<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1999
REGISTRATION NO. 333-67333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
THE SECURITIES ACT OF 1933
------------------------
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
3714
(Primary Standard Industrial
Classification Code Number)
38-3430473
(IRS Employer
Identification Number)
5725 Delphi Drive
Troy, Michigan 48098
(248) 813-2000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
Alan S. Dawes
Chief Financial Officer
and Vice President
5725 Delphi Drive
Troy, Michigan 48098
(248) 813-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C> <C> <C>
Jill Sugar Factor Warren G. Andersen Logan G. Robinson Frank Morison
Robert S. Osborne, P.C. General Motors Delphi Automotive Sarah Beshar
Kirkland & Ellis Corporation Systems Corporation Davis Polk & Wardwell
200 East Randolph Drive 3031 West Grand Boulevard 5725 Delphi Drive 450 Lexington Avenue
Chicago, Illinois 60601 Detroit, Michigan 48232 Troy, Michigan 48098 New York, New York 10017
(312) 861-2000 (313) 974-1528 (248) 813-2000 (212) 450-4000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of 85,000,000 shares of common stock (the "U.S. Offering"). The second
prospectus relates to a concurrent offering outside the United States and Canada
of an aggregate of 15,000,000 shares of common stock (the "International
Offering"). The prospectuses for each of the U.S. Offering and the International
Offering will be identical with the exception of an alternate front cover page
for the International Offering. Such alternate page appears in this Registration
Statement immediately following the complete prospectus for the U.S. Offering.
<PAGE> 3
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued January 14, 1999
100,000,000 Shares
[LOGO]
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
COMMON STOCK
------------------------
DELPHI AUTOMOTIVE SYSTEMS CORPORATION IS OFFERING 100,000,000 SHARES OF ITS
COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET EXISTS
FOR OUR SHARES. WE ESTIMATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $14 AND $18 PER SHARE.
------------------------
WE HAVE APPLIED FOR THE LISTING OF OUR COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE UNDER THE TRADING SYMBOL "DPH."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS DELPHI
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................... $ $ $
Total........................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Delphi has granted the U.S. underwriters an option to purchase an additional
15,000,000 shares to cover over-allotments. Morgan Stanley & Co. Incorporated
expects to deliver the shares to purchasers on , 1999. Goldman, Sachs
& Co. has served as financial advisor to Delphi for this offering.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE SCHRODER & CO. INC.
, 1999
<PAGE> 4
PROSPECTUS COVER GATEFOLD
INSIDE FRONT - PAGE 1
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(DPH)
A global automotive supplier.
WORLDWIDE LOCATIONS
[WORLD MAP]
North America: India Europe: Romania
Canada Indonesia Austria Russia
Mexico Japan Belgium Spain
United States Malaysia Czech Republic Sweden
South America: Saudi Arabia France United Kingdom
Argentina Singapore Germany
Brazil South Korea Hungary Africa:
Venezuela Taiwan Ireland Morocco
Thailand Luxembourg South Africa
Asia: Turkey Poland Tunisia
China Portugal
Australia
[PEOPLE - DELPHI BUILDING IN BACKGROUND]
OPERATIONS PEOPLE/FACILITIES
Headquartered in Troy, Delphi operates 169
Michigan, USA, Delphi manufacturing sites,
Automotive Systems 27 technical centers
has operations in 36 and 51 customer service
countries. We have centers and sales
regional headquarters in activity offices
Sao Paulo, Brazil; Paris, around the world.
France; and Tokyo, We employ over 200,000
Japan. individuals and are
engaged in 40 joint
ventures.
<PAGE> 5
PROSPECTUS COVER GATEFOLD
INSIDE FRONT - PAGE 2
DELPHI IS THE WORLD'S LARGEST
AND MOST DIVERSIFIED SUPPLIER OF
COMPONENTS, INTEGRATED
SYSTEMS AND MODULES TO THE
AUTOMOTIVE INDUSTRY.
[AUTOMOBILE WITH HIGHLIGHTED DIAGRAM OF COMPONENT PARTS VISIBLE]
SAFETY, THERMAL &
ELECTRICAL ARCHITECTURE
- - Interior Products
Safety/Airbag Systems
Door Modules
Power Product Systems
Modular Cockpits
- - Thermal Products
Thermal Management Systems
Climate Control Systems
HVAC Systems and Modules
Powertrain Cooling Systems
Front End Modules
- - Power and Signal Distribution
Products ELECTRONICS & MOBILE
Electrical/Electronic (E/E) Systems COMMUNICATION
Centers Audio Systems
Connection Systems Communication Systems
Electronic Products Advanced Controllers
Advanced Data Communication Powertrain and Engine
Systems Control Modules
Fiber Optic Lighting Systems Collision Warning
Ignition Wiring Systems Systems
Sensors Security Systems
Switch Products Safety Systems
<PAGE> 6
PROSPECTUS COVER GATEFOLD
INSIDE FRONT - PAGE 3
[AUTOMOBILE WITH HIGHLIGHTED DIAGRAM OF COMPONENT PARTS VISIBLE]
DYNAMICS & PROPULSION
- - Energy and Engine Management
Products
Air/Fuel Management
Energy Storage and Conversion
Valve Train
Exhaust After-Treatment
Sensors and Solenoids
Ignition
Fuel Handling
Controls
Advanced Propulsion Systems
- - Chassis Products
Intelligent Chassis Control
Systems
Advanced Ride Control
Suspension Systems
Chassis Systems and Modules
Brake Systems
Suspension and Brake
Components
- - Steering Products
Steering Systems
Columns and Intermediate
Shafts
Driveline Systems
Fuel Efficiency and
Performance Steering
Systems
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 10
Delphi and Its Separation from
General Motors..................... 23
Use of Proceeds...................... 27
Dividends............................ 27
Capitalization....................... 28
Selected Financial Data.............. 29
Unaudited Pro Forma Condensed
Consolidated Financial
Statements......................... 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 37
Business of Delphi................... 59
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management........................... 90
Arrangements Between Delphi and
General Motors..................... 108
Principal Stockholder................ 130
Description of Capital Stock......... 130
Shares Eligible for Future Sale...... 140
Material United States Federal Tax
Consequences to Non-United States
Holders............................ 142
Underwriters......................... 145
Legal Matters........................ 149
Experts.............................. 149
Where You Can Find More Information.. 149
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
-------------------------
In this prospectus, "Delphi," the "company," "we," "us" and "our" each
refers to Delphi Automotive Systems Corporation and "General Motors" and "GM"
each refers to General Motors Corporation.
-------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
-------------------------
Until , 1999, all dealers that buy, sell or trade Delphi's
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
2
<PAGE> 8
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before deciding to invest in our common stock. We urge you to
read this entire prospectus carefully, including the "Risk Factors" section and
the consolidated financial statements and the notes to those statements.
DELPHI
OUR COMPANY
Delphi is the world's largest and most diversified supplier of automotive
parts, with 1997 revenues of $31.4 billion. Based on the latest Fortune 500
survey, Delphi on an independent basis would have ranked as the 25th largest
industrial corporation in the United States based on 1997 revenues.
As an automotive parts supplier, Delphi manufactures and sells individual
component parts for automotive vehicles as well as groups of components that are
arranged either as modules based on physical proximity within a vehicle, such as
an instrument panel, or as integrated systems that operate throughout a vehicle
to provide a specific function, such as audio and braking. We sell these
components, modules and systems to automotive vehicle manufacturers, including
General Motors, which is the world's largest manufacturer of automotive vehicles
and by far our largest customer.
Let us tell you more about our company:
- RELATIONSHIP WITH GM. We have become a leader in the global automotive
parts industry by capitalizing on the extensive experience we have gained
as the principal supplier of automotive parts to General Motors. General
Motors currently owns all of our stock. After this offering, GM will own
about 82.3% of our common stock and will continue to control our company.
GM has announced that it intends to complete its divestiture of Delphi
later in 1999, which we believe will enhance our ability to increase
sales to other vehicle manufacturers over time.
- EXPANDED CUSTOMER BASE. About five years ago, we began to transform our
company from a North America-based, captive supplier to GM into a global
supplier of components, integrated systems and modules for a wide range
of customers. We now sell our products to every major manufacturer of
light vehicles in the world. Our sales to customers other than GM have
grown from 13.3% of our total sales in 1993 to 18.3% in 1997. As used in
this calculation, our "total sales" include all sales by entities in
which we have a minority interest.
- GLOBAL PRESENCE. We have an expansive global presence, with a network of
manufacturing sites, technical centers, sales offices and joint ventures
located in every major region of the world. About 59% of our employees
and, based on square footage, about 30% of our wholly owned and leased
manufacturing sites were located outside the United States and Canada as
of September 30, 1998. About 28% of our total 1997 sales were derived
from products manufactured at sites located outside the United States and
Canada.
- VEHICLE KNOWLEDGE. Through our experience with GM, we have developed a
sophisticated understanding of the design, engineering, manufacture and
operation of all aspects of the automotive vehicle. We have both
extensive technical expertise in a broad range of product lines and
strong systems integration skills, which enable us to provide
comprehensive, systems-based solutions for our customers.
3
<PAGE> 9
- PRODUCTS. We are primarily a "Tier 1" supplier, providing our products
directly to vehicle manufacturers. We believe that we are one of the
leading Tier 1 suppliers in each of our major product sectors:
- Electronics & Mobile Communication, which includes our automotive
electronics and audio and communication systems
- Safety, Thermal & Electrical Architecture, which includes our interior,
thermal and power and signal distribution products
- Dynamics & Propulsion, which includes our energy and engine management,
chassis and steering products
We also supply our products to the worldwide aftermarket for replacement
parts and to customers other than vehicle manufacturers.
OUR INDUSTRY
We operate in the highly competitive global automotive parts industry. Many
vehicle manufacturers are continuing to reduce their reliance on their own
internal captive component operations and are moving towards a competitive
sourcing process for automotive parts. As a result, independent suppliers are
becoming a more important part of the automotive parts industry and many captive
suppliers no longer sell their products exclusively to their parent company. The
global automotive parts industry is being further reshaped by a number of other
key trends, including the following:
- Suppliers are becoming increasingly involved in vehicle design and
assembly processes as customers source more fully-engineered, integrated
systems and modules.
- Suppliers are establishing a broader geographic presence to satisfy the
needs of customers as they produce and sell more vehicles on a global
basis.
- The electronic content of vehicles is increasing in response to changing
regulatory requirements and consumer demand.
- Suppliers are consolidating globally as they seek to achieve operating
synergies, shift production to lower-cost manufacturing locations and
acquire complementary technologies. Consolidation also enables suppliers
to build new customer relationships and to follow their customers as they
expand around the world.
- Product development cycles are becoming shorter as vehicle manufacturers
seek to respond more quickly to changes in regulatory requirements and
consumer preferences.
OUR BUSINESS OBJECTIVE
Our core business objective is to increase our earnings by expanding our
sales globally while improving our operating performance. We have entered into a
supply agreement with General Motors that we believe will provide us with a
substantial base of future business well into the next decade. We will strive to
maintain our important relationship with GM and expect that it will remain our
largest customer for a significant period of time. However, we expect that our
sales to GM's North American operations will decline over time, and our strategy
accordingly focuses on increasing sales to other customers. We believe that our
ability to achieve this sales growth over the long term will be enhanced by our
complete separation from GM.
Our business objective emphasizes continuing operational improvements.
Since 1991, when GM organized its various automotive parts operations into a
separate business group, we have been evolving from a
4
<PAGE> 10
fully captive collection of automotive parts operations into an independently
managed supplier of components, integrated systems and modules to GM and all of
the other major vehicle manufacturers. During this transitional period, our
financial results have at times been adversely affected by a variety of factors
which we are continuing to address through initiatives to improve our operating
performance. These adverse factors include significant price reductions as GM
implemented its global sourcing initiative, labor disruptions at both GM and
Delphi, and certain unprofitable manufacturing operations.
OUR STRATEGY
Our business strategy is designed to leverage our competitive strengths and
capitalize on key trends in the global automotive parts industry. The key
elements of our business strategy are:
- SUPPLY HIGH-QUALITY, INNOVATIVE COMPONENTS, SYSTEMS AND MODULES. We
believe that our technical expertise, breadth of product offerings and
manufacturing scale allow us to compete successfully on a component,
system and module basis. We have developed significant system and module
capabilities in a number of key product areas, including power and
propulsion systems, ride and handling systems, passenger environment
systems, and control and communication systems. In addition, we believe
that our substantial in-house electronics integration capabilities give
us a significant competitive advantage across all our product areas,
particularly since we believe that electronics integration will drive the
next generation of successful products in our industry.
- PURSUE BUSINESS WITH CUSTOMERS OTHER THAN GM-NORTH AMERICA. We believe
that our product portfolio, global presence and customer responsiveness
will allow us to increase our sales to customers other than GM-North
America. We have established customer-supplier relationships with all of
the major vehicle manufacturers. However, we believe that our status as a
captive supplier to GM has historically been a major impediment to the
expansion of our business with other customers, as they have shown
varying degrees of reluctance to source from a supplier owned by a major
competitor. We believe that, as an independent company no longer owned by
General Motors, we will have significant opportunities to expand our
business with other customers around the world.
- LEVERAGE GLOBAL PRESENCE. Our operations, including joint ventures, in 36
countries position us well to pursue new business, especially as vehicle
manufacturers increasingly favor suppliers that can deliver products with
consistent technology and quality for vehicles which are manufactured and
sold in markets around the world. We also believe that our global
presence allows us to leverage sales to a customer in one location or for
one product into sales to that customer in other locations and for other
products.
- IMPROVE OPERATING PERFORMANCE. We are executing several strategic
initiatives to improve operating performance. These include our Delphi
Manufacturing System, which focuses on achieving lean operations through
operating flexibility, as well as a management process aimed at
streamlining our product portfolio, a "fix/sell/close" plant-by-plant
analysis through which we seek to improve our cost competitiveness, and
various other sourcing, labor and cost reduction initiatives.
- COMPLETE STRATEGIC ACQUISITIONS, JOINT VENTURES AND ALLIANCES. We pursue
strategic acquisitions and alliances to complement or fill gaps in our
product portfolio, enhance our design, engineering and manufacturing
capabilities, improve our geographic presence and increase our access to
new customers. We believe that our separation from GM will provide us
with greater planning flexibility, the ability to use our stock for
acquisitions and the opportunity to form alliances with companies not
willing to partner with a supplier owned by GM.
Our ability to implement our business strategy is subject to a number of
uncertainties and risks. In particular, we cannot assure you that we will
capture significant business with customers other than GM, that we will realize
the labor relations benefits that we expect from the separation or that we will
be able to continue to improve our operating performance. For more information,
see "Risk Factors--Risk Factors Relating to Separating Our Company from General
Motors" and "--Risk Factors Relating to Our Business."
5
<PAGE> 11
RELATIONSHIP WITH GENERAL MOTORS
We are currently a wholly owned subsidiary of General Motors. After the
completion of this offering, GM will own about 82.3% of the outstanding shares
of our common stock, or about 80.2% if the U.S. underwriters exercise their
over-allotment option in full. GM has announced that it currently plans to
complete its divestiture of Delphi later in 1999 by distributing all of its
shares of Delphi common stock to the holders of GM's $1 2/3 common stock. GM
expects to accomplish this distribution through the following:
- Split-Off--such as an exchange offer by GM in which holders of GM's
$1 2/3 common stock would be invited to tender their shares in exchange
for shares of our common stock; or
- Spin-Off--a pro rata distribution by GM of its shares of our common stock
to holders of GM's $1 2/3 common stock; or
- Combined Split-Off/Spin-Off--some combination of both of the above
transactions.
GM has the sole discretion to determine the timing, structure and all terms
of its distribution of our common stock. We have agreed to cooperate with GM in
all respects to complete the divestiture because we believe that our complete
separation from GM will enhance our ability to pursue our business strategy.
However, GM is not obligated to complete the divestiture and we cannot assure
you as to whether or when it will occur. For a discussion of the risks
associated with GM not completing the divestiture, see "Risk Factors--Risk
Factors Relating to Separating Our Company from General Motors--Our Business May
Be Adversely Affected if the Distribution Is Not Completed."
We have entered into agreements with GM that provide for the separation of
our business operations from GM. These agreements are not conditioned on the
divestiture and provide for, among other things, the transfer from GM to Delphi
of assets comprising the business of Delphi and the assumption by Delphi of
liabilities relating to its business. Substantially all of these transfers have
been or will be completed prior to the closing of this offering.
The agreements between us and GM also govern our various interim and
ongoing relationships. In particular, our supply agreement with GM is intended
to provide us with a substantial base of business with GM well into the next
decade. All of the agreements providing for our separation from GM were made in
the context of a parent-subsidiary relationship and were negotiated in the
overall context of our separation from GM. The terms of these agreements may be
more or less favorable to us than if they had been negotiated with unaffiliated
third parties. See "Risk Factors--Risk Factors Relating to Separating Our
Company from General Motors" and "Arrangements Between Delphi and General
Motors."
------------------
Our principal executive offices are located at 5725 Delphi Drive, Troy,
Michigan 48098 and our telephone number is (248) 813-2000.
6
<PAGE> 12
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
U.S. offering.................................... 85,000,000 shares
International offering........................... 15,000,000 shares
------------------------------------------------
Total......................................... 100,000,000 shares
================================================
Common stock to be outstanding immediately after
the offering..................................... 565,000,000 shares
Common stock to be held by General Motors
immediately after the offering................... 465,000,000 shares
Use of proceeds.................................... We estimate that our net proceeds from the
offering will be about $1.525 billion, based on
an assumed initial public offering price of $16
per share. We will use the net proceeds from the
offering for general corporate purposes,
including working capital. See "Use of
Proceeds."
Dividends.......................................... Subject to our financial results and action by
our Board of Directors, we currently intend to
pay dividends on a quarterly basis, at an
initial rate of $0.07 per share, commencing with
the first declaration in June 1999 for payment
in July 1999. See "Dividends."
Proposed NYSE symbol............................... DPH
Preferred share purchase rights.................... One preferred share purchase right will be
attached to each share of common stock sold in
the offering and thus the rights are also being
offered hereby. The rights would cause
substantial dilution to any person or group who
attempts to acquire a significant interest in
our company without advance approval from our
Board of Directors and thus could make an
acquisition of control of our company more
difficult. See "Description of Capital
Stock--Rights Plan."
</TABLE>
Unless we specifically state otherwise, the information in this prospectus
does not take into account the issuance of up to 15,000,000 shares of common
stock which the U.S. underwriters have the option to purchase solely to cover
over-allotments. If the U.S. underwriters exercise their over-allotment option
in full, 580,000,000 shares of common stock will be outstanding after the
offering.
The number of shares of our common stock to be outstanding immediately
after the offering listed above does not take into account about 26,000,000
shares of our common stock that will be issuable upon exercise by our employees
of "founders grants" and about 22,100,000 shares of our common stock that will
be issuable upon exercise by our employees of stock options or restricted stock
units that will be substituted for GM stock options or restricted stock units at
the time of GM's divestiture of its shares of our common stock. The actual
number of substituted awards will be determined at the time of such divestiture,
primarily based on the ratio of the price of our common stock to the price of
GM's stock. For a discussion of these stock options and employee benefits
awards, see "Management--Incentive Plans--Founders Grants" and "Arrangements
Between Delphi and General Motors--Employee Matters--Shares of Delphi's Common
Stock Subject to Substitute Awards."
7
<PAGE> 13
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents summary financial and operating data for
Delphi, including our Delco Electronics Corporation subsidiary, the electronics
and mobile communication business that GM transferred to Delphi in December
1997. The data presented in this table are derived from "Selected Financial
Data," "Unaudited Pro Forma Condensed Consolidated Financial Statements," and
the consolidated financial statements and notes thereto which are included
elsewhere in this prospectus. You should read those sections for a further
explanation of the financial data summarized here. You should also read "Risk
Factors--Risk Factors Relating to Separating Our Company from General
Motors--Our Historical Financial Information Has Limited Relevance to Our
Results As a Separate Company." You should also read the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section, which describes a number of factors which have affected our financial
results, including significant price reductions as GM implemented its global
sourcing initiative, labor disruptions at both GM and Delphi and charges
associated with certain competitiveness initiatives.
The summary pro forma condensed financial data are derived from the
application of pro forma adjustments related to this offering and the terms of
the agreements governing our separation from GM. The pro forma balance sheet
data give effect to (1) this offering; (2) a change in intracompany accounts
receivable payment terms from GM prior to the separation; and (3) the settlement
of certain GM intracompany accounts receivable and an intracompany note payable.
The pro forma statement of income data give effect to (1) decreased employee
benefit costs due to the retention of certain benefit obligations by GM and (2)
certain incremental costs associated with operating Delphi as a separate, public
company.
For a more detailed explanation of the calculation of the pro forma amounts
in this table, see "Unaudited Pro Forma Condensed Consolidated Financial
Statements." The pro forma operating results and financial position shown in
this table are not necessarily indicative of what our results or financial
position would have been had the separation of our business from GM been
completed and had this offering occurred at the beginning of the earliest pro
forma period presented or on September 30, 1998, as applicable.
8
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997 1997 1998 1998
---- ---- ---- ---- ---- ----- ---- ---- -----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................... $29,327 $31,044 $31,661 31,032 31,447 $31,447 23,368 20,679 $20,679
Operating income (loss)..... 1,763 2,084 2,138 1,273 352 687 1,229 (284) (201)
Net income (loss)........... 948 975 1,307 853 215 423 736 (181) (130)
Basic and diluted earnings
(loss) per share.......... $ 2.04 $ 2.10 $ 2.81 $ 1.83 $ 0.46 $ 0.75 $ 1.58 $(0.39) $ (0.23)
======= ======= ======= ====== ====== ======= ====== ====== =======
STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in)
operating activities...... n/a n/a 1,370 2,701 2,918 n/a 1,812 (51) n/a
Cash used in investing
activities................ n/a n/a (1,141) (995) (1,320) n/a (860) (699) n/a
Cash (used in) provided by
financing activities...... n/a n/a (263) (1,686) (1,549) n/a (903) 741 n/a
OTHER FINANCIAL DATA:
EBITDA...................... 2,378 2,603 2,959 2,182 2,459 2,794 1,877 530 613
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Net sales per employee (U.S.)............................. $176,000 $199,000 $237,000 $234,000 $247,000
Customer rejected/returned parts per million.............. n/a n/a 812 462 355
Lost work day cases per hundred employees................. 3.29 3.04 2.27 1.62 1.24
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT DECEMBER 31, -----------------------------
----------------------------------------------- PRO FORMA
1993 1994 1995 1996 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ---- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................... $14,803 $14,494 $15,635 $15,390 $15,026 $15,863 $14,930 $17,655
Total debt..................... 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Equity (deficit)............... (476) 120 1,354 922 (413) 816 (39) 2,686
</TABLE>
Delphi adopted Statement of Financial Accounting Standards ("SFAS") No.
112, "Employers' Accounting for Postemployment Benefits," effective January 1,
1994. The adoption had an unfavorable cumulative effect of $258 million
after-tax, which is reflected in 1994 net income. For information on special
items impacting 1996 through 1998 operating results, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Special Items and Work Stoppages."
"EBITDA" is defined as income before provision for interest expense and
interest income, income taxes, depreciation and amortization. EBITDA is not
presented as an alternative measure of operating results or cash flow from
operations, as determined in accordance with generally accepted accounting
principles, but because we believe it is a widely accepted indicator of our
ability to incur and service debt. EBITDA does not give effect to cash used for
debt service requirements and thus does not reflect funds available for
dividends, reinvestment or other discretionary uses. In addition, EBITDA as
presented herein may not be comparable to similarly titled measures reported by
other companies.
9
<PAGE> 15
RISK FACTORS
You should carefully consider each of the following risks and all of the
other information set forth in this prospectus before deciding to invest in
shares of our common stock. Some of the following risks relate principally to
our company's separation from General Motors. Other risks relate principally to
our business in general and the industry in which we operate. Finally, other
risks relate principally to the securities markets and ownership of our stock,
including limitations on our ability to complete certain business combinations
and change of control transactions. The risks and uncertainties described below
are not the only ones facing our company. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial may also
adversely affect our business.
If any of the following risks and uncertainties develop into actual events,
our business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced by us described below and elsewhere in this prospectus.
RISK FACTORS RELATING TO SEPARATING OUR COMPANY FROM GENERAL MOTORS
Each of the following are risks to which our company will be subject in
connection with our separation from General Motors.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE DISTRIBUTION IS NOT COMPLETED
Although General Motors has advised us that it currently plans to complete
its divestiture of Delphi during 1999, we cannot assure you as to whether or
when it will occur. GM is not obligated to complete its divestiture of our
common stock. See "Delphi and Its Separation from General Motors." The failure
of the divestiture to occur substantially within the time contemplated, or at
all, would have a material adverse effect on our business. Specifically, we
would likely not realize the benefits described below and in "Delphi and Its
Separation from General Motors--Separation from General Motors--Benefits of the
Separation." Thus, we cannot assure you that we will obtain these benefits or as
to the timing of any such benefits. In addition, the issues discussed in
"--General Motors Will Control All Matters Affecting Our Company Prior to the
Distribution," "--We May Have Potential Business Conflicts of Interest with
General Motors" and "--Certain of Our Directors May Have Conflicts of Interest
Because They Are Also Directors or Executive Officers of General Motors" would
continue to be relevant to our stockholders. Furthermore, so long as GM owns a
significant number of shares of our common stock, there could be a material
adverse effect on the market price of our common stock as described below under
"--Risk Factors Relating to Securities Markets--Substantial Sales of Our Common
Stock Could Adversely Affect the Market Price."
FAILURE TO REALIZE INCREASED SALES TO CUSTOMERS OTHER THAN GENERAL MOTORS
GM will remain our largest customer for a significant period of time and we
will continue to have a variety of contractual relationships with GM, including
the Supply Agreement. We believe that certain automotive vehicle manufacturers
have been concerned that awarding contracts to us would benefit GM and that GM
might obtain access through us to confidential information regarding their
vehicle design and manufacturing processes. Whether or not GM completes its
divestiture of our common stock, we cannot assure you as to the amount or timing
of our sales to customers other than GM. In addition, although we have had
discussions with all of our major non-GM customers regarding our separation from
GM, we do not currently intend to seek consent from such customers to the
assignment of their existing contracts from GM to us or to enter into new
contracts to replace these existing contracts. See "Business of
Delphi--Customers--Other VMs."
10
<PAGE> 16
FAILURE TO REALIZE THE LABOR BENEFITS WE EXPECT FROM OUR SEPARATION FROM
GENERAL MOTORS
In the past, we have been adversely affected by work stoppages and other
labor relations matters, which are discussed under "--Risk Factors Relating to
Our Business--Our Business May Be Adversely Impacted by Work Stoppages and Other
Labor Relations Matters." We expect that our separation from General Motors will
provide certain benefits in this regard, which are discussed under "Business of
Delphi--Strategy--Improve Operating Performance--Labor Relations." However, we
cannot assure you as to when or the extent to which we will be able to achieve
these benefits.
In this regard, our largest union, the UAW, which represents about 29% of
our unionized employees, has stated that it is on record as opposing the
separation of Delphi from GM and that, should GM decide to proceed with the
transaction, the UAW can and will aggressively work to protect the rights and
interests of its members who would be impacted by GM's distribution of Delphi's
common stock to its stockholders. Since that time, GM and the UAW have agreed
that any of our employees who are members of the UAW and who retire on or before
October 1, 1999 will be treated as GM retirees. GM and Delphi have been working
with the UAW and the other unions representing our employees to address the best
interests of their members regarding these matters.
WE MAY INCUR HIGHER COSTS THAN PLANNED IN CONNECTION WITH OUR SEPARATION
FROM GENERAL MOTORS
We may incur costs and expenses, potentially including additional taxes and
employee costs, greater than those we have planned for in connection with our
separation from GM. We cannot assure you that these costs will not be material
to our business. See "--Risk Factors Relating to Our Business--Pensions and
Other Postretirement Employee Benefits Could Adversely Affect Our Liquidity" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GENERAL MOTORS WILL CONTROL ALL MATTERS AFFECTING OUR COMPANY PRIOR TO THE
DISTRIBUTION
After the completion of this offering, GM will own about 82.3% of our
outstanding shares of common stock or about 80.2% if the U.S. underwriters
exercise their over-allotment option in full. As long as GM owns a majority of
our outstanding common stock, GM will continue to be able to elect our entire
Board of Directors and to remove any director, with or without cause, and
generally to determine the outcome of all corporate actions requiring
stockholder approval. As a result, GM will be in a position to continue to
control all matters affecting our company, including:
- the composition of our Board of Directors and, through it, any
determination with respect to the direction and policies of our company,
including the appointment and removal of officers;
- any determinations with respect to mergers or other business combinations
involving our company;
- the acquisition or disposition of assets by our company;
- future issuances of common stock or other securities of our company;
- the incurrence of debt by our company;
- amendments, waivers and modifications to the Supply Agreement and other
agreements providing for our separation from GM;
- the payment of dividends on our common stock; and
- certain determinations with respect to treatment of items in those of our
tax returns which are consolidated or combined with GM's tax returns.
11
<PAGE> 17
After the closing of this offering, we expect that three of our eleven
directors will be directors and/or officers of GM. See "Management--Directors,
Executive Officers and Key Employees of Delphi." Under our Restated Certificate
of Incorporation, our Bylaws and Board policies established thereunder, so long
as GM owns at least a majority of Delphi's outstanding common stock, many
actions by our Board of Directors require the approval of 80% of all our
directors. See "Description of Capital Stock--Certain Provisions of the Restated
Certificate of Incorporation and Bylaws." Thus, in order to take any such
action, the approval of one or more of our directors who are also directors
and/or officers of GM will be required. See also "--Certain of Our Directors May
Have Conflicts of Interest Because They Are Also Directors or Executive Officers
of General Motors."
CERTAIN OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE
ALSO DIRECTORS OR EXECUTIVE OFFICERS OF GENERAL MOTORS
We currently anticipate that, until after GM's divestiture of our common
stock, three members of our Board of Directors will be executive officers of GM.
Two of these GM officers are also directors of GM. For more information about
our Board of Directors both prior to and following GM's divestiture of our
common stock, see "Management--Directors, Executive Officers and Key Employees
of Delphi." Our directors who are also directors or executive officers of GM
will have obligations to both companies and may have conflicts of interest with
respect to matters potentially or actually involving or affecting us, such as
acquisitions, financings and other corporate opportunities that may be suitable
for both us and GM. Our Restated Certificate of Incorporation contains
provisions designed to facilitate resolution of these potential conflicts which
we believe will assist the directors of our company in fulfilling their
fiduciary duties to our stockholders. These provisions do not, however, alter
the fiduciary duty of loyalty of our directors under applicable Delaware law.
Subject to applicable Delaware law, by becoming a stockholder in our company,
you will be deemed to have notice of and have consented to these provisions of
our Restated Certificate of Incorporation. Although these provisions are
designed to resolve such conflicts between us and General Motors fairly, we
cannot assure you that any conflicts will be so resolved. See "Description of
Capital Stock--Certain Provisions of the Restated Certificate of Incorporation
and Bylaws."
CERTAIN OF OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF
INTEREST BECAUSE OF THEIR OWNERSHIP OF GENERAL MOTORS STOCK
Certain of our directors and a number of our executive officers own
substantial amounts of GM stock and options on GM stock. See "Management--Stock
Ownership of Directors and Executive Officers." Although we believe that such
directors and officers will be able to fulfill their fiduciary duties to our
stockholders despite their ownership of GM stock, such ownership could create,
or appear to create, potential conflicts of interest when directors and officers
are faced with decisions that could have different implications for our company
and GM.
WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH GENERAL MOTORS
GM will continue to be our largest customer for a significant period of
time. Unless and until GM completes its divestiture of our common stock, it will
continue to be our controlling stockholder. As a result, conflicts of interest
may arise between us and GM in a number of areas relating to our past and
ongoing relationships, including:
- the nature, quality and pricing of products and services we provide to
GM;
- the nature, quality and pricing of transitional services GM has agreed to
provide us;
- labor, tax, employee benefit and other matters arising from the
separation of our company from GM;
- the incurrence of debt by our company and major business combinations by
our company;
12
<PAGE> 18
- sales or distributions by GM of all or any portion of its ownership
interest in our company;
- business opportunities that may be attractive to both GM and our company;
and
- GM's ability to control the management and affairs of our company.
We cannot assure you that we will be able to resolve any potential conflicts or
that, if resolved, we would not be able to receive more favorable resolution if
we were dealing with an unaffiliated party. The Supply Agreement and the other
agreements we have entered into with GM may be amended from time to time upon
agreement between the parties. For so long as we are controlled by GM, we cannot
assure you that GM would not require us to agree to an amendment to the Supply
Agreement or any other agreement that may be more or less favorable to us than
the current terms of the agreement. Furthermore, our ability to eliminate
product lines, close plants and divest businesses is subject to certain
restrictions set forth in our Supply Agreement with General Motors as described
elsewhere in this prospectus. In addition, our ability to incur indebtedness,
make acquisitions and dispositions and issue stock is subject to the terms of
the IPO and Distribution Agreement with General Motors described elsewhere
herein. See "Arrangements Between Delphi and General Motors."
OUR HISTORICAL FINANCIAL INFORMATION HAS LIMITED RELEVANCE TO OUR RESULTS AS
A SEPARATE COMPANY
The historical financial information we have included in this prospectus
may not reflect what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone entity during the
periods presented or what our results of operations, financial position and cash
flows will be in the future. This is because:
- we have made certain adjustments and allocations since GM did not account
for us as, and we were not operated as, a single stand-alone business for
all periods presented; and
- the information does not reflect many significant changes that will occur
in our funding and operations as a result of our separation from General
Motors, including employee and tax matters.
We cannot assure you that the adjustments and allocations we have made in
preparing our historical consolidated financial statements appropriately reflect
our operations during such period as if we had in fact operated as a stand-alone
entity or what will be the actual effect of our separation from GM. Accordingly,
we cannot assure you that our historical results of operations are indicative of
our future operating or financial performance. For additional information, see
"Selected Financial Data," "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL AND LIQUIDITY REQUIREMENTS
A substantial portion of our cash flows from operations will be dedicated
to meet our pension funding obligations and to the payment of principal and
interest on our indebtedness from time to time. As a result of these
obligations, our liquidity position may be adversely affected if we fail to
realize our expected cash flows from operations. In addition, under the Supply
Agreement, the timing of payments from GM to us under existing contracts will
change. For a discussion of these and other factors affecting our liquidity, you
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." See also "--Risk
Factors Relating to Our Business--Pensions and Other Postretirement Employee
Benefits Could Adversely Affect Our Liquidity."
Our working capital requirements and cash flow provided by operating
activities can vary greatly from quarter to quarter, depending on the volume of
production, the payment terms with our customers and suppliers and the build-up
of inventories. We cannot assure you that we will be able to meet our future
capital requirements in the same manner and on the same terms as we did when we
were a part of GM. Until recently, our working capital needs were managed by GM
pursuant to its corporate-wide cash management
13
<PAGE> 19
policies. However, effective January 1, 1999, General Motors stopped providing
funds to finance our operations and we began to manage our own working capital
needs. We expect that since our credit rating is lower than GM's, we will not be
able to obtain financing with interest rates and terms as favorable as those
obtained by GM.
WE ARE SUBJECT TO CERTAIN CONTRACTUAL LIMITATIONS WHICH COULD LIMIT THE
CONDUCT OF OUR BUSINESS
Before we complete this offering, we will enter into an agreement with
General Motors that will contain a number of restrictive covenants that,
individually or in the aggregate, could materially limit the way in which we
conduct our business and our ability to pursue our business objective. These
covenants will, among other things, limit our ability to complete acquisitions
and divestitures, incur indebtedness and issue capital stock. These covenants
generally expire either at such time, if any, as GM completes its divestiture of
our common stock or two years thereafter. In addition, the Supply Agreement with
GM limits our ability to eliminate product lines, close plants and divest
businesses. These restrictions also could have a material adverse effect on our
company and your investment in our company. For more information about these
restrictions, see "Arrangements Between Delphi and General Motors--IPO and
Distribution Agreement" and "--Supply Agreement."
RISKS ASSOCIATED WITH OUR RELIANCE ON GENERAL MOTORS FOR TRANSITIONAL
SERVICES
We have never operated as a stand-alone company. While General Motors is
contractually obligated to provide us with certain transitional services, we
cannot assure you that such services will be sustained at the same level as when
we were part of General Motors or that we will obtain the same benefits. We will
also lease and sub-lease certain office and manufacturing facilities from GM. We
cannot assure you that, after the expiration of these various arrangements, we
will be able to replace the transitional services or enter into appropriate
leases in a timely manner or on terms and conditions, including cost, as
favorable as those we will receive from GM.
These agreements were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of our separation from
GM. The prices charged to us under these agreements may be higher or lower than
the prices that may be charged by unaffiliated third parties for similar
services. For more information about these arrangements, see "Arrangements
Between Delphi and General Motors."
RISK FACTORS RELATING TO OUR BUSINESS
Each of the following are risks to which our business is subject, including
risks relating to the industry in which we operate, which do not principally
relate to our separation from General Motors.
WE ARE DEPENDENT ON GENERAL MOTORS AS OUR LARGEST CUSTOMER
GM accounted for about 84.1%, 83.5% and 81.7% of our total sales in 1995,
1996 and 1997, respectively. For this purpose, total sales include all of the
sales from joint ventures and other investments in which we own a minority
interest that are not reflected in our consolidated sales. Although we expect
that GM will continue to be our largest customer for a significant period of
time, our ability to realize future sales to GM is subject to a number of risks.
These risks include uncertainties relating to our business under the Supply
Agreement that we have entered into with GM, which is described under
"Arrangements Between Delphi and General Motors--Supply Agreement." In addition,
the uncertainties that we identify in this prospectus as being generally
applicable to supplier-customer relationships in our industry will be heightened
in the case of our relationship with GM because it is our largest customer.
Accordingly, we cannot assure you as to the amount of our future business with
GM. See "--We May Be Unable to Realize All of the Sales Represented By Our
Awarded Business."
Under the terms of the Supply Agreement, our existing contracts with GM as
of January 1, 1999 will generally remain in effect, although GM has certain
rights to move business from us to other suppliers. The Supply Agreement also
requires GM to provide us the opportunity to supply on competitive terms the
first
14
<PAGE> 20
replacement cycle of certain product programs. However, in order to utilize this
ability to secure next generation business, we must be competitive. Other
suppliers' bids to provide particular products may include offers of price
reductions to GM on other current or future products, and GM may under the
Supply Agreement consider the overall economic effect of such package proposals
in assessing our competitiveness.
Except for the arrangements with respect to the first replacement cycle of
certain product programs, if we elect to bid for GM's business, we will do so on
the same basis as all other suppliers. While we intend to continue to focus on
retaining and winning GM's business and we believe that we will continue to be
able to compete effectively for this business, we cannot assure you in this
regard. See "Business of Delphi--Customers--General Motors."
OUR BUSINESS MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER LABOR
RELATIONS MATTERS
We are subject to a risk of work stoppages and other labor relations
matters because our hourly workforce is highly unionized. As of September 30,
1998, about 96% of our hourly workforce was represented by unions. These
employees are represented by about 53 unions, including the UAW, which is our
largest union. The national labor agreements negotiated by GM with the unions
currently apply to our workforce and will continue to apply to our workforce
after the offering. This means that, in the United States, the majority of our
workers are currently paid at hourly wage rates similar to those paid to GM
workers rather than the lower rates we believe are generally prevailing in the
automotive parts industry. We will assume the terms of these national agreements
for our employees in connection with GM's distribution of its shares of our
common stock to its stockholders.
We experienced work stoppages at certain of our facilities in each of 1996,
1997 and 1998. The 1996 and 1998 work stoppages each had a significant adverse
impact on our net income. These work stoppages and work stoppages at GM's
facilities had an unfavorable impact of $281 million on our 1996 net income and
$560 million on our net income for the nine months ended September 30, 1998. The
1997 work stoppage lasted only one day. We cannot assure you that issues with
our labor unions will be resolved favorably to us in the future, that we will
not experience significant work stoppages in future years or that we will not
record significant charges related to those work stoppages.
In the past we have been adversely affected by work stoppages that have led
to the shutdown of GM's assembly plants. Strikes by the UAW, including at one of
our facilities, led to the shutdown of most of GM's North American assembly
plants in June and July 1998. In the event that one or more of our customers,
including GM, experiences a material work stoppage, such work stoppage may have
a resulting effect on our company, including the possible shutdown of our
production lines related to such customers, which could have a material adverse
impact on our business.
For more information about our labor relations, see "--Risk Factors
Relating to Separating Our Company from General Motors--Failure to Realize the
Labor Benefits We Expect from Our Separation from General Motors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business of Delphi--Employees; Union Representation."
WE MAY BE UNABLE TO REALIZE ALL OF THE SALES REPRESENTED BY OUR AWARDED
BUSINESS
We believe that we currently have a solid foundation of future business
that has been awarded to us by GM and other customers at various stages of the
vehicle development cycle. However, the realization of future sales from awarded
business is inherently subject to a number of important risks, including
uncertainties as to the number of vehicles that our customers will actually
produce, the timing of that production and the mix of options that our customers
and consumers may choose. In addition, our customers generally have the right to
replace us with another supplier at any time for a variety of reasons.
Accordingly, we cannot assure you that we will in fact realize all of the future
sales represented by our awarded business. For more information, see "Business
of Delphi--Overview--Our Sales and Awarded Business" and "--Industry--Awarded
Business."
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<PAGE> 21
WE MAY BE UNABLE TO CAPTURE BUSINESS WITH CUSTOMERS OTHER THAN GM-NORTH
AMERICA
An important part of our business strategy is to increase our sales to
vehicle manufacturers other than GM's North American operations, including,
among others, GM's international operations. We will need to do this in order to
offset the expected decline in our sales to GM's North American operations.
While we believe that our complete separation from GM will enhance our ability
to expand our revenue base through additional sales to customers other than GM,
we cannot assure you that this will happen. Our ability to achieve significant
growth through sales to these customers will depend on the success of our
separation from GM and on several other factors, including:
- our ability to provide high-quality products at competitive prices,
including integrated components, systems and modules, which vehicle
manufacturers are increasingly seeking from their suppliers;
- our ability to develop technologically advanced products;
- our ability to develop new products to meet changing regulatory
requirements and consumer preferences;
- our ability to exploit and expand our global presence to meet vehicle
manufacturers' needs for products in many geographic markets around the
world;
- our ability to meet changing vehicle manufacturer supply requirements on
a timely and cost-efficient basis through lean, flexible operations; and
- other vehicle manufacturers' willingness to share with us confidential
information necessary for us to provide them with more fully-engineered,
integrated systems and modules that require longer lead times to design
and manufacture.
Even if we are successful in expanding our sales to other customers, such sales,
if any, will likely not be realized, if at all, for several years because the
majority of vehicle manufacturer parts purchases for the next several years have
already been sourced.
WE MAY BE UNABLE TO REALIZE OUR BUSINESS STRATEGY OF IMPROVING OUR
OPERATING PERFORMANCE
We have implemented several important strategic initiatives designed to
improve our operating performance. We cannot assure you that we will be able to
successfully implement or realize the expected benefits of any of these
initiatives or that we will be able to sustain improvements made to date. Such
failure could have a material adverse effect on our business, particularly since
we rely on these initiatives to offset pricing pressures from our customers.
These initiatives are subject in many cases to participation by labor unions and
other third parties, including GM, which has certain contractual rights with
respect to our plant closures, product line eliminations and divestitures of
businesses under the IPO and Distribution Agreement and the Supply Agreement.
See "Business of Delphi--Strategy--Improve Operating Performance."
WE MAY ENCOUNTER DIFFICULTIES COMPETING IN THE HIGHLY COMPETITIVE
AUTOMOTIVE PARTS INDUSTRY
The automotive parts industry is highly competitive. We compete with a
number of independent automotive parts suppliers and units of major VMs in the
United States and internationally that produce components, systems and modules
for sale to VMs and in the aftermarket as replacement parts. Although the
overall number of our competitors has decreased due to ongoing industry
consolidation, we face significant competition within each of our major product
areas, including some competitors which have substantial size and scale and some
of which have lower cost structures, particularly lower hourly wage structures,
than our company. In addition, there is no contractual prohibition preventing GM
from competing with us in the future. For more information about the automotive
parts industry and our competitors, see "Business of Delphi--Industry" and
"--Competition."
We principally compete for business at the beginning of the sourcing
process for vehicle models that vehicle manufacturers plan to introduce to the
market in later years and upon the redesign of existing vehicle models. Vehicle
manufacturers rigorously evaluate suppliers on the basis of product quality,
price
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<PAGE> 22
competitiveness, reliability and timeliness of delivery, product design
capability, technical expertise and development capability, new product
innovation, leanness of facilities, operational flexibility, customer service
and overall management. We cannot assure you that we will be able to compete
favorably based on these or other criteria or that increased competition in our
markets will not have a material adverse effect on our business.
CYCLICALITY AND REGIONAL ECONOMIC ISSUES COULD ADVERSELY AFFECT OUR
BUSINESS
Almost all of our business is directly related to automotive sales and
production by our customers, which are highly cyclical and depend on general
economic conditions and other factors, including consumer spending and
preferences. Any significant reduction in automotive production and sales by our
customers would have a material adverse effect on our business.
We have substantial operations in every major region of the world and
economic conditions in these regions often differ. The recent economic downturn
in Asia and in Brazil and other regions of Latin America, including Mexico, has
led to a reduction in demand for automotive vehicles and their component parts
in those areas and has had an adverse effect on our financial results in 1998.
To the extent that these conditions continue or worsen, or spread to other
regions, particularly the United States, our business will continue to be
adversely affected.
PENSIONS AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS COULD ADVERSELY AFFECT
OUR LIQUIDITY
In connection with our separation from General Motors, we have agreed to
assume certain obligations relating to pensions and other postretirement
employee benefits (principally medical benefits) for our employees as well as
for certain employees associated with prior divestitures. We expect that our
pension contributions will be material to our results of operations and
financial condition, and, under certain circumstances, we could be required to
make a significant payment to GM in connection with the allocation of other
postretirement employee benefits.
We will receive from GM certain assets and liabilities related to GM
salaried and hourly pension plans. Our pension obligations are based on these
pension plans' assets, the expected investment return on those assets and the
plans' expected liabilities. Under current economic conditions and the financial
assumptions required by federal government regulations, our pension obligations
would as of January 1, 1999 be considered to be "underfunded." Because of the
underfunded nature of our pension plans, federal regulations will require that
our contributions over time meet certain minimum funding requirements. In
addition, although we are not required to do so, we have commenced discussions
with the Pension Benefit Guaranty Corporation regarding the underfunded nature
of our pension plans. In connection with these discussions, the Pension Benefit
Guaranty Corporation may request that we take actions in excess of federal
regulatory minimum requirements. The outcome of these discussions is as yet
uncertain, but if any actions in excess of federal regulatory minimum
requirements are discussed, we intend to seek to maintain sufficient financial
flexibility in order to execute our business strategy. In any event, regardless
of the outcome of our discussions with the Pension Benefit Guaranty Corporation,
we expect these contributions to be material to our results of operations and
financial condition, and they are discussed in greater detail under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Our Other Postretirement Employee Benefits and Underfunded Pension
Obligations."
In addition, we and GM have agreed with two of our principal unions that
any of our hourly employees who are members of such unions and who retire on or
before October 1, 1999 will be treated as GM employees for purposes of
postretirement benefit obligations. The allocation of pension and other
postretirement benefit obligations between us and GM assumes certain levels of
employee retirements prior to October 1, 1999, based on historical experience
and conditions surrounding GM's divestiture of our company. We have agreed with
GM to recalculate the allocation of those liabilities based on the actual level
of retirements on or before October 1, 1999. Accordingly, if and to the extent
that greater than the assumed number of our employees retire on or before
October 1, 1999, we would be required to make a payment to GM. Depending on the
17
<PAGE> 23
amount of such a payment, if any, it could have a material adverse effect on our
short-term liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and "--Our
Other Postretirement Employee Benefits and Underfunded Pension Obligations."
WE MAY BE UNABLE TO OFFSET ALL OF THE COST REDUCTIONS WE MUST PROVIDE TO
OUR CUSTOMERS
There is substantial and continuing pressure from vehicle manufacturers to
reduce costs, including the cost of products purchased from outside suppliers
such as our company. As a result, suppliers are forced to reduce prices both in
the initial bidding process and during the term of the contractual arrangements.
Certain of our products are sold under long-term agreements that require us to
provide certain percentage cost reductions each year. These annual cost
reductions are made directly through price reductions and/or indirectly through
suggestions regarding manufacturing efficiencies or other cost savings. Our
contracts with General Motors generally contain these types of provisions. Price
reductions as a percentage of net sales were 1.8%, 3.0% and 2.3% in 1995, 1996
and 1997, respectively. Also, vehicle manufacturers often seek further price
reductions on existing contracts with a supplier in the context of awarding new
business to that supplier. In addition, our ability to pass increased raw
material costs on to our customers is limited, with cost recovery generally less
than 100% and often on a delayed basis.
We cannot assure you that we will be able to generate cost savings and
operational improvements in the future sufficient to offset contractually
required price reductions, price reductions necessary to win additional business
and increases in raw material costs. As a result, our gross margins could be
adversely affected. For more information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--Net Sales."
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We have significant operations outside the United States, including joint
ventures and other strategic alliances. Certain risks are inherent in
international operations, including:
- the difficulty of enforcing agreements and collecting receivables through
certain foreign legal systems;
- foreign customers may have longer payment cycles than customers in the
United States;
- tax rates in certain foreign countries may exceed those of the United
States and foreign earnings may be subject to withholding requirements or
the imposition of tariffs, exchange controls or other restrictions;
- general economic and political conditions in the countries where we
operate may have an adverse effect on our operations in those countries;
- the difficulties associated with managing a large organization spread
throughout various countries;
- required compliance with a variety of foreign laws and regulations; and
- the potential difficulty in enforcing intellectual property rights in
certain foreign countries.
As we continue to expand our business globally, our success will be dependent,
in part, on our ability to anticipate and effectively manage these and other
risks. We cannot assure you that these and other factors will not have a
material adverse effect on our international operations or on our business as a
whole.
As a result of our international operations, we generate a significant
portion of our revenues and incur a significant portion of our expenses in
currencies other than U.S. dollars. To the extent we are unable to match
revenues received in foreign currencies with costs paid in the same currency,
exchange rate fluctuations in any such currency could have a material adverse
effect on our business. For example, in Mexico, we have significantly more costs
than revenues generated in Mexican pesos since much of our production in Mexico
is sold in the United States. In contrast, in many European countries, we have
more revenues denominated in local currencies than costs. Thus, we are at risk
with respect to our Mexican operations in the event of the
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depreciation of the U.S. dollar against the Mexican peso and with respect to our
European operations in the event of the appreciation of the U.S. dollar against
various local currencies or the euro. We seek to mitigate the effect of exchange
rate fluctuations through the use of foreign currency borrowings and derivative
financial instruments, such as forward exchange contracts, although we have not
engaged in any hedging transactions with respect to the Mexican peso. We cannot
assure you that our efforts to mitigate these effects will be successful in the
future. At present, fluctuations in the U.S. dollar, Mexican peso, French franc,
Spanish peseta, German mark and South Korean won have the greatest impact on our
financial performance. As our business grows in China and other countries, we
will become subject to greater risks related to the local currencies. The impact
on our financial performance is affected not only by the currency fluctuations
but also by the terms of our agreements with customers and any joint venture
partners. In many foreign jurisdictions, we have minority interests and other
investments such that the financial results of our activities are not
consolidated in our financial statements.
The financial condition and results of operations of certain of our
operating entities are reported in various foreign currencies and then
translated into U.S. dollars at the applicable exchange rate for inclusion in
our consolidated financial statements. As a result, appreciation of the U.S.
dollar against these foreign currencies will have a negative impact on our
reported revenues and operating profits. Conversely, depreciation of the U.S.
dollar against these foreign currencies will have a positive impact on our
reported revenues and operating profit. For information about the impact of
foreign currency translation on our financial condition, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 2 to our audited consolidated financial statements included elsewhere in
this prospectus. We generally do not seek to mitigate this translation effect
through the use of derivative financial instruments.
WE MAY BE UNABLE TO COMPLETE STRATEGIC ACQUISITIONS, JOINT VENTURES AND
ALLIANCES
There are risks associated with our business strategy to acquire, make
investments in, or enter into joint ventures or other strategic alliances with,
companies whose businesses complement our business. We may not be able to
identify suitable candidates to acquire or enter into joint ventures or other
arrangements with or we may not be able to obtain financing on satisfactory
terms for such activities. In addition, if we acquire a company, we could have
difficulty assimilating the personnel and operations of the acquired company,
which would prevent us from realizing expected synergies. This could disrupt our
ongoing business and distract our management and other resources. We cannot
assure you that we would succeed in overcoming these risks or any other problems
in connection with any acquisitions we may make or joint ventures we may enter
into.
For a period generally ending two years after such time, if any, as GM
completes its divestiture of our common stock, we are subject to certain
contractual restrictions which may limit our ability to make acquisitions or
enter into joint ventures or other strategic alliances. For a discussion of
these restrictions, see "Arrangements Between Delphi and General Motors--IPO and
Distribution Agreement--Preservation of the Tax-Free Status of the Distribution"
and "--Other Delphi Covenants." In addition, in connection with several of our
past divestitures, we have entered into covenants not to compete in areas
generally related to the divested product line for limited periods of time.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY PRODUCT LIABILITY CLAIMS THAT MAY
BE BROUGHT AGAINST US
We face an inherent business risk of exposure to product liability claims
in the event that the failure of our products results, or is alleged to result,
in bodily injury and/or property damage. We cannot assure you that we will not
experience any material product liability losses in the future or that we will
not incur significant costs to defend such claims. We are currently covered by
GM's insurance against product liability claims, which coverage will continue
until the earlier of GM's divestiture of our common stock and January 1, 2000.
We expect to purchase product liability insurance coverage to be effective at
the time such GM coverage ceases. However, we cannot assure you that such
coverage will be adequate for liabilities ultimately incurred or that it will
continue to be available on terms acceptable to us. In addition, if any of our
products are or are alleged to be defective, we may be required to participate
in a recall involving such products. Each
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vehicle manufacturer has its own policy regarding product recalls and other
product liability actions relating to its suppliers. However, as suppliers
become more integrally involved in the vehicle design process and assume more of
the vehicle assembly functions, vehicle manufacturers are increasingly looking
to their suppliers for contribution when faced with product liability claims. A
successful claim brought against us in excess of our available insurance
coverage or a requirement to participate in a product recall may have a material
adverse effect on our business.
Although General Motors has agreed to retain all product liability
responsibility for products we manufactured prior to January 1, 1999 and sold or
otherwise supplied to GM either before or after that date, we will be
responsible for all product liability actions relating to products we sold at
any time or sell in the future to customers other than GM. In addition,
responsibility for product liability actions relating to products we manufacture
on or after January 1, 1999 and sell to GM shall be determined in accordance
with the agreements for such sales. For more information, see "Arrangements
Between Delphi and General Motors--Separation Agreement--Claims and
Litigation--Product Liability."
WE MAY INCUR MATERIAL COSTS IN CONNECTION WITH OUR RESPONSIBILITY FOR
PRODUCT WARRANTIES
Vehicle manufacturers are increasingly requiring their outside suppliers to
guarantee or warrant their products and to bear the costs of repair and
replacement of such products under new vehicle warranties. Because this is a new
trend in our industry and we have only limited experience in this regard, we
cannot assure you that our costs associated with providing product warranties
will not be material. See "Business of Delphi--Legal Proceedings." For a
description of our warranty arrangements with GM with respect to both existing
contracts and new business, see "Arrangements Between Delphi and General
Motors--Warranty Matters."
WE MAY BE ADVERSELY AFFECTED BY THE ENVIRONMENTAL AND SAFETY REGULATIONS TO
WHICH WE ARE SUBJECT
We are subject to the requirements of federal, state and local
environmental and occupational safety and health laws and regulations in the
United States and other countries. We cannot assure you that we have been or
will be at all times in complete compliance with all such requirements or that
we will not incur material costs or liabilities in connection with such
requirements in excess of amounts we have reserved. In addition, these
requirements are complex, change frequently and have tended to become more
stringent over time, and we cannot assure you that these requirements will not
change in the future in a manner that could have a material adverse effect on
our business. We have made and will continue to make capital and other
expenditures to comply with environmental requirements. For more information
about our environmental compliance and potential environmental liabilities, see
"Business of Delphi--Environmental Matters."
WE MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 AND OTHER INFORMATION
TECHNOLOGY ISSUES
We use software and related computer technologies essential to our
operations that use two digits rather than four to specify the year, which could
result in a date recognition problem with the transition to the year 2000. We
have established a plan to identify and remediate potential Year 2000 problems
in our business information systems, infrastructure and production and
manufacturing sites. We have substantially completed an inventory of potentially
date-sensitive systems and we are currently focused on the remediation and
testing phases of our Year 2000 program. We have also begun surveying our
suppliers and service providers for Year 2000 compliance. The implementation of
new enterprise software that will avoid the need for remediation of certain
software is not scheduled to be completed until July 1999 at one of our
principal product group sites. For more information regarding our Year 2000
program, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
We currently believe that the most reasonably likely worst case scenario is
that there will be some localized disruptions of systems that will affect
individual business processes, facilities or suppliers for a short time rather
than systemic or long-term problems affecting our business operations as a
whole. Our contingency
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planning will continue to identify systems, or other aspects of our business or
that of our suppliers, that we believe would be most likely to experience Year
2000 problems, as well as those business operations in which a localized
disruption could have the potential for causing a wider problem by interrupting
the flow of products, materials or data to other operations. Because there is
uncertainty as to which activities may be affected and the exact nature of the
problems that may arise, our contingency planning will focus on minimizing the
scope and duration of any disruptions by having sufficient personnel, inventory
and other resources in place to permit a flexible, real-time response to
specific problems as they may arise at individual locations around the world.
There is still uncertainty about the broader scope of the Year 2000 issue
as it may affect our company and third parties, including our suppliers and
customers, that are critical to our operations. For example, lack of readiness
by electrical and water utilities, financial institutions, governmental agencies
or other providers of general infrastructure could, in some geographic areas,
pose significant impediments to our ability to carry on our normal operations in
the area or areas so affected. In the event that we are unable to complete our
remedial actions and are unable to implement adequate contingency plans in the
event that problems are encountered, there could be a material adverse effect on
our business, results of operations or financial condition.
We also are in the process of implementing throughout our global operations
on an incremental basis a new enterprise software system that will replace the
existing software systems. We believe this new system will provide us
opportunities to realize cost savings throughout our operations and we expect
multi-phase implementation of this system to be completed within about five
years. In the event we are unable to successfully implement this new system, it
could have a material adverse effect on our business. Also, we cannot assure you
that we will be able to achieve the cost savings we expect to result from the
implementation of this new software system. For more information about this new
software system, see "Business of Delphi--Information Technology."
RISK FACTORS RELATING TO SECURITIES MARKETS
Each of the following are risks relating to securities markets that you
should consider in connection with your investment in and ownership of our
stock. These risks include limitations on our ability to execute certain
business combinations and change of control transactions.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET
PRICE
Sales by GM or others of substantial amounts of our common stock in the
public market or the perception that such sales might occur--whether as a result
of a distribution to GM stockholders, pursuant to the exercise of registration
rights or otherwise--could have a material adverse effect on the price of our
common stock. After this offering, GM will own 465,000,000 shares of our common
stock. If GM distributes these shares to its stockholders, they would be
eligible for immediate resale in the public market, other than any held by
affiliates of Delphi. We cannot predict whether substantial amounts of our
common stock will be sold in the open market in anticipation of, or following,
any distribution of our shares by GM to its stockholders. GM has the sole
discretion to determine the timing, structure and all terms of its distribution
of our common stock, all of which may also affect the level of market
transactions in our common stock. In addition, if GM does not distribute to its
stockholders all of the shares of Delphi common stock that GM owns, GM and its
transferees will have the right to require us to register such shares of our
common stock under the Securities Act for sale into the public market. See
"Arrangements Between Delphi and General Motors--Registration Rights Agreement."
CERTAIN PROVISIONS COULD DELAY OR PREVENT A CHANGE IN CONTROL OF OUR
COMPANY
Our Restated Certificate of Incorporation and Bylaws contain certain
provisions that may make the acquisition of control of our company more
difficult, including provisions relating to the nomination, election and removal
of directors, limitations on actions by our stockholders and restrictions on
business combinations
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with 10% stockholders. In addition, our preferred share purchase rights would
cause substantial dilution to any person or group who attempts to acquire a
significant interest in our company without advance approval from our Board of
Directors. Delaware law also imposes certain restrictions on mergers and other
business combinations between us and any holder of 15% or more of our
outstanding common stock. General Motors is generally exempted from these
provisions and will have special rights so long as it owns at least a majority
of our outstanding common stock. For more information, see "Description of
Capital Stock."
In connection with this offering, Delphi intends to enter into change in
control agreements with certain of its officers that will provide such officers
with monetary compensation and certain other benefits upon a change in control
of our company and the occurrence of one of several events specified in the
agreements within three years of the change in control. The existence of these
agreements could delay or prevent a change in control of our company. For a
description of the change in control agreements, see "Management--Change in
Control Agreements."
OUR SUPPLY AGREEMENT WITH GENERAL MOTORS MAY BE TERMINATED IF THERE IS A
CHANGE IN CONTROL OF OUR COMPANY
Our Supply Agreement with General Motors may be terminated by General
Motors if 35% or more of our company becomes owned or controlled by a competitor
of General Motors in the business of manufacturing automotive vehicles.
Termination of the Supply Agreement would likely have a material adverse effect
on our company. In addition to any consequences under the Supply Agreement, some
of our underlying contracts with GM allow GM to terminate these contracts for
convenience at any time for any reason. This right could be exercised by GM in
connection with any change in control of Delphi. The majority of the contracts
including termination for convenience provisions are shorter-term purchase
orders. Certain change in control transactions could also give GM the right to
terminate underlying contracts pursuant to the provisions prohibiting us from
assigning our contracts to another entity. For more information, see
"Arrangements Between Delphi and General Motors--Supply Agreement."
POSSIBLE VOLATILITY OF OUR STOCK PRICE FOLLOWING THE OFFERING
The market price of our common stock could be subject to significant
fluctuations in response to our operating results, changes in earnings estimated
by securities analysts or our ability to meet those estimates, publicity
regarding the automotive industry in general or any of our significant
customers, including General Motors, and other factors. Some or all of these
factors may be beyond our control. In particular, the realization of any of the
risks described in these "Risk Factors," including the possibility of
substantial sales of our common stock and the timing, structure and terms of
GM's divestiture of its shares of our common stock could have a significant and
adverse impact on the market price of our common stock. In addition, the stock
market in general has experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common stock.
In particular, we cannot assure you that you will be able to resell your shares
at or above the initial public offering price, which will be determined through
negotiations among us, GM and the underwriters. You should read the
"Underwriters--Pricing of the Offering" section of this prospectus for a more
complete discussion of the factors to be considered in determining the initial
public offering price.
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DELPHI AND ITS SEPARATION FROM GENERAL MOTORS
DELPHI'S HISTORY
We are currently a wholly owned subsidiary of General Motors. Our company
was incorporated in Delaware in late 1998 in preparation for the Offering and
our separation from General Motors. Effective as of January 1, 1999, we acquired
those assets, and assumed those liabilities, comprising the business of the
Delphi Automotive Systems business sector of GM, in each case to the extent
agreed to by GM and us and described elsewhere in this prospectus.
Before 1991, Delphi's business was conducted by many separate automotive
parts operations which GM had acquired over time, beginning in the early
twentieth century, as it increased its vertical integration. GM acquired these
operations principally to assure itself of a sufficient and high-quality supply
of automotive parts for the vehicles it produced. These operations were
generally managed independently from each other within the GM organization.
In 1991, General Motors organized its components businesses into the
Automotive Components Group. GM's stated objective was to improve the
competitiveness of these operations and then, based on this improved competitive
position, increase its business through penetration of new markets. In 1995, the
group was given the name "Delphi Automotive Systems" in order to establish its
separate identity in the automotive parts industry.
In late 1997, in connection with the spin-off by GM of its defense
electronics business, GM transferred Delco Electronics to us in order to more
closely integrate Delco Electronics' expertise in electronics with our
capabilities in automotive components and systems. Our Electronics & Mobile
Communication sector consists of the operations of our Delco Electronics
subsidiary. From 1986 through 1997, Delco Electronics was operated by GM's
Hughes Electronics Corporation subsidiary, which is a leader in satellite and
wireless communications and space technology and was at that time also a leading
defense electronics company. Unless we have indicated otherwise, the information
contained in this prospectus assumes that Delco Electronics has been a part of
our company for all periods presented.
SEPARATION FROM GENERAL MOTORS
GM'S PLAN TO DIVEST DELPHI. After completion of this offering of our common
stock (the "Offering"), GM will own about 82.3% of the outstanding shares of our
common stock or about 80.2% if the U.S. underwriters exercise their
over-allotment option in full. GM has announced that it currently plans to
complete its divestiture of our company later in 1999 by distributing all of its
shares of Delphi common stock to the holders of GM's $1 2/3 common stock. GM
expects to accomplish this through a split-off, a spin-off or some combination
of both transactions. We refer to this distribution, in whatever form it may
take, as the "Distribution." For more information, see "Prospectus
Summary--Relationship With General Motors."
GM has advised us that it has not yet determined definitively either when
it expects to complete the Distribution or the structure or terms on which it
would accomplish the Distribution. However, GM has advised us that it believes
it would be desirable to have an intervening period of several months between
the Offering and the Distribution, and that GM accordingly does not currently
expect that it would complete the Distribution prior to mid-1999.
GM has also advised us that, based on its current plans, in the event it
decides to effect the Distribution through a split-off exchange offer and not
enough of its $1 2/3 common stockholders tender their shares to enable GM to
divest itself of all of its shares of our common stock, it would distribute its
remaining shares of Delphi common stock to the holders of GM's $1 2/3 common
stock in a spin-off.
As noted above, GM is not obligated to complete the Distribution and we
cannot assure you as to whether or when it will occur. See "Risk Factors--Risk
Factors Relating to Separating Our Company from General Motors--Our Business May
Be Adversely Affected if the Distribution Is Not Completed."
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GM has also advised us that it would not complete the Distribution if its
Board of Directors determines that the Distribution is no longer in the best
interests of General Motors and its stockholders. GM has further advised us that
it currently expects that the principal factors that it would consider in making
this \determination, as well as the principal factors that it would consider in
making the determination as to the timing, structure and terms of the
Distribution, would be:
- the market price of the Delphi common stock;
- the market price of GM's $1 2/3 common stock;
- satisfaction that the Distribution will be tax-free to GM and its
shareholders and as to the other tax consequences of the transactions;
- the absence of any court orders or regulations prohibiting or restricting
the completion of the Distribution; and
- other conditions affecting the businesses of Delphi or GM that make it no
longer in the best interests of such businesses to be fully separated.
On January 13, 1999, GM received a private letter ruling from the IRS to the
effect that the Distribution would be tax-free to GM and its stockholders for
U.S. federal income tax purposes.
BACKGROUND OF THE SEPARATION. Historically, many large automotive vehicle
manufacturers, which we sometimes refer to as "VMs", have relied on in-house
components divisions to fill their supply needs. Over the past few decades,
however, the automotive industry has moved away from such vertical integration.
Instead, VMs have moved towards sourcing a substantial portion of a vehicle's
parts from independent suppliers and purchasing more fully-engineered,
integrated systems and modules rather than individual components. As a result,
VMs are now requiring their suppliers to perform many of the design, engineering
and assembly functions traditionally executed by VMs. The degree to which VMs
source from independent, outside suppliers varies by VM.
General Motors began reducing its vertical integration several years ago by
adopting a global sourcing program. We believe that this initiative was designed
to leverage GM's purchasing power and reduce its purchasing costs by enhancing
competition for its business among its suppliers on the basis of quality,
service, technology and price. As a result of the completion of the
Distribution, GM would substantially reduce its vertical integration.
BENEFITS OF THE SEPARATION. We believe that we will realize certain
benefits from our complete separation from General Motors. As an independent
company, we expect to be better able to expand our revenue base through sales to
major VM customers other than GM. We also believe that, as a fully independent
company after the completion of the Distribution, we will be better able, over
time, to establish more flexible local work rules and practices through improved
labor relations, thereby increasing our competitiveness. These and other
benefits of the separation are discussed further below.
- Increased Non-GM Sales. We believe that one of the most significant
limitations on our ability to expand our sales to major VMs other than GM
is a general reluctance by such VMs to source from a supplier owned by
GM. Other major VMs have shown varying degrees of reluctance to source
extensively from a supplier owned by GM since GM, one of their major
competitors, may be strengthened by the related profits. In addition, we
believe that many major VMs remain reluctant to source from us because
they fear that GM might obtain access through us to confidential
information regarding their vehicle designs and manufacturing processes.
This is particularly important as suppliers are increasingly performing
more of the vehicle design and assembly functions traditionally executed
by VMs and are thus involved earlier in the design and development stages
of vehicles. Notwithstanding our strict confidentiality pledge and
procedures to preserve customer confidentiality, which to our knowledge
have never been breached, we believe that we will remain at a competitive
disadvantage in pursuing sales opportunities with major VMs other than GM
while we are owned by
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GM. We believe that if we are established as a fully independent company,
we will, over time, be able to substantially grow our sales to VMs other
than GM. See "Risk Factors--Risk Factors Relating to Our Business--We May
Be Unable to Capture Business with Customers Other Than GM-North
America."
- Improved Labor Relations. We believe that our complete separation from
General Motors will provide us with the opportunity to improve our labor
relations and, over time, establish more flexible local work rules and
practices. While we have been a part of GM, the national labor agreements
negotiated by GM with the unions have applied to our workforce in the
United States and Canada. As a fully independent company with control of
our own labor relations after the Distribution, we believe that we would
have the right to negotiate regarding our own national and local labor
agreements directly with the unions representing our employees. Our
intent is to base such negotiations on a management-union relationship
focused on sharing information, growing non-GM revenues and satisfying
the automotive parts supply requirements of multiple VMs around the
world. We further anticipate that by having control of our labor
relations we will, over time, be able to negotiate local work rules and
practices and other terms more consistent with those generally prevailing
in the automotive parts industry. We believe that this would enhance our
overall operational competitiveness. However, we cannot assure you as to
when or the extent to which we will realize these benefits.
GM has informed us that it has satisfactorily completed discussions
with the International Union of Electronic, Electrical, Salaried, Machine
& Furniture Workers AFL-CIO (the "IUE"), one of the principal unions
representing our employees, regarding the effects of the separation on its
members. As a result of these discussions, the IUE has recognized that,
upon Delphi's separation from GM, Delphi will be an independent company
with its own national and local agreements with the IUE. GM has informed
us that initial discussions with the United Steel Workers of America (the
"USW") regarding the effects of the separation on its members were held on
December 8, 1998 and that further discussions will be held with the USW.
Similar discussions are expected to occur with the other unions
representing our employees, but we cannot assure you as to when they will
occur or as to the outcome. In this regard, our largest union, the
International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (the "UAW"), which represents about 29% of
our unionized employees, has stated that it is on record as opposing the
separation of Delphi from GM and that, should GM decide to proceed with
the transactions, the UAW can and will aggressively work to protect the
rights and interests of its members who would be impacted by the
Distribution. Since that time, GM and the UAW have agreed that any of our
employees who are members of the UAW and who retire on or before October
1, 1999 will be treated as GM retirees. GM and Delphi have been working
with the UAW to address its concerns and will continue to do so. We intend
to cooperate with GM in working together with the UAW, the IUE, the USW
and the other unions representing our employees to address the best
interests of their members regarding these matters.
- Capital Financing Flexibility. A separation of our company from General
Motors would also benefit our company by enhancing our capital planning
flexibility. For example, we would be able to use our own stock to
facilitate growth through acquisitions. Also, we would no longer have to
compete with other sectors of GM for funding from GM. However, we have
entered into certain agreements in connection with our separation from GM
that contain covenants which restrict our ability to issue stock and
incur indebtedness, including in connection with acquisitions. For a
description of these covenants, see "Arrangements Between Delphi and
General Motors--IPO and Distribution Agreement."
- Incentivized Management. Our management's focus would also be
strengthened by incentive programs tied to the market performance of our
common stock.
- Simplified Internal Structure. A separation would allow our management to
implement simplified organizational and internal reporting structures.
SEPARATION AND TRANSITIONAL ARRANGEMENTS. We and General Motors (and, in
some cases, our respective affiliates) have entered into or will enter into,
prior to the completion of the Offering, certain agreements
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providing for the separation of our business from General Motors, including a
Master Separation Agreement between us and GM (as amended from time to time, the
"Separation Agreement"). These agreements generally became effective as of
January 1, 1999 and provide for, among other things, the transfer from GM to
Delphi of those assets comprising the business of Delphi and the assumption by
Delphi of those liabilities relating to its business, in each case to the extent
agreed to by GM and Delphi and described elsewhere in this prospectus. These
agreements also govern various interim and ongoing relationships between the
parties. In particular, GM and Delphi have entered into a Component Supply
Agreement (as amended from time to time, the "Supply Agreement"), which is
intended to provide Delphi with a substantial base of business with GM well into
the next decade. In addition, pursuant to such agreements, GM will provide
certain transitional services to us. While GM is contractually obligated to
provide us with such transitional services, we cannot assure you that such
services will be sustained at the same level as when we were a part of GM or
that we will obtain the same benefits.
These agreements were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of our separation from
GM. The prices charged to us under these agreements may be higher or lower than
the prices that may be charged by unaffiliated third parties for similar
services and the other terms may be more or less favorable than those we could
negotiate with unaffiliated third parties. In addition, although we believe that
the terms and conditions of our Supply Agreement with GM generally reflect terms
and conditions comparable to those in purchase contracts negotiated between a
supplier and an unaffiliated VM, the Supply Agreement was negotiated in a
similar context and we cannot assure you that its terms are more or less
favorable than those we could negotiate with an unaffiliated third party.
On January 1, 1999, General Motors initiated the process of separating
Delphi by transferring to Delphi the assets and liabilities related to Delphi's
business, in each case to the extent agreed to by GM and Delphi and described
elsewhere in this prospectus. Delphi believes that the transfer of substantially
all of these assets and liabilities will be completed before the closing of the
Offering. Certain international, intellectual property and real property assets
relating primarily to the business of Delphi may still be held by GM or its
affiliates at the time of the completion of the Offering pending receipt of
consents or approvals or satisfaction of other applicable requirements necessary
for the transfer of such assets to Delphi. These assets and operations are not,
individually or in the aggregate, material to Delphi. In addition, certain
information technology assets relating primarily to the business of Delphi: (1)
may still be held by GM or its affiliates at the time of the completion of the
Offering, pending receipt of consents necessary for the transfer of such assets
to Delphi; or (2) may be retained by GM if consents to their transfer cannot be
obtained. Also, certain assets and liabilities relating to employees working
under collective bargaining agreements will be transferred to Delphi at the time
of the Distribution.
For more information regarding the separation process, including the Supply
Agreement between us and GM, see "Arrangements Between Delphi and General
Motors."
26
<PAGE> 32
USE OF PROCEEDS
We estimate that we will receive net proceeds from the Offering of about
$1.525 billion, or about $1.755 billion if the U.S. underwriters exercise their
over-allotment option in full. For purposes of this calculation, we have assumed
an initial public offering price of $16 per share. We intend to use such
proceeds for general corporate purposes, including our working capital
requirements which have been impacted by the change in payment terms we have
granted to GM pursuant to the Supply Agreement. For a description of these new
payment terms and their effect on our liquidity, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDENDS
Following the Offering, our dividend practices with respect to our stock
will be determined and may be changed from time to time by our Board of
Directors. Under Delaware law and our Restated Certificate of Incorporation, the
Board is not required to declare dividends on our common stock. We currently
intend to pay dividends on a quarterly basis, at an initial rate of $0.07 per
share, commencing with the first declaration in June 1999 for payment in July
1999. Our Board is free to change our dividend practices at any time and from
time to time and to decrease or increase the dividend paid, or to not pay a
dividend, on the common stock on the basis of the results of operations,
financial condition, cash requirements and future prospects of our company and
other factors deemed relevant by our Board.
27
<PAGE> 33
CAPITALIZATION
Set forth below is the historical capitalization of our company at
September 30, 1998 and as adjusted to give effect to certain pro forma
adjustments described in "Unaudited Pro Forma Condensed Consolidated Financial
Statements," including the Offering. This information assumes an initial public
offering price of $16 per share. You should read the information set forth below
in conjunction with "Selected Financial Data," "Unaudited Pro Forma Condensed
Consolidated Financial Statements," our historical consolidated financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which appear
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
--------------------------------------------
(UNAUDITED)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
DEBT:
Notes payable and current portion of long-term
debt............................................. $ 206 $ -- $ 206
Long-term debt..................................... 3,294 (3,000)
3,000 3,294
------ ------- ------
Total debt............................... 3,500 -- 3,500
EQUITY (DEFICIT):
Common stock....................................... -- 1 1
Additional paid-in capital......................... -- 1,198
1,524 2,722
General Motors' net investment..................... (2) 1,200
(1,198) --
Accumulated translation adjustments................ (37) -- (37)
------ ------- ------
Total equity (deficit)................... (39) 2,725 2,686
------ ------- ------
Total capitalization................ $3,461 $ 2,725 $6,186
====== ======= ======
</TABLE>
Certain items above reflect the settlement of a $3.0 billion intracompany
note payable to General Motors and a $1.2 billion increase in GM's net
investment in Delphi after considering the $1.8 billion settlement of
intracompany accounts receivable immediately prior to the time of the
transactions contemplated by the Separation Agreement. It is expected that
during the first half of 1999 Delphi will finance its operations through
third-party credit sources, with borrowings that will increase to about $3.0
billion. In addition, certain other items above reflect the proceeds from the
Offering and adjustments to equity to reclassify GM's net investment to
additional paid-in capital.
28
<PAGE> 34
SELECTED FINANCIAL DATA
The following selected financial data of Delphi reflect the historical
results of operations and cash flows of the businesses that were considered part
of the Delphi business sector of GM during each respective period. In addition,
the data for all periods include amounts relating to Delco Electronics, the
electronics and mobile communication business that was transferred by GM from
Hughes Electronics to Delphi in December 1997. The historical consolidated
statement of income data set forth below do not reflect many significant changes
that will occur in the operations and funding of our company as a result of our
separation from GM and the Offering. The historical consolidated balance sheet
data set forth below reflect the assets and liabilities that are expected to be
transferred to our company in accordance with the Separation Agreement.
The selected financial data of Delphi should be read in conjunction with,
and are qualified by reference to, "Unaudited Pro Forma Condensed Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this prospectus. The consolidated
statement of income and cash flow data set forth below for each of the three
years in the period ended December 31, 1997, and the consolidated balance sheet
data as of December 31, 1996 and 1997 are derived from, and qualified by
reference to, the audited consolidated financial statements included elsewhere
in this prospectus, and should be read in conjunction with those consolidated
financial statements and the notes thereto. The consolidated statement of income
and cash flow data for each of the years ended December 31, 1993 and 1994 and
the consolidated balance sheet data as of December 31, 1993, 1994 and 1995 are
derived from unaudited consolidated financial statements not included in this
prospectus, which in our opinion, include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
for such periods. The consolidated statement of income and cash flow data for
the nine months ended September 30, 1997 and 1998 and the consolidated balance
sheet data as of September 30, 1998 are derived from, and should be read in
conjunction with, the unaudited consolidated financial statements included
elsewhere in this prospectus, which in our opinion include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results for such periods.
The financial information presented below may not be indicative of our
future performance and does not necessarily reflect what our financial position
and results of operations would have been had we operated as a separate,
stand-alone entity during the periods presented. Results for the nine months
ended September 30, 1998 are not necessarily indicative of results that may be
expected for the entire year. See "Risk Factors--Risk Factors Relating to
Separating Our Company from General Motors--Our Historical Financial Information
Has Limited Relevance to Our Results As a Separate Company." You should also
read the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section, which describes a number of factors which have
affected our financial results, including significant price reductions as GM
implemented its global sourcing initiative, labor disruptions at both GM and
Delphi and charges associated with certain competitiveness initiatives.
29
<PAGE> 35
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................. $29,327 $31,044 $31,661 $31,032 $31,447 $23,368 $20,679
Operating expenses:
Cost of sales, excluding items
listed below..................... 25,754 27,081 27,384 27,471 27,710 20,507 19,220
Selling, general and
administrative................... 1,033 1,157 1,366 1,445 1,415 1,011 1,012
Depreciation and amortization....... 777 722 773 843 1,970 621 731
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............... 1,763 2,084 2,138 1,273 352 1,229 (284)
Interest expense...................... (384) (310) (293) (276) (287) (206) (199)
Other (loss) income, net.............. (124) 103 101 115 194 65 124
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes..... 1,255 1,877 1,946 1,112 259 1,088 (359)
Income taxes (tax benefit)............ 307 644 639 259 44 352 (178)
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative effect
of change in accounting principle... 948 1,233 1,307 853 215 736 (181)
Cumulative effect of change in
accounting principle, net of tax.... -- (258) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... $ 948 $ 975 $ 1,307 $ 853 $ 215 $ 736 $ (181)
======= ======= ======= ======= ======= ======= =======
Basic and diluted earnings (loss) per
share................................. $ 2.04 $ 2.10 $ 2.81 $ 1.83 $ 0.46 $ 1.58 $ (0.39)
======= ======= ======= ======= ======= ======= =======
STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in) operating
activities.......................... n/a n/a $ 1,370 $ 2,701 $ 2,918 $ 1,812 $ (51)
Cash used in investing activities..... n/a n/a (1,141) (995) (1,320) (860) (699)
Cash (used in) provided by financing
activities.......................... n/a n/a (263) (1,686) (1,549) (903) 741
OTHER FINANCIAL DATA:
EBITDA................................ $ 2,378 $ 2,603 2,959 2,182 2,459 1,877 530
</TABLE>
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................... $14,803 $14,494 $15,635 $15,390 $15,026 $15,863 $14,930
Total debt............................ 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Equity (deficit)...................... (476) 120 1,354 922 (413) 816 (39)
</TABLE>
Delphi adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1994. The adoption had an unfavorable cumulative
effect of $258 million after-tax, which is reflected in 1994 net income.
Earnings per share before the cumulative effect of the change in accounting
principle was $2.65 per share. The cumulative effect of the change in accounting
principle was $0.55 per share. For information on special items impacting 1996
through 1998 operating results, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Special
Items and Work Stoppages."
"EBITDA" is defined as income before provision for interest expense and
interest income, income taxes, depreciation and amortization. EBITDA is not
presented as an alternative measure of operating results or cash flow from
operations, as determined in accordance with generally accepted accounting
principles, but because we believe it is a widely accepted indicator of our
ability to incur and service debt. EBITDA does not give effect to cash used for
debt service requirements and thus does not reflect funds available for
dividends, reinvestment or other discretionary uses. In addition, EBITDA as
presented herein may not be comparable to similarly titled measures reported by
other companies.
30
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements of
Delphi were derived from the application of pro forma adjustments to our
consolidated financial statements and give effect to the Offering and the terms
of the Separation Agreement, exclusive of terms relating to the transfer of the
assets and liabilities to Delphi, as such terms were considered in preparing the
consolidated balance sheets. The unaudited pro forma condensed consolidated
statements of income data for the year ended December 31, 1997 and for the nine
months ended September 30, 1998 have been prepared as if our separation from GM
had been completed and the Offering had occurred at the beginning of the
earliest pro forma period presented. The unaudited pro forma condensed
consolidated balance sheet data as of September 30, 1998 have been prepared as
if our separation from GM had been completed and the Offering had occurred as of
September 30, 1998.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with, and are qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited and unaudited consolidated financial statements and notes thereto
included elsewhere in this prospectus.
The pro forma condensed consolidated balance sheet data are not necessarily
indicative of what our financial position would have been had the separation of
our business from GM been completed and had the Offering occurred on September
30, 1998. The pro forma condensed consolidated statements of income data are not
necessarily indicative of what our results of operations would have been had the
separation of our business from GM been completed and had the Offering occurred
at the beginning of the earliest pro forma period presented. In addition, our
results for the nine months ended September 30, 1998 are not necessarily
indicative of results that may be expected for the entire year.
The summary pro forma condensed consolidated financial data are derived
from the application of pro forma adjustments related to the Offering and the
terms of the Separation Agreement. The pro forma condensed consolidated balance
sheet data give effect to (1) the Offering, (2) a change in GM's intracompany
accounts receivable payment terms and (3) the settlement of certain GM
intracompany accounts receivable and the intracompany note payable. The pro
forma condensed consolidated statement of income data give effect to (1)
decreased employee benefit costs due to the retention of certain benefit
obligations by GM and (2) certain incremental costs associated with operating
Delphi as a stand-alone publicly traded company.
31
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME DATA
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales......................................... $31,447 -- $31,447
Operating expenses:
Cost of sales, excluding items listed below..... 27,710 $(463)(1) 27,247
Selling, general and administrative............. 1,415 (19)(1)
147(2) 1,543
Depreciation and amortization................... 1,970 -- 1,970
------- ----- -------
Total operating expenses..................... 31,095 (335) 30,760
------- ----- -------
Operating income.................................. 352 335 687
Interest expense.................................. (287)(3) -- (287)
Other income, net................................. 194 -- 194
------- ----- -------
Income before income taxes........................ 259 335 594
Income taxes...................................... 44 127(4) 171
------- ----- -------
Net income........................................ $ 215 $ 208 $ 423
======= ===== =======
Basic and diluted earnings per share
Historical--based on 465,000,000 shares
outstanding.................................. $ 0.46
=======
Pro forma--based on 565,000,000 shares
outstanding.................................. $ 0.75(5)
=======
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales......................................... $20,679 -- $20,679
Operating expenses:
Cost of sales, excluding items listed below..... 19,220 $ (186)(1) 19,034
Selling, general and administrative............. 1,012 (8)(1)
111(2) 1,115
Depreciation and amortization................... 731 -- 731
------- ------ -------
Total operating expenses..................... 20,963 (83) 20,880
------- ------ -------
Operating loss.................................... (284) 83 (201)
Interest expense.................................. (199)(3) -- (199)
Other income, net................................. 124 -- 124
------- ------ -------
Loss before income taxes.......................... (359) 83 (276)
Income tax benefit................................ (178) 32(4) (146)
------- ------ -------
Net loss.......................................... $ (181) $ 51 $ (130)
======= ====== =======
Basic and diluted loss per share
Historical--based on 465,000,000 shares
outstanding.................................. $ (0.39)
=======
Pro forma--based on 565,000,000 shares
outstanding.................................. $ (0.23)(5)
=======
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
32
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
AS OF SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and marketable securities...................... $ 1,000 $ 1,525(6)
(2,100)(7)
3,000(8)
(1,800)(9) $ 1,625
Accounts receivable, net:
General Motors and affiliates.................... 1,962 2,100(7)
(1,800)(8)
1,800(9) 4,062
Other customers.................................. 1,288 -- 1,288
Inventories, net.................................... 1,807 -- 1,807
Deferred income taxes............................... 206 -- 206
Prepaid expenses and other assets................... 96 -- 96
------- ------- -------
Total current assets............................. 6,359 2,725 9,084
Property, net......................................... 4,878 -- 4,878
Deferred income taxes................................. 2,552 -- 2,552
Other assets.......................................... 1,141 -- 1,141
------- ------- -------
Total assets.......................................... $14,930 $ 2,725 $17,655
======= ======= =======
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term
debt............................................. $ 206 $ -- $ 206
Accounts payable:
General Motors and affiliates.................... 91 -- 91
Other suppliers.................................. 1,977 -- 1,977
Accrued liabilities................................. 1,557 -- 1,557
------- ------- -------
Total current liabilities........................ 3,831 -- 3,831
Long-term debt........................................ 3,294 (3,000)(8)
3,000(8) 3,294
Pension benefits...................................... 1,897 -- 1,897
Postretirement benefits other than pensions........... 4,523 -- 4,523
Other liabilities..................................... 1,424 -- 1,424
------- ------- -------
Total liabilities................................ 14,969 -- 14,969
Equity (deficit):
Common stock........................................ -- 1(6) 1
Additional paid-in capital.......................... -- 1,524(6)
1,198(10) 2,722
General Motors' net investment...................... (2) 1,200(8)
(1,198)(10) --
Accumulated translation adjustments................. (37) -- (37)
------- ------- -------
Total equity (deficit)........................... (39) 2,725 2,686
------- ------- -------
Total liabilities and equity (deficit)................ $14,930 $ 2,725 $17,655
======= ======= =======
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
33
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements of
Delphi were derived from the application of pro forma adjustments to our
historical consolidated financial statements and give effect to the Offering and
the terms of the Separation Agreement, exclusive of terms relating to the
transfer of the assets and liabilities to Delphi, as such terms were considered
in preparing the historical consolidated financial statements. The unaudited pro
forma statements of income for data the year ended December 31, 1997 and for the
nine months ended September 30, 1998 have been prepared as if our separation
from GM had been completed and the Offering had occurred at the beginning of the
earliest pro forma period presented. The unaudited pro forma balance sheet data
as of September 30, 1998 have been prepared as if our separation from GM had
been completed and the Offering had occurred as of September 30, 1998.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with, and are qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited and unaudited consolidated financial statements and notes thereto
included elsewhere in this prospectus.
The pro forma condensed consolidated balance sheet data are not necessarily
indicative of what our financial position would have been had the separation of
our business from GM been completed and had the Offering occurred on September
30, 1998. The pro forma condensed statements of income data are not necessarily
indicative of what our results of operations would have been had the separation
of our business from GM been completed and had the Offering occurred at the
beginning of the earliest pro forma period presented. In addition, our results
for the nine months ended September 30, 1998 are not necessarily indicative of
results that may be expected for the entire year.
The following pro forma adjustments were made to reflect the terms of the
Separation Agreement and the Offering:
(1) As set forth under "Arrangements Between Delphi and General
Motors--Employee Matters," Delphi and General Motors have entered into
agreements regarding certain employee benefit obligations. The pro forma
adjustments for the year ended December 31, 1997 and the nine months ended
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN MILLIONS)
<S> <C> <C>
Pension related costs.......................... $ 84 $ 158
Postretirement benefits other than pensions.... (569) (357)
Other employee benefits........................ 3 5
----- -----
Total........................................ $(482) $(194)
===== =====
Portion attributable to cost of sales.......... $(463) $(186)
===== =====
Portion attributable to selling, general and
administrative............................... $ (19) $ (8)
===== =====
</TABLE>
34
<PAGE> 40
(2) Reflects the estimated incremental selling, general and administrative
costs associated with operating Delphi as a stand-alone publicly traded
company. The pro forma adjustments for the year ended December 31, 1997 and
the nine months ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN MILLIONS)
<S> <C> <C>
Incremental insurance and risk
management......................... $ 34 $ 26
Incremental corporate costs*......... 48 36
Taxes other than income.............. 50 38
Other................................ 15 11
---- ----
Total.............................. $147 $111
==== ====
</TABLE>
* Incremental corporate costs include additional personnel and systems costs
that will be required to operate as a stand-alone entity, and reflect
transactional service arrangements with General Motors at terms provided
in the Separation Agreement. Other costs include certain sales tax
expenses associated with separation.
