-- Through the MRA, Delphi and GM have agreed to certain terms and conditions governing, among other things: -- the scope of existing business awards, related pricing agreements, and extensions of certain existing supply agreements; -- GM's ability to move production to alternative suppliers; and -- Reorganized Delphi's rights to bid and qualify for new business awards. -- GM will make significant, ongoing contributions to Delphi and Reorganized Delphi to reimburse the company for labor costs in excess of $26 per hour at specified manufacturing facilities; -- GM and Delphi have agreed to certain terms and conditions concerning the sale of certain of its non-core businesses; -- GM and Delphi have agreed to certain additional terms and conditions if certain of its businesses and facilities are not sold or wound down by certain future dates (as defined in the MRA); and -- GM and Delphi have agreed to the treatment of certain contracts between Delphi and GM arising from Delphi's separation from GM and other contracts between Delphi and GM.
Delphi previously announced plans to focus its product portfolio on those core technologies for which the company has significant competitive advantages and can provide the greatest support and differentiation to its customers in automotive, aftermarket, consumer electronics, and adjacent markets such as commercial vehicles, medical systems, computers, aerospace and transportation products. To that end, the company is focusing the organization on the following core strategic product lines:
-- Controls & Security (Body Security, Mechatronics, and Displays); -- Electrical/Electronic Architecture (Electrical/Electronic Distribution Systems, Connection Systems, and Electrical Centers); -- Entertainment & Communications (Audio, Navigation, and Telematics); -- Powertrain (Diesel and Gas Engine Management Systems); -- Safety (Occupant Protection and Safety Electronics); and -- Thermal (Climate Control & Powertrain Cooling).
During these Chapter 11 cases, Delphi has made substantial progress in identifying and implementing the sale (or receiving Bankruptcy Court approval to sell) or wind down of those facilities and business lines that do not support the company's future strategic framework, including:
-- The sale of the brake hose manufacturing business in Dayton, Ohio to Harco Manufacturing Group, LLC. -- The settlement of a social plan in the "Concurso," or Spanish insolvency proceeding, of Delphi Automotive Systems Espana S.L.; -- The sale of the brake components business, including a manufacturing plant in Saltillo, Mexico, to Robert Bosch LLC and its affiliate Frenados Mexicanos, S.A. de C.V.; -- The sale of substantially all of the assets of MobileAria, Inc. to Wireless Matrix USA, Inc.; -- The sale of a New Brunswick, N.J., battery manufacturing facility to Johnson Controls, Inc.; -- The wind-down of a Delphi Medical Texas facility in Houston, Texas; -- The consolidation of fuel injector production in Rochester, New York during 2006-2007, which allowed the Debtors to wind down a manufacturing facility in Coopersville, Michigan; -- The sale of the catalyst business to Umicore;
The company has also been in discussions regarding the sale of Delphi's Steering, Bearings and Interior and Closures businesses. The company will continue with its stated plans to sell or wind-down additional non-core product lines and manufacturing sites through 2008.
On Jan. 1, 2007, Delphi implemented a new organizational structure surrounding the company's Product Business Units (PBUs) to increase focus on the product and customer. As part of its organizational restructuring, Delphi previously announced that it expects to reduce its global salaried workforce by as many as 8,500 employees. In addition, Delphi has commenced the implemention of an SG&A cost savings plan, which should realize savings of approximately $450 million per year (in addition to savings realized from competitive measures planned for its core businesses and the disposition of non-core assets) and includes the following initiatives:
-- streamlining of the corporate structure of the organization; -- streamlining of divisional/product business units' SG&A in finance, human resources, and customer interaction processes; -- transformation of information technologies, the creation of information technologies shared services and the exploration of other opportunities to reduce costs; and -- creation of a finance, human resources, and sales shared services organization.
Also, as part of its equity investment agreement, Delphi is implementing a competitively-benchmarked executive compensation program for its continuing salaried executives as part of its plan of reorganization and emergence from Chapter 11.
