *  
Forest J. Farmer
    16,833       13,500       *  
Richard C. Lappin
    16,433       7,500       *  
William P. Miller II
    10,833       7,500       *  
Larry K. Switzer
    10,833       7,500       *  
Thomas K. Walker
    10,833