(3) Historical interest expense was calculated using an estimated blend of
short-term and long-term weighted-average interest rates commensurate with
the anticipated overall credit risk of Delphi as a stand-alone entity. See
Note 1 to our audited consolidated financial statements included elsewhere
in this prospectus for additional information. A 1/8% change in interest
rates would have an impact of about $4 million and $3 million on historical
interest expense for the year ended December 31, 1997 and the nine months
ended September 30, 1998, respectively.
(4) Income taxes were determined in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes." Once our company is a stand-alone
entity and is no longer included in GM's consolidated income tax return, we
will no longer benefit from GM's consolidated income tax environment. As a
result, we expect our effective income tax rates in future periods
generally to be higher than our historical effective income tax rates. For
purposes of this pro forma presentation only, adjustments necessary to
record the income tax effect of the pro forma adjustments assume a combined
Federal and state income tax rate of 38%.
(5) Reflects the sale of 100,000,000 shares of common stock in the Offering. It
does not include up to 15,000,000 shares of common stock which the U.S.
underwriters have the option to purchase solely to cover over-allotments.
If the U.S. underwriters exercise their over-allotment option in full, the
pro forma earnings per share for 1997 would be $0.73 and the pro forma loss
per share for the nine months ended September 30, 1998 would be $0.22.
(6) Reflects the sale of 100,000,000 shares of common stock in the Offering
assuming an initial public offering price of $16 per share. As set forth
under "Use of Proceeds," Delphi expects to use the proceeds of the Offering
for general corporate purposes, including working capital requirements
which have been impacted by the change in General Motors accounts
receivable payment terms described in note (7) below.
(7) Reflects the change in payment terms for intracompany accounts receivable
from General Motors in accordance with the terms of the Separation
Agreement. As set forth under "Arrangements Between Delphi and General
Motors--Supply Agreement--Payment Terms," payment terms, which generally
called for payment in the month following shipment by Delphi, have been
modified to require payment by General Motors on the second day of the
second month following shipment by Delphi.
(8) Reflects the settlement of certain intracompany accounts receivable from GM
with the intracompany note payable to GM. Immediately prior to the
transactions contemplated by the Separation Agreement, certain intracompany
accounts receivable from GM estimated at $1.8 billion will be settled with
the $3.0 billion outstanding intracompany note payable to GM with the
difference resulting in an increase in
35
<PAGE> 41
GM's net investment in Delphi. It is expected that during the first half of
1999, Delphi will finance its operations through a combination of $3.0 billion
in borrowings under revolving credit facilities, commercial paper, the issuance
of long-term debt and other short-term financing measures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(9) Reflects the required adjustment, subsequent to the settlement of
intracompany accounts receivable described in note (8) above, to adjust
cash and accounts receivable balances to levels that are indicative of
amounts associated with on-going operations.
(10) Reflects the adjustment to equity to reclassify GM's net investment as
additional paid-in capital.
36
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
HISTORICAL FINANCIAL STATEMENTS
Our consolidated financial statements, which are discussed below, reflect
the historical results of operations and cash flows of the businesses that were
considered part of the Delphi business sector during each respective period;
however, they do not reflect many significant changes that will occur in the
operations and funding of our company as a result of our separation from GM and
the Offering. The historical consolidated balance sheets reflect the assets and
liabilities that are expected to be transferred to our company in accordance
with the transactions contemplated by a Master Separation Agreement to which we
and GM are parties (the "Separation Agreement"). Delphi and Delco Electronics
were under the common control of GM during such periods; therefore, our
consolidated financial statements include amounts relating to Delco Electronics
for all periods presented, although Delco Electronics was not integrated with
our company until December 1997. See Note 1 to our audited consolidated
financial statements included elsewhere in this prospectus for a summary of our
organization and significant factors reflected in our historical financial
information. See "--Results of Operations" and "--Liquidity and Capital
Resources" for details on changes in our operations and funding that are
expected to result in connection with our separation from GM and the Offering.
SEPARATION FROM GENERAL MOTORS
General Motors and Delphi (and, in some cases, their respective affiliates)
have entered into or will enter into, prior to the completion of the Offering,
certain agreements providing for the separation of our business from General
Motors and the Distribution, including the Separation Agreement. For more
information regarding the separation terms, including the Supply Agreement
between the companies, and the Distribution, see "Delphi and Its Separation from
General Motors--Separation from General Motors" and "Arrangements Between Delphi
and General Motors."
NET SALES
Our consolidated net sales increased from $29.3 billion in 1993 to $31.4
billion in 1997, despite the divestiture of various businesses having annual
sales of about $6 billion. In addition, annual net sales for recent periods have
been unfavorably impacted by increasing price pressures from our VM customers as
well as work stoppages. Price reductions, as a percentage of net sales, were
3.0%, 2.3% and 1.6% for the years ended December 31, 1996 and 1997 and the nine
months ended September 30, 1998, respectively, reflecting an overall decline in
price concessions. We believe that price reductions in 1998 are more indicative
of future price pressures from VMs, although we cannot assure you in this
regard. See "Risk Factors--Risk Factors Relating to Our Business--We May Be
Unable to Offset All of the Cost Reductions We Must Provide to Our Customers."
Although net sales for all of our product sectors were impacted by price
reductions, the percentage impact was the largest for our Electronics & Mobile
Communication product sector, reflecting the overall decline in prices
throughout the electronics industry. Our net sales can be impacted by a variety
of factors, including divestitures, price pressures, actual volume and timing of
vehicle production and the mix of options on vehicles that are produced. Within
this "Overview" section, we have included certain information that breaks down
our consolidated net sales by product sector and by principal geographic region.
37
<PAGE> 43
For additional information on our consolidated net sales and such break downs,
see "--Results of Operations."
Our consolidated net sales by product sector and in total were as follows
for each respective period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
PRODUCT SECTOR 1995 1996 1997 1997 1998
-------------- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Electronics & Mobile Communication............. $ 5,479 $ 5,315 $ 5,539 $ 4,096 $ 3,412
Safety, Thermal & Electrical Architecture...... 13,433 12,942 12,728 9,424 8,366
Dynamics & Propulsion.......................... 13,142 13,293 13,733 10,208 9,222
Eliminations................................... (393) (518) (553) (360) (321)
------- ------- ------- ------- -------
Consolidated net sales....................... $31,661 $31,032 $31,447 $23,368 $20,679
======= ======= ======= ======= =======
</TABLE>
Our net sales by product sector include certain inter-sector sales, which
we eliminate for purposes of determining our total net sales. The following
table shows the approximate composition by product sector of our net sales for
the periods presented, after adjusting to account for these eliminations:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
PRODUCT SECTOR 1995 1996 1997 1997 1998
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Electronics & Mobile Communication................ 16.5% 16.2% 16.5% 16.6% 15.6%
Safety, Thermal & Electrical Architecture......... 42.0 41.1 39.9 39.7 39.8
Dynamics & Propulsion............................. 41.5 42.7 43.6 43.7 44.6
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Net Sales by Principal Geographic Region. We have established an expansive
global presence, with sales in every major region of the world. Our consolidated
net sales by principal geographic region (based on the location of the
operations producing the sale) and in total were as follows for the years ended
December 31, 1995, 1996 and 1997:
CONSOLIDATED NET SALES BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
GEOGRAPHIC REGION $ % $ % $ %
----------------- - - - - - -
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States............................. $23,387 73.9% $22,139 71.3% $21,925 69.7%
Europe.................................... 4,240 13.4 4,655 15.0 4,220 13.4
Mexico.................................... 2,272 7.2 2,714 8.8 3,448 11.0
Canada.................................... 1,211 3.8 719 2.3 806 2.6
South America............................. 238 0.7 442 1.4 662 2.1
Other..................................... 313 1.0 363 1.2 386 1.2
------- ----- ------- ----- ------- -----
Consolidated net sales............. $31,661 100.0% $31,032 100.0% $31,447 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
38
<PAGE> 44
OPERATING COSTS
Our operating costs include structural costs and material costs. Structural
costs generally consist of our fixed costs, including commercial (selling,
general and administrative costs), engineering and manufacturing (including
labor) costs. Generally, our structural costs are not impacted by incremental
volume changes in the short-run; however, we continue to focus on long-term
reductions in our overall structural costs and increasing our manufacturing
efficiency and flexibility. Material costs generally reflect direct materials
used in producing our products. Such costs generally vary based on the volume of
production for any given period.
Since 1991, when GM organized its various component operations into a
separate business group, we have been evolving from a fully captive, yet
separately managed, collection of component operations into an independently
managed supplier of components, systems and modules to GM and all of the other
major VMs. During this transitional period, our financial results have at times
been adversely affected by a variety of factors, such as significant price
reductions, labor disruptions at both GM and Delphi and certain unprofitable
manufacturing operations. See "--Results of Operations--Special Items and Work
Stoppages." In response to these and other factors, we have developed, and are
implementing, a number of initiatives designed to improve our operating
performance. See "Business of Delphi--Strategy--Improve Operating Performance"
for a description of these initiatives.
Although we have made substantial progress in implementing these
initiatives, we believe that in many cases the full impact of these initiatives
has not yet been realized. We believe that as we fully implement these
initiatives throughout our operations and complete our separation from GM, we
will be able to realize additional benefits. The realization of these benefits
is important to our ability to realize our business objectives. See "Risk
Factors--Risk Factors Relating to Our Business--We May Be Unable to Realize Our
Business Strategy of Improving Our Operating Performance."
RESULTS OF OPERATIONS
To facilitate analysis, the following table sets forth consolidated
statement of income data as a percentage of net sales for each of the periods
presented:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of sales, excluding items listed
below................................. 86.5 88.5 88.1 87.8 92.9
Selling, general and administrative...... 4.3 4.7 4.5 4.3 4.9
Depreciation and amortization............ 2.4 2.7 6.3 2.7 3.5
----- ----- ----- ----- -----
OPERATING INCOME (LOSS).................... 6.8 4.1 1.1 5.2 (1.3)
Interest expense........................... (0.9) (0.9) (0.9) (0.9) (1.0)
Other income, net.......................... 0.3 0.4 0.6 0.3 0.6
----- ----- ----- ----- -----
Income (loss) before income taxes.......... 6.2 3.6 0.8 4.6 (1.7)
Income taxes (tax benefit)................. 2.0 0.8 0.1 1.5 (0.8)
----- ----- ----- ----- -----
NET INCOME (LOSS).......................... 4.2% 2.8% 0.7% 3.1% (0.9)%
===== ===== ===== ===== =====
</TABLE>
In order to more fully understand the fluctuations in the consolidated
statement of income data, you should consider the impact of special items and
work stoppages as discussed below.
SPECIAL ITEMS AND WORK STOPPAGES
The global automotive components and systems market has become increasingly
competitive and is currently undergoing significant restructuring and
consolidation activities. All of the major industry
39
<PAGE> 45
competitors are continuing to increase their focus on efficiency and cost
improvements, while facing increasing price pressures from VM customers. As a
result, we initiated a study in 1997 to evaluate the long-term competitiveness
of all facets of our businesses (the "Competitiveness Study"). This study was
performed in conjunction with the business planning cycle and was substantially
completed in December 1997. Additional information regarding the Competitiveness
Study is included below and in Note 3 to Delphi's audited consolidated financial
statements included elsewhere in this prospectus.
Our operating results for the periods presented were also impacted by
special items which management views as non-recurring in nature. Such special
items included divestiture and plant closing charges as well as the impact of
work stoppages at certain GM and Delphi locations. Although these items are
considered non-recurring, we cannot provide assurance that other special items
and/or work stoppages will not occur with greater or lessor effects in future
periods.
The following is a summary of the various factors that impacted our
operating results during the periods presented:
1998
- During the third quarter of 1998, we recorded an operating loss of $430
million ($271 million after-tax) related to divestitures involving our
seating, lighting and coil spring businesses. The charge had the effect
of increasing cost of sales and depreciation and amortization by $382
million and $48 million, respectively.
- Work stoppages at GM and Delphi in the United States during 1998 reduced
operating income by about $468 million ($290 million after-tax) and $435
million ($270 million after-tax) during the second and third quarters of
1998, respectively, after considering partial recovery of lost
production.
1997
- During the first quarter of 1997, we recorded an $80 million plant
closing charge ($50 million after-tax) relating to a facility in Trenton,
New Jersey. This charge had the effect of increasing cost of sales by $80
million.
- Work stoppages at certain GM and Delphi locations during the second
quarter of 1997 had an unfavorable impact of $185 million ($115 million
after-tax), before considering partial recovery of lost production in the
third quarter of 1997. The full year impact of work stoppages was $148
million ($92 million after-tax), after considering partial recovery of
lost production primarily in the third quarter of 1997.
- Other special items included gains aggregating $58 million and $39
million ($36 million and $24 million after-tax, respectively) during the
second and fourth quarters of 1997, respectively. These gains primarily
related to the sale of certain businesses and investments, none of which
were material on an individual basis.
- During the fourth quarter of 1997, we recorded a $1.4 billion charge
($870 million after-tax) relating to the Competitiveness Study. Overall,
the charge had the effect of increasing 1997 fourth quarter and full year
cost of sales and depreciation and amortization by $262 million and $1.1
billion, respectively.
1996
- During the fourth quarter of 1996, we sold four facilities located in
Flint and Livonia, Michigan and Oshawa and Windsor, Ontario, which
resulted in a loss of $247 million ($153 million after-tax). The loss had
the effect of increasing 1996 cost of sales and depreciation and
amortization by $167 million and $80 million, respectively.
40
<PAGE> 46
- During 1996, three major work stoppages at various GM and Delphi
facilities in the United States and Canada had an unfavorable impact of
$453 million ($281 million after-tax) resulting from lower GM production
volumes, after considering partial recovery of lost production in
subsequent periods. The unfavorable impact in the fourth quarter of 1996
totaled $252 million ($156 million after-tax).
- Retiree lump sum benefit payments resulting from U.S. labor negotiations
during 1996 resulted in a charge of $86 million ($53 million after-tax).
- Other special charges totaled $50 million ($31 million after-tax), of
which $18 million ($11 million after-tax) was recorded in the fourth
quarter. These costs primarily reflect the sale of certain business
investments, none of which were material on an individual basis.
1995
- There were no significant special items or work stoppages during 1995.
On-Going Evaluation. We periodically evaluate the carrying value of
long-lived assets to be held and used, when events and circumstances warrant
such review. This evaluation and review is generally performed in conjunction
with the annual business planning cycle. In this regard, the 1998 evaluation and
review, which is anticipated to be completed prior to December 31, 1998, and
other actions which may be taken are expected to result in a fourth quarter 1998
charge of about $325 million to $400 million ($200 million to $250 million
after-tax), impacting all of our product sectors. We will continue to monitor
the competitiveness of all aspects of our business. Accordingly, future
operating results could be impacted by the sale or disposal of product lines or
production facilities as we execute our portfolio management and
"fix/sell/close" processes.
NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1997
Net Sales. Consolidated net sales and changes in net sales by product
sector and in total for the nine months ended September 30, 1997 and 1998 were
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, CHANGE
-------------------- ------------------
PRODUCT SECTOR 1997 1998 $ %
-------------- ---- ---- - -
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication.... $ 4,096 $ 3,412 $ (684) (16.7)%
Safety, Thermal & Electrical
Architecture....................... 9,424 8,366 (1,058) (11.2)
Dynamics & Propulsion................. 10,208 9,222 (986) (9.7)
Eliminations.......................... (360) (321) 39 n/a
------- ------- ------- -----
Consolidated net sales............. $23,368 $20,679 $(2,689) (11.5)%
======= ======= ======= =====
</TABLE>
The decrease in consolidated net sales for each product sector primarily
relates to (1) lower GM-North America vehicle production due to work stoppages
at certain GM and Delphi plants (after considering partial recovery of lost
production in subsequent periods) and (2) lower international production due to
the unfavorable impact of economic conditions in Asia and South America. In
addition, our net sales continue to be impacted by pricing pressures as VMs
reduce their cost structures through competitive sourcing initiatives and global
vehicle platforms. Specifically, the decrease in consolidated net sales for each
operating sector during the first nine months of 1998 reflects the impact of
price reductions required by GM and other customers amounting to about $340
million (or 1.6% of net sales). As a percentage of net sales, price reductions
declined from 1997 levels to levels which we believe will be more indicative of
future pricing pressures from VMs. Overall, price reductions had the largest
impact on our Electronics & Mobile Communication product sector (3.0% of net
sales) due to the impact of GM-North America's continued implementation of its
global sourcing strategy and reflecting the overall price declines throughout
the
41
<PAGE> 47
electronics industry. The unfavorable impact of lower GM volumes and price
reductions was partially offset by additional sales to customers other than GM,
which increased about $420 million, or 10.4%, compared to the first nine months
of 1997.
Cost of Sales. Cost of sales represented 92.9% of consolidated net sales
for the first nine months of 1998 compared to 87.8% for the comparable period of
1997. The increase reflects the impact of special items and work stoppages along
with other factors which are described in greater detail in the operating income
(loss) discussion below.
Selling, General and Administrative and Depreciation and
Amortization. Selling, general and administrative expenses remained constant
during the first nine months of 1997 and 1998 while depreciation and
amortization increased by $62 million (excluding a $48 million charge related to
1998 divestitures). The increase in depreciation and amortization reflected
incremental depreciation associated with a larger fixed asset base.
Operating Income (Loss). Our operating loss was $284 million for the first
nine months of 1998 compared to operating income of $1.2 billion for the first
nine months of 1997. Excluding the impact of special items and work stoppages in
the respective nine month periods, operating income totaled $1.0 billion and
$1.5 billion for the nine months ended September 30, 1998 and 1997,
respectively. The following information on operating income and changes in
operating income and its components excludes the impact of special items and
work stoppages. See "--Results of Operations--Special Items and Work Stoppages"
for additional information.
Operating income by product sector and in total, excluding the impact of
special items and work stoppages, was as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
PRODUCT SECTOR 1997 1998
-------------- ---- ----
(IN MILLIONS)
<S> <C> <C>
Electronics & Mobile Communication......................... $ 436 $ 359
Safety, Thermal & Electrical Architecture.................. 753 641
Dynamics & Propulsion...................................... 386 298
Other...................................................... (118) (249)
------ ------
Total operating income excluding the impact of special
items and work stoppages.............................. $1,457 $1,049
====== ======
</TABLE>
The reduction in operating income, excluding the impact of special items
and work stoppages, primarily reflects lower vehicle volumes due to the timing
of production for certain of GM's new product introductions and economic
conditions in Asia and South America. The impact of lower customer volumes was
partially offset by cost savings as we have implemented several strategies to
reduce our cost structure and maintain our desired level of profitability. Each
of our product sectors achieved material and manufacturing cost savings which
totaled about $790 million during the first nine months of 1998, exceeding price
reductions and unrecovered design change costs by $175 million. Unrecovered
design change costs had a total unfavorable impact on operating income of about
$275 million, impacting all of our sectors. Such costs represent the cost of
required product design changes to meet changing customer requirements.
Sometimes these costs are not recoverable through changes in prices. Cost
savings achieved primarily reflect the results of our structural cost reduction
programs including continued implementation of the Delphi Manufacturing System
and global sourcing initiatives. See "--Overview--Operating Costs" for further
descriptions of these and our other initiatives.
Interest Expense. Interest expense totaled $199 million and $206 million
for the first nine months of 1998 and 1997, respectively. The decrease in
interest expense primarily reflects lower interest rates during the first nine
months of 1998 in comparison to 1997 rates.
42
<PAGE> 48
Other Income, Net. Other income, net totaled $124 million for the first
nine months of 1998, compared to $65 million in the first nine months of 1997.
The increase is primarily due to gains on sales of assets during the first nine
months of 1998.
Taxes. The effective income tax (tax benefit) rate for the first nine
months of 1998 was (49.6%) compared with 32.4% for the first nine months of
1997. The effective tax rates for both 1998 and 1997 reflect benefits related to
research and experimentation credits. During the first nine months of 1998,
certain deductions and tax credits remained constant while taxable income
decreased substantially, resulting in a greater effective tax benefit as a
percentage of pretax income.
Net Income (Loss). Our net loss totaled $181 million for the first nine
months of 1998 compared to net income of $736 million for the nine months ended
September 30, 1997. Excluding special items and work stoppages, net income was
$650 million and $842 million for the nine months ended September 30, 1998 and
1997, respectively, reflecting the impact of items discussed above.
1997 VERSUS 1996
Net Sales. Consolidated net sales and changes in net sales by product
sector and in total for the years ended December 31, 1996 and 1997 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------ -------------
PRODUCT SECTOR 1996 1997 $ %
-------------- ---- ---- - -
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication............. $ 5,315 $ 5,539 $ 224 4.2%
Safety, Thermal & Electrical Architecture...... 12,942 12,728 (214) (1.7)
Dynamics & Propulsion.......................... 13,293 13,733 440 3.3
Eliminations................................... (518) (553) (35) n/a
------- ------- ----- ----
Consolidated net sales....................... $31,032 $31,447 $ 415 1.3%
======= ======= ===== ====
</TABLE>
The increase in consolidated net sales during 1997 occurred despite the
impact of the 1996 sale of four plants by the Safety, Thermal & Electrical
Architecture product sector, which had combined historical annual net sales of
about $1.0 billion. Price reductions from GM and non-GM customers had an
unfavorable sales impact on all of our product sectors and totaled about $730
million (or 2.3% of net sales) during 1997. Price reductions reflect the
continuing pressures from VMs to reduce component and system costs. Price
reductions, as a percentage of sales, during 1997 were generally higher than we
anticipate in future years. Price reductions for our Electronics & Mobile
Communication product sector (3.3% of net sales) exceeded the overall percentage
for Delphi on a consolidated basis due to the timing of the implementation of
GM-North America's global sourcing as it related to electronics products and the
overall price declines throughout the electronics industry. The remaining change
in net sales for each product sector primarily reflects a $260 million increase
in sales to non-GM customers and improved GM-North America production volumes
after adjusting for the impact of work stoppages.
Cost of Sales. Cost of sales, as a percentage of consolidated net sales,
decreased to 88.1% in 1997 from 88.5% in 1996. The decrease as a percentage of
net sales reflects the lower impact of work stoppages along with other factors
which are described in greater detail in the operating income discussion below.
Selling, General and Administrative and Depreciation and Amortization.
Selling, general and administrative expenses remained constant during 1997 and
1996, while depreciation and amortization, excluding the $1.1 billion charge
associated with the Competitiveness Study, increased slightly.
Operating Income. Operating income decreased to $352 million in 1997 from
$1.3 billion in 1996. Excluding the impact of special items and work stoppages,
operating income totaled $1.9 billion in 1997
43
<PAGE> 49
compared to $2.1 billion in 1996. The following information on operating income
and changes in operating income and its components excludes the impact of
special items and work stoppages. See "--Results of Operations--Special Items
and Work Stoppages" for additional information.
Operating income by product sector and in total, excluding the impact of
special items and work stoppages, was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
PRODUCT SECTOR 1996 1997
-------------- ---- ----
(IN MILLIONS)
<S> <C> <C>
Electronics & Mobile Communication.......................... $ 810 $ 612
Safety, Thermal & Electrical Architecture................... 955 1,060
Dynamics & Propulsion....................................... 321 400
Other....................................................... (27) (130)
------ ------
Total operating income excluding the impact of special
items and work stoppages............................... $2,059 $1,942
====== ======
</TABLE>
As a result of strategies implemented to reduce our cost structure, we
realized material and manufacturing cost savings of about $450 million during
1997. Cost savings were realized by all of our product sectors during 1997;
however, price reductions and unrecovered design change costs, which together
totaled about $960 million, more than offset the cost savings. Unrecovered
design change costs had an unfavorable impact on operating income of about $230
million in 1997, primarily affecting our Electronics & Mobile Communication
product sector. In addition, operating income was favorably impacted by greater
sales penetration of non-GM customers and improved GM-North America production
volumes after adjusting for the impact of work stoppages.
Interest Expense. Interest expense totaled $287 million and $276 million in
1997 and 1996, respectively. The increase in interest expense in 1997 primarily
reflected slightly higher interest rates during the period.
Other Income, Net. Other income, net totaled $194 million in 1997 compared
with $115 million in 1996. The amount reported for 1997 includes a gain of $97
million ($60 million after-tax) relating to the sale of certain business
investments. The gain was partially offset by a decline in earnings of
nonconsolidated affiliates, which decreased to $27 million in 1997 compared with
$57 million in 1996. The decline reflected lower equity earnings due to the sale
of certain minority owned investments and the unfavorable impact of economic
volatility on overseas joint ventures.
Taxes. The effective income tax rate for 1997 was 17.0% compared with 23.3%
for 1996. The lower 1997 effective income tax rate primarily reflected the
favorable impact of state and local income tax rates which were generally lower
than in 1996. The favorable impact of state and local tax rates was partially
offset by higher foreign tax rates during 1997.
Net Income. Net income totaled $215 million in 1997 and $853 million in
1996. Income, excluding the impact of special items and work stoppages, totaled
$1.2 billion in 1997 compared to $1.4 billion in 1996, reflecting the items
discussed above.
44
<PAGE> 50
1996 VERSUS 1995
Net Sales. Consolidated net sales and changes in net sales by product
sector and in total for the years ended December 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
----------------- ------------
PRODUCT SECTOR 1995 1996 $ %
-------------- ---- ---- - -
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication............ $ 5,479 $ 5,315 $(164) (3.0)%
Safety, Thermal & Electrical Architecture..... 13,433 12,942 (491) (3.7)
Dynamics & Propulsion......................... 13,142 13,293 151 1.1
Eliminations.................................. (393) (518) (125) n/a
------- ------- ----- ----
Consolidated net sales...................... $31,661 $31,032 $(629) (2.0)%
======= ======= ===== ====
</TABLE>
The decrease in consolidated net sales during 1996 reflects the unfavorable
impact of price reductions of about $920 million (or 3.0% of net sales). Price
reductions reflected aggressive efforts of VMs to reduce their vehicle costs.
Such price pressures were most significant for our Electronics & Mobile
Communication product sector. Overall, price reductions as a percentage of net
sales during 1996 were generally higher than those anticipated in future years.
Net sales for each product sector were also negatively impacted by lower
GM-North America vehicle production due to work stoppages after considering
partial recovery of lost production in subsequent periods. The impact of price
reductions and work stoppages was partially offset by a $240 million increase in
aftermarket sales and greater penetration of non-GM customers during 1996.
Cost of Sales. Cost of sales, as a percentage of consolidated net sales,
was 88.5% in 1996 compared to 86.5% in 1995. The increase reflects the impact of
special items and work stoppages in 1996 as well as other factors which are
discussed in greater detail in the operating income discussion below.
Selling, General and Administrative and Depreciation and
Amortization. Selling, general and administrative expenses remained constant
during 1995 and 1996, while depreciation and amortization, excluding the impact
of divestiture-related charges, declined slightly.
Operating Income. Operating income was $1.3 billion in 1996 compared to
$2.1 billion in 1995. Excluding the impact of special items and work stoppages,
operating income totaled $2.1 billion in 1996. The following information on
operating income and changes in operating income and its components excludes the
impact of special items and work stoppages. See "--Results of
Operations--Special Items and Work Stoppages" for additional information.
Operating income by product sector and in total, excluding the impact of
special items and work stoppages, was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
PRODUCT SECTOR 1995 1996
-------------- ---- ----
(IN MILLIONS)
<S> <C> <C>
Electronics & Mobile Communication.......................... $ 871 $ 810
Safety, Thermal & Electrical Architecture................... 924 955
Dynamics & Propulsion....................................... 341 321
Other....................................................... 2 (27)
------ ------
Total operating income excluding the impact of special
items and work stoppages............................... $2,138 $2,059
====== ======
</TABLE>
45
<PAGE> 51
Our cost reduction strategies allowed us to achieve total material and
manufacturing cost savings of about $545 million during 1996. Cost savings were
realized by all of our product sectors but were more than offset by the impact
of price reductions and unrecovered design change costs, which together totaled
$1.4 billion. Unrecovered design change costs had a total unfavorable impact of
about $440 million, primarily affecting our Dynamics & Propulsion product sector
during 1996. Offsetting these reductions, our Safety, Thermal & Electrical
Architecture and Dynamics & Propulsion product sectors realized improved volumes
through additional aftermarket sales and sales to non-GM customers during 1996.
Interest Expense. Interest expense totaled $276 million and $293 million in
1996 and 1995, respectively. The decrease in 1996 interest expense reflects
lower interest rates during the year.
Other Income, Net. Other income, net totaled $115 million in 1996 compared
with $101 million in 1995. The increase is primarily due to improved earnings
from and growth in the number of nonconsolidated affiliates.
Taxes. The effective income tax rate for 1996 was 23.3% compared with 32.8%
for 1995. The effective income tax rate for 1996 reflected overall foreign tax
rates that were lower than the U.S. statutory rate and the impact of research
and experimentation credits.
Net Income. Net income totaled $853 million in 1996 and $1.3 billion in
1995. Income, excluding the impact of special items and work stoppages, totaled
$1.4 billion in 1996 and reflected the items discussed above.
PRO FORMA 1997 VERSUS PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating income, as reported, does not reflect the impact of many changes
in our operations that are expected to result from our separation from GM. After
giving effect to the terms of the Separation Agreement, our operating loss would
have been $201 million for the first nine months of 1998 compared to operating
income of $687 million for the year ended December 31, 1997. Excluding the
impact of special items and work stoppages and after giving effect to the terms
of the Separation Agreement, operating income would have been $1.1 billion for
the first nine months of 1998 compared to $2.3 billion for the year ended
December 31, 1997.
Overall, the terms of the Separation Agreement would have a favorable
impact on operating income of $83 million and $335 million for the nine months
ended September 30, 1998 and the year ended December 31, 1997, respectively. We
expect operating income to be favorably impacted by the net effect of lower
employee benefit costs and higher other costs associated with operating Delphi
as a stand-alone company.
During 1998, the net pro forma impact of employee benefit costs declined
due to changes in pension expense. Pension expense decreased in 1998 due to
lower interest expense on the pension liability and higher returns on pension
assets. The obligations and related assets for retired employees will be
retained by GM; therefore, pro forma expense in 1998 does not reflect the full
impact of these favorable trends. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements" for additional information.
QUARTERLY DATA
Our business is moderately seasonal as our primary North American customers
historically halt operations for about two weeks in July and about one week in
December. In addition, third quarter automotive production is traditionally
lower as new models enter production. Accordingly, third and fourth quarter
results may reflect these trends. Our quarterly results were impacted by a
number of special factors, including items associated with competitiveness
initiatives such as divestitures and plant closings, and work stoppages. The
following table sets forth certain unaudited quarterly historical condensed
consolidated financial data for each of the eight quarters through the period
ended September 30, 1998. This unaudited quarterly information adjusts as
reported data to exclude the impact of special items and work stoppages. The
operating results for any quarter shown are not necessarily indicative of
results for any future period. See "--Results of Operations--Special Items and
Work Stoppages" and Note 18 to the audited consolidated
46
<PAGE> 52
financial statements included elsewhere in this prospectus. The quarterly data,
excluding the impact of special items and work stoppages, does not give effect
to many significant changes that are expected to result from our separation from
GM.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1997 1997 1997 1997 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING INCOME (LOSS):
As reported..................... $(132) $497 $587 $145 $ (877) $334 $111 $(729)
Competitiveness Study........... -- -- -- -- 1,362 -- -- --
Trenton plant closing........... -- 80 -- -- -- -- -- --
Sale of facilities/businesses... 247 -- -- -- -- -- -- 430
Work stoppages.................. 252 -- 185 (37) -- -- 468 435
Retiree lump sum payments....... 86 -- -- -- -- -- -- --
----- ---- ---- ---- ------ ---- ---- -----
OPERATING INCOME EXCLUDING THE
IMPACT OF SPECIAL ITEMS AND WORK
STOPPAGES....................... $ 453 $577 $772 $108 $ 485 $334 $579 $ 136
===== ==== ==== ==== ====== ==== ==== =====
NET INCOME (LOSS):
As reported..................... $ (93) $287 $373 $ 76 $ (521) $236 $ 83 $(500)
Competitiveness Study........... -- -- -- -- 870 -- -- --
Trenton plant closing........... -- 50 -- -- -- -- -- --
Sale of facilities/businesses... 153 -- -- -- -- -- -- 271
Work stoppages.................. 156 -- 115 (23) -- -- 290 270
Retiree lump sum payments....... 53 -- -- -- -- -- -- --
Other special items............. 11 -- (36) -- (24) -- -- --
----- ---- ---- ---- ------ ---- ---- -----
INCOME EXCLUDING THE IMPACT OF
SPECIAL ITEMS AND WORK
STOPPAGES....................... $ 280 $337 $452 $ 53 $ 325 $236 $373 $ 41
===== ==== ==== ==== ====== ==== ==== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to the Cash and Debt Management Agreement and the intracompany
note payable, our historical balance sheets reflect cash and marketable
securities of $1.0 billion and short-term and long-term debt capitalization of
$3.5 billion at September 30, 1998 and December 31, 1997 and 1996. The
short-term and long-term debt capitalization included a $3 billion intracompany
note payable to GM and outstanding debt at our international subsidiaries. The
$3 billion intracompany note payable to GM reflects the portion of GM's
outstanding debt that is specifically related to our operations.
Our net liquidity was $(2.5) billion at September 30, 1998 and December 31,
1997 and 1996. Our net liquidity consists of cash and marketable securities less
the total of short-term and long-term debt. The ratio of total debt to total
capital (debt plus equity) was 101% at September 30, 1998 compared to 113% at
December 31, 1997 and 79% at December 31, 1996. Ratios greater than 100% reflect
the impact of a net deficit in stockholder's equity for certain periods
presented. The ratio of total debt to total capital increased during 1997,
reflecting the lower level of equity that resulted from the Competitiveness
Study charge that was recorded in 1997. The Offering and other related
transactions result in a pro forma total debt to total capital ratio of 56.6% at
September 30, 1998. If the U.S. underwriters exercise their over-allotment
option in full, the pro forma total debt to total capital ratio would decline to
54.5%.
LIQUIDITY PRIOR TO AND UPON OUR SEPARATION FROM GM AND THE OFFERING
The following table sets forth the changes in our net liquidity, certain of
which occurred immediately prior to or upon the transfer of assets and
liabilities from GM to our company. The extension of payment terms for
intracompany accounts receivable and the settlement of intracompany accounts
receivable with the
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<PAGE> 53
intracompany note payable occurred before assets and liabilities were
transferred to Delphi Automotive Systems Corporation. Consequently, these
transactions were executed by the Delphi businesses, and not by Delphi
Automotive Systems Corporation.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------------------------
CASH AND
MARKETABLE SHORT- AND NET
SECURITIES LONG-TERM DEBT LIQUIDITY
---------- -------------- ---------
(IN BILLIONS)
<S> <C> <C> <C>
As reported......................................... $ 1.0 $ 3.5 $(2.5)
Extension of payment terms for intracompany accounts
receivable from GM................................ (2.1) -- (2.1)
Settlement of intracompany note payable to GM....... -- (3.0) 3.0
Increase in accounts receivable, subsequent to
settlement of intracompany accounts receivable.... (1.8) -- (1.8)
Proceeds from third party financing................. 3.0 3.0 --
Proceeds from the Offering.......................... 1.5 -- 1.5
----- ----- -----
$ 1.6 $ 3.5 $(1.9)
===== ===== =====
</TABLE>
Each of the above changes in our net liquidity is discussed in detail in
the sections that follow.
EXTENSION OF PAYMENT TERMS
In accordance with the Supply Agreement, effective January 1, 1999, payment
terms for intracompany accounts receivable from GM will be modified such that
payments will generally be due from GM on the second day of the second month
following the date of shipment by Delphi. These modified payment terms are
consistent with those GM is currently in the process of introducing to all of
its suppliers. Previous payment terms generally required GM to make intracompany
accounts receivable payments in the month following shipment by Delphi. Overall,
Delphi expects this change to increase accounts receivable by about $2.1 billion
beginning in 1999. While Delphi intends to seek an extension of payment terms
with its suppliers over time, in most cases it currently pays suppliers on the
25th day of the month following the date a shipment is received. The difference
in the terms for accounts receivable and accounts payable results in a monthly
short-term cash flow gap. Delphi expects to finance this short-term cash flow
gap through short-term borrowings, as discussed below. For more information
about the change in payment terms, see "Arrangements Between Delphi and General
Motors--Supply Agreement."
DEBT CAPITALIZATION AND AVAILABLE FINANCING SOURCES
Immediately prior to the transactions contemplated by the Separation
Agreement, approximately $1.8 billion of certain intracompany accounts
receivable from GM will be offset with the $3.0 billion outstanding intracompany
note payable to GM, with the difference resulting in an increase in GM's net
investment in Delphi. We expect to finance our operations through draw downs of
up to $3.0 billion from the $5.0 billion third party revolving credit facilities
described below.
In December 1998, we entered into two financing agreements with a syndicate
of lenders providing for an aggregate of $5 billion in revolving credit
facilities. In general, we may borrow up to $5 billion under the facilities
through January 3, 2000, after which $1.5 billion will be available through
January 3, 2004. The amount we may borrow under the facilities will be reduced
to the extent the aggregate net cash proceeds from issuances of common stock by
Delphi and our subsidiaries, excluding issuances under our regular employee,
executive and director stock option plans, exceeds $1.5 billion. This includes
the net cash proceeds from this offering. The amount we may borrow will also be
reduced to the extent of the net cash proceeds from public offerings and private
placements of debt securities, excluding debt securities with a maturity of less
than one
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<PAGE> 54
year. The reduction arising from issuances of debt securities will not exceed
$2.0 billion. We may borrow under these financing arrangements for general
corporate purposes. The credit facilities include certain customary affirmative
and negative covenants, including maintenance of a ratio of consolidated total
debt to consolidated EBITDA, excluding extraordinary items. For additional
information on the revolving credit facilities, see Note 8 to the audited
consolidated financial statements included elsewhere in this prospectus.
We expect the draw downs from the revolving credit facilities to be
refinanced with a combination of operating cash flows and the issuance of
long-term debt during the first half of 1999. Subsequently, it is expected that
the $5.0 billion revolving credit facilities would be reduced to $3.0 billion in
available funds, generally split between 364-day and five-year tranches.
The factors considered in determining the initial capitalization include
our company's prospective financing requirements, expected working capital and
capital expenditure requirements, desired credit rating and the need for
adequate debt capacity to pursue strategic initiatives. In reviewing these
factors, the capitalization and credit ratings of comparable companies in the
automotive components and systems industry were also considered.
After the Offering, General Motors will continue to own a significant
portion of our common stock. As a result, GM will continue to include us as a
"subsidiary" for various financial reporting, accounting and other purposes.
Accordingly, we have agreed to certain covenants regarding the incurrence of
debt. Specifically, so long as GM owns at least 50% of our outstanding shares of
common stock, these covenants limit our maximum indebtedness, including
indebtedness incurred in connection with acquisitions. See "Arrangements Between
Delphi and General Motors--IPO and Distribution Agreement."
Delphi's intra-year cash fluctuations are impacted by the volume and timing
of worldwide vehicle production. Examples of seasonal effects in the industry
include the shut-down of operations of our primary North American customers for
about two weeks in July, the subsequent ramp-up of new model production and the
additional one-week shut-down in December. We believe that our company has
sufficient financial flexibility to fund these fluctuations and to access the
global capital markets on terms and in amounts satisfactory to it, although
there can be no assurance that that will be the case. In addition, we expect
cash flows from operations, funding obtained through the Offering, the
establishment of the revolving credit facilities and other short-term sources to
be sufficient to satisfy future working capital, capital expenditure, research
and development, pension funding requirements and debt service requirements
during the next 12 to 18 months. We expect cash flows from operations, the
establishment of the revolving credit facilities and access to the short-term
and long-term capital markets to satisfy our funding needs during our five-year
business planning cycle. See "--Cash Flows--Investing Activities" and "--Our
Other Postretirement Employee Benefits and Underfunded Pension Obligations."
CASH FLOWS
Operating Activities. Cash flows used in operating activities during the
first nine months of 1998 totaled $51 million compared to cash flows provided by
operating activities of $1.8 billion for the same period in 1997. The decrease
in 1998 resulted from the impact of work stoppages and the related overall
decline in net income. In addition, operating cash flow in 1998 reflected cash
used for other postretirement benefits, as discussed below.
Net cash provided by operating activities was $2.9 billion for the year
ended December 31, 1997 compared to $2.7 billion in 1996 and $1.4 billion in
1995. The 1997 increase in cash flows from operating activities primarily
reflects increases in accounts payable, accrued liabilities, and other
liabilities, partially offset by increased accounts receivable and cash used for
other postretirement benefits as discussed below. The changes referenced above
primarily reflected an increased volume of activity, differences in the timing
of settlements, and amounts accrued in connection with the Competitiveness
Study. The increase in net cash provided by operating activities in 1996
resulted from a decrease in accounts receivable and cash contributions
49
<PAGE> 55
to GM's worldwide pension funds. Cash pension contributions for 1996 decreased
due to the improved funding of GM's U.S. hourly pension plan.
Operating cash flow for the first nine months of 1998 and for the full year
1997 reflected contributions to a Voluntary Employees' Beneficiary Association
(VEBA) trust. The contributions, which totaled $615 million in the first nine
months of 1998 and $925 million in the fourth quarter of 1997, were made in
connection with GM's pre-funding of a portion of its other postretirement
benefit liabilities. In accordance with the terms of the Separation Agreement,
GM will retain 100% of the pre-funding and accordingly, Delphi's other
postretirement benefit liabilities do not reflect an allocation of the VEBA
trust assets.
Investing Activities. Cash flows used in investing activities totaled $699
million and $860 million for the nine months ended September 30, 1998 and 1997,
respectively, and $1.3 billion, $1.0 billion and $1.1 billion for the years
ended December 31, 1997, 1996 and 1995, respectively. Overall, cash flows used
in investing activities primarily relate to our capital expenditure program,
partially offset by proceeds from asset sales. Capital expenditures by product
sector and geographic region for the periods presented were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Electronics & Mobile Communication................. $ 265 $ 195 $ 122 $100 $130
Safety, Thermal & Electrical Architecture.......... 355 418 464 313 247
Dynamics & Propulsion.............................. 532 548 778 504 486
Other.............................................. 3 16 19 6 9
------ ------ ------ ---- ----
Total Capital Expenditures....................... $1,155 $1,177 $1,383 $923 $872
====== ====== ====== ==== ====
United States...................................... $ 773 $ 809 $ 930 $682 $555
Canada & Mexico.................................... 77 65 88 26 73
Other International................................ 305 303 365 215 244
------ ------ ------ ---- ----
Total Capital Expenditures....................... $1,155 $1,177 $1,383 $923 $872
====== ====== ====== ==== ====
</TABLE>
Our capital expenditure program promotes our growth-oriented business
strategy by investing in existing core areas, where efficiencies and
profitability can be enhanced, and by targeting funds for new innovative
technologies, where long-term growth opportunities can be realized.
Total capital expenditures were $872 million for the nine months ended
September 30, 1998 compared to $923 million for the same period in 1997. The
lower level of spending for the first nine months of 1998, compared to the same
period in 1997, resulted primarily from differences in the timing of project
spending for new product programs. As discussed in further detail below, full
year 1998 capital expenditures are expected to total $1.4 billion. Total capital
expenditures for the year ended December 31, 1997 were $1.4 billion compared to
$1.2 billion in each of 1996 and 1995. The increased spending for the year ended
December 31, 1997 primarily resulted from the start-up of several new product
programs, increased penetration with non-GM customers, and expansion into new
market areas primarily outside the United States.
The decrease in capital expenditures for the Electronics & Mobile
Communication product sector in 1997, as compared to 1996 and 1995, reflected a
reduction in tooling and the timing of spending on new product programs. For
example, the introduction of product designs to ensure customer compliance with
certain governmental regulations contributed to the higher level of spending in
1995 and 1996.
The higher level of spending for the Safety, Thermal & Electrical
Architecture product sector during 1997 and 1996 primarily reflected spending to
support expansion into new market areas outside of the United States.
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<PAGE> 56
The higher level of capital spending for the Dynamics & Propulsion product
sector in 1997 reflected several new major product programs that were initiated
in late 1996 and carried over to 1997. In addition, 1997 capital expenditures
were impacted by spending related to increased penetration with non-GM customers
and expansion projects, primarily in Europe and Mexico.
We expect capital expenditures to total $1.4 billion in 1998. About 42% of
1998 capital expenditures are targeted outside the United States. The
Electronics & Mobile Communication; Safety, Thermal & Electrical Architecture;
and Dynamics & Propulsion product sectors are expected to account for 15.1%,
32.7% and 51.5%, respectively, of 1998 capital expenditures.
We expect capital expenditures to total $1.5 billion in 1999. Such
expenditures will primarily be utilized for equipment, tooling and other
spending associated with new product programs, including increasing sales to
non-GM customers. Expenditures will also be used for expansion into new markets
outside the United States and the continued implementation of lean manufacturing
strategies. About 43% of 1999 capital expenditures are targeted outside the
United States. The Electronics & Mobile Communication; Safety, Thermal &
Electrical Architecture; and Dynamics & Propulsion product sectors are expected
to account for 18.3%, 33.4% and 47.5%, respectively, of 1999 capital
expenditures.
Financing Activities. Net cash provided by financing activities for the
first nine months of 1998 totaled $741 million compared to $903 million of cash
used in financing activities during the first nine months of 1997. Net cash used
in financing activities totaled $1.5 billion in 1997 compared with $1.7 billion
and $263 million in 1996 and 1995, respectively. Cash provided by or used in
financing activities primarily related to the transfer or assumption of assets
and liabilities to our company from GM under the terms of the Separation
Agreement. The period to period change reflects differences in separation
adjustments for various assets and liabilities, principally pensions and other
postretirement benefits.
OUR OTHER POSTRETIREMENT EMPLOYEE BENEFITS AND UNDERFUNDED PENSION OBLIGATIONS
In connection with our separation from General Motors, we have entered into
several agreements relating to pensions and other postretirement employee
benefits for our employees as well as certain employees associated with prior
divestitures. See "Arrangements Between Delphi and General Motors--Employee
Matters." Our pension obligations are based on the pension plans' assets, the
expected investment return on those assets and the plans' expected liabilities.
Under current economic conditions and federal government regulations, our
pension obligations would be considered to be "underfunded." The amount of
underfunding can vary from time to time, depending on factors such as discount
rates, asset returns, contributions and other factors. As of September 30, 1998,
Delphi's salaried and hourly other postretirement employee benefit obligation
was about $4.5 billion and the underfunded pension obligation was about $1.9
billion.
Because of the underfunded nature of our pension plans, federal regulations
will require that our contributions over time meet minimum funding requirements.
Delphi is responsible for assuming the underfunded hourly pension liability
associated with Delphi hourly employees or paying GM for underfunding relating
to such employees.
Although we are not required to do so, we have commenced discussions with
the Pension Benefit Guaranty Corporation ("PBGC") regarding the underfunded
nature of our pension plans. In connection with these discussions, the PBGC may
request that we take actions in excess of federal regulatory minimum
requirements. The outcome of these discussions is as yet unknown, but if any
actions in excess of federal regulatory minimum requirements are discussed, we
intend to seek to maintain sufficient financial flexibility in order to execute
our business strategy. We may also determine, as part of our capital planning
process, to make voluntary contributions to our pension plans in excess of
federal regulatory minimum requirements in order to further address the
underfunded status of our pension plans.
In any event, regardless of the outcome of our discussions with the PBGC,
we expect these contributions to be material to our results of operations and
financial condition. We cannot accurately predict the amount or timing of
contributions that will be required in the future or the related impact on our
financial results and
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<PAGE> 57
financial condition. These amounts may be affected by general economic
conditions (including anticipated interest rates), the actual investment return
on plan assets, the retirement rate of our employees, the attrition rate of our
employees and other factors.
In addition, we and GM have agreed with the UAW and the IUE that any of our
hourly employees who are members of such unions and who retire on or before
October 1, 1999 will be treated as GM employees for purposes of postretirement
benefit obligations. The allocation of pension and other postretirement benefit
obligations between us and GM assumes certain levels of employee retirements
prior to October 1, 1999, based on historical experience and conditions
surrounding our separation from GM. We have agreed with GM to recalculate the
allocation of those liabilities based on the actual level of retirements on or
before October 1, 1999. Accordingly, if and to the extent that greater than the
assumed number of our employees retire on or before October 1, 1999, we would be
required to make a payment to GM. Depending on the amount of such a payment, if
any, it could have a material adverse effect on our short-term liquidity.
INFLATION
Inflation generally affects Delphi by increasing the cost of labor,
equipment and raw materials. We believe that, because rates of inflation in
countries where we have significant operations have been moderate during the
periods presented, inflation has not had a significant impact on our results of
operations.
YEAR 2000
Many computerized systems and microprocessors that are embedded in a
variety of products either made or used by Delphi have the potential for
operational problems if they lack the ability to handle the transition to the
Year 2000. This issue has the potential to cause disruption to the business of
Delphi and the companies that it supplies. In our capacity as principal supplier
to and wholly owned subsidiary of GM, we are part of GM's comprehensive
worldwide Year 2000 program. As part of that program, Delphi is identifying and
remediating potential Year 2000 problems in its business information systems and
other systems embedded in its engineering and manufacturing operations. Delphi,
in conjunction with GM's supplier assessment and remediation program, has also
initiated communications and site assessments with its suppliers and other third
parties in order to assess and reduce the risk that Delphi's operations could be
adversely affected by the failure of these third parties to address adequately
the Year 2000 issue.
One of our first priorities was the analysis of microprocessors used in our
automotive components, integrated systems and modules supplied to VMs, which has
now been completed. Most of the processors reviewed have no date-related
functionality, and accordingly have no specific Year 2000 issues. Of the vehicle
processors that perform date-related functions, none had any Year 2000 issues.
However, one indicator light manufactured by us and provided for three GM
vehicle models (1988 and 1989 only) prematurely indicates the need for an oil
change at the end of every decade. In addition, one trip computer module
supplied by us to another VM does not recognize 2000 as a leap year but can be
reset without affecting performance. Neither of these issues affects vehicle
operation or occupant safety or is expected to result in material costs to
Delphi.
Our Year 2000 program teams are responsible for remediating all of our
information technology and embedded systems. Information technology principally
consists of business information systems (such as mainframe and other shared
computers and associated business application software) and infrastructure (such
as personal computers, operating systems, networks and devices like switches and
routers). Embedded systems include microprocessors used in factory automation
and in systems such as elevators, security and facility management. Delphi's
Year 2000 program includes assessment and remediation services provided by
Electronic Data Systems Corporation ("EDS"), which is a principal supplier of
information technology services to Delphi.
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<PAGE> 58
The Year 2000 program is being implemented in seven phases, some of which
are being conducted concurrently:
- Inventory. This phase involves the identification and validation of an
inventory of all systems that could be affected by the Year 2000 issue.
The inventory phase commenced in earnest in 1997 and is substantially
complete. As a result, we have identified approximately 1,600 business
information systems and about 300,000 infrastructure items and embedded
systems.
- Assessment. This phase involves the initial testing, code scanning and
supplier contacts to determine whether remediation is needed and to
develop a remediation plan, if applicable. The assessment of business
information systems is substantially complete and included a
determination that about one quarter of such systems should be regarded
as "critical" based on criteria such as the potential for business
disruption. The assessment of infrastructure items and embedded systems
is still underway but is expected to be substantially complete by the end
of 1998.
- Remediation. This phase involves the design and execution of a
remediation plan, followed by testing for adherence to the design. We are
generally targeting the end of 1998 for remediation of our critical
systems and will continue to address remediation of these and other
systems on a selectively prioritized basis thereafter. Unimportant
systems have been and will continue to be removed from our Year 2000
inventory and will not be remediated. We believe that we are
substantially on track to meet our remediation targets. Based on our
ongoing plan to implement new enterprise software incrementally, we will
replace rather than remediate certain existing information systems. In
this regard, a number of implementations are scheduled to be completed in
Europe in the first quarter of 1999. In the United States, implementation
of the enterprise software at one of our principal product groups is
expected to be completed in July 1999.
- System Test. This phase involves the testing of remediated items to
ensure that they function normally after being replaced in their original
operating environment. It is closely related to the remediation phase and
follows essentially the same schedule.
- Implementation. This phase involves the return of items to normal
operation after satisfactory performance in system testing. It follows
essentially the same schedule as remediation and system testing.
- Readiness Testing. This phase involves the planning for and testing of
integrated systems in a Year 2000-ready environment, including ongoing
auditing and follow-up. Readiness testing is currently underway and this
phase is expected to become the major focus of the Year 2000 program
commencing in the fourth quarter of 1998 and continuing throughout 1999.
- Contingency Planning. This phase involves the development and execution
of plans that narrow the focus on specific areas of significant concern
and concentrate resources to address them. We currently believe that the
most reasonably likely worst case scenario is that there will be some
localized disruptions of systems that will affect individual business
processes, facilities or suppliers for a short time rather than systemic
or long-term problems affecting our business operations as a whole. Our
contingency planning will continue to identify systems or other aspects
of our business or those of our suppliers that we believe would be most
likely to experience Year 2000 problems as well as those business
operations in which a localized disruption could have the potential for
causing a wider problem by interrupting the flow of products, materials
or data to other operations. Because there is uncertainty as to which
activities may be affected and the exact nature of the problems that may
arise, our contingency planning will focus on minimizing the scope and
duration of any disruptions by having sufficient personnel, inventory and
other resources in place to permit a flexible, real-time response to
specific problems as they may arise at individual locations around the
world. Some of the actions that we may consider include the deployment of
emergency response teams on a regional or local basis and the development
of plans for the allocation, stockpiling or re-sourcing of components and
materials that may be critical to our continued production. Specific
contingency plans and resources for permitting
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<PAGE> 59
the necessary flexibility of response are expected to be identified and
put into place commencing in mid-1999.
The assessment and remediation phases described above include communicating
with our suppliers as part of a broader supplier assessment program in which we
are participating with GM. As part of that program, an industry trade
association, the Automotive Industry Action Group, has distributed Year 2000
compliance questionnaires as well as numerous Year 2000 awareness and assistance
mailings to many of the 40,000 supplier sites that supply Delphi throughout the
world. We are not relying entirely on assurances contained in those
questionnaire responses and we are participating in GM's own further assessment
of our suppliers. That further assessment includes GM's own on-site review of
suppliers considered to be critical to GM's operations, including Delphi's
operations as part of GM. These supplier assessment efforts are expected to be
substantially complete for critical supplier sites by the end of 1998. Based on
our participation with GM in this assessment activity to date, we believe that a
substantial majority of our suppliers are making acceptable progress toward Year
2000 readiness. We are also participating in a program that GM has established
to provide further assistance to suppliers that desire more input or that are
believed to be at high risk of noncompliance as a result of the foregoing
assessment efforts. This supplier assistance program currently includes
providing compliance workshops and remediation consultants to work with
suppliers on developing and implementing their own remediation programs. We also
expect that our contingency planning efforts described above will address any
critical suppliers that we still identify as being at high risk of encountering
Year 2000 problems upon completion of the supplier assistance program. We intend
to enter into appropriate arrangements with GM to provide for continued
coordination of our respective supplier assessment and assistance efforts after
the Distribution.
In contrast to some Year 2000 programs, we are not relying entirely on the
receipt of written assurances from our suppliers; rather, together with GM, we
are also evaluating certain suppliers on a first-hand basis and are seeking to
enhance their likelihood of full Year 2000 readiness by actively assisting them
with training and consultation regarding Year 2000 remediation projects. We
expect that information from our suppliers, written responses and our
interactions with them will provide us with a basis for further contingency
planning and risk management.
The cost of our Year 2000 program is being expensed as incurred with the
exception of capitalizable replacement hardware. Total incremental spending by
Delphi is not expected to be material to the company's operations, liquidity or
capital resources. We incurred about $7 million of Year 2000 expense during 1997
and about $16 million in the first nine months of 1998. Delphi currently expects
its total Year 2000 spending to be about $125 million, with peak spending
occurring in late 1998 and early 1999, plus approximately $9 million of
additional costs associated with information technology projects that were
already underway or scheduled independently of our Year 2000 program but that
have been accelerated due to the Year 2000 issue. This total spending also
includes an additional payment of about $13 million (part of GM's overall
additional payment to EDS of $75 million) at the end of the first quarter of
2000 if systems remediated by EDS under its master information technology
services agreement with GM are capable of continued operation before, on and
after January 1, 2000 without causing a significant business disruption that
results in a material financial loss to "GM" due to the millennium change. For
this purpose, "GM" includes Delphi and all other GM units being supported by EDS
as of September 30, 1998, taken in the aggregate, including any such GM unit
which may subsequently be divested but that continues to be supported by the
remediation services of EDS. The estimated value of the services EDS is required
to provide to Delphi under its master information technology services agreement
with GM that are included in normal fixed price services and other ongoing
payments to EDS that are attributable to work being performed in connection with
Delphi's Year 2000 program is about $77 million (part of the estimated $300
million attributable to GM overall). This does not represent incremental
spending to Delphi. None of our information technology projects has been delayed
due to Year 2000.
In view of the foregoing, Delphi does not currently anticipate that we will
experience a significant disruption of our business as a result of the Year 2000
issue. However, there is still uncertainty about the broader scope of the Year
2000 issue as it may affect Delphi and third parties, including our customers,
that
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<PAGE> 60
are critical to Delphi's operations. For example, lack of readiness by
electrical and water utilities, financial institutions, governmental agencies or
other providers of general infrastructure could, in some geographic areas, pose
significant impediments to Delphi's ability to carry on our normal operations in
the area or areas so affected. In the event that Delphi is unable to complete
our remedial actions as described above and is unable to implement adequate
contingency plans in the event that problems are encountered, there could be a
material adverse effect on Delphi's business, results of operations or financial
condition.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU") will
introduce a new currency, the euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 1999, the participating countries are scheduled to adopt the
euro as their local currency, initially available for currency trading on
currency exchanges and non-cash (banking) transactions. The existing local
currencies, or legacy currencies, will remain legal tender through January 1,
2002. Beginning on January 1, 2002, euro-denominated bills and coins will be
issued for cash transactions. For a period of up to six months from this date,
both legacy currencies and the euro will be legal tender. On or before July 1,
2002, the participating countries will withdraw all legacy currencies and use
exclusively the euro.
The introduction of the euro is a significant event with potential
implications for our existing operations within countries participating in the
EMU. As such, we have committed resources to conduct risk assessments and to
take corrective actions, where required, to ensure that we are prepared for the
introduction of the euro. We have undertaken a review of the euro implementation
and concentrated on areas such as operations, finance, treasury, legal,
information management, procurement and others, both in participating and non-
participating European Union countries where we have operations. Also, existing
legacy accounting and business systems and other business assets have been
reviewed for euro compliance, including assessing any risks from third parties.
Progress regarding euro implementation is reported periodically to management.
We do not currently expect the introduction of the euro to cause any
significant operational disruptions. In addition, we do not expect to incur any
significant costs, including any currency risk, which could materially affect
our liquidity or capital resources.
DEFERRED INCOME TAXES
At December 31, 1997, Delphi's consolidated balance sheet included a net
deferred tax asset of approximately $3.2 billion. This net deferred tax asset
relates to temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and liabilities as
measured by tax laws. For more information, see Note 5 to Delphi's audited
consolidated financial statements included elsewhere in this prospectus. About
$1.7 billion of the net deferred tax asset balance is related to the obligation
for postretirement benefits other than pensions. Realization of the net deferred
tax asset is dependent upon profitable operations in the United States and
future reversals of existing taxable temporary differences. Although realization
is not assured, we believe that it is more likely than not that such benefits
will be realized through the reduction of future taxable income. Management has
carefully considered various factors in assessing the probability of realizing
these deferred tax assets including:
- Delphi's operating results over the most recent three year period and
overall financial forecasts of book and taxable income for the 1998-2003
period.
- The ability to utilize tax planning, such as capitalization of research
and experimentation costs for tax purposes, so that Delphi does not
generate any significant U.S. federal tax net operating loss
carryforwards.
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- The extended period of time over which the tax assets can be utilized.
Postretirement benefits become tax deductions over periods up to 50
years.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Delphi is exposed to market risks from changes in foreign currency exchange
rates and certain commodity prices. In order to manage these risks, we
participate in GM's risk management program, which includes entering into a
variety of foreign exchange and commodity forward contracts and options. The
commodity price hedging programs have been managed on a centralized basis by GM,
foreign currency risks have historically been managed by both GM and certain
foreign locations.
A discussion of Delphi's accounting policies for derivative instruments is
included in Note 2 to the audited consolidated financial statements included
elsewhere in this prospectus and further disclosure is provided in Note 17 to
those financial statements. Delphi and GM maintain risk management control
systems to monitor foreign exchange and commodity risks, and related hedge
positions. Positions are monitored using a variety of analytical techniques
including market value, sensitivity analysis, and value-at-risk models. The
following analyses are based on sensitivity analysis tests which assume
instantaneous, parallel shifts in exchange rates and commodity prices. For
options and instruments with non-linear returns, appropriate models are utilized
to determine the impact of sensitivity shifts.
FOREIGN CURRENCY EXCHANGE RATE RISK
Delphi has foreign currency exposures related to buying, selling and
financing in currencies other than the local currencies in which it operates.
More specifically, Delphi is exposed to foreign currency risk related to
uncertainty to which future earnings or assets and liability values are exposed
due to operating cash flows and various financial instruments that are
denominated in foreign currencies. Currently, Delphi's most significant foreign
currency exposures relate to Mexico, Germany, France, Spain and South Korea. As
of December 31, 1997, the net fair value liability of financial instruments with
exposure to foreign currency risk was about $49 million. The potential loss in
fair value liability for such financial instruments from a hypothetical 10%
adverse change in quoted foreign currency exchange rates would be about $5
million. The model assumes a parallel shift in foreign currency exchange rates;
however, exchange rates rarely move in the same direction. The assumption that
exchange rates change in a parallel fashion may overstate the impact of changing
exchange rates on assets and liabilities denominated in a foreign currency.
COMMODITY PRICE RISK
Until January 1, 1999, GM entered into commodity forward and option
contracts on behalf of our company. Such contracts were executed to offset our
exposure to the potential change in prices mainly for various non-ferrous metals
used in the manufacturing of automotive components. The net fair value liability
of such contracts, excluding the underlying exposures, as of December 31, 1997
was about $11 million. The potential change in the fair value of commodity
forward and option contracts, assuming a 10% change in the underlying commodity
price, would be about $27 million at December 31, 1997. This amount excludes the
offsetting impact of the price risk inherent in the physical purchase of the
underlying commodities.
INTEREST RATE RISK
Due to limited borrowings from third party credit sources, Delphi's
historical interest rate risk was generally not significant. Subsequent to our
separation from GM, we may manage our exposure to interest rate risk through the
use of derivative instruments designed to manage risk and minimize interest
expense.
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ENVIRONMENTAL MATTERS
Delphi is subject to various laws governing the protection of the
environment including laws regulating air emissions, water discharges and waste
management. Delphi has made and will continue to make capital and other
expenditures to comply with environmental requirements. However, such
expenditures were not material during the years ended December 31, 1997, 1996
and 1995 and are not expected to be material in 1998 or 1999. Environmental
requirements are complex, change frequently and have tended to become more
stringent over time. Accordingly, we cannot assure you that these requirements
will not change or become more stringent in the future in a manner that could
have a material adverse effect on our business.
Delphi is also subject to environmental laws requiring investigation and
cleanup of environmental contamination and is in various stages of investigation
and cleanup at its manufacturing sites where contamination has been alleged. At
September 30, 1998, our reserve for such environmental investigation and cleanup
totaled about $19 million. For a description of the environmental liabilities
allocated to our business as part of our separation from General Motors, see
"Arrangements Between Delphi and General Motors--Real Estate and Environmental."
The process of estimating environmental clean-up liabilities is complex and
dependent primarily on the nature and extent of historical information and
physical data relating to a contaminated site, the complexity of the site, the
uncertainty as to what remedy and technology will be required, the outcome of
discussions with regulatory agencies and at multi-party sites, other potentially
responsible parties. In future periods, new laws or regulations, advances in
cleanup technologies and additional information about the ultimate cleanup
remedy that is used could significantly change our estimates. Accordingly, we
cannot assure you that our environmental cleanup costs and liabilities will not
exceed the current amount of our reserve.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires recognition of all derivative financial instruments as either assets or
liabilities in consolidated balance sheets at fair value and determines the
method(s) of gain/loss recognition. We are required to adopt SFAS No. 133 with
our fiscal year ending December 31, 2000 and are currently assessing the effect
that it may have on our consolidated financial statements.
SFAS No. 133 provides that, if certain conditions are met, a derivative may
be specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge) or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in the fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change.
In March 1998, the Accounting Standards Executive Committee ("ASEC") for
the American Institute of Certified Public Accountants released Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
for Internal Use." SOP 98-1 requires the capitalization of certain expenditures
for software that is purchased or internally developed once certain criteria are
met. Currently, we generally expense the costs of developing or obtaining
internal use software as incurred. We will adopt SOP 98-1 on
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January 1, 1999, as required. We expect that about $30 to $40 million of
spending that would have otherwise been expensed as incurred will be capitalized
in 1999 in accordance with the provisions of SOP 98-1.
In April 1998, the ASEC released SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 generally requires costs of start-up activities
to be expensed instead of being capitalized and amortized. We are required to
adopt the pronouncement January 1, 1999. We have not concluded at this time on
the applicability or impact of this SOP on our consolidated financial
statements.
FORWARD-LOOKING STATEMENTS
Delphi is subject to various factors, many of which are outside of its
control, that could cause actual results to differ from those expressed in
forward-looking statements throughout "Management's Discussion and Analysis of
Financial Condition and Results of Operations." See "Risk Factors" for
additional information about such factors.
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BUSINESS OF DELPHI
OVERVIEW
OUR COMPANY. Delphi is the world's largest and most diversified supplier of
components, integrated systems and modules to the automotive industry, with 1997
revenues of $31.4 billion. Based on the latest Fortune 500 survey, Delphi on an
independent basis would have ranked as the 25th largest industrial corporation
in the United States based on 1997 revenues. We have become a leader in the
global automotive parts industry by capitalizing on the extensive experience we
have gained as the principal supplier of automotive parts to General Motors, the
world's largest manufacturer of automotive vehicles. We are primarily a "Tier 1"
supplier, which means that we generally provide our products directly to
automotive vehicle manufacturers ("VMs"). We also sell our products to the
worldwide aftermarket for replacement parts and to non-VM customers.
About five years ago, we began to transform our company from a North
America-based, captive component supplier to GM into a global supplier of
components, integrated systems and modules for a wide range of customers. We now
sell our products to every major manufacturer of light vehicles in the world.
Since 1993, our sales to customers other than GM have grown from 13.3% of our
total sales to 18.3% in 1997. For this purpose, our total sales include all
sales by entities in which we own a minority interest.
We have also established an expansive global presence, with a network of
manufacturing sites, technical centers, sales offices and joint ventures located
in every major region of the world. About 59% of our employees and, based on
square footage, about 30% of our wholly owned and leased manufacturing sites
were located outside the United States and Canada as of September 30, 1998.
About 28% of our total 1997 sales were derived from products manufactured at
sites located outside the United States and Canada.
Through our experience with General Motors, we have developed a
sophisticated understanding of the design, engineering, manufacture and
operation of all aspects of the automotive vehicle. We have both extensive
technical expertise in a broad range of product lines and strong systems
integration skills, which enable us to provide comprehensive, systems-based
solutions for our customers. We believe that we are one of the leading Tier 1
suppliers in each of our focused product areas. We operate our business along
three major product sectors which work closely together to coordinate our
product development and marketing efforts. Our three product sectors are:
Electronics & Mobile Communication, which includes our automotive electronics
and audio and communication systems; Safety, Thermal & Electrical Architecture,
which includes our interior, thermal and power and signal distribution products;
and Dynamics & Propulsion, which includes our energy and engine management,
chassis and steering products.
Our core business objective is to increase our earnings by expanding our
sales globally while improving our operating performance. We believe that our
comprehensive vehicle knowledge and expansive global presence provide a solid
foundation for our continued growth, particularly as VMs increasingly seek
suppliers with technical expertise who can provide competitively-priced systems
solutions to consumers' requirements for ride and handling performance, safety,
security, communications, convenience and entertainment and who can deliver
products and offer customer service on a worldwide basis. Although we expect
that GM will remain our largest customer for a significant period of time, we
also expect that our sales to GM's North American operations will decline over
time. Accordingly, our strategy focuses on increasing sales to other customers
while maintaining our strong relationship with GM. We believe that our ability
to achieve this sales growth over time will be enhanced by our complete
separation from GM.
The principal elements of our business strategy are:
- to supply our customers with high-quality, innovative components, systems
and modules
- to pursue business with customers other than GM-North America while
maintaining our significant customer-supplier relationship with GM
- to leverage our global presence to meet our customers' needs
- to improve our operating performance
- to complete strategic acquisitions, joint ventures and alliances
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OUR SALES AND AWARDED BUSINESS. We currently sell our products to all of
the major VMs. While we expect our business with customers other than GM to
increase over time, we also expect that GM will remain our largest customer by
far for a significant period of time due to the long-term nature of sales
contracts in our industry, our strong customer-supplier relationship with GM and
the Supply Agreement with GM. We supply parts to each regional sector of GM's
Automotive Operations, including its automotive operations in the United States,
Canada and Mexico ("GM-North America"), and to GM's automotive operations
throughout the rest of the world ("GM-International"). In addition, we sell our
products to the worldwide aftermarket for replacement parts. Currently, most of
our aftermarket sales are to GM's Service Parts Operations ("GM-SPO") for
distribution principally to the North American aftermarket.
The following table shows how our total sales were derived for each of the
last three years and for the nine months ended September 30, 1997 and 1998. The
percentages for the nine months ended September 30, 1998 were affected by work
stoppages in the United States in June and July 1998.
<TABLE>
<CAPTION>
TOTAL SALES
---------------------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
CUSTOMER 1995 1996 1997 1997 1998
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GM-North America.................... 69.3% 66.6% 65.4% 66.0% 61.3%
GM-International.................... 10.3 11.7 11.2 11.6 11.5
GM-SPO.............................. 4.5 5.2 5.1 5.2 5.7
----- ----- ----- ----- -----
Total GM.......................... 84.1 83.5 81.7 82.8 78.5
Other Customers..................... 15.9 16.5 18.3 17.2 21.5
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
For purposes of the foregoing table, "total sales" include all of the sales
from joint ventures and other investments in which we own a minority interest
even though these sales are not reflected in our sales as reported in our
consolidated financial statements included elsewhere in this prospectus. This is
how we have historically tracked our sales by customer for internal purposes. We
include our minority joint venture sales for this purpose because, among other
things, they principally relate to our joint ventures outside the United States
where we frequently have significant influence over product design and
technology and customer relationships but do not own more than 50%. If we owned
50% or more of these joint ventures, in most cases, we would include these sales
in our consolidated sales. In addition, many of these joint ventures use our
technologies. If we did not include these sales, the percentages set forth above
for GM would be higher.
We have a substantial base of awarded business from vehicle manufacturers,
including business with GM-North America under arrangements that are governed by
the Supply Agreement. We track as "awarded business" the future sales that we
have a strong expectation of realizing based on various types of VM awards to us
and various assumptions we make regarding, among other things, the timing and
volume of vehicle production and option mix. On that basis, we believe that we
currently have a solid foundation of awarded business upon which to grow our
company. We cannot assure you, however, that we will in fact realize any
specific amount of awarded business because it remains in all cases subject to a
number of important risks, including the volume and option mix of vehicles
actually produced, the timing of such production, the determination by our VM
customers to delay, cancel or redesign vehicle programs and price reductions
negotiated in connection with a VM customer's sourcing of new business with us.
In addition, our VM customers generally have a contractual right to replace us
with another supplier throughout the duration of a contract for a variety of
reasons, although the impact of this contractual right is mitigated to some
extent by the substantial re-engineering costs that a VM typically would need to
incur in order to introduce a new supplier to an established vehicle platform.
For more information, see "--Industry--Awarded Business."
REALIZATION OF OUR BUSINESS OBJECTIVE. We believe that our ability to grow
our business with major VMs other than General Motors will be significantly
enhanced by our complete separation from GM. Other VMs
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have been, to varying degrees, reluctant to purchase components extensively from
a supplier owned by GM. We believe that this is attributable in part to concerns
that the related profits would strengthen GM and that GM might obtain access
through Delphi to confidential information regarding the other VMs' vehicle
designs and manufacturing processes, despite our strict confidentiality pledge
and procedures. We believe that our complete separation from GM will address
these customer concerns and thereby provide growth opportunities for our
company. However, we cannot assure you as to whether or when our complete
separation from GM will occur or as to whether we will be able to realize the
benefits we expect from separation. For more information, see "Risk
Factors--Risk Factors Relating to Separating Our Company from General Motors--
Our Business May Be Adversely Affected if the Distribution Is Not Completed" and
"--Failure to Realize Increased Sales to Customers Other than General Motors"
and "Delphi and Its Separation from General Motors."
Our business objective also emphasizes continuing operational improvements.
Since 1991, when GM organized its various component operations into a separate
business group, Delphi has been evolving from a fully captive collection of
component operations into an independently managed supplier of components,
integrated systems, and modules to GM and all of the other major VMs. During
this transitional period, our financial results have at times been adversely
affected by a variety of factors, such as significant price reductions (more
recently with respect to our automotive electronics products) as GM implemented
its global sourcing initiative, labor disruptions at both GM and Delphi and
certain unprofitable manufacturing operations. In response to these and other
factors, we have developed, and are implementing, initiatives to improve our
operating performance. We describe many of these initiatives below under
"--Strategy--Improve Operating Performance." Although we have made substantial
progress in implementing these initiatives, we believe that in many cases the
full impact of these initiatives has not yet been realized. We believe that, as
we fully implement these initiatives throughout our operations and complete our
separation from GM, we will be able to realize additional benefits. See "Risk
Factors--Risk Factors Relating to Separating Our Company from General
Motors--Failure to Realize the Labor Benefits We Expect from Our Separation from
General Motors" and "--Risk Factors Relating to Our Business--We May Be Unable
to Realize Our Business Strategy of Improving Our Operating Performance."
INDUSTRY
GENERAL. We operate in a highly competitive industry. Our industry
generally provides components, systems, subsystems and modules to VMs for the
manufacture of new vehicles, as well as to the aftermarket for use as
replacement parts for current production and older vehicles.
Today, suppliers offer their component products to VMs individually as well
as in a variety of more fully engineered forms, such as modules and systems:
- "Modules" are groups of component parts arranged in close physical
proximity to each other within a vehicle, which are often assembled by
the supplier and shipped to the VM for installation in a vehicle as a
unit. Modular instrument panels, cockpit modules and door modules are
examples.
- "Systems" and "subsystems" are groups of component parts located
throughout the vehicle which operate together to provide a specific
vehicle function. Braking systems, electrical systems and steering
systems are examples.
Historically, many large VMs have operated internal divisions to provide a
wide range of component parts for their vehicles. Over the past few decades,
however, VMs have moved towards a competitive sourcing process for automotive
parts, including increased purchases from independent suppliers, as they seek
lower-priced and/or higher-technology products. These independent parts
suppliers, which often have lower cost structures than in-house component
operations, have become an important part of the automotive parts industry. Many
captive suppliers no longer provide their products exclusively to their parent
VM.
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Our industry is generally divided into several groups or "tiers:"
- "Tier 1" suppliers such as Delphi sell their products principally to VMs
directly and often offer a broad range of product capabilities, including
design, engineering and assembly services.
- "Tier 2" suppliers sell their products principally to Tier 1 suppliers,
who then combine these parts into their own product offerings. Smaller
Tier 2 suppliers are sometimes referred to as "Tier 3" suppliers.
CONTRACTS FOR VM BUSINESS. Contract durations for automotive parts
generally range from one year to the entire life of the vehicle model, about
three to seven years for cars and six to ten years for trucks. Tier 1 suppliers
such as Delphi generally compete for new VM business at the beginning of the
development of new vehicle models and upon the redesign of existing vehicle
models, at which time a supplier would bid for the "replacement cycle" of an
existing product program. New vehicle model development generally begins at
least two to five years before the marketing of such models to consumers. As a
result, a significant portion of a supplier's annual sales are generated
pursuant to arrangements entered into about two to five years before the
revenues related to such arrangements begin to be realized.
The Tier 1 sourcing process for vehicle programs, which varies according to
VM, is typically initiated when a VM seeks requests for quotations from several
suppliers at least three to six years before anticipated vehicle production.
Based on these quotations, VMs in many cases then select and work with a
supplier on specific component design and development projects related to the
new vehicle program. At varying points during this process, VMs may issue
"nomination letters," letters of intent or other representations to the supplier
that, based on the supplier's quotation and subject to a number of conditions
established by the VM, the VM intends to award specific business relating to the
vehicle program to the supplier. By the time the design and development of the
vehicle program is nearly complete, the VM will typically have evaluated the
supplier's performance to date and its ability to meet the VM's specific
production and service requirements. The VM will then develop a proposed
production timetable (including current vehicle volume and option mix estimates
based on its own assumptions) and then source business with the supplier
pursuant to written contracts, purchase orders or other firm commitments,
provided that the supplier can meet the VM's designated conditions.
AWARDED BUSINESS. We use the term "awarded business" with respect to a
customer to refer to the estimated future sales which a supplier has a strong
expectation of realizing based on VM awards or other commitments to the supplier
and various estimates and assumptions regarding applicable vehicle production.
Awarded business generally covers the supply of all or a portion of a VM's
production and service requirements of a particular product program rather than
the supply of a specific quantity of products. Accordingly, in estimating
awarded business over the life of a contract or other commitment, a supplier
must make various assumptions as to the estimated amount of vehicles expected to
be produced, the timing of such production and the mix of options on the
vehicles produced.
The realization of sales based on awarded business is subject in all cases
to a number of important risks and uncertainties, which generally include the
following:
- the volume of vehicle models and specific vehicle options actually
produced by the VM, which, in turn, are subject to a number of
significant risks outlined below
- the determination by the VM to delay or cancel a particular vehicle
program for which it has sourced business with the supplier or to change
the option mix within the program
- the VM's contractual right to replace the supplier throughout the
duration of the contract for a variety of reasons, including if the
supplier does not remain competitive in terms of quality, service,
design, technology and, in certain circumstances, price
- the VM's contractual right to terminate the contract altogether (although
this right varies by contract, some contracts--generally shorter-term
purchase orders--are terminable by the VM at any time for any reason)
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- the VM's decision to redesign a vehicle model and not to select the
supplier to supply any or all of the same parts it was providing on the
previous vehicle model
- price reductions on existing contracts negotiated in connection with the
VM's sourcing of new business with the supplier
The actual production volumes and option mix of vehicles produced by VM
customers depend on a number of factors that are beyond a supplier's control.
These include:
- general economic conditions
- consumer preferences for particular vehicles or vehicle features
- labor difficulties or work stoppages
- capital planning and other factors specific to a particular VM
INDUSTRY TRENDS. Delphi has been at the forefront of five key trends that
have been reshaping the automotive parts industry over the past several years:
- Increased Emphasis on Systems and Modules Sourcing. In order to simplify
the vehicle design and assembly processes and reduce their costs, VMs
increasingly look to their suppliers to provide fully engineered,
pre-assembled combinations of components rather than individual
components. By offering sophisticated systems and modules rather than
individual components, Tier 1 suppliers have assumed many of the design,
engineering, research and development and assembly functions
traditionally performed by VMs. In addition, suppliers now often
manufacture and ship component parts to the general location of a VM's
assembly line and then provide local assembly of systems and modules.
This process allows VMs to realize cost savings by reducing in-house
assembly functions and eliminating the need to maintain significant
inventory levels on an ongoing basis. As suppliers play a more integral
role in the vehicle design and manufacturing process, they typically need
greater access to confidential planning information regarding a VM's
future vehicle designs and manufacturing processes.
- Globalization of Suppliers. The globalization of VMs, which reflects the
broader global market for vehicle sales and the desire of VMs to increase
vehicle production in low-cost markets, has driven the globalization of
suppliers as they follow their customers. In 1997, about 70% of total
worldwide passenger vehicle production occurred outside North America,
according to Ward's 1998 Automotive Yearbook. In order to serve multiple
markets in a more cost effective manner, many VMs are turning to global
vehicle platforms such as "world cars," which typically are designed in
one location but produced and sold in many different geographic markets
around the world. With these vehicles, VMs can better serve multiple
markets and address local consumer preferences while controlling design
costs and taking advantage of low-cost manufacturing locations. Suppliers
for a specific world car are often required by the VM to provide their
services in all global locations where that vehicle is manufactured.
- Increasing Electronic Content. We believe that the electronic content of
vehicles has been increasing and will continue to increase in the future.
This increase in electronic content is largely driven by continued, and
often increasingly stringent, regulatory standards for automotive
emissions and safety as well as consumer demand for increased vehicle
performance and functionality at lower cost. Electronics integration,
which generally refers to replacing mechanical with electronic components
and integration of mechanical and electrical functions within the
vehicle, allows VMs to achieve substantial reduction in the weight and
complexity of automotive vehicles, resulting in easier assembly, enhanced
fuel economy, improved emissions control and better vehicle performance.
Electronics integration also enables VMs to offer more sophisticated
vehicle features at lower cost. Through electronics integration,
suppliers can link systems and subsystems within the vehicle to reduce
the physical mass of components and improve vehicle performance.
Electronic content varies significantly among vehicle models, with
higher-end vehicles having more sophisticated and extensive electronic
controls and
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systems. As consumers, particularly in more developed markets such as
North America and Europe, seek more competitively-priced ride and
handling performance, safety, security, communications, convenience,
entertainment and environment-friendly options in vehicles, such as air
bags, keyless entry, global positioning systems, audio systems and
advanced emission control systems, Delphi believes that electronic
content per vehicle will continue to increase but will remain subject to
technology-driven price declines and pricing pressures from VMs.
- Ongoing Industry Consolidation. The worldwide automotive parts industry
is consolidating as suppliers seek to achieve operating synergies through
business combinations, shift production to locations with more flexible
local work rules and practices, acquire complementary technologies, build
stronger customer relationships and follow their customers as they expand
globally. According to U.S. Industry and Trade Outlook 1998: Automotive
Parts, the overall number of Tier 1 suppliers worldwide decreased from
3,000 to 1,500 between 1990 and 1996, primarily due to industry
consolidation. The need for suppliers to provide VMs with single-point
sourcing of integrated systems and modules on a global basis has helped
fuel industry consolidation. Furthermore, the cost focus of most major
VMs has forced suppliers to reduce their prices, both in the initial
bidding process and throughout the term of the contract. Consequently, a
supplier's viability depends upon its continuing ability to maintain and
increase operating margins by reducing costs and improving productivity
on an ongoing basis, including by achieving economies of scale through
consolidation.
- Shorter Product Development Cycles. Suppliers are under pressure from VMs
to respond more quickly with new designs and product innovations in order
to support rapidly changing consumer tastes and regulatory requirements.
Vehicle demand in North America has shifted from cars to light trucks and
vans over the last several years, requiring suppliers to modify their
operations to focus on parts for these vehicles. In North America and
Europe, consumers have been increasingly seeking vehicles with more
lower-cost ride and handling performance, safety, security,
communications, convenience and entertainment options, such as global
positioning systems, air conditioning, anti-lock brakes, air bags, power
steering, keyless entry and advanced emissions control systems. In
developing countries, as broad economic improvements are made, demand has
increased for smaller, less expensive vehicles that satisfy basic
transportation needs. Additionally, increasingly stringent government
regulations regarding vehicle safety and environmental standards, such as
those mandating the use of airbags in new vehicles and emissions
standards, are driving new product development.
STRATEGY
Our core business objective is to increase our earnings by expanding our
sales globally while improving our operating performance. We believe that our
principal opportunity for future earnings growth will be increased sales to
customers other than GM-North America. Although we expect that our business with
customers other than GM will increase, we also expect that GM-North America will
remain our largest customer by far for a significant period of time due to the
long-term nature of sales contracts in our industry, our strong
customer-supplier relationship with GM and the Supply Agreement with GM. In
addition, although we have historically supplied a lower percentage of
GM-International's automotive parts requirements than the percentage we have
supplied to GM-North America, we believe that we are and will continue to be
able to compete effectively for GM-International business as a result of, among
other things, our substantially expanded global presence over the last several
years.
Our business strategy is designed to leverage our competitive strengths and
capitalize on the key trends in the global automotive parts industry. We believe
that our key competitive strengths include our system and module capabilities,
our electronics integration expertise, our global presence, our technological
innovation and our highly skilled management team. In implementing our business
strategy, we maintain a focus on our customers and product quality and strive to
enhance our competitiveness through continuous operational improvements.
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The key elements of our business strategy are to supply our customers with
high-quality, innovative components, systems and modules; to pursue business
with customers other than GM-North America while maintaining our significant
customer-supplier relationship with GM; to leverage our global presence to meet
our customers' needs; to improve our operating performance; and to complete
strategic acquisitions, joint ventures and alliances. Each of these elements is
discussed more fully below:
SUPPLY HIGH-QUALITY, INNOVATIVE COMPONENTS, SYSTEMS AND MODULES. Delphi
believes that the current industry trend towards increased system and module
sourcing by VMs creates a substantial competitive advantage for our company. We
believe that our extensive operating history as a vertically integrated supplier
to the world's largest VM provides us with the electronics integration and other
technical expertise, breadth of product offerings and manufacturing scale needed
to compete successfully on a system and module basis while continuing to supply
high-quality components. We have developed significant systems capabilities in a
number of key product areas, including power and propulsion systems, ride and
handling systems, passenger environment systems, and control and communication
systems. We also have substantial in-house electronics integration capabilities.
We coordinate our product development and marketing efforts across all of our
product groups and sectors. As a result, we believe that we are well positioned
to be an industry leader in developing and selling high-quality electronically
integrated products capable of meeting our customers' needs.
- System and Module Capabilities and Breadth of Product Offerings. Delphi
has an extremely broad range of product lines, including substantial
system and module capabilities. Our extensive experience across a wide
portfolio of diverse products has enabled us to develop a broad base of
comprehensive vehicle knowledge and has given us many opportunities to
combine products previously sold separately, including through the
application of electronics to link systems and subsystems. We have been
the first to market with a wide variety of integrated automotive systems,
subsystems and modules. For example, we have developed TRAXXAR(TM), a
vehicle stability enhancement system which integrates all major chassis
control functions--steering, braking, suspension and powertrain--to
provide optimum ride and handling performance. We have also developed
sophisticated electrical/electronic systems which coordinate all
electrically operated, sensed, controlled or monitored functions within
the vehicle. We have developed instrument panel and cockpit modules that
offer fully integrated interior systems featuring sophisticated
electrical/electronic systems, structure and trim, steering, thermal and
safety subsystems. Our modular door system integrates door hardware
systems with various features of power and signal distribution, safety
and security, thermal control, electronic control and interior trim
systems.
- Electronics Integration Expertise. We believe that we have a significant
competitive advantage over many other suppliers by virtue of our
substantial in-house electronics integration capabilities, particularly
since we believe that electronics integration will drive the next
generation of successful products in our industry. Our Electronics &
Mobile Communication product sector is one of the global leaders in
automotive electronics. This sector consists of the operations of our
Delco Electronics subsidiary. From 1986 through 1997, Delco Electronics
was operated by GM through its Hughes Electronics Corporation subsidiary.
Hughes Electronics is a leader in satellite and wireless communications
and space technology and was at that time also a leading defense
electronics company. In late 1997, in connection with the spin-off of the
defense electronics business of Hughes Electronics, GM transferred Delco
Electronics' operations to us in order to more closely integrate Delco
Electronics' expertise in electronics with our capabilities in automotive
components and systems. As described below under "--Product Technology
and Development," we have many product lines currently under development
which rely heavily on our technical expertise and innovation in
electronics integration, including those which we refer to as our "Next
Century Winners."
By building on our electronics integration expertise, our systems
capabilities and the breadth of our product offerings, we are working to develop
high-quality product offerings which will provide our customers with the ability
to offer consumers enhanced vehicle control, superior occupant protection,
collision avoidance systems, onboard communications systems, advanced energy and
engine management systems, advanced
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electrical and electronic vehicle architecture and passenger entertainment and
convenience features at competitive prices.
PURSUE BUSINESS WITH CUSTOMERS OTHER THAN GM-NORTH AMERICA. We are pursuing
increased business with customers other than GM-North America and we believe
that our principal opportunity for future earnings growth will be increased
sales to these customers. Although we intend to pursue new business with GM and
expect to continue to be a principal supplier to GM and its GM-North America
operations for a significant period of time, our strategy focuses on growing our
business with customers other than GM-North America in order to offset the
expected decline in our sales to GM-North America and to make us less dependent
on the volume of vehicles produced by GM-North America.
Our goal has been and continues to be to increase our total sales to
customers other than GM-North America to at least 50% of our total sales by the
end of 2002. We caution you, however, that this goal is a "forward-looking
statement" that may turn out not to be attainable. We cannot give you any
assurance that we will achieve this goal, including within the time period
indicated. For more information about the numerous risks and uncertainties which
could impair our ability to achieve this goal, you should read carefully each of
the "Risk Factors" set forth elsewhere in this prospectus, particularly "Risk
Factors--Risk Factors Relating to Our Business--We May Be Unable to Capture
Business with Customers Other Than GM-North America."
We have made progress towards achieving this goal. Our customers now
include every major VM in the world. Recent examples of our successes in winning
new business include our contracts with two non-GM VMs to provide our
all-electric E-STEER(R) power steering system and our recently announced
agreement to provide products featuring our Adaptive Cruise Control
technologies, which are part of our FOREWARN(TM) collision avoidance product
line, to Jaguar Cars, a unit of Ford Motor Company.
In establishing and measuring our progress towards achieving this goal, we
include in "total sales" all of the sales from minority joint ventures and other
investments even though these sales are not reflected in our sales as reported
in our consolidated financial statements included elsewhere in this prospectus.
On this basis, in 1997, 65.4% of our total sales were to GM-North America and
34.6% of our total sales were to other customers, as compared to 73.7% and 26.3%
of our total sales, respectively, in 1993. Excluding these sales, the
percentages for GM-North America are higher.
We believe that, as an independent company no longer owned by General
Motors, we will have significant opportunities to expand our business with other
VMs around the world. We believe that our status as a part of GM has
historically been a major impediment to the expansion of our business with
customers other than GM, as other VMs have shown varying degrees of reluctance
to source extensively from a supplier owned by a major competitor. We believe
that this is attributable in part to concerns that the related profits would
strengthen GM and that GM might obtain access through us to confidential
information regarding the other VMs' vehicle designs and manufacturing
processes. These concerns have persisted even though we have given each of our
customers a strict confidentiality pledge and implemented procedures to preserve
customer confidentiality. To our knowledge, we have never experienced a breach
of our confidentiality pledge or procedures.