One of Delphi's principal goals throughout Chapter 11 was to retain the benefits accrued under the existing defined benefit U.S. pension plans for both the hourly and salaried workforce. To accomplish this, Delphi will freeze the current hourly and salaried U.S. pension plans as of the first of the month following the Effective Date of the Plan and replace them with contemporary plans.
As part of the resolution of its pension issues, Delphi obtained temporary waivers of its minimum funding requirements from the IRS and the PBGC, under the hourly plan and the salaried plan. By obtaining the waivers, Delphi can delay its minimum funding requirements from June 15, 2007, through the expected Effective Date of its Plan of Reorganization.
Delphi will also facilitate the transfer of $1.5 billion of the company's net hourly pension obligations to GM's Hourly Pension Plan under applicable federal law. On the date of such transfer, GM will receive a note in the principal amount of $1.5 billion that will be paid in full within 10 days of issuance. This transfer facilitates Delphi's resolution of its pension issues and will help allow Delphi to make up required contributions to the plans that were not made in full during Chapter 11.
EQUITY INVESTMENT AGREEMENT
On July 18, 2007, Delphi announced that it had accepted a proposal for an Equity Purchase and Commitment Agreement with affiliates of lead investor Appaloosa Management L.P.; Harbinger Capital Partners Master Fund I, Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Goldman Sachs & Co.; and Pardus Capital Management, L.P. (collectively the "Plan Investors") to invest up to $2.55 billion in preferred and common equity in reorganized Delphi to support the company's transformation plan and its plan of reorganization.
Under the terms of the Equity Purchase and Commitment Agreement, the Plan Investors will purchase $800 million of convertible preferred stock and approximately $175 million of common stock in the reorganized company. Additionally, the Plan Investors will commit to purchasing any unsubscribed shares of common stock in connection with an approximately $1.6 billion rights offering that will be made available to existing common stockholders subject to approval of the Bankruptcy Court and satisfaction of other terms and conditions.
While today's filing of the Plan and related Disclosure Statement was made by Delphi after consultation with the Plan Investors, the Plan Investors have not approved the Plan or related Disclosure Statement and today's filing does not waive or modify any of Delphi's or the Plan Investors' rights and/or obligations under the Investment Agreement.
In addition to the equity funds to be raised from the Plan Investors and the proposed Rights Offerings, the company is in discussions with lenders of syndicated debt and corporate high-yield debt to raise an amount sufficient to repay the DIP facilities and conduct its post-reorganization operations. Delphi's emergence timetable calls for the company to obtain exit financing commitments early in the fourth quarter of 2007.
EMERGENCE CORPORATE GOVERNANCE STRUCTURE
The company's recently concluded Equity Purchase and Commitment Agreement with its Plan Investors details certain corporate governance provisions for the reorganized Delphi. Under the terms of the proposed plan, reorganized Delphi would be governed by a new nine-member Board of Directors including an Executive Chairman and the company's current CEO. Subject to certain conditions, a super-majority of the directors (6 of 9) would be required to be independent of reorganized Delphi under applicable exchange rules and independent of the Plan Investors.
A five-member selection committee has been formed to select the company's post-emergence Executive Chairman, to interview and approve all directors nominated for the Board, and make the initial appointment of directors to all Board committees.
ABOUT DELPHI'S CHAPTER 11 CASE
Delphi's Chapter 11 cases were filed on October 8, 2005, in the United States Bankruptcy Court for the Southern District of New York and were assigned to the Honorable Robert D. Drain under lead case number 05-44481 (RDD).
The Adequacy Hearing for the Disclosure Statement is scheduled for Oct. 3, 2007. Approval of the Disclosure Statement and related voting solicitation procedures would permit the company to solicit acceptances of the proposed Plan of Reorganization and seek confirmation of the Joint Plan of Reorganization by the Bankruptcy Court later this year.