Delphi's comprehensive settlement with GM resolves all outstanding issues between Delphi and GM including: litigation commenced in March 2006, by Delphi, to terminate certain supply agreements with GM; all potential claims and disputes with GM arising out of the separation of Delphi from GM in 1999; certain post-separation claims and disputes between Delphi and GM; the proofs of claim filed by GM against Delphi in Delphi's Chapter 11 cases; GM's treatment under Delphi's proposed plan of reorganization; and various other legacy and ordinary course business matters between the companies.
The proposed Plan and related Disclosure Statement includes detailed information regarding the treatment of claims and interests, the company's five-year business plan, events leading up to and during Delphi's Chapter 11 cases, and an outline of the plan investor agreement and rights offering. Delphi's emergence timetable calls for the company to obtain exit financing commitments early in the fourth quarter of 2007.
The proposed plan also outlines Delphi's transformation centering around five core areas:
-- Agreements reached with all principal U.S. labor unions which create a competitive arena in which to conduct its business; -- Agreements with General Motors outlining its financial support for certain legacy and labor costs and certain future business commitments to Delphi; -- Delphi's future product portfolio and manufacturing footprint; -- Delphi's planned transformation of its salaried workforce and progress in reducing SG&A to support its realigned portfolio; and -- Delphi's plans to fund its U.S. defined benefit programs.
"Today's filing of Delphi's Plan of Reorganization and Disclosure Statement is a significant milestone for our company," said Rodney O'Neal, Delphi CEO and president. "Each of the numerous moving pieces to our transformation are coming together. In recent months, we have announced a new equity investment agreement with our Plan Investors and agreed on consensual distributions with our Statutory Committees for both our creditors and equity holders. Additionally, we completed our labor transformation with our six U.S. unions, settled complex multi-district ERISA and securities litigation, and finalized comprehensive settlement and restructuring agreements with GM. While achieving these transformation objectives, we also continued to support our customers and deliver operational excellence every step of the way. Delphi has made great progress toward its stated transformation goals and is intensely focused on completing the remaining items in order to successfully emerge from Chapter 11 as a more competitive technology leader."
PLAN OF REORGANIZATION FRAMEWORK
Delphi's plan of reorganization (the "Plan") is based upon a series of global settlements and compromises that involve every major group of constituents in Delphi's reorganization cases, including: Delphi, its principal U.S. labor unions, GM, the statutory creditors' and equity holders' committees appointed in Delphi's Chapter 11 cases and the lead plaintiffs in certain securities and ERISA multidistrict litigation.
The Plan provides for a recovery through a plan distribution of reorganized Delphi common stock and cash amounting to the principal amount of the claim plus accrued interest at a negotiated plan value for general unsecured creditors, and agreed upon distributions to other classes of creditors and interests. GM will receive a $2.7 billion cash distribution in satisfaction of certain of its claims against Delphi. As part of the settlement of the multidistrict ERISA and securities litigation, distributions will be made under three plan classes using plan currency in the same form, ratio, and treatment as what will be used to satisfy the holders of general unsecured claims. Allowed claims and interests for these three plan classes total $24.5 million for the ERISA plan class and a total of $204 million for the debt securities class and the common stock securities class. Holders of existing Delphi common stock will receive a distribution of shares of reorganized Delphi, five-year warrants exercisable to purchase shares of reorganized Delphi, and transferable and non-transferable subscription rights to purchase shares of reorganized Delphi.
The settlements embodied by the Plan feature rights offerings that will be conducted after confirmation of the Plan and which will allow Delphi's common stockholders, who are holders of shares of Delphi common stock as of the date when the Confirmation Hearing commences, to purchase, (i) through the exercise of transferable rights, approximately 28 percent of the common stock of reorganized Delphi at a discount to the negotiated plan value, and (ii) through the exercise of non-transferable rights, up to $572 million worth of shares (in the aggregate) of reorganized Delphi at the negotiated plan enterprise value price of $45.00 per share.
The rights offerings are expected to commence following confirmation of Delphi's plan of reorganization and conclude 30 days thereafter prior to Delphi's emergence from Chapter 11 reorganization.
The rights will be issued only to those individuals who are holders of Delphi's existing common stock as of the date the Confirmation Hearing commences and after the Bankruptcy Court has confirmed the company's Plan and the SEC has approved Delphi's registration statement for the Rights Offerings.
Delphi previously negotiated and signed Memoranda of Understanding with each of its six U.S. unions and GM covering site plans, workforce transition as well as other comprehensive transformational issues. In addition, pursuant to the previously announced attrition agreements, over 24,000 employees voluntarily retired, accepted buy outs or opted to flow back to GM within provisions of negotiated attrition plans. Delphi will continue to own and operate four UAW-represented sites, three IUE-CWA-represented sites and one USW-represented site. Additionally, 25 North American sites will be sold or closed.
GM SETTLEMENT AGREEMENTS
Pursuant to the company's Plan, subject to Bankruptcy Court approval as part of the plan confirmation process, Delphi and GM have entered into comprehensive settlement agreements consisting of a Global Settlement Agreement (the "GSA") and a Master Restructuring Agreement (the "MRA"). Most obligations set forth in the GSA are to be performed upon the occurrence of the Effective Date of the Plan or as soon as reasonably possible after. By contrast, resolution of most of the matters addressed in the MRA will require a significantly longer period that will extend for a number of years after confirmation of the Plan.
The GSA is intended to resolve outstanding issues among Delphi and GM that have arisen or may arise before Delphi's emergence from Chapter 11, and will be implemented by Delphi and GM in the short term. The GSA addresses, among other things, commitments by Delphi and GM regarding OPEB and pension obligations, other GM contributions with respect to labor matters, releases, and claims treatment.
-- GM will make significant contributions to cover costs associated with certain post-retirement benefits for certain of the company's active and retired hourly employees, including health care and life insurance; -- Delphi will freeze its Hourly Pension Plan as soon as possible following the Effective Date, as provided in the union settlement agreements, and GM's Hourly Pension Plan will become responsible for certain future costs related to Delphi's Hourly Pension Plan; -- Delphi will transfer certain assets and liabilities of its Hourly Pension Plan to the GM Hourly Pension Plan, as set forth in the union term sheets; -- Shortly after the effective date, GM will receive an interest bearing note from Delphi in the amount of $1.5 billion to be paid within 10 days of its issuance; -- GM will make significant contributions to Delphi to fund various special attrition programs, consistent with the provisions of the union Memorandum of Understanding; -- GM and certain related parties and Delphi and certain related parties will exchange broad, global releases (which will not apply to certain surviving claims as set forth in the GSA); and -- On the Effective Date, subject to certain surviving claims in the GSA and in satisfaction of various GM claims, Delphi will pay GM $2.7 billion, and the GM Proof of Claim will be settled.
The MRA is intended to govern certain aspects of Delphi and GM's commercial relationship following Delphi's emergence from Chapter 11. The MRA addresses, among other things, the scope of GM's existing and future business awards to Delphi and related pricing agreements and sourcing arrangements, GM commitments with respect to reimbursement of specified ongoing labor costs, the disposition of certain Delphi facilities, and the treatment of existing agreements between Delphi and GM.