We believe that our focus on customer satisfaction, as demonstrated by our
technology leadership, product quality, cost control and customer
responsiveness, positions us well as we strive to increase our sales to
customers other than GM-North America. This focus also enhances our ability to
execute our business with GM-North America. In order to better serve our
customers, our sales and marketing personnel are organized into 25 dedicated
customer service teams, 19 of which work with customers other than GM. Each of
our major customers is served by its own team which has responsibility for
satisfying that customer's needs. Each team is lead by one of our managers and
functions as a single point of contact within the company to represent the
interests of the customer throughout our organization. These teams are supported
by our network of manufacturing facilities and engineering and technical
resources worldwide.
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We believe that the quality of our products is also important to our
ability to increase sales since quality is a key criteria used by VMs in
selecting and reviewing suppliers. Since 1996, we have received 163 customer
quality and service awards, including, among others, the following awards in
1998:
<TABLE>
<CAPTION>
CUSTOMER AWARD
-------- -----
<S> <C>
General Motors GM Worldwide Supplier of the Year Award
DaimlerChrysler AG Gold Pentastar Award
Volkswagen AG VW Formal Q Award
Toyota Motor Corp./NUMMI NUMMI Triple Crown "Gold" Award
</TABLE>
We have demonstrated a commitment to product quality by making substantial
improvements during recent years, including a significant reduction in customer
rejected/returned parts per million since 1992. We recognize that our quality
levels are important to our customers and we intend to continue to seek
substantial quality improvements in order to remain competitive, especially
through the further implementation of our operating performance initiatives
described below.
Our ability to increase our sales to customers other than GM-North America
is also enhanced by our broad geographic presence, as discussed below. In
addition, our acquisition strategy, discussed below, includes the pursuit of key
acquisitions and alliances which can increase our access to certain major non-GM
customers.
LEVERAGE GLOBAL PRESENCE. We believe that our expansive global presence
will provide us with a substantial competitive advantage as we pursue new
business around the world. We can provide significant manufacturing,
engineering, technical and other support to our customers in every major market
in which they operate. We believe that our geographic presence is one of the
broadest in the industry. As of September 30, 1998, we had 169 wholly owned and
leased manufacturing sites, 27 technical centers, 51 customer service centers
and sales activity offices and 40 joint ventures or other strategic alliances in
36 countries on six continents. We are continuously evaluating and enhancing our
engineering and technical resources, which currently include over 15,000
engineers, scientists and technicians, to provide an efficient, customer-focused
global network of engineering and technology customer centers that we believe
will better serve our customers around the world.
We believe that we are particularly well positioned as VMs turn to global
vehicle platforms, such as world cars, that are manufactured and sold in
numerous markets around the world. Since we have manufacturing sites located in
every major region around the world, we are often able to capitalize on these
world car opportunities to gain access to new customers. Delphi currently
supplies parts for a number of global vehicle platforms, including GM's Astra
and Corsa and Fiat's Punto/Palio. In addition, we believe that our global
presence also provides us opportunities by allowing us to leverage sales to a
customer in one location or for one product into sales in other locations and
for other products.
From 1992 to 1997, the percentage based on square footage of our wholly
owned and leased manufacturing sites located outside the United States and
Canada has increased from about 20% to about 30%, reflecting the globalization
of our VM customers. During the same period, the percentage of our employees
located outside the United States and Canada has increased from about 38% to
about 56%. This has had the effect of reducing our average hourly wage rate
(including benefits) from about $27 in 1992 to about $20 in 1997, representing a
decrease of about 26%. About 30% of our total 1997 sales were derived from
products manufactured at sites located outside the United States and Canada.
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Excluding our joint ventures and other investments, our global presence as
of September 30, 1998 is shown below:
<TABLE>
<CAPTION>
CUSTOMER
MANUFACTURING TECHNICAL CENTERS AND TOTAL
SITES CENTERS SALES OFFICES EMPLOYMENT
------------- --------- ------------- ----------
<S> <C> <C> <C> <C>
United States/Canada........... 48 14 11 82,794
Europe/Middle East/Africa...... 65 7 20 37,243
Mexico/South America........... 41 4 6 75,922
Asia/Pacific................... 15 2 14 4,504
--- -- -- -------
Total........................ 169 27 51 200,463
=== == == =======
</TABLE>
We also have a large number of joint ventures and other strategic
partnerships in various locations throughout the world, with the largest number
located in the Asia/Pacific region, including China and Korea. Our joint
ventures and other investments as of September 30, 1998 are shown below by
geographic region:
<TABLE>
<S> <C>
United States/Canada...................................... 5
Europe/Middle East/Africa................................. 7
Mexico/South America...................................... 9
Asia/Pacific.............................................. 19
---
Total................................................... 40
===
</TABLE>
For financial information regarding the principal geographic areas in which
we operate and our export sales, see Note 15 to the audited consolidated
financial statements included elsewhere in this prospectus.
IMPROVE OPERATING PERFORMANCE. We seek to maximize our operating
performance in order to enhance our financial performance. Operational
improvements have enabled Delphi to achieve significant cost reductions and
improve productivity in the face of an increasingly aggressive cost focus by
most major VMs. Our continued ability to realize operating performance
improvements is important to our ability to achieve our business objective. We
have implemented several important strategic initiatives in this regard:
- Delphi Manufacturing System. Delphi has achieved substantial
manufacturing efficiencies over the last several years by implementing a
number of manufacturing performance initiatives. We have also been able
to consolidate our manufacturing sites, improve inventory management and
reduce scrap. The following table shows information about the improvement
in our manufacturing performance from 1993 to 1997.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales per employee (U.S.)............... $176,000 $199,000 $237,000 $234,000 $247,000
Customer rejected/returned parts per
million*.................................. n/a n/a 812 462 355
Lost work day cases per hundred employees... 3.29 3.04 2.27 1.62 1.24
</TABLE>
- ------------------
* This measurement was not tracked on a consistent basis prior to 1995.
In 1997, we developed and began the process of implementing the Delphi
Manufacturing System throughout our global operations. This process, which
is based, in part, on the systems employed by Toyota and other world class
manufacturers, involves reorganizing the workplace and improving the
production process in order to maximize manufacturing flexibility, reduce
total manufacturing costs and achieve "leanness" in our operations. Under
the Delphi Manufacturing System, traditional manufacturing production
lines are replaced by more flexible manufacturing cells which focus on
utilizing one-piece production flow rather than traditional batch
processing. These flexible manufacturing cells typically consist of
clusters of individual manufacturing operations and efficient work
stations, with the operators placed centrally within each cellular
configuration to increase operational availability. This cell design
provides flexibility by varying the number of operations each
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operator performs. The Delphi Manufacturing System has allowed us to
improve our product quality and be more responsive to the changing needs
of our customers. By implementing the Delphi Manufacturing System, we can
improve our manufacturing productivity, increase our daily inventory turns
and reduce our production lead times.
Through implementing the Delphi Manufacturing System at many of our
facilities to date, often with the cooperation of our local unions, we
have achieved significant productivity improvements and inventory
reductions as a result of improved materials flow through our facilities.
The application of the Delphi Manufacturing System at our manufacturing
sites is resulting in substantial performance improvements at both
unionized and non-unionized facilities. These improvements are
contributing directly to our cost savings. Through the further
implementation of the Delphi Manufacturing System on a global basis,
particularly at our operations in the United States and Europe, we expect
to further reduce our manufacturing expenses, increase our productivity
and improve our inventory management.
- Structural Cost Reductions. We continuously seek to achieve savings
through reducing our structural costs. Structural costs generally consist
of our fixed costs, including our commercial (including selling, general
and administrative), engineering and manufacturing (including labor)
costs. Structural costs as a percentage of net sales declined from about
43% in 1993 to 39% in 1997. We have accomplished this principally through
infrastructure improvements, such as combining operations whenever
possible to reduce our overhead, administrative and related costs, and
eliminate redundancies. In connection with the recent integration of
Delco Electronics into our operations, we are realizing and expect to
continue to realize structural cost savings. We also seek to reduce our
structural costs by implementing a unified, common approach to operations
throughout our global facilities, including a common organizational and
management structure, application of the Delphi Manufacturing System at
all of our manufacturing plants, common training programs and a common
set of key metrics for measuring actual performance in comparison to
common standards and goals.
- Global Sourcing. We use global sourcing in order to obtain the best
prices for our direct and indirect materials, machinery and equipment and
services. Global sourcing is a competitive bidding process among
prospective suppliers located throughout the world. Our purchasing
process is organized by commodity groups for each major region of the
world and focuses on advance, long-term sourcing through long-term or
lifetime contracts. In order to ensure a consistent high-quality supply
of goods and services, we utilize common systems, policies and procedures
across our company, including a common supplier quality improvement
process. Due to our size, we believe we have sufficient scale and
purchasing leverage to enable us to continue to secure significant volume
discounts after our separation from GM. On average, since 1993, we have
reduced our materials costs by about 3% per year based on a year-to-year
actual price comparison.
- Labor Relations. We emphasize the sharing of relevant information with
our international and local union leadership worldwide and working with
the unions to jointly develop local work rules and practices. We believe
that, as a fully independent company with control over our own labor
relations after the Distribution, we would have the right to negotiate
regarding our own national and local labor agreements directly with the
unions representing our employees. We believe that our complete
separation from General Motors will enable us, over time, to increase our
competitiveness by establishing local work rules and practices more
consistent with those generally prevailing in the automotive parts
industry. However, we cannot assure you as to when or the extent to which
we will be able to achieve these benefits.
GM has informed us that it has satisfactorily completed discussions
with the IUE, one of the principal unions representing our employees,
regarding the effects of the separation on its members. As a result of
these discussions, the IUE has recognized that, upon Delphi's separation
from GM, Delphi will be an independent company with its own national and
local agreements with the IUE. GM has informed us that initial
discussions with the USW regarding the effects of the separation on its
members were held on December 8, 1998 and that further discussions will
be held with the USW. Similar discussions are expected to occur with the
other unions representing our employees, but we 69
<PAGE> 75
cannot assure you as to when they will occur or as to the outcome. In
this regard, our largest union, the UAW, which represents about 29% of
our unionized employees, has stated that it is on record as opposing the
separation of Delphi from GM and that, should GM decide to proceed with
the transaction, the UAW can and will aggressively work to protect the
rights and interests of its members who would be impacted by the
Distribution. Since that time, GM and the UAW have agreed that any of our
employees who are members of the UAW and who retire on or before October
1, 1999 will be treated as GM retirees. GM and Delphi have been working
with the UAW to address its concerns and will continue to do so.
We intend to cooperate with GM in working together with the UAW, the IUE,
the USW and the other unions representing our employees to address the
best interests of their members regarding these matters.
- Product Portfolio Management. Delphi has implemented a portfolio
management process designed to streamline and focus our product portfolio
to facilitate our emphasis on comprehensive, integrated systems-based
solutions for customers. Under this process, our management regularly
evaluates all of our company's product lines in order to analyze how each
product supports our overall vision and strategic objectives. This
process enables us to focus our engineering, capital and human resources
on those businesses which best fit our overall product strategy and
increase our profitability. Since 1992, our portfolio management process,
together with our "fix/sell/close" initiative described below, has
resulted in the sale of businesses with annual sales of about $6 billion,
resulting in our remaining product lines being more focused, strategic
and profitable. Excluding Delco Electronics (which was not integrated
into our company until December 1997), as a result of this process, we
streamlined our portfolio to about 151 product lines in 1997, down from
about 210 in 1992. Our current product portfolio includes about 190
product lines and reflects the integration of about 30 product lines from
Delco Electronics as well as new product development activities. We
expect to continue to review and refine our product portfolio in light of
industry trends, with an emphasis on integrated systems and modules as
well as products featuring electronics integration.
- Fix/Sell/Close Process. Delphi has adopted a "fix/sell/close" process to
improve the company's cost competitiveness. Under this process, we review
our global operations and investments (including our joint ventures) on
an ongoing basis to identify operations or investments not performing at
desired levels. These operations or investments are placed into a
category to be fixed, sold or closed. With input from our unions,
management then develops a specific plan to deal with each operation in a
timely manner. With respect to many of our operations in North America,
both our local and international unions have cooperated with management
in initiatives to improve the viability of our operations. As operations
are improved or eliminated, they are removed from the category. Since
1995, this process, together with the product portfolio process described
above, has resulted in the closing, sale or consolidation of over 50
operations worldwide as well as the substantial improvement of many other
operations. We will continue to monitor our operations and investments
and we believe that this ongoing process will continue to improve our
cost competitiveness in the future. However, our ability to eliminate
product lines, close plants and divest businesses is subject to certain
restrictions in our Supply Agreement with General Motors as described
elsewhere in this prospectus.
COMPLETE STRATEGIC ACQUISITIONS, JOINT VENTURES AND ALLIANCES. We intend to
participate actively in the industry trend towards consolidation by pursuing
strategic acquisitions and alliances in order to complement or fill gaps in our
existing product portfolio, enhance our design and manufacturing capabilities,
improve our geographic presence in selected areas and increase our access to new
customers. A number of our key product areas, including chassis, thermal and
automotive electronics, represent segments of the industry that are in the midst
of global consolidation. We believe that our separation from General Motors will
provide us with increased capital planning flexibility, the ability to use our
own securities in strategic acquisitions and the opportunity to form beneficial
alliances with other leading companies not willing to partner with a supplier
owned by GM. We will be restricted from executing certain types of transactions
for a period of time following the Offering and the Distribution as a result of
covenants arising from our separation from GM as described elsewhere in this
prospectus. In addition, we are bound for limited periods of time by certain
covenants not to
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compete which we entered into in connection with some of our past divestitures.
We do not believe that these restrictions will materially impair our ability to
execute this business strategy.
While we currently believe that we will be able to successfully execute the
business strategies outlined above, we cannot assure you in this regard. Our
ability to execute each of the business strategies discussed above is subject to
numerous risks and uncertainties. For more information, you should read
carefully each of the "Risk Factors" set forth elsewhere in this prospectus.
MANAGEMENT
We believe that our experienced and highly skilled management team provides
us with a significant competitive advantage. Our 21 most senior managers have an
average of about 25 years of experience in the automotive industry, including in
many cases extensive experience with GM in the areas of vehicle design,
engineering and manufacturing. We have also been successful in hiring a
significant number of managers from several of our other VM and non-VM customers
as well as from our competitors, which has enhanced our understanding of and
ability to serve our customers' needs.
We have developed an organizational structure for the management of our
company which utilizes a lean, multi-functional matrix approach. Our chief
operating decision-making group is the Delphi Strategy Board, which is comprised
of the Chief Executive Officer and 20 senior executives representing all three
of our product sectors as well as our world and regional headquarters staff.
Each product sector is managed by a strategy board or equivalent managing
committee comprised of individuals that have responsibility for the
profitability and cash flow of the sector's various product lines and
businesses. Our three product sectors are managed separately because of
differences in the nature of the respective product groupings.
Our world headquarters staff, located in Troy, Michigan, consisted of 135
persons as of September 30, 1998. While we expect our staff to increase
substantially in connection with our separation from GM and the establishment of
our company as an independent organization, this will be offset partially by the
elimination of allocations of general corporate overhead expenses from GM. Our
staff is led by our Chief Executive Officer and other senior executives who have
responsibility in the areas of finance, operations, purchasing, strategic
planning, communications, production control and logistics, information systems,
legal affairs and human resources. We also have three executives responsible for
our principal geographic regions outside the United States and Canada:
Europe/Middle East/Africa, South America and Asia/Pacific. Many of our senior
managers have multiple areas of responsibility within our organization,
including with respect to the leadership of our customer service teams.
In connection with the Offering, we have established incentive plans tied
to the market performance of our common stock. We believe that these programs
will strengthen our management's focus. See "Management--Incentive Plans."
PRODUCT TECHNOLOGY AND DEVELOPMENT
We have substantial technical and vehicle integration expertise as a result
of our extensive operating history as the in-house supplier to the world's
largest VM. We have worked directly with GM's vehicle design engineers to
develop innovative products and complete automotive systems for GM's vehicles.
We were the first supplier to produce a number of new products, including the
first electric self-starter, in-dash radio, turn signal, catalytic converter,
airbag, tilt steering column, independent front wheel suspension, energy
absorbing steering column, electric power sliding door and integrated child
safety seat. More recently, we were the first supplier to produce brake-by-wire
systems and computer-controlled engine management systems. As a result, we have
developed a comprehensive knowledge of the design, engineering, manufacture and
operation of all aspects of the automotive vehicle.
We believe that our engineering and technical expertise, together with our
emphasis on continuing research and development, allows us to use the latest
technologies, materials and processes to solve problems
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for our customers and to bring new, innovative products to market. Delphi
maintains technical engineering centers in every major region of the world to
develop and provide advanced products, processes and manufacturing support for
all of our manufacturing sites and to provide our customers with local
engineering capabilities and design development on a global basis. As of
September 30, 1998, we employed more than 15,000 engineers, scientists and
technicians around the world. We continuously evaluate and enhance our
engineering and technical resources and are currently considering plans to
reorganize our worldwide engineering and technical resources into a more
efficient, customer-focused global network.
We believe that continued research and development activities are critical
to maintaining our leadership position in the industry. Over 300 patents were
awarded to our business during 1997. Our total expenditures for research,
development and engineering activities are expected to be about $1.4 billion in
1998, and were $1.5 billion in 1997 and $1.6 billion in each of 1996 and 1995.
We have introduced over 50 new products and processes during each of the last
several years.
In addition, we have been actively studying key industry trends and working
with our customers to develop several important technological capabilities for
future product offerings. We believe that our electronics integration expertise
and systems capabilities will enable us to provide innovative, systems-based
solutions for our customers in the future. Many of these capabilities are being
jointly developed by all three of our product sectors and each involves the
electronics integration expertise of our Electronics & Mobile Communication
product sector. We have started to employ some of these capabilities in our
products and expect to continue to introduce products featuring these
capabilities throughout the next decade. We refer to these technological
capabilities as our "Next Century Winners":
- Mobile Multi-Media. We are developing new systems and software products
that enable advanced communication, entertainment and information access
in vehicle cockpits. Examples include reception systems for AM/FM radio,
television and direct broadcast satellite transmission, cell phones and
global positioning systems. Other examples include advanced user
interface devices such as flat panel displays, voice recognition and head
up displays; open common standard computing platforms for navigation; and
advanced audio components such as DVD and compact disc players and
digital intelligent amplifier/speakers. All components are integrated by
Delphi's high-speed optical-fiber serial data link that provides multiple
channels of digital video and audio. Delphi has worked with one team
consisting of IBM(TM), Sun Microsystems, Netscape Communications(TM) and
Hughes Electronics and another team consisting of Microsoft, Saab
Automobile AB and Hughes Electronics to produce two vehicles
demonstrating these advanced products. One of these, the "Network
Vehicle," has received the Infovision Award from the International
Engineering Consortium.
- Advanced Thermal Management Systems. We are developing fully integrated
thermal management systems to increase driver and passenger comfort in a
more energy efficient manner. These systems, subsystems and modules are
designed to manage and control vehicle cabin climate and powertrain
cooling at reduced costs to VMs and consumers. Our emerging technologies
include individual adaptive comfort control to achieve enhanced driver
and passenger comfort. Our thermal management systems are designed to
meet increasingly stringent environmental requirements and to improve
material recyclability.
- Advanced Safety Interior. We are developing technologies designed to
provide enhanced protection in frontal, side and rear collisions and
vehicle rollover situations. These include anticipatory crash detection
systems, adaptive belt restraints, rollover sensing systems, active knee
bolsters, adaptive energy-absorbing pedals, adaptive load steering
columns and distributed restraint system architecture. Our Adaptive
Restraint Technologies(TM) are designed to monitor driver and passenger
characteristics and the severity of a crash in order to tailor airbag
deployment to provide optimized occupant protection.
- Collision Avoidance. We are developing collision avoidance systems
consisting of adaptive cruise control, collision warning and collision
intervention. These systems are designed to help avoid vehicle
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crashes through the use of object detection sensors and automatic control
of brakes, throttle, steering and suspension.
- "X-By-Wire" Control Systems. We are developing new drive-by-wire systems
consisting of braking, steering, throttle and suspension systems designed
to provide greater vehicle control. A modular design features reduced
mass, simplified assembly and increased packaging flexibility. These
systems function without conventional mechanical hardware connections,
such as conventional steering columns mounted onto rack and pinions.
Instead, each system receives inputs such as the depression of brake
pedal or a bump in the road and then communicates that information to an
electronic control module. This control module then provides input to the
appropriate localized, motorized actuator, which performs the mechanical
function of the system such as application of brakes or engagement of
shock absorbers. The lack of direct mechanical connections allows for
increased customization of the "feel" of these systems.
- Modular Chassis Systems. We are developing modular chassis systems
featuring various levels of integration of knuckles, bearings, brakes,
suspension, steering and other components assembled into modules. Modular
product offerings include front and rear brake corner modules, front and
rear chassis corner modules, engine cradle modules, powertrain-chassis
modules and front and rear damper modules. These modular chassis systems
are intended to enable VMs to significantly reduce their assembly plant
costs and product lead time.
- Advanced Engine Management Systems. VMs typically must create many
different engine management systems to accommodate varying government
regulations, consumer preferences and driving conditions around the
world. To simplify this situation, we are developing an advanced engine
management system, which features a "building block" approach that uses
modular systems architecture, rapid algorithm development tools and
controls as a base. Depending upon a VM's requirements, we can add
interchangeable hardware, software and "plug-and-play" tools to minimize
recalibration work. This system is designed to save fuel and reduce
emissions while helping VMs cut costs and achieve fast-to-market goals.
- ENERGEN(TM) Advanced Energy Systems. We are developing advanced energy
management systems designed to enable VMs to expand vehicle electronic
content and better address global warming concerns. These systems include
a 200-volt AC induction integrated motor/generator, a multiple-voltage
battery system and high-power electronics which permit the vehicle to
operate in three different modes--internal combustion, electric or a
combination of the two. This optimization of energy is designed to
provide increased power to support advanced electrical/electronic needs,
while also delivering substantial savings in fuel economy, which is
critical to the reduction of carbon dioxide exhaust emissions.
- Integrated Vehicle Electrical/Electronic (E/E) Systems. Our integrated
E/E system combines electrical and electronic content into one system,
which includes network communications, fiber-optic data transmission,
multi-drop wiring, controllers and electronic integrated switches,
connectors, sensors and actuators. These systems feature smaller,
easier-to-package controllers; smaller easier-to-install wiring harnesses
and connectors; fewer electrical interfaces; reduced mass; increased
function flexibility and system reliability; and simplified assembly.
- INTELLEK(TM) Smart Sensors and Actuators. We are developing sophisticated
sensors and actuators which feature integrated processing and digital
communication bus interfaces. These higher value sensors and actuators
are designed to offer VMs reduced mass due to fewer parts, reduced cycle
and assembly time and improved system performance, while helping VMs
lower their costs for higher content vehicles.
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<PAGE> 79
CUSTOMERS
GENERAL MOTORS. General Motors is our largest customer and we are its
largest automotive parts supplier. GM is the world's largest VM, having a market
share of about 16% of all light vehicles produced throughout the world in 1997
according to Standard & Poor's DRI 1998 World Car Industry Forecast Report. Most
of our sales to GM are to GM-North America, although we also sell to
GM-International and to GM-SPO. In 1997, our sales to GM accounted for about
81.7% of our total sales as set forth below. For this purpose, "total sales"
include all sales from joint ventures and other investments in which we own a
minority interest.
<TABLE>
<CAPTION>
PERCENTAGE OF DELPHI'S
CUSTOMER 1997 TOTAL SALES
-------- ----------------------
<S> <C>
GM-North America................................... 65.4%
GM-International................................... 11.2
GM-SPO............................................. 5.1
----
Total GM...................................... 81.7%
====
</TABLE>
Sales to General Motors. In 1992, General Motors launched a major
reorganization of its automotive business to streamline its business practices
and downsize its North American automotive operations. At that time, GM
announced its intention to begin filling its procurement needs on a global
basis. GM strives through this global sourcing strategy to leverage its
purchasing power by sourcing its products on a global basis and to increase
competition for its business among its suppliers on the basis of quality,
service, technology and price. Pursuant to this initiative, GM has provided
suppliers worldwide with the opportunity to bid for GM-North America business
historically sourced with us. As a result, our share of GM-North America's
automotive parts requirements has declined over this period.
We believe that we are and will continue to be able to compete effectively
for GM-North America business because of the high quality of our products, our
ongoing cost reduction efforts and our product and technological innovations. As
a principal supplier to GM, we periodically have discussions with GM relating to
its future vehicle programs and our long-term technology and product
development. Although we have no commitments to GM in this regard, we expect to
continue these discussions for some period of time after our separation from GM
based on our strong customer-supplier relationship. However, we do expect the
portion of GM-North America's automotive parts requirements which we supply and
the prices we charge to GM-North America to continue to decline over the next
several years. As a result, we also expect that our total sales to GM will
decline over the next several years. Through our strategy of aggressively
pursuing increased business with customers other than GM-North America,
including additional sales to GM-International, however, we will strive to
mitigate these effects and increase our total sales.
We have historically supplied a lower percentage of GM-International's
automotive parts requirements than the percentage of parts we have supplied to
GM-North America. Until the last several years, we were operated by GM as a
captive, North America-based supplier to GM's North American operations. As a
result, we did not focus heavily on our global business opportunities, including
those with GM-International. We also did not have the global presence to compete
effectively for GM-International business. As noted above, we have substantially
expanded our global presence over the last several years. We believe that we are
and will continue to be able to compete effectively for GM-International
business.
Supply Agreement. The Supply Agreement we have entered into with General
Motors in connection with our separation provides that all existing contracts
between General Motors and our company as of January 1, 1999 will generally
remain in effect, including the pricing, duration and purchase order terms and
conditions. This includes existing contracts under which we have not yet begun
to supply products. However, the timing of payments from GM to us under the
existing contracts will change. For a description of these payment terms and the
effect on our liquidity, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Extension
of Payment Terms."
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<PAGE> 80
Under the Supply Agreement, we have the right to provide on competitive
terms the first replacement cycle of all product programs in the United States
and Canada which we were providing to GM as of January 1, 1999, provided that GM
sources such replacement programs prior to January 1, 2002 and we are
competitive in terms of design, quality, price, service and technology as these
factors relate to all aspects of bid packages that may be submitted by other
suppliers. Other suppliers' bids to provide particular products may include
offers of price reductions to GM on other current or future products, and GM may
under the Supply Agreement consider the overall economic effect of such package
proposals in assessing our competitiveness. Given the general duration of most
vehicle programs of about five to eight years, depending on the vehicle model,
we expect that this ability to secure next generation business from GM-North
America, together with our existing contracts and other commitments, will
provide us with the opportunity to maintain substantial business with GM-North
America well into the next decade. We will also have the opportunity to bid on
the same basis as other suppliers for other new GM-North America business as
well as for GM-International business. Our ability to realize revenues on all GM
business, including business awarded pursuant to existing contracts, is in all
cases subject to a variety of factors, including the volume and option mix of
vehicles actually produced by GM, the timing of such production and our
continuing competitiveness. For more information about the uncertainties and
risks related to the Supply Agreement and to realizing awarded business, see
"--Industry--Awarded Business."
The Supply Agreement specifies that GM has the right to move its existing
business with us to other suppliers in the event that we are not competitive in
terms of quality, service, design or technology. In addition, GM has the right
at all times to adopt new technology, whether or not such technology is
available through us. If we are unable to provide the new technology or an
equivalent technology acceptable to GM on a competitive basis, GM is free to
move the business from us to another supplier. For more information regarding
the terms of the Supply Agreement, see "Arrangements Between Delphi and General
Motors--Supply Agreement."
OTHER VMS. Although General Motors is by far our largest customer, we do
business with all of the other major VMs worldwide. These relationships have
enabled us to develop an understanding of global customer needs and business
opportunities. Based on 1997 worldwide market shares, the next five largest VMs
after GM are Ford Motor Company, Toyota Motor Corp., Volkswagen AG,
DaimlerChrysler AG and Fiat S.p.A., who collectively had an aggregate market
share of about 43% of all light vehicles produced throughout the world in 1997
according to Standard & Poor's DRI 1998 World Car Industry Forecast Report. We
currently do business with each of these VMs as well as all other major VMs. Our
top five VM customers other than GM accounted for about 5.8% of our total 1997
revenues, and our top ten VM customers other than GM accounted for about 8.5% of
our total 1997 revenues. In determining these percentages, we have not included
sales of entities in which we have a minority interest.
Substantially all of our existing contracts with these non-GM customers,
which we entered into while we were a business sector of GM, require the consent
of the customer in order to assign or transfer the contract. We have had
discussions with all of our major non-GM customers regarding our separation from
GM and our intent to continue to perform under these existing contracts. Given
the extremely large number of existing contracts with our non-GM customers and
the positive feedback received during discussions with our major non-GM
customers, we do not currently intend either to seek consents from or to enter
into new contracts with these customers in connection with our separation from
GM. Based on these discussions, we do not believe that our separation from GM
will adversely affect our business with these customers. However, we cannot
assure you in this regard.
AFTERMARKET. We sell products to the worldwide aftermarket as replacement
parts for current production and older vehicles. In 1997, our aftermarket
revenues of $2 billion represented 6.5% of our total revenues. We currently sell
most of these products into the North American aftermarket under arrangements
with GM-SPO, the principal aftermarket sales organization of GM. GM-SPO
distributes replacement parts to the aftermarket primarily through GM automobile
dealerships and independent distributors, including warehouse distributors and
direct retailers. Outside North America, we principally sell into the
aftermarket through independent distributors.
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<PAGE> 81
Under the terms of our separation from GM, we and GM have agreed that,
subject to certain exceptions, GM-SPO will be the exclusive distributor of our
products into the U.S. aftermarket and we will be the exclusive supplier of
these products to GM-SPO through at least December 31, 2000. GM-SPO currently
markets our products under a number of brand names, including ACDelco(R),
Freedom(R) and Voyager(R). In connection with our separation from GM, we have
agreed with GM-SPO to split the ownership of these aftermarket brands. GM-SPO
will own the ACDelco brand and any AC and Delco derivatives and formatives.
However, as described further under "Arrangements Between Delphi and General
Motors--Intellectual Property," we have been granted a perpetual, worldwide,
royalty-free license to use the trade name "Delco Electronics" and the
trademarks "DELCO" and "DELCO ELECTRONICS" in connection with certain of our
products as well as a worldwide license to use the trademarks "AC," "DELCO" and
"AC Delco" until January 1, 2000. We will own the Freedom brand, although we may
not use the brand in the United States until the expiration of our arrangement
with GM-SPO. GM-SPO will own the Voyager battery brand, but may only use it on
batteries it purchases from us. For more information about these arrangements,
see "Arrangements Between Delphi and General Motors--Aftermarket Sales."
We have historically derived our principal aftermarket revenues through our
relationship with GM-SPO. We believe that there exist opportunities to increase
our revenues from sales in the aftermarket and augment the "Delphi" brand
presence in the aftermarket over time by establishing new supply relationships
with various participants along the aftermarket distribution channel. We believe
that our ability to sell products developed for the VM market to aftermarket
customers can reduce the impact of adverse changes in demand for new vehicles.
With respect to the United States aftermarket, we intend to continue to sell
products through GM-SPO until the expiration of the transitional arrangements
described above. Outside the United States, we are initially focusing on the
aftermarket business in Europe and South America.
We believe that incremental aftermarket sales opportunities will be
available to us following our complete separation from GM. However, growth in
the highly competitive aftermarket business will take time to achieve in light
of the significant investment in an aftermarket distribution infrastructure that
is required.
NON-VM CUSTOMERS. We are also diversifying by supplying certain of our
products, including connection systems, flex-circuits wiring, instrumentation
and map sensors, to new customer areas, such as the aerospace, motorcycle and
computer industries. Our non-VM customers include Boeing Company,
Harley-Davidson Inc. and Silicon Graphics Inc. We are also building
relationships with Tandem Computers Inc., Storage Technologies and Lucent
Technologies Inc. These non-VM sales accounted for only a nominal amount of our
total 1997 revenues. We believe that opportunities exist to increase our sales
in this area and we intend to continue to work to expand our sales to non-VM
customers.
SALES AND MARKETING
Delphi has established an expansive sales and marketing organization
consisting of 25 dedicated customer service teams that provide a consistent
interface between key customers and the company. These teams are currently
staffed by Delphi sales and marketing personnel located in every major region
around the world. Nineteen of these customer teams currently focus on customers
other than GM. We maintain this extensive worldwide customer network in order to
better represent individual customers' interests within our organization,
promote customer programs and coordinate global customer strategies with the
goal of enhancing overall customer service and satisfaction. Our ability to
support our customers around the world is further enhanced by our expansive
global presence in terms of manufacturing sites, customer service centers and
sales activity offices and technical and engineering support.
In order to address confidentiality concerns, each customer team functions
completely independently from the others. We believe that we have implemented
very effective procedures to preserve customer confidentiality. To our
knowledge, we have never experienced a breach of our confidentiality pledge or
procedures. Nevertheless, we believe that our complete separation from General
Motors should eliminate any remaining VM concerns about providing confidential
information to a supplier owned by one of its
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<PAGE> 82
competitors. As noted above, access to such information is necessary for the
design, engineering and production of integrated systems tailored to a
customer's individual needs.
Our sales and marketing activities are designed to create overall
awareness, consideration and purchase of our components, integrated systems and
modules. To further this objective, we participate in international trade shows
in Paris, Frankfurt, Tokyo and Detroit. We also provide on-site technology
demonstrations at each of our major VM customers on a regular basis. We
advertise in a variety of trade publications and offer an Internet site at
http://www.delphiauto.com. Our website and the information contained therein or
connected thereto shall not be deemed to be incorporated into this prospectus or
the registration statement of which it forms a part. We also maintain a
17,000-square foot customer center at our world headquarters in Troy, Michigan,
where we have hosted over 11,000 visitors since its opening in August 1997. In
addition, we provide key products to several of the leading motorsports series
around the world, including Formula 1, NASCAR Winston Cup, Indy Racing League
and Championship Auto Racing Teams.
PRODUCTS
Delphi designs, engineers and manufactures a wide variety of components,
integrated systems and modules on a worldwide basis. We provide our VM customers
with global, single-point sourcing capability and systems tailored to meet their
specific needs. As the largest and most diversified supplier of automotive
parts, we have a diversified portfolio of products. Each of our product lines
includes many individual product offerings, most of which we can configure to
interact with specific vehicle characteristics in order to meet our customers'
needs. Given the breadth of our product portfolio and our significant systems
integration capabilities, we have focused on offering our customers highly
engineered, value-added products.
Our product offerings are organized in three product sectors: Electronics &
Mobile Communication; Safety, Thermal & Electrical Architecture; and Dynamics &
Propulsion. We believe that each of our three product sectors is a leading
supplier of automotive parts in its principal areas of focus. The following
table shows our net sales (in billions) by product sector and in total for the
last three years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
PRODUCT SECTOR 1995 1996 1997
-------------- ---- ---- ----
<S> <C> <C> <C>
Electronics & Mobile Communication................. $ 5.5 $ 5.3 $ 5.5
Safety, Thermal & Electrical Architecture.......... 13.4 12.9 12.7
Dynamics & Propulsion.............................. 13.2 13.3 13.7
Eliminations....................................... (0.4) (0.5) (0.5)
----- ----- -----
Total............................................ $31.7 $31.0 $31.4
===== ===== =====
</TABLE>
Our net sales by product sector include certain inter-sector sales, which
we eliminate for purposes of determining our total net sales. After adjusting to
account for these eliminations, the following table shows the approximate
composition by product sector and in total of our net sales for the last three
years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
PRODUCT SECTOR 1995 1996 1997
-------------- ---- ---- ----
<S> <C> <C> <C>
Electronics & Mobile Communication................. 16.5% 16.2% 16.5%
Safety, Thermal & Electrical Architecture.......... 42.0 41.1 39.9
Dynamics & Propulsion.............................. 41.5 42.7 43.6
----- ----- -----
Total............................................ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Many of our product offerings combine the expertise and capabilities of
more than one product sector. Since our customers increasingly seek more
fully-engineered, integrated systems and modules rather than
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<PAGE> 83
individual components, our significant systems integration capabilities play an
increasingly key role in the successful marketing and sales of our products. We
believe that electronics integration will drive the next generation of
successful products in our industry. All of our major vehicle systems and
subsystems utilize the electronics integration capabilities of our Electronics &
Mobile Communication product sector. Within our three product sectors, our
numerous product lines are organized into various sub-categories for which a
product sector strategy board or equivalent managing committee has principal
responsibility. For more information, see "--Management." For more information
about our product sectors, see Note 15 to Delphi's audited consolidated
financial statements included elsewhere in this prospectus.
ELECTRONICS & MOBILE COMMUNICATION. Our Electronics & Mobile Communication
product sector accounted for $5.2 billion, or 16.5%, of our 1997 net sales
(excluding inter-sector sales). This sector is one of the leading global
providers of automotive electronics products. The sector also offers a wide
variety of audio and communication systems for the vehicle. The automotive
electronics capabilities of this sector are utilized in connection with many of
the product offerings of Delphi's two other product sectors to produce systems,
subsystems and modules designed to enhance vehicle safety, comfort, security and
efficiency. Our principal electronics and mobile communication product lines
include the following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Audio Systems A wide range of audio systems and components ranging
from AM radios to integrated compact disc players,
including the Monsoon(R) Audio System, which is
customized for each vehicle.
Communication Systems A wide range of communication and information
systems, including the EyeCue(R) head up display
system and mobile multimedia.
Advanced Controllers Microprocessor-based engine management controllers
and anti-lock brake controllers.
Powertrain and Engine Control Modules designed to optimize engine and transmission
Modules performance while improving reliability and cost
efficiency.
Collision Warning FOREWARN(R) collision warning systems are
Systems microwave-based forward, rear and side object
detection systems which present warning signals to
drivers in a wide range of formats and warning
levels.
Security Systems Products include sounders, inclination sensors, glass
breakage sensors, remote key actuation products and
vehicle immobilization products, some of which are
sold under the TEXALARM(R) brand.
Safety Systems Products include frontal inside airbag controllers,
occupant positioning, adaptive restraints and
roll-over sensing.
</TABLE>
SAFETY, THERMAL & ELECTRICAL ARCHITECTURE. Our Safety, Thermal & Electrical
Architecture product sector accounted for $12.5 billion, or 39.9%, of our 1997
net sales (excluding inter-sector sales). This sector offers a wide range of
products relating to the vehicle interior as well as the expertise to integrate
them into individual vehicle designs to ease manufacturer assembly and enhance
vehicle marketability. The sector also offers thermal products, including
powertrain cooling systems and climate control systems that meet global
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<PAGE> 84
mandates for alternative refrigerant capabilities. The sector is also a global
leader in the production of wiring harnesses and connectors for electrical power
and signal distribution.
- Interior Products. These products accounted for $4.4 billion, or 35.2%,
of the Safety, Thermal & Electrical Architecture product sector's 1997
net sales (excluding inter-sector sales). Our principal interior product
lines include the following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Safety/Airbag Systems Airbag systems and modules and adaptive restraint
technologies, including driver and passenger airbag
modules, side airbag modules and integral steering
wheels.
Door Modules Integrated door hardware systems with various
features of power and signal distribution, safety and
security, HVAC (heating, ventilation and air
conditioning), electronic control and interior trim
systems.
Power Product Systems Systems include power sliding doors, power liftgates
and power decklids.
Modular Cockpits Fully integrated interior systems, featuring
electrical/electronic systems, structure and trim
systems, steering systems, thermal systems and
entertainment and safety systems.
</TABLE>
- Thermal Products. These products accounted for $2.8 billion, or 22.4%, of
the Safety, Thermal & Electrical Architecture product sector's 1997 net
sales (excluding inter-sector sales). Our principal thermal product lines
include the following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Thermal Management Systems Systems designed to optimize total vehicle thermal
management functions, efficiently maintain passenger
comfort and powertrain cooling in all climates and
driving conditions.
Climate Control Systems Systems which include HVAC modules, compressors and
condensors and are designed to efficiently maintain
passenger comfort in all climates and weather
conditions.
HVAC Systems and Modules HVAC systems and modules regulate airflow,
temperature, humidity and air direction and include
evaporators, lightweight aluminum heater cores,
blower motor fans and compressors.
Powertrain Cooling Systems designed to optimize powertrain cooling for
Systems various driving conditions, including radiators, fans
and hoses.
Front End Modules Modules feature a single-part concept, resulting in
reduced product weight and size and higher system
performance at lower cost.
</TABLE>
- Power and Signal Distribution Products. These products accounted for $5.3
billion, or 42.4%, of the Safety, Thermal & Electrical Architecture
product sector's 1997 net sales (excluding inter-sector sales). Our
principal power and signal distribution product lines include the
following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Electrical/Electronic (E/E) A wide range of products and services relating to E/E
Systems Centers system design and production, including E/E centers
designed in a variety of configurations and tailored
to meet customer-specific applications.
</TABLE>
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<PAGE> 85
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Connection Systems Wiring connection systems with current-carrying
capacity ranging from signal-level to over 300 amps,
including the GT Connection System(TM), and a variety
of fiberoptic data network and point-to-point
connection systems.
Electronic Products Electronic products featuring micro-processor based
designs with custom integrated circuits and
analog/digital/ microcomputer/mixed design
capabilities.
Advanced Data Communication Products include an optical star coupler, which
Systems distributes data in real time via plastic optical
fiber throughout an expandable network; and
customized multiplex systems and components.
Fiber Optic Lighting Systems DELight(TM) fiber optic lighting systems utilize
centrally located light sources to provide lighting
throughout the vehicle.
Ignition Wiring Systems A wide range of ignition wiring systems and
components.
Sensors A wide range of temperature sensors and multifunction
sensors that integrate electronics into the
packaging. Some of these sensors are sold under the
brand name INTELLEK(TM).
Switch Products A wide range of pushbutton switches, elastomer
switches incorporating integrated electronics and
miscellaneous specialty switches.
</TABLE>
DYNAMICS & PROPULSION. Our Dynamics & Propulsion product sector accounted
for $13.7 billion, or 43.6%, of our 1997 net sales (excluding inter-sector
sales). This sector offers a wide range of energy and engine management systems
designed to optimize engine performance and emissions control through precise
management of vehicle air intake, fuel delivery, combustion and exhaust
after-treatment. The sector also offers all major chassis control
systems--steering, braking, suspension and engine, with a focus on providing
superior ride and handling performance, high reliability, reduced mass and
improved fuel efficiency. The sector's steering products feature vehicle control
and driveline technologies and advanced electronic controls to improve
performance.
- Energy and Engine Management Products. These products accounted for $6.4
billion, or 46.7%, of the Dynamics & Propulsion product sector's 1997 net
sales (excluding inter-sector sales). Our principal energy and engine
management product lines include the following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Air/Fuel Management Subsystems measure, control, manage and deliver a
precise combustible mixture of fuel and air to the
combustion chamber.
Energy Storage and Conversion The generator and battery comprise the principal
electrical system in the vehicle. The battery stores
energy for transfer to the starter during engine
start-up; once the engine is running, the generator
supplies the vehicle's electrical power requirements.
Among other products, we sell batteries into the
aftermarket under the FREEDOM(TM) brand, as described
under "--Customers--Aftermarket."
Valve Train Systems manage engine timing and performance to
improve fuel economy, reduce emissions and increase
torque and power.
Exhaust After-Treatment Subsystems carry gas away from the engine and removes
harmful chemical compounds through catalytic reaction
of contaminants.
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Sensors and Solenoids Sensors, including our INTELLEK(TM) brand sensors,
monitor conditions such as presence, speed and
chemical content within the vehicle. Solenoids are
actuators that control mechanical movement and the
flow of fluids within the vehicle.
Ignition Subsystems provide spark energy for precise and
robust combustion initiation of the air/fuel mixture.
Coils, electronics, wires/boots and spark plugs
generate and deliver a high voltage charge to the
combustion chamber.
Fuel Handling Subsystems contain and deliver fuel to the air/fuel
architecture and control evaporative emissions.
Controls Subsystems consist of the electronic control module
and related software and algorithms which are
customized to meet VM needs.
Advanced Propulsion Systems New propulsion technologies include different vehicle
system approaches--from powertrain integration to
advanced electro-chemical fuel cell engines.
</TABLE>
- Chassis Products. These products accounted for $4.1 billion, or 29.9%, of
the Dynamics & Propulsion product sector's 1997 net sales (excluding
inter-sector sales). Our principal chassis product lines include the
following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Intelligent Chassis Control TRAXXAR(TM) vehicle stability enhancement system
Systems integrates all major chassis control
systems--steering, braking, suspension and
powertrain--to provide optimum ride and handling
performance.
GALILEO(TM) intelligent brake-by-wire control system
combines power assist, anti-lock braking functions,
traction control and tunable pedal feel in a modular
design to deliver high-quality brake balance
regardless of vehicle loading or brake pad wear.
Advanced Ride Control Manual Selectable Ride System is a controlled
Suspension Systems suspension system designed with two independent
driver-selectable levels of damping.
Continuously Variable Real-Time Damping System
provides full car modal control with continuously
variable independent damping control at each corner.
Chassis Systems and Modules Systems and modules include complete wheel-to-wheel
modules, chassis corner modules, brake corner
modules, damper modules and bearings.
Brake Systems Anti-lock brake systems feature precision solenoid
technology and can accommodate traction control,
variable effort steering and other vehicle
enhancements.
Suspension and Brake Components Components include calipers, rotors, drums, master
cylinders, boosters, drum brake assemblies, shock
absorbers and leveling height sensors.
</TABLE>
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- Steering Products. These products accounted for $3.2 billion, or 23.4%,
of the Dynamics & Propulsion product sector's 1997 net sales (excluding
inter-sector sales). Our principal steering product lines include the
following:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
Steering Systems A wide range of steering components and fully
integrated systems. Components include hydraulic
pumps, steering gears and steering hoses.
Columns and Intermediate Shafts A wide range of steering columns, including TILT
WHEEL(TM), LUXURY-TILT(TM) power adjustable wheel
function and manual tilt and telescope. Intermediate
shaft offerings include cardan joint, flexible
couplings, pot-style joint, spline shaft and
concentric isolator.
Driveline Systems Halfshafts that transmit the power of the vehicle's
engine to the wheels. Integrated halfshaft designs in
a wide variety of joint types and sizes.
Fuel Efficiency and Performance E-STEER(TM) Electric Power Steering is an
Steering Systems all-electric, engine independent system featuring
space efficiency, environmental compatibility and
fuel efficiency.
E-H-STEER(TM) Electro-Hydraulic Power Steering
features optional variable-assist steering.
QUADRASTEER(TM) Four Wheel Steering features a short
turning radius, enhanced control and improved
handling.
MAGNASTEER(TM) Magnetic Variable Assist Steering
features variable effort power steering.
</TABLE>
COMPETITION
GENERAL. We conduct our business in a highly competitive industry. The
global automotive parts industry principally involves the supply of components,
systems and modules to VMs for the manufacture of new vehicles, to other
suppliers for use in their product offerings and to the aftermarket for use as
replacement parts for older vehicles.
Although the overall number of our competitors has decreased due to ongoing
industry consolidation, the automotive parts industry remains extremely
competitive. VMs rigorously evaluate suppliers on the basis of product quality,
price competitiveness, reliability and timeliness of delivery, product design
capability, technical expertise and development capability, new product
innovation, leanness of facilities, operational flexibility, customer service
and overall management. Some of our competitors have substantial size and scale
and some have lower cost structures, particularly lower hourly wage structures,
than our company.
Our overall product portfolio is extremely broad by industry standards.
Very few other Tier 1 suppliers compete across the full range of our product
areas. However, we do face significant competition across all three of our
principal product sectors from each of the following major Tier 1 suppliers:
Robert Bosch GmbH, Denso Inc. and Visteon Automotive Systems, a unit of Ford
Motor Company.
We also face significant competition within each of our three major product
sectors. Our most significant competitors within each product sector are
described below.
ELECTRONICS & MOBILE COMMUNICATION. Our principal competitors in the
Electronics & Mobile Communication product sector include the following: Denso
Inc., Siemens AG, Robert Bosch GmbH, Mannesman VDO AG and Motorola, Inc.
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SAFETY, THERMAL & ELECTRICAL ARCHITECTURE. Our principal competitors in the
Safety, Thermal & Electrical Architecture product sector include the following:
Yazaki Corp., Valeo SA, Autoliv Inc., Denso Inc. and TRW Inc.
DYNAMICS & PROPULSION. Our principal competitors in the Dynamics &
Propulsion product sector include the following: Robert Bosch GmbH, LucasVarity
PLC, NSK Ltd., Siemens AG and TRW Inc.
MANUFACTURING
GLOBAL FOOTPRINT. Delphi has an extensive world manufacturing presence, as
well as the related engineering and technical support. As of September 30, 1998,
Delphi operated 169 wholly owned and leased manufacturing sites and 40 joint
ventures in 36 countries, representing every major region of the world. We also
maintain a network of technical centers, including engineers and technicians, in
every major region around the world to provide related engineering and technical
support. We believe that our manufacturing presence is one of the most expansive
in the global automotive parts industry.
DELPHI MANUFACTURING SYSTEM. Over the last several years, we have initiated
several important programs designed to increase manufacturing efficiencies and
reduce our costs. Most recently, we have developed and are currently in the
process of implementing the Delphi Manufacturing System. This lean manufacturing
system focuses on reducing total manufacturing costs and driving toward
"one-piece flow" by utilizing cell manufacturing techniques and value stream
mapping. Compared to the more traditional, less flexible mass production line
design, the Delphi Manufacturing System enables us to maintain our product
output consistent with our customers' requirements in a more efficient manner.
The lean manufacturing cells utilized under this system have enhanced our
ability to facilitate changes to product design requirements in response to
changing customer needs and regulatory requirements and to respond more quickly
to changes in our customer's volume requirements.
Our strategy for achieving company-wide lean manufacturing involves a
careful assessment of all manufacturing plants against industry benchmark
performance standards. This is followed by the creation of an action plan to
improve each facility by implementing the Delphi Manufacturing System. Lean
manufacturing concepts which have been applied to our manufacturing operations
under this system include synchronous operations, a plan to produce every part
every day, low-volume production to meet the different demands of several
customers and one-piece flow. To date, the Delphi Manufacturing System has
resulted in significant cost savings, including reduction in plant-floor costs
in many of our manufacturing facilities. We expect to continue to implement the
Delphi Manufacturing System in all of our operations on a worldwide basis. For
more information about the Delphi Manufacturing System, see "--Strategy--Improve
Operating Performance."
SUPPLY-IN-LINE SEQUENCE. Principally as a result of lean manufacturing
initiatives designed to reduce assembly costs, VMs often require their suppliers
to provide just-in-time delivery of pre-assembled systems or modules directly to
their production lines. Just-in-time delivery provides multiple, small-batch
deliveries on an as-needed basis compared to traditional large-batch deliveries
which increase inventory levels and reduce the VM's assembly efficiency.
Just-in-time delivery generally requires that the supplier have a local presence
in close proximity to the VM's manufacturing facility so that the supplier's
facility (where various sub-assembly functions will be performed) becomes, in
effect, an extension of the VM's manufacturing process.
Our "supply-in-line sequence" process takes just-in-time delivery one step
further by providing our products not only when the VM needs them, but also in
the correct assembly sequence. For example, one of our supply-in-line-sequence
customers is Mercedes-Benz. Currently, we assemble and deliver cockpit modules
for the Mercedes sports utility vehicle that are sequentially unloaded from the
container, with the correct color and options, for attachment directly onto the
vehicle as it moves down the assembly line. Our supply-in-line sequence process
enables us to better service our VM customers' needs through the coordination of
our own manufacturing processes with those of our customers.
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PURCHASING
We use global purchasing to obtain globally competitive prices for our
direct and indirect materials, machinery and equipment and services, as well as
for parts we purchase from other suppliers for use in our product offerings. We
believe that our size enables us to have sufficient scale and purchasing
leverage to avoid incurring incremental purchasing costs following our
separation from General Motors. In 1997, our total purchases were about $15
billion. This amount covered our purchases of parts from other suppliers for use
in our product offerings, as well as raw materials, machinery and equipment,
tooling and operating supplies, and a variety of services.
We purchase from suppliers who offer us the best products in terms of
quality, service, technology and price. We intend to continue using certain
information technology systems used by GM's purchasing program during a
transitional period following our separation from GM. For more information, see
"Arrangements Between Delphi and General Motors--Purchasing." Our purchasing
organization is organized according to commodity groups and global regions and
focuses on global sourcing through multi-year contracts. Through leveraging our
economics of scale and global purchasing needs, we seek to develop and maintain
an extensive base of suppliers capable of servicing our supply needs on a
worldwide basis.
To ensure a consistent high-quality supply of goods and services, our
purchasing organization uses a common supplier development and quality process.
We have instituted common purchasing systems, policies and procedures throughout
our global operations to leverage our economies of scale in the purchasing area.
The organizational structure of our purchasing system includes commodity
directors responsible for purchasing strategy, purchasing directors who execute
specific purchases and regional directors to insure consistent purchasing
behavior on a global basis. We have also established purchasing creativity teams
which meet on a regular basis to evaluate and focus our available market
information to develop strategies for the team's product.
We purchase a wide variety of raw materials for use in our manufacturing
processes. The principal raw materials we purchase include platinum group
metals, copper, aluminum, steel, lead and resins. With respect to raw materials,
we typically negotiate our purchases on the terms and conditions of our standard
purchase orders or long-term contracts. Our positive relationships with our
suppliers generally allow us to schedule precise quantities and types of raw
materials on short notice, thereby enabling us to maintain relatively low
inventories.
All of these raw materials, except the platinum group metals we use to
produce our catalytic converters, are available from numerous sources.
Currently, all of the platinum group metals used by Delphi for catalytic
converters produced for GM are purchased by GM directly from suppliers of these
metals which are located principally in Russia and South Africa. In light of the
potential political instability in these areas, Delphi maintains a three to four
month inventory of platinum group metals. Delphi purchases the platinum group
metals it uses in catalytic converters manufactured for its customers other than
GM directly from suppliers. Delphi has not experienced any significant shortages
of raw materials and normally does not carry inventories of raw materials or
finished products in excess of those reasonably required to meet production and
shipping schedules, except for the three to four month supply of platinum group
metals.
We procure a wide variety of products and machinery for use in our
manufacturing operations, including, among other things, airbags, machined
parts, active and passive electrical components, stampings, fasteners, castings,
die cuts, bearings, motors, audio and communication products, displays, sensors
and electronic assembly. We believe that we maintain strong relationships with a
sufficient number of suppliers to ensure a reliable supply of such products and
machinery to accommodate our production schedule.
We have not experienced any significant shortages of raw materials or other
products and normally do not carry inventories of raw materials or finished
products in excess of those reasonably required to meet our production and
shipping schedules.
INFORMATION TECHNOLOGY
In the operation of our business, we utilize information technology systems
and services to support our company's infrastructure through the management and
processing of information essential to our operations.
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"Information technology" principally consists of business information systems
(such as computer application software) and infrastructure (such as personal
computers, operating systems, networks and devices like switches and routers).
These information technology systems and services manage and process information
relating to a broad range of our company's infrastructure functions, including
financial, engineering, environmental, human resources, manufacturing, legal,
logistics, purchasing, warranty and service as well as many other key functions.
We have historically relied largely on information technology systems and
services provided through General Motors. These information technology systems
utilize GM-developed computer software systems and information technology
services provided by GM's former subsidiary, Electronic Data Systems Corporation
("EDS"), pursuant to a master information technology services agreement between
GM and EDS. The systems provided through GM support our human resources,
purchasing, finance, tax, customs, planning and material management functions.
We are in the process of implementing throughout our global operations on
an incremental basis new enterprise software that will replace the existing
software systems provided through GM. This system is based on the SAP AG system.
We expect that this enterprise software will provide us with enhanced
information technology systems capabilities, including with respect to Year 2000
issues at certain of our operations. For more information about Year 2000 issues
and our remediation efforts relating thereto, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."
We expect that the new enterprise software will enable us to run many
internal, interdependent processes contemporaneously so that we can serve our
customers in a more effective and cost-efficient manner by allowing different
computer platforms at multiple locations to share information on a real-time
basis. We believe that this will facilitate the sharing of information more
freely among our operating units and functions and thus improve our operating
performance. As a result of the full implementation of this new system, we
expect to realize cost savings throughout our operations.
Until our new enterprise software system is fully implemented, we intend to
continue to utilize certain common systems and services provided by GM pursuant
to transitional arrangements entered into in connection with our separation. For
more information, see "Arrangements Between Delphi and General
Motors--Purchasing" and "--Interim Services." As our new software system is
implemented throughout our operations, we will migrate services from the
existing GM system to the new system. In the interim, we have implemented
security measures between the GM software and our data for the purpose of
eliminating potential access by GM to confidential information, particularly
proprietary information regarding our non-GM customers. We expect the
multi-phase implementation of the new system to be completed within about five
years. We are currently in the process of completing the initial implementation
phase, which principally involves certain of our operations in Europe and North
America.
We believe that these information technology systems and services are
adequate to support our company's information infrastructure.
INTELLECTUAL PROPERTY
We have generated a large number of patents and trademarks in the operation
of our business. Our separation arrangements with General Motors generally
provide that we will own all patents, patent applications and records of
invention that are primarily related to components produced or sold by us and
any other patents that would be more valuable to us than to GM. Accordingly, GM
has transferred to us full or partial ownership of about 2,800 patents, 640 U.S.
patent applications and 620 records of invention as well as the corresponding
foreign patents and patent applications. In addition, we and GM have agreed to
license certain of our existing patents to each other. For more information
regarding the separation arrangements relating to intellectual property, see
"Arrangements Between Delphi and General Motors--Intellectual Property." While
we believe that these patents, inventions and licenses are, in the aggregate,
important to the conduct of our business, none is individually considered
material to our business.
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Although we do not rely on material "patent-protected" technology, our
ability to continue to generate technological innovations is important to ensure
our long-term success as well as the competitiveness of our business. Our focus
on innovation is evidenced by the 586 patents relating to our business which
have been recorded in the last two years. We intend to continue to actively
pursue technological innovation.
GM has transferred to us ownership of about 1,170 trademark registrations
and applications, including about 70 in the United States, as well as
unregistered trademarks. Our trademarks include the following: E-STEER(TM),
FOREWARN(TM), Freedom(TM), Gold Dot(TM), INTELLEK(TM), Monsoon(TM),
QUADRASTEER(TM) and TRAXXAR(TM).
EMPLOYEES; UNION REPRESENTATION
GENERAL. As of September 30, 1998, we employed 200,463 persons, including
33,310 salaried employees and 167,153 hourly employees. Of our hourly employees,
about 96% are represented by about 53 unions, including the UAW, the IUE and the
USW. The UAW is our largest union, representing about 29% of our unionized
employees. Our union representation by major region as of September 30, 1998 is
indicated in the table below:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
REGION UNIONS EMPLOYEES
- ------ --------- ---------
<S> <C> <C>
United States
UAW............................................ 1 46,032
IUE............................................ 1 14,505
USW............................................ 1 2,078
Other unions................................... 3 500
-- -------
Total United States......................... 6 63,115
-- -------
Canada........................................... 2 968
Mexico........................................... 6 58,297
Europe........................................... 32 30,558
South America.................................... 5 6,578
Asia/Pacific..................................... 2 175
-- -------
Total....................................... 53 159,691
== =======
</TABLE>
The national collective bargaining agreements negotiated by GM with the
unions currently apply to our workforce. GM's national agreement with the UAW
expires in September 1999, GM's national agreement with the IUE expires in
November 1999 and GM's national agreement with the USW expires in September
2002. We will assume the terms of the existing collective bargaining agreements
for our employees in connection with the Distribution.
The percentage of our employees located outside the United States and
Canada has increased from about 38% in 1992 to about 56% in 1997. We expect that
the percentage of our employee population located outside the United States and
Canada will continue to increase over time as we continue to expand our
operations globally.
LABOR RELATIONS. In the past we have been adversely affected by work
stoppages that have led to the shutdown of our plants. We experienced work
stoppages at certain of our facilities in 1996, 1997 and 1998. Strikes by the
UAW at a GM metal-fabricating operation and at one of our component
manufacturing facilities led to the shutdown of most of GM's North American
assembly plants in June and July 1998. Our lost production due to this shutdown
had an unfavorable after-tax impact on our net income of about $560 million in
the nine months ended September 30, 1998. Work stoppages at GM in the United
States in 1997 and in the United States and Canada in 1996, including at one of
our facilities, had an unfavorable after-tax
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impact on our net income of $92 million and $281 million, respectively, after
considering partial recovery of lost production. None of these work stoppages,
however, affected our deliveries to our non-GM customers.
We also recognize that a key element of our long-term competitiveness is
developing a constructive working relationship with our unions. We emphasize the
sharing of relevant information with our local and international union
leadership worldwide and working with the unions to jointly develop local work
rules and practices. We have actively engaged our unions in major initiatives
designed to improve the viability of our operations. Both our local and
international unions have cooperated with our management in developing plans to
improve certain uncompetitive operations as part of our "fix/sell/close"
process.
As discussed above under "--Strategy--Improve Operating Performance--Labor
Relations," we believe that our separation from General Motors and establishment
as a fully independent company with control over our own labor relations will
provide us certain labor relations benefits which will enable us, over time, to
increase our competitiveness. However, we cannot assure you as to when or the
extent to which we will achieve these benefits.
PROPERTIES
Our world headquarters is located in Troy, Michigan and occupies about
264,000 square feet. We occupy this facility, as well as certain other
facilities, pursuant to certain arrangements described under "Arrangements
Between Delphi and General Motors--Real Estate and Environmental." We expect to
purchase our headquarters upon the expiration of our agreement with GM with
respect thereto.
We also maintain regional headquarters for our Asia/Pacific region in
Tokyo, Japan, for our Europe/ Africa/Middle East region in Paris, France and for
our South America region in Sao Paulo, Brazil. Excluding our joint ventures and
other investments, we currently maintain a total of 244 sites in 36 countries
throughout the world. The following table, which gives full effect to the
international asset transfers described under "Arrangements Between Delphi and
General Motors--International Agreements" but excludes our joint ventures and
other investments, shows our principal facilities as of September 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF TOTAL OWNED TOTAL LEASED
REGION SITES SQUARE FOOTAGE SQUARE FOOTAGE
------ --------- -------------- --------------
<S> <C> <C> <C>
United States/Canada......... 78 44,837,322 13,448,992
Europe/Middle East/Africa.... 93 6,058,025 4,942,674
Mexico/South America......... 47 7,919,242 3,752,457
Asia/Pacific................. 26 1,392,501 723,502
--- ---------- ----------
Total................... 244 60,207,090 22,867,625
=== ========== ==========
</TABLE>
In some cases, several of our manufacturing sites, technical centers and/or
customer service centers and sales activity offices are located at a single
multiple-purpose site. We also maintain a limited number of miscellaneous
facilities. The following table, which gives full effect to the international
asset transfers described under "Arrangements Between Delphi and General
Motors--International Agreements," but does not reflect our joint ventures and
other investments, shows our capabilities as of September 30, 1998:
<TABLE>
<CAPTION>
CUSTOMER
MANUFACTURING TECHNICAL CENTERS AND
REGION SITES CENTERS SALES OFFICES
------ ------------- --------- -------------
<S> <C> <C> <C>
United States/Canada......... 48 14 11
Europe/Middle East/Africa.... 65 7 20
Mexico/South America......... 41 4 6
Asia/Pacific................. 15 2 14
--- -- --
Total................... 169 27 51
=== == ==
</TABLE>
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We are currently evaluating long-term plans to consolidate our worldwide
engineering and technical resources, including our technical centers, into a
more efficient, customer-focused global engineering support network. While we
believe that this consolidation will enhance our ability to provide engineering
and technical support to our customers around the world, we also expect that it
will have the effect of reducing the overall number of our technical centers.
We believe that our facilities are suitable and adequate, and have
sufficient productive capacity, to meet our current and currently anticipated
needs.
ENVIRONMENTAL MATTERS
Delphi is subject to the requirements of federal, state, local and foreign
environmental and occupational safety and health laws and regulations. These
include laws regulating air emissions, water discharge and waste management. We
have an environmental management structure designed to facilitate and support
our compliance with these requirements. We cannot assure you, however, that we
are at all times in complete compliance with all such requirements. Although we
have made and will continue to make capital and other expenditures to comply
with environmental requirements, we do not expect capital or other expenditures
for environmental compliance to be material in 1998 and 1999. Environmental
requirements are complex, change frequently and have tended to become more
stringent over time. Accordingly, we cannot assure you that these requirements
will not change or become more stringent in the future in a manner that could
have a material adverse effect on our business.
Delphi is also subject to environmental laws requiring the investigation
and cleanup of environmental contamination. We are in various stages of
investigation and cleanup at our manufacturing sites where contamination has
been alleged. As of September 30, 1998, Delphi had recorded a reserve of about
$19 million for such environmental investigation and cleanup. We cannot assure
you that our environmental cleanup costs and liabilities will not exceed the
current amount of our reserve.
We have entered into certain arrangements with General Motors regarding the
allocation of environmental liabilities relating to our business as part of our
separation from General Motors. For more information, see "Arrangements Between
Delphi and General Motors--Real Estate and Environmental."
On December 17, 1998, General Motors entered into a consent order with the
New York Department of Environmental Conservation to settle a notice of
violation the Department issued to our Lockport, New York facility on November
24, 1998. The notice alleged that the facility had installed thermal degreasers
without obtaining an air emission permit or complying with certain requirements
for volatile organic compound emissions from new emission sources. The consent
order requires payment of a civil penalty of $110,000 to the Department. We
intend to pay the penalty on behalf of GM and then seek reimbursement from GM
pursuant to the separation arrangements.
LEGAL PROCEEDINGS
We are involved in routine litigation incidental to the conduct of our
business. We do not believe that any of the litigation to which we are currently
a party will have a material adverse effect on our business or financial
condition.
Although we do not believe any current litigation will have a material
adverse effect on our business or financial condition, we face an inherent
business risk of exposure to product liability claims in the event that the
failure of our products results or is alleged to result in personal injury or
death, and we cannot assure you that we will not experience any material product
liability losses in the future. In addition, if any Delphi-designed products are
or are alleged to be defective, we may be required to participate in a recall
involving such products. Each VM has its own policy regarding product recalls
and other product liability actions relating to its suppliers. However, as
suppliers become more integrally involved in the vehicle design process and
assume more of the vehicle assembly functions, VMs are increasingly looking to
their suppliers for contribution when faced with product liability claims.
Because this is a new trend in our industry and we have
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only limited experience in this regard, we cannot assure you that our costs
associated with providing product warranties will not be material.
In connection with our separation from General Motors, GM has agreed to
retain responsibility for all product liability actions relating to products we
manufactured prior to January 1, 1999 and sold or otherwise supplied to GM
either before or after that date. We will be responsible for all product
liability actions relating to products we sold at any time or sell in the future
to customers other than GM. Responsibility for product liability actions
relating to products we manufacture on or after January 1, 1999 and sell to GM
shall be determined in accordance with the agreements for such sales.
From time to time, in the ordinary course of business, Delphi receives
notices from customers that products may not be properly functioning. Our
warranty responsibility for our products is generally governed by the terms and
conditions of the applicable contract, which vary from contract to contract.
Most of our contracts require that we make certain warranties to our customers
regarding, among other things, conformity to specifications and freedom from
defect. For information regarding our warranty responsibility for products
supplied to General Motors, see "Arrangements Between Delphi and General
Motors--Warranty Matters."
VMs generally offer warranties to new vehicle purchasers which cover the
repair and replacement of defective parts on their vehicles for a specified
period of time. Traditionally, VMs have borne the cost associated with such
warranty programs, including costs related to the repair and replacement of
parts supplied to the VM by the supplier. VMs are increasingly requiring their
outside suppliers to guarantee or warrant their products and to bear the costs
of repair and replacement of such products under new vehicle warranties. Because
this is a new trend in our industry and we have only limited experience in this
regard, we cannot assure you that our costs associated with providing product
warranties will not be material.
We believe that we are adequately insured, including with respect to
product liability coverage, at levels sufficient to cover the claims described
above, subject to commercially reasonable deductible amounts. Delphi is an
"insured" under all of GM's property and liability insurance programs worldwide.
We will remain insured under those programs, subject to the same limitations and
conditions of coverage applicable to all GM operations, until the earlier of the
Distribution and January 1, 2000. We expect to purchase product liability
insurance to be effective at the time such GM coverage ceases in amounts
determined at that time to be adequate, with reasonable deductibles or
self-insured retentions that will allow for the most effective financing of
predictable losses. We have also established reserves in amounts we believe are
reasonably adequate to cover any adverse judgments. However, any adverse
judgment in excess of our insurance coverage and such reserves could have a
material adverse effect on our business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF DELPHI
Set forth below is certain information concerning the executive officers
and key employees of our company, the individuals who are serving on our Board
of Directors and the individuals who are expected to be elected to our Board of
Directors in connection with the closing of the Offering. Our Board currently
has five members, three of whom are currently executive officers and/or
directors of General Motors (Messrs. Losh, Pearce and Smith) and one of whom was
a director of General Motors until October 1998 (Mr. Wyman). In connection with
the closing of the Offering, the persons listed below as director nominees will
join the Board. We expect to add an additional independent Board member in the
several months following the Offering. The three directors who are currently
executive officers and/or directors of GM have advised us that they will resign
from our Board effective as of the completion of the Distribution. The ages
listed below are as of November 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J.T. Battenberg III.................. 55 Chairman, Chief Executive Officer and
President
Alan S. Dawes........................ 44 Chief Financial Officer and Vice President
Volker J. Barth...................... 51 Vice President
William A. Ebbert.................... 55 Vice President
Guy C. Hachey........................ 43 Vice President
David R. Heilman..................... 54 Vice President
Rodney O'Neal........................ 45 Vice President
Ronald M. Pirtle..................... 44 Vice President
Donald L. Runkle..................... 53 Vice President
Paul J. Tosch........................ 58 Vice President
Hans J. Weiser....................... 60 Vice President
David B. Wohleen..................... 48 Vice President
John P. Arle......................... 51 Vice President, Mergers, Acquisitions and
Planning
James A. Bertrand.................... 41 Vice President, Operations
John G. Blahnik...................... 44 Vice President and Treasurer
Ray C. Campbell...................... 56 Vice President, Purchasing
Karen L. Healy....................... 44 Vice President, Corporate Affairs
Peter H. Janak....................... 59 Vice President and Chief Information Officer
Mark C. Lorenz....................... 48 Vice President, Production Control and
Logistics
Logan G. Robinson.................... 48 Vice President and General Counsel
Mark R. Weber........................ 50 Vice President, Human Resources Management
Thomas H. Wyman...................... 68 Director (Lead Director)
John F. Smith, Jr.................... 60 Director
Harry J. Pearce...................... 56 Director
J. Michael Losh...................... 52 Director
Oscar De Paula Bernardes Neto........ 52 Director Nominee
Virgis W. Colbert.................... 58 Director Nominee
Shoichiro Irimajiri.................. 58 Director Nominee
Susan A. McLaughlin.................. 46 Director Nominee
John D. Opie......................... 61 Director Nominee
Roger S. Penske...................... 61 Director Nominee
</TABLE>
Our Board will be divided into three classes serving staggered terms. After
an initial transition period following the Offering, directors in each class
will be elected to serve for three-year terms and until their successors are
elected and qualified. Each year, the directors of one class will stand for
election as their terms
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of office expire. Messrs. Battenberg, Colbert and Irimajiri and Ms. McLaughlin
will be designated as Class I directors, with their terms of office expiring in
2000; Messrs. Bernardes Neto, Opie and Penske will be designated as Class II
directors, with their terms of office expiring in 2001; and Messrs. Losh,
Pearce, Smith and Wyman will be designated as Class III directors, with their
terms of office expiring in 2002.
Our Board is permitted to appoint a non-employee director to serve as its
"lead director." The lead director serves as a liaison between the Board and
members of management and chairs the executive sessions of the Board. Mr. Wyman
will initially serve as the lead director.
Mr. Battenberg has led Delphi and its precursor, the Automotive Components
Group Worldwide ("ACG Worldwide"), since 1992. In July 1995, he was named
President of Delphi. He was named Chief Executive Officer of Delphi in August
1998 and Chairman of the Board of Delphi in November 1998. Mr. Battenberg also
serves as the Chairman of the Delphi Strategy Board. Mr. Battenberg held various
positions with General Motors beginning in 1961, including Superintendent of
Industrial Engineering, Comptroller, Production Manager and Plant Manager. In
1986, he was appointed Product Manager for the former Buick-Oldsmobile-Cadillac
Group's Flint Automotive Division. He later served as Vice President of the
division, and then Vice President and Group Executive for the
Buick-Oldsmobile-Cadillac Group. Mr. Battenberg was named Vice President and
Group Executive of ACG Worldwide in 1992. Two years later, he was elected a
Senior Vice President and President of ACG Worldwide. In July 1995, he was
elected Executive Vice President of GM and President of Delphi Automotive
Systems (formerly ACG Worldwide). Mr. Battenberg is on the Board of Trustees of
Kettering University (formerly General Motors Institute ("GMI")) and the
National Advisory Board for Chase Manhattan Corp. and is a member of the Council
on Competitiveness.
Mr. Dawes was named Chief Financial Officer of Delphi in August 1998 and a
Delphi Automotive Systems Vice President in November 1998. Previously, Mr. Dawes
served as General Manager of Delphi Chassis Systems (formerly Delco Chassis
Systems), a position to which he was named in 1994. From 1992 to 1994, he was
appointed Executive-in-Charge of Operations for ACG Worldwide. Mr. Dawes joined
General Motors in 1981, originally as a financial analyst with its Treasurer's
Office, and held a number of positions including Assistant Treasurer (1988) and
Assistant Comptroller (1991).
Mr. Barth was named a Delphi Automotive Systems Vice President in November
1998 and President of Delphi South America in November 1996. He had been
Executive Director of Worldwide Purchasing for Delphi since 1994. From 1993 to
1994, he was Executive Director of Worldwide Purchasing-Metallic. From 1992 to
1993, he was Director of Materials Management for GM do Brasil in Sao Paulo, and
from 1991 to 1992, he was Director of Purchasing for the same. Prior thereto, he
held several purchasing assignments for GM's Adam Opel subsidiary since joining
GM in 1963.
Mr. Ebbert was named a Delphi Automotive Systems Vice President in November
1998 and President of Delphi Asia Pacific in July 1993. He had been Chairman and
Managing Director of Vauxhall Motors Limited, UK, since 1988. Previously, Mr.
Ebbert had been Group Director of Business Operations for Delphi Automotive
Systems. Prior thereto, he held a number of senior assignments with Delphi
Saginaw Steering Systems' central office. He joined GM in 1965.
Mr. Hachey was named a Delphi Automotive Systems Vice President and
President of Delphi Chassis Systems in November 1998. He had been General
Manager of Delphi Chassis Systems since August 1998. Previously, Mr. Hachey had
been Manufacturing Manager, Worldwide Operations, for the former Delphi Interior
& Lighting Systems since 1995. From 1994 to 1995, he was Director of
Manufacturing Operations for Delphi Automotive Systems and, from 1992 to 1994,
he was Director of Manufacturing Operations for HVAC/HE (heating, ventilation
and air conditioning/heat exchangers) business unit of the now Delphi Harrison
Thermal Systems. Prior thereto, Mr. Hachey held several manufacturing positions
with GM since 1978.
Mr. Heilman was named a Delphi Automotive Systems Vice President and
President of Delphi Packard Electric Systems in November 1998. He had been
General Manager of Delphi Packard Electric Systems since October 1994. From 1993
to 1994, Mr. Heilman served as Director of Delphi Packard Electric Systems'
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North American Business Unit and from 1991 to 1993, he was Director of Packard
International. Prior thereto, Mr. Heilman served in numerous engineering,
manufacturing and product-related positions since joining Delphi Packard
Electric Systems in 1964.
Mr. O'Neal was named a Delphi Automotive Systems Vice President and
President of Delphi Interior Systems in November 1998. He had been General
Manager of the former Delphi Interior & Lighting Systems since May 1997.
Previously, Mr. O'Neal had been General Director of Warehousing and Distribution
for GM-SPO since 1994. From late 1992 to 1994, Mr. O'Neal served as Director of
Manufacturing for ACG Worldwide. From 1991 to late 1992, Mr. O'Neal was first
Director of Industrial Engineering for Chevrolet-Pontiac-GM of Canada (C-P-C)
and later was named Director of Manufacturing Engineering with GM. Prior
thereto, Mr. O'Neal held numerous engineering and manufacturing positions with
GM since 1971.
Mr. Pirtle was named a Delphi Automotive Systems Vice President and
President of Delphi Harrison Thermal Systems in November 1998. He had been
General Manager of Delphi Harrison Thermal Systems since November 1996.
Previously, Mr. Pirtle had been Director of North American Operations at Delphi
Packard Electric Systems since 1994. From 1992 to 1994, Mr. Pirtle was Finance
Director for AC Delco Systems and, from 1990 to 1992, he was Executive-in-Charge
of GM's Corporate Strategic Planning Group. Prior thereto, Mr. Pirtle held
various engineering and financial and planning positions with GM since 1972. Mr.
Pirtle is a Board member of Kettering University (formerly GMI) Alumni
Association and a Board member of the University of Pittsburgh School of
Engineering.
Mr. Runkle was named a Delphi Automotive Systems Vice President and
President of Delphi Energy and Engine Management Systems in November 1998. He
had been General Manager of Delphi Energy & Engine Management Systems since May
1996. Previously, Mr. Runkle had been General Manager of Delphi Saginaw Steering
Systems since August 1993. From 1992 to 1993, Mr. Runkle was in charge of GM's
North American Advanced Engineering Center and, from 1988 to 1992, he was in
charge of GM's former Advanced Engineering Staff. Prior thereto, Mr. Runkle
served in a series of engineering positions with GM since 1968.
Mr. Tosch was named a Delphi Automotive Systems Vice President and
President of Delphi Saginaw Steering Systems in November 1998. He had been
General Manager of Delphi Saginaw Steering Systems since May 1997. Previously,
Mr. Tosch had been General Manager of the former Delphi Interior & Lighting
Systems since October 1994. From 1991 to 1994, Mr. Tosch was General Manager of
Delphi Harrison Thermal Systems. From 1987 to 1991, he was Managing Director of
Vauxhall Motors Limited. Prior thereto, Mr. Tosch held various engineering and
managerial positions with GM since 1963.
Mr. Weiser was named a Delphi Automotive Systems Vice President in November
1998 and has been President of Delphi Automotive Systems Europe (formerly ACG
Europe) since 1993. He became Managing Director of Packard Electric Europa in
Wuppertal, Germany, in 1990 and was appointed Chairman of the Supervisory Board
of all Corporate Subsidiaries of Packard Electric Europa, a position he held
until his current assignment. Mr. Weiser was appointed Chairman of the Executive
Board of Kabelwerke Reinshagen GmbH in 1986. Mr. Weiser had been with Kabelwerke
Reinshagen GmbH since 1974, which was acquired by Delphi Packard Electric in
1981.
Mr. Wohleen was named a Delphi Automotive Systems Vice President and
President of Delphi Delco Electronics in November 1998. He had been General
Manager of Delphi Delco Electronics since August 1998. Prior to his current
position, he had been a General Director of Engineering with Delco Electronics
(now Delphi Delco Electronics) since February 1997. In 1994, Mr. Wohleen was
named Director of Electrical, Interior and HVAC for GM's Midsize Car Division in
Warren, Michigan, and in 1995, he assumed additional responsibility for general
assembly, tools and process and powertrain coordination for GM's MidLux Car
Division in Warren. Prior thereto, Mr. Wohleen held a series of engineering and
manufacturing positions with GM since 1978.
Mr. Arle was named Vice President of Mergers, Acquisitions and Planning for
Delphi Automotive Systems in November 1998. He had been Executive Director of
Planning for Delphi since February 1998. Previously, he was Vice President and
Chief Financial Officer for Saab Automobile AB since 1993. From
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<PAGE> 98
1992 to 1993, he was Vice President and Finance Manager for GM of Canada, Ltd.
From 1988 to 1992, he was General Manager and Comptroller for the GM/Toyota
NUMMI joint venture. Prior thereto, he held several finance and human resources
positions at GM since 1975.
Mr. Bertrand was named Vice President of Operations for Delphi Automotive
Systems in November 1998. He had been Executive Director of Operations for
Delphi since June 1997. Previously, he was Executive Director of Development for
small cars at GM's International Operations since 1995. From 1992 until 1995, he
was Comptroller at Adam Opel AG in Russelsheim, Germany. From 1989 to 1992, he
was Director of Financial Analysis and Planning for GM Europe. Prior thereto, he
held finance, business and engineering positions for GM since 1979.
Mr. Blahnik was named Treasurer of Delphi Automotive Systems in August 1998
and a Delphi Vice President in November 1998. He had been Executive Director of
Finance for Delphi since June 1996. Previously, he was Senior Vice President and
Chief Financial Officer at Delco Electronics since 1995. From 1994 to 1995, he
was Director of Finance for GM's Lansing Automotive Division. From 1991 to 1994,
he was Executive Director for GM's Latin American Operations and President of
Banco General Motors, and from 1988 until 1991, he was a Comptroller of GM do
Brasil. Prior thereto, he held several finance positions at GM since 1978.
Mr. Campbell was named Vice President of Purchasing for Delphi Automotive
Systems in November 1998. He had been Executive Director of Worldwide Purchasing
for Delphi since November 1996. Previously, he was Executive Director of
Worldwide Purchasing, Quality/Supplier Development, at GM's North American
Operations since 1995. From 1994 to 1995, he was Executive Director of Worldwide
Purchasing, Strategic and Metallic Activities. Prior thereto, he held a variety
of managerial and purchasing positions at GM since 1964.
Ms. Healy was named Vice President of Corporate Affairs for Delphi
Automotive Systems in November 1998. She had been Executive Director of
Communications for Delphi since June 1997. Previously, she was Manufacturing
Manager for Delphi's Flint East Operations, Plants 6 and 7, since July 1996.
From June 1995 to July 1996, she was Director of Corporate Communications at
GM's central office. From January 1995 to June 1995, she was Director of
Communications for Delphi. Prior thereto, Ms. Healy held several personnel,
labor relations and communications positions at GM since 1976. She serves on the
Board of Trustees for the Music Hall Center for the Performing Arts in Detroit
and the Executive Board for the Troy Chamber of Commerce.
Mr. Janak was named Chief Information Officer for Delphi Automotive Systems
in April 1998 and a Delphi Vice President in November 1998. He had been a Vice
President and Chief Information Officer at TRW Inc., since February 1995.
Previously, he was Vice President and General Manager of TRW's Information
Services Division. Prior thereto, he worked in propulsion engineering for NASA's
Apollo program and worked for Chrysler Corporation, Teledyne Brown Engineering,
Planning Research Corporation and the German firm, Technologieforshung.
Mr. Lorenz was named Vice President of Production Control and Logistics for
Delphi Automotive Systems in November 1998. He had been Director of Production
Control and Logistics for Delphi since March 1996. Previously, he had been
Director of Materials Management for GM's North American Operations Prototype
Shops since June 1993. From 1991 to 1993, he was Director of Materials
Management, Experimental Manufacturing. From 1990 to 1991, he was Manager of
Synchronous Organization, and from 1989 to 1990, he was Advisor, C-P-C
production systems. Prior thereto, he held various manufacturing and materials
management positions at GM since 1973.
Mr. Robinson was named General Counsel and a Delphi Automotive Systems Vice
President in December 1998. Previously, he was Of Counsel to the Corporate,
Securities and Business Law group at Dickinson Wright PLLC, a Michigan law firm
headquartered in Detroit, since April 1998. From February 1996 to April 1998, he
was Senior Vice President, Secretary and General Counsel for ITT Automotive,
Inc. From April 1987 to February 1996, he was a lawyer for Chrysler Corporation
serving, among other positions,
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as Vice President and General Counsel for Chrysler International Corporation, a
subsidiary of Chrysler Corporation, and Geschaftsfuhrer, or Managing Director,
of Chrysler Austria GmbH. Prior thereto, he held positions at TRW, Inc. in
Cleveland, Ohio, and at Coudert Brothers and Wender, Murase & White in New York
City.
Mr. Weber was named Vice President of Human Resources Management for Delphi
Automotive Systems in November 1998. He had been Executive Director of Human
Resources Management for Delphi since January 1995. Previously, he was General
Director of Personnel and Public Affairs at the former Inland Fisher Guide since
1993. From 1991 to 1993, he was General Director of Personnel for the same. From
1988 to 1991, he was Director of Industrial Relations at C-P-C, and from 1986 to
1988, he served as Director of Human Resources for Salaried Personnel at C-P-C.
From 1985 to 1986, he was Director of General Offices Personnel at C-P-C. Prior
thereto, he held a number of human resource and personnel positions at GM since
1966.
Mr. Wyman was named Lead Director for Delphi Automotive Systems in October
1998. Mr. Wyman had served on the Board of Directors of General Motors from 1985
until October 1998. Mr. Wyman was formerly Chairman, President and Chief
Executive Officer of CBS, Inc., New York. Mr. Wyman was Senior Advisor of SBC
Warburg Inc. from 1996 to 1997 and Chairman of S.G. Warburg & Co. Inc. from 1992
to 1996. Mr. Wyman is also a Director of AT&T Corporation and of AGCO
Corporation. Mr. Wyman is a member of the Advisory Board of Nestle USA, Inc.,
the International Advisory Group of Toshiba Corporation (Tokyo) and The Business
Council. Mr. Wyman is Trustee Emeritus of The Ford Foundation and The Aspen
Institute and Chairman Emeritus of Amherst College.
Mr. Smith has been associated with General Motors since 1961 and was named
a Director of Delphi Automotive Systems in October 1998. On January 1, 1996, Mr.
Smith became Chairman of the Board of Directors of GM and in October 1998, Mr.
Smith's title was changed from Chief Executive Officer and President to Chief
Executive Officer of GM. Effective November 1992, Mr. Smith was elected as GM's
Chief Executive Officer and President. Effective August 1990, Mr. Smith was
elected Vice Chairman of the Board of Directors of GM and, on April 6, 1992, he
was elected President and Chief Operating Officer of GM. Mr. Smith was elected
Executive Vice President in charge of International Operations for GM in 1988.
He is also a Director of Hughes Electronics and The Procter & Gamble Company.
Mr. Smith is Co-Chairman of The Business Roundtable and a member of The Business
Council, the U.S.-Japan Business Council, Catalyst and The Chancellor's
Executive Committee of the University of Massachusetts. Mr. Smith is a member of
the Board of Trustees, Boston University; the Board of Overseers of Memorial
Sloan-Kettering Cancer Center; the Board of Governors of The Nature Conservancy;
and the Board of Polish-American Enterprise Fund.
Mr. Pearce has been associated with General Motors since 1985 and was named
a Director of Delphi Automotive Systems in October 1998. Effective January 1,
1996, Mr. Pearce was elected a Director and became Vice Chairman of the Board of
Directors of GM. In July 1994, Mr. Pearce assumed responsibility for GM's
Strategic Decision Center, Corporate Communications, Allison Transmission
Division, Electro-Motive Division (now GM Locomotive Group), Urban and Community
Affairs, Executive Compensation and Corporate Governance and the Corporate
Services Staff. Effective November 1992, he was elected Executive Vice President
of GM. In May 1987, Mr. Pearce was elected Vice President and General Counsel of
General Motors, a position he retained through August 1, 1994. Mr. Pearce is
also a Director of Hughes Electronics, Marriott International, Inc. and MDU
Resources Group, Inc. Mr. Pearce is a member of The Conference Board,
Northwestern University School of Law Dean's Advisory Council and the Board of
Visitors of the United States Air Force Academy. Mr. Pearce is also a Trustee of
Howard University.
Mr. Losh has been associated with General Motors since 1964 and was named a
Director of Delphi Automotive Systems in October 1998. In July 1994, Mr. Losh
was elected Executive Vice President and Chief Financial Officer of GM.
Effective May 1992, Mr. Losh was elected Group Executive in charge of North
American Vehicle Sales, Service and Marketing of GM. He was named General
Manager of GM's Oldsmobile Division in June 1989. In July 1984, Mr. Losh was
elected Vice President of General Motors and General Manager of its Pontiac
Division.
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<PAGE> 100
Mr. Bernardes Neto was elected Chief Executive Officer in 1996 of Bunge
International, a Bermuda holding company headquartered in Sao Paulo, Brazil,
which controls a number of food, agribusiness and fertilizer companies around
the world. Before joining Bunge, he was a Senior Partner with Booz-Allen &
Hamilton where he specialized in strategy and organization consulting to
industry in Latin America. His 15 years of consulting experience include several
projects related to the automotive industry in South America. Mr. Bernardes is a
Director for RBS and Alcoa in Brazil. He is also a member of the Advisory Board
for Booz-Allen & Hamilton.
Mr. Colbert was appointed an Executive Vice President of Miller Brewing
Company in July 1997. He is responsible for all plant operations, brewing,
research, quality assurance, engineering, purchasing, corporate operations
planning and improvement and information systems. He had been a Senior Vice
President, Worldwide Operations since 1995. In 1993, he was elected to the
Miller Board of Directors and Executive Committee. Also in 1993, he was named
Senior Vice President in charge of operations, a position he held until 1995.
From 1990 to 1993, he was Vice President of plant operations, and from 1989 to
1990 he was Vice President of materials manufacturing. Prior thereto he held
several manufacturing and production positions at Miller since joining the
company in 1979. Mr. Colbert is a Director for Aeroquip-Vickers, Inc., Milwaukee
County Council, Boy Scouts of America, Columbia Health Systems and Greater
Milwaukee Open. He is Chairman of the Board of the Thurgood Marshall Scholarship
Fund and he is a member of the Board of Trustees of Fisk University, Nashville,
Tennessee. Mr. Colbert also serves on the Board of Regents of the Milwaukee
School of Engineering, is a member of the Executive Advisory Committee for the
National Urban League's Black Executive Exchange Program, and serves on the
Opportunities Industrialization Centers of America's National Industrial
Council.
Mr. Irimajiri was elected President and Representative Director of Sega
Enterprises, Ltd. in February 1998. He had been responsible for the CS Business
Group, Quality Assurance Division and Intellectual Property Rights Department
since August 1997. Previously, he was Co-Chairman of Sega America, Inc., since
July 1996. From April 1996 to July 1996, he was responsible for CS Research &
Development Group, Overseas Consumer Business Group, Quality Assurance Division,
Multimedia Office and Intellectual Property Department. Prior thereto, he held
various positions at Sega since. Before joining Sega, Mr. Irimajiri had been an
Executive Vice President at Honda Motor Co. Ltd. since June 1990. He was
responsible for directing Honda's development and production activities. He had
been associated with Honda since 1963.
Ms. McLaughlin is President, Consumer Services for BellSouth
Telecommunications, Inc., a position she has held since March 1998. From 1987 to
1998, Ms. McLaughlin held numerous financial and marketing management positions
at Eastman Kodak in Rochester, N.Y. Her most recent position was Vice President
and Chief Operating Officer of Kodak Professional, where she managed that
division's worldwide operations, including sales and marketing. Before joining
Kodak, Ms. McLaughlin spent 13 years in corporate banking with Citibank and
Chase. Ms. McLaughlin serves on the Board of Directors of Dayton Hudson
Corporation.
Mr. Opie was elected Vice Chairman of the Board and an Executive Officer
for General Electric Company in 1995. He had been President and Chief Executive
Officer of GE Lighting and a GE Senior Vice President since 1986. Previously, he
had been Vice President of GE's distribution equipment business since 1983. From
1982 to 1983 he was President of the Specialty Plastics Division. From 1980 to
1982 he was Vice President of the Lexan Products Division of GE Plastics, and
from 1977 to 1980 he was General Manager of the division. In 1975, Mr. Opie
became General Manager of the battery business, a position he held until moving
to GE Plastics. He has been associated with General Electric since 1961.
Mr. Penske is the founder and Chairman of Penske Corporation, which was
established in 1965 and is comprised of three business groups: Transportation
Services, Automotive and Performance. In the Transportation Services Group, Mr.
Penske serves as the Chairman and Chief Executive Officer of Detroit Diesel
Corporation. He is Chairman of Diesel Technology Company, a partnership with
Robert Bosch Corporation and he is Chairman of the Board of Penske Truck Leasing
Corporation. Mr. Penske is a Director of General Electric Company and a Director
of Gulfstream Aerospace Corporation. He is Chairman of the Detroit Investment
Fund, which was created by Detroit Renaissance, of which he is also a Director.
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Mr. Penske is also a member of the Robert Bosch International AG Advisory Board
and a Trustee of the Henry Ford Museum & Greenfield Village.
COMMITTEES OF THE BOARD OF DIRECTORS
We will have four standing committees: an executive committee (the
"Executive Committee"), an audit committee (the "Audit Committee"), an executive
development and compensation committee (the "Compensation Committee") and a
public policy and corporate governance committee (the "Corporate Committee").
Messrs. Battenberg, Losh, Pearce, Smith and Wyman have been appointed as the
initial members of the Executive Committee. Mr. Wyman has been appointed as the
initial member of the Audit Committee. Messrs. Pearce, Smith and Wyman have been
appointed as the initial members of the Compensation Committee. As additional
persons join our Board following the Offering, we expect that membership on some
of these committees will be modified and that we will complete the appointment
of other members to some of these committees. We expect that, so long as GM owns
a majority of our outstanding common stock, the majority of the members of the
Executive Committee and the Compensation Committee will be directors who are
also directors and/or officers of GM.
The Executive Committee is authorized to exercise, between meetings of our
Board, all of the powers and authority of the Board in the direction and
management of Delphi, except as prohibited by applicable law or our Restated
Certificate of Incorporation and except to the extent another committee shall
have been accorded authority over the matter. The Audit Committee will select
the independent public accountants to audit our annual financial statements and
will establish the scope and oversee the annual audit. The Corporate Committee
is responsible for matters relating to service on our Board, including the size
of our Board and the recommendation of nominees for our Board, and for matters
related to corporate governance and the company's business activities as they
relate to matters of public policy. The Compensation Committee will determine
the compensation for employee directors and, after receiving and considering the
recommendation of our Chief Executive Officer and the President, all officers of
the company and any other employee that the Compensation Committee may designate
from time to time and will approve and administer employee benefit plans. Our
Board may establish other committees from time to time to facilitate the
management of the business and affairs of our company.
COMPENSATION OF DIRECTORS
Directors who are also employees of GM or Delphi will receive no
remuneration for serving as directors or committee members. Non-employee
directors will receive compensation consisting of: (1) a cash retainer and (2)
common stock units. Non-employee directors other than the lead director will
receive total compensation of $110,000 per year, equally divided between the two
components, and the lead director will receive total compensation of $300,000
per year, $100,000 of which will be cash and $200,000 of which will be common
stock units. Non-employee directors other than the lead director will receive an
additional fee of $5,000 per year for serving as chairperson of a board
committee.
The stock portion of each non-employee director's annual compensation will
automatically be deferred in units until such person no longer serves on our
Board. Under Delphi's Deferred Compensation Plan for Non-Employee Directors,
non-employee directors, at their option, may convert the cash portion of their
compensation into common stock units. Dividend equivalents on any common stock
units will accrue quarterly and be converted into additional common stock units.
Directors will receive the cash value of all of their accumulated common stock
units following their departure from the Board.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
All of our stock is currently owned by General Motors and thus none of our
officers, directors or director nominees own any of our common stock. To the
extent directors and officers of Delphi own shares of GM $1 2/3 common stock at
the time of the Distribution, they will participate in the Distribution on the
same terms as
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other holders of GM $1 2/3 common stock. Certain executive officers, including
the executive officers named in the Summary Compensation Table in the
"--Executive Compensation" section below, will be granted options to purchase
shares of Delphi common stock, restricted stock units and certain long-term
incentive awards. See "--Incentive Plans--Founders Grants." In addition, certain
awards of GM $1 2/3 common stock, including the stock options and awards
reflected in the tables set forth in the "--Grants of Stock Options,"
"--Exercises of Stock Options" and "--Long Term Incentive Plan Awards" sections
below, will be replaced with comparable awards under Delphi's incentive plans in
connection with the completion of the Distribution. See "--Incentive
Plans--Substitute Awards."
The following table sets forth the number of shares of GM $1 2/3 common
stock beneficially owned on September 30, 1998 by each director, each director
nominee, each of the executive officers named in the Summary Compensation Table
in the "--Executive Compensation" section below, and all directors, director
nominees and executive officers of Delphi as a group. Except as otherwise noted,
the individual director or executive officer or their family members had sole
voting and investment power with respect to such securities.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY DEFERRED TOTAL STOCK
NAME OWNED(1) STOCK UNITS(2) SHARES OPTIONS(3)
---- ------------ -------------- ------ ----------
<S> <C> <C> <C> <C>
J.T. Battenberg III........................ 23,389 14,084 37,473 128,431
Alan S. Dawes.............................. 7,898 2,739 10,637 60,147
David R. Heilman........................... 9,903 1,482 11,385 35,081
Donald L. Runkle........................... 9,244 3,159 12,403 41,673
Paul J. Tosch(4)........................... 5,068 3,471 8,539 19,081
Thomas H. Wyman............................ 1,000 6,724(5) 7,724 0
John F. Smith, Jr. ........................ 117,767 52,153 169,920 662,906
Harry J. Pearce............................ 21,857 23,681 45,538 240,397
J. Michael Losh............................ 26,400 13,240 39,640 235,212
Oscar De Paula Bernardes Neto.............. 0 0 0 0
Virgis W. Colbert.......................... 0 0 0 0
Shoichiro Irimajiri........................ 0 0 0 0
Susan A. McLaughlin........................ 0 0 0 0
John D. Opie............................... 0 0 0 0
Roger S. Penske............................ 0 0 0 0
All directors, director nominees and
executive officers of Delphi as a group
(31 persons)............................. 278,469 125,538 404,007 1,650,342
</TABLE>
- ------------------
(1) No individual director, director nominee or executive officer beneficially
owns 1% or more of the GM $1 2/3 common stock, nor do the directors,
director nominees and executive officers as a group.
(2) Deferred Stock Units for all persons other than Mr. Wyman include shares
under the General Motors Benefit Equalization Plan-Savings (the "GM BEP-S").
This plan is a non-qualified "excess benefit" plan that is exempt from ERISA
and the Code limitations and provides GM executives with full GM matching
contributions without regard to limitations imposed by the Code. The amounts
credited under the plan are maintained in share units of GM $1 2/3 common
stock. Following termination of employment an employee may, at any time,
elect to receive a complete distribution of amounts in the GM BEP-S account,
which will be paid in cash. Delphi has adopted its BEP-S in connection with
its separation from GM and the amounts in the GM BEP-S will be transferred
to Delphi's BEP-S. Deferred Stock Units also includes undelivered GM
incentive awards which will vest upon the occurrence of certain events and
which are subject to forfeiture under certain circumstances.
(3) Includes the number of shares of GM $1 2/3 common stock that may be acquired
through the exercise of stock options exercisable within 60 days of
September 30, 1998. The shares reported in this column reflect the
adjustments to the original option grants to reflect the effect of the
recapitalization of GM in connection with transactions completed by General
Motors in connection with the 1997 spin-off of the defense electronics
business of its Hughes Electronics subsidiary and the related transfer of
Delco Electronics to us from Hughes Electronics.
(4) Data for Mr. Tosch include 2,009 shares owned by, and 3,090 shares
acquirable pursuant to options held by, his spouse.
(5) Includes amounts under the General Motors Deferred Compensation Plan for
Non-Employee Directors and the General Motors Director's Long-Term Stock
Incentive Plan. These amounts relate to compensation deferred while Mr.
Wyman was a member of the Board of Directors of GM.
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EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
chief executive officer and the four other executive officers of Delphi who,
based on salary and bonus compensation from General Motors and its subsidiaries,
were the most highly compensated officers of Delphi for the year ended December
31, 1997. All information set forth in this table reflects compensation earned
by such individuals for services with General Motors and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ---------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING LONG-TERM ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS INCENTIVE COMPENSATION
POSITION YEAR ($) ($) ($) (#)(1) PAYOUTS($)(2) ($)(3)
------------------ ---- ------ ----- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J.T. Battenberg III......... 1997 887,000 1,020,000 53,448 108,495 475,000 38,112
Chairman, Chief
Executive
Officer and President
Donald L. Runkle............ 1997 391,000 325,000 n/a 17,359 111,000 14,085
Vice President
David R. Heilman............ 1997 350,000 295,000 n/a 17,359 111,000 12,600
Vice President
Paul J. Tosch............... 1997 372,000 262,000 n/a 15,189 111,000 13,380
Vice President
Alan S. Dawes............... 1997 360,000 262,000 n/a 15,189 111,000 12,960
Chief Financial Officer
and Vice President
</TABLE>
- ------------------
(1) As adjusted to reflect the effect of the recapitalization of GM in
connection with transactions completed by General Motors in connection with
the 1997 spin-off of the defense electronics business of its Hughes
Electronics subsidiary and the related transfer of Delco Electronics to us
from Hughes Electronics.
(2) Reflects long-term incentive payouts in the form of GM $1 2/3 common stock
and GM Class H common stock under the General Motors 1992 Performance
Achievement Plan. The performance period for such awards was 1995 through
1997. The award to Mr. Battenberg vests in four equal installments. The
first installment vests on the date the final award is determined, the
second installment vests at the end of the year in which the final award was
determined, the third installment vests one year after the second
installment vests, and the fourth installment vests subsequent to
retirement. The awards to the other named executive officers vest in two
equal annual installments. Dividend equivalents are paid on unvested shares.
The following table sets forth the number of GM shares of such award that
were vested and paid to the executive officers and the number of shares that
remained unvested and unpaid on February 28, 1998:
<TABLE>
<CAPTION>
SECOND INSTALLMENT OF 1994-96
GRANT AND THIRD
INSTALLMENT OF 1993-95 GRANT
----------------------------------
1995-97 GRANT SHARES VALUE OF SHARES
------------------------------ VESTED SHARES VESTED UNVESTED
SHARES AS OF AS OF AS OF
VESTED SHARES DECEMBER 31, DECEMBER 31, DECEMBER 31,
IN 1998(#) UNVESTED(#) 1997(#) 1997($)* 1997(#)
------------- -------------- -------------- ----------------- --------------
$1 2/3 CL.H $1 2/3 CL.H $1 2/3 CL.H $1 2/3 CL.H $1 2/3 CL.H
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.T. Battenberg
III................ 1,591 652 4,773 1,955 6,984 2,791 424,278 103,100 6,610 2,827
D.L. Runkle.......... 929 0 929 0 3,151 642 191,423 23,175 1,435 0
D.R. Heilman......... 929 0 929 0 0 0 0 0 0 0
P.J. Tosch........... 929 0 929 0 2,791 551 169,553 20,354 1,320 0
A.S. Dawes........... 929 0 929 0 1,320 0 80,190 0 1,320 0
</TABLE>
-------------------------
* Based on the closing price of GM $1 2/3 common stock ($60.75) and GM
Class H common stock ($36.94) on the NYSE on December 31, 1997.
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(3) Reflects contributions by General Motors on behalf of each executive officer
under various savings plans. The amount for Mr. Battenberg also includes
$6,162 of imputed income for endorsement split-dollar life insurance. In the
event of Mr. Battenberg's death, General Motors would be reimbursed for its
premiums paid on such life insurance policy.
As a separate company, Delphi will establish executive compensation
practices that will link compensation with the performance of Delphi as well as
Delphi's common stock. On average, a greater portion of the executive's
long-term incentive pay will be linked to the performance of Delphi's common
stock through the grant of stock options. Delphi will continually review its
executive compensation programs to ensure they are competitive with those
generally prevailing in its industry.
GRANTS OF STOCK OPTIONS
The following table shows all grants of options to acquire shares of GM
$1 2/3 common stock granted to the executive officers named in the Summary
Compensation Table in the "--Executive Compensation" section above under the
General Motors Amended 1987 Stock Incentive Plan in the year ended December 31,
1997. Unless exercised prior thereto, the options to purchase GM $1 2/3 common
stock reflected below will be replaced with options to purchase Delphi common
stock in connection with the completion of the Distribution. See "--Incentive
Plans--Substitute Awards."
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE PRESENT
NAME GRANTED(#)(1) FISCAL YEAR ($/SH.) EXPIRATION DATE VALUE($)(2)
---- ------------- ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
J.T. Battenberg III.......... 108,495 1.11 53.76 2/4/07 1,402,000
Donald L. Runkle............. 17,359 0.18 53.76 2/4/07 224,000
David R. Heilman............. 17,359 0.18 53.76 2/4/07 224,000
Paul J. Tosch................ 15,189 0.16 53.76 2/4/07 196,000
Alan S. Dawes................ 15,189 0.16 53.76 2/4/07 196,000
</TABLE>
- ------------------
(1) These options were granted on February 3, 1997 and consist of a combination
of non-qualified and incentive stock options. These options become
exercisable to the extent of one-third of the grant on February 3, 1998,
February 3, 1999 and February 3, 2000, respectively. The incentive stock
options expire ten years from the date of grant and the non-qualified
options expire two days later. These options have been adjusted to reflect
the effect of the recapitalization of GM in connection with transactions
completed by General Motors in connection with the 1997 spin-off of the
defense electronics business of its Hughes Electronics subsidiary and the
related transfer of Delco Electronics to us from Hughes Electronics.
(2) These values were determined based on the Black-Scholes option pricing
model. The following assumptions were made for purposes of calculating the
Grant Date Present Value: that the option is exercised in the fifth year
after its grant, expected price volatility of 25%, an interest rate of
6.49%, a dividend yield of 3.43% and no adjustments were made for
non-transferability. Our use of this model does not necessarily mean that we
believe that this model accurately determines the value of options. The
ultimate value of the options in this table depends upon each holder's
individual investment decisions and the actual performance of GM $1 2/3
common stock and, following the Distribution, Delphi's common stock.
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<PAGE> 105
EXERCISES OF STOCK OPTIONS
The following table shows aggregate exercises of options to purchase GM
$1 2/3 common stock in the year ended December 31, 1997 by the executive
officers named in the Summary Compensation Table in the "--Executive
Compensation" section above. Unless exercised prior thereto, the unexercised
options reflected below will be replaced with options to purchase Delphi common
stock in connection with the completion of the Distribution. See "--Incentive
Plans--Substitute Awards."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#)(1) OPTIONS AT FY-END($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J.T. Battenberg III...... 29,958 727,804 70,566/151,892 854,320/1,304,748
Donald L. Runkle......... 26,740 575,217 28,290/24,953 303,834/216,948
David R. Heilman......... 11,370 174,844 22,783/23,868 342,659/203,288
Paul J. Tosch............ 16,500 275,340 11,934/15,189 75,184/106,171
Alan S. Dawes............ -- -- 48,571/21,698 916,767/188,119
</TABLE>
- ------------------
(1) No SARs may be granted under GM's stock incentive plans.
(2) Based on the closing price of GM $1 2/3 common stock ($60.75) on the NYSE on
December 31, 1997.
LONG TERM INCENTIVE PLAN AWARDS
The following table shows long term incentive plan awards made under the
General Motors 1997 Performance Achievement Plan in the year ended December 31,
1997 to the executive officers named in the Summary Compensation Table in the
"--Executive Compensation" section above.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER
NON-STOCK PRICE-BASED
NUMBER OF PERFORMANCE OR PLANS(1)
SHARES, UNITS OTHER PERIOD -------------------------------- SPECIAL
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM ONE-TIME GRANT
NAME RIGHTS(#) OR PAYOUT ($) ($) ($) ($)(2)
---- ------------- ---------------- --------- ------ ------- --------------
<S> <C> <C> <C> <C> <C> <C>
J.T. Battenberg III...... n/a 1997-99 370,000 925,000 1,850,000 700,000
Donald L. Runkle......... n/a 1997-99 80,000 200,000 400,000 210,000
David R. Heilman......... n/a 1997-99 80,000 200,000 400,000 200,000
Paul J. Tosch............ n/a 1997-99 80,000 200,000 400,000 200,000
Alan S. Dawes............ n/a 1997-99 80,000 200,000 400,000 200,000
</TABLE>
- ------------------
(1) These awards relate to performance during 1997-1999. If the minimum or
threshold performance level is met or exceeded, the percentage of the target
award that will eventually be paid to participants will depend on the extent
to which the established performance target for the three year performance
period is achieved. If the minimum performance level is not met, no awards
will be paid.
(2) This special one-time grant was made under the General Motors 1997
Performance Achievement Plan. If the performance target set in connection
with this grant is met on or before December 31, 2000, the awards will be
paid in GM $1 2/3 common stock; however, if this performance target is not
met prior thereto, in connection with the Distribution, the awards will be
replaced with substitute awards providing for payment in shares of Delphi
common stock. If the relevant performance target is not met, the award will
expire on December 31, 2000 and no payment will be made. There are no
minimum or maximum amounts payable under this award.
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<PAGE> 106
CHANGE IN CONTROL AGREEMENTS
In connection with this Offering, Delphi intends to enter into change in
control agreements ("Change in Control Agreements") with certain of its officers
(each, a "Participant"). The Change in Control Agreements will generally provide
monetary compensation and other benefits to each Participant upon the occurrence
of certain triggering events involving a change in control of Delphi.
The Change in Control Agreements specify two triggering events:
(1) a change in control occurs within three years after the Distribution;
and
(2) within three years after the change in control, one of the following
events occurs:
(a) the Participant's employment is terminated without cause;
(b) a negative fundamental, material change is made in the Participant's
duties or responsibilities;
(c) the Participant's salary, annual or other material compensation or
benefits are decreased (and such decrease is unrelated to company or
individual performance);
(d) the Participant is required to materially relocate his or her
residence or principal office location against his or her will; or
(e) the Participant is not offered a comparable position with the
successor entity.
Change in control is defined in the Change in Control Agreements to mean
the acquisition by any person, other than the company or any subsidiary of the
company, of the beneficial ownership of 50 percent or more of the outstanding
common stock; certain mergers, consolidations, other reorganizations of the
company in which the company is not the surviving corporation; or any sale,
lease, exchange or other transfer of 50% or more of the assets of the company.
Each Participant is entitled to the following benefits at the time of the
change in control:
- all of the Participant's unvested options will vest and become
immediately exercisable in accordance with their terms;
- all of the Participant's long-term incentive awards will become payable
immediately on a pro-rated basis, calculated based on current forecasted
payouts;
- any compensation previously deferred at the election of the Participant,
together with accrued interest or earnings thereon, will be distributed
as a lump sum payout;
- the Participant's Supplemental Executive Retirement Program benefits will
be funded through a trust or other mechanism which is protected from the
persons controlling Delphi after the occurrence of a change in control;
and
- the Participant's medical coverage under the company's then existing
medical plan will remain in force for thirty-six months.
Upon the occurrence of both triggering events described above, in addition
to the payments and benefits described above, Participants will receive (1)
monetary compensation and (2) certain other benefits. Each Participant is
entitled to receive in addition to their base salary through the date of their
termination and any accrued vacation pay the following amount of monetary
compensation:
<TABLE>
<S> <C>
Chairman and CEO.............. Three times base salary and three times target
bonus
Certain Vice Presidents....... Two times base salary and two times target bonus
All other Vice Presidents..... One times base salary and one times target bonus
</TABLE>
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<PAGE> 107
In addition, at the time of the second triggering event:
- the Participant's life-insurance coverage will be continued and the
premiums will be paid for thirty-six months;
- the Participant may receive reimbursement of up to $50,000 for expenses
related to outplacement services;
- the Participant's legal fees and expenses will be paid if litigation is
required to enforce these change in control rights;
- the Participant will be able to retain his or her company car, if any,
for one year thereafter; and
- the Participant will no longer be subject to the non-competition
provisions of the Change in Control Agreement.
The Change in Control Agreements provide that for a period of two years
immediately following the Participant's voluntary termination of employment with
us or any of our subsidiaries, the Participant agrees not to, without the prior
written consent of our Chairman and Chief Executive Officer, engage in or
perform any services of a similar nature to those performed at our company for
any other corporation or business engaged in the design, manufacture,
development, promotion, sale or financing of automobile or truck components,
within North America, Latin America, Asia, Australia or Europe in competition
with us, any of our subsidiaries or affiliates, or any joint ventures to which
we or any of our subsidiaries are a party. The Change in Control Agreements also
provide that the Participant shall not disclose any knowledge, information or
materials, whether tangible or intangible, regarding proprietary matters
relating to the company. We expect that we will enter into Change in Control
Agreements with 21 of our officers.
INCENTIVE PLANS
Delphi has adopted, with the approval of General Motors in its capacity as
the sole stockholder of Delphi, the Delphi Automotive Systems Annual Incentive
Plan (the "Annual Incentive Plan"), the Delphi Automotive Systems Stock
Incentive Plan (the "Stock Incentive Plan") the Delphi Automotive Systems
Performance Achievement Plan (the "Performance Achievement Plan") and the Delphi
Automotive Systems Classified Salary and Hourly Stock Option Plan (the
"Classified Plan"). The Annual Incentive Plan, the Stock Incentive Plan and the
Performance Achievement Plan will be administered by the Compensation Committee
and the Delphi Strategy Board will administer the Classified Plan. In order to
ensure that compensation paid pursuant to the incentive plans can qualify as
"performance based compensation" not subject to the limitation on deductibility
of certain executive compensation in excess of $1 million, Delphi intends to
seek stockholder approval of each of these plans at its annual meeting of
stockholders in 2000.
FOUNDERS GRANTS. Certain executive officers will be granted options to
purchase shares of Delphi common stock, restricted stock units and certain
long-term incentive awards. In addition, other employees of Delphi will be
granted options to purchase shares of Delphi common stock. The founders grants
to executive employees will be made pursuant to the Stock Incentive Plan and the
founders grants to other employees will be made pursuant to the Classified Plan.
A total of 26,000,000 shares of common stock will be issuable upon exercise of
such options or vesting of such restricted stock units.
SUBSTITUTE AWARDS. In connection with the completion of the Distribution,
substitute awards relating to Delphi common stock will be issued to employees of
Delphi in exchange for GM $1 2/3 common stock awards. The terms and conditions
of each substitute award, including, without limitation, the time or times when,
and the manner in which, each option constituting a substitute award will be
exercisable, the duration of the exercise period, the permitted method of
exercise, settlement and payment, the rules that will apply in the event of the
termination of employment of the employee, the events, if any, that may give
rise to an employee's right to accelerate the vesting or the time or exercise
thereof and the vesting provisions of any restricted stock unit or performance
achievement award constituting substitute awards, will be the same as
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<PAGE> 108
those of the replaced GM $1 2/3 common stock award. See "Arrangements Between
Delphi and General Motors--Employee Matters--Employee Benefits."
STOCK INCENTIVE PLAN. All officers and certain other employees of Delphi
will be eligible to participate in the Stock Incentive Plan. The Stock Incentive
Plan provides for the grant of stock options and/or Restricted Stock Units
("RSUs"). An aggregate of 85,000,000 shares of common stock will be reserved for
issuance under the Stock Incentive Plan; however, the maximum number of shares
that can be granted as RSUs is 8,000,000. It is anticipated that about 650
employees annually will participate in the Stock Incentive Plan, including about
25 officers. Subject to adjustments as set forth in the Stock Incentive Plan,
the maximum stock option grant to any individual in any calendar year may not
exceed 1,000,000 shares and the maximum RSU grant to any individual in any
calendar year may not exceed 500,000 shares.
Options granted under the Stock Incentive Plan may be either incentive
stock options ("ISOs") or such other forms of non-qualified stock options
("NQSOs") as the Compensation Committee may determine. ISOs are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). With certain limited
exceptions, the exercise price of any stock option generally shall not be less
than 100% of the fair market value of the common stock on the date the option is
granted. Payment of the purchase price upon exercise must be made in cash or,
unless determined otherwise by the Compensation Committee, by delivery of
previously acquired shares of common stock. In the case of shares acquired
pursuant to the exercise of an option to acquire such shares, such shares must
be held for six months before they may be used in payment of the exercise price
for additional stock options.
The term of any option will be determined by the Compensation Committee,
but no ISO may be exercised later than ten years after the date of grant, and no
NQSOs may be exercised later than ten years and two days after the date of
grant. Except as otherwise determined by the Compensation Committee, no option
shall become exercisable prior to the first anniversary date of the date of the
option grant or such later date as may be established by the Compensation
Committee. After such date, the option shall be exercisable only in accordance
with the terms and conditions established by the Compensation Committee at the
time of the grant.
The Stock Incentive Plan provides that, except as otherwise determined by
the Compensation Committee, following termination of an employee's employment
and contingent upon satisfaction of certain conditions, options held by each
employee will expire not later than five years from the date of termination of
employment, subject to earlier termination by the terms of the option. However,
if termination is due to death, the options will expire three years from the
date of death, subject to earlier termination pursuant to the terms of the
option.
If required by the Compensation Committee, by accepting an option grant, an
employee will agree to remain employed by Delphi for a period of six months
following the exercise of any option granted under the Stock Incentive Plan. If
the employee retires or terminates employment without the consent of Delphi for
any reason other than death within six months of the date of exercise of a stock
option, the employee will be required to pay to Delphi the amount of any gain
realized upon such exercise.
The Compensation Committee may grant RSUs to such individuals, at such
times, and in such amounts as it may determine. Each RSU relates to one share of
Delphi's common stock, subject to certain adjustments as described in the Stock
Incentive Plan. RSUs will be awarded without consideration other than the
rendering of services, unless the Compensation Committee decides otherwise. RSUs
shall vest, subject to the satisfaction of certain conditions, at the time or
times determined by the Compensation Committee. In addition, the Compensation
Committee may establish performance vesting criteria with respect to all or any
portion of a grant of RSUs based on certain business criteria set forth in the
Stock Incentive Plan.
Upon termination of the participant's employment without the consent of
Delphi, all RSUs shall be forfeited subject to such exceptions, if any, as are
authorized by the Compensation Committee as to termination of employment by
retirement, disability, death or under special circumstances. Awards of RSUs to
participants subject to Section 162(m) of the Code are intended to qualify under
that section of the Code
103
<PAGE> 109
and the provisions of such awards will be interpreted in a manner consistent
with that intent to the extent appropriate.
The Compensation Committee generally has the power and authority to amend,
modify, suspend or terminate the Stock Incentive Plan at any time without the
approval of Delphi's stockholders, subject to applicable federal securities and
tax law limitations and NYSE regulations.
ANNUAL INCENTIVE PLAN. Officers and certain other employees of Delphi will
be eligible to participate in the Annual Incentive Plan. The Compensation
Committee may delegate authority to the Delphi Strategy Board to determine
individual awards to employees who are not officers of Delphi. The Annual
Incentive Plan provides for the grant of cash awards based upon the achievement
of certain target levels of performance. Under the Annual Incentive Plan no
individual may be granted an award in excess of $7,500,000 in any calendar year.
We anticipate that about 600 employees annually will participate in the Annual
Incentive Plan, including about 25 officers.
Pursuant to the Annual Incentive Plan, at the beginning of each year,
commencing in 1999, the Compensation Committee will establish a targeted
performance level at which a target performance award may be earned, with a
threshold or minimum performance level below which no award will be paid, and a
maximum level beyond which no additional amounts will be paid, and will
establish the corresponding minimum and maximum awards. In determining the
performance criteria applicable to any grant of awards, the Compensation
Committee may use one or more of the business criteria set forth in the Annual
Incentive Plan.
The percentage of each target performance award which will become a final
award and be paid to the employee will be determined by the Compensation
Committee on the basis of the performance goals established and the related
performance achieved, as well as the employee's individual performance during
the period. Final awards actually paid to an employee may be less than or
greater than 100% of the target award. Final awards will be subject to a vesting
schedule established by the Compensation Committee. At the Compensation
Committee's discretion, interest may be paid on final awards during or at the
end of the vesting period. The Compensation Committee may delegate authority to
the Delphi Strategy Board to determine individual final awards for employees who
are not officers of the company, subject to a maximum amount approved by the
Compensation Committee.
Subject to certain exceptions, the Compensation Committee generally has the
power and authority to amend, modify, suspend or terminate the Annual Incentive
Plan.
PERFORMANCE ACHIEVEMENT PLAN. Employees are eligible to participate in the
Performance Achievement Plan only upon recommendation of the Chief Executive
Officer and with the approval of the Compensation Committee, except that the
Compensation Committee alone may determine which officers are eligible to
participate in such plan. The Performance Achievement Plan provides for the
grant of awards based on certain target levels of performance. We anticipate
that about 100 employees annually will participate in the Performance
Achievement Plan, including about 25 officers.
Employees selected to participate in the Performance Achievement Plan will
be granted target performance awards. The performance period for an award must
be at least two and not more than five years. It is anticipated that target
performance awards will be granted annually commencing in 1999, and will be for
a three-year performance period. At the beginning of each performance period,
the Compensation Committee will establish a targeted performance level at which
a target performance award may be earned, with a threshold or minimum
performance level below which no award will be paid, and a maximum level beyond
which no additional amounts will be paid. In determining the performance
criteria applicable to any grant of awards, the Compensation Committee may use
one or more of the business criteria provided in the Performance Achievement
Plan.
The percentage of each target performance award which will become a final
award and be paid to the employee will be determined by the Compensation
Committee on the basis of the performance goals
104
<PAGE> 110
established and the related performance achieved, as well as the employee's
individual performance during the period. Final awards actually granted to an
employee may be less than or greater than 100% of the target award. The
Performance Achievement Plan provides that no individual shall be granted a
final award in excess of $7,500,000 for any performance period.
Final awards may be paid in the form of common stock, in cash, or partly in
common stock and partly in cash, as the Compensation Committee may determine.
Each final award will be subject to a vesting schedule as determined by the
Compensation Committee. At the Compensation Committee's discretion, dividend
and/or interest equivalents may be paid on final awards during or at the end of
the vesting period. In the event that the participant's employment with Delphi
is terminated, other than as a result of the participant's death, prior to
payment of the final award in full, such payment will be further contingent upon
satisfaction of certain conditions, including that the participant refrain from
activity that is competitive with the business of Delphi, unless such conditions
are waived by the Compensation Committee. The Performance Achievement Plan
provides that final awards to be paid in common stock shall be made from shares
reacquired by the company, including shares purchased on the open market.
Subject to certain exceptions, the Compensation Committee generally has the
power and authority to amend, modify, suspend or terminate the Performance
Achievement Plan.
CLASSIFIED PLAN. The Classified Plan provides for the grant of stock
options to all non-executive employees of Delphi. An aggregate of 26,000,000
shares of common stock will be reserved for issuance under the Classified Plan.
Approximately 200,000 Delphi employees are eligible to participate in the
Classified Plan. No individual may be granted options in any calendar year
covering more than the target amount of shares granted to the lowest level
executive under the Stock Incentive Plan for that year.
Options granted under the Classified Plan will be in the form of
non-qualified options. The exercise price of any stock option generally shall
not be less than 100% of the fair market of the common stock on the date the
option is granted. Payment of the purchase price upon exercise must be made in
cash.
The term of options granted under the Classified Plan will be determined by
the Delphi Strategy Board, but no option may be exercised later than 10 years
and two days after the date of grant. Except as determined by the Delphi
Strategy Board, no option shall become exercisable prior to the first
anniversary of the date of the option grant, and after such date shall be
exercisable only in accordance with the terms and conditions established by the
Delphi Strategy Board at the time of the grant.
The Classified Plan provides that, except as otherwise determined by the
Delphi Strategy Board, following termination of an employee's employment and
contingent upon satisfaction of certain conditions, options held by each
employee will expire not later than five years from the date of termination of
employment, subject to earlier termination by the terms of the option. However,
if termination is due to death, the options will expire three years from the
date of death, subject to earlier termination pursuant to the terms of the
options.
PENSION PLANS
The retirement program for Delphi executives in the United States consists
of the Delphi Retirement Program for Salaried Employees (the "Retirement
Program") as well as two non-qualified plans. Together, these plans are referred
to here as the "Delphi Salaried Program." For all purposes under the Delphi
Salaried Program, the terms "service" and "credited service" refer to combined
service with General Motors that is taken into account under the General Motors
Retirement Program for Salaried Employees (the "GM Retirement Program") and
Delphi.
The Retirement Program is a tax-qualified plan subject to the requirements
of the Employee Retirement Income Security Act ("ERISA"). In general, the
Retirement Program consists of "Part A" and "Part B" benefits. The
non-contributory portion (referred to as "Part A") of the Retirement Program
provides benefits under a formula based on years of credited service and an
applicable benefit rate. The contributory portion
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<PAGE> 111
(referred to as "Part B") of the Retirement Program provides benefits under a
formula based on years of Part B credited service and upon the average of the
highest five years of base salary received during the final ten years of
service, subject to certain limitations imposed by the Code, which may change
from time to time. Part B of the Retirement Program also provides employees with
an annual retirement benefit which is equal to the sum of 100% of the Part B
contributions they made to the GM Retirement Program after October 1, 1979
(Delphi Retirement Program after January 1, 1999), and lesser percentages of
their contributions made to the GM Retirement Program before that date. If
employees elect not to contribute to Part B of the Retirement Program, they are
entitled to receive only basic retirement benefits equal to a flat dollar amount
per year of credited service. Benefits under the Retirement Program vest after
five years of credited service and are payable at age 65, either in the form of
a single life annuity or in a reduced amount in the form of a joint and survivor
annuity.
If an executive makes Part B contributions to the Retirement Program, the
executive may also be eligible to receive a non-qualified Regular Supplemental
Executive Retirement Program ("SERP") benefit. The sum of the Retirement
Program's benefits plus the Regular SERP benefit will provide an eligible
executive with total annual retirement benefits under the Delphi Salaried
Program that are equal to 2% times years of Part B credited service times
average annual base salary, less 2% times years of Part A credited service times
the maximum annual Social Security benefit in the year of retirement payable to
a person retiring at age 65. For example, a 65 year old executive retiring in
1998 would be entitled to $16,104.
The table below shows the regular form of the estimated total annual
retirement benefit payable under the Delphi Salaried Program (based on average
annual base salary as of December 31, 1997) assuming the executive qualifies for
Regular SERP benefits. Such amount would be paid in 12 equal monthly
installments per year as a single life annuity to executives retiring in 1998 at
age 65. If the executive elects to receive such benefits in the form of a 60%
joint and survivor annuity, the single life annuity amounts shown would
generally be reduced from 5% to 11%, depending upon the age differential between
spouses.
<TABLE>
<CAPTION>
YEARS OF PART B CREDITED SERVICE
AVERAGE ANNUAL -----------------------------------------
BASE SALARY(A) 15 25 35 45
- -------------- -- -- -- --
<S> <C> <C> <C> <C>
$ 250,000 $ 70,169 $116,948 $163,727 $210,506
425,000 122,669 204,448 286,227 368,006
600,000 175,169 291,948 408,727 525,506
775,000 227,669 379,448 531,227 683,006
950,000 280,169 466,948 653,727 840,506
1,125,000 332,669 554,448 776,227 998,006
</TABLE>
--------------------------------
(a) Average annual base salary means the average of the highest
five years of base salary paid during the final ten years of
service.
The Average annual base salary and the years of Part B credited service
(shown in parentheses) which may be considered in the Regular SERP calculation
as of December 31, 1997 for each of the Named Executive Officers were as
follows: J.T. Battenberg III--$653,083 (35 years); Donald L. Runkle--$329,750
(29 years); Paul J. Tosch--$321,000 (39 years); Alan S. Dawes--$294,833 (16
years); and David R. Heilman--$271,217 (32 years). The annual base salary for
the most recent year(s) considered in the calculation reported here are shown in
the "Salary" column of the Summary Compensation Table in "--Executive
Compensation" above.
Executives may be eligible to receive an Alternative SERP benefit in lieu
of the Regular SERP benefit if they satisfy certain criteria, including not
working for any competitor or otherwise acting in any manner which is not in the
best interests of Delphi. An eligible executive will receive the greater of the
Regular SERP benefit or the Alternative SERP benefit. The sum of the Retirement
Program's benefits plus the Alternative SERP benefit will provide an eligible
executive with total annual retirement benefits under the Delphi Salaried
Program that are equal to 1.5% times eligible years of Part B credited service
up to a maximum of 35 years, times the executive's average annual total direct
compensation, less 100% of the maximum annual Social Security benefit in the
year of retirement payable to a person retiring at age 65.
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<PAGE> 112
The following table shows the alternative form of the estimated total
annual retirement benefit payable under the Delphi Salaried Program (based upon
average annual total direct compensation as of December 31, 1997) assuming the
executive qualifies for Alternative SERP benefits. Such amount would be paid in
12 equal monthly installments per year as a single life annuity to executives
retiring in 1998 at age 65. The amounts shown would be reduced in the same way
as under the regular form if the executive were to elect joint and survivor
benefits.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ELIGIBLE YEARS OF PART B CREDITED SERVICE
TOTAL DIRECT --------------------------------------------------------
COMPENSATION(A) 15 20 25 30 35
- --------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 500,000 $ 98,396 $133,896 $171,396 $ 208,896 $ 246,396
875,000 180,771 246,396 312,021 377,646 443,271
1,250,000 265,146 358,896 452,646 546,396 640,146
1,625,000 349,521 471,396 593,271 715,146 837,021
2,000,000 433,896 583,896 733,896 883,896 1,033,896
2,375,000 518,271 696,396 874,521 1,052,646 1,230,771
</TABLE>
--------------------------------
(a) Average annual total direct compensation means the sum of
average annual base salary plus the average of the highest
five annual incentive awards earned in respect of the final
ten calendar years of service prior to an executive's
retirement.
The average annual total direct compensation and the eligible years of Part
B credited service (shown in parentheses) which may be considered in the
Alternative SERP calculation as of December 31, 1997 for each of the Named
Executive Officers was as follows: J.T. Battenberg III--$1,339,483 (35 years);
Donald L. Runkle--$613,750 (29 years); Paul J. Tosch--$589,400 (35 years); Alan
S. Dawes--$506,233 (16 years); and David R. Heilman--$502,217 (32 years). The
annual total direct compensation for the most recent year(s) considered in the
calculation reported here are reported in the "Salary" and "Bonus" columns of
the Summary Compensation Table in "--Executive Compensation" above.
In addition, the Delphi Board is expected to delegate to the Compensation
Committee discretionary authority to grant additional eligible years of credited
service to selected key executives under such terms and conditions as the
Compensation Committee shall determine for purposes of computing the regular and
alternative forms of SERP for such executives. The Regular or Alternative form
of the SERP benefit is provided under a program which is non-qualified for tax
purposes and not pre-funded. SERP benefits under the Regular and Alternative
form can be reduced or eliminated for both retirees and active employees by the
Compensation Committee and/or the Board of Directors.
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ARRANGEMENTS BETWEEN DELPHI AND GENERAL MOTORS
The separation of Delphi from General Motors and the transactions being
undertaken in connection therewith are being effected pursuant to a Master
Separation Agreement, dated December 22, 1998, to which Delphi and General
Motors are parties (as amended from time to time, the "Separation Agreement").
In addition, as contemplated by the Separation Agreement, we have entered into
or will enter into certain ancillary agreements which govern various interim and
ongoing relationships between us and GM (collectively, as amended from time to
time, the "Ancillary Agreements"). The Ancillary Agreements to be entered into
on or prior to the closing of the Offering include, among others, agreements
relating to the Offering and the Distribution, our sale of products to GM,
employee matters, tax matters, intellectual property, real estate and
environmental matters, product liability and the provision of certain interim
services. The Ancillary Agreements also require us to cooperate with GM in all
respects to complete the Distribution and provide for registration rights for GM
in the event the Distribution is not completed or is completed without GM
divesting itself of all of its Delphi common stock.
Certain international, intellectual property and real property assets
relating primarily to the business of Delphi may still be held by GM or its
affiliates at the time of the completion of the Offering, pending receipt of
consents or approvals or satisfaction of other applicable requirements necessary
for the transfer of such assets to Delphi. These assets and operations are not,
individually or in the aggregate, material to our company. However, the
information included in this prospectus, including our consolidated financial
statements, assumes the completion of all such transactions. See
"--International Agreements." Also, certain assets and liabilities relating to
employees working under collective bargaining agreements will be transferred to
Delphi in connection with the Distribution. Capitalized terms which we use in
this section but do not otherwise define in the section "--Separation
Agreement--Certain Definitions Relating to the Separation Agreement" below or
elsewhere herein have their respective meanings as set forth in the Separation
Agreement.
WE HAVE SET FORTH BELOW A SUMMARY DESCRIPTION OF THE SEPARATION AGREEMENT
AND CERTAIN OF THE ANCILLARY AGREEMENTS. THIS DESCRIPTION, WHICH SUMMARIZES THE
MATERIAL TERMS OF SUCH AGREEMENTS, DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH AGREEMENTS.
CERTAIN OF THESE AGREEMENTS, INCLUDING THE SEPARATION AGREEMENT, THE SUPPLY
AGREEMENT, THE IPO AND DISTRIBUTION AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT, HAVE BEEN FILED WITH THE SEC AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
SEPARATION AGREEMENT
The Separation Agreement sets forth our agreements with GM with respect to
the principal corporate transactions required to effect the transfers of assets
and assumptions of liabilities necessary to separate our company from GM and
certain other agreements governing our relationship thereafter.
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. General Motors has
transferred, or agreed to transfer, or to cause its subsidiaries and
representatives to transfer, the Delphi Assets to our company and our
subsidiaries, and we and our subsidiaries have assumed, or agreed to assume, and
have agreed to pay, perform, satisfy and discharge on a timely basis the Delphi
Liabilities in accordance with their respective terms. Except as expressly set
forth in the Separation Agreement or in any Ancillary Agreement, GM is not
making any representation or warranty with respect to any Delphi Asset and the
Delphi Assets are being transferred on an "as is, where is" basis.
TRANSITION SERVICES. The Separation Agreement provides that if we identify
any services that GM, or its affiliates or their suppliers, were providing to us
immediately prior to the Contribution Date and any of such services is not being
provided to us pursuant to any of the Ancillary Agreements, GM agrees, upon our
written request, to use its reasonable best efforts to provide that service to
us for a period of twelve months following the Contribution Date. GM is not
required to provide any service which GM would not be legally permitted to
provide to a third party. We must use all commercially reasonable efforts to
obtain any transition services
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provided pursuant to this provision of the Separation Agreement from a source
other than GM prior to the date that is twelve months from the Contribution
Date. If we cannot obtain such transition service from a source other than GM
and such service is necessary to operate the Delphi Automotive Systems Business
in substantially the same manner as it was conducted immediately before the
Contribution Date, GM has agreed to provide such transition service to us for an
additional period not to exceed six months.
For all such transition services provided to us by GM pursuant to the
Separation Agreement and for services provided to us by GM pursuant to the
Ancillary Agreements, except as described below, we must pay GM on or prior to
the fifteenth day following receipt of an invoice:
(1) in the case of any transition service provided pursuant to the
Separation Agreement or pursuant to an Ancillary Agreement in which a
payment amount or formula has not been set forth, an amount equal to
the cost historically allocated to our business for such services as of
the Contribution Date, adjusted to reflect any changes in the nature,
cost or level of services provided; provided that, if no cost has
historically been allocated to us for such service, then we shall pay
to GM:
(a) that portion of the total costs borne by GM which GM would have
allocated to Delphi under its internal allocation formula, plus
(b) any direct user charges provided for in (a), plus
(c) any other reasonable charges necessary to make GM whole for the
provision of such services, or
(2) in the case of any service to be provided pursuant to an Ancillary
Agreement in which a payment amount or formula has been set forth, the
amount owed pursuant to the terms of such Ancillary Agreement.
If we make payment later than the forty-fifth day after the date we receive an
invoice, we must pay interest based on the Prime Rate.
For any such services that are provided to us directly by third parties, we
will pay such third party directly where such direct payment is permissible.
These payment provisions do not apply to services provided to us pursuant
to the Financial Services Supply Agreement, the Commercial Travel Services
Supply Agreement, any real estate leases and any health care services pursuant
to the Employee Matters Agreement.
In addition, we are responsible for providing certain transitional services
to GM with respect to certain businesses retained by GM.
ANCILLARY AGREEMENTS. Except with respect to the provisions regarding
payment for transition services described above, to the extent that any
Ancillary Agreement expressly addresses any matters addressed by the Separation
Agreement, the terms and conditions of the Ancillary Agreement will govern the
rights and obligations of the parties regarding such matters. We must use all
commercially reasonable efforts to obtain services provided to us by GM under
the terms of those Ancillary Agreements relating to transition services from a
source other than GM. Certain of the Ancillary Agreements provide that the
transition service may be extended beyond the termination of the transition
periods provided for therein and we expect that after the Distribution we would
negotiate with GM at arm's length the terms of any such extension, including
fair market value pricing for all such services.
INDEMNIFICATION. We have agreed to indemnify, defend and hold harmless
General Motors and each of its subsidiaries and their respective
successors-in-interest, and each of their respective past and present
representatives against any losses, claims, damages, liabilities or actions
arising, whether prior to or after the Contribution Date, out of or in
connection with the Delphi Liabilities and/or our conduct of our business and
affairs after the Contribution Date. Certain of the Ancillary Agreements provide
for indemnification between us and GM relating to the substance of such
agreements. The Separation Agreement and certain of the
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Ancillary Agreements specify certain procedures with respect to claims
thereunder subject to indemnification and related matters.
CLAIMS AND LITIGATION. The Separation Agreement provides for the allocation
of the liability between us and GM for certain claims and litigation relating to
or arising out of the Delphi Automotive Systems Business.
- Product Liability. GM has retained responsibility for all product
liability actions relating to products we manufactured prior to January
1, 1999 and sold or otherwise supplied to GM either before or after that
date. Responsibility for product liability actions relating to products
we manufacture on or after January 1, 1999 and sell to GM shall be
determined in accordance with the agreements for such sales. We will be
responsible for liability relating to all products we sold at any time or
sell in the future to customers other than GM. In connection therewith,
we will indemnify GM against, and reimburse GM for costs associated with,
the claims for which we are liable, and GM will indemnify us against, and
reimburse us for costs associated with, the claims for which GM has
retained liability.
- General Litigation. With respect to general litigation claims, we will
assume the liability for certain specified claims, GM will defend certain
other specified claims at our expense and GM will retain the liability
for certain other specified claims. In connection therewith, we will
indemnify GM against, and reimburse GM for costs associated with, the
claims for which we are liable, and GM will indemnify us against, and
reimburse us for costs associated with, the claims for which GM has
retained liability.
- Employment-Related Claims. We will assume the liability for certain
specified employment-related claims and we will indemnify GM against any
such claims and reimburse GM for any legal or other expenses reasonably
incurred by GM in connection with such claims. Certain other employment
related claims will be jointly defended by us and GM. We will have
financial responsibility for employment related claims regarding all
Delphi Employees and Delphi Terminated Employees whether incurred before
or after the Contribution Date. We will mutually determine with GM how
new claims shall be treated. However, U.S. claims for pension and welfare
benefits from salaried employees who retire on or before the Contribution
Date and hourly employees who retire on or before October 1, 1999 will
remain the responsibility of GM.
We have agreed with GM to cooperate with each other in the defense of any and
all claims covered by these provisions of the Separation Agreement.
INSURANCE. The Separation Agreement provides that during the period
beginning on the Contribution Date and ending on the earlier of the date of the
completion of the Distribution or the first anniversary of the Contribution Date
(the "Insurance Transition Period"), GM shall, subject to certain conditions and
exceptions, maintain policies of insurance, including for the benefit of Delphi
or any of its affiliates, directors, officers or other covered parties, which
are comparable to those generally maintained by GM. The Separation Agreement
sets forth procedures we must follow for asserting claims, reimbursing GM for
premium expenses and other insurance related matters during the Insurance
Transition Period. Following the expiration of the Insurance Transition Period,
except as provided in the Separation Agreement, we will be responsible for
obtaining and maintaining our own insurance programs.
DISPUTE RESOLUTION. The Separation Agreement contains provisions that
govern, except as provided in any Ancillary Agreement, the resolution of
disputes, controversies or claims that may arise between us and GM. The
Separation Agreement provides that the parties will use all commercially
reasonable efforts to settle all disputes arising in connection with the
Separation Agreement without resorting to mediation, arbitration or otherwise.
If these efforts are not successful, any party may submit the dispute for
non-binding mediation by delivering notice to the other party of the dispute and
expressly requesting mediation of the dispute. If, after mediation, the parties
disagree regarding the mediator's recommendation, the dispute will be submitted
to binding arbitration in accordance with the terms of the Separation Agreement.
The Separation Agreement contains procedures for the selection of a
three-arbitrator panel to act by majority vote and the conduct of the
arbitration hearing, including certain limitations on the discovery rights of
the parties. We and GM have
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agreed that all disputes or other matters related to the Supply Agreement and
certain of the Ancillary Agreements are exempt from the dispute resolution
procedures established in the Separation Agreement.
CERTAIN DEFINITIONS RELATING TO THE SEPARATION AGREEMENT. Set forth below
are certain defined terms contained in the Separation Agreement:
"Contribution Date" means January 1, 1999.
"Delphi Assets" means all of GM's right, title and interest in and to all
assets, excluding cash and cash equivalents, that:
(1) except as set forth on a schedule to the Separation Agreement or as
otherwise provided in the Separation Agreement or in an Ancillary
Agreement, are reflected in the Delphi Financial Statements and not
disposed of by GM after the date thereof and before the Contribution
Date (including assets written off or expensed but still used by Delphi
which Delphi can demonstrate to GM's reasonable satisfaction were paid
for by the Delphi Automotive Systems Sector of GM); or
(2) that are to be transferred pursuant to Section 2.01(c) of the
Separation Agreement (as and when transferred), which relates to assets
relating to certain international operations; or
(3) are acquired by the Delphi Automotive Systems Business after the date
of the Delphi Financial Statements and would be reflected in the
financial statements of Delphi as of the Contribution Date if such
financial statements were prepared using the same accounting principles
under which the Delphi Financial Statements were prepared; or
(4) are expressly provided by the Separation Agreement or any Ancillary
Agreement to be transferred to Delphi; or
(5) are listed on the schedule to the Separation Agreement that sets forth
the facilities to be transferred to Delphi; or
(6) except as otherwise provided in an Ancillary Agreement or other express
agreement of the parties, are used exclusively by the Delphi Automotive
Systems Business as of the Contribution Date;
provided unless the parties otherwise expressly agree, that if the accounting
principles under which the Delphi Financial Statements were prepared would have
required any asset described in the clause (6) above to be reflected in the
Delphi Financial Statements as of the date thereof, then such asset shall be
included in the "Delphi Assets" only if so reflected.
"Delphi Automotive Systems Business" means the business conducted by the
Delphi Automotive Systems business sector of General Motors at any time on or
before the Contribution Date, including:
(1) all business operations whose financial performance is reflected in the
Delphi Financial Statements;
(2) all business operations initiated or acquired by the Delphi Automotive
Systems business sector of GM after the date of the Delphi Financial
Statements; and
(3) all business operations that were conducted at any time in the past by
the Delphi Automotive Systems business sector of GM or by any
predecessor of such business sector (including, without limitation, the
GM Automotive Components Group) but were discontinued or disposed of
prior to the date of the Delphi Financial Statements other than by
transfer or disposition to any other business sector of GM.
"Delphi Financial Statements" means the consolidated financial statements
and the notes thereto of Delphi for the nine months ended September 30, 1998 as
set forth in the Registration Statement of which this Prospectus forms a part,
as amended at the date of the Separation Agreement (i.e., December 22, 1998).
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"Delphi Liabilities" means all of the Liabilities of General Motors that:
(1) except as otherwise set forth on a schedule to the Separation Agreement
or as otherwise provided in the Separation Agreement or in an Ancillary
Agreement, are reflected in the Delphi Financial Statements and remain
outstanding at the Contribution Date; or
(2) are to be transferred pursuant to Section 2.01(c) of the Separation
Agreement (as and when transferred), which relates to assets relating
to certain international operations; or
(3) arise in connection with the Delphi Automotive Systems Business after
the date of the Delphi Financial Statements and would be reflected in
financial statements of Delphi as of the Contribution Date if such
financial statements were prepared using the same accounting principles
under which the Delphi Financial Statements were prepared; or
(4) are expressly provided by the Separation Agreement or any Ancillary
Agreement to be transferred to and assumed by Delphi; or
(5) except as otherwise provided in an Ancillary Agreement or other express
agreement between the parties, are related to or arise out of or in
connection with the Delphi Assets; or
(6) except as otherwise provided in an Ancillary Agreement or other express
agreement of the parties, are related to or arose out of or in
connection with the Delphi Automotive Systems Business, including, but
not limited to the covenants not to compete entered into by GM prior to
the Contribution Date set forth on a schedule to the Separation
Agreement, whether before or after the date of the Delphi Financial
Statements;
provided, unless the parties otherwise expressly agree, that if the accounting
principles under which the Delphi Financial Statements were prepared would have
required any liabilities described in clause (6) above to be reflected in the
Delphi Financial Statements as of the date thereof, then such liabilities shall
be considered to be "Delphi Liabilities" only if so reflected.
"Liabilities" means any and all debts, liabilities, guarantees, assurances,
commitments and obligations, whether fixed, contingent or absolute, asserted or
unasserted, matured or unmatured, liquidated or unliquidated, accrued or not
accrued, known or unknown, due or to become due, whenever or however arising
(including, without limitation, whether arising out of any contract or tort
based on negligence or strict liability) and whether or not the same would be
required by generally accepted accounting principles to be reflected in
financial statements or disclosed in the notes thereto.
IPO AND DISTRIBUTION AGREEMENT
GENERAL. We have entered into an Initial Public Offering and Distribution
Agreement (as amended from time to time, the "IPO and Distribution Agreement")
with GM which governs our respective rights and duties with respect to this
Offering and the Distribution, and sets forth certain covenants we have agreed
to for various periods following the Offering and the Distribution. Although GM
has announced that it currently plans to complete the Distribution, and we have
agreed to cooperate with GM in all respects to complete the Distribution, it is
not obligated to do so. We cannot assure you as to whether or when the
Distribution will occur. See "Risk Factors--Risk Factors Relating to Separating
Our Company from General Motors--Our Business May Be Adversely Affected if the
Distribution Is Not Completed."
THE DISTRIBUTION. We have agreed that we will cooperate with GM in all
respects to accomplish the Distribution and, at GM's direction, promptly take
all actions necessary or desirable to effect the Distribution, including the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of GM's shares of our capital stock. General Motors has the sole
discretion to determine whether to proceed with all or part of the Distribution
and all terms of the Distribution, including the form, structure and terms of
any transaction(s) and/or offering(s) to effect the Distribution and the timing
of and conditions to the consummation of the Distribution. In the event that GM
determines that it no longer intends to proceed with
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or complete the Distribution, GM must provide us notice to such effect. Upon
such notification, GM's rights and our obligations under the Registration Rights
Agreement described below become immediately effective.
PRESERVATION OF THE TAX-FREE STATUS OF THE DISTRIBUTION. General Motors
intends for the Distribution to qualify as a tax-free distribution under Section
355 of the Code to GM and its stockholders. On January 13, 1999, GM received
from the IRS a private letter ruling (the "IRS Ruling") to such effect. In
connection with GM's request for the IRS Ruling, we made certain representations
and warranties to GM regarding our company and our business. We have also agreed
to certain covenants in the IPO and Distribution Agreement intended to preserve
the tax-free status of the Distribution. We may take any action otherwise
prohibited by these covenants only if GM has determined, in its sole and
absolute discretion, that such action would not jeopardize the tax-free status
of the Distribution. See "--Cooperation on Tax Matters." Certain of these
covenants are described in greater detail below:
- Stock Issuance. Prior to the completion of the Distribution, we have
agreed not to issue or agree to issue shares of our capital stock in an
amount that would result in GM owning less than 80% of the total combined
voting power of all outstanding shares of our voting stock. We have also
agreed that, during such period, we will not issue or agree to issue
shares of any class or series of our capital stock other than voting
stock. This covenant will not prohibit us from issuing stock options and
restricted stock awards to our employees so long as we repurchase
sufficient shares of our common stock prior to the date when such options
and awards become exercisable to ensure that GM's ownership remains at or
higher than 80% and GM approves of our procedures to comply with this
covenant.
- Certain Acquisition Transactions. Until two years after the completion of
the Distribution (or, if GM determines not to complete the Distribution,
the last date on which GM distributed any Delphi common stock in
connection with the Distribution), we have agreed not to enter into or
permit any transaction or series of transactions which would result in a
person or persons acquiring or having the right to acquire shares of our
capital stock that would comprise 50% or more of (1) the value of all
outstanding shares of our capital stock or (2) the total combined voting
power of our outstanding voting stock.
- Continuation of Active Trade or Business. Until two years after the
completion of the Distribution (or, if GM determines not to complete the
Distribution, the last date on which GM distributed any Delphi common
stock in connection with the Distribution), we have agreed to continue to
conduct the active trade or business (within the meaning of Section 355
of the Code) of our company as we conduct it immediately prior to the
completion of the Distribution. During such time, we have agreed not to
(1) liquidate, dispose of or otherwise discontinue the conduct of any
portion of our active trade or business with a value in excess of $2.0
billion or (2) dispose of any business or assets that would cause our
company to be operated in a manner inconsistent in any material respect
with the business purposes for the Distribution as described to the IRS
or tax counsel in connection with GM's request for the IRS Ruling. Also,
until two years after the completion of the Distribution, we have agreed
not to liquidate, dispose of, or otherwise discontinue the conduct of any
portion of the active trade or business of our company if such
liquidation, disposition or discontinuance would breach the covenant
described below regarding our continuity of business.
- Continuity of Business. Until two years after the completion of the
Distribution (or, if GM determines not to complete the Distribution, the
last date on which GM distributed any Delphi common stock in connection
with the Distribution), we have agreed that (1) we will not voluntarily
dissolve or liquidate, and (2) except in the ordinary course of business,
neither we nor any of our direct or indirect subsidiaries will sell,
transfer, or otherwise dispose of or agree to dispose of assets
(including any shares of capital stock of our subsidiaries) that, in the
aggregate, constitute more than (x) 60% of our gross assets or (y) 60% of
the consolidated gross assets of us and our subsidiaries. For this
purpose, we are not deemed to directly or indirectly control a subsidiary
unless we own, directly or indirectly, shares constituting (A) 80% or
more of the total combined voting power of all outstanding shares of
voting
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stock of such subsidiary and (B) 80% or more of the total number of
outstanding shares of each class or series of capital stock of such
subsidiary other than voting stock.
- Discharge of Intracompany Debt. Prior to the first date on which GM
distributes any Delphi common stock in connection with the Distribution,
we have agreed to fully discharge and satisfy all debt that we owe GM
(for such purpose, debt does not include payables arising in the ordinary
course of business). Until two years after the completion of the
Distribution (or, if GM determines not to complete the Distribution, the
last date on which GM distributed any Delphi common stock in connection
with the Distribution), we will not be able to have any such indebtedness
with GM.
These covenants will not prohibit us from implementing or complying with
our Rights Plan or any transaction permitted by an IRS ruling or a tax opinion.
In the event that GM notifies us that it no longer intends to proceed with or
complete the Distribution and GM has not yet distributed any of its Delphi
common stock, these covenants to preserve the tax-free status of the
Distribution will terminate.
OTHER COVENANTS REGARDING TAX TREATMENT OF THE TRANSACTIONS. General Motors
intends the transfer of assets and liabilities from GM to our company as
contemplated by the Separation Agreement (the "Contribution") to qualify as a
reorganization under Section 368(a)(1)(D) of the Code (a "D Reorganization").
Until two years after the completion of the Distribution, we have agreed not to
take, or permit any of our subsidiaries to take, any actions or enter into any
transaction or series of transactions that would be reasonably likely to
jeopardize the tax-free status of the Distribution or the qualification of the
Contribution as a D Reorganization, including any action or transaction that
would be reasonably likely to be inconsistent with any representation made to
the IRS or tax counsel. We may take any action that would otherwise violate this
covenant only if GM has determined, in its sole and absolute discretion, that
such action or transaction would not jeopardize the tax-free status of the
Distribution or the qualification of the Contribution as a D Reorganization.
COOPERATION ON TAX MATTERS. We and GM have agreed to certain procedures
with respect to the tax-related covenants in the IPO and Distribution Agreement.
We are required to notify GM if we desire to take any action prohibited by the
tax-related covenants described above. Upon such notification, if GM determines
that such action might jeopardize the tax-free status of the Distribution or the
qualification of the Contribution as a D Reorganization, GM has agreed to elect
either to (1) use all commercially reasonable efforts to obtain a private letter
ruling from the IRS or a tax opinion that would permit us to take the desired
action (and we have agreed to cooperate in connection with such efforts) or (2)
provide all reasonable cooperation to us in connection with our obtaining such
an IRS ruling or tax opinion. In either case, GM has agreed to bear its
reasonable costs and expenses of obtaining such an IRS ruling or tax opinion.
INDEMNIFICATION FOR TAX LIABILITIES. We have generally agreed to indemnify
GM and its affiliates against any and all tax-related losses incurred by GM in
connection with any proposed tax assessment or tax controversy with respect to
the Distribution or the Contribution to the extent caused by any breach by us of
any of our representations, warranties or covenants made in the IPO and
Distribution Agreement. This indemnification does not apply to actions which GM
permits us to take as a result of a determination under the tax-related
covenants as described above.
OTHER DELPHI COVENANTS. After the Offering, General Motors will continue to
own a significant portion of our common stock. As a result, GM will continue to
include us as a "subsidiary" for various financial
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reporting, accounting and other purposes. Accordingly, we have agreed to certain
covenants in the IPO and Distribution Agreement. Certain of these covenants are
described below:
- Covenants Regarding the Incurrence of Debt. So long as GM is a
significant stockholder of our company, the amount of our indebtedness
for borrowed money will affect GM's financial position. Thus, we have
agreed to certain limitations on our ability to incur debt:
- For so long as GM continues to own at least 50% of our outstanding
common stock, without GM's prior written consent (which it may withhold
in its sole and absolute discretion), we will not (and will not permit
any of our subsidiaries to):
- create, incur, assume or suffer to exist any Indebtedness in excess of
an aggregate of $5.0 billion outstanding at any time; provided,
however, that we may make an acquisition as a result of which our
Indebtedness would exceed $5.0 billion so long as both (A) the
acquisition target has an FFO to Debt Ratio of at least 20% and (B)
our Indebtedness after giving effect to the acquisition (including,
without duplication, any Indebtedness incurred in connection with the
acquisition and any indebtedness of the acquisition target that will
become our Indebtedness as a result of such acquisition) would not be
greater than $6.0 billion; and
- consummate, or agree to consummate, any acquisition of any acquisition
target with an FFO to Debt Ratio less than 20% unless our Adjusted
Indebtedness would not exceed $5.0 billion.
For purposes of these covenants, the following terms have the
following meanings:
"Adjusted Indebtedness" means, with respect to any proposed
acquisition, the sum of (1) our Indebtedness immediately after giving
effect to such acquisition (including, without duplication, any
Indebtedness incurred in connection with the acquisition and any
indebtedness of the acquisition target that will become our Indebtedness as
a result of such acquisition) and (2) the amount by which the number
described in clause (2) of the definition of "FFO to Debt Ratio" would need
to be reduced in order for the acquisition target's FFO to Debt Ratio to be
equal to 20%.
"Indebtedness" means the sum of (1) the aggregate principal amount of
our and our subsidiaries' total long-term and short-term liabilities for
borrowed money including capitalized leases, as determined for purposes of
our consolidated financial statements, and (2) the aggregate amount
attributable to all factoring or securitization of receivables and other
financial assets by us and our subsidiaries in excess of $1.2 billion.
"FFO to Debt Ratio" means, for any acquisition target, as of
immediately prior to the proposed acquisition, the percentage determined by
dividing (1) the sum of such acquisition target's net income plus
depreciation and amortization for the last four full fiscal quarters, as
determined for purposes of its consolidated financial statements, by (2)
the additional Indebtedness that would be incurred in connection with such
proposed acquisition (including any indebtedness of the acquisition target
that will become our Indebtedness as a result of such proposed
acquisition).
- Other Covenants. For so long as GM continues to own at least 50% of our
outstanding common stock, we have agreed that:
- we will not, without GM's prior written consent (which it may withhold
in its sole and absolute discretion), take any action which has the
effect of limiting GM's ability to freely sell, pledge or otherwise
dispose of shares of our common stock or limiting the legal rights of or
denying any benefit to GM as a Delphi stockholder in a manner not
applicable to Delphi stockholders generally; this means that, among
other things, we will not, without GM's prior written consent (which it
may withhold in its sole and absolute discretion), alter our Rights Plan
(or any successor stockholder rights plan) in a manner adverse to GM
(and its transferees) causing the rights to detach or become exercisable
as described under "Description of Capital Stock--Rights Plan;"
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- we will not, without GM's prior written consent (which it may withhold
in its sole and absolute discretion), issue any shares of common stock
or any rights, warrants or options to acquire our common stock, if after
giving effect to such issuance GM would own less than 50% of the then
outstanding shares of our common stock; and
- to the extent that GM is a party to, or enters into, any agreements that
provide that certain actions of GM's subsidiaries may result in GM being
in breach or default under such agreements (and we have been advised of
the existence of such agreements), we will not take any actions that may
result in GM so being in breach or default.
- Financial Information. We have agreed that, for so long as GM is required
to consolidate our results of operations and financial position or
account for its investment in our company, we will provide GM certain
financial information regarding our company and our subsidiaries; provide
GM copies of all quarterly and annual financial information and other
reports and documents we intend to file with the SEC prior to such
filings (as well as final copies upon filing); provide GM with copies of
our budgets and financial projections (as well as the opportunity to meet
with our management to discuss such budgets and projections); consult
with GM regarding the timing and content of earnings releases; and
cooperate fully (and cause our accountants to cooperate fully) with GM in
connection with any of its public filings. This covenant is subject to
appropriate confidentiality provisions to protect the confidentiality
commitments we have made to our customers.
- Auditors and Audits; Annual Statements and Accounting. We have agreed
that, for so long as GM is required to consolidate our results of
operations and financial position or account for its investment in our
company, we will not change our auditors without GM's prior written
consent (which will not be unreasonably withheld) and will use our best
efforts to enable our auditors to complete their audit of our financial
statements such that they will date their opinion the same date that they
date their opinion on GM's financial statements; provide to GM and its
auditors all information required for GM to meet its schedule for the
filing and distribution of its financial statements; make available to GM
and its auditors work papers related to the annual audit of our company
as well as access to the personnel who perform the annual audit and our
and our subsidiaries' books and records so that GM and its auditors may
conduct reasonable audits relating to our financial statements; adhere to
certain specified accounting standards; and notify and consult with GM
regarding any changes to our accounting principles; and make any changes
to our accounting estimates and principles requested by GM.
We have generally agreed to indemnify General Motors and its affiliates
against all liabilities arising out of any incorrect, inaccurate or
incomplete financial and other information we provide to GM pursuant to the
IPO and Distribution Agreement.
INDEMNIFICATION RELATING TO THE OFFERING. We have generally agreed to
indemnify General Motors and its affiliates against all liabilities arising out
of any material untrue statements and omissions in this prospectus and the
registration statement of which it is a part. However, our indemnification of GM
does not apply to information relating to General Motors (excluding Delphi). GM
has agreed to indemnify us for this information.
INDEMNIFICATION RELATING TO THE DISTRIBUTION. We have generally agreed to
indemnify General Motors and its affiliates against all liabilities arising out
of any material untrue statements and omissions in any and all registration
statements, information statements and/or other documents filed with the SEC in
connection with the Distribution. However, our indemnification of GM does not
apply to information relating to General Motors (excluding Delphi). GM has
agreed to indemnify us for this information.
EXPENSES. In general, unless otherwise provided for in the IPO and
Distribution Agreement or any other agreement, we and GM will pay our respective
costs and expenses incurred in connection with the Contribution, the Offering
and the Distribution.
- Expenses Relating to the Offering. GM has generally agreed to pay all
costs and expenses relating to the Offering, other than the costs of
certain of our advisors. We will pay the underwriting discounts and
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commissions and our internal costs and expenses. In addition, we have
agreed that GM will be entitled to all amounts received from the
underwriters for reimbursement of Offering expenses.
- Expenses Relating to the Distribution. GM has generally agreed to pay all
costs and expenses relating to the Distribution. We will, however, pay
for the costs and expenses of our financial, legal, accounting and other
advisers (if any) incurred in connection with the Distribution. We will
also pay for our internal costs and expenses.
REGISTRATION RIGHTS AGREEMENT
As noted above, General Motors has announced its current plan to divest
itself of ownership of our stock through the Distribution and we have agreed to
cooperate with GM in all respects to complete the Distribution. We cannot,
however, assure you as to whether or when the Distribution will occur. See "Risk
Factors--Risk Factors Relating to Separating Our Company from General
Motors--Our Business May Be Adversely Affected If the Distribution Is Not
Completed." In the event that GM does not divest itself of all of its shares of
Delphi common stock in the Distribution, GM could not freely sell all of such
shares without registration under the Securities Act. Accordingly, prior to the
closing of the Offering, we will enter into a Registration Rights Agreement (as
amended from time to time, the "Registration Rights Agreement") with GM to
provide it with certain registration rights relating to the shares of our common
stock which it holds. These registration rights generally become effective at
such time as GM informs us that it no longer intends to proceed with or complete
the Distribution.
SHARES COVERED. The Registration Rights Agreement covers those shares of
our common stock that are held by GM immediately following this Offering and
continue to be held by GM on the date on which GM notifies us that it no longer
intends to proceed with or complete the Distribution.
DEMAND REGISTRATIONS. GM may request registration (each, a "Demand
Registration") under the Securities Act of all or any portion of our shares
covered by the Registration Rights Agreement and we will be obligated to
register such shares as requested by GM.
- Terms of Each Offering. General Motors will designate the terms of each
offering effected pursuant to a Demand Registration, which may take any
form, including:
- an underwritten public offering,
- a shelf registration,
- a registration in connection with the distribution of, or exchange
of or offer to exchange, shares of our common stock to holders of
debt or equity securities of GM, a subsidiary or affiliate thereof
or any other person, or
- a distribution in connection with the registration by GM or a
subsidiary or affiliate thereof of securities convertible into,
exercisable for or otherwise related to such shares of our common
stock.
Except for an offering described in one of the last two bullets above,
each Demand Registration must meet a certain minimum aggregate expected
offering price.
- Timing of Demand Registrations. We are not required to undertake a Demand
Registration within 90 days of the effective date of a previous Demand
Registration, other than a Demand Registration that was effected as a
shelf registration. Also, in any 12-month period, we have the right to
postpone the filing or effectiveness of any Demand Registration for up to
90 days if in the reasonable judgement of our General Counsel such
registration would reasonably be expected to have a material adverse
effect on any existing proposal or plans by our company to engage in
certain material transactions.
- Priority on Demand Registrations. Other parties, including Delphi, can
participate in any Demand Registration only if all of the securities GM
proposes to include in such registration are so included.
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- Selection of Professionals. General Motors will select the investment
banker(s) and manager(s), subject to our reasonable objection in certain
circumstances, as well as any financial printer, solicitation and/or
exchange agent and counsel for the Offering. We will select our own
outside counsel and independent auditors.
PIGGYBACK REGISTRATIONS. The Registration Rights Agreement also provides
for certain "piggyback" registration rights for General Motors. Whenever we
propose to register any of our securities under the Securities Act for ourselves
or others, subject to certain customary exceptions, we must provide prompt
notice to GM and include in such registration all shares of our stock which GM
requests to be included (each, a "Piggyback Registration").
- Priority on Piggyback Registrations. If a Piggyback Registration is being
made on our behalf and the underwriters advise us that cutbacks are
necessary, we must include in such registration: (1) first, the
securities we propose to offer, (2) second, the securities requested to
be included by GM and (3) third, any other securities requested to be
included in such registration. If a Piggyback Registration is being made
on behalf of other holders of our securities and the underwriters advise
us that cutbacks are necessary, we must include in such registration: (1)
first, the securities requested to be included therein by the holders
requesting such registration and the securities requested to be included
therein by GM, pro rata among such holders and GM on the basis of the
number of securities owned by each such holder and (2) second, any other
securities requested to be included in such registration.
- Selection of Underwriters. In certain circumstances, General Motors has
the right to reasonably object to our selection of any investment
banker(s) and manager(s) in connection with a Piggyback Registration.
HOLDBACKS. The Registration Rights Agreement contains customary holdback
provisions.
REGISTRATION PROCEDURES AND EXPENSES. The Registration Rights Agreement
sets forth customary registration procedures, including a covenant by us to make
available our senior management for road show presentations. All registration
expenses incurred in connection with the Registration Rights Agreement,
including all filing fees, fees and expenses of compliance with securities
and/or blue sky laws, financial printing expenses, fees and disbursements of
custodians, transfer agents, exchange agents and/or information agents, and fees
and disbursements of counsel for our company and all independent certified
public accountants, underwriters (excluding discounts and commissions) and other
persons retained by us will be paid by us. In addition, we must reimburse GM for
the fees and disbursements of its outside counsel as well as out-of-pocket
expenses incurred in connection with any such registration.
INDEMNIFICATION. The Registration Rights Agreement contains customary
indemnification and contribution provisions by us for the benefit of General
Motors and any underwriters and by General Motors for the benefit of us and any
underwriters with respect to information provided by GM.
TRANSFER. GM may transfer shares covered by the Registration Rights
Agreement and the holders of such transferred shares will be entitled to the
benefits of the Registration Rights Agreement; provided that each such
transferee agrees to be bound by the terms of the Registration Rights Agreement.
Such transferees will be entitled to the rights available to GM described above;
provided, however, that the holder or holders of a majority of the shares
covered by the Registration Rights Agreement will be entitled to exercise
certain of such rights. Any successor entities to our company will be bound by
the terms of the Registration Rights Agreement.
DURATION. The registration rights under the Registration Rights Agreement
will remain in effect with respect to any shares of Delphi common stock until:
- such shares have been sold pursuant to an effective registration
statement under the Securities Act;
- such shares have been sold to the public pursuant to Rule 144 under the
Securities Act (or any successor provision);
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- such shares have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been
delivered by the company and subsequent public distribution of them shall
not require registration of them under the Securities Act or any similar
state law;
- such shares have ceased to be outstanding; and
- in the case of shares held by a transferee of GM, when such shares become
eligible for sale pursuant to Rule 144(k) under the Securities Act (or
any successor provision).
SUPPLY AGREEMENT
GENERAL. We have entered into a Component Supply Agreement with GM (as
amended from time to time, the "Supply Agreement") which we believe will provide
us with a substantial base of future business with GM-North America well into
the next decade. GM currently sources a significant amount of its automotive
parts requirements from us pursuant to certain existing contractual commitments.
Except as described below, the Supply Agreement between GM and Delphi provides
that all existing contracts as of January 1, 1999 will generally remain in
effect even if we have not yet begun to supply products under such contracts,
including the pricing, duration and purchase order terms and conditions. The
Supply Agreement also provides that, subject to certain exceptions as described
below, we have the right to provide on competitive terms the first replacement
cycle of all product programs in the United States and Canada which we were
providing to GM as of January 1, 1999, provided that GM sources such replacement
cycle business prior to January 1, 2002. We expect these programs will cover
specific vehicle models introduced from 1999 well into the next decade. We will
also have the opportunity to bid on other new GM business on the same basis as
other suppliers.
Our ability to realize revenues on all GM business, including business
awarded pursuant to existing contracts, is in all cases subject to a variety of
factors, including the volume and option mix of vehicles actually produced by
GM. The Supply Agreement provides that General Motors has the right to move its
business with us to other suppliers in the event that we are not competitive in
terms of quality, service, design and technology. In addition, GM has the right
at all times to adopt new technology, whether or not such technology is
available through us. If we are unable to provide the new technology or an
equivalent technology acceptable to GM on a competitive basis, GM is free to
move the business from us to another supplier.
EXISTING CONTRACTS. Under the terms of the Supply Agreement, except as
provided below, all existing contractual commitments between us and GM relating
to the purchase and supply of motor vehicle-related components and systems as of
January 1, 1999 will generally remain in effect--even if we have not yet begun
to supply products under such contracts, including the existing pricing,
duration and purchase order terms and conditions. These contractual commitments
relate to the purchase of automotive parts by General Motors for specific
General Motors vehicle programs and fall into three principal categories:
- short-term purchase orders, usually covering purchases for a one-year
term;
- long-term contracts, covering purchases for a period of more than one
year but less than the life of a vehicle program; and
- lifetime contracts, covering either the actual or anticipated life of the
vehicle program, which is generally five to six years for cars and seven
to eight years for trucks.
Long-term and lifetime contracts with GM typically incorporate the terms and
conditions set forth in the standard GM purchase order form, which we believe
are generally consistent with those prevailing in the automotive industry. All
existing contracts are subject to the volume and option mix of vehicles actually
produced by General Motors and other factors. See "Business of
Delphi--Industry--Awarded Business."
Under the terms of the Supply Agreement, Delphi and General Motors have
agreed to honor all "nomination letters" in place as of January 1, 1999
regardless of whether formal purchase orders or other contractual commitments
have been issued with respect to such business. Nomination letters refer to
letters from General Motors informing a supplier that it has been awarded
specific business to supply a product for a
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particular vehicle program. In light of the long product development cycles in
the automotive industry, General Motors typically issues its nomination letters
and other new business commitments about three years in advance of actual
production of the vehicle program. These nomination letters commit GM, subject
to certain conditions, to source products for a particular vehicle program from
a supplier. However, if GM determines for any reason not to proceed with the
vehicle program covered by a nomination letter, it is under no obligation to
such supplier. Also, as with other purchase arrangements, nomination letters do
not require any minimum purchase and are subject to actual production volumes,
supplier competitiveness and other factors.
PAYMENT TERMS. Until recently, most of our existing contracts with GM
required payment by GM in the month following GM's receipt of our invoice.
Except as described below, payment terms on all existing contracts have been
modified by the Supply Agreement to generally require payment from GM to us
under such contracts on the second day of the second month following the date of
shipment by Delphi. For more information regarding the impact of these modified
payment terms on our financial condition, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The modified payment
terms became effective on January 1, 1999 and also apply to future contracts
with GM. These modified payment terms are consistent with the new payment terms
that GM is currently in the process of introducing to its other suppliers.
The Supply Agreement also provides that certain contracts relating to
purchases of parts for Saturn vehicle models will retain the consumption
methodology currently in place, which generally provides that Saturn pays only
for the actual amount of product used rather than the amount of product
delivered. Also, certain existing contracts relating to purchases by GM's
international automotive operations will retain the existing payment terms.
OUR ABILITY TO SECURE CERTAIN NEXT GENERATION BUSINESS. The Supply
Agreement is intended to provide us the opportunity to capture future GM
business that replaces current GM business over the next several years. Through
December 31, 2001, we will have the ability to secure under competitive purchase
order terms the first replacement cycle of all product programs in the United
States and Canada which we were providing to General Motors as of January 1,
1999 (and certain other product programs as described below). Thus, we will have
the opportunity to match competitive bids from other suppliers on the next
generation of the product programs we provided to GM in the United States and
Canada as of January 1, 1999, provided those programs are sourced by GM prior to
January 1, 2002. However, in order to utilize this ability to secure next
generation business, we must be competitive in terms of design, quality, price,
service and technology. Other suppliers' bids to provide particular products may
include offers of price reductions to GM on other current or future products,
and GM may under the Supply Agreement consider the economic effect of such
package proposals in assessing our competitiveness.
As noted above, General Motors generally sources its product needs about
three years in advance of the start of production for each vehicle program.
Since many of these contractual commitments cover a significant period of time
due to the duration of many vehicle programs of about five to eight years,
depending on the vehicle model, we expect that this ability to secure next
generation business, together with our existing contracts and nomination
letters, will provide us with the opportunity to maintain substantial business
with GM well into the next decade.
Our ability to secure next generation business as described above (which is
sometimes referred to as a "right of last refusal") includes production in the
United States and Canada of common global vehicle platforms to the extent that
we can provide or execute designs that comply with the required form and
function specifications determined by GM, as well as production in Mexico of
vehicles intended for sale in the United States or Canada; provided that in all
cases such programs must meet all of the other necessary criteria (including
that such programs were programs in the United States and Canada which we were
providing to GM as of January 1, 1999). Other than as described immediately
above, our ability to secure next generation business will not apply to any
programs of GM's international automotive operations or to GM vehicle production
in Mexico.
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The Supply Agreement also expressly provides that GM will not be
responsible under any circumstances for any supplemental or compensatory
payments to us in the event that we fail to exercise our ability to secure any
next generation business or if we cannot provide our products on a competitive
basis.
NEW BUSINESS. All new business awarded to us by General Motors will be
governed by the specific terms of the contracts under which such new business is
awarded. Other than with respect to next generation business as described above,
if we elect to bid for GM business, we will do so on the same basis as all other
suppliers. General Motors will award any such business in its sole discretion.
GM'S RIGHT TO RE-SOURCE. Consistent with GM's contracts with other
suppliers, the Supply Agreement provides General Motors the right to re-source
its business with us in the event that we are not competitive in terms of
quality, service, design and technology. Competitiveness is defined by
demonstrable product and performance levels available to GM from other
suppliers. The term "re-sourcing" refers to the process of moving existing
business from Delphi to another supplier.
In the event that we are non-competitive with respect to a particular
product, General Motors is required to notify us of any such non-competitiveness
and provide us with a reasonable period of time during which to correct any such
non-competitiveness before GM may re-source the business. With respect to non-
competitiveness in terms of quality and service, the parties will follow GM's
Supplier Quality Improvement Process, which is also known as the "16-Step
Process", in order to identify and remedy quality and service problems. With
respect to non-competitiveness in terms of design and technology, the parties
will work together to identify acceptable solutions and GM will be permitted to
re-source the business only if these efforts are unsuccessful within a
reasonable period of time.
GM'S RIGHT TO ADOPT NEW TECHNOLOGIES. The Supply Agreement permits General
Motors at all times to adopt new technology, whether or not any such new
technology is available through us. In the event that GM wishes to introduce a
technological change to a product covered by a then existing contract with us,
we have a right of last refusal to implement the new technology or an equivalent
technology acceptable to GM and continue production through the remaining term
of the existing contractual commitment. If we are unable to provide the new
technology or equivalent technology on a competitive basis, General Motors is
free to re-source the business to another supplier. Disputes regarding new
technology under this process will be resolved by a senior engineer from each of
GM and Delphi plus a third-party facilitator mutually acceptable to both sides.
TECHNICAL INFORMATION. Consistent with general practice within our
industry, we have agreed under the Supply Agreement to cooperate with GM to
share with GM technical information about the products we supply to GM and their
manufacture, without restriction as to use.
USE OF GM'S TOOLING. We will not use tooling to produce products for other
customers if such tooling is used to produce products for GM; provided, however,
that we will be allowed to continue the use of such tooling to the extent
necessary to satisfy contracts with other customers where the tooling has been
used for this purpose before January 1, 1999 and extensions of such contracts.
We have agreed not to use tooling owned by GM to compete against GM-SPO in the
aftermarket.
DELPHI PLANT CLOSURES AND PRODUCT ELIMINATIONS. In the event that we
propose to close a plant or eliminate a product line, we must keep General
Motors informed on a timely basis of our decision-making process and in good
faith reasonably consider modifying our plans in order to accommodate GM's
timing requirements with respect to re-sourcing the business. Additionally, the
Supply Agreement provides that in the event of an extension of production by
General Motors of an existing product (which is covered by a contract with a
fixed term) beyond the term of the original anticipated program life, General
Motors has the right to require us to continue production and sale of that
product to GM for a reasonable period of time on commercially reasonable terms
to be negotiated between the parties.
DELPHI DIVESTITURES. In the event that we propose to divest a business, we
must keep General Motors informed on a timely basis of our decision-making
process and in good faith reasonably consider GM's input
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and concerns. Upon our selection of a qualified buyer, existing contracts with
GM relating to the business being sold may be assigned to the buyer upon GM's
prior written consent, which will not be unreasonably withheld. In such cases,
General Motors will negotiate a new supply agreement with the buyer which will
contain substantially the same terms as our existing arrangements with General
Motors with respect to the business being sold. Any deviations from the terms of
the existing arrangements, including with respect to price, must be mutually
agreed upon by us and GM. During the term of the assigned contract, Delphi and
General Motors have agreed to dedicate appropriate resources and efforts to
ensure that General Motors receives comparable levels of quality, service,
delivery, price and technology.
SERVICE PARTS. The Supply Agreement also applies to service parts we
provide to General Motors for sale to GM-authorized dealers worldwide. In
general, unless otherwise provided in our existing contracts with GM, the unit
pricing on service parts that are not "past model" will continue at the prices
charged to General Motors until three years after such service parts go past
model. The term "past model" refers to parts which are used on vehicle models
which are no longer in production. Thereafter, unit prices for such service
parts will be negotiated between the parties.
QUALITY IMPROVEMENT. In order to facilitate quality improvement, the Supply
Agreement provides that we will participate in all GM supplier quality and
development programs. General Motors is entitled to require us to achieve
reasonable increased quality standards. All increased quality standards
established by General Motors must be comparable to then existing industry
standards.
TERMINATION. Unless terminated in accordance with its terms, the Supply
Agreement will remain in effect as long as any existing agreement is in effect,
including any extensions of any such existing agreement. Either Delphi or
General Motors may terminate the Supply Agreement for:
- material breach by the other party;
- insolvency or bankruptcy of the other party; or
- attachment, embargo or expropriation of a significant portion of the
other party's assets necessary in order for that party to perform its
obligations under the Supply Agreement.
In addition, General Motors can terminate the Supply Agreement if:
- 35% or more of our company becomes owned or controlled (directly or
indirectly) by a competitor of General Motors in the business of
manufacturing automotive vehicles; or
- all of the underlying contracts governed by the Supply Agreement become
subject to termination or cancellation pursuant to their terms.
Underlying contracts become subject to termination or cancellation by GM as
the result of a variety of factors, such as our non-competitiveness, cause,
expiration and, in some cases, termination for convenience. Termination for
convenience means GM can terminate the contract at any time for any reason. The
majority of underlying contracts having termination for convenience provisions
are shorter-term purchase orders. This right to terminate for convenience could
be exercised by GM in connection with any change in control of Delphi. Certain
change in control transactions could also give GM the right to terminate
underlying contracts pursuant to the provisions prohibiting us from assigning
our contracts to another entity.
In the event that a competitor of GM in the business of manufacturing
automotive vehicles acquires (directly or indirectly) a significant interest in
our company, we must provide GM with reasonable assurances that we will use our
best efforts to preserve the confidentiality of all information relating to
products supplied to General Motors and GM vehicle programs.
Termination of the Supply Agreement would be likely to have a material
adverse effect on our company.
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DISPUTE RESOLUTION. The Supply Agreement provides that all disputes or
other matters related to the Supply Agreement will be exempt from the dispute
resolution process set forth in the Separation Agreement or in any other
agreement related to the transactions contemplated therein.
AFTERMARKET SALES
We are currently party to a Business Relationship Agreement (as modified
and as amended from time to time, the "Business Relationship Agreement") with
GM-SPO regarding aftermarket sales in the United States. This agreement does
not, however, cover the service parts provided to General Motors pursuant to the
Supply Agreement for sale to GM-authorized dealers and distributors. The
Business Relationship Agreement becomes subject to termination by either party
on or after December 31, 1999 upon twelve months prior notice to the other
party. This means the Business Relationship Agreement cannot be terminated any
earlier than December 31, 2000. Until such time, in return for certain royalties
and fees it pays to us, GM-SPO generally has the right to act as the exclusive
distributor of our aftermarket parts in the United States. The pricing under the
Business Relationship Agreement is being benchmarked in an effort to ensure
market based pricing with respect to ACDelco(R) branded products. Pursuant to an
Aftermarket Agreement dated as of January 1, 1999, the payment terms between us
and GM-SPO are being modified so that GM-SPO will pay us on the second day of
the second month following our shipment of a product. Under the Business
Relationship Agreement, if we can meet the market price for a particular
aftermarket product, GM-SPO must buy such aftermarket product from us.
Alternatively, we may choose not to meet the market price for a particular
aftermarket product and cease supplying such product in the aftermarket in the
United States. Until January 1, 2001, we are obligated to offer all new
technology with respect to aftermarket products to GM-SPO on a non-exclusive
basis, under terms no less favorable than those offered to our other customers.
Following the termination of the Business Relationship Agreement, we may begin
distributing our own products in the aftermarket in the United States.
Outside the United States, we distribute our own aftermarket products
independently of General Motors and, with certain exceptions related to
batteries, we are free to seek any aftermarket sales opportunities.
We have agreed with GM-SPO to split the ownership of current aftermarket
brands. As a result, we own the Freedom(R) brand, but may not use the brand in
the United States until after the expiration of the Business Relationship
Agreement; GM-SPO owns the ACDelco(R) brand and any AC and Delco derivatives and
formatives; and GM-SPO owns the Voyager(R) battery brand, but may only use it on
batteries sourced from us. There will be a transition period for us and our
licensees to wind down our use of the brands owned by GM or brands owned by
Delphi but currently used by GM.
PURCHASING
We have entered into agreements with GM pursuant to which we will continue
to purchase productive materials under existing contracts that were entered into
by General Motors on our behalf, until those contracts expire. Such agreements
provide that we are entitled to continue to use the purchasing systems currently
used by GM's purchasing organization until such time as we establish our own
purchasing system, which we estimate will not take more than five years. In
addition, in certain international operations, we may continue to operate in a
shared purchasing arrangement with GM for up to five years.
EMPLOYEE MATTERS
We have entered into several agreements (collectively, as amended from time
to time, the "Employee Matters Agreements") with GM to allocate responsibility
and liability for certain employee related matters. However, GM is obligated to
bargain in good faith with the unions representing our hourly employees
regarding the effects of the separation of Delphi from GM on their members. As a
result, the understandings between us and GM related to the effect of the
separation on our hourly employees represented by unions may be affected by
negotiations with the unions representing these employees. GM has advised us
that it intends to
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work with such unions in this regard. For more information about the status of
GM's discussions with the unions, see "Business of Delphi--Employees; Union
Representation." The Employee Matters Agreements generally provide for the
following:
EMPLOYEE TRANSFERS. As of January 1, 1999, all GM salaried employees,
active and inactive, that are employees in our operations were transferred to
Delphi. GM U.S. hourly employees, active and inactive, that are employees in our
operations were transferred to Delphi as of January 1, 1999 and will remain
under the applicable national collective bargaining agreement (and incorporated
employee benefit plans) until the Distribution. However, the transfer of
salaried and hourly employees at certain of our international operations (and of
certain related pension and employee benefits plans) may not take place until
the receipt of consents or approvals or the satisfaction of other applicable
requirements. For all U.S. salaried employees who retire on or before January 1,
1999, GM is retaining responsibility for pension obligations and for other
postretirement employee benefits ("OPEB") obligations, consisting primarily of
retiree medical obligations. GM has had discussions with certain of the unions
that represent the GM hourly employees transferred to us regarding the effect of
the separation on the employees. For information regarding these discussions,
see "Business of Delphi--Strategy--Improve Operating Performance--Labor
Relations." With regard to our hourly employees and the employees of divested
Delphi units, GM generally will retain postretirement benefit obligations for
U.S. hourly employees who retire on or before October 1, 1999. We have reached
agreements with the UAW and the IUE to this effect. We anticipate that Delphi
will assume OPEB obligations and pension obligations for employees who retire
after October 1, 1999,
As between GM and Delphi, the allocation of these obligations has been made
based on certain levels of employee retirement prior to October 1, 1999 based on
historical experience and conditions surrounding Delphi's separation from GM. We
have agreed with GM to recalculate the allocation of these liabilities based on
the actual level of retirements on or before October 1, 1999. Accordingly, if
and to the extent that greater than the assumed number of employees retire on or
before October 1, 1999, we would be required to make a payment to GM. Depending
on the amount of such a payment, if any, it could have a material adverse effect
on our short-term liquidity. Similarly, if and to the extent that fewer than the
assumed number of employees retire on or before October 1, 1999, GM would be
required to make a payment to us. The amount of postretirement benefits varies
from time to time, depending on factors such as discount rate, asset returns,
contributions and other factors. As of September 30, 1998, Delphi's salaried and
hourly OPEB obligation was about $4.5 billion and the underfunded pension
obligation was about $1.9 billion.
CERTAIN FLOW-BACK RIGHTS. It is anticipated that the union discussions may
result in some of our hourly employees in the United States being provided with
certain opportunities to transfer to GM as appropriate job openings become
available at GM and GM employees in the United States having similar
opportunities to transfer to our company to the extent job openings become
available at our company. In general, if an employee transfers from our company
to GM and then retires from GM, or transfers from GM to our company and retires
from our company, both our company and GM will be responsible for pension
payments which in total reflect such employee's entire years of service.
Responsibility for such pension payments will generally be allocated between the
companies based on such employee's entire pre-transfer or post-transfer service,
respectively. In the case of employees transferring from Delphi to GM,
pre-transfer service will include service with GM prior to our separation from
GM and thus will be reflected in the portion of the pension payments we must
bear. It is not currently anticipated that there will be any transfer of pension
assets or liabilities between us and GM with respect to such employees that
transfer between our companies.
With respect to OPEB obligations for such transferring employees, the
company to which an employee transfers will provide the OPEB benefits for such
employee. We have entered into an agreement with GM which provides for a
mechanism for determining a cash settlement amount for OPEB obligations
associated with employees that transfer between our company and GM during any
year. Pursuant to this agreement, upon identification of the employees that
transferred between GM and our company during the past year, an actuarial
analysis will be done to determine an estimated pattern of employment cessation
(retirement, death, or voluntary termination) of such employees. This estimated
pattern of employment cessation will determine
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the timing of payments due between us and GM for the employees that transferred
between our companies in a given year.
Separate actuarial analysis will be done for employees transferring from
our company to GM and from GM to our company. The actuarial assumptions to be
used in valuing the OPEB obligations associated with transferring employees will
be based on those used in conjunction with the receiving company's annual OPEB
valuation for the given period. The liability with respect to such transferring
employees will be retained by the company from which the employee transferred
until the cash settlement with respect thereto has been made, upon which such
liability will be recognized by the company to which the employee transferred.
EMPLOYEE BENEFITS. We will establish our own pension and employee benefit
plans, which generally will be the same as GM's pension and employee benefit
plans. Our U.S. salaried employees began participating in these plans on January
1, 1999 and our U.S. hourly employees will begin participating in these plans at
the time of the Distribution.
Our plans generally will assume all liabilities under GM's plans to
employees assigned to us. Certain pension assets funding pension liabilities
will be transferred from trusts and other funding vehicles associated with GM's
plans to the corresponding trusts for our plans.
GENERAL MOTORS STOCK AWARDS. In connection with the completion of the
Distribution, awards (collectively, "GM Awards") held by our employees as of
such date under GM's incentive and variable pay plans will be replaced with
awards under our incentive and variable pay plans. With certain exceptions, GM
Awards held by individuals employed by General Motors as of the date of the
completion of the Distribution and by individuals who have retired prior to
replacement of such GM Award, will remain outstanding as GM Awards, with an
appropriate revaluation to reflect the Distribution.
In the case of GM Awards consisting of stock options, such awards will be
replaced with options to acquire a number of shares of our common stock equal to
the number of shares of GM $1 2/3 common stock subject to such GM Award as of
the date of the completion of the Distribution, multiplied by the Ratio
described below, rounded down to the nearest whole share. The per share exercise
price of such converted award will equal the per share exercise price of such GM
Award divided by the Ratio.
In the case of awards under the GM Performance Achievement Plan, any
unvested installments of final awards which are in the form of GM $1 2/3 common
stock or GM Class H common stock, will be converted into shares of Delphi common
stock using a ratio similar to the one described below for converting GM Awards
consisting of stock options into options to acquire shares of Delphi's common
stock.
The "Ratio" means the amount determined by dividing:
- the average of the daily high and low per share prices of the GM $1 2/3
common stock, or the Class H common stock if Class H common stock awards
are being converted, as reported in the Wall Street Journal, during the
three trading days ending on a date of record established by the GM Board
of Directors in connection with the Distribution by
- the average of the daily high and low per share prices of the Delphi
common stock, as reported by the Wall Street Journal, for the three
trading days commencing on the day after such date of record.
SHARES OF DELPHI'S COMMON STOCK SUBJECT TO SUBSTITUTE AWARDS. It is not
possible at this time to specify how many shares of our common stock will be
subject to substitute awards for GM Awards. We expect that some GM Awards
consisting of stock options held by our employees will be exercised, other GM
Awards will vest and other GM Awards could be granted, prior to the date of the
completion of the Distribution. In addition, the remaining balance of
unexercised options pursuant to GM Awards will be replaced with options to
acquire shares of our common stock by reference to the Ratio, which will not be
known until after the
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Distribution is completed. Our stockholders, are, however, likely to experience
some dilutive impact from the above-described adjustments.
As of December 15, 1998, there were about 5,260,000 shares of GM $1 2/3
common stock subject to options pursuant to GM Awards (about 1,917,000 of which
were exercisable as of December 15, 1998) held by our employees. If the Ratio
were determined using the closing price of the GM $1 2/3 common stock on
December 15, 1998, as reported in the Wall Street Journal ($67.19 per share) and
a price of $16.00 per share of our common stock (the mid-point of the range set
forth on the cover page of this prospectus), the foregoing number of shares of
GM $1 2/3 common stock subject to GM stock options would be replaced with
options on about 22,100,000 shares of our common stock. As of December 15, 1998,
there were less than 5,000 shares of GM's Class H common stock subject to GM
Awards held by our employees which will be replaced with awards of our common
stock.
TAX MATTERS
We have entered into two income tax allocation agreements with GM to govern
the allocation of U.S. income tax liabilities and to set forth agreements with
respect to certain other tax matters. The first tax allocation agreement is
effective from the Contribution Date until such time as we cease to be a member
of the General Motors consolidated group. The second tax allocation agreement,
which supersedes and replaces the first agreement, is effective on the day after
we cease to be a member of the General Motors consolidated group. Under the
Code, we would cease to be a member of the General Motors consolidated group
upon the completion of the Distribution or if GM owns less than 80% of our
outstanding capital stock. The first tax allocation agreement will only be
effective from January 1, 1999 until tax deconsolidation. Unless otherwise
noted, the provisions described below are contained in both agreements.
GM generally will pay all income taxes attributable to Delphi and its
subsidiaries for tax periods before the Contribution Date. For tax periods
during which we are a member of the General Motors consolidated group, we will
calculate our tax liability as if we were a separate affiliated group of
corporations filing a consolidated return, but we will pay our calculated taxes
to General Motors, which will then file a consolidated or combined return with
the appropriate tax authorities. There may be certain U.S. state or local
jurisdictions in which we will file a separate income tax return, not combined
or consolidated with GM, for tax periods before tax deconsolidation. In that
circumstance, we would file the income tax return with the appropriate tax
authorities, and pay the tax directly to the tax authority. Tax benefits
generated by our company for tax periods before tax deconsolidation will reduce
our tax liability, but not below zero, and we will not be compensated for tax
benefits generated by our company and used by the General Motors consolidated
group. Except for tax elections (defined for purposes of allocating taxes as the
treatment of items in tax returns and filings) that may have an adverse impact
on the General Motors consolidated group or tax elections that must be made by
the parent corporation of a consolidated group, we will determine all tax
elections for tax periods during which we are a member of the GM consolidated
group. We will prepare and file all tax returns, and pay all income taxes due
with respect to all tax returns required to be filed by us for all tax periods
after we cease to be a member of the GM consolidated group or for U.S. state or
local jurisdictions in which our return is not combined or consolidated with
GM's return.
GM is responsible for most U.S. tax adjustments related to Delphi for all
periods prior to tax deconsolidation, other than adjustments related to Delco
Electronics, which previously had been a separate entity in the General Motors
consolidated group or related to certain tax elections made by Delphi). In
addition, we and GM have agreed to cooperate in any tax audits, litigation or
appeals that involve, directly or indirectly, periods prior to the time that we
cease to be a member of the General Motors consolidated group. We and GM have
agreed to indemnify each other for tax liabilities resulting from the failure to
cooperate in such audits, litigation or appeals, and for any tax liability
resulting from the failure to maintain adequate records. The second tax
allocation agreement also provides that with respect to our foreign taxes, we
may be required to indemnify General Motors in certain situations where we
receive a refund of foreign tax related to a tax period prior to tax
deconsolidation and GM's foreign tax credit is reduced as a result of the
refund. With
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a few exceptions, Delphi's subsidiaries outside the United States will generally
be responsible for foreign tax adjustments relating to Delphi's businesses for
all periods prior to the Contribution Date.
INTELLECTUAL PROPERTY
We have entered into agreements with GM to govern the division and transfer
of certain intellectual property. Pursuant to these agreements, General Motors
has assigned, or agreed to transfer, to us all patents, patent applications and
invention records that are primarily related to components produced or sold by
us and any other patents that are more valuable to us than to General Motors.
Accordingly, GM has transferred to us full or partial ownership of about 2,800
patents, 640 U.S. patent applications and 620 records of invention as well as
the corresponding foreign patent and patent applications. We have agreed with GM
to enter into royalty-free cross-licenses for certain intellectual property and
we believe that the aggregate values of the cross-licenses are about equal. We
have also agreed with GM that each of us can collect reasonable royalties or
damages under certain patents from the other's suppliers with whom the other
does not have or extend an existing supply commitment. Also, GM has transferred
to us ownership of about 1,170 trademark registrations and applications (about
70 of which are U.S. and the balance of which are foreign) as well as
unregistered trademarks. Certain other intellectual property agreements relating
to our business have been transferred to us, and with respect to intellectual
property agreements entered into for the benefit of both parties, GM will use
reasonable efforts to have us made party to such agreements.
We have entered into agreements with GM that place restrictions on the use
of certain technologies. For example: GM will have a right of first access and
limited exclusivity for certain of OnStar-related vehicle information management
technology; each party is restricted from disclosing certain powertrain, vehicle
control, collision avoidance and other software algorithms to third parties
without the consent of the other party; and General Motors will retain ownership
of certain fuel cell propulsion system and related technologies, although we
will have the right to supply a minimum of 25% of the volume of components for
GM's first two major vehicle programs to utilize the fuel cell technology,
provided we can meet certain conditions, including competitive benchmarks on
quality, service and price.
There are certain restrictions on our use of some of the trademarks that
have been assigned to us. In addition, certain trademarks and trade names have
been licensed, rather than transferred, to us, and there are restrictions on the
geographical territory, duration and/or scope of our use of such licensed
trademarks and trade names. Our Delco Electronics subsidiary has a perpetual,
worldwide, royalty-free license to use the trade name "Delco Electronics" and
the trademarks "DELCO" and "DELCO ELECTRONICS" in connection with several of our
business units, but we must wind down our use of that trade name and those
trademarks to include only automotive audio products by January 1, 2001. We have
a worldwide license to use the trademarks "AC," "DELCO" and "AC Delco," but we
must wind down all use of these marks, including such use by our dealers and
distributors by January 1, 2000. This license is royalty-free, except that under
certain circumstances relating to joint ventures and third-party relationships
that have been assigned to us, we may be required to pay GM a royalty.
REAL ESTATE AND ENVIRONMENTAL
We have entered into agreements with GM and executed certain instruments to
assign or sub-lease GM's real estate portfolio related to the Delphi Automotive
Systems Business, consisting of both owned and leased property, between our
companies as follows:
- With respect to the facilities that were owned by GM and used only in
connection with our business, such facilities have been transferred to
our company.
- With respect to facilities owned by GM and used by both GM and us, GM is
leasing to us the portion of such facilities which we use. Such leases
are generally for a term of 3 years and the rent thereunder approximates
prevailing market rates.
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- With respect to facilities that were leased by GM and used only in
connection with our business, GM has assigned such leases to us. Pursuant
to these assignments, we have assumed all of GM's obligations under each
assigned lease and agreed to indemnify GM against all obligations arising
under such leases after their assignment.
- With respect to facilities leased by GM and used by both GM and us, GM
has sub-leased to us the portion of such facilities which we use. Such
sub-leases are generally for the then remaining term of GM's lease for
such facilities, less one day, and the rent thereunder shall generally
equal the occupancy cost per square foot payable under GM's lease for
such facility.
- GM has also assigned to us its interest in the facilities held by joint
ventures in which GM was a party and which facilities we utilize or
operate.
Under the lease and sub-lease arrangements described above, the lessor will
retain responsibility for releases of hazardous materials at the facility before
the closing of the real estate transactions and for certain identified
environmental non-compliance matters relating to pre-closing operations. The
lessee will be responsible for releases of hazardous materials at the facility
after the closing and for all other environmental non-compliance matters during
the lease term.
With respect to the facilities transferred to us, we have assumed all
operating costs thereof and applicable financial and environmental reserves with
respect thereto. With respect to facilities that are not transferred to us,
including all facilities closed or sold prior to January 1, 1999, General Motors
has retained all operating costs thereof and applicable financial and
environmental reserves with respect thereto, whether or not such facilities were
previously used by Delphi.
Pursuant to the separation arrangements between our company and GM, GM will
be responsible for environmental liabilities at the GM facilities that are not
transferred to us, included all facilities closed or sold prior to January 1,
1999, except that we will be responsible for any environmental liabilities at
such facilities that we cause after January 1, 1999. We will be responsible for
environmental liabilities at the facilities that are transferred to us, except
that GM will be responsible for any environmental liabilities at such facilities
that GM causes after January 1, 1999.
In addition, with respect to liability for offsite waste disposal, GM will
retain responsibility for sites where GM's liability is known or alleged prior
to January 1, 1999, except that we will be responsible for any wastes Delphi
contributes to these sites after January 1, 1999. We will not, however, be
responsible for any contributions to these sites from the facilities transferred
to us that occurred prior to January 1, 1999. At other waste disposal sites,
GM's and Delphi's respective liability will be allocated based on each party's
respective contribution of wastes to such sites. In particular, GM's liability
will be based on contributions from the facilities it retains and any other
facility owned or operated by GM, except the facilities transferred to us.
Delphi's liability will be based on contributions from the facilities
transferred to us and any other facility owned or operated by Delphi.
TOOLING, CONTAINERS AND DUNNAGE
We have entered into agreements with GM to allocate the ownership of
tooling, containers and dunnage. GM and Delphi will each own the tooling that
was reflected on their respective balance sheets as of January 1, 1999. The term
"tooling" refers to all tools, jigs, dies, gauges, fixtures, molds, patterns and
similar items necessary for the production of automotive parts. We will not use
tooling to produce products for other customers if such tooling is used to
produce products for GM; provided, however, that we will be allowed to continue
the use of such tooling to the extent necessary to satisfy existing contracts
(and extensions of such contracts) where we have previously used such tooling to
produce products for other customers. For more information, see "--Supply
Agreement--Use of GM's Tooling."
Containers and dunnage used for the transportation of our products from our
facilities to GM facilities or other Tier 1 suppliers to GM will be owned by
General Motors. The term "dunnage" refers to the materials,
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such as padding, wrappings and other loose materials, used to protect automotive
parts during shipment. We will own containers and dunnage used for the
transportation of our products within our facilities. Finally, we will own
containers and dunnage used for the transportation of products between us and
our suppliers.
WARRANTY MATTERS
Our warranty responsibility for products supplied to General Motors under
existing contractual arrangements will be governed by the terms and conditions
of those contracts. Generally, those terms and conditions provide that Delphi
expressly warrants to GM that all goods and services covered by the contract
will conform to the specifications, drawings, samples or descriptions furnished
to or by General Motors, and will be merchantable, of good material and
workmanship and free from defect. In addition, Delphi acknowledges that it knows
of GM's intended use for the products and expressly warrants that the products
have been selected, designed, manufactured or assembled based on GM's stated use
and will be fit and sufficient for the purposes intended by General Motors.
We have agreed with GM pursuant to the Supply Agreement to work together in
good faith to reduce warranty costs, including through participation in GM
warranty programs. In addition, the Supply Agreement provides that our warranty
responsibility for products supplied under new contracts will be governed by the
terms and conditions negotiated between the parties in those contracts.
INTERIM SERVICES
The Ancillary Agreements provide that General Motors will furnish us with a
number of interim services, which services will generally be provided to us at
cost. In addition to any services discussed above, such services include, among
others:
- certain treasury, accounting which includes accounts payable and
receivable, tax, travel, customs and payroll services;
- certain information systems services, including financial, engineering,
environmental, human resources, manufacturing, communications, legal,
logistics, purchasing and warranty and service systems;
- a variety of employee-related administrative support services, including
human resource planning and employee placement and medical services;
- certain legal services;
- certain audit services; and
- managed access to proving grounds, test facilities, research and
development and engineering centers and the services provided at such
sites by General Motors personnel.
These agreements were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of our separation from
GM. The prices charged to us under these agreements may be higher or lower than
the prices that may be charged by unaffiliated third parties for similar
services and the services provided may not be the same, in scope and level, as
before our separation from GM.
INTERNATIONAL AGREEMENTS
We have entered into a series of agreements with GM similar to those
discussed above with respect to those Delphi Assets located outside the United
States. In most countries, GM's vehicle and component businesses are operated by
separate legal entities. In such countries, the entities that operate the
components business will be transferred to Delphi. Where certain facilities or
functions are shared by such separate legal entities, the shared functions or
facilities will generally be separated in accordance with the principles set
forth in the corresponding Ancillary Agreement in the United States. In those
countries in which the vehicle and
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components businesses are owned by one legal entity, new entities have been or
will be formed in order to separate the Delphi business from the GM business.
Agreements have been or will be entered into in each of the countries where
operations are to be transferred to Delphi. Although the agreements for most
countries have or will have different terms than the Ancillary Agreements in the
United States, in general they are or will be similar in scope to the Ancillary
Agreements.
Certain international assets relating primarily to our business may still
be held by General Motors or its affiliates following the Offering pending
receipt of consents or approvals or satisfaction of other applicable
requirements necessary for the transfer of such assets to Delphi. These assets
and operations are not, in the aggregate, material to our company. For example,
certain assets and operations located in Brazil, Germany and Canada are subject
to such restrictions. However, the information included in this prospectus
regarding our company and our facilities and operations, including the
information set forth in the "Business of Delphi" section and our consolidated
financial statements presented elsewhere in this prospectus, assumes and gives
effect to the completion of these transactions.
PRINCIPAL STOCKHOLDER
Prior to the Offering, all of the outstanding shares of our common stock
will be owned by General Motors. After the Offering, GM will own about 82.3% (or
about 80.2% if the U.S. underwriters exercise their over-allotment option in
full) of our outstanding common stock. Except for General Motors, we are not
aware of any person or group that will beneficially own more than 5% of the
outstanding shares of our common stock following the Offering.
DESCRIPTION OF CAPITAL STOCK
Under Delphi's Restated Certificate of Incorporation, the authorized
capital stock of Delphi is 2,000,000,000 shares, of which 1,350,000,000 shares
are common stock, par value $0.01 per share, and 650,000,000 shares are
preferred stock, par value $0.10 per share. Immediately following the Offering,
565,000,000 shares of common stock, or 580,000,000 shares if the U.S.
underwriters exercise their over-allotment option in full, will be outstanding.
The following descriptions are summaries of the material terms of our
Restated Certificate of Incorporation and Bylaws. Reference is made to the more
detailed provisions of, and such descriptions are qualified in their entirety by
reference to, the Restated Certificate of Incorporation and Bylaws of Delphi,
copies of which are filed with the SEC as exhibits to the registration statement
of which this prospectus is a part, and applicable law.
COMMON STOCK
Holders of common stock will be entitled to one vote per share with respect
to each matter presented to our stockholders on which the holders of common
stock are entitled to vote. Except as may be provided in connection with any
preferred stock in a certificate of designation filed pursuant to the Delaware
General Corporation Law ("DGCL"), or as may otherwise be required by law or the
Restated Certificate of Incorporation, the common stock will be the only capital
stock of Delphi entitled to vote in the election of directors and on all other
matters presented to the stockholders of Delphi; provided that holders of common
stock, as such, will not be entitled to vote on any matter that solely relates
to the terms of any outstanding series of preferred stock or the number of
shares of such series and does not affect the number of authorized shares of
preferred stock or the powers, privileges and rights pertaining to the common
stock. The common stock will not have cumulative voting rights.
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Subject to the prior rights of holders of preferred stock, if any, holders
of common stock are entitled to receive such dividends as may be lawfully
declared from time to time by the Board of Directors of Delphi. Upon any
liquidation, dissolution or winding up of Delphi, whether voluntary or
involuntary, holders of common stock will be entitled to receive such assets as
are available for distribution to stockholders after there shall have been paid
or set apart for payment the full amounts necessary to satisfy any preferential
or participating rights to which the holders of each outstanding series of
preferred stock are entitled by the express terms of such series.
The outstanding shares of our common stock are, and the shares of common
stock being offered hereby will be, upon payment therefor, validly issued, fully
paid and nonassessable. The common stock sold in the Offering will not have any
preemptive, subscription or conversion rights. Additional shares of authorized
common stock may be issued, as determined by the Delphi Board from time to time,
without stockholder approval, except as may be required by applicable stock
exchange requirements.
Application has been made to list the common stock on the NYSE under the
symbol "DPH."
PREFERRED STOCK
Our Board is empowered, without approval of the stockholders, to cause
shares of preferred stock to be issued from time to time in one or more series,
with the numbers of shares of each series and the designation, powers,
privileges, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof as fixed by our Board.
Among the specific matters that may be determined by the Board are:
- the designation of each series;
- the number of shares of each series;
- the rate of dividends, if any;
- whether dividends, if any, shall be cumulative or non-cumulative;
- the terms of redemption, if any;
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of Delphi;
- rights and terms of conversion or exchange, if any;
- restrictions on the issuance of shares of the same series or any other
series, if any; and
- voting rights, if any.
The Series A Preferred Stock described under "Rights Plan" below is a series of
preferred stock that has been authorized by our Board.
Although no shares of preferred stock are currently outstanding and Delphi
has no current plans to issue preferred stock, the issuance of shares of
preferred stock, or the issuance of rights to purchase such shares, could be
used to discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by the issuance of a series of preferred stock
containing class voting rights that would enable the holder or holders of such
series to block any such transaction. Alternatively, a business combination
could be facilitated by the issuance of a series of preferred stock having
sufficient voting rights to provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power and other rights of the
holders of the common stock. Although Delphi's Board is required to make any
determination to issue any such stock based on its judgment as to the best
interests of the stockholders of Delphi, it could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of the stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over prevailing market
prices of
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such stock. Delphi's Board does not at present intend to seek stockholder
approval prior to any issuance of currently authorized stock, unless otherwise
required by law or applicable stock exchange requirements.
LIMITATION ON LIABILITY OF DIRECTORS
Delphi's Restated Certificate of Incorporation provides, as authorized by
Section 102(b)(7) of the DGCL, that a director of Delphi will not be personally
liable to Delphi or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability imposed by law (as in effect
from time to time):
- for any breach of the director's duty of loyalty to Delphi or its
stockholders;
- for any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or
- for any transaction from which the director derived an improper personal
benefit.
The inclusion of this provision in the Restated Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
Delphi and its stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Delphi is a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time such stockholder became an interested
stockholder unless, as described below, certain conditions are satisfied. Thus,
it may make acquisition of control of our company more difficult. See "--Certain
Limitations on Changes of Control on Our Company" below. The prohibitions in
Section 203 of the DGCL do not apply if:
- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder.
Under Section 203 of the DGCL, a "business combination" includes:
- any merger or consolidation of the corporation with the interested
stockholder;
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of such corporation, to or with the interested stockholder
of assets of the corporation having an aggregate market value equal to
10% or more of either the aggregate market value of all the assets of the
corporation or the aggregate market value of all the outstanding stock of
the corporation;
- certain transactions resulting in the issuance or transfer by the
corporation of stock of the corporation to the interested stockholder;
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- certain transactions involving the corporation which have the effect of
increasing the proportionate share of the stock of any class or series of
the corporation which is owned by the interested stockholder; or
- certain transactions in which the interested stockholder receives
financial benefits provided by the corporation.
Under Section 203 of the DGCL, an "interested stockholder" generally is
- any person that owns 15% or more of the outstanding voting stock of the
corporation;
- any person that is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period prior to the date on
which it is sought to be determined whether such person is an interested
stockholder; and
- the affiliates or associates of any such person.
Because General Motors owned more than 15% of our voting stock before we
became a public company in the Offering, Section 203 of the DGCL by its terms is
currently not applicable to business combinations with GM even though GM owns
15% or more of our outstanding stock. If any other person acquires 15% or more
of our outstanding stock, such person will be subject to the provisions of
Section 203 of the DGCL.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Our Bylaws contain provisions requiring that advance notice be delivered to
Delphi of any business to be brought by a stockholder before an annual or
special meeting of stockholders and providing for certain procedures to be
followed by stockholders in nominating persons for election to the Delphi Board.
Generally, such advance notice provisions require that the stockholder must give
written notice to the Secretary of Delphi, (a) in the case of an annual meeting,
not less than 90 days nor more than 120 days before the first anniversary of the
preceding year's annual meeting of stockholders and, (b) in the case of a
special meeting, not less than 90 days (or, if later, 10 days after the first
public announcement of the date of the special meeting) nor more than 120 days
prior to the scheduled date of such special meeting. For our first annual
meeting, which will be held in 2000, notice must be given no earlier than
November 2, 1999 and no later than December 2, 1999 . In each case, the notice
must set forth specific information regarding such stockholder and each director
nominee or other business proposed by the stockholder, as applicable, as
provided in the Bylaws. Notwithstanding the foregoing, any common stockholder
(including General Motors) who together with its affiliates owns common stock
entitled to exercise a majority of the voting power in an election of directors
may nominate one or more individuals for election as directors by giving notice
to Delphi not later than five days before the scheduled date for the election of
directors. Generally, only such business may be conducted at a special meeting
of stockholders as is set forth in the notice for such meeting.
Our Bylaws provide, in accordance with our Restated Certificate of
Incorporation, that except as may be provided in connection with the issuance of
any series of preferred stock, the number of directors shall be fixed from time
to time exclusively pursuant to a resolution adopted by a majority of the Whole
Board (as such term is defined in our Restated Certificate of Incorporation),
but shall not be less than three, provided that before the Trigger Date (as
defined below) such resolution shall be adopted by 80% of the Whole Board.
Delphi's Restated Certificate of Incorporation provides for a classified Board
of Directors, consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual stockholders'
meeting for election of directors following the most recent election of such
class, except that the initial terms of the three classes expire in 2000, 2001
and 2002, respectively. See "Management--Directors, Executive Officers and Key
Employees of Delphi."
Subject to the rights of the holders of any series of preferred stock to
elect and remove additional directors under specified circumstances, on or after
the time when General Motors and its affiliates own less than a majority of
Delphi's then outstanding common stock (the "Trigger Date"), a director of
Delphi may be
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removed only for cause by affirmative vote of the holders of at least a majority
of the voting power of all outstanding shares of Delphi generally entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class, and vacancies on our Board may only be filled by the affirmative
vote of a majority of the remaining directors. Prior to the Trigger Date,
subject to the rights of holders of any series of preferred stock, a director of
Delphi may be removed, with or without cause, by the affirmative vote of the
holders of at least a majority of the voting power of all Voting Stock then
outstanding, voting together as a single class, and vacancies on our Board may
be filled only by the affirmative vote of at least 80% of the remaining
directors then in office. Also, prior to the Trigger Date, the affirmative vote
of 80% of the Whole Board is required to establish committees of the Board and
to fill committee memberships.
Our Bylaws provide that our Board may establish policies with respect to
the categories of matters which require prior approval of our Board or a
committee thereof and that any such policy may provide that particular matters
require approval of up to 80% of the Whole Board. Prior to the Trigger Date, the
affirmative vote of 80% of the Whole Board is required to rescind or amend any
such policy. Pursuant to this provision of our Bylaws and policies adopted by
our Board thereunder, the approval of 80% of the Whole Board is presently
required, until the Trigger Date, for:
- significant corporate transactions, including acquisitions, divestitures,
mergers, equity injections, capital expenditures, restructurings and
reorganizations
- significant financing transactions, including borrowings, guarantees and
other financial support arrangements
- all issuances, redemptions and reclassifications of Delphi securities and
any other change in the rights of holders of Delphi securities
- declarations of dividends
- settlements of significant patent and litigation matters
- approval of all budgets and business plans
Based on the expected composition of our Board following the Offering, an
affirmative vote of 80% of the Whole Board would require the affirmative vote of
at least one of our directors who is also a director and/or officer of GM.
Our Restated Certificate of Incorporation provides that, after the Trigger
Date, stockholders may not act by written consent in lieu of a meeting. After
the Trigger Date, special meetings of the stockholders may be called only by a
majority of the Whole Board, but may not be called by stockholders. Before the
Trigger Date, Delphi's Secretary is required to call a special meeting of the
stockholders at the request of GM or its affiliates and stockholder action may
be taken by written consent in lieu of a meeting.
Our Restated Certificate of Incorporation also contains a "fair price"
provision that applies to certain business combination transactions involving
any person or group that is or has announced or publicly disclosed a plan or
intention to become the beneficial owner of at least 10% of our outstanding
Voting Stock (other than General Motors until immediately following the date on
which General Motors shall cease to be a beneficial
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owner of 10% of the outstanding Voting Stock) (an "Interested Stockholder"). The
"fair price" provision requires that, except as described below, the affirmative
vote of the holders of at least 66 2/3% of the Voting Stock not beneficially
owned by the Interested Stockholder is required to approve a business
combination transaction with Delphi and its subsidiaries involving or proposed
by an Interested Stockholder (or its affiliates and associates), or to approve
any agreement or other arrangement providing for any such business combination
transaction. For such purpose, "business combination" includes:
- any merger or consolidation;
- any (a) sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets of Delphi or any of its subsidiaries to or for the
benefit of, (b) purchase by Delphi or any of its subsidiaries from, (c)
issuance of securities by Delphi or any of its subsidiaries to, (d)
investment, loan, advance, guarantee, participation or other extension of
credit by Delphi or any of its subsidiaries to, from, in or with or (e)
establishment of a partnership, joint venture or other joint enterprise
with or for the benefit of the Interested Stockholder having an aggregate
fair market value of $25 million or more;
- the adoption of any plan or proposal for the liquidation or dissolution
of Delphi; and
- certain reclassifications of securities or recapitalizations of Delphi.
This voting requirement will not apply to:
- any transaction involving the payment of consideration to holders of
Delphi's outstanding capital stock in which the following "fair price"
conditions, among others, are met: the consideration to be received by
the holders of each class of capital stock of Delphi is (a) at least
equal to the greater of (x) the highest per share price paid for shares
of such class by the Interested Stockholder in the two years prior to the
proposed business combination or in the transaction in which it became an
Interested Stockholder, whichever is higher or (y) the fair market value
of the shares of such class on the date of the announcement of the
proposed business combination or the date on which it became an
Interested Stockholder and (b) the same form and amount as that paid by
the Interested Stockholder in connection with its acquisition of such
class of capital stock; or
- any transaction approved by a majority of Delphi's Continuing Directors
(as such term is defined in Delphi's Restated Certificate of
Incorporation).
This provision could have the effect of delaying or preventing a change in
control of Delphi in a transaction or series of transactions that did not
satisfy the "fair price" criteria.
The provisions of our Restated Certificate of Incorporation relating to our
Board, the limitation of actions by stockholders taken by written consent, the
calling of special stockholder meetings and other stockholder actions and
proposals may be amended only by the affirmative vote of the holders of at least
80% of the Voting Stock. The "fair price" provisions of our Restated Certificate
of Incorporation may be amended by the affirmative vote of the holders of at
least 66 2/3% of the Voting Stock, excluding the Interested Stockholder, unless
such amendment is unanimously recommended by Delphi's Board of Directors, a
majority of whom are Continuing Directors.
In general, our Bylaws may be altered or repealed and new Bylaws adopted by
the holders of a majority of the Voting Stock or by a majority of the Whole
Board. However, certain provisions, including those relating to the limitation
of actions by stockholders taken by written consent, the calling of special
stockholder meetings, other stockholder actions and proposals and certain
matters related to our Board, may be amended only by the affirmative vote of
holders of at least 80% of the Voting Stock. In addition, until the Trigger
Date, the affirmative vote of 80% of the Whole Board is required to alter or
repeal the Bylaws or adopt any new Bylaw.
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CERTAIN LIMITATIONS ON CHANGES OF CONTROL ON OUR COMPANY
The foregoing provisions of Delphi's Restated Certificate of Incorporation
and Bylaws, together with the stockholder rights plan described below and the
provisions of Section 203 of the DGCL, could have the following effects, among
others:
- delaying, deferring or preventing a change in control;
- delaying, deferring or preventing the removal of existing management;
- deterring potential acquirors from making an offer to Delphi's
stockholders; and
- limiting any opportunity of Delphi's stockholders to realize premiums
over prevailing market prices of Delphi's common stock in connection with
offers by potential acquirors.
This could be the case notwithstanding that a majority of Delphi's stockholders
might benefit from such a change in control or offer.
CERTAIN TRANSACTIONS AND CORPORATE OPPORTUNITIES
Our Restated Certificate of Incorporation sets forth certain provisions
which regulate and define the conduct of certain business and affairs of Delphi,
from the time of the completion of the Offering until the time General Motors
ceases to be a significant stockholder of Delphi. These provisions serve to
determine and delineate the respective rights and duties of Delphi, GM
(including its Affiliated Companies, as defined in Delphi's Restated Certificate
of Incorporation) and of certain directors and/or officers of Delphi, in
anticipation that:
- directors, officers and/or employees of GM may serve as directors of
Delphi;
- GM engages in and is expected to continue to engage in lines of business
that are the same, similar or related to, overlap or compete with the
lines of business of Delphi; and
- Delphi and GM will engage in material business transactions, including,
without limitation, pursuant to the Supply Agreement.
Delphi may, from time to time, enter into and perform agreements with
General Motors to engage in any transaction, and to agree to compete or not to
compete with each other, including to allocate, or to cause their respective
directors, officers and employees to allocate, corporate opportunities between
themselves. The Restated Certificate of Incorporation provides that no such
agreement, or the performance thereof, shall be considered contrary to any
fiduciary duty of GM, as the controlling stockholder of Delphi, or of any such
director, officer and/or employee, if:
(1) such agreement was entered into before Delphi ceased to be a wholly
owned subsidiary of General Motors and is continued in effect after
such time; or
(2) such agreement or transaction was approved, after being made aware of
the material facts of the relationship between Delphi and GM and the
material terms and facts of the agreement or transaction, by:
(a) Delphi's Board, by affirmative vote of a majority of directors who
are not Interested Persons (as defined in Delphi's Restated
Certificate of Incorporation),
(b) by a committee of Delphi's Board consisting of members who are not
Interested Persons, by affirmative vote of a majority of such
members, or
(c) by one or more officers or employees of Delphi who is not an
Interested Person and who was authorized by Delphi's Board or
committee thereof as specified in (a) and (b) above or, in the
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case of an employee, to whom such authority has been delegated by an
officer to whom the authority to approve such action has been so
delegated; or
(3) such agreement or transaction was fair to Delphi as of the time it was
entered into by Delphi; or
(4) such agreement or transaction was approved by affirmative vote of a
majority of the shares of capital stock entitled to vote thereon and
who do vote thereon, excluding GM and any Interested Person in respect
of such agreement or transaction.
The provisions of our Restated Certificate of Incorporation with regard to
such transactions and/or corporate opportunities shall terminate at such time as
when GM (together with its affiliates) shall cease to be the owner of Voting
Stock representing 25% or more of the votes entitled to be cast by the holders
of all the then outstanding Voting Stock; provided, however, that such
termination shall not terminate the effect of such provisions with respect to
(1) any agreement between Delphi and GM that was entered into before such time
or any transaction entered into in the performance of such agreement, whether
entered into before or after such time, or (2) any transaction entered into
between Delphi and GM or the allocation of any opportunity between them before
such time. These provisions do not alter the fiduciary duty of loyalty of our
directors under applicable Delaware law. Subject to applicable Delaware law, by
becoming a stockholder in our company, you will be deemed to have notice of and
have consented to these provisions of our Restated Certificate of Incorporation.
These provisions may be amended only with the affirmative vote of the holders of
at least 80% of the voting power of all shares of Voting Stock then outstanding,
voting together as a single class.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A. will serve as the Transfer Agent and Registrar for our
common stock. Shares of the common stock will be issued under the direct
registration system pursuant to which the interests of holders of our common
stock are registered with the transfer agent and registrar. Stock certificates
will not be delivered to a stockholder unless a stockholder requests such
delivery in lieu of registration. Holders of the common stock will receive
account statements.
RIGHTS PLAN
Delphi's Board has adopted a Stockholder Rights Plan (the "Rights Plan") to
be effective upon the consummation of the Offering. Pursuant to the Rights Plan,
one Right (a "Right") will be issued and attached to each outstanding share of
common stock. Each Right will entitle the holder, in circumstances as described
below, to purchase from Delphi a unit consisting of one one-hundredth of a share
of Series A Junior Preferred Stock, par value $0.10 per share (the "Series A
Preferred Stock"), at an exercise price of $65 per Right, subject to adjustment
in certain events (the "Exercise Price"). The following description of the
Rights is a summary and is qualified in its entirety by reference to the Rights
Plan, a copy of which has been filed with the SEC as an exhibit to the
registration statement of which this prospectus is a part.
Initially, the Rights will be attached to all certificates representing
outstanding shares of common stock and will be transferred with and only with
such certificates. The Rights will become exercisable and separately
certificated only upon the "Distribution Date," which will occur upon the
earlier of:
- ten days following a public announcement that a person or group (an
"Acquiring Person") other than certain exempt persons has acquired or
obtained the right to acquire beneficial ownership of 15% or more of the
outstanding shares of common stock and any other shares of capital stock
entitled to vote generally in the election of directors or together with
the common stock in respect of mergers and similar transactions ("Rights
Plan Voting Stock") then outstanding (the date of the announcement being
the "Stock Acquisition Date"), or
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- ten business days (or later if determined by the Delphi Board prior to
any person becoming an Acquiring Person) following the commencement or
announcement of an intention to commence a tender offer or exchange offer
that would result in a person or group becoming an Acquiring Person.
As soon as practicable after the Distribution Date, certificates will be
mailed to holders of record of common stock as of the close of business on the
Distribution Date. From and after the Distribution Date, the separate
certificates alone will represent the Rights. Prior to the Distribution Date,
all shares of common stock issued will be issued with Rights. After the
Distribution Date, shares of common stock issued pursuant to (1) the exercise of
stock options, (2) employee plans or arrangements, (3) upon exercise, conversion
or exchange of certain securities, or (4) a contractual obligation of Delphi, in
each case existing prior to the Distribution Date, may be issued with Rights.
Except as otherwise determined by Delphi's Board, no other shares of common
stock issued after the Distribution Date will be issued with Rights.
The Rights will expire at the close of business on the tenth anniversary of
the date of the initial issuance of the Rights (the "Final Expiration Date"),
unless earlier redeemed or exchanged by Delphi as described below.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to any action or transaction approved by Delphi's Board before
the person becomes an Acquiring Person) (a "Permitted Offer"), each holder of a
Right other than any Acquiring Person and certain related parties (whose Rights
will automatically become null and void) will thereafter have the right to
receive, upon exercise of such Right, a number of shares of Series A Preferred
Stock (or, in certain circumstances, cash, property or other securities of
Delphi) having a "fair market value" (as defined in the Rights Plan) equal to
two times the Exercise Price of the Right.
In the event (a "Flip-Over Event") that, at any time on or after a person
becomes an Acquiring Person, Delphi effects a merger or other business
combination in which it is not the surviving entity, or any shares of its common
stock are changed into or exchanged for other securities, or 50% or more of its
assets or earning power is sold or transferred, then each holder of a Right
(except Rights owned by any Acquiring Person or certain related parties, which
will have become void as set forth above) shall thereafter have the right to
receive, upon exercise, a number of shares of common stock of the acquiring
company having a fair market value equal to two times the Exercise Price of the
Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
The Exercise Price payable, and the number of units of Series A Preferred
Stock, shares of common stock or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution in the event of a stock dividend or distribution on the common stock, a
grant or distribution to holders of the common stock of certain subscription
rights, warrants, evidence of indebtedness, cash or other assets, or other
similar events.
No fractional units will be issued; in lieu thereof, an adjustment in cash
will be made based on the market price of the common stock on the last trading
date prior to the date of exercise. Pursuant to the Rights Plan, Delphi reserves
the right to require prior to the occurrence of a Triggering Event that, upon
any exercise of Rights, a number of Rights be exercised so that only whole
shares of Series A Preferred Stock will be issued.
Delphi will also have the option, at any time after a person becomes an
Acquiring Person and before the person becomes the beneficial owner of 50% or
more or the shares of Rights Plan Voting Stock then outstanding, to exchange the
Rights (other than Rights owned by an Acquiring Person or certain related
parties, which will have become void), in whole or in part, at an exchange ratio
of one share of common stock (and/or other equity securities deemed to have the
same value as one share of common stock) per Right, subject to adjustment.
At any time prior to the close of business on the tenth day following the
Stock Acquisition Date, Delphi, by vote of a majority of our Board (determined
as if there were no vacancies), may redeem the Rights in whole, but not in part,
at a price of $0.01 per Right, payable, at the option of Delphi, in cash, shares
of
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common stock or such other consideration as our Board may determine. The
redemption of the Rights may be made effective at such time after the Board's
action to redeem the Rights, and on such basis and subject to such conditions,
as our Board may in its absolute discretion establish. The Rights will terminate
at the time so designated by our Board and thereafter the only right of the
holders of Rights will be to receive the redemption price.
For as long as the Rights are redeemable, Delphi may, except with respect
to the redemption price, amend the Rights Plan in any manner, including to
extend the time period in which the Rights may be redeemed. After the time the
Rights cease to be redeemable, Delphi may amend the Rights in any manner that
does not materially adversely affect the interests of holders of the Rights as
such. Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Delphi, including, without limitation, the right to
vote or to receive dividends.
The Certificate of Designations of the Series A Preferred Stock (the
"Certificate of Designations") provides that any shares of Series A Preferred
Stock that may be issued upon exercise of the Rights will be entitled to
receive, when, as and if declared, cash and non-cash dividends equal to 100
times the aggregate per share amount of all cash and non-cash dividends declared
or paid on the common stock (the "Dividend Multiple") and preferential quarterly
cash dividends.
Holders of Series A Preferred Stock will have 100 votes per share (the
"Vote Multiple") and, except as otherwise provided by the Certificate of
Designations, our Restated Certificate of Incorporation or applicable law, shall
vote together with holders of common stock as a single class. In the event that
the preferential quarterly cash dividends are in arrears for four or more
quarterly dividend payment periods, holders of Series A Preferred Stock will
have the right to elect two additional members to our Board, to serve until the
next annual meeting of our company or until such earlier time as all accrued and
unpaid preferential quarterly cash dividends are paid in full.
In the event of the liquidation, dissolution or winding up of our company,
the holders of any Series A Preferred Stock will be entitled to receive (after
provision for liabilities and any preferential amounts payable with respect to
any preferred stock ranking senior to the Series A Preferred Stock) liquidation
payments per share in an amount equal to the greater of (a) $650 plus an amount
equal to accrued and unpaid dividends and distributions thereon to the date of
payment and (b) 100 times the aggregate amount to be distributed per share to
holders of common stock (the "Liquidation Multiple").
The rights of the Series A Preferred Stock as to dividends, voting and
liquidation are protected by antidilution provisions.
In the event of a consolidation, merger or other transaction in which the
shares of common stock are exchanged, holders of shares of Series A Preferred
Stock will be entitled to receive the amount and type of consideration equal to
the per share amount received by the holders of the common stock, multiplied by
the highest of the Dividend Multiple, the Vote Multiple or the Liquidation
Multiple as in effect immediately prior to the event.
Except for the acquisition of shares of Series A Preferred Stock in any
other manner permitted by law, the Certificate of Designations or our Restated
Certificate of Incorporation, the shares of Series A Preferred Stock are not
redeemable at the option of Delphi or any holder thereof.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to any person or group that attempts to acquire Delphi
without the approval of the Delphi Board. As a result, the overall effect of the
Rights may be to render more difficult or discourage any attempt to acquire
Delphi, even if such acquisition may be in the interest of Delphi's
stockholders. Because Delphi's Board can redeem the Rights or approve a
Permitted Offer, the Rights will not interfere with a merger or other business
combination approved by the Board.
The Rights Plan excludes GM and its affiliates and associates from being
considered Acquiring Persons until GM first ceases to beneficially own 15% or
more of the Rights Plan Voting Stock of Delphi then outstanding.
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
The 100,000,000 shares of common stock sold in the Offering, or 115,000,000
shares if the U.S. underwriters exercise their over-allotment option in full,
will be freely tradable without restriction under the Securities Act, except for
any such shares which may be acquired by an "affiliate" of Delphi (an
"Affiliate") as that term is defined in Rule 144 promulgated under the
Securities Act, which shares will remain subject to the resale limitations of
Rule 144.
The shares of common stock that will continue to be held by General Motors
after the Offering constitute "restricted securities" within the meaning of Rule
144, and will be eligible for sale by General Motors in the open market after
the Offering, subject to certain contractual lockup provisions and the
applicable requirements of Rule 144, both of which are described below. Delphi
has granted certain registration rights to GM. See "--Registration Rights of
General Motors."
Generally, Rule 144 provides that a person who has beneficially owned
"restricted" shares for at least one year will be entitled to sell on the open
market in brokers' transactions within any three month period a number of shares
that does not exceed the greater of (1) 1% of the then outstanding shares of
common stock and (2) the average weekly trading volume in the common stock on
the open market during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain post-sale notice requirements and the
availability of current public information about Delphi.
In the event that any person other than General Motors who is deemed to be
an Affiliate purchases shares of common stock pursuant to the Offering or
acquires shares of common stock pursuant to an employee benefit plan of Delphi,
the shares held by such person are required under Rule 144 to be sold in
brokers' transactions, subject to the volume limitations described above. Shares
properly sold in reliance upon Rule 144 to persons who are not Affiliates are
thereafter freely tradable without restriction.
Sales of substantial amounts of the common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. GM has announced that it currently plans to complete its
divestiture of Delphi by distributing all of the shares of Delphi common stock
which it owns to the holders of GM's $1 2/3 common stock. See "Delphi and Its
Separation from General Motors--Separation from General Motors--GM's Plan to
Divest Delphi" and "Risk Factors--Risk Factors Relating to Separating Our
Company from General Motors--Our Business May Be Adversely Affected if the
Distribution Is Not Completed." Any shares distributed by GM will be eligible
for immediate resale in the public market without restrictions by persons other
than Affiliates of Delphi. Affiliates of Delphi would be subject to the
restrictions of Rule 144 described above other than the one-year holding period
requirement.
Each of the company and certain directors and executive officers of the
company and General Motors has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus, sell or
otherwise dispose of any shares of common stock, subject to certain exceptions.
The Distribution is specifically exempted from this agreement. See
"Underwriters."
An aggregate of 111,000,000 shares of common stock are reserved for
issuance under the Stock Incentive Plan and the Classified Plan. The company
intends to file registration statements on Form S-8 covering the issuance of
shares of common stock pursuant to the Stock Incentive Plan and the Classified
Plan. Accordingly, the shares issued pursuant to the Stock Incentive Plan and
the Classified Plan will be freely tradable, subject to the restrictions on
resale by affiliates under Rule 144.
REGISTRATION RIGHTS OF GENERAL MOTORS
Pursuant to the Registration Rights Agreement we will enter into with
General Motors, at any time after GM informs us that it no longer intends to
complete the Distribution or that the Distribution was completed
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without GM divesting itself of 100% of our common stock that it held, GM may
require us to register under the Securities Act all or any portion of our common
stock that it holds. Any of GM's shares of our common stock registered pursuant
to the Registration Rights Agreement would be eligible for immediate resale in
the public market without restrictions by persons other than Affiliates of
Delphi. For more information regarding the Registration Rights Agreement, see
"Arrangements Between Delphi and General Motors--Registration Rights Agreement."
Any sales of substantial amounts of our common stock in the public market,
or the perception that such sales might occur (whether as a result of the
Distribution, GM's registration rights or otherwise), could have a material
adverse effect on the market price of our common stock. See "Risk Factors--Risk
Factors Relating to Securities Markets--Substantial Sales of Our Common Stock
Could Adversely Affect the Market Price."
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of common stock by
a Non-U.S. Holder. For this purpose, the term "Non-U.S. Holder" is defined as
any person or entity that is, for U.S. federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a foreign
estate or trust. This discussion is based on currently existing provisions of
the Code, existing, temporary and proposed Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as in
effect or proposed on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations. This discussion
is limited to Non-U.S. Holders who hold shares of common stock as capital assets
within the meaning of Section 1221 of the Code. Moreover, this discussion is for
general information only and does not address all of the tax consequences that
may be relevant to particular Non-U.S. Holders in light of their personal
circumstances, nor does it discuss certain tax provisions which may apply to
individuals who relinquish their U.S. citizenship or residence.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present in
the United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal income tax as if they were U.S. citizens.
On January 13, 1999, General Motors received a private letter ruling from
the IRS to the effect that the Distribution would be tax-free to GM and its
stockholders for U.S. federal income tax purposes. This ruling does not address
the tax consequences of the purchase, ownership and disposition of Delphi common
stock.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES
THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, MUNICIPALITY OR OTHER TAXING
JURISDICTION.
DIVIDENDS
In the event that dividends are paid on shares of common stock, dividends
paid to a Non-U.S. Holder of common stock will be subject to withholding of U.S.
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. To claim the benefit of a lower rate under an
income tax treaty, a Non-U.S. Holder of common stock must properly file with the
payor an IRS Form 1001 (or successor form) claiming an exemption from or
reduction in withholding under such tax treaty.
Any dividends paid on shares of common stock to a Non-U.S. Holder will not
be subject to withholding tax, but instead are subject to U.S. federal income
tax on a net basis at applicable graduated individual or corporate rates if:
- dividends are effectively connected with the conduct of a trade or
business by the Non-U.S. Holder within the United States and, where a tax
treaty applies, will be attributable to a United States permanent
establishment of the Non-U.S. Holder and
- an IRS Form 4224 (or successor form) is filed with the payer.
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<PAGE> 148
Any such effectively connected dividends received by a foreign corporation may,
under certain circumstances, be subject to an additional "branch profits tax" at
a rate of 30% or such lower rate as may be specified by an applicable income tax
treaty.
Dividends paid prior to January 1, 2000 to an address outside the United
States are presumed to be paid to a resident of such country (unless the payer
has knowledge to the contrary) for purposes of the withholding discussed above
and for purposes of determining the applicability of a tax treaty rate. However,
recently finalized Treasury Regulations pertaining to U.S. federal withholding
tax (the "Final Withholding Tax Regulations") provide that a Non-U.S. Holder
must comply with certification procedures (or, in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures), directly or under certain circumstances
through an intermediary, to obtain the benefits of a reduced rate under an
income tax treaty with respect to dividends paid after December 31, 1999. In
addition, the Final Withholding Tax Regulations will require a Non-U.S. Holder
who provides an IRS Form 4224 or successor form, as discussed above, also to
provide its U.S. taxpayer identification number.
A Non-U.S. Holder of common stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of common stock
unless:
(1) the gain is effectively connected with a trade or business of the Non-
U.S. Holder in the United States and, where a tax treaty applies, is
attributable to a United States permanent establishment of the Non-U.S.
Holder;
(2) in the case of a Non-U.S. Holder who is an individual and holds the
common stock as a capital asset, such holder is present in United
States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions are met; or
(3) Delphi is or has been a "U.S. real property holding corporation" (a
"USRPHC") for U.S. federal income tax purposes, as discussed below.
An individual Non-U.S. Holder who falls under clause (1) above will, unless
an applicable treaty provides otherwise, be taxed on his or her net gain derived
from the sale under regular graduated United States federal income tax rates. An
individual Non-U.S. Holder who falls under clause (2) above will be subject to a
flat 30% tax on the gain derived from the sale, which may be offset by certain
United States capital losses.
A Non-U.S. Holder that is a foreign corporation falling under clause (1)
above will be taxed on its gain under regular graduated U.S. federal income tax
rates and may be subject to an additional branch profits tax equal to 30% of its
effectively connected earnings and profits within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable income tax treaty.
A corporation is a USRPHC if the fair market value of the U.S. real
property interests held by the corporation is 50% or more of the aggregate fair
market value of its U.S. and foreign real property interests and any other
assets used or held for use by the corporation in a trade or business. Based on
its current and anticipated assets, Delphi believes that it is not currently,
and is likely not to become, a USRPHC. However, since the determination of
USRPHC status is based upon the composition of the assets of Delphi from time to
time, and because there are uncertainties in the application of certain relevant
rules, there can be no assurance that Delphi will not become a USRPHC. If Delphi
were to become a USRPHC, then gain on the sale or other disposition of common
stock by a Non-U.S. Holder generally would be subject to U.S. federal income tax
unless both:
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<PAGE> 149
- the common stock was "regularly traded" on an established securities
market within the meaning of applicable Treasury regulations and
- the Non-U.S. Holder actually or constructively owned 5% or less of the
common stock during the shorter of the five-year period preceding such
disposition or the Non-U.S. Holder's holding period.
Non-U.S. Holders should consult their tax advisors concerning any U.S. tax
consequences that may arise if Delphi were to become a USRPHC.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be included in such holder's gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Delphi must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty or certain other
agreements.
Backup withholding is imposed at the rate of 31% on certain payments to
persons that fail to furnish certain identifying information to the payer.
Backup withholding generally will not apply to dividends paid prior to January
1, 2000 to a Non-U.S. Holder at an address outside the United States, unless the
payer has knowledge that the payee is a U.S. person. In the case of dividends
paid after December 31, 1999, the Final Withholding Tax Regulations provide that
a Non-U.S. Holder generally will be subject to withholding tax at a 31% rate
unless certain certification procedures (or, in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with, directly or under certain
circumstances through an intermediary. Backup withholding and information
reporting generally will also apply to dividends paid on common stock at
addresses inside the United States to Non-U.S. Holders that fail to provide
certain identifying information in the manner required. The Final Withholding
Tax Regulations provide certain presumptions under which a Non-U.S. Holder would
be subject to backup withholding and information reporting unless certification
from the holder of the Non-U.S. Holder's Non-U.S. status is provided.
Payment of the proceeds of a sale of common stock effected by or through a
U.S. office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
common stock by or through a foreign office of a broker. If, however, such
broker is, for U.S. federal income tax purposes, a U.S. person, a controlled
foreign corporation, or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States (or, in addition, for periods after December 31, 1999, a foreign
partnership that at any time during its tax year either (1) is engaged in the
conduct of a trade or business in the United States or (2) has as partners one
or more U.S. persons that, in the aggregate, hold more than 50% of the income or
capital interest in the partnership), such payments will be subject to
information reporting, but not backup withholding, unless (1) such broker has
documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against the Non-U.S. Holder's U.S. federal
income tax liability provided the required information is furnished in a timely
manner to the IRS.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Schroder & Co. Inc. are acting as
U.S. representatives, and the international underwriters named below for whom
Morgan Stanley & Co. International Limited, Goldman Sachs International, Merrill
Lynch International, Donaldson, Lufkin and Jenrette International and J. Henry
Schroder & Co. Limited are acting as international representatives, have
severally agreed to purchase, and Delphi has agreed to sell to them, severally,
the respective number of shares of common stock set forth opposite the names of
such underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. underwriters:
Morgan Stanley & Co. Incorporated.........................
Goldman, Sachs & Co.......................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated........
Donaldson, Lufkin & Jenrette Securities Corporation.......
Schroder & Co. Inc........................................
-----------
Subtotal............................................... 85,000,000
-----------
International underwriters:
Morgan Stanley & Co. International Limited................
Goldman Sachs International...............................
Merrill Lynch International...............................
Donaldson, Lufkin & Jenrette International................
J. Henry Schroder & Co. Limited...........................
-----------
Subtotal............................................... 15,000,000
-----------
Total................................................ 100,000,000
===========
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives," respectively. The
Underwriting Agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the shares of common stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby (other than those covered by the U.S.
underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions: (1)
it is not purchasing any shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (2) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
shares or distribute any prospectus relating to the shares outside the United
States or Canada or to anyone other than a United States or
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<PAGE> 151
Canadian person. Pursuant to the Agreement between U.S. and International
Underwriters, each international underwriter has represented and agreed that,
with certain exceptions: (1) it is not purchasing any shares for the account of
any United States or Canadian person and (2) it has not offered or sold, and
will not offer or sell, directly or indirectly, any shares or distribute any
prospectus relating to the shares in the United States or Canada or to any
United States or Canadian person. With respect to any underwriter that is a U.S.
underwriter and an international underwriter, the foregoing representations and
agreements (1) made by it in its capacity as a U.S. underwriter apply only to it
in its capacity as a U.S. underwriter and (2) made by it in its capacity as an
international underwriter apply only to it in its capacity as an international
underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian person. All
shares of common stock to be purchased by the underwriters under the
Underwriting Agreement are referred to herein as the "shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares as may be mutually agreed. The per share price of any
shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
international underwriter has represented and agreed that (1) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the shares to the international underwriters, will not offer or sell, any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (2) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom; and (3) it has only issued or passed on and will only issue
or pass on in the United Kingdom any document received by it in connection with
the offering of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document may
otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
international underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly,
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<PAGE> 152
in Japan or to or for the account of any resident thereof, any of the shares
acquired in connection with the distribution contemplated hereby, except for
offers or sales to Japanese international underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each international underwriter has further agreed to send to any
dealer who purchases from it any of the shares a notice stating in substance
that, by purchasing such shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except for
offers or sales to Japanese international underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law, and that such dealer will send to any other dealer to whom it
sells any of such shares a notice containing substantially the same statement as
is contained in this sentence.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other underwriters or to certain other dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives.
Delphi has granted to the U.S. underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
15,000,000 additional shares of common stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions. The
U.S. underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered hereby. To the extent such option is exercised, each U.S.
underwriter will become obligated, subject to certain conditions, to purchase
about the same percentage of such additional shares of common stock as the
number set forth next to such U.S. underwriter's name in the preceding table
bears to the total number of shares of common stock set forth next to the names
of all U.S. underwriters in the preceding table. If the U.S. underwriters'
option is exercised in full, the total price to the public for this Offering
would be $ , the total underwriters' discounts and commissions would be
$ and total proceeds to Delphi would be $ .
The underwriters have informed Delphi that each principal underwriter in
this Offering may, subject to the approval of Morgan Stanley & Co. Incorporated,
sell to discretionary accounts over which such principal underwriter exercises
discretionary authority. The underwriters have further informed Delphi that they
estimate that such sales will not exceed in the aggregate five percent of the
total number of shares of common stock offered by them.
Application has been made to list the common stock on the NYSE under the
symbol "DPH." The underwriters intend to sell shares of the common stock to a
minimum of 2,000 beneficial owners in lots of 100 or more so as to meet the
distribution requirements of such listing.
At the request of Delphi, the underwriters will reserve up to 5,000,000
shares of common stock to be issued by Delphi and offered hereby for sale, at
the initial public offering price, to directors, officers and employees of
Delphi generally in the United States. This directed share program will be
administered by Salomon Smith Barney Inc. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
individuals purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
Each of the company and certain directors and executive officers of the
company and General Motors has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
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<PAGE> 153
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters;
- the issuance by Delphi of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
- transactions by any person other than Delphi relating to shares of common
stock or other securities acquired in open market or other transactions
after the completion of the offering of the shares;
- the Distribution; or
- the conversion of GM Awards into replacement awards under Delphi's
incentive plans and other transactions under Delphi's incentive plans.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may agree to sell (or
allot) more shares than the 100,000,000 shares of common stock Delphi has agreed
to sell to them. This over-allotment would create a short position in the common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. The underwriters have
reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the Offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
From time to time, certain of the underwriters have provided, and may
continue to provide, investment banking services to each of Delphi and General
Motors.
General Motors has generally agreed to pay the costs and expenses relating
to the Offering. For more information, see "Arrangements Between Delphi and
General Motors--IPO and Distribution Agreement." The underwriters have agreed to
reimburse GM for certain of its expenses incurred in connection with the
Offering.
Delphi and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
among Delphi, General Motors and the U.S. representatives. Among the factors to
be considered in determining the initial public offering price will be the
future prospects of Delphi and its industry in general, sales, earnings and
certain other financial and operating information of
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<PAGE> 154
Delphi in recent periods, and the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the company. The estimated
initial public offering price range set forth on the cover page of this
prospectus is subject to change as a result of market conditions and other
factors.
LEGAL MATTERS
The validity of the common stock offered hereby and certain other legal
matters will be passed upon for us by Kirkland & Ellis. Certain legal matters
will be passed upon for the underwriters by Davis Polk & Wardwell.
EXPERTS
Our financial statements as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance on the
report of that firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to the company and its common stock,
reference is made to the registration statement and the exhibits and schedules
filed therewith. Statements contained in this prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance, if such contract or document is filed as an exhibit, reference is
made to the copy of such contract or other documents filed as an exhibit to the
registration statement, each statement being qualified in all respects by such
reference. A copy of the registration statement, including the exhibits and
schedules thereto, may be read and copied at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an Internet site at http://www.sec.gov, from
which interested persons can electronically access the registration statement,
including the exhibits and any schedules thereto.
As a result of the Offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to such requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
shareholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain an Internet
site at http://www.delphiauto.com. Our website and the information contained
therein or connected thereto shall not be deemed to be incorporated into this
prospectus or the registration statement of which it forms a part.
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<PAGE> 155
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1997 and
September 30, 1998 (Unaudited)........................ F-2
Consolidated Statements of Income (Unaudited) for the
nine months ended September 30, 1997 and 1998......... F-3
Consolidated Statements of Equity (Deficit) for the
year ended December 31, 1997 and the nine months ended
September 30, 1998 (Unaudited)........................ F-4
Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1997 and 1998..... F-5
Notes to Interim Consolidated Financial Statements
(Unaudited)........................................... F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report........................... F-11
Consolidated Balance Sheets at December 31, 1996 and
1997.................................................. F-12
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1997........... F-13
Consolidated Statements of Equity (Deficit) and
Comprehensive Income for each of the three years in
the period ended December 31, 1997.................... F-14
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997..... F-15
Notes to Consolidated Financial Statements............. F-16
</TABLE>
F-1
<PAGE> 156
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 989 $ 980
Other marketable securities............................... 11 20
------- -------
Total cash and marketable securities................. 1,000 1,000
Accounts receivable, net:
General Motors and affiliates.......................... 2,284 1,962
Other customers........................................ 982 1,288
Inventories, net (Note 3)................................. 1,868 1,807
Deferred income taxes..................................... 183 206
Prepaid expenses and other assets......................... 61 96
------- -------
Total current assets................................. 6,378 6,359
Property, net............................................... 4,600 4,878
Deferred income taxes....................................... 3,007 2,552
Other assets................................................ 1,041 1,141
------- -------
Total assets................................................ $15,026 $14,930
======= =======
LIABILITIES AND DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt....... $ 159 $ 206
Accounts payable:
General Motors and affiliates.......................... 86 91
Other suppliers........................................ 2,157 1,977
Accrued liabilities....................................... 1,664 1,557
------- -------
Total current liabilities............................ 4,066 3,831
Long-term debt, including intracompany note payable with
General Motors............................................ 3,341 3,294
Pension benefits............................................ 1,799 1,897
Postretirement benefits other than pensions................. 4,788 4,523
Other liabilities........................................... 1,445 1,424
------- -------
Total liabilities.................................... 15,439 14,969
------- -------
Commitments and contingencies (Note 7)
Deficit:
General Motors' net investment............................ (335) (2)
Accumulated translation adjustments....................... (78) (37)
------- -------
Total deficit........................................ (413) (39)
------- -------
Total liabilities and deficit............................... $15,026 $14,930
======= =======
</TABLE>
See notes to interim consolidated financial statements.
F-2
<PAGE> 157
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1998
---- ----
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales:
General Motors and affiliates............................. $19,307 $16,195
Other customers........................................... 4,061 4,484
------- -------
Total net sales........................................ 23,368 20,679
------- -------
Operating expenses:
Cost of sales, excluding items listed below............... 20,507 19,220
Selling, general and administrative....................... 1,011 1,012
Depreciation and amortization............................. 621 731
------- -------
Total operating expenses............................... 22,139 20,963
------- -------
Operating income (loss)..................................... 1,229 (284)
Interest expense............................................ (206) (199)
Other income, net........................................... 65 124
------- -------
Income (loss) before income taxes........................... 1,088 (359)
Income taxes (tax benefit).................................. 352 (178)
------- -------
Net income (loss)........................................... $ 736 $ (181)
======= =======
Earnings (loss) per share (Note 4):
Basic and diluted......................................... $ 1.58 $ (0.39)
======= =======
</TABLE>
See notes to interim consolidated financial statements.
F-3
<PAGE> 158
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED GENERAL TOTAL
TRANSLATION MOTORS' NET EQUITY
ADJUSTMENTS INVESTMENT (DEFICIT)
----------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1, 1997.............................. $ 5 $ 917 $ 922
Net income............................................ 215 215
Foreign currency translation adjustments.............. (83) (83)
Net effect of assets and liabilities transferred to
General Motors..................................... -- (1,467) (1,467)
---- ------- -------
Balance at December 31, 1997............................ (78) (335) (413)
Net loss.............................................. (181) (181)
Foreign currency translation adjustments.............. 41 41
Net effect of assets and liabilities transferred from
General Motors..................................... -- 514 514
---- ------- -------
Balance at September 30, 1998........................... $(37) $ (2) $ (39)
==== ======= =======
</TABLE>
See notes to interim consolidated financial statements.
F-4
<PAGE> 159
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 736 $(181)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 621 731
Pension expense, net of contributions.................. (154) (67)
Postretirement benefits other than pensions, net of
payments and VEBA contributions....................... 305 (388)
Deferred income taxes.................................. 399 75
Pre-tax loss on disposal of business units (Note 2).... -- 430
Changes in operating assets and liabilities:
Accounts receivable, net............................... (378) 101
Inventories, net....................................... (26) 266
Prepaid expenses and other assets...................... 102 (32)
Accounts payable....................................... 92 (299)
Accrued liabilities.................................... 58 (159)
Other liabilities...................................... 42 (328)
Other..................................................... 15 (200)
------ -----
Net cash provided by (used in) operating
activities.......................................... 1,812 (51)
------ -----
Cash flows from investing activities:
Capital expenditures...................................... (923) (872)
Investment in joint ventures and affiliates, net of cash
acquired............................................... (3) (152)
Proceeds from disposal of business units (Note 2)......... -- 217
Acquisition of marketable securities...................... (27) (531)
Liquidation of marketable securities...................... 46 522
Other..................................................... 47 117
------ -----
Net cash used in investing activities................ (860) (699)
------ -----
Cash flows from financing activities:
Cash effect of assets and liabilities transferred (to)
from General Motors.................................... (903) 741
------ -----
Net cash (used in) provided by financing
activities.......................................... (903) 741
------ -----
Effect of exchange rate fluctuations on cash and cash
equivalents............................................... (30) --
------ -----
Increase (decrease) in cash and cash equivalents:........... 19 (9)
Cash and cash equivalents at beginning of period.......... 971 989
------ -----
Cash and cash equivalents at end of period................ $ 990 $ 980
====== =====
</TABLE>
See notes to interim consolidated financial statements.
F-5
<PAGE> 160
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND--Delphi Automotive Systems Corporation ("Delphi") was
incorporated in late 1998 and is currently a wholly owned subsidiary of General
Motors Corporation ("GM"). During 1998, GM announced its intention to create a
separate company comprised of the GM businesses and operations that now comprise
Delphi and the associated assets and liabilities of such businesses and
operations (the "Separation"). The divestiture is expected to occur in two
stages, the first of which involves an offering to the public of approximately
100 million common shares of Delphi currently held by GM (the "Offering"). The
second stage involves GM distributing to holders of its $1 2/3 common stock in
1999, all of its interest in Delphi (the "Distribution") through one of the
following transactions:
- A split-off transaction, such as one in which Delphi shares would be
offered in exchange for GM $1 2/3 common stock to those GM stockholders
who elect to participate in an exchange offer; or
- A spin-off transaction in which the shares of Delphi would be distributed
to GM $1 2/3 common stockholders on a pro-rata basis; or
- Some combination of the above.
BASIS OF PRESENTATION--The consolidated financial statements of Delphi
reflect the historical results of operations and cash flows of the businesses
that were considered part of the Delphi business sector during each respective
period; however, they do not reflect many significant changes that will occur in
the operations and funding of Delphi as a result of the Separation and the
Offering. The historical consolidated balance sheets reflect the assets and
liabilities that are expected to be transferred to Delphi in accordance with the
terms of the Master Separation Agreement (the "Separation Agreement"). Delphi
and Delco Electronics Corporation ("Delco Electronics"), the electronics and
mobile communication business that was transferred to Delphi in December 1997,
were under the common control of GM during such periods; therefore, the
consolidated financial statements include amounts relating to Delco Electronics
for all periods presented, although Delco Electronics was not integrated with
Delphi until December 1997.
The following significant factors are reflected in the consolidated
financial statements:
CAPITAL ARRANGEMENTS
- Delphi has operated under a Cash and Debt Management Agreement with GM,
and an intracompany note payable to GM. The Cash and Debt Management
Agreement established Delphi's combined cash and marketable securities
balance at $1.0 billion. Delphi's total debt is $3.5 billion, reflecting
a $3 billion intracompany note payable to GM and outstanding debt at
Delphi's international subsidiaries. The $3 billion intracompany note
payable to GM reflects the portion of GM's outstanding debt that is
specifically related to Delphi's operations. The historical consolidated
financial statements give effect to the terms of the Cash and Debt
Management Agreement and the intracompany note payable, and accordingly,
reflect cash and marketable securities and the combined short-term and
long-term debt capitalization totaling $1.0 billion and $3.5 billion,
respectively, at December 31, 1997 and September 30, 1998.
- Interest expense reflects interest associated with the historical debt
capitalization discussed above, primarily using a blend of prevailing
short-term and long-term weighted-average interest rates commensurate
with the overall credit risk of the Delphi business sector.
F-6
<PAGE> 161
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
EMPLOYEE BENEFITS ARRANGEMENTS
- The Separation Agreement provides generally that pension plan assets and
liabilities related to Delphi's U.S. salaried active and inactive
employees retiring after January 1, 1999 will be assumed by Delphi.
Delphi will establish and administer defined benefit pension plans for
its salaried employees under the same terms that existed for the GM plans
at the time of separation, subject to all plan terms. The consolidated
financial statements reflect the assets and liabilities related to U.S.
salaried employees that Delphi will assume pursuant to the Separation
Agreement, and exclude employee benefit obligations and assets related to
salaried employees retired on or before January 1, 1999. Generally,
Delphi's U.S. hourly employees will continue to participate in the
defined benefit pension plan for hourly workers administered by GM until
the Distribution. Generally, Delphi will assume the pension obligations
for U.S. hourly employees who retire after October 1, 1999 and GM will
retain pension obligations for U.S. hourly employees who retire on or
before October 1, 1999. The amount of such obligations vary depending on
factors such as discount rates, asset returns, contribution levels and
other factors. On December 31, 1997, the obligations attributable to
Delphi were $1.7 billion. Delphi intends to work with GM to ensure that
any plan transfers are accomplished in accordance with applicable laws
and regulations.
- The Separation Agreement provides in general that GM will retain other
postretirement benefit liabilities related to Delphi's U.S. salaried
employees retiring on or prior to January 1, 1999. The liabilities
related to Delphi's U.S. salaried active and inactive employees retiring
after January 1, 1999 will be assumed by Delphi. Delphi's U.S. hourly
employees will continue to participate in the postretirement plans
administered by GM until the Distribution, and GM generally will retain
postretirement benefit obligations for U.S. hourly employees retired on
or before October 1, 1999.
- The liabilities set forth in Delphi's consolidated financial statements
include employee benefit obligations related to its active and inactive
employees only; however, the consolidated statements of income include
benefit costs for Delphi's active, inactive and retired employees. Such
accrued obligations and employee benefit costs are based upon actuarial
methods and assumptions.
OPERATING COSTS
- Operating costs and expenses include allocations of general corporate
overhead expenses related to GM's corporate headquarters and common
support activities, including payroll administration, employee medical
coverage and property and casualty insurance, financial, legal, tax and
human resources. These costs have been allocated to Delphi based on usage
or allocation methodologies primarily based on total net sales, certain
tangible assets and payroll expenses. Although Delphi believes the
allocations and charges for such services to be reasonable, the costs of
these services charged to Delphi are not indicative of the costs that
would have been incurred if Delphi had been a stand-alone entity.
INCOME TAXES
- Income taxes were determined in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." Once Delphi is a stand-alone entity and is no longer
included in GM's consolidated income tax return, it will no longer
benefit from its position within GM's consolidated income tax
environment. As a result, Delphi expects its effective income tax rates
in future periods generally to be higher than its historical effective
income tax rates.
F-7
<PAGE> 162
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
CASH FLOWS
- The consolidated statements of cash flows present the historical
operating cash flows of Delphi's businesses. The net cash effect of the
adjustments specified in the Separation Agreement is included in cash
flows from financing activities. The net cash effect of the separation
adjustments exceeded the net equity effect of such adjustments by
approximately $128 million and $227 million for the nine months ended
September 30, 1997 and 1998, respectively. This was caused by changes
during these periods in separation adjustments for various assets and
liabilities, principally pension and other postretirement benefits, which
affected net equity, but did not necessarily affect cash.
In the opinion of management, all adjustments, consisting of only normal
recurring items (except those disclosed in Note 2), which are necessary for a
fair presentation have been included. The results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the full year and may not necessarily reflect the consolidated
results of operations, financial position, changes in equity and cash flows of
Delphi in the future or what they would have been had Delphi been a separate,
stand-alone entity during the periods presented.
2. COMPETITIVENESS INITIATIVES
The global automotive parts industry has become increasingly competitive
and is currently undergoing significant restructuring and consolidation
activities. All of the major industry competitors are continuing to increase
their focus on efficiency and cost improvements, while facing continuing price
pressures.
Accordingly, during 1997, Delphi recognized a charge to cost of sales of
$80 million ($50 million after-tax) to provide for postemployment benefits and
other site-related closure costs in connection with the decision to cease
production at its Trenton, New Jersey plant. During the third quarter of 1998,
Delphi signed divestiture agreements for its seating, lighting and coil spring
businesses resulting in a loss of $430 million ($271 million after-tax). The
loss had the effect of increasing cost of sales and depreciation and
amortization by $382 million and $48 million, respectively.
3. INVENTORIES, NET
Inventories, net consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN MILLIONS)
<S> <C> <C>
Productive material, work-in-process and
supplies....................................... $2,035 $1,942
Finished goods................................... 264 285
------ ------
Total inventories at FIFO................... 2,299 2,227
Less allowances to adjust the carrying value of
certain inventories to LIFO.................... (431) (420)
------ ------
Total inventories, net...................... $1,868 $1,807
====== ======
</TABLE>
F-8
<PAGE> 163
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
4. EARNINGS PER SHARE
Basic and diluted earnings (loss) per share attributable to Delphi common
stock was determined based on net income (loss) divided by the 465 million
shares outstanding prior to the Offering. For purposes of the earnings (loss)
per share calculation, the shares outstanding prior to the Offering are treated
as outstanding for all periods presented. There were no potentially dilutive
securities outstanding during the periods presented.
5. COMPREHENSIVE INCOME (LOSS)
Delphi's comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Net income (loss)........................................... $736 $(181)
Other comprehensive income (loss)--foreign currency
translation adjustments, net of tax....................... (67) 41
---- -----
Comprehensive income (loss)................................. $669 $(140)
==== =====
</TABLE>
6. SEGMENT REPORTING
Selected information regarding Delphi's product sectors is as follows:
<TABLE>
<CAPTION>
SAFETY,
ELECTRONICS & THERMAL &
MOBILE ELECTRICAL DYNAMICS &
COMMUNICATION ARCHITECTURE PROPULSION OTHER(a) TOTAL
------------- ------------ ---------- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
For the Nine Months Ended:
September 30, 1997
Net sales to GM and
affiliates................... $3,463 $7,276 $ 8,568 $ -- $19,307
Net sales to other customers.... 419 2,008 1,634 -- 4,061
Inter-sector net sales.......... 214 140 6 (360) --
------ ------ ------- ----- -------
Total net sales.............. $4,096 $9,424 $10,208 $(360) $23,368
====== ====== ======= ===== =======
Operating income (loss)......... $ 388 $ 625 $ 334 $(118) $ 1,229
====== ====== ======= ===== =======
September 30, 1998
Net sales to GM and
affiliates................... $2,764 $6,030 $ 7,401 $ -- $16,195
Net sales to other customers.... 467 2,202 1,815 -- 4,484
Inter-sector net sales.......... 181 134 6 (321) --
------ ------ ------- ----- -------
Total net sales.............. $3,412 $8,366 $ 9,222 $(321) $20,679
====== ====== ======= ===== =======
Operating income (loss)......... $ 178 $ (108) $ (105) $(249) $ (284)
====== ====== ======= ===== =======
</TABLE>
- ------------------
(a) Other includes activity not allocated to the product sectors and the
elimination of inter-sector transactions.
F-9
<PAGE> 164
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
7. COMMITMENTS AND CONTINGENCIES
Delphi is from time to time subject to various legal actions and claims
incidental to its business, including those arising out of alleged defects,
product warranties, employment-related matters and environmental matters.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. After discussions with
counsel, it is the opinion of management that the outcome of such matters will
not have a material adverse impact on the consolidated financial position,
results of operations or cash flows of Delphi.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires recognition of all derivative financial instruments as either assets or
liabilities in consolidated balance sheets at fair value and determines the
method(s) of gain/loss recognition. Delphi is required to adopt SFAS No. 133
with its fiscal year ending December 31, 2000 and is currently assessing the
effect that it may have on its consolidated financial statements.
SFAS No. 133 provides that, if certain conditions are met, a derivative may
be specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge) or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in the fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change.
In March 1998, the Accounting Standards Executive Committee ("ASEC") for
the American Institute of Certified Public Accountants released Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
for Internal Use." SOP 98-1 requires the capitalization of certain expenditures
for software that is purchased or internally developed once certain criteria are
met. Currently, Delphi generally expenses the costs of developing or obtaining
internal use software as incurred. Delphi will adopt SOP 98-1 on January 1,
1999, as required. Delphi expects that about $30 to $40 million of spending that
would have otherwise been expensed as incurred will be capitalized in 1999 in
accordance with the provisions of SOP 98-1.
In April 1998, the ASEC released SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 generally requires costs of start-up activities
to be expensed instead of being capitalized and amortized. Delphi is required to
adopt the pronouncement January 1, 1999. Delphi management has not concluded at
this time on the applicability or impact of this SOP on Delphi's consolidated
financial statements.
F-10
<PAGE> 165
INDEPENDENT AUDITORS' REPORT
Delphi Automotive Systems Corporation:
We have audited the accompanying consolidated balance sheets of Delphi
Automotive Systems Corporation ("Delphi"), a subsidiary of General Motors
Corporation, as of December 31, 1996 and 1997, and the related consolidated
statements of income, of equity (deficit) and comprehensive income, and of cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the management of Delphi. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Delphi as of December 31, 1996
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
January 14, 1999
F-11
<PAGE> 166
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 971 $ 989
Other marketable securities............................... 29 11
------- -------
Total cash and marketable securities................. 1,000 1,000
Accounts receivable, net:
General Motors and affiliates.......................... 1,872 2,284
Other customers........................................ 980 982
Inventories, net (Note 4)................................. 2,013 1,868
Deferred income taxes (Note 5)............................ 175 183
Prepaid expenses and other assets......................... 164 61
------- -------
Total current assets................................. 6,204 6,378
Property, net (Note 6)...................................... 5,241 4,600
Deferred income taxes (Note 5).............................. 2,560 3,007
Other assets................................................ 1,385 1,041
------- -------
Total assets................................................ $15,390 $15,026
======= =======
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt (Note
8)..................................................... $ 148 $ 159
Accounts payable:
General Motors and affiliates.......................... 102 86
Other suppliers........................................ 2,101 2,157
Accrued liabilities (Note 7).............................. 1,404 1,664
------- -------
Total current liabilities............................ 3,755 4,066
Long-term debt, including intracompany note payable with
General Motors (Note 8)................................... 3,352 3,341
Pension benefits (Note 9)................................... 1,526 1,799
Postretirement benefits other than pensions (Note 10)....... 4,649 4,788
Other liabilities........................................... 1,186 1,445
------- -------
Total liabilities.................................... 14,468 15,439
------- -------
Commitments and contingencies (Note 11)
Equity (deficit):
General Motors' net investment............................ 917 (335)
Accumulated translation adjustments....................... 5 (78)
------- -------
Total equity (deficit)............................... 922 (413)
------- -------
Total liabilities and equity (deficit)...................... $15,390 $15,026
======= =======
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 167
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales:
General Motors and affiliates............................. $26,656 $25,748 $25,907
Other customers........................................... 5,005 5,284 5,540
------- ------- -------
Total net sales........................................ 31,661 31,032 31,447
------- ------- -------
Operating expenses:
Cost of sales, excluding items listed below............... 27,384 27,471 27,710
Selling, general and administrative....................... 1,366 1,445 1,415
Depreciation and amortization............................. 773 843 1,970
------- ------- -------
Total operating expenses............................... 29,523 29,759 31,095
------- ------- -------
Operating income............................................ 2,138 1,273 352
Interest expense (Note 8)................................... (293) (276) (287)
Other income, net (Note 13)................................. 101 115 194
------- ------- -------
Income before income taxes.................................. 1,946 1,112 259
Income taxes................................................ 639 259 44
------- ------- -------
Net income.................................................. $ 1,307 $ 853 $ 215
======= ======= =======
Earnings per share (Note 2):
Basic and diluted......................................... $ 2.81 $ 1.83 $ 0.46
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 168
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
ACCUMULATED GENERAL TOTAL
COMPREHENSIVE TRANSLATION MOTORS' NET EQUITY
INCOME ADJUSTMENTS INVESTMENT (DEFICIT)
------------- ----------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995................ $ 10 $ 110 $ 120
Comprehensive income:
Net income.............................. $1,307 1,307 1,307
Other comprehensive income (Note 12):
Foreign currency translation
adjustments........................ 26 26 26
------
Comprehensive income...................... $1,333
======
Net effect of assets and liabilities
transferred to General Motors........... (99) (99)
---- ------- -------
Balance at December 31, 1995.............. 36 1,318 1,354
Comprehensive income:
Net income.............................. $ 853 853 853
Other comprehensive loss (Note 12):
Foreign currency translation
adjustments........................ (31) (31) (31)
------
Comprehensive income...................... $ 822
======
Net effect of assets and liabilities
transferred to General Motors........... (1,254) (1,254)
---- ------- -------
Balance at December 31, 1996.............. 5 917 922
Comprehensive income:
Net income.............................. $ 215 215 215
Other comprehensive loss (Note 12):
Foreign currency translation
adjustments........................ (83) (83) (83)
------
Comprehensive income...................... $ 132
======
Net effect of assets and liabilities
transferred to General Motors........... (1,467) (1,467)
---- ------- -------
Balance at December 31, 1997.............. $(78) $ (335) $ (413)
==== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE> 169
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,307 $ 853 $ 215
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 773 843 1,970
Pension expense, net of contributions.................. (778) 94 (29)
Postretirement benefits other than pensions, net of
payments and VEBA contributions...................... 466 403 (551)
Deferred income taxes.................................. 298 391 196
Changes in operating assets and liabilities:
Accounts receivable, net............................... (243) 688 (557)
Inventories, net....................................... (170) (67) 92
Prepaid expenses and other assets...................... 12 (19) 95
Accounts payable....................................... (424) (361) 149
Accrued liabilities.................................... (633) 138 618
Other liabilities...................................... 439 (506) 1,038
Other..................................................... 323 244 (318)
------- ------- -------
Net cash provided by operating activities............ 1,370 2,701 2,918
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................................... (1,155) (1,177) (1,383)
Investment in joint ventures and affiliates, net of cash
acquired............................................... (136) (54) (24)
Acquisition of marketable securities...................... (152) (153) (303)
Liquidation of marketable securities...................... 124 168 321
Other..................................................... 178 221 69
------- ------- -------
Net cash used in investing activities................ (1,141) (995) (1,320)
------- ------- -------
Cash flows from financing activities:
Cash effect of assets and liabilities transferred to
General Motors......................................... (263) (1,686) (1,549)
------- ------- -------
Net cash used in financing activities................ (263) (1,686) (1,549)
------- ------- -------
Effect of exchange rate fluctuations on cash and cash
equivalents............................................... 6 (5) (31)
------- ------- -------
Increase (decrease) in cash and cash equivalents:........... (28) 15 18
Cash and cash equivalents at beginning of year............ 984 956 971
------- ------- -------
Cash and cash equivalents at end of year.................. $ 956 $ 971 $ 989
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 170
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND--Delphi Automotive Systems Corporation ("Delphi") was
incorporated in late 1998 and is currently a wholly owned subsidiary of General
Motors Corporation ("GM"). During 1998, GM announced its intention to create a
separate company comprised of the GM businesses and operations that now comprise
Delphi and the associated assets and liabilities of such businesses and
operations (the "Separation"). The divestiture is expected to occur in two
stages, the first of which involves an offering to the public of approximately
100,000,000 million common shares of Delphi currently held by GM (the
"Offering"). The second stage involves GM distributing to holders of its $1 2/3
common stock in 1999, all of its interest in Delphi (the "Distribution") through
one of the following transactions:
- A split-off transaction, such as one in which Delphi shares would be
offered in exchange for GM $1 2/3 common stock to those GM stockholders
who elect to participate in an exchange offer; or
- A spin-off transaction in which the shares of Delphi would be distributed
to GM $1 2/3 common stockholders on a pro-rata basis; or
- Some combination of the above.
BASIS OF PRESENTATION--The consolidated financial statements of Delphi
reflect the historical results of operations and cash flows of the businesses
that were considered part of the Delphi business sector during each respective
period; however, they do not reflect many significant changes that will occur in
the operations and funding of Delphi as a result of the Separation and the
Offering. The historical consolidated balance sheets reflect the assets and
liabilities that are expected to be transferred to Delphi in accordance with the
terms of the Master Separation Agreement (the "Separation Agreement"). Delphi
and Delco Electronics Corporation ("Delco Electronics"), the electronics and
mobile communication business that was transferred to Delphi in December 1997,
were under the common control of GM during such periods; therefore, the
consolidated financial statements include amounts relating to Delco Electronics
for all periods presented, although Delco Electronics was not integrated with
Delphi until December 1997.
The following significant factors are reflected in the consolidated
financial statements:
CAPITAL ARRANGEMENTS
- Delphi has operated under a Cash and Debt Management Agreement with GM,
and an intracompany note payable to GM. The Cash and Debt Management
Agreement established Delphi's combined cash and marketable securities
balance at $1.0 billion. Delphi's total debt is $3.5 billion, reflecting
a $3 billion intracompany note payable to GM and outstanding debt at
Delphi's international subsidiaries. The $3 billion intracompany note
payable to GM reflects the portion of GM's outstanding debt that is
specifically related to Delphi's operations. The historical consolidated
financial statements give effect to the terms of the Cash and Debt
Management Agreement and the intracompany note payable, and accordingly,
reflect cash and marketable securities and the combined short-term and
long-term debt capitalization totaling $1.0 billion and $3.5 billion,
respectively, at December 31, 1996 and 1997.
- Interest expense reflects interest associated with the historical debt
capitalization discussed above, primarily using a blend of prevailing
short-term and long-term weighted-average interest rates commensurate
with the overall credit risk of the Delphi business sector.
EMPLOYEE BENEFITS ARRANGEMENTS
- The Separation Agreement provides generally that pension plan assets and
liabilities related to Delphi's U.S. salaried active and inactive
employees retiring after January 1, 1999 will be assumed by Delphi.
Delphi will establish and administer defined benefit pension plans for
its salaried employees under the
F-16
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DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
same terms that existed for the GM plans at the time of separation,
subject to all plan terms. The consolidated financial statements reflect
the assets and liabilities related to U.S. salaried employees that Delphi
will assume pursuant to the Separation Agreement, and exclude employee
benefit obligations and assets related to salaried employees retired on
or before January 1, 1999. Generally, Delphi's U.S. hourly employees will
continue to participate in the defined benefit pension plan for hourly
workers administered by GM until the Distribution. Generally, Delphi will
assume the pension obligations for U.S. hourly employees who retire after
October 1, 1999 and GM will retain pension obligations for U.S. hourly
employees who retire on or before October 1, 1999. The amount of such
obligations vary depending on factors such as discount rates, asset
returns, contribution levels and other factors. On December 31, 1996, the
obligations attributable to Delphi were $1.5 billion. On December 31,
1997 the amount was $1.7 billion. Delphi intends to work with GM to
ensure that any plan transfers are accomplished in accordance with
applicable laws and regulations.
- The Separation Agreement provides in general that GM will retain other
postretirement benefit liabilities related to Delphi's U.S. salaried
employees retiring on or prior to January 1, 1999. The liabilities
related to Delphi's U.S. salaried active and inactive employees retiring
after January 1, 1999 will be assumed by Delphi. Delphi's U.S. hourly
employees will continue to participate in the postretirement plans
administered by GM until the Distribution, and GM generally will retain
postretirement benefit obligations for U.S. hourly employees retired on
or before October 1, 1999.
- The liabilities set forth in Delphi's consolidated financial statements
include employee benefit obligations related to its active and inactive
employees only; however, the consolidated statements of income include
benefit costs for Delphi's active, inactive and retired employees. Such
accrued obligations and employee benefit costs are based upon actuarial
methods and assumptions.
OPERATING COSTS
- Operating costs and expenses include allocations of general corporate
overhead expenses related to GM's corporate headquarters and common
support activities, including payroll administration, employee medical
coverage and property and casualty insurance, financial, legal, tax and
human resources. These costs amounted to $111 million, $124 million and
$130 million in 1995, 1996 and 1997, respectively, and have been
allocated to Delphi based on usage or allocation methodologies primarily
based on total net sales, certain tangible assets and payroll expenses.
Although Delphi believes the allocations and charges for such services to
be reasonable, the costs of these services charged to Delphi are not
indicative of the costs that would have been incurred if Delphi had been
a stand-alone entity.
INCOME TAXES
- Income taxes were determined in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." Once Delphi is a stand-alone entity and is no longer
included in GM's consolidated income tax return, it will no longer
benefit from its position within GM's consolidated income tax
environment. As a result, Delphi expects its effective income tax rates
in future periods generally to be higher than its historical effective
income tax rates.
CASH FLOWS
- The consolidated statements of cash flows present the historical
operating cash flows of Delphi's businesses. The net cash effect of the
adjustments specified in the Separation Agreement is included in cash
flows from financing activities. The net cash effect of the separation
adjustments exceeded the net
F-17
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DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
equity effect of such adjustments by approximately $164 million, $432
million and $82 million in 1995, 1996 and 1997, respectively. This was
caused by changes during these years in separation adjustments for
various assets and liabilities, principally pension and other
postretirement benefits, which affected net equity, but did not
necessarily affect cash.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in equity
(deficit) and cash flows of Delphi in the future or what they would have been
had Delphi been a separate, stand-alone entity during the periods presented.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION--The consolidated financial statements include the accounts
of Delphi and domestic and foreign subsidiaries that are majority-owned.
Delphi's share of the earnings or losses of associates, in which at least 20% of
the voting securities is owned, is included in the consolidated operating
results using the equity method of accounting. All significant intercompany
transactions and balances between the Delphi businesses have been eliminated.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainty involved in making estimates, actual results reported in
future periods may be based upon amounts that differ from those estimates.
EARNINGS PER COMMON SHARE--Basic and diluted earnings per share
attributable to Delphi common stock was determined based on net income divided
by the 465 million shares outstanding prior to the Offering. For purposes of the
earnings per share calculation, the shares outstanding prior to the Offering are
treated as outstanding for all periods presented. There were no potentially
dilutive securities outstanding during the periods presented.
REVENUE RECOGNITION--Sales are recorded upon shipment of product to
customers and transfer of title under standard commercial terms.
RESEARCH AND DEVELOPMENT--Delphi incurs costs in connection with research
and development programs that are expected to contribute to future earnings.
Such costs are charged against income as incurred. Research and development
expenses recognized by Delphi were $1.6 billion in each of 1995 and 1996, and
$1.5 billion in 1997.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents are defined as
short-term, highly liquid investments with original maturities of 90 days or
less. In addition, pursuant to the Cash and Debt Management Agreement, GM
provides Delphi access to cash and cash equivalents in an amount which
fluctuates based on Delphi's other balances, such that total cash and marketable
securities at each period end was $1.0 billion. Income taxes paid by Delphi
totaled $719 million and $132 million in 1995 and 1996, respectively. Income
taxes paid during 1997 were not significant. Interest paid by Delphi totaled
$296 million, $267 million and $299 million in 1995, 1996 and 1997,
respectively.
MARKETABLE SECURITIES--Marketable securities are classified as
available-for-sale. The fair value of such marketable securities approximates
book value, with cost determined on the specific identification basis.
Proceeds from sales and maturities of marketable securities attributable to
Delphi totaled $124 million, $168 million and $321 million in 1995, 1996 and
1997, respectively. The gross gains and losses related to sales of marketable
securities were not significant to Delphi.
F-18
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DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
INVENTORIES--Inventories in the U.S. are stated at the lower of cost or
market, as determined substantially by the last-in, first-out (LIFO) method,
while inventories in countries other than the U.S., and at Delco Electronics,
are stated under the first-in, first-out (FIFO) method. Delphi's inventory data
is combined with similar data from other GM businesses for purposes of applying
the LIFO method of accounting. Delphi has been allocated a pro rata portion of
GM's LIFO reserve based on the relative inventory levels of Delphi before
application of such reserve. The effect of the LIFO method of accounting was to
increase Delphi's operating income by $47 million, $21 million, and $73 million,
in 1995, 1996 and 1997, respectively.
DEPRECIATION AND AMORTIZATION--Depreciation is provided based on estimated
useful lives of groups of property generally using accelerated methods, which
accumulate depreciation of approximately two-thirds of the depreciable cost
during the first half of the estimated useful lives. Leasehold improvements are
amortized over the period of the lease or the life of the property, whichever is
shorter, with the amortization applied directly to the asset account.
Expenditures for repairs and maintenance are charged to expense as incurred.
ENVIRONMENTAL LIABILITIES--Delphi recognizes environmental cleanup
liabilities when a loss is probable and can be reasonably estimated. Such
liabilities are generally not subject to insurance coverage. The cost of each
environmental cleanup is estimated by engineering, financial, and legal
specialists within Delphi based on current law. Such estimates are based
primarily upon the estimated cost of investigation and remediation required and
the likelihood that other potentially responsible parties ("PRPs") will be able
to fulfill their commitments at the sites where Delphi may be jointly and
severally liable. For closed or closing plants owned by Delphi and properties
being sold, an estimated liability is typically recognized at the time the
closure decision is made or sale is recorded and is based on an environmental
assessment of the plant property.
The process of estimating environmental cleanup liabilities is complex and
dependent primarily on the nature and extent of historical information and
physical data relating to a contaminated site, the complexity of the site, the
uncertainty as to what remedy and technology will be required, the outcome of
discussions with regulatory agencies and other PRPs at multi-party sites. In
future periods, new laws or regulations, advances in cleanup technologies and
additional information about the ultimate cleanup remedy that is used could
significantly change Delphi's estimates.
Pursuant to the separation arrangements between Delphi and GM, GM will be
responsible for environmental liabilities at the GM facilities that are not
transferred to Delphi, including all facilities closed or sold prior to January
1, 1999, except that Delphi will be responsible for any environmental
liabilities at such facilities that Delphi causes after January 1, 1999. Delphi
will be responsible for environmental liabilities at the facilities that are
transferred to Delphi, except that GM will be responsible for any environmental
liabilities at such facilities that GM causes after January 1, 1999.
In addition, with respect to liability for offsite waste disposal, GM will
retain responsibility for sites where GM's liability is known or alleged prior
to January 1, 1999, except that Delphi will be responsible for any wastes Delphi
contributes to these sites after January 1, 1999. Delphi will not, however, be
responsible for any contributions to these sites from the facilities transferred
to Delphi that occurred prior to January 1, 1999. At other waste disposal sites,
GM's and Delphi's respective liability will be allocated based on each party's
respective contribution of wastes to such sites. In particular, GM's liability
will be based on contributions from the facilities retained by GM and any other
facility owned or operated by GM, except the facilities transferred to Delphi.
Delphi's liability will be based on contributions from the facilities
transferred to Delphi and any other facility owned or operated by Delphi.
FOREIGN CURRENCY TRANSLATION--Assets and liabilities of foreign
subsidiaries generally are translated to U.S. dollars at end-of-period exchange
rates. The effects of translation for most foreign subsidiaries are reported in
a separate component of equity. The effect of remeasurement of assets and
liabilities of foreign subsidiaries that use the U.S. dollar as their functional
currency is included in income. Income statement
F-19
<PAGE> 174
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
elements of all foreign subsidiaries are translated to U.S. dollars at
average-period exchange rates and are recognized as part of revenues, costs and
expenses. Also included in income are gains and losses arising from transactions
denominated in a currency other than the functional currency of a particular
subsidiary.
Net transaction gains and losses, as described above, decreased net income
by $55 million during 1995, and increased net income by $21 million and $68
million during 1996 and 1997, respectively.
VALUATION OF LONG-LIVED ASSETS--Management of Delphi periodically evaluates
the carrying value of long-lived assets to be held and used, including
intangible assets, when events or circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such an asset is separately identifiable and is less
than the carrying value of the asset. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair market values are reduced for the cost to dispose of
the assets.
ACCRUED COMMITMENTS UNDER LOSS CONTRACTS--Management periodically evaluates
the profitability of contractual commitments on a customer basis, and will
establish a reserve whenever expected costs exceed related revenues, based upon
a reasonable estimate of the costs and product pricing expected to exist over
the course of the contract period. Such reserves would be recorded only to the
extent the total estimated losses exceeded any related impairment reserves
separately recognized on related long-lived assets.
DERIVATIVE FINANCIAL INSTRUMENTS--During the periods presented, Delphi's
exposure to fluctuations in foreign exchange rates and certain commodities
prices was managed by GM. GM is party to a variety of foreign exchange, interest
rate, and commodity forward contracts and options entered into in connection
with the management of its exposure to fluctuations in foreign exchange rates,
interest rates, and certain commodities prices, including foreign exchange and
certain commodities price exposures relating to Delphi. These financial
exposures were managed in accordance with GM's corporate policies and
procedures.
GM established a Risk Management Committee to develop and monitor its
financial risk strategies, policies and procedures. The GM Risk Management
Committee reviews and approves all new risk management strategies, establishes
approval authority guidelines for approved programs and monitors compliance and
performance of existing risk management programs. GM does not enter into
derivative transactions for trading purposes.
As part of the hedging program approval process, as it relates to Delphi,
GM and Delphi management representatives are required to identify the specific
financial risk which the derivative transaction will minimize, the appropriate
hedging instrument to be used to reduce the risk, and the correlation between
the financial risk and the hedging instrument. Purchase orders, letters of
intent, vehicle production forecasts, capital planning forecasts, and historical
data are used as the basis for determining the anticipated values of the
transactions to be hedged. Generally, GM does not enter into derivative
transactions that do not have a high correlation with the underlying financial
risk. In the infrequent instances in which a derivative transaction is entered
into that does not have a high correlation with the underlying exposure, then
the derivative is marked to market for accounting purposes. The hedge positions
related to Delphi as well as the correlation between the transaction risks and
the hedging instruments, are reviewed by GM and Delphi management on an ongoing
basis.
Subsequent to the Separation, Delphi will assume management of its exposure
to fluctuations in foreign exchange rates, interest rates, and certain commodity
prices. GM will assign to Delphi certain derivative contracts from its foreign
exchange and commodities portfolio, based on Delphi's level of exposure at the
time of the Separation. This assignment will not alter the original terms of the
contracts being transferred. In
F-20
<PAGE> 175
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
addition, Delphi will not be required to pay any fee in order to assume the
contracts. GM did not manage any interest rate contracts on behalf of Delphi
during the periods presented, and no such contracts will be assumed by Delphi as
part of the Separation.
Foreign exchange forward and option contracts are accounted for as hedges
to the extent they are designated, and are effective, as hedges of firm foreign
currency commitments. Additionally, certain foreign exchange option contracts
receive hedge accounting treatment to the extent such contracts hedge certain
anticipated foreign currency transactions. Other such foreign exchange contracts
and options are marked to market on a current basis.
GM, on behalf of Delphi, also enters into commodity forward and option
contracts. Since GM has the discretion to settle these transactions either in
cash or by taking physical delivery, these contracts are not considered
financial instruments for accounting purposes. Commodity forward contracts and
options are accounted for as hedges to the extent they are designated, and are
effective, as hedges of firm or anticipated commodity purchase contracts. Other
commodity forward contracts and options are marked to market on a current basis.
POSTEMPLOYMENT BENEFITS AND EMPLOYEE TERMINATION BENEFITS--Delphi's
postemployment benefits primarily relate to Delphi's extended-disability benefit
program in the United States and supplemental unemployment compensation benefits
(mainly pursuant to union or other contractual agreements). Extended-disability
benefits are accrued on a service-driven basis and supplemental unemployment
compensation benefits are accrued on an event-driven basis. Accruals for
postemployment benefits represent the discounted future cash expenditures
expected during the period between the idling of affected employees and the time
when such employees are redeployed, retire or otherwise terminate their
employment.
Voluntary termination benefits are accrued when the employees accept the
offer. Involuntary termination benefits are accrued when management has
committed to a termination plan and the benefit arrangement is communicated to
affected employees.
LABOR FORCE--On a worldwide basis, Delphi has a concentration of employees
working under union collective bargaining agreement representing approximately
96% of its hourly workforce. Of these represented employees, a significant
number of hourly employees are working under agreements that will expire in
1999. Certain customers of Delphi also have represented work forces. Future work
stoppages by Delphi's employees or by employees of Delphi's customers could
disrupt Delphi's production of automotive components and systems.
During the years ended December 31, 1996 and 1997, work stoppages at
certain GM and Delphi facilities had an estimated unfavorable impact on net
income of $281 million and $92 million, respectively. Delphi generally estimates
the impact of work stoppages by multiplying standard contribution margins by the
estimated decline in vehicle production that is directly attributable to the
work stoppages, after considering partial recovery, if any, in subsequent
periods.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires recognition of all
derivative financial instruments as either assets or liabilities in consolidated
balance sheets at fair value and determines the method(s) of gain/loss
recognition. Delphi is required to adopt SFAS No. 133 with its fiscal year
ending December 31, 2000 and is currently assessing the effect that it may have
on its consolidated financial statements.
SFAS No. 133 provides that, if certain conditions are met, a derivative may
be specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted
F-21
<PAGE> 176
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
transaction (cash flow hedge) or (3) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated forecasted
transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in the fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change.
In March 1998, the Accounting Standards Executive Committee ("ASEC") for
the American Institute of Certified Public Accountants released Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
for Internal Use." SOP 98-1 requires the capitalization of certain expenditures
for software that is purchased or internally developed once certain criteria are
met. Currently, Delphi generally expenses the costs of developing or obtaining
internal use software as incurred. Delphi will adopt SOP 98-1 on January 1,
1999, as required. Delphi expects that about $30 to $40 million of spending that
would have otherwise been expensed as incurred will be capitalized in 1999 in
accordance with the provisions of SOP 98-1.
In April 1998, the ASEC released SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 generally requires costs of start-up activities
to be expensed instead of being capitalized and amortized. Delphi is required to
adopt the pronouncement January 1, 1999. Delphi management has not concluded at
this time on the applicability or impact of this SOP on Delphi's consolidated
financial statements.
3. COMPETITIVENESS INITIATIVES
The global automotive parts industry has become increasingly competitive
and is currently undergoing significant restructuring and consolidation
activities. All of the major industry competitors are continuing to increase
their focus on efficiency and cost improvements, while facing continuing price
pressures. As a result, Delphi initiated a study in 1997 to evaluate the
long-term competitiveness of all facets of its business ("Competitiveness
Study"). This study was performed in conjunction with the business planning
cycle and was substantially completed in December 1997.
Based on the results of the Competitiveness Study, Delphi recorded a charge
of approximately $1.4 billion ($870 million after-tax) during the fourth quarter
of 1997. This charge was comprised of the following:
<TABLE>
<CAPTION>
PRE-TAX AFTER-TAX
------- ---------
<C> <C> <S>
$791 million $506 million Underperforming assets
$55 million $34 million Capacity reductions
$516 million $330 million Assets held for disposal
</TABLE>
Overall, these charges had the effect of increasing cost of sales and
depreciation and amortization by $262 million and $1.1 billion, respectively.
The amount included for underperforming assets represents charges pursuant
to Delphi's policy for the valuation of long-lived assets. Delphi re-evaluated
the carrying value of its long-lived assets as events and circumstances of the
industry changed. The re-evaluation was performed using product specific cash
flow
F-22
<PAGE> 177
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
information refined in connection with the separation of Delphi from GM's North
American Automotive Operations and the transfer of Delco Electronics to Delphi
in December 1997. As a result, the carrying values of certain long-lived assets
were determined to be impaired as the separately identifiable, undiscounted
future cash flows from such assets were less than their respective carrying
values. The resulting impairment charge represented the amount by which the
carrying value of such assets exceeded their estimated fair market value.
The amount included for capacity reductions represents postemployment
benefits payable to employees pursuant to contractual agreements.
Assets held for disposal primarily relate to Delphi's seating, lighting and
coil spring businesses, which were announced for sale during 1997, and certain
other losses on assets subject to disposal. The related pre-tax charges
represented the amount by which the carrying value of such assets exceeded the
estimated fair value, net of related costs to dispose of the assets.
Separately, during 1997 Delphi recognized a charge to cost of sales of $80
million ($50 million after-tax) to provide for postemployment benefits and other
site-related closure costs in connection with the decision to cease production
at its Trenton, New Jersey, plant. In 1996, Delphi sold four facilities located
in Flint and Livonia, Michigan and Oshawa and Windsor, Ontario, which resulted
in a loss of $247 million ($153 million after-tax). The loss had the effect of
increasing cost of sales and depreciation and amortization by $167 million and
$80 million, respectively.
4. INVENTORIES, NET
Inventories, net consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Productive material, work-in-process and supplies........... $2,274 $2,035
Finished goods.............................................. 243 264
------ ------
Total inventories at FIFO.............................. 2,517 2,299
Less allowance to adjust the carrying value of certain
inventories to LIFO....................................... (504) (431)
------ ------
Total inventories, net................................. $2,013 $1,868
====== ======
</TABLE>
5. INCOME TAXES
Income before income taxes for U.S. and foreign operations was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
U.S. income (loss)................................... $1,293 $ 584 $(99)
Foreign income....................................... 653 528 358
------ ------ ----
Total........................................... $1,946 $1,112 $259
====== ====== ====
</TABLE>
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<PAGE> 178
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Income taxes estimated to be payable (refundable):
U.S. federal....................................... $ 54 $(107) $ 849
Foreign............................................ 191 108 203
U.S. state and local............................... (8) 50 32
---- ----- -------
Total payable currently......................... 237 51 1,084
Deferred income tax expense (benefit), net
U.S. federal....................................... 346 244 (915)
Foreign............................................ (3) (3) (47)
U.S. state and local............................... 66 (26) (71)
---- ----- -------
Total deferred.................................. 409 215 (1,033)
Investment tax credits............................... (7) (7) (7)
---- ----- -------
Total income tax provision...................... $639 $ 259 $ 44
==== ===== =======
</TABLE>
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. federal statutory rate was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Tax at U.S. federal statutory income tax rate........ $681 $389 $ 91
U.S. state and local income taxes.................... 58 25 (39)
Foreign rates other than 35%......................... (41) (80) 31
Research and experimentation credits................. -- (49) (50)
Other adjustments.................................... (59) (26) 11
---- ---- ----
Total income tax provision...................... $639 $259 $ 44
==== ==== ====
</TABLE>
Deferred income tax assets and liabilities for 1996 and 1997 reflect the
impact of temporary differences between amounts of assets and liabilities for
financial reporting purposes and the bases of such assets and liabilities as
measured by tax laws. Such deferred tax balances are based on the assets and
liabilities transferred to Delphi pursuant to the Separation Agreement.
F-24
<PAGE> 179
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Temporary differences that gave rise to deferred tax assets and liabilities
included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997
----------------------- -----------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Postretirement benefits other than
pensions............................ $1,626 $ -- $1,677 $ --
Postemployment benefits............... 175 -- 170 --
Depreciation.......................... -- 289 54 83
Employee benefits..................... 701 29 886 --
Tax on unremitted profits............. -- 165 -- 36
U.S. state and local taxes............ 176 -- 134 --
Other U.S. ........................... 82 99 247 57
Other foreign......................... -- 90 45 85
------ ---- ------ ----
Total............................ 2,760 672 3,213 261
Valuation allowances.................. (25) -- (23) --
------ ---- ------ ----
Total deferred taxes............. $2,735 $672 $3,190 $261
====== ==== ====== ====
</TABLE>
Realization of the net deferred tax assets is dependent on future reversals
of existing taxable temporary differences and adequate future taxable income,
exclusive of reversing temporary differences and carryforwards. Although
realization is not assured, management believes that it is more likely than not
that the net deferred tax assets will be realized.
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns; however,
income tax accruals in the consolidated balance sheets reflect that, as part of
the Separation Agreement, GM agreed to indemnify Delphi, excluding Delco
Electronics, for prior year tax issues in the United States.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
Delphi's share of subsidiaries' undistributed earnings not deemed to be
permanently reinvested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed permanently reinvested, of approximately $30 million
at December 31, 1997. Quantification of the deferred tax liability, if any,
associated with permanently reinvested earnings is not practicable.
F-25
<PAGE> 180
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
6. PROPERTY, NET
Property, net consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED USEFUL ------------------
LIVES (YEARS) 1996 1997
---------------- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Land......................................... -- $ 69 $ 66
Land and leasehold improvements.............. 3-30 248 249
Buildings.................................... 29-45 2,067 2,114
Machinery and equipment...................... 3-30 9,754 10,159
Furniture and office equipment............... 3-20 149 153
Construction in progress..................... -- 705 762
------- -------
Total................................... 12,992 13,503
Less accumulated depreciation and
amortization............................... (7,751) (8,903)
------- -------
Total property, net.......................... $ 5,241 $ 4,600
======= =======
</TABLE>
7. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Payroll related obligations..................... $ 861 $ 636
Income taxes payable............................ -- 671
Other........................................... 543 357
------ ------
Total...................................... $1,404 $1,664
====== ======
</TABLE>
8. INTRACOMPANY NOTE PAYABLE AND LONG-TERM DEBT
Pursuant to a Cash and Debt Management Agreement, Delphi's financial
statements reflect an outstanding intracompany note payable with the automotive
and corporate sectors of GM of approximately $3 billion at both December 31,
1996 and 1997. This intracompany note payable bears interest at variable
interest rates established consistent with the overall credit risk of the Delphi
business sector; such rates approximated 7.4%, 7.3% and 7.2% in 1995, 1996 and
1997, respectively. The intracompany note payable matures on January 1, 2000,
and is not subject to any collateral or covenant requirements.
Delphi has certain other long-term debt outstanding, principally at certain
international subsidiaries. The amount of the intracompany note payable is
increased or repaid pursuant to the Cash and Debt Management Agreement such that
the total long-term debt outstanding at any period end is $3.5 billion. The
repayment schedule of amounts due at December 31, 1997 was as follows:
1998--$159 million; 1999--$9 million; 2000--$3.3 billion; 2001--$1 million;
2002--$3 million; 2003 and thereafter--$55 million.
In December 1998, Delphi entered into two financing agreements with a
syndicate of lenders providing for an aggregate of $5 billion in revolving
credit facilities. In general, borrowings of up to $5 billion are available
under the facilities through January 3, 2000, after which $1.5 billion will be
available through January 3, 2004. The amount Delphi may borrow under the
facilities will be reduced to the extent the
F-26
<PAGE> 181
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
aggregate net cash proceeds from issuances of common stock by Delphi and its
subsidiaries, excluding issuances under its regular employee, executive and
director stock option plans, exceeds $1.5 billion. This includes the net cash
proceeds from this offering. The amount Delphi may borrow will also be reduced
to the extent of the net cash proceeds from public offerings and private
placements of debt securities, excluding debt securities with a maturity of less
than one year. The reduction arising from issuances of debt securities will not
exceed $2.0 billion. Borrowings under these financing arrangements may be used
for general corporate purposes. The credit facilities include certain customary
affirmative and negative covenants.
The credit facilities provide that the interest rate is to be based, at
Delphi's option, on either an Alternate Base Rate (higher of prime, federal
funds or certificate of deposit based rates) or a Eurodollar rate, plus a
margin. Delphi also has the right under the credit facilities to request that
lenders provide from time to time alternative rates on loans. The rates offered
by the lenders on these loans will either be fixed rates or rates based on a
Eurodollar rate, plus, at the discretion of the offering lender, a margin. In
addition to interest payments, Delphi is obligated to pay certain facility fees
throughout the term of the facilities.
9. PENSION BENEFITS
During the periods presented, substantially all of Delphi's U.S. employees
participated in GM's defined benefit pension plans. Plans covering U.S.
represented employees generally provide benefits of negotiated, stated amounts
for each year of service, as well as supplemental benefits for employees who
retire with 30 years of service before normal retirement age. The benefits
provided by the plans covering U.S. salaried employees are generally based on
years of service and salary history. Certain Delphi employees also participate
in GM's nonqualified pension plans covering executives, which are unfunded. Such
plans are based on targeted wage replacement percentages, and are generally not
significant to Delphi. GM's funding policy with respect to its qualified plans
is to contribute annually, not less than the minimum required by applicable laws
and regulations.
Certain of Delphi's international subsidiaries sponsor defined benefit
pension plans, which provide benefits based on negotiated amounts for each year
of service. The unfunded plans have projected benefit obligations of
approximately $80 million and $76 million at December 31, 1996 and 1997,
respectively. The funded plans have assets in excess of projected benefit
obligations of approximately $45 million and $25 million at December 31, 1996
and 1997, respectively.
During the periods presented, Delphi participated in GM's U.S. defined
benefit pension plans for hourly and salaried employees. GM charged Delphi
approximately $421 million, $337 million and $433 million, in 1995, 1996 and
1997, respectively, related to Delphi hourly employees and retirees in the U.S.,
and approximately $33 million, $27 million and $(11) million in these respective
years for U.S. salaried employees and retirees.
The Separation Agreement provides generally that pension plan assets and
liabilities related to Delphi's U.S. salaried active and inactive employees
retiring after January 1, 1999 will be assumed by Delphi. Delphi will establish
and administer defined benefit pension plans for its salaried employees under
the same terms that existed for the GM plans at the time of separation, subject
to all plan terms. The consolidated financial statements reflect the assets and
liabilities related to U.S. salaried employees that Delphi will assume pursuant
to the Separation Agreement, and exclude employee benefit obligations and assets
related to employees retired as of January 1, 1999. Generally, Delphi's U.S.
hourly employees will continue to participate in the defined benefit pension
plan for hourly workers administered by GM until the Distribution. Delphi is
responsible for assuming the unfunded hourly pension liability associated with
Delphi hourly employees either through the transfer of specified obligations and
plan assets to a Delphi plan at the date of the Distribution, or through an
equivalent series of future payments to GM under certain circumstances. Delphi's
obligation to GM related to
F-27
<PAGE> 182
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
the U.S. hourly pension plan is specified in the Separation Agreement to equal
the projected benefit obligation related to Delphi U.S. hourly active and
inactive employees, using applicable pension actuarial assumptions, less an
amount equal to the level of plan assets that would be received by Delphi under
applicable laws and regulations had the plan transfer occurred on January 1,
1999, adjusted for subsequent asset returns. Such obligation totaled $1.5
billion and $1.7 billion at December 31, 1996 and 1997, respectively. Delphi
intends to work with GM to ensure that any plan transfers are accomplished in
accordance with applicable law and regulations.
The funded status related to the pension obligation for Delphi's salaried
employees at December 31 is set forth below. The measurement date utilized for
such disclosures is December 31.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997
ASSETS ASSETS
EXCEED EXCEED
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of:
Vested benefits.................................... $1,388 $1,543
Nonvested benefits................................. 345 384
------ ------
Accumulated benefit obligation....................... 1,733 1,927
Effect of projected benefits......................... 412 459
------ ------
Total projected benefit obligation (PBO)............. 2,145 2,386
Plan assets at fair value............................ 2,218 2,475
------ ------
PBO less than plan assets............................ 73 89
Unamortized net loss................................. 344 267
Unamortized prior service cost....................... 139 129
Unrecognized asset at date of adoption............... (54) (40)
------ ------
Net pension asset.................................... $ 502 $ 445
====== ======
</TABLE>
The following assumptions were used to determine the pension expense and
the actuarial value of the PBO for the U.S. plans in which Delphi's salaried
employees participate:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Weighted-average discount rate.............................. 7.5% 7.0%
Rate of increase in future compensation levels.............. 5.0% 5.0%
Expected long-term rate of return on plan assets............ 10.0% 10.0%
</TABLE>
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of Delphi's U.S. employees participate in GM's various
postretirement medical, dental, vision and life insurance plans. The cost of
such benefits is recognized in the consolidated financial statements during the
period employees provide service to Delphi. Certain of Delphi's non-U.S.
subsidiaries have postretirement plans, although most participants are covered
by government sponsored or administered programs. The cost of such programs
generally is not significant to Delphi.
Delphi's postretirement benefit costs were determined based on actuarial
methods and include costs related to Delphi's salaried and hourly employees and
retirees for all periods presented.
F-28
<PAGE> 183
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost........................................ $ 172 $ 185 $ 175
Interest cost....................................... 902 859 896
Net amortization.................................... (34) (26) (24)
Curtailments........................................ (10) (3) --
------ ------ ------
Total postretirement benefit cost.............. $1,030 $1,015 $1,047
====== ====== ======
</TABLE>
The Separation Agreement provides, in general, that GM will assume
responsibility for postretirement benefit costs related to U.S. salaried and
U.S. hourly retired employees. The postretirement benefit obligation for Delphi
based on such terms of the Separation Agreement is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Fully eligible active plan participants................... $1,348 $1,373
Other active plan participants............................ 2,959 3,237
------ ------
APBO........................................................ 4,307 4,610
Unamortized prior service costs due to plan changes......... 79 64
Unamortized net amount resulting from changes in plan
experience and actuarial assumptions...................... 263 114
------ ------
Net postretirement benefit obligation(1).................... $4,649 $4,788
====== ======
</TABLE>
- ------------------
(1) During 1997, Delphi contributed $925 million to a Voluntary Employees'
Beneficiary Association (VEBA) trust. The contribution was made in
connection with GM's pre-funding of a portion of its other post-retirement
benefit liability. In accordance with the terms of the Separation Agreement,
GM will retain 100% of the pre-funding and accordingly, Delphi's other
postretirement benefit liability does not reflect an allocation of the VEBA
trust assets.
The principal assumptions used were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate.......................... 7.5% 7.8% 7.2%
Weighted-average rate of increase in future compensation
levels related to pay-related life insurance.......... 4.3% 4.4% 4.4%
Base weighted-average health care cost trend rate(a).... 6.5% 6.5% 5.5%
Ultimate sustained weighted-average health care cost
trend rate in 2004(b)................................. 5.0% 5.0% 5.0%
</TABLE>
- ------------------
(a) Current year trend rate assumed at beginning of year was adjusted to actual
to determine year-end obligations.
(b) Rate increases to 6.0% in 1999 and then decreases on a linear basis through
2004, to the ultimate weighted-average trend rate of 5.0%.
F-29
<PAGE> 184
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
A one percentage point increase in the assumed health care trend rate would
have increased the aggregate service and interest cost components of non-pension
postretirement benefit expense for 1997 by $139 million, and would have
increased the APBO by $725 million as of and for the year ended December 31,
1997.
Delphi has disclosed in the consolidated financial statements certain
amounts associated with estimated future postretirement benefits other than
pensions and characterized such amounts as "costs" or "obligations."
Notwithstanding the recording of such amounts and the use of these terms, Delphi
does not admit or otherwise acknowledge that such amounts or existing
postretirement benefit plans of GM, other than pensions, represent legally
enforceable liabilities of Delphi.
11. COMMITMENTS AND CONTINGENCIES
Rental expense totaled $82 million, $98 million and $99 million for the
years ended December 31, 1995, 1996 and 1997, respectively. Delphi had minimum
lease commitments under noncancelable operating leases at December 31, 1997
totaling $329 million which become due as follows: 1998--$54 million; 1999--$54
million; 2000--$49 million; 2001--$45 million; 2002--$45 million and
thereafter--$82 million.
Delphi is from time to time subject to various legal actions and claims
incidental to its business, including those arising out of alleged defects,
product warranties, employment-related matters and environmental matters.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. After discussions with
counsel, it is the opinion of management that the outcome of such matters will
not have a material adverse impact on the consolidated financial position,
results of operations or cash flows of Delphi.
12. OTHER COMPREHENSIVE INCOME (LOSS)
The change in other comprehensive income (loss), net of related tax effect,
is as follows at December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
PRE-TAX TAX EFFECT NET
AMOUNT (CREDIT) AMOUNT
------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Other comprehensive income (loss)--foreign
currency translation adjustments:
1995....................................... $ 42 $(16) $ 26
1996....................................... (50) 19 (31)
1997....................................... (134) 51 (83)
</TABLE>
F-30
<PAGE> 185
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
13. OTHER INCOME, NET
Other income, net included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Claims and commissions................................ $ 53 $ 76 $ 80
Gain (loss) on disposition of assets, net............. 39 (44) 52
Interest income....................................... 53 49 57
Earnings of non-consolidated affiliates............... 47 57 27
Other expense......................................... (91) (23) (22)
---- ---- ----
Other income, net..................................... $101 $115 $194
==== ==== ====
</TABLE>
14. STOCK INCENTIVE PLANS
Certain eligible employees of Delphi are participants in the General Motors
1997 Stock Incentive Plan ("GMSIP"), formerly the General Motors Amended 1987
Stock Incentive Plan. Pursuant to the GMSIP, shares, rights, or options to
acquire GM $1 2/3 common stock may be granted through May 31, 2002. The option
price is equal to 100% of the fair market value of GM $1 2/3 common stock on the
date the options are granted. These non-qualified options generally expire 10
years from the dates of grant and are subject to earlier termination under
certain conditions. Upon completion of the Distribution, all outstanding options
on GM $1 2/3 common stock previously granted to Delphi employees are likely to
be converted to equivalent stock options on Delphi common stock subject to the
terms of the Separation Agreement.
15. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services,
geographic areas, and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Delphi's chief operating decision making group is the Delphi
Strategy Board, which is comprised of the Chief Executive Officer and 20 senior
executives from the three operating segments and the world headquarters staff.
Certain senior executives for each operating segment are also members of a
Strategy Board or equivalent committee that manages the profitability and cash
flow of each respective segment's various product lines and businesses. The
three operating segments are managed separately because of differences in the
nature of the respective products.
Delphi's reportable operating segments ("product sectors") are Electronics
& Mobile Communication; Safety, Thermal & Electrical Architecture; and Dynamics
& Propulsion. The Electronics & Mobile Communication product sector supplies
various electronic products, as well as audio and communication systems for
vehicles. The Safety, Thermal & Electrical Architecture product sector offers a
wide range of products relating to the vehicle interior and powertrain cooling
systems and climate control systems. In addition, the segment produces wiring
harnesses and connectors for electrical power and signal distribution. The
Dynamics & Propulsion product sector offers a wide range of energy and engine
management systems, chassis control systems and steering products.
F-31
<PAGE> 186
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The accounting policies of the product sectors are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results for the product sectors have been prepared using
a management approach, which is consistent with the basis and manner in which
management internally disaggregates financial information for the purposes of
assisting in making internal operating decisions. Generally, Delphi evaluates
performance based on stand-alone product sector net income and accounts for
intersegment sales and transfers as if the sales or transfers were to third
parties, that is, at current market prices. Net sales are attributed to
geographic areas based on the location of the assets producing the revenues.
Financial information segregated by reportable product sectors is as
follows:
<TABLE>
<CAPTION>
SAFETY,
ELECTRONICS & THERMAL
MOBILE & ELECTRICAL DYNAMICS &
1995 COMMUNICATION ARCHITECTURE PROPULSION OTHER(A) TOTAL
- ---- ------------- ------------ ---------- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales to GM and
affiliates................... $4,714 $10,967 $10,975 $ -- $26,656
Net sales to other customers... 519 2,344 2,142 -- 5,005
Inter-sector net sales......... 246 122 25 (393) --
------ ------- ------- ----- -------
Total net sales........... $5,479 $13,433 $13,142 $(393) $31,661
====== ======= ======= ===== =======
Depreciation and
amortization................. $ 151 $ 267 $ 355 $ -- $ 773
Interest expense............... 48 108 127 10 293
Income taxes (tax benefit)..... 236 296 161 (54) 639
Net income (loss)(b)........... 482 605 330 (110) 1,307
Sector assets.................. 2,556 5,734 6,761 584 15,635
Capital expenditures........... 265 355 532 3 1,155
</TABLE>
<TABLE>
<CAPTION>
SAFETY,
ELECTRONICS & THERMAL
MOBILE & ELECTRICAL DYNAMICS &
1996 COMMUNICATION ARCHITECTURE PROPULSION OTHER(A) TOTAL
- ---- ------------- ------------ ---------- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales to GM and
affiliates................... $4,540 $10,009 $11,199 $ -- $25,748
Net sales to other customers... 490 2,733 2,061 -- 5,284
Inter-sector net sales......... 285 200 33 (518) --
------ ------- ------- ----- -------
Total net sales........... $5,315 $12,942 $13,293 $(518) $31,032
====== ======= ======= ===== =======
Depreciation and
amortization................. $ 196 $ 325 $ 322 $ -- $ 843
Interest expense............... 47 102 115 12 276
Income taxes (tax benefit)..... 106 166 67 (80) 259
Net income (loss)(b)........... 349 548 222 (266) 853
Sector assets.................. 2,615 5,687 6,396 692 15,390
Capital expenditures........... 195 418 548 16 1,177
</TABLE>
F-32
<PAGE> 187
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
SAFETY,
ELECTRONICS & THERMAL
MOBILE & ELECTRICAL DYNAMICS &
1997 COMMUNICATION ARCHITECTURE PROPULSION OTHER(a) TOTAL
---- ------------- ------------ ---------- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales to GM and
affiliates................... $4,652 $ 9,756 $11,499 $ -- $25,907
Net sales to other customers... 539 2,776 2,225 -- 5,540
Inter-sector net sales......... 348 196 9 (553) --
------ ------- ------- ----- -------
Total net sales........... $5,539 $12,728 $13,733 $(553) $31,447
====== ======= ======= ===== =======
Depreciation and
amortization................. $ 481 $ 539 $ 950 $ -- $ 1,970
Interest expense............... 41 109 119 18 287
Income taxes (tax benefit)..... 11 48 3 (18) 44
Net income (loss)(b)........... 53 234 15 (87) 215
Sector assets.................. 2,063 5,749 6,328 886 15,026
Capital expenditures........... 122 464 778 19 1,383
</TABLE>
- ------------------
(a) Other includes activity not allocated to the product sectors and the
elimination of inter-sector transactions.
(b) Our operating results for the years ended December 31, 1996 and 1997 were
impacted by a number of special items, including the Competitiveness Study,
divestitures and plant closings (see Note 3), as well as work stoppages at
certain GM and Delphi facilities (see Note 2). The net unfavorable impact on
net income for each product sector was as follows:
<TABLE>
<CAPTION>
SAFETY,
ELECTRONICS & THERMAL &
YEAR ENDED MOBILE ELECTRICAL DYNAMICS &
DECEMBER 31, COMMUNICATION ARCHITECTURE PROPULSION TOTAL
------------ ------------- ------------ ---------- -----
(IN MILLIONS, NET OF RELATED TAXES)
<S> <C> <C> <C> <C>
1996................................. $ 98 $282 $138 $518
1997................................. $239 $271 $442 $952
</TABLE>
F-33
<PAGE> 188
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Information concerning principal geographic areas (net sales data for the
year ended December 31; net property data as of December 31) is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- -------------------
NET NET NET NET NET NET
SALES PROPERTY SALES PROPERTY SALES PROPERTY
----- -------- ----- -------- ----- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
North America:
United States.......... $23,387 $3,578 $22,139 $3,777 $21,925 $3,186
Canada................. 1,211 88 719 9 806 14
Mexico................. 2,272 266 2,714 264 3,448 263
------- ------ ------- ------ ------- ------
Total North
America........... 26,870 3,932 25,572 4,050 26,179 3,463
Europe:
France................. 661 254 713 284 645 267
Germany................ 1,297 197 1,502 211 1,365 181
Spain.................. 572 147 637 145 575 131
United Kingdom......... 331 34 349 47 324 7
Other.................. 1,379 263 1,454 261 1,311 234
------- ------ ------- ------ ------- ------
Total Europe........ 4,240 895 4,655 948 4,220 820
South America:
Brazil................. 235 73 399 91 598 91
Other.................. 3 4 43 13 64 26
------- ------ ------- ------ ------- ------
Total South
America........... 238 77 442 104 662 117
All Other................ 313 98 363 139 386 200
------- ------ ------- ------ ------- ------
Total............... $31,661 $5,002 $31,032 $5,241 $31,447 $4,600
======= ====== ======= ====== ======= ======
</TABLE>
Historically, Delphi has relied on GM for a substantial portion of its
total revenues. Delphi expects that a significant portion of its future revenues
will continue to be generated by GM. Any substantial reduction in orders by GM
could materially adversely affect Delphi's operating results.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments reflects the estimated
amounts which Delphi would receive or pay to terminate contracts which it will
assume under the Separation Agreement; such estimated amounts take into account
the current unrealized gains or losses on open contracts that are deferred and
recognized when the offsetting gains or losses are recognized on the related
hedged items. The fair value of foreign exchange forward contracts is estimated
based on foreign exchange rate quotes at the reporting date. At December 31,
1996 and 1997, the total estimated fair value of open contracts were generally
not significant to Delphi. No amounts were recorded for such contracts on
Delphi's consolidated balance sheets at these dates.
For certain international long-term debt, which was recorded at $177
million and $230 million, at December 31, 1996 and 1997, respectively, the
related fair value approximated $179 million and $232 million. For all other
financial instruments recorded at December 31, 1996 and 1997, fair value
approximates book value.
F-34
<PAGE> 189
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
17. DERIVATIVES INSTRUMENTS
Delphi, through its relationship with GM, is a party to financial
instruments with off-balance sheet risk, which are used in the normal course of
business to manage exposure principally to foreign exchange rate fluctuations.
The primary class of such derivatives used are foreign exchange forward
contracts, which involve varying degrees of market risk, and elements of credit
risk in the event of counterparty default. Derivative transactions are entered
into in order to hedge underlying business exposures. The market risk in these
instruments is offset by opposite movements in the underlying exposure. Cash
receipts and payments on these contracts normally occur at maturity.
Delphi is an international corporation with operations in 36 countries, and
has foreign currency exposure related to buying and selling in currencies other
than the local currencies. Delphi's most significant foreign exposures relate to
Mexico, Germany, France, Spain and South Korea. The magnitude of these exposures
varies over time, depending on the strength of local automotive markets.
On Delphi's behalf, GM enters into agreements by which it seeks to manage
certain of its foreign exchange exposures in accordance with established policy
guidelines. These agreements primarily hedge cash flows such as debt, firm
commitments and anticipated transactions involving components and fixed assets.
As a general practice, GM has not hedged the foreign exchange exposure related
to either the translation of overseas earnings into U.S. dollars, or the
translation of overseas equity positions back to U.S. dollars. On Delphi's
behalf, GM uses foreign exchange forward contracts as well as purchased and
written foreign exchange options to manage such exposures. Foreign exchange
forward contracts are legal agreements between two parties to purchase or to
sell a foreign currency for a price specified at the contract date, with
delivery and settlement in the future.
At December 31, 1996 and 1997, GM held foreign exchange forward contracts
related to Delphi totaling $11 million and $31 million, respectively. The
foreign exchange options contracts related to Delphi were not significant at
December 31, 1996 and 1997. Forward contracts and options related to Delphi's
business at the time of the Separation will be assumed by Delphi pursuant to the
Separation Agreement. Deferred hedging gains and losses on outstanding foreign
exchange forward and options contracts were not significant at December 31, 1996
and 1997. Such deferred amounts will be included in the cost of such assets when
purchased, and subsequently recognized in operations as part of the basis of
these assets. In the event a contract is terminated early or the anticipated
transaction is no longer considered likely to occur, the derivative is then
marked to market. Foreign exchange forward contracts, which hedge foreign
exchange exposures of anticipated inventory or fixed asset transactions, are
marked to market and recognized with other gains or losses on foreign exchange
transactions in the consolidated statement of income. Firm commitments typically
extend for periods of up to three years.
The foreign contracts or options previously discussed contain an element of
risk that counterparties may be unable to meet the terms of the agreements.
However, such risk is minimized by limiting the counterparties to major
international banks or financial institutions that meet established credit
guidelines, and by limiting the risk exposure to any one bank or financial
institution. GM generally does not require or place collateral for these
financial instruments. Management does not expect to incur any losses as a
result of counterparty default.
Delphi has business activities with customers and affiliates around the
world. Although Delphi does have large volumes of its receivables from a limited
number of vehicle manufacturer customers, particularly GM, such receivables are
managed under standard commercial terms. Consequently, in management's opinion,
any concentration of credit risk relating to these customers is appropriately
managed.
F-35
<PAGE> 190
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
18. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1996
Total net sales............. $7,389 $8,773 $7,564 $7,306 $31,032
Cost of sales, excluding
items listed below........ 6,575 7,464 6,636 6,796 27,471
Selling, general and
administrative............ 303 357 359 426 1,445
Depreciation and
amortization.............. 194 190 243 216 843
------ ------ ------ ------ -------
Operating income (loss)..... 317 762 326 (132) 1,273
Interest expense............ (70) (71) (67) (68) (276)
Other income, net........... 27 41 46 1 115
------ ------ ------ ------ -------
Income (loss) before income
taxes..................... 274 732 305 (199) 1,112
Income taxes (benefit)...... 102 258 5 (106) 259
------ ------ ------ ------ -------
Net income (loss)........... $ 172 $ 474 $ 300 $ (93) $ 853
====== ====== ====== ====== =======
1997
Total net sales............. $7,995 $8,190 $7,183 $8,079 $31,447
Cost of sales, excluding
items listed below........ 6,957 7,061 6,489 7,203 27,710
Selling, general and
administrative............ 334 345 332 404 1,415
Depreciation and
amortization.............. 207 197 217 1,349 1,970
------ ------ ------ ------ -------
Operating income (loss)..... 497 587 145 (877) 352
Interest expense............ (80) (57) (69) (81) (287)
Other income, net........... 7 49 9 129 194
------ ------ ------ ------ -------
Income (loss) before income
taxes..................... 424 579 85 (829) 259
Income taxes (benefit)...... 137 206 9 (308) 44
------ ------ ------ ------ -------
Net income (loss)........... $ 287 $ 373 $ 76 $ (521) $ 215
====== ====== ====== ====== =======
</TABLE>
F-36
<PAGE> 191
PROSPECTUS COVER GATEFOLD
INSIDE BACK
A LONG, PROUD HISTORY OF INNOVATION.
[VIEW OF VEHICLE INSTRUMENT PANEL]
YESTERDAY:
Delphi Automotive Systems has been providing innovative technology to General
Motors for almost a century. Some of our technologies include:
First electric self-starter
First in-dash radio
First turn signal
First catalytic converter
First airbag
First steering column
First independent front-
wheel suspension
First energy-absorbing
steering column
First electric power
sliding door
First integrated child
safety seat
TODAY:
Because of Delphi's diverse technologies, we have the ability to integrate
components into modules and systems. This allows us to provide comprehensive
systems-based solutions for our customers.
[CAR IN LANDSCAPE]
TOMORROW:
With its broad vehicle knowledge and system capabilities, Delphi is
strategically positioned to develop automotive products for the 21st century.
We call them our Next Century Winners and they include:
ADVANCED SAFETY INTERIOR - Our Occupant Protection Systems of tomorrow will
tailor airbag deployment based on whether a seat is occupied, the size of the
occupant, the distance an individual is from an air bag, whether a seat belt is
being used and the severity of a collision.
[CRYSTAL BALL IN HAND]
MOBILE MULTI-MEDIA - Delphi's Network Vehicle received the "InfoVision Award"
from the International Engineering Consortium. In the future we expect to bring
satellite communications, E-mail, the World Wide Web, movies, games and more
into the vehicle you drive.
[INTERIOR VIEW OF NETWORK VEHICLE]
<PAGE> 192
PROSPECTUS COVER GATEFOLD
OUTSIDE BACK
[DELPHI AUTOMOTIVE SYSTEMS LOGO]
<PAGE> 193
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE INTERNATIONAL COVER]
PROSPECTUS (Subject to Completion)
Issued January 14, 1999
100,000,000 Shares
[LOGO]
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
COMMON STOCK
------------------------
DELPHI AUTOMOTIVE SYSTEMS CORPORATION IS OFFERING 100,000,000 SHARES OF ITS
COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET EXISTS
FOR OUR SHARES. WE ESTIMATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $14 AND $18 PER SHARE.
------------------------
WE HAVE APPLIED FOR THE LISTING OF OUR COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE UNDER THE TRADING SYMBOL "DPH."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS DELPHI
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................... $ $ $
Total........................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Delphi has granted the U.S. underwriters an option to purchase an additional
15,000,000 shares to cover over-allotments. Morgan Stanley & Co. Incorporated
expects to deliver the shares to purchasers on , 1999. Goldman, Sachs
& Co. has served as financial advisor to Delphi for this offering.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN SACHS INTERNATIONAL MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE SCHRODERS
, 1999
<PAGE> 194
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee and the NASD
registration fee. GM has generally agreed to pay these costs and expenses. The
underwriters have agreed to reimburse GM for certain of its expenses incurred in
connection with the Offering.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ------
<S> <C>
Securities and Exchange Commission registration fee......... $ 575,460
NASD registration fee....................................... 30,500
NYSE original and continued listing fees.................... 962,135
Blue Sky qualification fees and expenses.................... 5,000
Legal fees and expenses..................................... 1,650,000
Accounting fees and expenses................................ 2,000,000
Transfer agent and registrar fees........................... 60,500
Printing and engraving expenses............................. 3,020,000
Miscellaneous expenses...................................... 1,696,405
-----------
Total.................................................. $10,000,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
GENERAL CORPORATION LAW
Delphi is incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reasons of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer, director,
employee or agent is adjudged to be liable to the corporation. Where an officer,
director, employee or agent is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director has actually and reasonably
incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
II-1
<PAGE> 195
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
CERTIFICATE OF INCORPORATION
Delphi's Certificate of Incorporation and Bylaws provide for the
indemnification of officers and directors to the fullest extent permitted by the
General Corporation Law.
All of Delphi's directors and officers will be covered by insurance
policies maintained by Delphi against certain liabilities for actions taken in
their capacities as such, including liabilities under the Securities Act of
1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its incorporation and organization, on September 16,
1998, Delphi issued 10 shares of common stock to General Motors Corporation.
Delphi believes that this issuance was exempt from registration under Section
4(2) of the Securities Act as a transaction not involving any public offering.
In connection with this Offering, Delphi declared a stock dividend pursuant to
which an additional 464,999,990 shares of our common stock were issued to
General Motors.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation of Delphi.*
3.2 Form of Bylaws of Delphi.*
4.1 Form of Delphi's Common Stock certificate.
4.2 Form of Rights Agreement relating to Delphi's Stockholder
Rights Plan.*
5.1 Opinion of Kirkland & Ellis re: legality of shares being
registered.*
10.1 Master Separation Agreement among General Motors, Delphi,
Delphi Automotive Systems, LLC, Delphi Technologies, Inc.
and Delphi Automotive Systems (Holding), Inc.*
10.2 Component Supply Agreement between Delphi and General
Motors.
10.3 Delphi/SPO Business Relationship Agreement.
10.4 U.S. Employee Matters Agreement between Delphi and General
Motors.
10.5 Agreement for the Allocation of United States Federal, State
and Local Income Taxes between General Motors and Delphi.**
10.6 Amended and Restated Agreement for the Allocation of United
States Federal, State and Local Income Taxes between General
Motors and Delphi.**
10.7 Form of IPO and Distribution Agreement between Delphi and
General Motors.*
10.8 Form of Registration Rights Agreement between Delphi and
General Motors.*
10.9 Form of Change in Control Agreement between Delphi and
certain of its officers and other executives.*
10.10 Delphi Automotive Systems Corporation Stock Incentive
Plan.**
10.11 Delphi Automotive Systems Corporation Performance
Achievement Plan.**
10.12 Delphi Automotive Systems Corporation Annual Incentive
Plan.**
</TABLE>
II-2
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.13 Delphi Automotive Systems Corporation Deferred Compensation
Plan for Non-Employee Directors.
10.14 $3.5 Billion Competitive Advance and Revolving Credit
Facility among Delphi and the lenders named therein.
10.15 $1.5 Billion Competitive Advance and Revolving Credit
Facility among Delphi and the lenders named therein.
21.1 Subsidiaries of Delphi.**
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Power of Attorney.**
27.1 Financial Data Schedule (1995).**
27.2 Financial Data Schedule (1996).**
27.3 Financial Data Schedule (1997).**
27.4 Financial Data Schedule (September 30, 1997).**
27.5 Financial Data Schedule (September 30, 1998).**
99.1 Consent of Virgis W. Colbert to be named as a director
nominee.**
99.2 Consent of Shoichiro Irimajiri to be named as a director
nominee.**
99.3 Consent of Oscar De Paula Bernardes Neto to be named as a
director nominee.**
99.4 Consent of John D. Opie to be named as a director nominee.**
99.5 Consent of Roger S. Penske to be named as a director
nominee.**
99.6 Consent of Susan A. McLaughlin to be named as a director
nominee.**
</TABLE>
- ------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.
II-3
<PAGE> 197
UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted as to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 14, or otherwise,
the Registrant has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payments by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective;
and
(2) for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Troy, State
of Michigan, on January 14, 1999.
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
By: /s/ J.T. BATTENBERG III
------------------------------------
J.T. Battenberg III
Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
January 14, 1999 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J.T. BATTENBERG III Chairman of the Board, Chief Executive Officer and
- --------------------------------------------------- President
J.T. Battenberg III (Principal Executive Officer)
* Chief Financial Officer and Vice President
- --------------------------------------------------- (Principal Financial Officer)
Alan S. Dawes
* Chief Accounting Officer and
- --------------------------------------------------- Controller
Paul R. Free (Principal Accounting Officer)
* Director
- ---------------------------------------------------
Thomas H. Wyman
* Director
- ---------------------------------------------------
John F. Smith, Jr.
* Director
- ---------------------------------------------------
Harry J. Pearce
* Director
- ---------------------------------------------------
J. Michael Losh
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does hereby execute this
amendment to the registration statement on behalf of the officers and
directors of the registrant listed above pursuant to the Powers of Attorney
previously filed with the Commission.
<TABLE>
<C> <S>
/s/ J.T. BATTENBERG III
- ---------------------------------------------------
J.T. Battenberg III, Attorney in Fact
</TABLE>
II-5
<PAGE> 199
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation of Delphi.*
3.2 Form of Bylaws of Delphi.*
4.1 Form of Delphi's Common Stock certificate.
4.2 Form of Rights Agreement relating to Delphi's Stockholder
Rights Plan.*
5.1 Opinion of Kirkland & Ellis re: legality of shares being
registered.*
10.1 Master Separation Agreement among General Motors, Delphi,
Delphi Automotive Systems, LLC, Delphi Technologies, Inc.
and Delphi Automotive Systems (Holding), Inc.*
10.2 Component Supply Agreement between Delphi and General
Motors.
10.3 Delphi/SPO Business Relationship Agreement.
10.4 U.S. Employee Matters Agreement between Delphi and General
Motors.
10.5 Agreement for the Allocation of United States Federal, State
and Local Income Taxes between General Motors and Delphi.**
10.6 Amended and Restated Agreement for the Allocation of United
States Federal, State and Local Income Taxes between General
Motors and Delphi.**
10.7 Form of IPO and Distribution Agreement between Delphi and
General Motors.*
10.8 Form of Registration Rights Agreement between Delphi and
General Motors.*
10.9 Form of Change in Control Agreement between Delphi and
certain of its officers and other executives.*
10.10 Delphi Automotive Systems Corporation Stock Incentive
Plan.**
10.11 Delphi Automotive Systems Corporation Performance
Achievement Plan.**
10.12 Delphi Automotive Systems Corporation Annual Incentive
Plan.**
10.13 Delphi Automotive Systems Corporation Deferred Compensation
Plan for Non-Employee Directors.
10.14 $3.5 Billion Competitive Advance and Revolving Credit
Facility among Delphi and the lenders named therein.
10.15 $1.5 Billion Competitive Advance and Revolving Credit
Facility among Delphi and lenders named therein.
21.1 Subsidiaries of Delphi.**
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney.**
27.1 Financial Data Schedule (1995).**
27.2 Financial Data Schedule (1996).**
27.3 Financial Data Schedule (1997).**
27.4 Financial Data Schedule (September 30, 1997).**
27.5 Financial Data Schedule (September 30, 1998).**
99.1 Consent of Virgis W. Colbert to be named as a director
nominee.**
99.2 Consent of Shoichiro Irimajiri to be named as a director
nominee.**
99.3 Consent of Oscar De Paula Bernardes Neto to be named as a
director nominee.**
99.4 Consent of John D. Opie to be named as a director nominee.**
99.5 Consent of Roger S. Penske to be named as a director
nominee.**
99.6 Consent of Susan A. McLaughlin to be named as a director
nominee.**
</TABLE>
- ------------------
* To be filed by amendment.
** Filed previously.
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
SHARES
NUMBER
DPH
[PHOTO]
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 000000 00 0
BOSTON, MASSACHUSETTS SEE REVERSE FOR CERTAIN DEFINITIONS
OR IN NEW YORK, NEW YORK
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Delphi Automotive Systems Corporation transferable in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are subject to all the
terms, conditions and limitations of the Certificate of Incorporation and
all Amendments thereto and Supplements thereof. This Certificate is not
valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the signatures of its duly authorized officers. [SEAL]
Dated:
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT /s/ Diane L. Kaye /s/ J.T. Battenberg III
AND REGISTRAR
BY /s/ Nancy Rizza
AUTHORIZED OFFICER SECRETARY CHAIRMAN OF THE BOARD
American Bank Note Company
<PAGE> 2
<TABLE>
<S><C>
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............Custodian...................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ....................................
in common (State)
UNIF TRF MIN ACT - ............Custodian (until age.......)
(Cust)
............under Uniform Transfers
(Minor)
to Minors Act .........................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________________________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________________
| |
| |
______________________________________________
________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated ____________________________________________________
X ____________________________________________________
X ____________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed
By ________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad.t5.
</TABLE>
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
COMPONENT SUPPLY AGREEMENT
This Component Supply Agreement ("Agreement") dated as of January 1, 1999 (the
"Effective Date") is entered into by and between DELPHI AUTOMOTIVE SYSTEMS
CORPORATION ("Delphi"), a corporation organized under the laws of the State of
Delaware, and GENERAL MOTORS CORPORATION ("GM"), a corporation organized under
the laws of the State of Delaware.
RECITALS
A. GM and its subsidiaries and affiliates worldwide are engaged in, among
other things, the design, manufacture, and sale of motor vehicles and
motor vehicle related products. Prior to the Effective Date, the
business operations which are owned by Delphi were owned by GM.
B. Delphi and its subsidiaries and affiliates worldwide are engaged in
among other things, the design, manufacture, and sale of motor vehicle
related components and systems.
C. As of the Effective Date, Delphi has separated from GM and become a
separate legal entity.
D. Following the separation of Delphi from GM, Delphi wishes to continue
to supply and to assure that its subsidiaries and affiliates have the
right, under certain circumstances, to continue to supply GM with motor
vehicle related components and systems and GM wishes to continue
acquiring such components and systems from Delphi and its subsidiaries
and affiliates.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement and intending to be legally bound, Delphi and GM agree:
1. EXISTING AGREEMENTS
1.1 Delphi and GM shall continue to honor the terms and conditions of all
existing Purchase Orders and other contractual agreements (e.g., Long Term and
Lifetime Contracts and other formal and verifiable informal agreements) that are
in effect as of the Effective Date ("Existing Agreements") regarding the
purchase and supply of motor vehicle related components and systems
("Components"), including all Components that have been awarded to Delphi,
regardless of whether production for such program has commenced, as if Delphi
and GM were separate legal entities at the time such agreements were made.
1
<PAGE> 2
1.2 The terms and conditions of GM's standard Purchase Order (a copy of
which is attached to this Agreement as Attachment-A) are incorporated
herein and in the Existing Agreements by this reference; provided,
however, that in the event the specific agreed upon terms of an
Existing Agreement conflict with the terms of the standard GM Purchase
Order or the parties have agreed to omit all or some of the terms of
the standard GM purchase order, the specific agreed upon terms
(including agreed upon omissions from the standard GM Purchase Order
terms, if any), of the Existing Agreement shall control. Additionally,
the parties agree that in situations where the parties are silent with
respect to the applicability of all of the standard GM Purchase Order
terms and conditions, it shall be presumed that such terms and
conditions apply.
1.3 The unit prices for all Components produced for each program will be
equal to the existing prices already established by Existing
Agreements, including any pre-determined price reductions.
1.4 All Existing Agreements will retain their current status (e.g.,
lifetime, long term or one year purchase order).
1.5 Unless otherwise provided in Existing Agreements, no adjustments will
be made for changes in costs, including increases in Delphi's costs for
labor, material, or overhead; provided, however, both parties agree to
reasonably discuss potential price adjustments associated with
hyper-inflationary economies or economies subject to extreme
devaluation.
1.6 Delphi and GM will continue to honor all nomination letters currently
in place regardless of whether formal purchase orders have been issued.
2. PAYMENT TERMS
2.1 The provisions of Section 1.2 above notwithstanding, except as provided
below, payment terms on all existing contracts, including those related
to General Motors International Operations ("GMIO"), will be modified
to MNS2 effective immediately upon the Effective Date. For purposes of
this Agreement MNS2 shall mean GM's Multilateral Netting System, which
provides, on average, that payment shall be made on the second day of
the second month following, in the case of GM's North American
facilities, the shipment date of the goods or date of services, and for
all of GM's other locations, the receipt date of the goods or date of
services.
(a) Saturn contracts will be modified to MNS2, but shall retain the
consumption methodology currently in place between Saturn and Delphi.
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(b) GMIO contracts related to South America will retain existing
payment terms. SPO will follow the same payment terms as OEM (e.g., buy
in South America for South America).
(c) GMIO contracts related to operations in China, India and Indonesia
will retain existing payment terms.
2.2 Payment terms on all new business will be MNS2, unless otherwise
agreed.
3. RIGHT TO RESOURCE FOR NON-COMPETITIVENESS DURING THE TERM OF A CONTRACT
3.1 GM retains the right to resource any and all Components in the event
Delphi fails to remain competitive in terms of quality, service, design and
technology.
3.2 For purposes of the above provision, competitiveness is defined by
demonstrable product and performance levels available to GM from other
suppliers.
3.3 Following notice by GM, Delphi shall be provided a reasonable period of
time to cure any such non-competitiveness before the Components will be
resourced. In this regard, the parties agree to utilize the following processes
to resolve issues of non-competitiveness:
(a) With respect to non-competitiveness in quality and service, the
parties agree to employ the GM 16 Step Process or the then current
process utilized by GM.
(b) With respect to non-competitiveness in design and technology, the
parties agree to work jointly to mutually identify acceptable
solutions. Components will only be resourced if this endeavor is
unsuccessful and a mutually acceptable solution cannot be developed
within a reasonable period of time.
3.4 Under no circumstances will GM be responsible for any supplemental or
compensatory payments to Delphi in the event that Components are resourced
because of non-competitiveness.
4. NEW TECHNOLOGY
4.1 In the event that GM wishes to introduce a technological change to a
Component which is covered by a then existing contract with Delphi, Delphi will
have a right of last refusal to implement the new technology or equivalent
technology (acceptable to GM) and continue production through the balance of the
existing contract. If Delphi cannot provide such new or equivalent technology on
a competitive basis, GM shall be free to resource the Component without
liability to Delphi.
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4.2 Disputes regarding new technology under this process will be resolved
by the applicable Vehicle Chief Engineer (GM) and the divisional Director of
Engineering for the product involved (Delphi) plus a facilitator mutually
acceptable to both sides.
5. QUALITY
5.1 To insure a robust quality improvement process, Delphi must participate
in all GM quality improvement programs and GM can require Delphi to achieve
reasonable increased quality standards.
5.2 All increased quality standards established by GM must be comparable to
then current industry standards, but allow GM to maintain its position as a
quality leader.
6. RIGHT OF LAST REFUSAL ON REPLACEMENT BUSINESS
6.1 For a period of 3 years following the Effective Date, Delphi shall be
granted a right of last refusal under competitive purchase order terms for the
first replacement cycle of existing product programs (in the United States and
Canada) currently provided by Delphi.
6.2 In order to invoke the right of last refusal, Delphi must be
competitive in terms of design, quality, price, service and technology.
6.3 The right of last refusal described above, is also intended to include
these additional items: (i) production in the United States and Canada of common
global platforms to the extent Delphi can provide or execute designs that comply
with the required form and function specifications, as reasonably determined by
GM; and (ii) product programs in Mexico where the vehicle is assembled in Mexico
and shipped to the U.S. or Canadian markets for sale; provided, however, that in
all cases covered by this Section 6.3, such programs must also meet all of the
other criteria set forth in this Article 6.
6.4 In the event a particular Delphi product/plant is on "New Business
Hold", that Delphi product/plant shall not be eligible to invoke the right of
last refusal. For purposes of this Agreement, the term "New Business Hold" shall
be applied as set forth in GM's Quality Systems Requirements Manual,
specifically GP5 (Jan. `98), and is contained as a performance step of the Level
2 Controlled Shipping Process. This procedure is common for all suppliers and a
requirement included in GM's standard terms and conditions.
6.5 Except as specifically provided above, the right of last refusal does
not apply to, (i) GMIO programs and (ii) programs in Mexico.
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6.6 Mechanics of Right of Last Refusal.
(a) Upon commencement of a product program covered by the Right of
Last Refusal specified in Section 6.1 above (a "ROLR
Product"), GM will submit to prospective suppliers, including
Delphi, a request for quotation in accordance with its
customary procedures including, but not limited to, the
bundling of ROLR Products for any Component with ROLR Products
for other Components; provided, however, that the bundling of
ROLR Products will involve naturally related components,
systems and modules, consistent with normal industry
practices.
(b) When such bundled sourcing packages including two or more ROLR
Products are offered, Delphi will have the right of last
refusal on any such ROLR Product(s) in the bundle. For those
products in the bundle not currently provided by Delphi, the
right of last refusal contemplated in this Article 6. shall
not apply.
(c) If Delphi wishes to exercise the right of last refusal with
regard to a ROLR Product, Delphi must participate in the
sourcing process, including developmental work, the advance
purchasing/engineering process, and the submission of bids,
all on the same basis as other potential suppliers.
(d) In the event GM determines that a proposal submitted by an
entity other than Delphi is the most favorable (the "Favorable
Proposal"), GM will notify Delphi in writing of the material
terms (including price, other financial considerations
(including, without limitation, the economic impact of price
reductions on other current and future products) material
content, investment, timing non-proprietary technology, and
the existence of proprietary technology) of the Favorable
Proposal (the "Terms Notice"), and will request that Delphi
notify GM in writing whether Delphi wishes to supply such ROLR
Product(s) on terms the same as or substantially the same as
(as mutually determined by the parties in their reasonable
discretion) the terms of the Term Notice.
(e) Following receipt by Delphi of the Terms Notice from GM,
Delphi must notify GM in writing of its willingness and
ability to supply such ROLR Products on such terms within
seven (7) business days if no new technology is included in
the Favorable Proposal, or thirty (30) business days if new
technology is included in the Favorable Proposal.
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(f) If Delphi so notifies GM that it is willing and able to
supply such ROLR Product(s) on such terms, then subject to
Section 6.2 and Section 6.4 above, Delphi will be awarded the
sourcing of such ROLR Product(s) for the relevant contract
term.
(g) If Delphi fails to so notify GM or notifies GM that it is
unwilling or unable to supply such ROLR Product(s) on such
terms, GM may source the ROLR Product(s) on terms no less
favorable to GM than those set forth in the Terms Notice.
(h) If for any reason GM determines to source such ROLR Product
(s) on terms less favorable to GM than the terms of the Terms
Notice, then Delphi will again have the right of last refusal
to supply such ROLR Product(s) in the manner described in this
Section 6.6.
(i) Delphi may, at Delphi's sole option and expense, be an advance
development source (on a non-exclusive basis) for ROLR
Products.
6.7 Under no circumstances will GM be responsible for any supplemental or
compensatory payments to Delphi in the event Delphi fails to exercise its right
of last refusal or can not provide the Components on a competitive basis.
7. NEW BUSINESS
7.1 All new business awarded to Delphi will be governed by the specific
terms and conditions under which that business is awarded.
7.2 During the term of this Agreement, Delphi will continue to be included
on WWP's quotation list, with the exception of Delphi product/plants that are on
"New Business Hold."
7.3 Other than business awarded pursuant to Delphi's exercise of its right
of last refusal, new business awarded to Delphi, if any, will be at GM's sole
discretion.
8. TOOLING AND DUNNAGE
8.1 Each of GM and Delphi will own the tooling which is reflected on that
party's balance sheet as of the Effective Date.
8.2 Delphi shall not use tooling owned by GM to compete against SPO in the
aftermarket.
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8.3 Delphi shall not use tooling to produce products for other customers if
such tooling is used to produce products for GM; provided, however,
that Delphi shall be allowed to continue the use of such tooling to the
extent necessary to satisfy already awarded contracts or extensions of
such contracts, where Delphi has, previously used such tooling to
produce such products. Delphi will have the burden of establishing,
upon GM's reasonable request, the existence of a binding contract with
other customer(s) and prior use of particular tooling for those
specific customer(s) prior to the Effective Date. If Delphi is unable
to establish such facts with respect to particular tooling, Delphi will
not have the right to use the applicable tooling. Moreover, Delphi
agrees that it will not expand the use of any tooling described in this
Section to new products, new customers or new contracts, other than for
or with GM.
8.4 In the event that (i) any Force Majeure Event prevents Delphi from
producing or delivering products, or (ii) GM resources products to
another supplier as permitted under this Agreement or any underlying
agreement, Delphi will permit GM to take possession of all tooling
which is used to produce parts for GM; provided, however, that in the
event such tooling is being used by Delphi to produce products for
other customers (as permitted pursuant to Section 8.3 above, it being
understood and agreed that Delphi shall have the burden of proving such
eligibility), GM will to the extent practicable, allow the new supplier
to use such tooling to produce products for sale to Delphi to permit
Delphi to satisfy Delphi's pre-existing contractual commitments to
other customers. For purposes of this Article 8, a Force Majeure Event
shall be defined as those events specified in Paragraph 8 of GM's
standard Purchase Order terms and conditions, a copy of which is
attached as Attachment-A.
8.5 In the case of a Force Majeure Event involving tooling which was paid
for partially by GM and partially by one or more other customers of
Delphi, GM and Delphi will discuss the situation with the other
customer(s) and enter into an agreement incorporating a mutually
acceptable plan to equally protect each party's respective need to
continue to obtain products produced by such tooling.
8.6 GM agrees to return to Delphi all tooling of which GM obtains
possession as a result of a Force Majeure Event as promptly as
commercially reasonable under the circumstances, following the
cessation of that force majeure event; provided, however, that GM shall
not be required to return any such tooling to Delphi until after GM has
satisfied any contractual commitments that GM may have made to other
suppliers regarding products produced from such tooling.
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8.7 Ownership of containers and dunnage existing at the time of the
split-off shall be determined as follows:
(a) Containers and dunnage related to the transportation of
products from Delphi to GM facilities or Tier 1 suppliers
(other than Delphi) will be owned by GM.
(b) Containers and dunnage related to the transportation of
products inside Delphi facilities will be owned by Delphi.
(c) Containers and dunnage related to the transportation of
products between Delphi and its suppliers will be owned by
Delphi.
9. INTELLECTUAL PROPERTY & TECHNICAL INFORMATION
9.1 The provisions related to Intellectual Property and Technical
Information as set forth in GM's standard Purchase Order terms and
conditions (which is attached hereto as Attachment-A) shall control
existing contracts.
9.2 GM and Delphi will each cooperate with the other to create, maintain,
update and share technical information, about the products being
supplied by Delphi and their manufacture without restriction, as
needed, and in compliance with GM's drafting and math data standards.
10. PROCESS FOR DELPHI TO EXIT CERTAIN BUSINESSES
10.1 Exit of a business through closure:
(a) In the event of an extension of production of an existing product
(which is covered by a contract with a fixed term) beyond the term of
the original program life, GM shall have the right to require Delphi to
continue production and sale of that product for a reasonable extension
period, at reasonable commercial terms to be negotiated by the parties.
(b) In the event of a proposed plant closure or elimination of a
product line, Delphi will agree to keep GM timely appraised of its
decision process, review all plans with GM, in good faith reasonably
consider GM's input and concerns, and in good faith reasonably consider
modifying its plans to accommodate GM's timing requirements to resource
the business.
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10.2 Exit of a business through sale:
(a) In the event of a proposed divestiture of a business, Delphi will
keep GM timely appraised of its decision process and in good faith
reasonably consider GM's input and concerns.
(b) Delphi will select a qualified buyer.
(c) Assignment of existing contracts requires GM's prior written
consent which will not be unreasonably withheld.
(d) GM will negotiate a supply agreement with the buyer that will be
intended to mirror the then existing agreements between GM and Delphi
that relate to the business being sold. Any changes to existing
agreements, including price, will be mutually agreed between Delphi and
GM.
10.3 During the term of the assigned contract, Delphi and GM shall dedicate
resources and efforts necessary to assure that GM receives a comparable level of
quality, service, delivery, price and technology; provided, however, that
nothing in this provision shall be deemed a financial guarantee by either party.
11. WARRANTY
11.1 Existing Contracts:
(a) Delphi's warranty responsibility for products supplied under
Existing Agreements will be governed by the terms and conditions of
those Existing Agreements, including Paragraph 9 of GM's standard
Purchase Order terms and conditions (a copy of which is attached hereto
as Attachment-A).
(b) Delphi and GM will continue to work together in good faith to
reduce warranty costs including participation in the Risk/Reward
Warranty Policy and other related programs, where mutually agreed.
11.2 With respect to new business, Delphi's warranty responsibility for
products supplied under new contracts will be governed by the terms and
conditions of those new contracts, including participation in the Risk/Reward
Warranty Policy and related programs, where required.
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12. RAW MATERIALS AND PURCHASED COMPONENTS
To the extent practical and consistent with all applicable laws and regulations,
Delphi and GM shall continue to cooperate and participate in existing programs
related to the acquisition of raw materials and purchased components, consistent
with GM's normal practices and procedures.
13. TERM AND TERMINATION
13.1 The term of this Agreement shall commence on the Effective Date and
continue as long as any Existing Agreement is in effect, including any
extensions of any Existing Agreement.
13.2 Either GM or Delphi may terminate this Agreement in any of the
following events:
(a) the other party materially breaches this Agreement;
(b) the other party becomes insolvent or enters bankruptcy,
receivership, liquidation, composition of creditors, dissolution or
similar proceeding; or
(c) a significant portion of the assets of the other party necessary
for the performance of this Agreement becomes subject to attachment,
embargo or expropriation.
In addition, GM may terminate this Agreement in the following events: (i)
thirty-five percent ( 35 %) or more of the voting shares of Delphi become owned
or controlled, directly or indirectly, by a competitor of GM in the business of
manufacturing motor vehicles; or (ii) all of the Existing Agreements become
subject to termination or cancellation pursuant to their terms.
13.3 A party intending to terminate this Agreement shall first notify the
other party of the grounds for the intended termination. If the other party
fails to remedy such grounds for termination within sixty (60) days after such
notice (or any longer period of time as mutually agreed by the parties), then
the terminating party may terminate this Agreement effective upon notice to the
other party without the need for any judicial action.
13.4 The provisions of this Article 13 are without prejudice to any other
rights or remedies either party may have by reason of the default of the other
party.
13.5 In the event a competitor of GM in the business of manufacturing motor
vehicles acquires a significant interest in Delphi (directly or indirectly)
Delphi will provide GM
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with reasonable assurances that Delphi will utilize its best efforts to preserve
the confidentiality of all information related to products produced for GM and
GM product programs.
14. SERVICE PARTS
14.1 Unless otherwise provided in Existing Agreements, the unit pricing on
service parts that currently are not past model will continue at OEM prices, for
a minimum of three (3) years after such service parts go past model. Thereafter,
unit prices for such service parts will be as agreed between the parties.
14.2 GM and Delphi's respective obligations and responsibilities with regard
to Components sold to AC Delco warehouse distributors and other distribution
channels are set forth in the Aftermarket Agreement between GM and Delphi dated
January 1, 1999.
15. GENERAL PROVISIONS
15.1 No Agency. This Agreement does not constitute either party the agent or
legal representative of the other party. Neither party is authorized to create
any obligation on behalf of the other party.
15.2 Notices. Any notice under this Agreement must be in writing (letter,
facsimile or telegram) and will be effective when received by the addressee at
its address indicated below.
(a) Notice sent to Delphi will be addressed as follows:
Delphi Automotive Systems Corporation:
Treasurer
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48098
Facsimile: 248-813-2499
with a copy to:
General Counsel
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48098
Facsimile: 248-813-2491
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(b) Notice sent to GM will be addressed as follows:
GM: Vice President and Group Executive
Worldwide Purchasing and NAO Production
Control and Logistics
NAO Headquarters
GM Technical Center
30400 Mound Road
Warren, MI 48090
Facsimile: 810-986-6646
with a copy to:
Christopher F. Dubay
Group Counsel - Worldwide Purchasing and NAO
Production Control and Logistics
NAO Headquarters
GM Technical Center
30400 Mound Road
Warren, MI 48090
Facsimile: 810-986-6646
(c) The parties by notice hereunder may designate other addresses
to which notices will be sent.
15.3 Subsidiaries and Affiliates. GM and Delphi each acknowledge and
understand that their respective subsidiaries and affiliates are not parties to
this Agreement and may not be legally bound by the provisions herein unless and
until they agree to be so bound. In this regard, Delphi and GM agree to utilize
their reasonable best efforts to recommend and encourage their respective
subsidiaries and affiliates to agree to be bound by the provisions of this
Agreement. Until such time, both GM and Delphi agree to utilize their reasonable
best efforts to cause their respective subsidiaries and affiliates, to the
extent appropriate and in compliance with applicable laws, to honor and perform
the obligations set forth in this Agreement, as if they were parties hereto.
15.4 Amendments. No amendment to this Agreement will be binding upon either
party unless it is in writing and is signed by a duly authorized representative
of each party. This Agreement supersedes any prior agreements between the
parties concerning the subject matter herein.
15.5 Assignments. This Agreement shall be binding upon and inure to the
benefit of the parties, and their respective successors and permitted assigns,
but no rights, interests
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or obligations of either party herein may be assigned without the prior written
consent of the other, except to Affiliates and as permitted under Section 10.2
of this Agreement.
15.6 Severability. If any provision of this Agreement, or portion thereof,
is invalid or unenforceable under any statute, regulation, ordinance, executive
order or other rule of law, such provision, or portion thereof, shall be deemed
reformed or deleted, but only to the extent necessary to comply with such
statute, regulation, ordinance, order or rule, and the remaining provisions of
this Agreement shall remain in full force and effect.
15.7 Governing Law. This Agreement will be construed and enforced in
accordance with the laws of the State of Michigan, excluding its conflict of
laws rules. Each party consents, for purposes of enforcing this Agreement, to
personal jurisdiction, service of process and venue in any state or federal
court within the State of Michigan having jurisdiction over the subject matter.
The parties exclude the application of the 1980 United Nations Convention on
Contracts for the International Sale of Goods, if otherwise applicable.
15.8 Dispute Resolution. The parties acknowledge and agree that all disputes
or other matters related to this Agreement shall be exempt from the dispute
resolution process established in Section 8.08 of the Master Separation
Agreement or in any other agreement related to the transaction(s) contemplated
therein.
15.9 Counterparts. This Agreement may be executed by the parties in separate
counterparts, each of which when so executed and delivered will be an original,
but all such counterparts will together constitute one and the same instrument.
IN WITNESS WHEREOF, GM and Delphi have caused this Agreement to be executed in
multiple counterparts by their duly authorized representatives.
DELPHI AUTOMOTIVE SYSTEMS CORPORATION GENERAL MOTORS CORPORATION
By: /s/ Alan S. Dawes By: /s/ H.R. Kutner 12/17/98
-------------------------- ------------------------------
Name: Alan S. Dawes Name: H.R. Kutner
-------------------------- ------------------------------
Title: Chief Financial Officer Title: Vice President & Group
-------------------------- Executive Worldwide Purchasing
and NAO Production Control and
Logistics
------------------------------
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ATTACHMENT - A
PURCHASE ORDER TERMS AND CONDITIONS
1. ACCEPTANCE: Seller has read and understands this order and agrees that
Seller's written acceptance or commencement of any work or service under this
order shall constitute Seller's acceptance of these terms and conditions only.
All terms and conditions proposed by Seller which are different from or in
addition to this order are unacceptable to Buyer, are expressly rejected by
Buyer, and shall not become a part of this order. Any modifications to this
order shall be made in accordance with Paragraph 31.
2. SHIPPING, BILLING AND FLSA CERTIFICATION: Seller agrees: (a) to
properly pack, mark and ship goods in accordance with the requirements of Buyer
and involved carriers in a manner to secure lowest transportation cost; (b) to
route shipments in accordance with instructions from Buyer's Traffic Department;
(c) to make no charge for handling, packaging, storage, transportation or
drayage of goods unless otherwise stated in this order; (d) to provide with each
shipment packing slips with Buyer's order number marked thereon; (e) to properly
mark each package with this order number, the factory, plant and dock number,
and where multiple packages comprise a single shipment, to consecutively number
each package; and (f) to promptly forward the original bill of lading or other
shipping receipt for each shipment in accordance with Buyer's instructions.
Seller will include on bills of lading or other shipping receipts correct
classification identification of the goods shipped in accordance with Buyer's
instructions and carrier's requirements. The marks on each package and
identification of the goods on packing slips, bills of lading and invoices shall
be sufficient to enable Buyer to easily identify the goods purchased. Seller
further agrees: (a) to promptly render, after delivery of goods or performance
of services, correct and complete invoices to Buyer; and (b) to accept payment
by check or, at Buyer's discretion, other cash equivalent (including electronic
transfer of funds). Seller's invoice must include a certification that all goods
were produced in compliance with the applicable requirements of sections 6, 7,
and 12 of the Fair Labor Standards Act, as amended, and of regulations and
orders of the United States Department of Labor issued in connection therewith.
The payment date is set forth on the face side of this order, or if not stated,
shall be on the 25th day of the month following Buyer's receipt of a proper
invoice (except as may otherwise be agreed upon by Buyer and Seller in
connection with a program providing for electronic funds transfer). Time for
payment shall not begin until correct and complete invoices are received, and
Seller's cash discount privileges to Buyer shall be extended until such time as
payment is due. Buyer may withhold payment pending receipt of evidence, in such
form and detail as Buyer may direct, of the absence of any liens, encumbrances
and claims on the goods or services under this order.
3. DELIVERY SCHEDULES: Deliveries shall be made both in quantities and at
times specified in Buyer's schedules. Buyer shall not be required to make
payment for goods delivered to Buyer which are in excess of quantities specified
in Buyer's delivery schedules. Buyer may change the rate of scheduled shipments
or direct temporary suspension of scheduled shipments, neither of which shall
entitle Seller to a modification of the price for goods or services covered by
this order. For orders of goods where quantities and/or delivery schedules are
not specified, Seller shall deliver goods in such quantities and times as Buyer
may direct in subsequent releases.
4. PREMIUM SHIPMENTS: If Seller's acts or omissions result in Seller's
failure to meet Buyer's delivery requirements and Buyer requires a more
expeditious method of transportation for the goods than the transportation
method originally specified by Buyer, Seller shall, at Buyer's option, (i)
promptly reimburse Buyer the difference in cost between the more expeditious
method and the original method, (ii) allow Buyer to reduce its payment of
Seller's invoices by such difference, or (iii) ship the goods as expeditiously
as possible at Seller's expense and invoice Buyer for the amount which Buyer
would have paid for normal shipment.
5. CHANGES: Buyer reserves the right at any time to direct changes, or
cause Seller to make changes, to drawings and specifications of the goods or to
otherwise change the scope of the work covered by this order, including work
with respect to such matters as inspection, testing or quality control, and
Seller agrees to promptly make such changes; any difference in price or time for
performance resulting from such changes shall be equitably adjusted by Buyer
after receipt of documentation in such form and detail as Buyer may direct. Any
changes to this order shall be made in accordance with Paragraph 31.
6. INSPECTION: Seller agrees that Buyer shall have the right to enter
Seller's facility at reasonable times to inspect the facility, goods, materials
and any property of Buyer covered by this order. Buyer's inspection of the
goods, whether during manufacture, prior to delivery or within a reasonable time
after delivery, shall not constitute acceptance of any work-in-process or
finished goods.
7. NONCONFORMING GOODS: To the extent Buyer rejects goods as
nonconforming, the quantities under this order will automatically be reduced
unless Buyer otherwise notifies Seller. Seller will not replace quantities so
reduced without a new order or schedule from Buyer. Nonconforming goods will be
held by Buyer for disposition in accordance with Seller's instructions at
Seller's
<PAGE> 15
risk. Seller's failure to provide written instructions within ten (10) days, or
such shorter period as may be commercially reasonable under the circumstances,
after notice of nonconformity shall entitle Buyer, at Buyer's option, to charge
Seller for storage and handling, or to dispose of the goods, without liability
to Seller. Payment for nonconforming goods shall not constitute an acceptance
thereof, limit or impair Buyer's right to assert any legal or equitable remedy,
or relieve Seller's responsibility for latent defects.
8. FORCE MAJEURE: Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it is caused
by an event or occurrence beyond the reasonable control of the party and without
its fault or negligence, such as, by way of example and not by way of
limitation, acts of God, actions by any governmental authority (whether valid or
invalid), fires, floods, windstorms, explosions, riots, natural disasters, wars,
sabotage, labor problems (including lockouts, strikes and slowdowns), inability
to obtain power, material, labor, equipment or transportation, or court
injunction or order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected party to the
other party within ten (10) days. During the period of such delay or failure to
perform by Seller, Buyer, at its option, may purchase goods from other sources
and reduce its schedules to Seller by such quantities, without liability to
Seller, or have Seller provide the goods from other sources in quantities and at
times requested by Buyer, and at the price set forth in this order. If requested
by the Buyer Seller shall, within ten (10) days of such request, provide
adequate assurances that the delay shall not exceed thirty (30) days. If the
delay lasts more than thirty (30) days or Seller does not provide adequate
assurance that the delay will cease within thirty (30) days, Buyer may
immediately cancel the order without liability.
9. WARRANTY: Seller expressly warrants that all goods or services covered
by this order will conform to the specifications, drawings, samples, or
descriptions furnished to or by Buyer, and will be merchantable, of good
material and workmanship and free from defect. In addition, Seller acknowledges
that Seller knows of Buyer's intended use and expressly warrants that all goods
covered by this order which have been selected, designed, manufactured, or
assembled by Seller based upon Buyer's stated use, will be fit and sufficient
for the particular purposes intended by Buyer.
10. INGREDIENTS DISCLOSURE AND SPECIAL WARNINGS AND INSTRUCTIONS: If
requested by Buyer, Seller shall promptly furnish to Buyer in such form and
detail as Buyer may direct: (a) a list of all ingredients in the goods purchased
hereunder; (b) the amount of one or more ingredients; and (c) information
concerning any changes in or additions to such ingredients. Prior to and with
the shipment of the goods purchased hereunder, Seller agrees to furnish to Buyer
sufficient warning and notice in writing (including appropriate labels on goods,
containers and packing) of any hazardous material which is an ingredient or a
part of any of the goods, together with such special handling instructions as
may be necessary to advise carriers, Buyer, and their respective employees of
how to exercise that measure of care and precaution which will best prevent
bodily injury or property damage in the handling, transportation, processing,
use, or disposal of the goods, containers and packing shipped to Buyer.
11. INSOLVENCY: Buyer may immediately cancel this order without liability
to Seller in the event of the happening of any of the following or any other
comparable event: (a) insolvency of the Seller; (b) filing of a voluntary
petition in bankruptcy by Seller; (c) filing of any involuntary petition in
bankruptcy against Seller; (d) appointment of a receiver or trustee for Seller;
(e) or execution of an assignment for the benefit of creditors by Seller,
provided that such petition, appointment, or assignment is not vacated or
nullified within fifteen (15) days of such event.
l2. CANCELLATION FOR BREACH: Buyer reserves the right to cancel all or any
part of this order, without liability to Seller, if Seller: (a) repudiates or
breaches any of the terms of this order, including Seller's warranties; (b)
fails to perform services or deliver goods as specified by Buyer; or (c) fails
to make progress so as to endanger timely and proper completion of services or
delivery of goods; and does not correct such failure or breach within ten (10)
days (or such shorter period of time if commercially reasonable under the
circumstances) after receipt of written notice from Buyer specifying such
failure or breach.
13. TERMINATION: In addition to any other rights of Buyer to cancel or
terminate this order, Buyer may at its option immediately terminate all or any
part of this order, at any time and for any reason, by giving written notice to
Seller. Upon such termination, Buyer shall pay to Seller the following amounts
without duplication: (a) the order price for all goods or services which have
been completed in accordance with this order and not previously paid for; and
(b) the actual costs of work-in-process and raw materials incurred by Seller in
furnishing the goods or services under this order to the extent such costs are
reasonable in amount and are properly allocable or apportionable under generally
accepted accounting principles to the terminated portion of this order; less,
however the reasonable value or cost (whichever is higher) of any goods or
materials used or sold by Seller with Buyer's
<PAGE> 16
written consent, and the cost of any damaged or destroyed goods or material.
Buyer will make no payments for finished goods, work-in-process or raw materials
fabricated or procured by Seller in amounts in excess of those authorized in
delivery releases nor for any undelivered goods which are in Seller's standard
stock or which are readily marketable. Payments made under this Paragraph shall
not exceed the aggregate price payable by Buyer for finished goods which would
be produced by Seller under delivery or release schedules outstanding at the
date of termination. Except as provided in this Paragraph, Buyer shall not be
liable for and shall not be required to make payments to Seller, directly or on
account of claims by Seller's subcontractors, for loss of anticipated profit,
unabsorbed overhead, interest on claims, product development and engineering
costs, facilities and equipment rearrangement costs or rental, unamortized
depreciation costs, and general and administrative burden charges from
termination of this order. Within sixty (60) days from the effective date of
termination, Seller shall submit a comprehensive termination claim to Buyer,
with sufficient supporting data to permit Buyer's audit, and shall thereafter
promptly furnish such supplemental and supporting information as Buyer shall
request. Buyer or its agents, shall have the right to audit and examine all
books, records, facilities, work, material, inventories, and other items
relating to any termination claim of Seller.
14. INTELLECTUAL PROPERTY: Seller agrees: (a) to defend, hold harmless and
indemnify Buyer, its successors and customers against all claims, demands,
losses, suits, damages, liability and expenses (including reasonable attorney
fees) arising out of any suit, claim or action for actual or alleged direct or
contributory infringement of, or inducement to infringe, any United States or
foreign patent, trademark, copyright or mask work right by reason of the
manufacture, use or sale of the goods or services ordered, including
infringement arising out of compliance with specifications furnished by Buyer,
or for actual or alleged misuse or misappropriation of a trade secret resulting
directly or indirectly from Seller's actions; (b) to waive any claim against
Buyer under the Uniform Commercial Code or otherwise, including any hold
harmless or similar claim, in any way related to a claim asserted against Seller
or Buyer for patent, trademark, copyright or mask work right infringement or the
like, including claims arising out of compliance with specifications furnished
by Buyer; and (c) to grant to Buyer a worldwide, nonexclusive, royalty-free,
irrevocable license to repair and have repaired, to reconstruct and have
reconstructed the goods ordered hereunder. Seller assigns to Buyer all right,
title and interest in and to all trademarks, copyrights and mask work rights in
any material created for Buyer under this order.
15. TECHNICAL INFORMATION DISCLOSED TO BUYER: Seller agrees not to assert
any claim (other than a claim for patent infringement) with respect to any
technical information which Seller shall have disclosed or may hereafter
disclose to Buyer in connection with the goods or services covered by this
order.
16. INDEMNIFICATION: If Seller performs any work on Buyer's premises or
utilizes the property of Buyer, whether on or off Buyer's premises, Seller shall
indemnify and hold Buyer harmless from and against any liability, claims,
demands or expenses (including reasonable attorney fees) for damages to the
property of or injuries (including death) to Buyer, its employees or any other
person arising from or in connection with Seller's performance of work or use of
Buyer's property, except for such liability, claim, or demand arising out of the
sole negligence of Buyer.
17. INSURANCE: Seller shall maintain insurance coverage in amounts not less
than the following: (a) Workers' Compensation - Statutory Limits for the state
or states in which this order is to be performed (or evidence of authority to
self-insure); (b) Employer's Liability- $250,000; (c) Comprehensive General
Liability (including Products/Completed Operations and Blanket Contractual
Liability) - $1,000,000 per person, $1,000,000 per occurrence Personal Injury,
and $1,000,000 per occurrence Property Damage, or $1,000,000 per occurrence
Personal Injury and Property Damage combined single limit; and (d) Automobile
Liability (including owned, non-owned and hired vehicles) - $1,000,000 per
person, $1,000,000 per occurrence Personal Injury and $1,000,000 per occurrence
Property Damage, or $1,000,000 per occurrence Personal Injury and Property
Damage combined single limit. At Buyer's request, Seller shall furnish to Buyer
certificates of insurance setting forth the amount(s) of coverage, policy
number(s) and date(s) of expiration for insurance maintained by Seller and, if
further requested by Buyer, such certificates will provide that Buyer shall
receive thirty (30) days' prior written notification from the insurer of any
termination or reduction in the amount or scope of coverages. Seller's purchase
of appropriate insurance coverage or the furnishing of certificates of insurance
shall not release Seller of its obligations or liabilities under this order. In
the event of Seller's breach of this provision, Buyer shall have the right to
cancel the undelivered portion of any goods or services covered by this order
and shall not be required to make further payments except for conforming goods
delivered or services rendered prior to cancellation.
18. TOOLS: Unless otherwise agreed to by Buyer, Seller at its own expense
shall furnish, keep in good condition, and replace when necessary all tools,
jigs, dies, gauges, fixtures, molds and patterns ("Tools") necessary for the
production of the goods. The cost of changes to the Tools necessary to make
design and specification changes authorized by Buyer shall be paid for by Buyer.
Seller shall insure the Tools with full fire and extended coverage insurance for
the replacement value thereof. Seller grants Buyer
<PAGE> 17
an irrevocable option to take possession of and title to the Tools that are
special for the production of the goods upon payment to Seller of the book value
thereof less any amounts which Buyer has previously paid to Seller for the cost
of such Tools; provided, however, that this option shall not apply if such Tools
are used to produce goods that are the standard stock of Seller or if a
substantial quantity of like goods are being sold by Seller to others.
19. BAILED PROPERTY: All supplies, materials, tools, jigs, dies, gauges,
fixtures, molds, patterns, equipment and other items furnished by Buyer, either
directly or indirectly, to Seller to perform this order, or for which Seller has
been reimbursed by Buyer, shall be and remain the property of Buyer. Seller
shall bear the risk of loss of and damage to Buyer's property. Buyer's property
shall at all times be properly housed and maintained by Seller; shall not be
used by Seller for any purpose other than the performance of this order; shall
be deemed to be personalty; shall be conspicuously marked "Property of General
Motors Corporation" by Seller; shall not be commingled with the property of
Seller or with that of a third person; and shall not be moved from Seller's
premises without Buyer's prior written approval. Upon the request of Buyer, such
property shall be immediately released to Buyer or delivered to Buyer by Seller,
either (i) F.O.B. transport equipment at Seller's plant, properly packed and
marked in accordance with the requirements of the carrier selected by Buyer to
transport such property, or (ii) to any location designated by Buyer, in which
event Buyer shall pay to Seller the reasonable cost of delivering such property
to such location. Buyer shall have the right to enter onto Seller's premises at
all reasonable times to inspect such property and Seller's records with respect
thereto.
20. REMEDIES: The rights and remedies reserved to Buyer in this order shall
be cumulative, and additional to all other or further remedies provided in law
or equity.
21. DUTY DRAWBACK RIGHTS: This order includes all related customs duty and
import drawback rights, if any, (including rights developed by substitution and
rights which may be acquired from Seller's suppliers) which Seller can transfer
to Buyer. Seller agrees to inform Buyer of the existence of any such rights and
upon request to supply such documents as may be required to obtain such
drawback.
22. SETOFF: In addition to any right of setoff provided by law, all amounts
due Seller shall be considered net of indebtedness of Seller to General Motors
Corporation and its subsidiaries; and General Motors Corporation may deduct any
amounts due or to become due from Seller to General Motors Corporation and its
subsidiaries from any sums due or to become due from General Motors Corporation
to Seller.
23. ADVERTISING: Seller shall not, without first obtaining the written
consent of Buyer, in any manner advertise or publish the fact that Seller has
contracted to furnish Buyer the goods or services herein ordered, or use any
trademarks or tradenames of Buyer in Seller's advertising or promotional
materials. In the event of Seller's breach of this provision, Buyer shall have
the right to cancel the undelivered portion of any goods or services covered by
this order and shall not be required to make further payments except for
conforming goods delivered or services rendered prior to cancellation.
24. GOVERNMENT COMPLIANCE: Seller agrees to comply with all federal, state
and local laws, Executive Orders, rules, regulations and ordinances which may be
applicable to Seller's performance of its obligations under this order.
25. EQUAL OPPORTUNITY AND AFFIRMATIVE ACTION: This order incorporates by
reference: (a) all provisions of 41 C.F.R. 60-1.4, as amended, pertaining to the
equal opportunity clause in government contracts; (b) all provisions of 41
C.F.R. 60-250, as amended, pertaining to affirmative action for disabled
veterans of the Vietnam Era; and (c) all provisions of 41 C.F.R. 60-741, as
amended, pertaining to affirmative action for handicapped workers. Seller
certifies that it is in compliance with all applicable provisions of 41 C.F.R.
60-1, including but not limited to: (a) developing and presently having in full
force and effect a written affirmative action compliance program for each of its
establishments as required by 41 C.F.R. 60-1.40, as amended; (b) filing EE0-1
Reports as required by 41 C.F.R. 60-1.7, as amended; and (c) neither maintaining
segregated facilities nor permitting its employees to perform services at
segregated facilities as prohibited by 41 C.F.R. 60-1.8, as amended. Buyer
requests that Seller adopt and implement a policy to extend employment
opportunities to qualified applicants and employees on an equal basis regardless
of an individual's age, race, color, sex, religion or national origin.
26. NO IMPLIED WAIVER: The failure of either party at any time to require
performance by the other party of any provision of this order shall in no way
affect the right to require such performance at any time thereafter, nor shall
the waiver of either party of a breach of any provision of this order constitute
a waiver of any succeeding breach of the same or any other provision.
<PAGE> 18
27. NON-ASSIGNMENT: Seller may not assign or delegate its obligations under
this order without Buyer's prior written consent.
28. RELATIONSHIP OF PARTIES: Seller and Buyer are independent
contracting parties and nothing in this order shall make either party the agent
or legal representative of the other for any purpose whatsoever, nor does it
grant either party any authority to assume or to create any obligation on behalf
of or in the name of the other.
29. GOVERNING LAW: This order is to be construed according to the laws of
the state from which this order issues as shown by the address of Buyer on the
face side of this order.
30. SEVERABILITY: If any term of this order is invalid or unenforceable
under any statute, regulation, ordinance, executive order or other rule of law,
such term shall be deemed reformed or deleted, but only to the extent necessary
to comply with such statute, regulation, ordinance, order or rule, and the
remaining provisions of this order shall remain in full force and effect.
31. ENTIRE AGREEMENT: This order, together with the attachments, exhibits,
or supplements, specifically referenced in this order, constitutes the entire
agreement between Seller and Buyer with respect to the matter contained herein
and supersedes all prior oral or written representations and agreements. This
order may only be modified by a purchase order amendment/alteration issued by
Buyer.
May 1986
<PAGE> 1
EXHIBIT 10.3
[DELPHI AUTOMOTIVE SYSTEMS LOGO]
Date: June 12, 1998
To: W.J. Lovejoy, J.T. Battenberg III
From: John Blahnik, Robert McCabe
Subject: Final Settlement of Delphi/SPO Business Relationship Agreement
c: C. Hammaker, C. Maciejewski
The final meeting relative to the Delphi/SPO Business Relationship was held
today. As you may be aware, an agreement was reached with SPO in December 1997
which dissolved the Delphi/SPO Partnership and set up this new "more arm's
length" relationship. Since December, Delphi and SPO have been working
together to clarify the agreement to ensure consistent understanding and
administration of the agreement. The attached document is the amended
agreement. Our signatures represent our agreement to this revised document.
/s/ John Blahnik /s/ R. J. McCabe
- --------------------------- ------------------------
J. G. Blahnik R. J. McCabe
<PAGE> 2
DELPHI/SPO BUSINESS RELATIONSHIP AGREEMENT
EFFECTIVE JANUARY 1, 1998
<PAGE> 3
OVERALL COMPONENTS OF AGREEMENT
<PAGE> 4
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* Royalty Fees - Royalty fees will be paid on all Delphi supplied ACDelco
branded product sold to SPO USA. These royalty fees will apply to sales
through all SPO channels of distribution.
- Royalty fees will be calculated as a percentage of Delphi's selling
price to SPO excluding core charges, setup, and tooling, and will be
included in the per unit selling price to SPO. SPO will identify channel
of distribution at time of RFQ (Request for Quote), or as soon as it is
available, to ensure proper pricing from Delphi.
- The percentage is Division/Product specific as defined in the attached
detail
- Refer to Appendix A for a definitive discussion of royalty fees.
* Transition Fees - Transition fees are Division/Product specific amounts
which will be paid in four equal quarterly installments on March 30, June
30, September 30, and December 31 of each year of the agreement or as
mutually agreed.
* Exception: Delphi-I to be paid $500,000 total, one-time on January 30, 1998
- Transition fee calculation will exclude any adjustment for new part
numbers, except when a new part number replaces existing part numbers or
supercessions. Delphi will assist SPO in identification of these
replacements and supercessions.
3
<PAGE> 5
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* Incentive Fees - Incentive fees apply to Delphi-Chassis only and will be
paid in four equal quarterly installments on March 30, June 30, September
30, and December 31 of each year of the agreement.
* Engineering Development Fees - These engineering fees are amounts which are
intended to 100% compensate Delphi for new non-Delphi produced product or
new source development where SPO has exclusivity. These costs are incurred
at the request of the Product Team. The work definition will be agreed upon
in the joint Product Team. Delphi will determine if work will be done
in-house or be outsourced. Advanced forecasts of these projects in time for
budget allocation of resources will facilitate timely execution of the work.
The amount to be reimbursed is jointly agreed upon prior to initiation of
engineering work. To facilitate this process, Delphi is responsible for
providing cost estimates to SPO. SPO will then provide the final authorizing
documentation to Delphi in the form of an actual purchase order to Delphi
for Engineering Services.
4
<PAGE> 6
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT (CONT'D)
- If the amount charged by Delphi for engineering services is considered
to be unacceptable by SPO, an appeal can be made to the Price Review
Committee.
- Refer to Appendix B for detail of engineering functions and the
responsible party for the release of Delphi/SPO related ACDelco products
(excluding GM O.E. Service Parts).
* Engineering Maintenance Fees - Engineering Maintenance fees are similar to
"Royalties" in that Delphi is compensated as a percentage to SPO total
purchases; however, these fees apply to non-Delphi sourced product when
Delphi provides engineering validation and ongoing technical support and
where SPO holds the contract with another supplier. These fees are equal to
2% of the supplier's price to SPO.
- It is the responsibility of the joint product teams to identify those
part numbers that are eligible for engineering maintenance fees.
* Exception: Dura Stop - Engineering Maintenance fee equal to 3% of
SPO's purchase price
* Option: Delphi Divisions may opt for a 1% Engineering Maintenance
fee plus an Engineering "Retainer" fee at an agreed upon amount.
5
<PAGE> 7
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* "Retainer" fees are to be agreed and authorized in a similar manner
to the Engineering Development fees.
* Bulk Sales will be exclusively administered by SPO for a 3% Administration
fee for all Divisions and products other than Delphi Packard.
* Refer to Appendix E for Bulk Sales parameters.
* Under no circumstances would a specific part number earn both Royalties and
Engineering Maintenance Fees.
* Delphi is the Tier-1 supplier to SPO and is responsible for any/all make/buy
decisions on Delphi produced product.
- Tier-1 supplier status means Delphi has engineering expertise.
- Delphi is responsible for engineering and development of all new parts
in product categories for which Delphi has engineering expertise. Delphi
will be compensated via royalties or engineering fees as previously
defined. Delphi may, at their discretion, contract engineering for all
or part of these projects.
6
<PAGE> 8
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* The process for determining market based transfer prices of ACDelco branded
product (See Appendix C) includes the utilization of a mutually agreeable
Third Party to validate Delphi's selling prices to SPO when Delphi and SPO
cannot agree on pricing
* Delphi is free to match these prices or exit the business
(Note: This process does not cover sale of the business)
- If Delphi chooses to exit the business
- SPO and Delphi would jointly develop the part numbers to be
included in the bid package
- Delphi will honor GM O.E.M. commitments, however, this does not
preclude Delphi from renegotiating with NAO or exiting the
business.
- Delphi will supply bridge runs for a maximum of six months. This
does not preclude SPO from requesting more than a six month
supply where Delphi is capable of producing additional volume
within a six month time frame. This additional production
request will be evaluated by Delphi in conjunction with exit
plans. Delphi will not be held past due for any part for which
the bridge run is complete.
7
<PAGE> 9
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
- Bridge run parts will be supplied at the higher of the current
Delphi price or the new supplier price.
- SPO is source responsible
- The Exit Responsibilities for Delphi and SPO, as noted above, are
summarized in Appendix D.
- Once Delphi ceases to provide ongoing engineering support, a
maintenance fee will no longer be paid on the related product
previously released but not produced by Delphi.
- SPO will accept price increases as validated by Third Party
evaluation
- A Price Review Committee with two members from SPO and two members from
Delphi will be named to mediate any instances where the Delphi Division
and SPO cannot agree on pricing.
- Agreement on Third Party cannot be unreasonably delayed
- Prices will be modified at completion of the study (effective date) and
will not be retroactive to January 1, 1998.
* Separate studies may be conducted by division and by product line.
8
<PAGE> 10
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* New Private Label business, supported by a joint business case, will be
aggressively pursued by both partners. Neither partner should be unfavorably
impacted. Refer to Appendix F for Private Label parameters.
* Unless otherwise agreed, e.g. Saginaw Reman lines
* SPO will commit sufficient resources to grow Aftermarket sales of Delphi
produced product
- Delphi is free to re-negotiate the agreement if adequate sales growth
is not achieved.
- SPO is free to obtain product (volume) which Delphi is unable to
produce (i.e. cannot meet SPO production schedule).
* Delphi must validate potential suppliers and will receive
engineering fees accordingly.
* U.S. Agreement only
* This agreement is in effect indefinitely and can be terminated by either
party with 12 months notice; however, the agreement cannot be terminated
prior to December 31, 2000.
9
<PAGE> 11
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
- If plants/facilities/product lines are sold, that portion of the
agreement is considered terminated with respect to all Royalty fees,
Transition fees, Incentive fees, and exclusivity related to Bulk and
Private label sales.
- Packaging conversion (i.e. new ACDelco graphics) already agreed to but
not yet fully implemented will be carried out by Delphi; significant
expense items such as old packaging scrap will be paid by SPO. Delphi
will submit detailed quotes to SPO for completion of packaging
conversion. SPO will issue a Purchase Order to Delphi prior to
initiation of this work.
- Where applicable, Delphi will continue to maintain packaging
dimensions/specifications for Delphi supplied products.
* Additional conditions:
- Both Delphi and SPO will make a good faith effort to initiate Third
Party validation of transfer prices for ACDelco branded product at the
earliest possible date, with the objective of completion by the end of
calendar year 1998.
- For all Delphi Divisions, with the exception of Delphi-E, existing
pricing will carry over (with the addition of Royalty Fees) until such
time as the joint internal or Third Party validation has been
completed.
10
<PAGE> 12
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
Additional Conditions (con't)
* Prices will be modified at completion of the study and will not be
retroactive to January 1, 1998.
* Each Delphi Division, in conjunction with SPO, will prioritize the
product lines. If sufficient progress is not being made, matter
should be referred to Price Review Committee
* Warranty policy is for new defect only unless warranty rate is
significantly above current levels (i.e. 1997 experience)
- Delphi reserves the right to audit.
- SPO will work aggressively with Delphi to reduce warranty expense on all
private label business. Warranty levels will be reviewed by the joint
Product Teams quarterly to ensure these costs are within Business Case
assumptions.
- SPO and Delphi will work together to initiate actions to reduce warranty
costs which exceed those assumptions and/or unreasonable warranty
expense.
11
<PAGE> 13
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
Additional conditions: (con't)
- SPO will provide annual and quarterly sales forecasts for Delphi
produced ACDelco branded product based on the following schedule:
- Annual Sales forecast - December 23, 1997 for 1998 Calendar year;
September 1, 1998 for 1999 Calendar year; and September 1, 1999 for 2000
Calendar year.
- Quarterly analysis of performance to forecast and updated forecast to be
provided as follows:
- Quarter 1 - December 15 of each year for Quarter 1 of next year
- Quarter 2 - April 15 of each year for Quarter 2
- Quarter 3 - July 15 of each year for Quarter 3
- Quarter 4 - October 15 of each year for Quarter 4
* The quarterly reviews noted above will be conducted with the
appropriate Delphi Divisional Aftermarket Business Team and/or with
the Delphi General Sales Manager. The exact dates may vary according
to the respective Business Team/Sales meeting schedules.
* The format and frequency of the sales forecasts currently provided
to the respective Delphi Divisions are detailed in Appendix G.
12
<PAGE> 14
DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
Additional conditions: (con't)
- Each Delphi plant will be responsible for coordinating with
their respective SPO Supplier Management representative any
desired changes relative to forecast frequency and the level of
detail required in the forecast (i.e., plant level,
manufacturing process level, product type level, or part
number.) Specific high level groupings will require Delphi to
advise SPO which parts belong to which groups. Upon receipt of
this information, SPO will update their system so future
forecasts and performance checks will have parts categorized
correctly. As new parts are released, Delphi will be responsible
for advising SPO of the appropriate grouping.
- These forecasts do not represent a commitment to purchase. They
are meant for planning purposes only.
* According to common practice, SPO Supplier Management will continue
to issue material schedules in response to the lead times provided
by each of the Delphi plants. These are issued weekly and cover
periods ranging from 3 to 16 weeks.
13
<PAGE> 15
DIVISION SPECIFIC
COMPONENTS OF AGREEMENT
14
<PAGE> 16
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Packard
- Royalty - 2% on all ACDelco product
- Transition fee - $0
- All other conditions as set forth in the Overall Agreement
- Additional conditions:
* Delphi-Packard is free to continue to sell bulk components to
Pioneer and Beck.
15
<PAGE> 17
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Interior
- Royalty - 2% on all ACDelco product (current product portfolio only)
- Transition Fee - $500,000 Lump Sum payable one-time only on January 30,
1998
- All other conditions as set forth in Overall Agreement
- Additional conditions:
* If plants/facilities or product lines are sold, this agreement is
terminated with respect to all Royalty and Transition fees.
16
<PAGE> 18
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Saginaw
- Royalty - 2% on all ACDelco product
1.5% on non-exclusive Reman products
- Transition Fee - $0
- All other conditions as set forth in Overall Agreement
- Additional Conditions:
* Delphi-Saginaw is free to develop Private Label customer base for
Remanufactured Rack & Pinion, Remanufactured Half Shafts, and
Remanufactured Power Steering Pumps.
* Delphi-Saginaw will not sell to the existing ACDelco customer base
- SPO will approve Delphi-Saginaw customer list for nationally
branded manufacturers and marketers of like product
* Delphi-Saginaw is free to sell direct to low volume O.E. customers
17
<PAGE> 19
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Harrison
- Royalty - 3% on Compressors when Delphi-Harrison implements
ACDelco brand on product for GM O.E. and Aftermarket
2% on all other Delphi-Harrison produced ACDelco product
- Transition Fee - $0
- All other conditions as set forth in Overall Agreement
- Additional conditions:
* SPO will assign a dedicated resource to grow sales of
Delphi-Harrison produced product
18
<PAGE> 20
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Chassis
- Royalty - 2% on all Delphi-Chassis produced ACDelco product
- Transition Fee: $0
- Engineering Maintenance Fees - 3% on all purchases of Dura Stop Branded
Product; 2% on Delphi-Chassis like product purchased from outside
suppliers (Specific products to be defined)
- Incentive Fees (Amount payable each year of the agreement):
* $8.1 Million on Delphi-Chassis produced ACDelco product
* $1.4 Million on Dura Stop Product
- All other conditions as set forth in Overall Agreement
- Additional conditions
* Transfer price increases would result in reduction of Incentive Fee
amount
19
<PAGE> 21
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Royalty - 3.0% on ACDelco Branded Batteries
2.0% on all other ACDelco product
- Transition Fee - A calculation of net price adjustments based on the
difference between 1997 calendar year end pricing and revised pricing
including royalty, at actual monthly volume levels, will be utilized for
calculation of the transition fee, if any. When net price adjustments
exceed $53 million per year, (amount may be lower based on final
calendar year 1997 Partnership financials) transition fees will be paid
for the first two years of the agreement (1998 & 1999). (See attached
forecast of 1997 Delphi/SPO Partnership Adjustment). This transition fee
calculation will include all Delphi Energy & Engine Products including
Private Label Batteries.
- All other conditions as set forth in Overall Agreement
20
<PAGE> 22
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
ESTIMATED 1997 PARTNERSHIP ADJUSTMENT
<TABLE>
<CAPTION>
$MILS
-----
<S> <C>
Delphi-Engine ($39)
Delphi-Energy ($14)
Delphi-Harrison ($ 6)
Delphi-Chassis $11
Delphi-Saginaw ($ 1)
Delphi-Packard ($ 1)
Delphi-Interior ($ 0)
-----
Total Partnership Adj. ($50)
</TABLE>
21
<PAGE> 23
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Additional conditions:
* If plants/facilities or product lines are sold, this agreement is
terminated with respect to royalty and transition fees. Exclusivity
related to Bulk and Private Label sales will also be terminated.
* Delphi-E will reduce prices effective January 1, 1998 based on the
attached detail.
* Delphi will provide BDC (Battery Distribution Center) services based
on the existing customer service levels. Any changes from the
existing customer service levels will result in an adjusted price up
or down as appropriate. (Customer Service Menus as of December 19,
1997)
22
<PAGE> 24
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Additional conditions (con't):
* Any changes to the existing Junk Battery programs, policies,
pricing, and return rates will be jointly developed and agreed to
with the intent of maximizing returns.
* For ACDelco branded batteries, Delphi and SPO will implement a Lead
Adjustment policy in conjunction with industry practice. A third
party review of current industry practices will be completed and
appropriate policy will be implemented on or before April 1, 1998.
* "Meet Comp" customer allowances will be SPO's responsibility.
* ACDelco recognizes the need to improve the Core Management
Process at both SPO and Delphi-E. SPO will work with Delphi-E to
find a mutually satisfactory solution.
* Target completion April 1, 1998
23
<PAGE> 25
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Additional conditions (con't):
* Warranty policy is new defect only. Delphi-E reserves the right to
audit.
* Any changes in labeling, cartons, graphics, etc. will be negotiated
with SPO.
24
<PAGE> 26
DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Schedule of Price Adjustments effective January 1, 1998*
* Spark Plugs
- Rapid Fire No change
- Conventional (16.7%)
- Platinum 3.6%
- Non-automotive (23.5%)
* Panel Air Filters (38.3%)
* L.D. Oil Filters (25.4%) (e.g. PF47 @ $1.17)
* Electric Fuel Pumps ( 3.5%)
* Batteries ($1.60) per unit (Weighted
Average excluding Sears)
* Reman Generators ( 5.0%)
* Price adjustments to be implemented on a percentage basis across the
applicable product lines, except batteries, where individual prices will be
adjusted but in total will average $1.60 based on 1997 Volumes. All other
Delphi-E product lines will be carryover pricing on January 1, 1998. Prices
will be modified based on timeline set forth in "Administration of
Agreement" section.
25
<PAGE> 27
ADMINISTRATION OF AGREEMENT
26
<PAGE> 28
DELPHI/SPO BUSINESS RELATIONSHIP
ADMINISTRATION OF AGREEMENT
* Proposed implementation time table for modification of pricing to reflect
market based reductions (Delphi-E only) and inclusion of royalty
* January 30, 1998 - Completion of ACDelco part number identification. SPO will
provide Delphi with complete list of ACDelco part numbers and prices.
* February 28, 1998 - Delphi will complete validation of ACDelco part number
list and selling prices.
* All disputed pricing will be resolved
- March 30, 1998 - Purchasing will input all selling prices, including
Royalty, retroactive to January 1, 1998.
27
<PAGE> 29
DELPHI ENGINE & ENERGY MARKET-BASED TRANSFER PRICING AND
TRANSITION FEE CALCULATION PROCESS
* The December 31, 1997 Price Tape is the Basis for calculating Transition Fees
for 1998 and 1999.
* A Quarterly Price Tape will be compared to the December 31, 1997 Price Tape.
* Estimated Market-Based prices will be implemented starting January 1, 1998.
- Transfer Prices will include Royalty Fees calculated off the estimated
market-based prices.
* The Per Unit Differential will be applied to SPO's Quarterly U.S. purchases
of ACDelco branded product to calculate the new market-based price
differential.
* The annual price adjustment for Delphi E & E is estimated to be $53m for 1998
and for 1999.
- The price adjustment will be finalized in the 1st quarter of 1998.
28
<PAGE> 30
DELPHI ENGINE & ENERGY MARKET-BASED TRANSFER PRICING AND
TRANSITION FEE CALCULATION PROCESS
* On a quarterly basis, the price adjustment will be established at 25% of the
$53m estimate, or 25% of the final 1997 price adjustment.
* The new market-based price differential less the quarterly price adjustment
will equal the Transition Fee due Delphi.
- Transfer Price increases to SPO are not excluded from this calculation.
* The Transition Fee calculation will be completed at the end of each quarter
from 1998 through 1999.
- Once a system for processing is in place, the transition fee calculation
will be completed monthly.
* The Transition Fee amount will be transferred to Delphi-A.
29
<PAGE> 31
SETTLEMENT OF 1997 PARTNERSHIP ADJUSTMENT
30
<PAGE> 32
DELPHI/SPO PARTNERSHIP
SETTLEMENT OF 1997 PARTNERSHIP ADJUSTMENT
* It is agreed that the 1997 Partnership Adjustment from Delphi will be no more
than $50.0 Million, and may be less, based on final calculation of 1997
Calendar Year Delphi/SPO Partnership Financials.
31
<PAGE> 33
DELPHI/SPO PARTNERSHIP
SETTLEMENT OF 1997 PARTNERSHIP ADJUSTMENT
MAXIMUM 1997 PARTNERSHIP ADJUSTMENT*
<TABLE>
<CAPTION>
$MILS
-----
<S> <C>
Delphi-Engine ($39)
Delphi-Energy ($14)
Delphi-Harrison ($ 6)
Delphi-Chassis $11
Delphi-Saginaw ($ 1)
Delphi-Packard ($ 1)
Delphi-Interior ($ 0)
----
Total Partnership Adj. ($50)
</TABLE>
* Adjustments may be less based on final 1997 Calendar Year Partnership
results.
32
<PAGE> 34
APPENDICES
33
<PAGE> 35
APPENDIX A
Page 1 of 3
DELPHI/SPO AGREEMENT
ROYALTY FEES
In recognition of the exclusive supply and selling agreement between Service
Parts Operations and Delphi Automotive Systems and its several divisions, SPO
agrees to pay Delphi certain royalty fees as compensation for exclusivity in the
domestic automotive aftermarket. This applies to both current and future Delphi
product.
ROYALTY ELIGIBLE PRODUCTS
Royalty fees will be paid on all agreed upon products, purchased by Service
Parts Operations - U.S. from Delphi. The agreed upon parts are defined as those
released into the SPO system as ACDelco exclusive and ACDelco common. Certain
ACDelco branded parts are introduced with GM dealer exclusive distribution.
Consistent with other dealer exclusive parts, for the length of time these items
are dealer exclusive, they will not earn automatic royalty fees. If such ACDelco
branded part numbers are identified to the SPO Finance Staff by Delphi, a manual
royalty calculation and payment will be made.
ROYALTY FEE SPECIFICS
Royalty fees will be calculated as a percentage of the agreed upon market based
transfer price. It is expected that Worldwide Purchasing will increase the
contract price SPO pays to Delphi by 1.5% to 3% based on the product line.
34
<PAGE> 36
APPENDIX A
Page 2 of 3
DELPHI/SPO AGREEMENT
ROYALTY FEES
The base level of royalty fees is 2%. Three exceptions to the 2% fee are as
follows:
1. ACDelco branded batteries will earn 3% in recognition of the value of
the ACDelco brand. If, at some point in time, ACDelco is no longer
specified on GM O.E. Batteries, the royalty would be reduced to 2%.
2. Air conditioning compressors can earn 3% when O.E. General Motors
compressors are clearly identified as ACDelco brand. ACDelco aftermarket
compressors must also be branded ACDelco to achieve this additional
royalty.
3. Per the request of Delphi Saginaw, certain Delphi Saginaw products will
earn 1.5% royalty fee and Delphi Saginaw will be able to market these
products outside our exclusive relationship. (Refer to exclusivity
exceptions detailed below.)
PRIVATE LABEL PRODUCTS
Due to the extremely competitive nature of private label business
agreements, royalty fees will not apply to these purchases.
35
<PAGE> 37
APPENDIX A
Page 3 of 3
DELPHI/SPO PARTNERSHIP
ROYALTY FEES
EXCLUSIVITY EXCEPTIONS
It is generally accepted that under certain circumstances, SPO or Purchasing may
request that Delphi supply parts or components to a SPO approved supplier (i.e.,
where Delphi would be the Tier II supplier). For example , SPO may request
Delphi to sell Oil Filters to an Engine Remanufacturer. In these cases, it is
approved that Delphi at their option sell the "competitor" the parts or
components direct. These instances will be discussed by Delphi and SPO on a case
by case basis.
Whereas the foundation of this agreement is the exclusive distribution
relationship between Delphi and SPO, the following exception exists for Delphi
Saginaw:
Delphi Saginaw will be able to sell private label remanufactured rack and
pinion, remanufactured half shafts, remanufactured power steering pumps and
potentially other remanufactured product lines as mutually agreed. Delphi
Saginaw will develop a list of nationally branded manufacturers and marketers
and SPO (ACDelco sales management and the General Product Manager) will approve
those on the list or respond with exceptions to Delphi Saginaw. This list will
be agreed upon prior to developing a sales supply arrangement for these private
label products. Additionally, prices to the private label customers will not
disadvantage SPO's ACDelco competitive position.
36
<PAGE> 38
APPENDIX B
Page 1 of 1
DELPHI/SPO AGREEMENT
ENGINEERING RESPONSIBILITY FOR RELATED ACDELCO
PRODUCTS WHERE DELPHI RECEIVES
A ROYALTY OR ENGINEERING MAINTENANCE FEE
(EXCLUDING GM O.E. SERVICE PARTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SPO SPO
SPO DELPHI SPO SPECS/ SUPPLIER
FUNCTION/TASK MKTG ENG. ENG. CATALOG MGMT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Identify new product opportunities R C
- ------------------------------------------------------------------------------------------------------------------
Identify lack of product coverage R C
- ------------------------------------------------------------------------------------------------------------------
Initiate NPR (new part release) R I
- ------------------------------------------------------------------------------------------------------------------
Identify and communicate catalog corrections R I
- ------------------------------------------------------------------------------------------------------------------
Investigate and communicate catalog
technical corrections to Specifications I R I
- ------------------------------------------------------------------------------------------------------------------
Investigate NPR for need for new part
number or added application I R
- ------------------------------------------------------------------------------------------------------------------
Communicate release of added/revised usage
for existing part via Engineering document I R I
- ------------------------------------------------------------------------------------------------------------------
Communicate release of new part
number with usage via Engineering document I R I
- ------------------------------------------------------------------------------------------------------------------
Load base record for new part to SPO system r* R
- ------------------------------------------------------------------------------------------------------------------
Issue ECA (engineering change authorization)
to add usage to new part r* R
- ------------------------------------------------------------------------------------------------------------------
Load usage to SPO system R
- ------------------------------------------------------------------------------------------------------------------
Addition of sales channel for a part (i.e. GM I
Dealer or ACDelco) R
- ------------------------------------------------------------------------------------------------------------------
Discontinuation of sales channel for a part R I
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Lower case letter indicates future direction subject to Delphi product line
agreement
R - RESPONSIBLE A - APPROVE S - SUPPORT I - INFORM C - CONSULT
37
<PAGE> 39
APPENDIX C
Page 1 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 1
The Joint Product Teams will determine which ACDelco branded product lines
require a market-based price validation effort. That is, some product lines may
be already at market-based levels. It is also recognized that certain smaller
product lines in terms of sales volume would not be subject to the validation
effort.
STEP 2
The Joint Product Teams will be responsible for generating a list of part
numbers to be reviewed for verification of Market Based Transfer Pricing. The
suggested criteria for creating the sample to be reviewed are:
1. Part number sample representing the product line's sales distribution
2. Strategic part numbers (provided by SPO PPD) e.g., recently introduced
part numbers.
38
<PAGE> 40
APPENDIX C
Page 2 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 2 continued:
If possible, part numbers are to be segmented by category, e.g., highly
engineered, commodity type, etc.
The file created will contain:
1. Part Number
2. Part Description
3. Current Transfer Price
4. Current Contract Number
5. Source code (shipping location)
6. Units sold for WD, Dealer and Other than Dealer
7. Dealer and WD price
8. Extended Dealer and WD sales
9. Last year First year usage
39
<PAGE> 41
APPENDIX C
Page 3 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 3
Representatives from SPO and Delphi, drawing on their expertise and
off-the-shelf data without subjecting individual part numbers or the list of
part numbers to the WWP Global Sourcing Process, will assess whether the part
number sample represents market based pricing. In addition, for low volume parts
within a product line, the pricing analysis should comprehend certain economic
factors, e.g. low volume production set up costs, decreased purchased material
leverage, tooling costs, etc.
If agreement on market based prices between SPO and the respective Delphi
Division is achieved, the agreed upon transfer prices will become effective
immediately. However, if either SPO or Delphi does not concur with the
recommended pricing, either Delphi or SPO can request the Price Review Committee
review the matter. The Price Review Committee will make a final decision to
accept the proposed pricing or decide to contract an independent third party to
validate a reasonable market based transfer price. The cost of the third party
validation effort will be shared 50 - 50 by SPO and the respective Delphi
Division. The study will be based on comparable product, market, services, and
brand.
40
<PAGE> 42
APPENDIX C
Page 4 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 4
If SPO and the respective Delphi Division cannot reach a consensus on the market
based price(s) of the related parts based on the results of the third party
validation or quote, they can appeal again to the Price Review Committee, which
will make the final decision relative to which price to adopt as market based.
Refer to the flow chart on page 5 of this appendix.
41
<PAGE> 43
APPENDIX C
Page 5 of 5
PROCESS FOR DETERMINING MARKET
BASED TRANSFER PRICES
<TABLE>
<CAPTION>
<S><C>
Product
Teams to YES Part Number Joint Review OKAY
Determine Which --> Sample Determined --> by SPO and --> New Transfer Prices Become
Product Lines by Product Teams Delphi Effective Immediately
Require
Analysis | NOT
| OKAY
| NO
| Price OKAY Final Decision to
Review --> Accept New Transfer
No Action Group Prices
Required;
Prices Remain | NOT
as is | OKAY
Contract
3rd Party to
Validate Market
Based Price
|
| NOT
OKAY Joint OKAY Price
New Transfer Prices Become <------ Review by ---> Review ---> Final Decision
Effective Immediately SPO and Group
Delphi
</TABLE>
42
<PAGE> 44
APPENDIX D
Page 1 of 1
DELPHI/SPO AGREEMENT
EXIT RESPONSIBILITY FOR RELATED ACDELCO PRODUCTS
(EXCLUDES SALE OF BUSINESS)
<TABLE>
<CAPTION>
DELPHI SPO
FUNCTION/TASK DELPHI SPO DIVISION DELPHI SPO SUPPLIER
ENGRG.* ENGRG.* /SALES PURCH. PURCH. MGMT
<S> <C> <C> <C> <C> <C> <C>
Timely written notification of divestiture plans R I I I
Provide list of parts involved and production
discontinuance date for each part R I I I
Identify potential new/approved sources R R C C
Provide Tooling and equipment req'mnts R I I
Provide engineering prints (including Packaging
if applicable) R I R I I
Appoint divestiture coordinator I I R R I
Sourcing Responsibility for new source A I C R I
Validate new source processes &
manufacturing capabilities C# R I
Perform sample approval C# R I I
Determine bridge run or all-time buy C C C R
Determine disposition of existing tools & equipment R A A A
</TABLE>
*Engineering Includes Product, Mfg. & Quality Engrg.
R - RESPONSIBLE A - APPROVE I - INFORM C - CONSULT
#Note: When Delphi Divests of Engineering Expertise, there will be a
transition period.
43
<PAGE> 45
APPENDIX E
Page 1 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
A significant portion of the exclusivity agreement between SPO and Delphi
pertains to the management of direct Aftermarket Sales (i.e., Bulk Sales).
SPO will be the only organization selling parts and/or components to the
aftermarket.
AFTERMARKET: Any assembly, sub-assembly or component part sold into the
aftermarket for the purpose of repair, replacement, or maintenance of a
vehicle. (Exception: Delphi Packard Electrical Systems will continue to
sell directly to the aftermarket.)
The Delphi Divisions will continue to sell service replacement parts that are
exclusive to any original equipment business that Delphi may have. For example,
this comprehends Toyota service replacement parts branded as Toyota parts when
Delphi supplies the same part to Toyota as original equipment.
ORIGINAL EQUIPMENT MARKET: Any assembly, sub-assembly or component part
incorporated into a vehicle or piece of equipment for the purpose of an
initial sale and subsequent required service replacement parts.
The roles and responsibilities related to direct aftermarket activities are
designated by the Joint Product Teams, Delphi and SPO as follows:
44
<PAGE> 46
APPENDIX E
Page 2 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
DELPHI ROLES AND RESPONSIBILITIES
Provide Price List Information
- Part Number - Description
- Price - Lead-time
- Standard Pack - Minimum Order Quantity
* Meet quoted Lead-times
* Process quote requests
* Follow customer's Shipping Routing instructions
* Assure product carries no GM identification where and when practical
* No effort should be made to add GM identification
* Advise surplus, overrun, Less-than-OE product availability
* Advise new part numbers available
* Advise new product categories available
* Provide engineering data as required
* Assist in resolution of New Defective, shipping and billing claims
* Advise part number status (i.e. supercession, discontinue)
* Advise excess capacity
* Advise divestiture plans
* Advise capacity plans
* Participate in Product Team processes/responsibilities
45
<PAGE> 47
APPENDIX E
Page 3 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
SPO ROLES AND RESPONSIBILITIES
* Provide a dedicated sales force
* Perform customer contact
* Prospect new distribution
* Develop new customer and market opportunities (Manufacturers & Marketers)
* Process customer orders
- Receive
- Format
- Edit
- Confirmation
* Process quotes
* Publish Price List
* Provide customer invoicing
* Provide customer order status
* Resolve New Defective, shipping and billing customer claims
46
<PAGE> 48
APPENDIX E
Page 4 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
SPO ROLES AND RESPONSIBILITIES (CONT.)
* Administer Credit & Collection process
* Hold customer receivables
* Provide sales reporting
* Forecast Annual Sales
* Assure customer adherence to Program "Standard and Guidelines"
* Assure customers sign Program "Terms and Conditions"
* Administer a common program approved by GM legal
* Maintain equitable distribution practices for customer base
* Analyze market conditions
* Provide New Customer Profiles for Product Team Review
* Participate in Product Team processes/responsibilities
47
<PAGE> 49
APPENDIX F
Page 1 of 2
DELPHI/SPO AGREEMENT
PRIVATE LABEL SALES
Consistent with the exclusive sales and supply agreement between SPO and Delphi,
private label sales will continue to be part of the ACDelco offering. For
example, SPO may sell a battery to Wal-Mart that is branded as a Wal-Mart
battery.
It is expected that on a product line by product line basis, the joint
product teams will review market share, capacity, the ACDelco and GM Parts
business plans; and develop business cases supporting private label
opportunities as appropriate. Delphi is free to bring forward any private label
opportunities. Delphi will work with SPO to secure this business, especially
where related to private label batteries. Where either party feels the other is
not acting in a manner to pursue and win this business, appeals to the Price
Review Committee can be initiated.
SPO recognizes the need to work with Delphi to maximize capacity utilization.
In those cases where the SPO forecast indicates there will be excess
manufacturing capacity, SPO is committed to investigating private label
opportunities which can result in additional net volume.
Under no circumstances should private label volume have preference over GM
Parts and ACDelco branded volume.
Both SPO and Delphi price review procedures should be followed. Appeals to
the approval process would flow to the Price Review Committee.
48
<PAGE> 50
APPENDIX F
Page 2 of 2
DELPHI/SPO AGREEMENT
PRIVATE LABEL SALES
Private Label Roles and Responsibilities
SPO will be responsible for: Delphi will be responsible for:
* Sales * Manufacturing
* Marketing * Engineering
* Distribution (except batteries)
Private Label Transfer Price
Jointly the SPO and Delphi Finance and Purchasing departments, in conjunction
with joint product teams, will negotiate appropriate transfer prices. It is
expected that SPO will recover all variable expenses (including but not limited
to material, discounts & allowances, freight and warranty) and incremental
structural costs. For certain select customers to be mutually agreed upon by SPO
and Delphi-E, an exception will be made to this calculated private label
pricing; these select customers will be priced at SPO variable expense excluding
warranty. Warranty will be billed at the actual "as-incurred" cost levels. In
the case of these customers, SPO will work with Delphi-E to reduce the incurred
warranty expense to acceptable levels. SPO does not intend to profit directly
from nor subsidize private label sales. (Royalties are not paid on private label
sales.) With mutual agreement of SPO and Delphi, specific private label sales
may be administered under the bulk sales portion of this agreement.
49
<PAGE> 51
APPENDIX G
Page 1 of 3
DELPHI/SPO AGREEMENT
FORMAT OF CURRENT SALES FORECAST PROVIDE TO DELPHI
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRODUCT TYPE TYPE OF FORECAST FREQUENCY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
SPARK PLUG - ALL TYPES MARKETING GENERATED FORECAST FOR YEAR. UPDATED YEARLY
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED QUARTERLY
BY SUPPLIER MGT.- MANUAL PROCESS.
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
OIL FILTERS MARKETING GENERATED FORECAST BY MONTH UPDATED AS NEEDED.
FOR A CALENDAR YEAR. (MIN YEARLY)
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED WEEKLY BY
BY SUPPLIER MGT.- MANUAL PROCESS. SUPPLIER MANAGEMENT
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
AIR FILTERS MARKETING GENERATED FORECAST BY MONTH UPDATED AS NEEDED.
FOR A CALENDAR YEAR. (MIN YEARLY)
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED WEEKLY BY
BY SUPPLIER MGT.- MANUAL PROCESS. SUPPLIER MANAGEMENT
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
GAS FILTERS SUPPLIER MANAGEMENT PROVIDES A YEARLY UPDATED QUARTERLY
FORECAST BASED ON PAST YEARS SALES. BY SUPPLIER MGT.
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED QUARTERLY
BY SUPPLIER MGT.- MANUAL PROCESS. BY SUPPLIER MGT.
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
FUEL PUMPS MARKETING GENERATED FORECAST BY MONTH UPDATED YEARLY
ROLLERVANE FOR A CALENDAR YEAR. BY MARKETING.
SOLENOID BROKEN DOWN BY PRODUCT TYPE BY MARKETING. MONITORED MONTHLY BY
TBI SUPPLIER MGT.
MRA
PURCHASED
SENSOR KITS
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 52
APPENDIX G
Page 2 of 3
DELPHI/SPO AGREEMENT
FORMAT OF CURRENT SALES FORECAST PROVIDE TO DELPHI
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRODUCT TYPE TYPE OF FORECAST FREQUENCY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
IGNITION FORECAST TO BE PROVIDED IN 1998
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
STARTERS & ALTERNATORS ANNUAL FORECAST BY MONTH BY PRODUCT PROVIDED ANNUALLY
UPDATED MONTHLY IF REQD
- --------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
MASS AIR FLOW SENSORS SUPPLIER MANAGEMENT PROVIDES LTPI AS GENERATED MONTHLY
PLASTIC AIR CLEANERS GENERATED BY SPARCS. SEND HARD COPY
PVC & F/BRTHR
SHEET METAL AIR CLEANERS
PURCH. F/BRTHR
OXYGEN SENSORS
CATALYTIC CONVERTERS
PURCH. OIL/GAS FILTERS
EXHAUST SENSORS
CFLS - 3819
SENSOR KITS
FUEL STRAINERS
PCV
PEDALS
TEMP. SENSORS
CONTROL MOD. SERVOS
SENSORS/SWITCHES
- --------------------------------------------------------------------------------------------------------------------------
DELCO ELECTRONICS SUPPLIER MANAGEMENT PROVIDES LTPI AS PROVIDED MONTHLY
GENERATED BY SPARCS. SEND HARD COPY
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 53
APPENDIX G
Page 3 of 3
DELPHI/SPO AGREEMENT
FORMAT OF CURRENT SALES FORECAST PROVIDE TO DELPHI
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRODUCT TYPE TYPE OF FORECAST FREQUENCY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
DELPHI INTERIOR & LIGHTING FORECAST TO BE PROVIDED IN 1998
- ----------------------------------------------------------------------------------------------------------------------------
DELPHI CHASSIS LEVEL SCHEDULE - BRAKE PARTS ONLY PROVIDED WEEKLY
MARKETING PROVIDED ANNUAL FORECAST ON
BRAKES AND SHOCKS
- ----------------------------------------------------------------------------------------------------------------------------
DELPHI PACKARD SUPPLIER MANAGEMENT PROVIDES LTPI AS PROVIDED MONTHLY
GENERATED BY SPARCS. SEND HARD COPY
- WIRE SETS MARKETING INPUT FOR WEEKLY LEVEL REVIEWED WEEKLY
SCHEDULING TO SET CAPACITY REQUIREMENTS
- ----------------------------------------------------------------------------------------------------------------------------
DELPHI HARRISON MARKETING PROVIDE FORECAST ANNUALLY OF PROVIDED ANNUALLY
PRODUCT GROUPS: MONTHLY REQUIREMENTS, BROKEN DOWN BY UPDATED MONTHLY IF REQD
- 3 - COMPRESSORS PRODUCT CATEGORY
- 3 - RADIATORS
- 4 - CONDENSERS
- 1 - EVAPORATORS
- 1 - MOTOR & FAN ASM
- 1 - HEATER CORES
- --------------------------------------------------------------------------------------------------------------------------
DELPHI SAGINAW MARKETING PROVIDE FORECAST ANNUALLY OF
PRODUCTS GROUPS: MONTHLY REQUIREMENTS, BROKEN DOWN BY
- REMAN P & N PUMPS PRODUCT CATEGORY
- REMAN RACK & PINION - ALL MAKES
- REMAN RACK & PINION ETO
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 1
EXHIBIT 10.4
U.S. EMPLOYEE MATTERS AGREEMENT
This U.S. EMPLOYEE MATTERS AGREEMENT, dated as of December 22, 1998, (the "EM
Agreement"), is agreed to by General Motors Corporation ("GM") and Delphi
Automotive Systems Corporation ("Delphi"), each a "Party", and collectively, the
"Parties".
WHEREAS, Delphi and GM are parties to the Master Separation Agreement (the
"MSA") entered into in connection with the separation of Delphi from GM, dated
as of December 22, 1998.
WHEREAS, the MSA provides that the Parties shall enter into this EM Agreement in
order to specify the rights and obligations of the Parties with respect to
employee matters; and
NOW, THEREFORE the Parties agree as follows with regard to employees employed in
the U.S. and U.S. based employees assigned to another country:
1. DEFINITIONS.
(a) "Delphi Business Unit" shall have the same meaning as "Delphi
Automotive Systems Business" as defined in the Master Separation
Agreement.
(b) "Delphi Employees" shall mean all persons who are active employees
assigned to, and each person who is on any approved leave of absence
from, Delphi, a Delphi Business Unit, or a Delphi or Delphi Business
Unit controlled or associated business. Delphi Employees will be
designated as hourly or salaried.
(c) "Delphi Terminated Employee" shall mean an individual who is not
currently a Delphi Employee but whose last employment in the GM
Controlled Group of Corporations (as defined in Internal Revenue Code
Section 1563) was with Delphi, a Delphi Business Unit or a Delphi
Business Unit controlled or associated business.
(d) "Distribution Date" shall mean the date on which GM completes the
distribution of at least 80 percent of the then outstanding shares of
Delphi.
(e) "GM Employees" shall mean all persons who are active or former
employees of GM who are not a Delphi Employee or Delphi Terminated
Employee. GM Employees will be designated as hourly or salaried.
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(f) "Effective Time" shall mean January 1, 1999.
(g) "Flowback" shall mean the transfer or movement of individuals
(including, without limitation, applicable individuals at divested
units) after the Effective Time between Delphi and GM.
2. EXHIBITS ATTACHED TO EM AGREEMENT.
The Exhibits and Attachments to this Agreement are incorporated by reference.
3. RESPONSIBILITY FOR EMPLOYEES.
(a) For employees who are or become Delphi Employees or Delphi Terminated
Employees as of the Effective Time, Delphi (except as set forth in
Schedule I of the MSA) and/or Delphi benefit plans shall assume all
employment related responsibility, obligation, or liability of GM
regardless of when incurred, except as expressly stated in this
paragraph 3(a).
The only exceptions (in addition to any set forth in Schedule I of the
MSA) to Delphi's responsibility for such individuals are that: (1)
Delphi will have no pension or retiree welfare benefit obligation or
post-retirement workers compensation responsibility for individuals
who have retired under the General Motors Retirement Program for
Salaried Employees or are separated employees eligible for only a
deferred vested benefit under the General Motors Retirement Program
for Salaried Employees as of the Effective Time; and (2) Delphi will
have no pension or retiree welfare benefit obligation or
post-retirement workers compensation responsibility for hourly
employees who retire under the General Motors Hourly Rate Employees
Pension Plan or are separated employees eligible for only a deferred
vested benefit under the General Motors Hourly Rate Employees Pension
Plan on or before October 1, 1999; and GM shall retain such
obligations.
To the extent that Delphi or Delphi benefit plans cannot directly
assume any responsibility, obligation, or liability, and GM or GM
benefit plans thereby directly or indirectly incur costs, obligations,
or liability, Delphi shall reimburse/indemnify GM for any and all such
costs/liability. Such reimbursement shall be made using the actuarial
and other assumptions set forth in Exhibit 1, the Employee Benefit
Financial term sheet, if applicable. If language in Exhibit 1 is not
directly applicable, the Parties will be guided by the methodology and
assumptions of the Exhibit.
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Exhibit 1, the Employee Benefit Financial term sheet, addresses
various cost and "true up" issues related to retirements and Flowback.
(b) On the Distribution Date Delphi will assume the terms of all
applicable national and local collective bargaining agreements.
4. SALARIED EMPLOYEE FLOWBACK.
(a) Any salaried GM Employee who is transferred to Delphi or its
subsidiaries pursuant to mutual agreement of Delphi and GM after the
Effective Time and up until December 31, 2001, shall become a Delphi
Employee as of the date of transfer and be covered under the Delphi
benefit plans and policies upon transfer. Such an employee shall not
be considered a GM Employee from and after the date of his or her
transfer of employment. GM service for such employees will be counted
for the purpose of meeting all waiting periods and benefit and policy
eligibility and computation under Delphi benefit plans and policy. Any
amounts for out-of-pocket limits and benefit maximums paid or incurred
under the GM Benefit Plan by such employees who Flowback during the
plan year in which the Flowback occurred will be counted toward such
employee's out-of-pocket limits and benefit maximums under the Delphi
Plans.
An appropriate transfer of retirement program assets calculated as set
forth in Section 414(l) of the Internal Revenue Code and a cash
transfer as set forth in Exhibit 1 related to OPEB liability will
follow the transfer. Generally such transfers/payments will be
calculated and made on an annual basis. Conversion of applicable stock
options will be as set forth in Exhibit 2, the Executive Task Team
term sheet covering Methodology for Adjusting Stock Options for GM and
Delphi Employees, or if not explicitly covered therein, based upon the
same methodology. Any other applicable incentive compensation will be
treated as set forth in Exhibit 3, the Executive Task Team term sheet
covering Executive Transactions.
(b) Any salaried Delphi Employee who is transferred to GM or its
subsidiaries pursuant to mutual agreement of Delphi and GM after the
Effective Time and up until December 31, 2001, shall become a GM
Employee as of the date of transfer and be covered under the GM
benefit plans and policies upon transfer. Such an employee shall not
be considered a Delphi Employee from and after the date of his or her
transfer of employment. Delphi service for such employees will be
counted for the purpose of meeting all waiting periods and benefit and
policy eligibility and computation under GM benefit plans and policy.
Any amounts for out-of-pocket limits and benefit maximums paid or
incurred under the Delphi Benefit Plan by such employees who Flowback
during the plan year in
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<PAGE> 4
which the Flowback occurred will be counted toward such employee's
out-of-pocket limits and benefit maximums under the GM Plans.
An appropriate transfer of retirement program assets calculated as set
forth in Section 414(l) of the Internal Revenue Code and a cash
transfer as set forth in Exhibit 1 related to OPEB liability will
follow the transfer. Generally such transfers/payments will be
calculated and made on an annual basis. Conversion of applicable stock
options will use the same methodology as set forth in Exhibit 2, the
Executive Task Team term sheet covering Methodology for Adjusting
Stock Options for GM and Delphi Employees. Any other applicable
incentive compensation will be treated as set forth in Exhibit 3, the
Executive Task Team term sheet covering Executive Transactions.
(c) The Benefit Equalization Plan ("BEP"), Supplemental Executive
Retirement Program ("SERP"), and Supplemental Life Benefits Program
("SLBP") will be treated as set forth in Section 10 (f) below.
(d) Prior to January 1, 2002, Delphi will not hire, without the prior
written consent of GM, on a regular, contract or other basis, any
employee who was employed by GM or any of its affiliates on or after
July 1, 1997.
(e) Prior to January 1, 2002, GM will not hire, without the prior written
consent of Delphi, on a regular, contract or other basis, any employee
who was employed by a Delphi unit or Delphi on or after July 1, 1997.
(f) Liabilities and/or costs, including but not limited to workers'
compensation, for claims or injuries suffered at or before the time of
Flowback remain the responsibility of the sending company.
5. HOURLY EMPLOYEE FLOWBACK.
(a) It is anticipated that the Parties will enter into Memoranda of
Understandings (MOUs) with the union representatives of hourly
employees. The parties will abide by the terms of the MOUs. To the
extent the MOUs differ from the terms set forth in this Employee
Matters Agreement the Parties will arrange to "true up" the financial
arrangements to reflect the original capital structure. Such true up
is generally covered in Exhibit 1.
One of the items the MOUs are expected to address is hourly Flowback.
In the event of hourly Flowback, the following financial arrangements
will apply unless otherwise designated by the terms of the applicable
MOU or otherwise agreed by the parties:
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i. Pension.
i.1. Except as otherwise provided in this Agreement,
Delphi's defined benefit pension plan covering hourly
employees (hereinafter referred to as the "Delphi Pension
Plan"), effective as of the Distribution Date, will cover all
eligible hourly Delphi Employees and employees of divested
units as set forth in 8(d) below. The Delphi Pension Plan will
contain terms identical to the GM Hourly-Rate Employees
Pension Plan (hereinafter referred to as the "GM Pension
Plan") except for those provisions required to be changed as a
result of a new Plan sponsor and the provisions addressed in
this Agreement. In the event of hourly Flowback after the
Distribution Date, the intent of the parties is to provide
employees with benefits from the Delphi Pension Plan and the
GM Pension Plan which, apart from any difference that may
result from future bargaining, in aggregate, will equal the
benefits that would have been provided had the Delphi
separation not occurred. In order to address Flowback of
employees from Delphi to GM after the Distribution Date where
the employee has not retired as of October 1, 1999, the Delphi
Pension Plan will provide as set forth in i.2. through i.5.
i.2. Pro-rata share shall mean a percentage based on the
number of years of credited service recognized under the
Delphi Pension Plan divided by the total years of credited
service under the GM Pension Plan acquired after the
Distribution Date and the number of years of credited service
recognized under the Delphi Pension Plan.
i.3. Except as provided in i.4. below, all hourly employees
with unbroken seniority who Flowback from Delphi to GM after
the Distribution Date and are not retired on or before October
1, 1999, shall be entitled to payment from the Delphi Pension
Plan upon retirement from GM. Such payment will be equal to a
pro-rata share of the total benefits that would be payable
under the Delphi Pension Plan, determined as if the employee
were then retiring from Delphi on a voluntary basis taking
into account the credited service under the GM Pension Plan
acquired after the Distribution Date and the credited service
under the Delphi Pension Plan as of the Date of Retirement.
The payment will include a basic benefit (reduced for age
where appropriate) for each year of credited service under the
Delphi Pension Plan, and any applicable supplement in an
amount equal to the difference between the basic benefit and
the pro-rata share of the total benefit calculated above.
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i.4. Unless GM and Delphi agree to a "Mutual Retirement" (as
defined in the GM Pension Plan), or Delphi approves a
disability retirement (such approval shall not be unreasonably
withheld), any employee who is covered under the Delphi
Pension Plan who flows back to GM after the Distribution Date
and who retires from GM but is not otherwise eligible to
retire under the Delphi Pension Plan (taking into account for
eligibility purposes credited service under the GM Pension
Plan acquired after the Distribution Date), shall be eligible
under the Delphi Pension Plan only for unreduced benefits at
age sixty-two (62) and one (1) month at the benefit levels in
effect under the Delphi Pension Plan as of the date of
retirement from GM increased as appropriate until age 62 and
one month as if the Delphi Pension Plan benefits had commenced
as of the date the employee retired from GM, provided,
however, if such an employee grows into eligibility for an 85
point retirement, Delphi's responsibility, subject to any
applicable age reductions, will commence the first of the
month following attainment of Age 60.
i.5. The surviving spouse of an employee who has unbroken
seniority at Delphi at the Distribution Date, is vested under
the Delphi Pension Plan as of such date and dies while
employed by GM, shall be eligible for payment from the Delphi
Pension Plan of a pro-rata death benefit based on Delphi
credited service and the Delphi benefit levels in effect at
the time of death. All other Pension Plan terms shall apply,
including but not limited to those regarding eligibility, and
duration of surviving spouse benefits.
i.6. In order to address Flowback of employees from GM to
Delphi after the Distribution Date where the employee has not
retired as of October 1, 1999, the GM Pension Plan will
provide as set forth in i.7. through i.10.
i.7. Pro-rata share shall mean a percentage based on the
number of years of credited service recognized under the GM
Pension Plan divided by the total years of credited service
under the Delphi Pension Plan acquired after the Distribution
Date and the number of years of credited service recognized
under the GM Pension Plan.
i.8. Except as provided in i.9. below, all hourly employees
with unbroken seniority who Flowback from GM to Delphi after
the Distribution Date and are not retired on or before October
1, 1999, shall be entitled to payment from the GM Pension Plan
upon retirement from Delphi. Such payment will be equal to a
pro-rata share of the total benefits that would be payable
under the GM
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<PAGE> 7
Pension Plan, determined as if the employee were then retiring
from GM on a voluntary basis taking into account the credited
service under the Delphi Pension Plan acquired after the
Distribution Date and the credited service under the GM
Pension Plan as of the Date of Retirement. The payment will
include a basic benefit (reduced for age where appropriate)
for each year of credited service under the GM Pension Plan,
and any applicable supplement in an amount equal to the
difference between the basic benefit and the pro-rata share of
the total benefit calculated above.
i.9. Unless GM and Delphi agree to a "Mutual Retirement" (as
defined in the Delphi Pension Plan), or GM approves a
disability retirement (such approval shall not be unreasonably
withheld), any employee who is covered under the GM Pension
Plan who flows back to Delphi after the Distribution Date and
who retires from Delphi but is not otherwise eligible to
retire under the GM Pension Plan (taking into account for
eligibility purposes credited service under the Delphi Pension
Plan acquired after the Distribution Date), shall be eligible
under the GM Pension Plan only for unreduced benefits at age
sixty-two (62) and one (1) month at the benefit levels in
effect under the GM Pension Plan as of the date of retirement
from Delphi increased as appropriate until age 62 and one
month as if the GM Pension Plan benefits had commenced as of
the date the employee retired from Delphi provided, however,
if such an employee grows into eligibility for an 85 point
retirement, GM's responsibility, subject to any applicable age
reductions, will commence the first of the month following
attainment of age 60.
i.10. The surviving spouse of an employee who has unbroken
seniority at GM at the Distribution Date, is vested under the
GM Pension Plan as of such date and dies while employed by
Delphi, shall be eligible for payment from the GM Pension Plan
of a pro-rata death benefit based on GM credited service and
the GM benefit levels in effect at the time of death. All
other GM Pension Plan terms shall apply, including but not
limited to those regarding eligibility, and duration of
surviving spouse benefits.
ii. OPEB. OPEB costs associated with hourly employee movement
between the companies after the Effective Time will be
addressed as set forth in Exhibit 1.
iii. Savings Plans. Upon Flowback employees may transfer existing
savings plan assets to the new employer's savings plan or keep
them in the sending employer's savings plan.
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iv. SUB/GIS and JOBS. SUB/GIS and JOBS will be treated as set
forth in Exhibit 4, the Labor Relations term sheet. It is not
anticipated that there be a reallocation of the caps upon
Flowback to GM or Delphi.
v. Liabilities and/or costs, including but not limited to
workers' compensation, for claims or injuries suffered at or
before the time of Flowback remain the responsibility of the
sending company.
vi. Legal Services Plans will be treated as set forth in Exhibit
4, the Labor Relations term sheet.
vii. Joint Funds will be treated as set forth in Exhibit 4, the
Labor Relations term sheet. It is not anticipated that there
be a reallocation of the Joint funds upon Flowback to GM or
Delphi.
viii. Relocation costs associated with the Flowback of employees
will be shared as set forth in Exhibit 4, the Labor Relations
term sheet.
(b) With the exception of "Flowbacks", prior to January 1, 2002 Delphi
will not hire, without the prior written consent of GM, on a regular,
contract or other basis, any employee who was employed by GM or any of
its affiliates on or after July 1, 1997. Notwithstanding the above
Delphi may hire on an ad hoc, non-systematic, limited duration basis
such hourly employees in order to meet its short-term operational
needs.
(c) With the exception of "Flowbacks", prior to January 1, 2002 GM will
not hire, without the prior written consent of Delphi, on a regular,
contract or other basis, any employee who was employed by a Delphi
unit or Delphi on or after July 1, 1997. Notwithstanding the above,
GM may hire on an ad hoc, non-systematic, limited duration basis such
hourly employees in order to meet its short term operational needs.
6. SPONSORSHIP OF EMPLOYEE BENEFIT PLANS AND EMPLOYEE ARRANGEMENTS BY DELPHI.
At the Effective Time for salaried employees and the Distribution Date for
hourly employees, Delphi will establish the Employee Benefit Plans and Employee
Arrangements listed in Exhibit 5. Such Employee Benefit Plans and Employee
Arrangements will have terms substantially identical to the corresponding GM
Employee Benefit Plans and Employee Arrangements and provide for service credit
for prior GM service, except as otherwise set forth herein. Delphi will assume
the liabilities with respect to Delphi Employees under such plans except as
provided in Section 3(a), whether incurred before or after the Effective Time.
Except as set forth in Section 12(c)
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<PAGE> 9
nothing in this Agreement shall prohibit Delphi from amending, modifying or
terminating Delphi Employee Benefit Plans and Employee Arrangements.
7. EMPLOYEE SAVINGS PLANS.
(a) Effective at the Effective Time for salaried employees and the
Distribution Date for hourly employees, or as soon thereafter as
practical, to the extent permissible under applicable law the account
balances of Delphi Employees in GM Savings Plans will be transferred
to accounts in the Delphi Savings Plans.
(b) Effective as of the Distribution Date Delphi and GM shall amend each
of their Savings Plans to add Delphi Common Stock (referred to herein
as "Delphi Stock") as an additional investment fund to receive and
hold Delphi Stock. The amendments shall provide that participants in
the GM Savings Plans may not transfer funds into or make additional
voluntary investments in the Delphi Stock investment fund.
8. CREATION OF RETIREMENT PLANS AND TRANSFER OF GM RETIREMENT PLAN ASSETS
AND LIABILITIES.
(a) Effective as of Effective Time for salaried employees and the
Distribution Date for hourly employees, Delphi shall:
(i) Establish a defined benefit Delphi pension plan for the
benefit of the Delphi Employees formerly covered by the GM
Retirement Program for Salaried Employees with terms and
conditions that are substantially identical to those of such
plan, including, but not limited to, credit for past service
with GM and its subsidiaries for eligibility, vesting, early
retirement, and, contingent upon the transfer of assets set
forth in Exhibit 1, benefit accrual and compensation earned
with GM or its subsidiaries (the Delphi Salaried Retirement
Program); and
(ii) Establish a defined benefit Delphi pension plan for the
benefit of the Delphi Employees formerly covered by the GM
Hourly Rate Employees Pension Plan with terms and conditions
that are substantially identical to those of such plan,
including credit for past service with GM and its subsidiaries
for eligibility, vesting, early retirement, and, contingent
upon the transfer of assets set forth in Exhibit 1, benefit
accrual earned with GM or its subsidiaries.
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Both the Delphi Retirement Program for Salaried Employees and the Delphi
Hourly Rate Employee Pension Plan (together, the "Delphi Retirement Plans")
shall comply with Section 411(d)(6) of the Internal Revenue Code of 1986,
as amended from time to time, ("Code") to protect Delphi Employees with
respect to benefits earned and other protected provisions under the GM
Retirement Program for Salaried Employees and the GM Hourly Rate Employee
Pension Plan (together, the "GM Retirement Plans").
(b) GM shall cause a "spin-off" transfer, within the meaning of Section
414(l) of the Code, from the GM Retirement Plans to the Delphi
Retirement Plans, in the manner and at the times specified in Exhibit
1. The computation of the amounts to be transferred shall be performed
separately for each of the GM Retirement Plans.
(c) The Delphi Retirement Plans shall also cover the provision of benefits
for employees of divested units which were formerly Delphi operations
to the extent that the GM Retirement Plans cover the provision of
benefits for such "divested employees" as of the Effective Time,
except as follows. The GM Retirement Program for Salaried Employees
will continue to cover such "divested salaried employees" who have
retired from GM and the buyer as of the Effective Time and the GM
Hourly Rate Employee Pension Plan will continue to cover such
"divested hourly employees" who retire from GM and the buyer as of
October 1, 1999. To the extent the Parties are unable to arrange with
an applicable third party (such as a buyer of a divested unit) for
direct payment of benefits or transfer of obligations, Delphi agrees
to reimburse GM for any such amounts. Such reimbursement shall be made
using the actuarial and other assumptions set forth in Exhibit 1, if
applicable. If language in Exhibit 1, the Employee Benefit Financial
term sheet, is not directly applicable, the Parties will be guided by
the methodology and assumptions of the Exhibit.
(d) The GM Salaried Retirement Program has contracted with certain Life
Insurance Companies to provide insured payments for certain
participants who made contributions to the Retirement Plans for
certain periods. Delphi agrees to enter into separate agreements with
the Life Insurance Companies to provide comparable benefits for those
who become Delphi Employees.
9. GM STOCK INCENTIVE PLAN.
Treatment of applicable stock options will be as set forth in Exhibit 2, the
Executive Task Team term sheet covering Methodology for Adjusting Stock Options
for GM and Delphi Employees, or if not explicitly covered therein, based upon
the same methodology. Any other applicable incentive compensation will be
treated as set forth in Exhibit 3, the Executive Task Team term sheet covering
Executive Transactions.
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10. DELPHI EMPLOYEE BENEFIT PLANS.
(a) Delphi shall pay the liabilities and expenses under the Delphi Benefit
Plans with respect to Delphi Employees. The Delphi Benefit Plans shall
also cover the provision of benefits for employees of divested units
which were formerly Delphi operations to the extent that the GM
Benefit Plans cover the provision of benefits for such "divested
employees" as of the Effective Time, except that the GM Benefit Plans
to the extent applicable will continue to cover such "divested
employees" who have retired from GM on or before the Effective Time or
for hourly employees on or before October 1, 1999. To the extent the
Parties are unable to arrange with an applicable third party (such as
a buyer of a divested unit) for direct payment of benefits or transfer
of obligations, Delphi agrees to reimburse GM for any such amounts.
Such reimbursement shall be made using the actuarial and other
assumptions set forth in Exhibit 1, if applicable. If language in
Exhibit 1, the Employee Benefit Financial term sheet, is not directly
applicable, the Parties will be guided by the methodology and
assumptions of the Exhibit.
(b) GM involvement in assisting in the administration of the Delphi
Benefit Plans shall be as set forth in Exhibit 6, the Employee Matters
Transition Services Agreement and term sheets incorporated therein.
(c) All GM VEBA assets will continue to be applicable only for payment of
benefits/expenses under GM Welfare Benefit Plans. There will be no
transfer of VEBA assets to Delphi or Delphi Welfare Benefit Plans.
(d) Assets in the GM/IUE SUB Trust Fund or any successor trust fund will
be split pro-rata between the GM/IUE SUB Trust Fund or its successor
trust fund and the Delphi/IUE SUB Trust Fund or Delphi/IUE successor
trust fund based on the proportion that Delphi IUE represented
eligible employees bear to GM IUE represented eligible employees plus
Delphi IUE represented eligible employees, as of the Distribution
Date. Any Delphi expenses allocated to the SUB trust or successor
trust will reduce the amount of such trust allocated to Delphi on the
Distribution Date.
(e) Life Insurance Plan reserves will be allocated pro rata between the
applicable Delphi and GM Life Insurance Plans as set forth in the Life
and Disability Benefits term sheet.
(f) With respect to the GM BEP plans, SERP, and SLBP (collectively the
"non-qualified plans") and the separate corresponding unfunded
non-qualified plans, established by Delphi, GM and Delphi agree as
follows:
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(i) To the extent any GM Employee is transferred to Delphi on or
after the Effective Time and up through December 31, 2001, the
liability under the GM unfunded non-qualified plans for such
employee shall be a Delphi liability payable under the
corresponding Delphi plans from and after the date such
employee is employed by Delphi.
(ii) To the extent any Delphi Employee is transferred to or
otherwise employed by GM on or after the Effective Time and up
through December 31, 2001, the liability under the Delphi
unfunded non-qualified plans for such employee shall be a GM
Liability payable under the corresponding GM plans from and
after the date such employee is employed by GM.
(iii) If such a non-qualified plan is funded and an employee
transfers pursuant to Section 4(a) of the Agreement, the
assets associated with the transferring employee will be
transferred. Such transfer will be calculated consistent with
the funding assumptions of the plan.
11. WORKERS' COMPENSATION.
(a) Except as specifically set forth in Section 3(a), 4(f) and 5(a)v.
above, workers' compensation liability for all Delphi Employees and
Delphi Terminated Employees shall be assumed and retained by Delphi or
its subsidiaries at and following the Effective Time, regardless of
the time an individual became a Delphi Employee. To the extent such
liability cannot be directly assumed by Delphi, Delphi shall
reimburse/indemnify GM for any and all such costs/liability GM
directly or indirectly incurs in regard to such individuals. Such
reimbursement shall include reimbursement for retrospective premium
adjustments relating to such individuals.
12. FURTHER AGREEMENTS.
From and after the Effective Time for salaried employees and the Distribution
Date for hourly employees:
(a) Delphi shall, and shall cause its subsidiaries, to honor and provide
for payment of benefits and compensation under all Delphi Employee
Benefit Plans and Delphi Employee Arrangements in accordance with
their terms, as amended from time to time subject to the terms of this
EM Agreement.
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(b) Delphi shall, and shall cause its subsidiaries, to provide credit to
Delphi Employees for service with GM, its successors and its
affiliates for purposes of eligibility, vesting and eligibility to
retire (but not for benefit accruals except as set forth in Section 8
above) under all Employee Benefit Plans. No pre-existing conditions
exclusions will apply under the Delphi medical plans except to the
extent such exclusion is applicable under the plan of GM in effect
immediately prior to the Effective Time for salaried employees and the
Distribution Date for hourly employees. Any amounts for out-of-pocket
limits and benefit maximums paid or incurred under the GM Benefit
Plans by such employees during the plan year will be counted toward
such employee's out-of-pocket limits and benefit maximums under the
Delphi Plans for the same plan year.
(c) Delphi shall, and shall cause its subsidiaries to continue any GM
Employee Benefit Plan and GM Employee Arrangement that is a severance
benefit plan or arrangement, without any adverse changes until
December 31, 1999.
(d) Notwithstanding anything herein to the contrary, to the extent that GM
or Delphi hold a controlling interest in a subsidiary that maintains
pension, savings and/or welfare plans separate and apart from the GM
or Delphi plans, and such subsidiary becomes a subsidiary of Delphi as
a result of the Delphi separation transaction, the plans of such
subsidiary shall become/remain the responsibility of such subsidiary,
and no division or split-up of such plan will occur as a result of the
Delphi separation transaction.
(e) Except as set forth in Section 12(c), nothing in this Agreement shall
prohibit Delphi from amending, modifying or terminating Delphi
Employee Benefit Plans and Employee Arrangements.
13. COOPERATION.
Delphi and GM shall reasonably cooperate with each other in carrying out the
terms of this EM Agreement, and each party shall exchange such information with
the other party, as may be reasonably required by the other party, with respect
thereto.
14. NO THIRD PARTY BENEFICIARIES.
No provision in this EM Agreement or in any Schedule, including any Attachment
thereto, shall confer upon any person, other than the signatories hereto, any
rights or remedies with respect to the employment, compensation, benefits, or
other terms and conditions of employment of any persons, provided that any
rights to be provided under
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<PAGE> 14
the Delphi Employee Benefit Plans or their successors, pursuant to this EM
Agreement and the attached Schedules, shall be enforceable by the participants
thereunder.
15. SEVERABILITY.
In case any one or more of the provisions contained in this EM Agreement or the
Schedules and Attachments hereto shall be held invalid, illegal or unenforceable
in any respect by a court of competent jurisdiction or a qualified arbitrator,
the validity, legality and enforceability of the remaining provisions contained
herein and other applications thereof shall not in any way be diminished.
16. GOVERNING LAW.
To the extent not governed by federal law, this EM Agreement shall be governed
by and construed in accordance with the laws of the State of Michigan,
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto.
17. PRESS RELEASES.
Except as may be required by law or State or Federal Agencies, no press release
concerning the existence of this EM Agreement shall be made by one Party without
the prior written consent of the other Party, which consent shall not be
unreasonably withheld.
18. ENTIRE AGREEMENT: AMENDMENTS.
The MSA, this EM Agreement and the Exhibits and Attachments to this EM Agreement
constitute the entire agreement among the Parties and supersede all other
pre-existing agreements, with respect to the matters expressly provided for in
this EM Agreement and the Exhibits and Attachments hereto. This Agreement may be
amended or modified only by mutual agreement in writing, signed by an authorized
representative of each Party. Provided, however, that it is anticipated that the
Parties will sign memoranda of understanding with the union representatives of
represented employees affected by the transaction, and to the extent such
memoranda conflict with the terms of the MSA, EM Agreement or Transition
Services Agreement and are signed or approved by both Delphi and GM, the
memoranda shall control subject to the first paragraph of Section 5(a) above.
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19. ORDER OF PRECEDENCE.
The Parties hereto agree that if any terms of this EM Agreement conflict with
the terms in the MSA, the terms of this EM Agreement shall govern with respect
to the resolution of such conflict. Furthermore if the terms of any incorporated
term sheet differ from the terms of this EM Agreement the terms of the term
sheet shall govern.
20. TRANSITION SERVICES
Transition services for employee matters will be governed by the Employee
Matters Transition Services Agreement attached as Exhibit 6 or in the case of
payments related to the Health Care Initiatives term sheet, will be made
pursuant to the payment terms provided in that term sheet.
21. COUNTERPARTS.
This EM Agreement may be executed in counterparts, each of which shall be deemed
an original.
22. NOTICES.
All notices or other communications hereunder or under any Schedule or
Attachment hereto, shall be in writing, signed by the party providing such
notice, and shall be considered properly given or made and shall be deemed to
have been duly given on the date of delivery, when delivered personally or
transmitted and received by telex or telecopies/facsimile transmitter, receipt
acknowledged or confirmed during normal business hours, or in the case of
registered or certified mail, return receipt requested, postage prepaid, on the
date shown on such return receipt. Each party shall promptly notify the other
Party of any change in the name of either individual designated below to receipt
a copy of notices.
Any notices to GM shall be sent as follows:
Kathleen S. Barclay
Vice President
Global HR and GMU
30400 Mound Road
Mail Code 480-108-309
Warren, MI 48090
Telephone: (810) 986-6034
Facsimile: (810) 986-1402
15
<PAGE> 16
Any notices to Delphi shall be sent as follows:
Mark Weber
Vice President HRM
Delphi Automotive Systems
5725 Delphi Drive
Mail Code 483-400-606
Troy, MI 48098
Telephone: (248) 813-2521
Facsimile: (248) 813-2523
23. DESCRIPTIVE HEADINGS.
The section and clause headings of this EM Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this EM Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this EM Agreement as of the
date written above.
GENERAL MOTORS CORPORATION DELPHI AUTOMOTIVE SYSTEMS
By: /s/ Kathleen S. Barclay By: /s/ Mark Weber
--------------------------------- ---------------------------------
Vice President
Global Human Resources and Vice President
Title: General Motors University Title: Human Resources Management
----------------------------- -----------------------------
16
<PAGE> 1
EXHIBIT 10.13
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
I. Name and Purpose
The name of this plan is the Delphi Automotive Systems Corporation
Deferred Compensation Plan for Non-Employee Directors (the "Plan"). Its
purpose is to establish a mechanism for the mandatory deferral portion
of director fees into stock units and provide Non-Employee Directors of
the Delphi Automotive Systems Corporation (the "Corporation" or
"Delphi") with an opportunity to defer remaining compensation earned as
a Director.
II. Effective Date
The Plan shall be effective at the time of the IPO.
III. Participants
Any Director of the Corporation who is not an employee of the
Corporation or of a subsidiary of the Corporation is eligible to
participate in the Plan (the "Participant"). The Plan will establish for
each Participant an unfunded deferred compensation account.
IV. Election of Deferral; Required Deferral
(A) On or before December 31 of any year, each Director, or nominee for
election to Director, must make an irrevocable election to defer
receipt of all or a specified portion of the compensation
(exclusive of expense reimbursement) otherwise payable during the
following year for serving on the Board of Directors of the
Corporation and its Committees and for attending meetings of the
Board. Such compensation will be credited to the Participant's
deferred compensation account on the date the compensation is
otherwise payable.
(B) For a newly elected Director, the election under the deferral plan
for the remainder of the calendar year in which the Director joins
the Board will be made prior to the month in which the initial
income to be deferred is payable.
(C) During 1999, the election under the Plan for the deferral of cash
compensation for the remainder of the 1999 calendar year will be
made within 30 days after the effective date of the Plan set forth
in Section II to defer cash compensation earned after the date of
the deferral election.
(D) Each annual election will include the method by which the value of
amounts deferred will be measured and distributed in accordance
with Sections V and VI below, respectively.
(E) Each Director, other than the lead Director, will be paid 50% of
his or her annual compensation by a grant of stock based units
which will be deferred in accordance with Section V(B)(2) below.
The lead Director will be paid two-thirds of his annual
compensation by a grant of stock based units, also deferred in
accordance with Section V(B)(2) below.
V. Value of Deferred Compensation Accounts
(A) A Participant's compensation will be deferred by means of a
stock-based option.
Board of Directors
December 22, 1998
<PAGE> 2
(B) Deferred compensation will be held for the Participant's account in
the general funds of the Corporation. In accordance with the
Participant's instructions, deferred amounts will be credited as
follows:
Stock-Based Option
Amounts deferred under this option will be converted into
units representing the Corporation's Common Stock,
determined by dividing the amount of deferred compensation
in each calendar quarter by the average daily closing market
price of such stock as reported in The Wall Street Journal
for that calendar quarter. On the dividend payment date
dividend equivalents in the form of additional units will be
credited to the Participant's account equal to the sum of
the per share cash dividend multiplied by the number of
units in the Participant's account and then divided by the
average market price of such stock on the payment date. In
the event of any change in the number or kind of any
outstanding shares of the Corporation, appropriate
adjustments will be made in the number of units credited to
a Participant's account. Amounts credited to the
Participant's account will continue to accrue dividend
equivalents until distributed in accordance with the Plan.
Units will be calculated to the nearest thousandth. Average
market price on any valuation date under the Plan is defined
as the mean of the highest and lowest sales prices of the
stock as reported in The Wall Street Journal.
(C) In the event that the Participant's account has been credited with
units calculated as provided in Section V(B), the value of such
portion of the account for purposes of distribution to the
Participant will be determined by multiplying the number of units
by the average daily closing market price of the stock they
represent as reported in The Wall Street Journal for the calendar
quarter preceding delivery.
(D) A Participant will not have any interest in the deferred
compensation held in his or her account until it is distributed in
accordance with the Plan.
VI. Method of Distribution of Deferred Compensation
(A) No withdrawal may be made from the Participant's deferred
compensation account except as provided in this Section VI.
(B) The value of a Participant's deferred compensation account is
payable in cash, in a lump sum. The distribution of the deferred
compensation shall be made as soon as practical in January of the
year following termination as a Director.
VII. Manner of Electing Deferral
A Participant may elect to defer all or any portion of his or her cash
compensation by giving written notice to the Corporation before January
1 of the year in which the compensation is earned. Such notice will
include:
(a) the percent (50% or 100%) of his or her cash compensation, to
be deferred in Delphi units, to be payable in cash in one lump
sum in January of the year following termination from the
Board, or
-2-
Board of Directors
December 22, 1998
<PAGE> 3
(b) the authorization to receive cash compensation in the year it
is earned.
In subsequent annual elections, the participant may change his or her
election.
A copy of the required form of notice is attached and made a part
hereof.
VIII. Distribution Upon Death
If any Participant dies while a Director, or thereafter, before
receiving all funds deferred for his or her account, the unpaid amount
in the Participant's account will be paid to his or her beneficiary; but
if none has been designated, to his or her estate, in one lump sum. The
value of the account on the date of payment will be determined in
accordance with the provisions of Sections V and VI above, respectively.
IX. Participant's Rights Unsecured
The right of any Participant to receive future installments under the
provisions of the Plan will be an unsecured claim against the general
assets of the Corporation.
X. Non-Assignability
The right of a Participant to the payment of deferred compensation as
provided in this Plan may not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or anticipation.
XI. Statement of Account
Statements will be sent to Participants as soon as practical each year
as to the value of the deferred compensation accounts as of the end of
the previous year.
XII. Administration
The Administrator of this Plan is the Delphi Strategy Board. The
Administrator has authority to adopt rules and regulations for carrying
out the Plan and to interpret, construe and implement the provisions
thereof.
XIII. Business Days
If any date specified herein falls on a Saturday, Sunday or legal
holiday, such date will be deemed to refer to the next business day
after that date.
XIV. Amendment and Termination
This Plan may at any time be amended, modified, or terminated by the
Delphi Strategy Board; provided, however, that these Plan provisions
will not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended,
the Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder. No amendment, modification or termination will,
without the consent of a Participant, adversely affect such
Participant's rights with respect to amounts accrued in his or her
deferred compensation account.
-3-
Board of Directors
December 22, 1998
<PAGE> 1
EXHIBIT 10.14
================================================================================
$3,500,000,000
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY
among
DELPHI AUTOMOTIVE SYSTEMS CORPORATION,
The Several Lenders
from Time to Time Parties Hereto
BANK OF AMERICA NT & SA, CITIBANK, N.A., DEUTSCHE BANK,
BARCLAYS BANK PLC and BANQUE NATIONALE DE PARIS,
as Syndication Agents
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of January 4, 1999
---------------------------------------
CHASE SECURITIES INC.,
as Lead Arranger and Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
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<S> <C>
SECTION 1. DEFINITIONS .............................................................. 1
1.1 Defined Terms ............................................................... 1
1.2 Other Definitional Provisions ............................................... 13
SECTION 2. AMOUNT AND TERMS OF THE FACILITIES ....................................... 13
2.1 Revolving Credit Commitments ................................................ 13
2.2 Procedure for Revolving Credit Borrowing .................................... 14
2.3 Competitive Borrowings ...................................................... 14
2.4 Termination or Reduction of Commitments ..................................... 18
2.5 Prepayments ................................................................. 18
2.6 Conversion and Continuation Options ......................................... 18
2.7 Minimum Amounts of Eurodollar Borrowings .................................... 19
2.8 Repayment of Loans; Evidence of Debt ........................................ 19
2.9 Interest Rates and Payment Dates ............................................ 20
2.10 Facility Fee ............................................................... 21
2.11 Computation of Interest and Fees ........................................... 21
2.12 Inability to Determine Interest Rate ....................................... 22
2.13 Pro Rata Treatment and Payments ............................................ 22
2.14 Illegality ................................................................. 23
2.15 Increased Costs ............................................................ 24
2.16 Taxes ...................................................................... 25
2.17 Indemnity .................................................................. 26
2.18 Notice of Amounts Payable; Relocation of Lending Office; Mandatory
Assignment.................................................................. 27
SECTION 3. REPRESENTATIONS AND WARRANTIES ........................................... 27
3.1 Financial Condition ......................................................... 28
3.2 Corporate Existence; Compliance with Law .................................... 28
3.3 Corporate Power; Authorization; Enforceable Obligations ..................... 29
3.4 No Legal Bar; No Default .................................................... 29
3.5 No Material Litigation ...................................................... 29
3.6 Federal Regulations ......................................................... 29
3.7 Investment Company Act ...................................................... 29
3.8 ERISA ....................................................................... 29
3.9 No Material Misstatements ................................................... 30
3.10 Environmental Matters ...................................................... 30
3.11 Subsidiaries ............................................................... 30
3.12 Year 2000 Matters .......................................................... 30
3.13 Purpose of Loans ........................................................... 30
SECTION 4. CONDITIONS PRECEDENT ..................................................... 31
4.1 Conditions to Initial Loans ................................................. 31
4.2 Conditions to Each Loan ..................................................... 32
SECTION 5. AFFIRMATIVE COVENANTS .................................................... 32
5.1 Financial Statements ........................................................ 32
</TABLE>
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<PAGE> 3
<TABLE>
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<S> <C>
5.2 Certificates; Other Information ............................................ 33
5.3 Notices .................................................................... 34
5.4 Conduct of Business and Maintenance of Existence ........................... 34
5.5 Books and Records .......................................................... 34
5.6 Environmental Laws ......................................................... 34
SECTION 6. NEGATIVE COVENANTS ....................................................... 34
6.1 Consolidated Leverage Ratio ................................................ 34
6.2 Indebtedness ............................................................... 34
6.3 Liens ...................................................................... 35
6.4 Sale-Leasebacks ............................................................ 35
6.5 Merger, Consolidation, etc ................................................. 35
SECTION 7. EVENTS OF DEFAULT ........................................................ 36
SECTION 8. THE ADMINISTRATIVE AGENT ................................................. 38
8.1 Appointment ................................................................ 38
8.2 Delegation of Duties ....................................................... 38
8.3 Exculpatory Provisions ..................................................... 38
8.4 Reliance by Administrative Agent ........................................... 38
8.5 Notice of Default .......................................................... 39
8.6 Non-Reliance on Administrative Agent and Other Lenders...................... 39
8.7 Indemnification ............................................................ 40
8.8 Administrative Agent in Its Individual Capacity ............................ 40
8.9 Successor Administrative Agent ............................................ 40
8.10 Syndication Agents and Documentation Agent ................................. 41
SECTION 9. MISCELLANEOUS ............................................................ 41
9.1 Amendments and Waivers ..................................................... 41
9.2 Notices .................................................................... 42
9.3 No Waiver; Cumulative Remedies ............................................. 42
9.4 Survival of Representations and Warranties ................................. 43
9.5 Payment of Expenses and Taxes .............................................. 43
9.6 Successors and Assigns; Participations and Assignments ..................... 43
9.7 Adjustments ................................................................ 46
9.8 Counterparts ............................................................... 46
9.9 Severability ............................................................... 47
9.10 GOVERNING LAW .............................................................. 47
9.11 Confidentiality ............................................................ 47
</TABLE>
-ii-
<PAGE> 4
Page
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SCHEDULES
I Commitments; Competitive Bid Lenders
II Addresses for Notices
III Material Agreements
3.11 Subsidiaries
4.1(e) GM Agreements
EXHIBITS
- --------
A Competitive Bid Request
B Invitation for Competitive Bids
C Competitive Bid
D Competitive Bid Accept/Reject Letter
E Assignment and Acceptance
F-1 Opinion of Drinker Biddle & Reath LLP, counsel for the Borrower
F-2 Opinion of Simpson Thacher & Bartlett
G Promissory Note
-iii-
<PAGE> 5
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY, dated as of January
4, 1999, among DELPHI AUTOMOTIVE SYSTEMS CORPORATION, a Delaware corporation
(the "Borrower"), the several banks and other financial institutions from time
to time parties to this Agreement (the "Lenders"), BANK OF AMERICA NT & SA,
CITIBANK, N.A., DEUTSCHE BANK, BARCLAYS BANK PLC and BANQUE NATIONALE DE PARIS,
as syndication agents (collectively, the "Syndication Agents"), and THE CHASE
MANHATTAN BANK, as administrative agent for the Lenders hereunder (in such
capacity, the "Administrative Agent").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day, (b) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1% and (c) the Base CD Rate in effect on such day plus 1%. "Base CD
Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary
CD Rate and (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the C/D Reserve Percentage and (b) the C/D
Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for any day,
the secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business Day)
by the Administrative Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, the ABR shall be determined without
regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in
the ABR due to a change in the Prime Rate, the Federal Funds Effective Rate
or the Three-Month Secondary CD Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Federal
Funds Effective Rate or the Three-Month Secondary CD Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
<PAGE> 6
2
"Agreement": this Agreement, as amended, supplemented or otherwise
modified from time to time.
"Applicable Margin": as defined in subsection 2.9(e).
"Assignee": as defined in subsection 9.6(c).
"Available Commitment": as to any Lender at any time, the excess, if
any, of such Lender's Commitment over such Lender's Revolving Credit Loans.
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowing": a group of Loans of a single Type made by the Lenders (or,
in the case of a Competitive Borrowing, by the Lender or Lenders whose
Competitive Bids have been accepted pursuant to subsection 2.3) on a single
date and as to which a single Interest Period is in effect.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close; provided that when used in connection with a Eurodollar Loan, the
term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Capital Contribution": the contribution by GM or any wholly-owned
Subsidiary of GM of cash to the Borrower in respect of the issuance of, or
its ownership of, capital stock of the Borrower.
"C/D Assessment Rate": for any day as applied to any ABR Loan, the
annual assessment rate in effect on such day which is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance
Corporation (the "FDIC") classified as well-capitalized and within
supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. Section 327.4 (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for
a Depositary Institution (as defined in Regulation D of the Board as in
effect from time to time) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
<PAGE> 7
3
"Change of Control": (a) prior to an IPO and/or Offering which, when
combined with the Net Cash Proceeds from any Capital Contributions, yields
aggregate Net Cash Proceeds to the Borrower of at least $1,250,000,000, GM
or any wholly-owned Subsidiary of GM shall fail to own 100% of the issued
and outstanding capital stock of the Borrower and (b) following an IPO
and/or Offering which, when combined with the Net Cash Proceeds from any
Capital Contributions, yields aggregate Net Cash Proceeds to the Borrower of
at least $1,250,000,000, any of (i) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date
hereof) other than GM or any wholly-owned Subsidiary of GM, of shares
representing more than 20% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower; or
(ii) occupation of a majority of the seats (other than vacant seats) on the
board of directors of the Borrower by Persons who were neither (X) nominated
by the board of directors of the Borrower or the board of directors of GM
nor (Y) appointed by directors so nominated; or (iii) the acquisition of
direct or indirect Control of the Borrower by any Person or group other than
GM or any wholly-owned Subsidiary of GM.
"Chase": The Chase Manhattan Bank.
"Closing Date": the date on which each of the conditions precedent set
forth in subsection 4.1 shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment": as to any Lender, the obligation of such Lender to make
Revolving Credit Loans to the Borrower hereunder in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth
opposite such Lender's name on Schedule I, as such amount may be reduced
from time to time in accordance with the provisions of this Agreement.
"Commitment Percentage": as to any Lender at any time, the percentage
which such Lender's Commitment then constitutes of the aggregate Commitments
(or, at any time after the Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Loans then
outstanding constitutes of the aggregate principal amount of the Loans then
outstanding).
"Commitment Period": the period from and including the date hereof to
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Competitive Bid": an offer by a Lender to make a Competitive Loan
pursuant to subsection 2.3.
<PAGE> 8
4
"Competitive Bid Accept/Reject Letter": a notification made by the
Borrower pursuant to subsection 2.3(f) in the form of Exhibit D.
"Competitive Bid Lenders": the Lenders specified on Schedule I as being
"Competitive Bid Lenders."
"Competitive Bid Rate": as to any Competitive Bid made by a Lender
pursuant to subsection 2.3, (i) in the case of a Eurodollar Competitive
Loan, the Eurodollar Rate plus (or minus) the Margin, and (ii) in the case
of a Fixed Rate Loan, the fixed rate of interest offered by the Lender
making such Competitive Bid.
"Competitive Bid Request": a request made pursuant to subsection 2.3(b)
in the form of Exhibit A.
"Competitive Borrowing": a Borrowing consisting of a Competitive Loan
or concurrent Competitive Loans from the Lender or Lenders whose Competitive
Bids for such Borrowing have been accepted by a Borrower under the bidding
procedure described in subsection 2.3.
"Competitive Loan": a Loan (which shall be a Eurodollar Competitive
Loan or a Fixed Rate Loan) made by a Lender pursuant to the bidding
procedure described in subsection 2.3.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated November 1998 and furnished to the Lenders.
"Consolidated EBITDA": for any period, Consolidated Net Income for such
period plus, without duplication and to the extent reflected as a charge in
the statement of such Consolidated Net Income for such period, the sum of
(a) income tax expense, (b) interest expense (other than interest expense or
discount during such period attributable to Permitted Receivables Financing
with an aggregate principal amount not in excess of $1,500,000,000), (c)
amortization or writeoff of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (d) depreciation and amortization
expense, (e) amortization of intangibles (including, but not limited to,
goodwill) and organization costs and (f) any extraordinary, unusual or
non-recurring non-cash expenses or losses, and minus, to the extent included
in the statement of such Consolidated Net Income for such period, the sum of
(a) interest income and (b) any extraordinary, unusual or non-recurring
income or gains, all as determined on a consolidated basis. For the purposes
of calculating Consolidated EBITDA for any period of four consecutive fiscal
quarters (each, a "Reference Period") pursuant to any determination of the
Consolidated Leverage Ratio, if during such Reference Period the Borrower or
any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA
for such Reference Period shall be calculated after giving pro forma effect
thereto as if such Material Acquisition occurred on the first day of such
Reference Period. As used in this paragraph, "Material Acquisition" means
any
<PAGE> 9
5
acquisition of property or series of related acquisitions of property that
involves the payment of consideration (including, without limitation, the
assumption of debt) by the Borrower and its Subsidiaries in excess of
$10,000,000.
"Consolidated Leverage Ratio": as at any day, the ratio of (a)
Consolidated Total Debt on such day (other than any Permitted Receivables
Financing outstanding on such date in an aggregate principal amount not to
exceed $1,500,000,000 and any other Non-Recourse Debt not related to
accounts receivable of the Borrower or any of its Subsidiaries) to (b)
Consolidated EBITDA for the period of four fiscal quarters ending on or most
recently prior to such day; provided, that for the purposes of determining
the Consolidated Leverage Ratio for the fiscal quarters of the Borrower
ending March 31, 1999, June 30, 1999 and September 30, 1999, Consolidated
EBITDA for the relevant period shall be deemed to equal Consolidated EBITDA
for the period beginning on the Closing Date and ending on such dates, plus
Consolidated EBITDA for the segments and Subsidiaries of GM constituting the
Delphi Automotive Systems business of GM for the number of fiscal quarters
immediately preceding the Closing Date which, when added to the number of
fiscal quarters which have begun since the Closing Date and have ended on or
prior to such dates, equals four.
"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Borrower and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Assets": at any date, all amounts that would, in
conformity with GAAP, be set forth opposite the caption "total assets" (or
any like caption) on a consolidated balance sheet of the Borrower and its
Subsidiaries at such date.
"Consolidated Total Debt": at any date and without duplication, (i) the
aggregate principal amount of (i) all Indebtedness of the Borrower and its
Subsidiaries on a consolidated basis and (ii) all guarantees by the Borrower
or any of its Subsidiaries of Indebtedness on a consolidated basis of any
other Person (other than the Borrower or a Subsidiary) at such date.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default": any of the events specified in Section 7, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
<PAGE> 10
6
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental
Authority, relating to the environment, preservation or reclamation of
natural resources, the management, release or threatened release of any
Hazardous Material or to health and safety matters relating to the
environment.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation,
fines, penalties or indemnities), of the Borrower or any Subsidiary directly
or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to
any Hazardous Materials, (d) the release or threatened release of any
Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or
imposed with respect to any of the foregoing.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of the Board) maintained by a
member bank of such System.
"Eurodollar Borrowing": a Borrowing comprised of Eurodollar Loans.
"Eurodollar Competitive Loan": any Competitive Loan bearing interest at
a rate determined by reference to the Eurodollar Rate.
"Eurodollar Loan": any Eurodollar Competitive Loan or Eurodollar
Revolving Credit Loan.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate of interest determined on the
basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Dow Jones Markets Page as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the Dow
Jones Markets Page (or otherwise on such service), the "Eurodollar Rate"
shall be determined by reference to
<PAGE> 11
7
such other publicly available service for displaying eurodollar rates as may
be agreed upon by the Administrative Agent and the Borrower or, in the
absence of such agreement, the "Eurodollar Rate" shall instead be the rate
per annum equal to the average (rounded upward to the nearest 1/16th of 1%)
of the respective rates notified to the Administrative Agent by each of the
Reference Lenders as the rate at which such Reference Lender is offered
Dollar deposits at or about 10:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted for
delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Reserve Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined
for such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Revolving Credit Loan": any Revolving Credit Loan bearing
interest at a rate determined by reference to the Eurodollar Rate.
"Event of Default": any of the events specified in Section 7; provided
that any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day of such rates on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it.
"Financial Officer": with respect to any Person, the chief financial
officer, principal accounting officer, a financial vice president, treasurer
or assistant treasurer of such Person.
"Fixed Rate Borrowing": a Borrowing comprised of Fixed Rate Loans.
"Fixed Rate Loan": any Competitive Loan bearing interest at a fixed
percentage rate per annum specified by the Lender making such Loan in its
Competitive Bid.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time and as applied by the Borrower in
the preparation
<PAGE> 12
8
of its most recent financial statements delivered pursuant to subsection
3.1(b); provided that, if the Borrower notifies the Administrative Agent
that the Borrower requests an amendment to any provision hereof to eliminate
the effect of any change occurring after the date hereof in GAAP or in the
application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Majority Lenders request
an amendment to any provision hereof for such purpose), regardless of
whether any such notice is given before or after such change in GAAP or in
the application thereof, then such provision shall be interpreted on the
basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
"GM": General Motors Corporation, a Delaware corporation.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of government.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Indebtedness": of any Person at any date, the amount outstanding on
such date under notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed (including, without limitation, indebtedness
for borrowed money evidenced by a loan account).
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding
and on the date such Loan is paid in full, (b) as to any Eurodollar Loan or
Fixed Rate Loan, the last day of the Interest Period applicable thereto and
(c) as to any Eurodollar Loan or Fixed Rate Loan, having an Interest Period
longer than three months or 90 days, as the case may be, each day which is
three months or 90 days, as the case may be, after the first day of the
Interest Period applicable thereto; provided that, in addition to the
foregoing, each of (x) the date upon which both the Commitments have been
terminated and the Loans have been paid in full and (y) the Termination Date
shall be deemed to be an "Interest Payment Date" with respect to any
interest which is then accrued hereunder.
"Interest Period": (a) with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six (or if available to all the
Lenders (or, in the case of Eurodollar Competitive Loans, the Lender
making such Loans) nine) months thereafter, as selected by the
<PAGE> 13
9
Borrower in its notice of borrowing or notice of conversion, as the
case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six (or if available to all the Lenders (or,
in the case of Eurodollar Competitive Loans, the Lender making such
Loans) nine) months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto; and
(b) with respect to any Fixed Rate Loan, the period
commencing on the borrowing date with respect to such Fixed Rate Loan and
ending such number of days thereafter (which shall be not less than seven
days or more than 180 days after the date of such borrowing) as selected by
the Borrower in its Competitive Bid Request given with respect thereto.
provided that all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless, in the case of an Interest Period
pertaining to a Eurodollar Loan, the result of such extension would be
to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding
Business Day; and
(2) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
Notwithstanding anything to the contrary contained in this Agreement, no
Interest Period shall be selected by the Borrower which ends on a date after
the Termination Date.
"Invitation for Competitive Bids": an invitation made by the Borrower
pursuant to subsection 2.3(c) in the form of Exhibit B.
"IPO": the initial underwritten public offering by the Borrower of
common stock of the Borrower pursuant to a registration statement filed with
the Securities and Exchange Commission in accordance with the Securities Act
of 1933, as amended.
"Level I Status": exists at any date if, at such date, the Borrower has
senior unsecured long-term debt outstanding, without third-party credit
enhancement, which is rated A- or better by S&P and A3 or better by Moody's;
provided that if either S&P or
<PAGE> 14
10
Moody's shall cease to issue ratings of debt securities generally, then the
Administrative Agent and the Borrower shall negotiate in good faith to agree
upon a substitute rating agency (and to correlate the system of ratings of
such substitute rating agency with that of the rating agency for which it is
substituting) and (a) until such substitute rating agency is agreed upon,
the foregoing test may be satisfied on the basis of the rating assigned by
the other such rating agency and (b) after such substitute rating agency is
agreed upon, the foregoing test may be satisfied on the basis of the rating
assigned by the other rating agency and such substitute rating agency.
"Level II Status": exists at any date if, at such date, Level I Status
does not exist and the Borrower has senior unsecured long-term debt
outstanding, without third-party credit enhancement, which is rated BBB+ or
better by S&P and Baa1 or better by Moody's; provided that if either S&P or
Moody's shall cease to issue ratings of debt securities generally, then the
Administrative Agent and the Borrower shall negotiate in good faith to agree
upon a substitute rating agency (and to correlate the system of ratings of
such substitute rating agency with that of the rating agency for which it is
substituting) and (a) until such substitute rating agency is agreed upon,
the foregoing test may be satisfied on the basis of the rating assigned by
the other such rating agency and (b) after such substitute rating agency is
agreed upon, the foregoing test may be satisfied on the basis of the rating
assigned by the other rating agency and such substitute rating agency.
"Level III Status": exists at any date if, at such date, neither Level
I Status nor Level II Status exists and the Borrower has senior unsecured
long-term debt outstanding, without third party credit enhancement, which is
rated BBB or better by S&P and Baa2 or better by Moody's; provided that if
either S&P or Moody's shall cease to issue ratings of debt securities
generally, then the Administrative Agent and the Borrower shall negotiate in
good faith to agree upon a substitute rating agency (and to correlate the
system of ratings of such substitute rating agency with that of the rating
agency for which it is substituting) and (a) until such substitute rating
agency is agreed upon, the foregoing test may be satisfied on the basis of
the rating assigned by the other such rating agency and (b) after such
substitute rating agency is agreed upon, the foregoing test may be satisfied
on the basis of the rating assigned by the other rating agency and such
substitute rating agency.
"Level IV Status": exists at any date if, at such date, none of Level I
Status, Level II Status or Level III Status exists and the Borrower has
senior unsecured long-term debt outstanding, without third party credit
enhancement, which is rated BBB- or better by S&P and Baa3 or better by
Moody's; provided that if either S&P or Moody's shall cease to issue ratings
of debt securities generally, then the Administrative Agent and the Borrower
shall negotiate in good faith to agree upon a substitute rating agency (and
to correlate the system of ratings of such substitute rating agency with
that of the rating agency for which it is substituting) and (a) until such
substitute rating agency is agreed upon, the foregoing test may be satisfied
on the basis of the rating assigned by the other such rating agency and (b)
after such substitute rating agency is agreed upon, the
<PAGE> 15
11
foregoing test may be satisfied on the basis of the rating assigned by the
other rating agency and such substitute rating agency.
"Level V Status": exists at any date if, at such date, none of Level I
Status, Level II Status, Level III Status or Level IV Status exists.
"Lien": any mortgage, pledge, lien, security interest, conditional sale
or other title retention agreement or other similar encumbrance.
"Loan": a Competitive Loan or a Revolving Credit Loan, as the context
shall require; collectively, the "Loans."
"Majority Lenders": at any time, Lenders whose Commitment Percentages
represent at least 51% of the aggregate Commitments or, if the Commitments
are terminated or for purposes of acceleration pursuant to Section 7,
Lenders holding Loans representing at least 51% of the aggregate principal
amount of all Loans outstanding.
"Margin": as to any Eurodollar Competitive Loan, the margin to be added
to or subtracted from the Eurodollar Rate in order to determine the interest
rate applicable to such Loan, as specified in the Competitive Bid relating
to such Loan.
"Material Adverse Effect": a material adverse effect on (a) the
financial condition of the Borrower and its Subsidiaries taken as a whole or
(b) the validity or enforceability of this Agreement or the rights or
remedies of the Administrative Agent and the Lenders hereunder.
"Material Agreements": the agreements set forth on Schedule III.
"Moody's": Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds": in connection with any issuance or sale of equity
securities or debt securities or instruments or the incurrence of loans, the
cash proceeds received from such issuance or incurrence, net of attorneys'
fees, investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Non-Recourse Debt": all Indebtedness which, in accordance with GAAP,
is not required to be recognized on a consolidated balance sheet of the
Borrower as a liability.
"Offering": the offering by the Borrower to any Person (other than GM
or any wholly-owned Subsidiary of GM) of any equity securities of the
Borrower.
"Participant": as defined in subsection 9.6(b).
<PAGE> 16
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"Permitted Receivables Financing": at any date of determination, the
aggregate amount of any Non-Recourse Debt outstanding on such date relating
to securitizations or other similar off-balance sheet financings of accounts
receivable of the Borrower or any of its Subsidiaries.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Prime Rate": the rate of interest per annum equal to the prime rate
publicly announced by the majority of the Reference Lenders as its prime
rate (or similar base rate) in effect at its principal office.
"Reference Lenders": The Chase Manhattan Bank, Bank of America NT & SA,
Citibank, N.A., Morgan Guaranty Trust Company and the Bank of New York.
"Register": as defined in subsection 9.6(d).
"Requirement of Law": as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property
is subject.
"Revolving Credit Loans": as defined in subsection 2.1(a) and shall in
any event include any Loans that remain outstanding after the Termination
Date pursuant to subsection 2.8.
"Sale-Leasebacks": as defined in subsection 6.4.
"S&P": Standard & Poor's Corporation and its successors.
"Significant Subsidiary": at any time, any Subsidiary of the Borrower
which has at least 5% of the consolidated revenues of the Borrower and its
Subsidiaries at such time as reflected in the most recent annual audited
consolidated financial statements of the Borrower.
"Status": as to the Borrower, the existence of Level I Status, Level II
Status, Level III Status, Level IV Status or Level V Status, as the case may
be.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned by such Person, or by one or more Subsidiaries, or by such Person and
one or
<PAGE> 17
13
more Subsidiaries. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Termination Date": January 3, 2000.
"Transferee": as defined in subsection 9.6(f).
"Type": as to any Revolving Credit Loan, its nature as an ABR Loan or a
Eurodollar Loan, and as to any Competitive Loan, its nature as a Eurodollar
Competitive Loan or a Fixed Rate Loan.
"Utilization": as of the last day of any fiscal quarter of the
Borrower, the percentage equivalent of a fraction (i) the numerator of which
is the average daily principal amount of Loans outstanding (after giving
effect to any borrowing or payment on such date) during such quarter and
(ii) the denominator of which is the average daily amount of the aggregate
Commitments of all Lenders during such quarter, after giving effect to any
reduction of the Commitments on such day. For purposes of subsection 2.9(e),
if for any reason any Loans remain outstanding after termination of the
Commitments, the Utilization for each day on or after the date of such
termination shall be deemed to be greater than 33%.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto.
(b) As used herein, and any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the Borrower and its
Subsidiaries not defined in subsection 1.1 and accounting terms partly defined
in subsection 1.1, to the extent not defined, shall have the respective meanings
given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF THE FACILITIES
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time during the
Commitment Period in an aggregate principal
<PAGE> 18
14
amount at any one time outstanding which does not exceed the amount of such
Lender's Commitment. During the Commitment Period, the Borrower may use the
Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in
part, and reborrowing, all in accordance with the terms and conditions hereof.
Notwithstanding anything to the contrary contained in this Agreement, in no
event (after giving effect to the use of proceeds of any Borrowing) shall (i)
the amount of any Lender's Commitment Percentage of a Borrowing of Revolving
Credit Loans exceed such Lender's Available Commitment at the time of such
Borrowing or (ii) the aggregate amount of Revolving Credit Loans and Competitive
Loans at any one time outstanding exceed the aggregate Commitments then in
effect of all Lenders.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with subsections
2.2 and 2.6; provided that no Revolving Credit Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the Termination Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow
Revolving Credit Loans under the Commitments during the Commitment Period on any
Business Day; provided that the Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 12:00 Noon, New York City time, (a) three Business Days prior to the
requested borrowing date, if all or any part of the requested Revolving Credit
Loans are to be Eurodollar Loans, or (b) one Business Day prior to the requested
borrowing date, otherwise), specifying (i) the amount to be borrowed, (ii) the
requested borrowing date, (iii) whether the Borrowing is to be of Eurodollar
Loans, ABR Loans or a combination thereof and (iv) if the Borrowing is to be
entirely or partly of Eurodollar Loans, the respective amounts of each such Type
of Loan and the respective lengths of the initial Interest Periods therefor.
Each Borrowing under the Commitments shall be in an amount equal to $10,000,000
or a multiple of $1,000,000 in excess thereof. Upon receipt of any such notice
from the Borrower, the Administrative Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share of each
Borrowing available to the Administrative Agent for the account of the Borrower
at the office of the Administrative Agent specified in subsection 9.2 prior to
11:00 A.M., New York City time, on the borrowing date requested by the Borrower
in funds immediately available to the Administrative Agent. Such Borrowing will
then immediately be made available to the Borrower by the Administrative Agent
crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
2.3 Competitive Borrowings.
(a) The Competitive Bid Option. In addition to the Revolving Credit
Loans which may be made available pursuant to subsection 2.1, the Borrower may,
as set forth in this subsection 2.3, request the Lenders to make offers to make
Competitive Loans to the Borrower during the Commitment Period. The Lenders may,
but shall have no obligation to, make such
<PAGE> 19
15
offers, and the Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in this subsection 2.3.
(b) Competitive Bid Request. When the Borrower wishes to request offers
to make Competitive Loans under this subsection 2.3, it shall transmit to the
Administrative Agent a Competitive Bid Request to be received no later than
12:00 Noon (New York City time) on (x) the fourth Business Day prior to the date
of Borrowing proposed therein, in the case of a Borrowing of Eurodollar
Competitive Loans or (y) the Business Day immediately preceding the date of
Borrowing proposed therein, in the case of a Fixed Rate Borrowing, specifying:
(i) the proposed date of Borrowing, which shall be a Business Day,
(ii) the aggregate principal amount of such Borrowing, which shall
be $10,000,000 or a multiple of $1,000,000 in excess thereof,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period
contained in subsection 1.1, and
(iv) whether the Borrowing then being requested is to be of
Eurodollar Competitive Loans or Fixed Rate Loans.
A Competitive Bid Request that does not conform substantially to the format of
Exhibit A may be rejected by the Administrative Agent in its sole discretion,
and the Administrative Agent shall promptly notify the Borrower of such
rejection. The Borrower may request offers to make Competitive Loans for more
than one Interest Period in a single Competitive Bid Request. No Competitive Bid
Request shall be given within three Business Days of any other Competitive Bid
Request pursuant to which the Borrower has made a Competitive Borrowing.
(c) Invitation for Competitive Bids. Promptly after its receipt of a
Competitive Bid Request (but, in any event, no later than 3:00 P.M., New York
City time, on the date of such receipt) conforming to the requirements of
paragraph (b) above, the Administrative Agent shall send to each of the
Competitive Bid Lenders an Invitation for Competitive Bids which shall
constitute an invitation by the Borrower to each such Lender to bid, on the
terms and conditions of this Agreement, to make Competitive Loans pursuant to
the Competitive Bid Request.
(d) Submission and Contents of Competitive Bids. Each Lender to which
an Invitation for Competitive Bids is sent may submit a Competitive Bid
containing an offer or offers to make Competitive Loans in response to such
Invitation for Competitive Bids. Each Competitive Bid must comply with the
requirements of this paragraph (d) and must be submitted to the Administrative
Agent at its offices specified in subsection 9.2 not later than (x) 9:30 A.M.
(New York City time) on the third Business Day prior to the proposed date of
Borrowing, in the case of a Borrowing of Eurodollar Competitive Loans or (y)
9:30 A.M. (New York City time) on the date of the proposed Borrowing, in the
case of a Fixed Rate Borrowing; provided that any Competitive Bids submitted by
the Administrative Agent in the capacity of a Lender may only be submitted if
the Administrative Agent notifies the Borrower of the terms of the offer or
offers
<PAGE> 20
16
contained therein not later than fifteen minutes prior to the deadline for the
other Lenders. A Competitive Bid submitted by a Lender pursuant to this
paragraph (d) shall be irrevocable.
(ii) Each Competitive Bid shall be in substantially the form of
Exhibit C and shall specify:
(A) the date of the proposed Borrowing,
(B) the principal amount of the Competitive Loan for which each such
offer is being made, which principal amount (w) may be greater than, equal
to or less than the Commitment of the quoting Lender, (x) must be in a
minimum principal amount of $5,000,000 or a multiple of $1,000,000 in excess
thereof, (y) may not exceed the principal amount of Competitive Loans for
which offers were requested and (z) may be subject to a limitation as to the
maximum aggregate principal amount of Competitive Loans for which offers
being made by such quoting Lender may be accepted,
(C) in the case of a Borrowing of Eurodollar Competitive Loans, the
Margin offered for each such Competitive Loan, expressed as a percentage
(specified in increments of 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of a Fixed Rate Borrowing, the rate of interest per
annum (specified in increments of 1/10,000th of 1%) offered for each such
Competitive Loan, and
(E) the identity of the quoting Lender.
A Competitive Bid may set forth up to five separate offers by the quoting Lender
with respect to each Interest Period specified in the related Invitation for
Competitive Bids. Any Competitive Bid shall be disregarded by the Administrative
Agent if the Administrative Agent determines that it: (A) is not substantially
in the form of Exhibit C or does not specify all of the information required by
subsection 2.3(d)(ii); (B) contains qualifying, conditional or similar language
(except for a limitation on the maximum principal amount which may be accepted);
(C) proposes terms other than or in addition to those set forth in the
applicable Invitation for Competitive Bids or (D) arrives after the time set
forth in subsection 2.3(d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly (and,
in any event, by 10:00 A.M., New York City time) notify the Borrower, by
telecopy, of all the Competitive Bids made (including all disregarded bids),
the Competitive Bid Rate and the principal amount of each Competitive Loan
in respect of which a Competitive Bid was made and the identity of the
Lender that made each bid. The Administrative Agent shall send a copy of all
Competitive Bids (including all disregarded bids) to the Borrower for its
records as soon as practicable after completion of the bidding process set
forth in this subsection 2.3.
(f) Acceptance and Notice by Borrower. The Borrower may in its sole
discretion, subject only to the provisions of this paragraph (f), accept or
reject any Competitive Bid (other
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than any disregarded bid) referred to in paragraph (e) above. The Borrower shall
notify the Administrative Agent by telephone, confirmed immediately thereafter
by telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and
to what extent it wishes to accept any or all of the bids referred to in
paragraph (e) above not later than (x) 10:30 A.M. (New York City time) on the
third Business Day prior to the proposed date of Borrowing, in the case of a
Competitive Eurodollar Borrowing or (y) 10:30 A.M. (New York City time) on the
proposed date of Borrowing, in the case of a Fixed Rate Borrowing; provided
that:
(i) the failure by the Borrower to give such notice shall be
deemed to be a rejection of all the bids referred to in paragraph (e)
above;
(ii) the aggregate principal amount of the Competitive Bids
accepted by the Borrower may not exceed the lesser of (A) the principal
amount set forth in the related Competitive Bid Request and (B) the
excess, if any, of the aggregate Commitments of all Lenders then in
effect over the aggregate principal amount of all Loans outstanding
immediately prior to the making of such Competitive Loans (and after
giving effect to the use of proceeds thereof),
(iii) the principal amount of each Competitive Borrowing must be
$5,000,000 or a multiple of $1,000,000 in excess thereof,
(iv) unless there are any limitations contained in a quoting
Lender's Competitive Bid, the Borrower may not accept a Competitive Bid
made at a particular Competitive Bid Rate if it has decided to reject
any portion of a bid made at a lower Competitive Bid Rate for the same
Interest Period, and
(v) the Borrower may not accept any Competitive Bid that is
disregarded by the Administrative Agent pursuant to subsection
2.3(d)(ii) or that otherwise fails to comply with the requirements of
this Agreement.
A notice given by the Borrower pursuant to this paragraph (f) shall be
irrevocable.
(g) Allocation by Administrative Agent. If offers are made by two or
more Lenders with the same Competitive Bid Rates for a greater aggregate
principal amount than the amount in respect of which such offers are accepted
for the related Interest Period, the principal amount of Competitive Loans in
respect of which such offers are accepted shall be allocated by the
Administrative Agent among such Lenders as nearly as possible (in integral
multiples of $1,000,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers.
(h) Notification of Acceptance. The Administrative Agent shall promptly
(and, in any event, by 11:00 A.M., New York City time) notify each bidding
Lender whether or not its Competitive Bid has been accepted (and if so, in what
amount and at what Competitive Bid Rate), and each successful bidder will
thereupon become bound, subject to the other applicable conditions hereof, to
make the Competitive Loan in respect of which its bid has been accepted.
<PAGE> 22
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2.4 Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Commitments when no Loans are then outstanding or, from
time to time, to reduce the unutilized portion of the Commitments. Any such
reduction shall be in an amount equal to $10,000,000 or a multiple of $1,000,000
in excess thereof and shall reduce permanently the Commitments then in effect.
2.5 Prepayments. (a) The Borrower may, at any time and from time to
time, prepay the Revolving Credit Loans, in whole or in part, without premium or
penalty (but subject to the provisions of subsection 2.17), upon at least two
Business Days' irrevocable notice to the Administrative Agent, specifying the
date and amount of prepayment and whether the prepayment is of Eurodollar
Revolving Credit Loans, ABR Loans or a combination thereof, and, if of a
combination thereof, the amount allocable to each. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Lender thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable
pursuant to subsection 2.17. Partial prepayments shall be in an aggregate
principal amount of $10,000,000 or a multiple of $1,000,000 in excess thereof.
Notwithstanding anything to the contrary contained herein, the Borrower shall
not prepay the Competitive Loans except pursuant to Section 7 or with the
consent of the Competitive Bid Lender which has made such Competitive Loan.
(b) The Commitments shall be permanently reduced by an amount equal to:
(i) the Net Cash Proceeds from the issuance during the period commencing on or
after December 31, 1998 and ending on or prior to the Termination Date by the
Borrower or any Subsidiary of common stock (other than common stock issued in
connection with the Borrower's regular employee, executive and director stock
option plans) to the extent that such Net Cash Proceeds exceed, in the aggregate
for all such issuances, $1,500,000,000 and (ii) the first $2,000,000,000 of Net
Cash Proceeds from the issuance during the period commencing on or after
December 31, 1998 and ending on or prior to the Termination Date of any publicly
offered or privately placed debt securities (excluding any such debt securities
that have a stated maturity of less than one year and cannot be extended at the
sole option of the borrower thereof) of the Borrower or any Subsidiary. Any such
reduction of the Commitments shall be effective on the fifth Business Day
following any such issuance or incurrence and shall be accompanied by prepayment
of the Loans to the extent, if any, that the Loans of all the Lenders exceed the
total amount of the Commitments as so reduced. The application of any prepayment
shall be made first to ABR Loans and second to Eurodollar Loans. Each prepayment
of the Loans (except in the case of Loans that are ABR Loans) shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
2.6 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Revolving Credit Loans to ABR Loans by
giving the Administrative Agent at least one Business Day's prior irrevocable
notice of such election; provided that any such conversion of Eurodollar
Revolving Credit Loans may only be made on the last day of an Interest Period
with respect thereto. The Borrower may elect from time to time to convert ABR
Loans to Eurodollar Revolving Credit Loans by giving the Administrative Agent
<PAGE> 23
19
at least three Business Days' prior irrevocable notice of such election. Any
such notice of conversion to Eurodollar Revolving Credit Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon receipt
of any such notice the Administrative Agent shall promptly notify each Lender
thereof. All or any part of outstanding Eurodollar Revolving Credit Loans and
ABR Loans may be converted as provided herein; provided that (i) no Loan may be
converted into a Eurodollar Revolving Credit Loan when any Event of Default has
occurred and is continuing and (ii) no Loan may be converted into a Eurodollar
Revolving Credit Loan after the date that is one month prior to the Termination
Date.
(b) Any Eurodollar Revolving Credit Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans;
provided that no Eurodollar Revolving Credit Loan may be continued as such (i)
when any Event of Default has occurred and is continuing or (ii) after the date
that is one month prior to the Termination Date and provided, further, that if
the Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso such Eurodollar Revolving Credit Loans shall be automatically converted
to ABR Loans on the last day of such then expiring Interest Period.
2.7 Minimum Amounts of Eurodollar Borrowings. All borrowings,
conversions and continuations of Revolving Credit Loans hereunder and all
selections of Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections so that, after giving effect thereto, the aggregate
principal amount of the Revolving Credit Loans comprising each Eurodollar
Borrowing shall be equal to $10,000,000 or a multiple of $1,000,000 in excess
thereof and so that there shall not be more than 20 Eurodollar Borrowings
outstanding at any one time.
2.8 Repayment of Loans; Evidence of Debt. The Borrower hereby
unconditionally promises to pay to each Lender (i) on the Termination Date (or
such earlier date as the Loans become due and payable pursuant to Section 7 or
subsection 2.5), the unpaid principal amount of each Loan made by such Lender;
provided, that, at the Borrower's option up to $1,500,000,000 of any Loans
outstanding on the Termination Date shall be due and payable in full on the date
which is one year following the Termination Date (or such earlier date as the
Loans become due and payable pursuant to Section 7 or subsection 2.5) and (ii)
on the last day of the applicable Interest Period, the unpaid principal amount
of each Competitive Loan made by such Lender. The Borrower hereby further agrees
to pay interest in immediately available funds at the office of the
Administrative Agent on the unpaid principal amount of such Loans from time to
time from the date hereof until payment in full thereof at the rates per annum,
and on the dates, set forth in subsection 2.9.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to the
appropriate lending office of such Lender resulting from each Loan made by such
lending office of such Lender from time to time, including the amounts of
principal and interest payable and paid to such lending office of such Lender
from time to time under this Agreement.
<PAGE> 24
20
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 9.6(d), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount of each Loan made
hereunder, the Type of each Loan made and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) the
amount of any sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and accounts maintained pursuant
to paragraphs (b) and (c) of this subsection 2.8 shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain such account, such
Register or such subaccount, as applicable, or any error therein, shall not in
any manner affect the obligation of the Borrower to repay (with applicable
interest) the Loans made to the Borrower by such Lender in accordance with the
terms of this Agreement.
2.9 Interest Rates and Payment Dates. (a) Each ABR Loan shall bear
interest at a rate per annum equal to the ABR.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at a rate per annum equal to (i) in the case of each Eurodollar Revolving Credit
Loan, the Eurodollar Rate for the Interest Period in effect for such Borrowing
plus the Applicable Margin and (ii) in the case of each Eurodollar Competitive
Loan, the Eurodollar Rate for the Interest Period in effect for such Borrowing
plus (or minus, as the case may be) the Margin offered by the Lender making such
Loan and accepted by the Borrower pursuant to subsection 2.3.
(c) Each Fixed Rate Loan shall bear interest at a rate per annum equal
to the fixed rate of interest offered by the Lender making such Loan and
accepted by the Borrower pursuant to subsection 2.3.
(d) Subject to the provisions of the following sentence, interest shall
be payable in arrears on each Interest Payment Date; provided that interest
accruing pursuant to paragraph (f) of this subsection 2.9 shall be payable from
time to time on demand. The amount of interest on Revolving Credit Loans to be
paid on any Interest Payment Date shall be the amount which would be due and
payable if the Utilization for the period for which such interest is paid was
less than 33%. On the first Business Day following the last day of each fiscal
quarter of the Borrower and on the Termination Date (or, if earlier, on the date
upon which both the Commitments are terminated and the Loans are paid in full),
the Borrower shall pay to the Administrative Agent, for the ratable benefit of
the Lenders, an additional amount of interest equal to the difference (if any)
between (i) the amount of interest which would have been payable during such
fiscal quarter (or, in the case of the payment due on the Termination Date, the
portion thereof ending on such date) after giving effect to the actual
Utilization during such period and (ii) the amount of interest which actually
was paid during such period.
<PAGE> 25
21
(e) The "Applicable Margin" with respect to each Revolving Credit Loan
at any date shall be the applicable percentage amount set forth in the table
below based upon the Type of such Loan and the Utilization and Status on such
date:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V
Status Status Status Status Status
<S> <C> <C> <C> <C> <C>
If Utilization is less
than 33%:
Eurodollar Loans 0.2750% 0.3750% 0.5000% 0.8750% 1.1250%
ABR Loans 0% 0% 0% 0% 0%
If Utilization is equal
to or greater than 33%:
Eurodollar Loans 0.4000% 0.5000% 0.6250% 0.8750% 1.1250%
ABR Loans 0% 0% 0% 0% 0%
</TABLE>
(f) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any facility fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is (x) in the case of overdue principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection 2.9 plus 2% or (y) in the case of overdue interest, facility fee or
other amount, the rate described in paragraph (a) of this subsection 2.9 plus
2%, in each case from the date of such non-payment until such amount is paid in
full (as well after as before judgment). For purposes of this Agreement,
principal shall be "overdue" only if not paid in accordance with the provisions
of subsection 2.8.
2.10 Facility Fee. The Borrower shall pay to the Administrative Agent,
for the ratable account of the Lenders, a facility fee at the rate per annum
equal to 0.1250% of the aggregate Commitments. On the first Business Day
following the last day of each fiscal quarter of the Borrower and on the
Termination Date (or, if earlier, on the date upon which both the Commitments
are terminated and the Loans are paid in full), the Borrower shall pay to the
Administrative Agent, for the ratable benefit of the Lenders, the portion of
such facility fee which accrued during the fiscal quarter most recently ended
(or, in the case of the payment due on the Termination Date, the portion thereof
ending on such date). Such facility fee shall be based upon the aggregate
Commitments of the Lenders from time to time, regardless of the Utilization from
time to time thereunder.
2.11 Computation of Interest and Fees. Interest on all Loans shall be
computed on the basis of the actual number of days elapsed over a year of 360
days or, on any date when the ABR is determined by reference to the Prime Rate,
a year of 365 or 366 days as appropriate (in each case including the first day
but excluding the last day). Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. All fees shall be computed on the basis of a year composed of
twelve 30-day months. At any time
<PAGE> 26
22
and from time to time upon request of the Borrower, the Administrative Agent
shall deliver to the Borrower a statement showing the quotations used by the
Administrative Agent in determining any interest rate applicable to Revolving
Credit Loans pursuant to this Agreement. Each change in the Applicable Margin
applicable to Loans or the Facility Fee as a result of a change in the
Borrower's Status shall become effective on the date upon which such change in
Status occurs.
(b) If any Reference Lender shall for any reason no longer have a
Commitment, such Reference Lender shall thereupon cease to be a Reference
Lender, and if, as a result thereof, there shall only be one Reference Lender
remaining, the Borrower and the Administrative Agent (after consultation with
the Lenders) shall, by notice to the Lenders, designate another Lender as a
Reference Lender so that there shall at all times be at least two Reference
Lenders.
(c) Each Reference Lender shall use its best efforts to furnish
quotations of rates to the Administrative Agent as contemplated hereby. If any
of the Reference Lenders shall be unable or shall otherwise fail to supply such
rates to the Administrative Agent upon its request, the rate of interest shall,
subject to the provisions of subsection 2.12, be determined on the basis of the
quotations of the remaining Reference Lenders.
2.12 Inability to Determine Interest Rate. If the Eurodollar Rate
cannot be determined by the Administrative Agent in the manner specified in the
definition of the term "Eurodollar Rate" contained in subsection 1.1 of this
Agreement, the Administrative Agent shall give telecopy or telephonic notice
thereof to the Borrower and the Lenders as soon as practicable thereafter. Until
such time as the Eurodollar Rate can be determined by the Administrative Agent
in the manner specified in the definition of such term contained in said
subsection 1.1, no further Eurodollar Loans shall be continued as such at the
end of the then current Interest Period or (other than any Eurodollar Loans
previously requested and with respect to which the Eurodollar Rate previously
was determined) shall be made, nor shall the Borrower have the right to convert
ABR Loans to Eurodollar Loans.
2.13 Pro Rata Treatment and Payments.(a) Each borrowing of Revolving
Credit Loans from the Lenders hereunder, each payment by the Borrower on account
of any facility fee hereunder and (except as provided in subsection 2.18(c)) any
reduction of the Commitments of the Lenders shall be made pro rata according to
the respective Commitment Percentages of the Lenders. Each payment (including
each prepayment) by the Borrower on account of principal of and interest on the
Revolving Credit Loans shall be made pro rata according to the respective
outstanding principal amounts of the Revolving Credit Loans then held by the
Lenders. Each payment by the Borrower on account of principal of and interest on
any Borrowing of Competitive Loans shall be made pro rata among the Lenders
participating in such Borrowing according to the respective principal amounts of
their outstanding Competitive Loans comprising such Borrowing.
(b) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without set-off or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date
<PAGE> 27
23
thereof to the Administrative Agent, for the account of the relevant Lenders, at
the Agent's office specified in subsection 9.2, in Dollars and in immediately
available funds. Notwithstanding the foregoing, the failure by the Borrower to
make a payment (or prepayment) prior to 12:00 Noon on the due date thereof shall
not constitute a Default or Event of Default if such payment is made on such due
date; provided, however, that any payment (or prepayment) made after such time
on such due date shall be deemed made on the next Business Day for the purposes
of interest and reimbursement calculations. The Administrative Agent shall
distribute such payments to the relevant Lenders promptly upon receipt in like
funds as received. If any payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension. If any payment on a Eurodollar Loan
becomes due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day.
(c) Unless the Administrative Agent shall have been notified in writing
by any Lender prior to the deadline for funding a Borrowing that such Lender
will not make the amount that would constitute its Commitment Percentage of such
Borrowing available to the Administrative Agent, the Administrative Agent may
assume that such Lender is making such amount available to the Administrative
Agent, and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount is not made
available to the Administrative Agent by the required time on the borrowing date
therefor, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the daily average Federal Funds
Effective Rate for the period until such Lender makes such amount immediately
available to the Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under this subsection
2.13 shall be conclusive in the absence of manifest error. If such Lender's
Commitment Percentage of such Borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such borrowing
date, the Administrative Agent shall be entitled to recover such amount with
interest thereon at the Federal Funds Effective Rate, on demand, from the
Borrower.
2.14 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, such Lender shall give
notice thereof to the Administrative Agent and the Borrower describing the
relevant provisions of such Requirement of Law (and, if the Borrower shall so
request, provide the Borrower with a memorandum or opinion of counsel of
recognized standing (as selected by such Lender) as to such illegality),
following which (a) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar
Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding
as Eurodollar Loans (including, without limitation, such Lender's Eurodollar
Competitive Loans in the case of clause (ii) below), if any, shall be converted
automatically to ABR Loans (i) on the respective last days of the then current
Interest Periods with respect to such
<PAGE> 28
24
Loans or (ii) within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to subsection
2.17.
2.15 Increased Costs. (a) If (i) there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining any
Loans or (ii) any reduction in any amount receivable in respect thereof, and
such increased cost or reduced amount receivable is due to either:
(x) the introduction of or any change in or in the interpretation of
any law or regulation after the date hereof; or
(y) the compliance with any guideline or request made after the date
hereof from any central bank or other Governmental Authority (whether or not
having the force of law),
then (subject to the provisions of subsection 2.18) the Borrower shall from time
to time, upon demand by such Lender pay such Lender additional amounts
sufficient to compensate such Lender for such increased cost or reduced amount
receivable.
(b) If any Lender shall have reasonably determined that (i) the
applicability of any law, rule, regulation or guideline adopted after the date
hereof pursuant to or arising out of the July 1988 paper of the Basle Committee
on Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital Measurement and Capital Standards," or (ii) the adoption
after the date hereof of any other law, rule, regulation or guideline regarding
capital adequacy affecting such Lender, or (iii) any change arising after the
date hereof in the foregoing or in the interpretation or administration of any
of the foregoing by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or (iv)
compliance by such Lender (or any lending office of such Lender), or any holding
company for such Lender which is subject to any of the capital requirements
described above, with any request or directive of general application issued
after the date hereof regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's capital or
on the capital of any such holding company as a direct consequence of such
Lender's obligations hereunder to a level below that which such Lender or any
such holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies and the policies of
such holding company with respect to capital adequacy) by an amount deemed by
such Lender to be material, then (subject to the provisions of subsection 2.17)
from time to time such Lender may request the Borrower to pay to such Lender
such additional amounts as will compensate such Lender or any such holding
company for any such reduction suffered, net of the savings (if any) which may
be reasonably projected to be associated with such increased capital
requirement. Any certificate as to such amounts which is delivered pursuant to
subsection 2.18(a) shall, in addition to any items required by subsection
2.18(a), include the calculation of the savings (if any) which may be reasonably
projected to be associated with such
<PAGE> 29
25
increased capital requirement; provided that in no event shall any Lender be
obligated to pay or refund any amounts to the Borrower on account of such
savings.
(c) In the event that any Governmental Authority shall impose any
Eurocurrency Reserve Requirements which increase the cost to any Lender of
making or maintaining Eurodollar Loans, then (subject to the provisions of
subsection 2.18) the Borrower shall thereafter pay in respect of the Eurodollar
Loans of such Lender a rate of interest based upon the Eurodollar Reserve Rate
(rather than upon the Eurodollar Rate). From and after the delivery to the
Borrower of the certificate required by subsection 2.18(a), all references
contained in this Agreement to the Eurodollar Rate shall be deemed to be
references to the Eurodollar Reserve Rate with respect to each such affected
Lender.
2.16 Taxes. (a) All payments made by the Borrower under this Agreement
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
net income taxes and franchise taxes or any other tax based upon net income
imposed on the Administrative Agent or any Lender as a result of a present or
former connection between the Administrative Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Administrative Agent or such Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Agreement). If any such non-excluded taxes, levies, imposts,
duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Administrative Agent or
any Lender hereunder, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
or pursuant to this Agreement; provided, however, that the Borrower shall not be
required to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state thereof if
such Lender fails to comply with the requirements of paragraph (b) of this
subsection 2.16. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to the Administrative
Agent for its own account or for the account of such Lender, as the case may be,
a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the
Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure. The
agreements in this subsection 2.16 shall survive the termination of this
Agreement and the payment of all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
<PAGE> 30
26
(i) deliver to the Borrower and the Administrative Agent (A) two
duly completed copies of United States Internal Revenue Service Form
1001 or 4224, or successor applicable form, as the case may be, and (B)
an Internal Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date
that any such form or certification expires or becomes obsolete and
after the occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and completing
such forms or certifications as may reasonably be requested by the
Borrower or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person not incorporated under the laws of
the United States of America or a state thereof that is an Assignee hereunder
pursuant to subsection 9.6 shall, upon the effectiveness of the related
transfer, be required to provide all of the forms and statements required
pursuant to this subsection 2.16.
2.17 Indemnity. Subject to the provisions of subsection 2.18(a), the
Borrower agrees to indemnify each Lender and to hold each Lender harmless from
any loss or reasonable expense which such Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of any Loan hereunder after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (c) the
making of a prepayment of Eurodollar Loans or Fixed Rate Loans on a day which is
not the last day of an Interest Period with respect thereto. Such
indemnification shall be in an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding the Applicable Margin included therein) over (ii) the
amount of interest (as determined by such Lender) which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank eurodollar market. This covenant
shall survive the termination of this Agreement and the payment of all other
amounts payable hereunder.
<PAGE> 31
27
2.18 Notice of Amounts Payable; Relocation of Lending Office; Mandatory
Assignment. In the event that any Lender becomes aware that any amounts are or
will be owed to it pursuant to subsection 2.14, 2.15, 2.16(a) or 2.17, then it
shall promptly notify the Borrower thereof and, as soon as possible thereafter,
such Lender shall submit to the Borrower a certificate indicating the amount
owing to it and the calculation thereof. The amounts set forth in such
certificate shall be prima facie evidence of the obligations of the Borrower
hereunder; provided, however, that the failure of the Borrower to pay any amount
owing to any Lender pursuant to subsection 2.14, 2.15, 2.16(a) or 2.17 shall not
be deemed to constitute a Default or an Event of Default hereunder to the extent
that the Borrower is contesting in good faith its obligation to pay such amount
by ongoing discussions diligently pursued with such Lender or by appropriate
proceedings.
(b) If a Lender claims any additional amounts payable pursuant to
subsection 2.14, 2.15 or 2.16(a), it shall use its reasonable efforts
(consistent with legal and regulatory restrictions) to avoid the need for paying
such additional amounts, including changing the jurisdiction of its applicable
lending office, provided that the taking of any such action would not, in the
reasonable judgment of the Lender, be disadvantageous to such Lender.
(c) In the event that any Lender delivers to the Borrower a certificate
in accordance with subsection 2.18(a) (other than a certificate as to amounts
payable pursuant to subsection 2.17), or the Borrower is required to pay any
additional amounts or other payments in accordance with subsection 2.14, 2.15 or
2.16(a), the Borrower may, at its own expense and in its sole discretion, (i)
require such Lender to transfer or assign, in whole or in part, without recourse
(in accordance with subsection 9.6), all or part of its interests, rights and
obligations under this Agreement (other than any outstanding Competitive Loans)
to another Person (provided that the Borrower, with the full cooperation of such
Lender, can identify a Person who is ready, willing and able to be an Assignee
with respect to thereto) which shall assume such assigned obligations (which
Assignee may be another Lender, if such Assignee Lender accepts such assignment)
or (ii) during such time as no Default or Event of Default has occurred and is
continuing, terminate the Commitment of such Lender and prepay all outstanding
Loans (other than Competitive Loans) of such Lender; provided that (x) the
Borrower or the Assignee, as the case may be, shall have paid to such Lender in
immediately available funds the principal of and interest accrued to the date of
such payment on the Loans (other than Competitive Loans) made by it hereunder
and (subject to subsection 2.17) all other amounts owed to it hereunder and (y)
such assignment or termination of the Commitment of such Lender and prepayment
of Loans does not conflict with any law, rule or regulation or order of any
court or Governmental Authority.
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SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents and warrants to
the Administrative Agent and each Lender that:
3.1 Financial Condition. (a) The Borrower has heretofore furnished to
each Lender the unaudited pro forma consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at January 1, 1999 (including the notes
thereto) (the "Pro Forma Balance Sheet"). The Pro Forma Balance Sheet has been
prepared giving effect (as if such events had occurred on such date) to (i) the
consummation of the transactions expected to occur on the Closing Date, (ii) the
Loans to be made on the Closing Date and the use of proceeds thereof and (iii)
the payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheet has been prepared based on the best information available to the
Borrower as of the date of delivery thereof, and presents fairly on a pro forma
basis the estimated financial position of Borrower and its consolidated
Subsidiaries as at January 1, 1999, assuming that the events specified in the
preceding sentence had actually occurred at such date. The Pro Forma Balance
Sheet reflects cash and cash equivalents of at least $750,000,000 and is
substantially in the form previously provided to the Administrative Agent.
(b) The Borrower has heretofore furnished to each Lender a copy of the
audited combined financial statements of the segments and Subsidiaries of GM
constituting the Delphi Automotive Systems business of GM for the fiscal years
of GM ended December 31, 1996 and December 31, 1997 and unaudited interim
combined financial statements of the segments and Subsidiaries of GM
constituting the Delphi Automotive Systems business of GM for each quarterly
period ended subsequent to December 31, 1997 and on or prior to September 30,
1998. Such financial statements present fairly the financial condition and
results of operations of the segments and Subsidiaries of GM constituting the
Delphi Automotive Systems business of GM as of, and for the fiscal years and
fiscal quarters ended on, such dates in accordance with GAAP (subject, in the
case of such quarterly statements, to normal year-end audit adjustments). Other
than as disclosed in the Borrower's S-1 dated November 16, 1998, between
December 31, 1997 and the Closing Date, there has been no development or event
which has had a Material Adverse Effect.
3.2 Corporate Existence; Compliance with Law. The Borrower (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, except to the extent
that all failures to be duly qualified and in good standing could not, in the
aggregate, have a Material Adverse Effect and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
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3.3 Corporate Power; Authorization; Enforceable Obligations. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform this Agreement and to borrow hereunder and has taken all
necessary corporate action to authorize the borrowings on the terms and
conditions of this Agreement and to authorize the execution, delivery and
performance of this Agreement. No consent or authorization of any Governmental
Authority or any other Person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement. This Agreement has been duly executed and
delivered on behalf of the Borrower. This Agreement constitutes a legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
3.4 No Legal Bar; No Default. The execution, delivery and performance
of this Agreement, the Applications, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower and will not result in, or require, the creation or
imposition of any Lien on any of its properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation, except to the extent that all such
violations and creation or imposition of Liens could not, in the aggregate, have
a Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
3.5 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues as
of the Closing Date (a) with respect to this Agreement or any of the actions
contemplated hereby, or (b) which involves a probable risk of an adverse
decision which would materially restrict the ability of the Borrower to comply
with its obligations under this Agreement.
3.6 Federal Regulations. No part of the proceeds of any Loans will be
used for "buying," "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect or for any purpose which violates the provisions of the
Regulations of such Board of Governors.
3.7 Investment Company Act. The Borrower is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.8 ERISA. The Borrower is in compliance with all material provisions
of ERISA, except to the extent that all failures to be in compliance could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect.
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3.9 No Material Misstatements. No report, financial statement or
other written information furnished by or on behalf of such Borrower to the
Administrative Agent or any Lender pursuant to subsection 3.1 or subsection
5.1(a) contains or will contain any material misstatement of fact or omits or
will omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were, are or will be made, not
misleading, except to the extent that the facts (whether misstated or omitted)
do not result in a Material Adverse Effect. No report, financial statement or
other written information furnished by or on behalf of the Borrower for
inclusion in the Confidential Information Memorandum contained as of the Closing
Date any material misstatement of fact or omitted to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The projections and pro forma financial
information contained in the Confidential Information Memorandum are based upon
good faith estimates and assumptions believed by management of the Borrower to
be reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount.
3.10 Environmental Matters. Except with respect to any matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i)
has failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
3.11 Subsidiaries. The Subsidiaries listed on Schedule 3.11 constitute
all the Subsidiaries of the Borrower on the date hereof which are "significant
subsidiaries" within the meaning of Regulation S-X of the U.S. Securities and
Exchange Commission (other than as set forth in such schedule).
3.12 Year 2000 Matters. The Borrower uses software and related
computer technologies essential to its operations that use two digits rather
than four to specify the year, which could result in a date recognition problem
with the transition to the year 2000. The Borrower has established a plan to
identify and remediate potential Year 2000 problems in its material business
information systems, infrastructure and production and manufacturing facilities.
The Borrower has substantially completed an inventory of potentially
date-sensitive material systems to determine which systems require remediation
and developed remediation plans where necessary. The Borrower has also begun
surveying its suppliers and service providers for Year 2000 compliance. The
Borrower is currently in the remediation and testing phase of its Year 2000
plan. The implementation of new enterprise software as part of its Year 2000
remediation program is not scheduled to be completed until July 1999 at one of
its principal product group sites. The Borrower does not anticipate that a
Material Adverse Effect will occur as a result of the Year 2000 issue.
<PAGE> 35
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3.13 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrower for its general corporate purposes including transactions with its
Subsidiaries.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to make
the initial Loan to be made by it is subject to the satisfaction, prior to or
concurrently with the making of such Loan, of the following conditions
precedent:
(a) Credit Agreement. The Administrative Agent shall have received this
Agreement, executed and delivered (including, without limitation, by way of
a telecopied signature page) by a duly authorized officer of the Borrower
and each Lender.
(b) Secretary's Certificate. The Administrative Agent shall have
received a certificate of the Secretary or Assistant Secretary of the
Borrower, in form and substance satisfactory to the Administrative Agent,
which certificate shall (i) certify as to the incumbency and signature of
the officers of the Borrower executing this Agreement (with the President or
a Vice President of the Borrower attesting to the incumbency and signature
of the Secretary or Assistant Secretary providing such certificate), (ii)
have attached to it a true, complete and correct copy of each of the
certificate of incorporation and by-laws of the Borrower, (iii) have
attached to it a true and correct copy of the resolutions of the Board of
Directors of the Borrower or a duly authorized committee thereof, which
resolutions shall authorize the execution, delivery and performance of this
Agreement and the borrowings by the Borrower hereunder and (iv) certify
that, as of the date of such certificate (which shall not be earlier than
the date hereof), none of such certificate of incorporation, by-laws or
board resolutions shall have been amended, supplemented, modified, revoked
or rescinded.
(c) Fees. The Administrative Agent shall have received, for the benefit
of the Lenders, the fees payable to the Lenders on the Closing Date pursuant
to their respective commitment letters to the Borrower in respect of this
Agreement.
(d) Legal Opinions. The Administrative Agent shall have received, (i)
the executed legal opinion of Drinker Biddle & Reath LLP, counsel to the
Borrower, substantially in the form of Exhibit F-1 and (ii) the executed
legal opinion of Simpson Thacher & Bartlett, counsel to the Administrative
Agent, substantially in the form of Exhibit F-2. The Borrower hereby
instructs the counsel referenced in clause (i) to deliver its opinion for
the benefit of the Administrative Agent and each of the Lenders.
(e) Agreements. The Administrative Agent shall have received copies of
(i) the agreements between the Borrower and GM identified on Schedule
4.1(e), and all amendments thereto, providing for the separation of the
Borrower's business from GM, and (ii) all transition services agreements and
other agreements between the Borrower and GM identified on Schedule 4.1(e),
and all amendments thereto.
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(f) No Material Adverse Effect. Other than as disclosed in the
Borrower's S-1 dated November 16, 1998, since December 31, 1997, no
development or event shall have occurred that has had or could reasonably
be expected to have a Material Adverse Effect.
The Administrative Agent shall notify the Borrower and each Lender promptly
after the satisfaction of the foregoing conditions.
4.2 Conditions to Each Loan. The agreement of each Lender to make any
Loan requested to be made by it on any date (including, without limitation, its
initial Loan and any Competitive Loan to be made by it) is subject to the
satisfaction of the following conditions:
(a) Notice of Borrowing. The Administrative Agent shall have received
a notice of borrowing, as required by subsection 2.2 or 2.3, as the case may
be.
(b) Representations and Warranties. Each of the representations and
warranties made by the Borrower in or pursuant to this Agreement shall be
true and correct in all material respects on and as of such date as if made
on and as of such date, except to the extent any such representation and
warranty specifically relates to an earlier date, in which case such
representation and warranty shall have been true and correct as of such
earlier date.
(c) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans requested to
be made on such date.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such Loan that the conditions
contained in this subsection 4.2 have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, or any amount is owing to any Lender or the Administrative Agent
hereunder, the Borrower shall:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 110 days after the
end of each fiscal year of the Borrower, a copy of the consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such year and the related consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year; and
(b) as soon as available, but in any event not later than 60 days after
the end of each of the first three quarterly periods of each fiscal year of
the Borrower, the unaudited
<PAGE> 37
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consolidated balance sheet of the Borrower and its consolidated Subsidiaries
as at the end of such quarter and the related unaudited consolidated
statements of income and retained earnings and of cash flows of the Borrower
and its consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year;
all such financial statements shall be complete and correct in all material
respects and shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
5.2 Certificates; Other Information. Furnish to:
(a) each Lender, concurrently with the delivery of the financial
statements referred to in subsection 5.1(a), a certificate of Deloitte &
Touche or other independent certified public accountants of nationally
recognized standing stating that, in making the examination necessary
therefor, nothing came to their attention that caused them to believe that
the Borrower was, as at the date at which such financial statements were
made, in breach of subsection 6.1;
(b) each Lender, concurrently with the delivery of the financial
statements referred to in subsections 5.1(a) and 5.1(b), a certificate of a
Financial Officer (i) stating that, to the best of such Officer's knowledge,
(A) such financial statements present fairly the financial condition and
results of operations of the Borrower and its Subsidiaries for the period
referred to therein (subject, in the case of interim statements, to normal
year-end audit adjustments) and (B) during such period the Borrower has
performed all of its covenants and other agreements contained in this
Agreement to be performed by it, and that no Default or Event of Default has
occurred, except as specified in such certificate, and (ii) setting forth in
reasonable detail the calculations required to establish whether the
Borrower was in compliance with the provisions of subsection 6.1 on the date
of such financial statements;
(c) each Lender, within 15 days after the same become public, copies of
all financial statements and reports which the Borrower may make to, or file
with, the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(d) the Administrative Agent, within ten Business Days after the
occurrence thereof, written notice of any change in Status; provided that
the failure to provide such notice shall not delay or otherwise affect any
change in the Applicable Margin or other amount payable hereunder which is
to occur upon a change in Status pursuant to the terms of this Agreement;
and
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(e) the Administrative Agent, promptly, such additional financial and
other information as the Administrative Agent, on behalf of any Lender, may
from time to time reasonably request and that is reasonably related to such
Lender's credit analysis of the Borrower and which request does not impose
an unreasonable burden on the Borrower to satisfy.
5.3 Notices. Promptly give notice to the Administrative Agent and each
Lender of (a) the occurrence of any Default or Event of Default, accompanied by
a statement of a Financial Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower proposes to take with
respect thereto and (b) so long as the Borrower is not subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, (i)
the filing or commencement of any action, suit or proceeding by or before any
arbitrator or Governmental Authority against or affecting the Borrower or any
affiliate thereof that could reasonably be expected to result in a Material
Adverse Effect and (ii) any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.
5.4 Conduct of Business and Maintenance of Existence. (a) Continue to
engage in its principal line of business as now conducted by it, (b) preserve,
renew and keep in full force and effect its corporate existence and (c) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its principal line of business, except, in
any such case, as otherwise permitted pursuant to subsection 6.5 or to the
extent that failure to do so would not have a Material Adverse Effect.
5.5 Books and Records. The Borrower will, and will cause each of its
Subsidiaries to, keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
business and activities.
5.6 Environmental Laws. Except as could not in the aggregate reasonably
be expected to result in a Material Adverse Effect:
(a) comply with all applicable Environmental Laws, and obtain and
comply with and maintain any and all permits, licenses or other approvals
required by applicable Environmental Laws; and
(b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives
of all Governmental Authorities regarding Environmental Laws.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Administrative Agent
hereunder:
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6.1 Consolidated Leverage Ratio. The Borrower shall not, directly or
indirectly, permit the Consolidated Leverage Ratio to exceed 3.25 to 1.0 at the
end of any fiscal quarter.
6.2 Indebtedness. The Borrower shall not, directly or indirectly,
permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness or any guarantee of Indebtedness (other than Indebtedness of any
Subsidiary to the Borrower or to any other Subsidiary and other than Permitted
Receivables Financings), except Indebtedness and guarantees in an aggregate
principal amount at any one time outstanding, which when combined with (but
without duplication) (i) the aggregate outstanding principal amount of
obligations secured by a Lien upon any of the property or revenues of the
Borrower or any of its Subsidiaries at such time and (ii) the aggregate amount
of Sale-Leasebacks consummated since the Closing Date and which are outstanding
on the relevant date of determination (other than Sale-Leasebacks to the extent
the proceeds thereof are used to refinance any Sale-Leaseback which was in
existence on the date hereof), shall not exceed 15% of Consolidated Total Assets
as reflected in the most recent annual audited consolidated financial statements
of the Borrower delivered pursuant to subsection 5.1(a).
6.3 Liens. The Borrower shall not nor shall it permit any Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
upon any of its property or revenues, whether now owned or hereafter acquired,
except Liens at any one time outstanding with respect to which the aggregate
outstanding principal amount of the obligations secured thereby, which when
combined with (but without duplication) (i) the aggregate principal amount of
Indebtedness and guarantees of Indebtedness of any Subsidiary outstanding at
such time (other than Indebtedness of any Subsidiary to the Borrower or to any
other Subsidiary and other than Permitted Receivables Financings) and (ii) the
aggregate amount of Sale-Leasebacks consummated since the Closing Date and which
are outstanding on the relevant date of determination (other than
Sale-Leasebacks to the extent the proceeds thereof are used to refinance any
Sale-Leaseback which was in existence on the date hereof), shall not exceed 15%
of Consolidated Total Assets as reflected in the most recent annual audited
consolidated financial statements of the Borrower delivered pursuant to
subsection 5.1(a).
6.4 Sale-Leasebacks. The Borrower shall not nor shall it permit any
Subsidiary to, directly or indirectly, enter into any arrangement with any
Person providing for the leasing by the Borrower or any Subsidiary of any
property owned by the Borrower or any Subsidiary (except for leases between the
Borrower and a Subsidiary or between Subsidiaries), which property has been or
is to be sold or transferred by the Borrower or such Subsidiary to such Person
("Sale-Leasebacks"), except for Sale-Leasebacks consummated since the Closing
Date and which are outstanding on the relevant date of determination (other than
Sale-Leasebacks to the extent the proceeds thereof are used to refinance any
Sale-Leaseback which was in existence on the date hereof) in an aggregate
amount, which when combined with (but without duplication) (i) the aggregate
outstanding principal amount of obligations secured by a Lien upon any of the
property or revenues of the Borrower or any of its Subsidiaries at the time of
entering into any such Sale-Leaseback and (ii) the aggregate principal amount of
Indebtedness and guarantees of Indebtedness of any Subsidiary outstanding at
such time (other than Indebtedness of any Subsidiary to the Borrower or to any
other Subsidiary and other than Permitted Receivables
<PAGE> 40
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Financings), shall not exceed 15% of Consolidated Total Assets as reflected in
the most recent annual audited consolidated financial statements of the Borrower
delivered pursuant to subsection 5.1(a).
6.5 Merger, Consolidation, etc. The Borrower shall not, directly or
indirectly, merge or consolidate with any other Person, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution) or sell or convey all
or substantially all of its assets to any Person unless, in the case of mergers
and consolidations, (a) the Borrower shall be the continuing corporation and (b)
immediately before and immediately after giving effect to such merger or
consolidation, no Default or Event of Default shall have occurred and be
continuing.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms hereof or fail to pay any interest on any Loan
or any other amount which is payable hereunder and (in the case of this
clause (ii) only) such failure shall continue unremedied for more than five
Business Days after written notice thereof has been given to the Borrower by
the Administrative Agent or the Majority Lenders; or
(b) Any representation or warranty made or deemed made by the
Borrower in Section 3 or any certified statement furnished pursuant to
subsection 5.2(b) shall prove to have been incorrect on or as of the date
made or deemed made or certified if the facts or circumstances incorrectly
represented or certified result in a Material Adverse Effect; or
(c) The Borrower shall default in the observance of the agreement
contained in subsection 5.3(a) or subsection 5.4(a) or (b) or Section 6; or
(d) The Borrower shall default in the observance or performance of any
other agreement contained in this Agreement (other than as provided in
paragraphs (a), (b) and (c) of this Section 7), and such default shall
continue unremedied for a period of 30 days after written notice thereof
shall have been given to the Borrower by the Administrative Agent or the
Majority Lenders; or
(e) The Borrower or any Significant Subsidiary shall default in any
payment of $10,000,000 or more of principal of or interest on any
Indebtedness or in the payment of $10,000,000 or more on account of any
guarantee in respect of Indebtedness, beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness or
guarantee was created; or
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(f) Any event or condition occurs that results in any
Indebtedness or any guarantee of Indebtedness of the Borrower or any of its
Significant Subsidiaries of an aggregate principal amount of $20,000,000 or more
becoming due in full or payable in full prior to the scheduled maturity of such
Indebtedness or guarantee or that requires the prepayment, repurchase,
redemption or defeasance thereof in full, prior to the scheduled maturity of
such Indebtedness or guarantee (other than pursuant to any voluntary
prepayments, customary due-on-sale clause or any provision requiring prepayment
of such Indebtedness based on excess cash flow, permitted asset sales or
permitted debt or equity issuances, in each case contained in the terms of such
Indebtedness); provided that this clause (f) shall not apply to secured
Indebtedness that becomes due as a result of the voluntary sale or transfer of
the property or assets securing such Indebtedness;
(g) (i) The Borrower or any of its Significant Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower or any of its Significant Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Significant Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
90 days; or (iii) there shall be commenced against the Borrower or any of its
Significant Subsidiaries any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 90 days from the entry thereof; or
(h) One or more judgments or decrees shall (i) be entered against
the Borrower, (ii) not have been vacated, discharged, satisfied, stayed or
bonded pending appeal within 60 days from the entry thereof and (iii) involve a
liability (not paid or fully covered by insurance) of either (A) $20,000,000 or
more, in the case of any single judgment or decree or (B) $50,000,000 or more in
the aggregate, in the case of all such judgments and decrees; or
(i) The Borrower or any of its Significant Subsidiaries shall
default in the performance of any of its obligations under, or otherwise fail to
observe or perform any covenant, condition or agreement contained in, any of the
Material Agreements, to the extent the consequences of any such default or
failure could reasonably be expected to result in a Material Adverse Effect; or
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(j) A Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Majority Lenders, the Administrative Agent may, or
upon the request of the Majority Lenders, the Administrative Agent shall, by
notice to the Borrower declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Majority Lenders, the Administrative Agent may, or upon the request of
the Majority Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement to be due and payable forthwith, whereupon
the same shall immediately become due and payable. Except as expressly provided
above in this Section 7, presentment, demand, protest and all other notices of
any kind are hereby expressly waived.
SECTION 8 THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and
appoints Chase as the Administrative Agent of such Lender under this Agreement,
and each such Lender irrevocably authorizes Chase, as the Administrative Agent
for such Lender, to take such action on its behalf under the provisions of this
Agreement and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement, together
with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care.
8.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees or affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement (except for its or such Person's own gross
negligence or willful misconduct) or (ii) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
the Borrower or any officer thereof contained in this Agreement or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative
<PAGE> 43
39
Agent under or in connection with, this Agreement or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
for any failure of the Borrower to perform its obligations hereunder. The
Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Borrower.
8.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it in good faith to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the Lender specified in the Register
with respect to any amount owing hereunder as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this Agreement
unless it shall first receive such advice or concurrence of the Majority Lenders
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement in accordance with a request of the Majority
Lenders (or, to the extent that this Agreement expressly requires a higher
percentage of Lenders, such higher percentage), and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders
and all future holders of the obligations owing by the Borrower hereunder.
8.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall promptly notify the Borrower (unless the Borrower shall have
delivered such notice to the Administrative Agent) and then give notice thereof
to the Lenders (provided that the failure to notify the Borrower shall not
impair any of the rights of the Administrative Agent and the Lenders with
respect to the events and circumstances specified in such notice). The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Majority Lenders;
provided that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it
<PAGE> 44
40
and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and made its
own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
8.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought under this subsection 8.7 (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date of payment in full), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the amounts owing hereunder) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of this
Agreement or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. The Administrative Agent shall have the right to deduct any
amount owed to it by any Lender under this subsection 8.7 from any payment made
by it to such Lender hereunder. The agreements in this subsection 8.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
8.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder. With respect
to its Loans made or renewed by it, the Administrative Agent
<PAGE> 45
41
shall have the same rights and powers under this Agreement as any Lender and
may exercise the same as though it were not the Administrative Agent, and the
terms "Lender" and "Lenders" shall include the Administrative Agent in its
individual capacity.
8.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 90 days' notice to the Lenders and the
Borrower and following the appointment of a successor Administrative Agent in
accordance with the provisions of this subsection 8.9. If the Administrative
Agent shall resign as Administrative Agent under this Agreement, then the
Majority Lenders shall appoint from among the Lenders willing to serve as
Administrative Agent a successor Administrative Agent for the Lenders, which
successor Administrative Agent shall be approved by the Borrower (which approval
shall not be unreasonably withheld), whereupon such successor Administrative
Agent shall succeed to the rights, powers and duties of the Administrative
Agent, and the term "Administrative Agent" shall mean such successor
Administrative Agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the obligations owing hereunder. If no successor agent has accepted
appointment as Administrative Agent by the date that is 90 days following a
retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall assume and perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Majority Lenders appoint a
successor agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 8 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement.
8.10 Syndication Agents and Documentation Agent. Neither of the
Syndication Agents nor the Documentation Agent shall have any duties or
responsibilities hereunder in their capacities as such.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, nor any terms
hereof may be amended, supplemented or modified except in accordance with the
provisions of this subsection 9.1. The Majority Lenders may, or, with the
written consent of the Majority Lenders, the Administrative Agent may, from time
to time, (a) enter into with the Borrower written amendments, supplements or
modifications hereto for the purpose of adding any provisions to this Agreement
or changing in any manner the rights of the Lenders or of the Borrower hereunder
or (b) waive, on such terms and conditions as the Majority Lenders or the
Administrative Agent, as the case may be, may specify in such instrument, any of
the requirements of this Agreement or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (i) reduce the principal amount of any Loan, or
reduce the stated rate of any interest or fee payable hereunder, or extend the
scheduled date of any payment thereof, or increase the amount or extend the
expiration date of any Lender's
<PAGE> 46
42
Commitment, in each case without the consent of each Lender directly affected
thereby, or (ii) amend, modify or waive any provision of this subsection 9.1 or
reduce the percentage specified in the definition of Majority Lenders, or
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement, in each case without the written consent of
all the Lenders, or (iii) amend, modify or waive any provision of Section 8 or
any other provision of this Agreement governing the rights or obligations of the
Administrative Agent without the written consent of the then Administrative
Agent. Any such waiver and any such amendment, supplement or modification shall
apply equally to each of the Lenders and shall be binding upon the Borrower, the
Lenders, the Administrative Agent and all future holders of the obligations
owing hereunder. In the case of any waiver, the Borrower, the Lenders and the
Administrative Agent shall be restored to their former position and rights
hereunder, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or four days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule II in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the obligations owing
hereunder:
The Borrower: Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48098
Attention: Treasurer
Telecopy: (248) 813-2590
Telephone: (248) 813-2592
The Administrative
Agent: The Chase Manhattan Bank
The Loan and Agency Services Group
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Lenora Kiernan
Telecopy: (212) 552-5650
Telephone: (212) 552-7309
with a copy to: The Chase Manhattan Bank
270 Park Avenue
47th Floor
New York, New York 10017
<PAGE> 47
43
Attention: Rosemary Bradley
Telecopy: (212) 972-9854
Telephone: (212) 270-7853
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.3, 2.4, 2.5 and 2.6 shall not be
effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the making of the Loans hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses reasonably incurred in connection with the development, preparation
and execution of, and any amendment, supplement or modification to, this
Agreement and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay or reimburse
each Lender and the Administrative Agent for all its reasonable costs and
expenses reasonably incurred in connection with the enforcement of any rights
under this Agreement, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent and to the several Lenders
(other than those incurred in connection with the compliance by the relevant
Lender with the provisions of subsection 2.18(a)), and (c) to pay, indemnify,
and hold each Lender and the Administrative Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay by the Borrower in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, and (d) to
pay, indemnify, and hold each Lender and the Administrative Agent harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind or nature whatsoever (it being understood that this
shall not include the fees and disbursements of counsel to any of the Lenders
(other than Chase) in connection with (i) their review of this Agreement prior
to the Closing Date or (ii) prior to the occurrence of a Default or an Event of
Default, any amendment or waiver to this Agreement or any assignment to another
Lender pursuant to the terms hereof) with respect to the execution, delivery,
<PAGE> 48
44
enforcement, performance and administration of this Agreement (all the foregoing
in this clause (d), collectively, the "indemnified liabilities"); provided that
the Borrower shall have no obligation hereunder to the Administrative Agent or
any Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Administrative Agent or any such Lender.
The agreements in this subsection 9.5 shall survive repayment of the Loans and
all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent, all future holders of the obligations owing
hereunder and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities ("Participants") participating interests in any
Loan owing to such Lender, any Commitment of such Lender or any other interest
of such Lender hereunder; provided that such Lender shall have given prior
written notice to the Borrower of the identity of such Participant. In the event
of any such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any obligation owing
to it hereunder for all purposes under this Agreement, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement. In
no event shall any Participant under any such participation have any right to
approve any amendment or waiver of any provision of this Agreement, or any
consent to any departure by the Borrower therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Loans or any fees payable hereunder, or postpone the date of the final
maturity of the Loans, in each case to the extent subject to such participation.
The Borrower hereby agrees that each Participant shall be entitled to the
benefits of subsections 2.15, 2.16 and 2.17 with respect to its participation in
the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any affiliate thereof or, with the consent of the Borrower (which
shall not be unreasonably withheld) and the Administrative Agent, to an
additional bank or financial institution (an "Assignee") all or any part of its
rights and obligations under this Agreement pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit E, executed by such Assignee,
such assigning Lender (and, in the case of an Assignee that is not then a Lender
or an affiliate thereof, by the Borrower and the Administrative Agent) and
delivered to the Administrative Agent for its acceptance and recording in the
Register; provided that, unless the Borrower and the
<PAGE> 49
45
Administrative Agent otherwise consent, any such assignment to an Assignee which
is not a Lender (before giving effect to such assignment) or an affiliate
thereof shall be in a minimum amount of $10,000,000. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of (and be) a Lender hereunder with a Commitment
as set forth therein, and (y) the assigning Lender thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such assigning Lender shall cease to be a
party hereto). Notwithstanding anything to the contrary contained herein, any
Lender may sell, transfer, assign or grant participations in all or any part of
the Competitive Loans made by it.
(d) The Administrative Agent shall maintain at its address referred to in
subsection 9.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to, each
Lender from time to time. The entries in the Register shall be prima facie
evidence of the existence and amounts of the obligations of the Borrower therein
recorded, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The Register shall be
available for inspection and copying by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice. The
Administrative Agent shall provide a copy of the Register to the Borrower on a
monthly basis.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent) together with payment by the Lender to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the assigning
Lender, its Assignee and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any prospective
Participant, any Participant or any prospective Assignee (each, a "Transferee")
any and all financial information in such Lender's possession concerning the
Borrower and its affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which has been delivered to
all Lenders by or on behalf of the Borrower in connection with their respective
credit evaluations of the Borrower and its affiliates prior to becoming a party
to this Agreement; provided that (i) such Transferee has executed and delivered
to the Borrower a written confidentiality agreement substantially in the form of
that which has been executed and delivered by each Lender prior to the date
hereof and (ii) in the case of any information other than that contained in the
Confidential Information Memorandum, the Borrower has been informed of the
identity of such Transferee and has consented to the
<PAGE> 50
46
disclosure of such information thereto. Nothing contained in this subsection
9.6(f) shall be deemed to prohibit the delivery to any Transferee of any
financial information which is otherwise publicly available.
(g) Nothing herein shall prohibit any Lender from pledging or assigning all
or any portion of its Loans to any Federal Reserve Bank in accordance with
applicable law. In order to facilitate such pledge or assignment, the Borrower
hereby agrees that, upon request of any Lender at any time and from time to time
after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrower's own expense, a promissory note,
substantially in the form of Exhibit G, evidencing the Revolving Credit Loans
owing to such Lender.
9.7 Adjustments. If any Lender (a "benefitted Lender") shall at any time
receive any payment of all or part of its Loans, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in Section
7(g), or otherwise), such that it has received aggregate payments or collateral
on account of its Loans in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of such other
Lender's Loans which are then due and payable, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of each such other Lender's Loans, or shall provide
such other Lenders with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefitted Lender to share the
excess payment or benefits of such collateral or proceeds ratably with each of
the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
9.8 Counterparts. (a) This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
(b) By its signature hereto, each Lender hereby agrees that this Agreement
shall become effective immediately upon the execution and delivery on January 4,
1999 by the Borrower and the Administrative Agent of this Agreement. In the
event that this Agreement has not been duly executed and delivered by each
Person listed on the signature pages hereto (other than the Borrower and the
Administrative Agent, with respect to which the execution and delivery of this
Agreement shall be a condition precedent to its effectiveness) on or before the
date upon which this Agreement becomes effective in accordance with the
immediately preceding sentence, this Agreement shall nevertheless become
effective with respect to those Persons who have executed and delivered it on or
before such effective date and those Persons who have not executed and delivered
it (such Persons, the "Non-Executing Banks") shall be deemed not to be Lenders
hereunder.
<PAGE> 51
47
(c) On the date of effectiveness of this Agreement, the Borrower may (after
consultation with the Administrative Agent) designate one or more Lenders (the
"Designated Lenders") to assume the Commitments which would have been held by
the Non-Executing Banks and, if the Designated Lenders agree to assume such
Commitments, (i) Schedules I and II shall be deemed to be amended to reflect
such increase in the respective Commitment of each Designated Lender and the
omission of each Non-Executing Bank as a Lender hereunder and (ii) the
respective Commitment of each Designated Lender shall be deemed to be such
increased amount for all purposes hereunder.
(d) Notwithstanding anything to the contrary contained herein, (i) the
Commitment of a Lender shall not be increased (without the prior written
consent of such Lender) as a result of the failure of any other Person to
execute and deliver this Agreement or otherwise and (ii) in no event shall the
aggregate Commitments of all Lenders exceed $3,500,000,000.
9.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.11 Confidentiality. Each of the Administrative Agent, the Issuing Lender
and the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and its
affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent required by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this subsection, to any Assignee
of or Participant in, or any prospective Assignee of or Participant in, any of
its rights or obligations under this Agreement, (g) with the consent of the
Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this subsection or (ii) becomes available
to the Administrative Agent, the Issuing Lender or any Lender on a
nonconfidential basis from a source other than the Borrower. For the purposes of
this Section, "Information" means all information received from the Borrower
relating to the Borrower or its business, other than any such information that
is available to the Administrative Agent, the Issuing Lender or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; provided that, in the
case
<PAGE> 52
48
of information received from the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this subsection shall be considered to have complied with its obligation to do
so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
<PAGE> 53
49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
By: /s/ John Blahnik
------------------------------
Name: John Blahnik
Title: Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Rosemary Bradley
------------------------------
Name: Rosemary Bradley
Title: Vice President
[OTHER LENDERS]
<PAGE> 54
BANK OF AMERICA NT & SA, as Syndication
Agent and Lender
By: /s/ Steven K. Ahrenholz
-----------------------------------
Name: Steven K. Ahrenholz
Title: Vice President
<PAGE> 55
CITIBANK, N.A., as Syndication Agent and
Lender
By: /s/ Robert D. Wetrus
--------------------------------------
Name: Robert D. Wetrus
Title: Citibank, N.A. Attorney-in-Fact
<PAGE> 56
DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH, as Syndication
Agent and Lender
By: /s/ Hans-Josef Thiele
----------------------------------
Name: Hans-Josef Thiele
Title: Director
By: /s/ Stephan A. Wiedemann
----------------------------------
Name: Stephan A. Wiedemann
Title: Director
<PAGE> 57
BARCLAYS BANK PLC, as Syndication Agent
and Lender
By: /s/ T.E. Weidman
-----------------------------------
Name: T.E. Weidman
Title: Director
<PAGE> 58
BANQUE NATIONALE DE PARIS, as
Syndication Agent and Lender
By: /s/ Christine L. Howatt
----------------------------------
Name: Christine L. Howatt
Title: Vice President and Manager,
Credit Department
<PAGE> 59
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED
By: /s/ Christine S. Pomeranz
-----------------------------------
Name: Christine S. Pomeranz
Title: Vice President
<PAGE> 60
BANCA COMMERCIALE ITALIANA-NEW
YORK BRANCH
By: /s/ Charles Dougherty
-----------------------------------
Name: C. Dougherty
Title: VP
By: /s/ Karen Purelis
-----------------------------------
Name: Karen Purelis
Title: VP
<PAGE> 61
BANCA DI ROMA
By: /s/ Luca Balestra
-----------------------------------
Name: Luca Balestra
Title: VP
By: /s/ C. Perna
-----------------------------------
Name: C. Perna
Title: SVP
<PAGE> 62
BANKBOSTON, N.A.
By: /s/ Demetric A. Duckett
-----------------------------------
Name: Demetric A. Duckett
Title: Vice President
<PAGE> 63
BANK OF MONTREAL
By: /s/ Richard W. Camm
-----------------------------------
Name: Richard W. Camm
Title: Managing Director
<PAGE> 64
THE BANK OF NEW YORK
By: /s/ William Barnum
-------------------------------
Name: William Barnum
Title: Vice President
<PAGE> 65
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
-------------------------------------
Name: F.C.H. Asby
Title: Senior Manager Loan Operations
<PAGE> 66
BANK OF TOKYO-MITSUIBISHI TRUST
COMPANY
By: /s/ Friedrich N. Wilms
----------------------------------------
Name: Friedrich N. Wilms
Title: Vice President
<PAGE> 67
BAYERISCHE LANDESBANK
GIROZENTRALE
CAYMAN ISLANDS BRANCH
By: /s/ Peter Obermann
------------------------------------
Name: Peter Obermann
Title: Senior Vice President
By: /s/ James H. Boyle
------------------------------------
Name: James H. Boyle
Title: Second Vice President
<PAGE> 68
CIBC INC.
By: /s/ Cyd Petre
-------------------------------
Name: Cyd Petre
Title: Executive Director
CIBC Oppenheimer Corp., As Agent
<PAGE> 69
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
(NEW YORK BRANCH)
By: /s/ Martha Skidmore
------------------------------------
Name: Martha Skidmore
Title: Vice President
By: /s/ Eric Longuet
------------------------------------
Name: Eric Longuet
Title: Vice President
<PAGE> 70
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
(PARIS HEAD OFFICE)
By: /s/ A. Roland-Gosselin
-----------------------------------------
Name: A. Roland-Gosselin
Title: V.P.
By: /s/ Yann de Saint Pol
-----------------------------------------
Name: Yann de Saint Pol
Title: V.P.
<PAGE> 71
COMERICA BANK
By: /s/ Robert M. Ramirez
-------------------------------
Name: Robert M. Ramirez
Title: Account Officer
<PAGE> 72
COMMERZBANK AKTIENGESELLSCHAFT,
CHICAGO BRANCH
By: /s/ William Binder
--------------------------------
Name: William Binder
Title: Vice President
By: /s/ Rie Ando
--------------------------------
Name: Rie Ando
Title: Assistant Treasurer
<PAGE> 73
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl
------------------------------------
Name: David Bouhl
Title: F.V.P.
Head of Corporate Banking
Chicago
By: /s/ Dean Balice
------------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
<PAGE> 74
CREDIT LYONNAIS, CHICAGO BRANCH
By: /s/ Lee E. Greve
----------------------------------
Name: Lee E. Greve
Title: First Vice President
<PAGE> 75
DAI ICHI KANGYO BANK LTD.
By: /s/ David McCann
-----------------------------------
Name: David McCann
Title: Assistant Vice President
<PAGE> 76
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK AG,
CAYMAN ISLAND BRANCH
By: /s/ Stefanie Gaensslen
-----------------------------------
Name: Stefanie Gaensslen
Title: Asst. Vice President
By: /s/ Trevor H. Brookes
-----------------------------------
Name: Trevor H. Brookes
Title: Assistant Vice President
<PAGE> 77
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Howard L. Ramlal
-----------------------------------
Name: Howard L. Ramlal
Title: Assistant Vice President
By: /s/ Brigitte Sacin
-----------------------------------
Name: Brigitte Sacin
Title: Assistant Treasurer
<PAGE> 78
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ R.H. Huttenhocher
-----------------------------------
Name: R.H. Huttenlocher
Title: FVP
<PAGE> 79
FIRST UNION NATIONAL BANK
By: /s/ John E. Reid
-----------------------------------
Name: John E. Reid
Title: Vice President
<PAGE> 80
GENERALE BANK
By: /s/ E. Matthews
-----------------------------------
Name: E. Matthews
Title: SVP
By: /s/ David Snyder
-----------------------------------
Name: David Snyder
Title: SVP
<PAGE> 81
BAYERISCHE HYPO- UND VEREINSBANK AG
By: /s/ David J. Thompson
-----------------------------------
Name: David J. Thompson
Title: Director
By: /s/ Martin J. O'Malley
-----------------------------------
Name: Martin J. O'Malley
Title: Director
<PAGE> 82
KBC BANK N.V.
By: /s/ John E. Thierfelder
-----------------------------------
Name: John E. Thierfelder
Title: Vice President
By: /s/ Robert Snauffer
-----------------------------------
Name: Robert Snauffer
Title: First Vice President
<PAGE> 83
KEYBANK NATIONAL ASSOCIATION
By: /s/ J.T. Taylor
-----------------------------------
Name: J.T. Taylor
Title: Vice President
<PAGE> 84
MARINE MIDLAND BANK
By: /s/ Mark J. Rakov
-----------------------------------
Name: Mark J. Rakov
Title: Vice President
<PAGE> 85
MIDLAND BANK PLC
By: /s/ Nigel Batley
-----------------------------------
Name: Nigel Batley
Title: Corporate Banking Manager
<PAGE> 86
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By: /s/ R.J. Freedman
---------------------------------
Name: R.J. Freedman
Title: Director
North America
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By: /s/ R.J. Freedman
---------------------------------
Name: R.J. Freedman
Title: Director
North America
<PAGE> 87
THE NORTHERN TRUST COMPANY
By: /s/ Tracy J. Toulouse
----------------------------
Name: Tracy J. Toulouse
Title: Vice President
<PAGE> 88
THE SANWA BANK, LTD
NEW YORK BRANCH
By: /s/ Joseph E. Leo
---------------------------------------------
Name: Joseph E. Leo
Title: Vice President and Area Manager
<PAGE> 89
SOCIETE GENERALE
By: /s/ Eric E.O. Siebert Jr.
---------------------------------
Name: Eric E.O. Siebert Jr.
Title: Director
<PAGE> 90
TORONTO DOMINION (TEXAS), INC.
By: /s/ Lynn Chasin
---------------------------------
Name: Lynn Chasin
Title: Vice President
<PAGE> 91
WESTPAC BANKING CORPORATION
By: /s/ Craig L. Jones
-----------------------------------------
Name: Craig L. Jones
Title: Head of Corporate and Financial
Institution Relationships
<PAGE> 1
EXHIBIT 10.15
================================================================================
$1,500,000,000
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY
among
DELPHI AUTOMOTIVE SYSTEMS CORPORATION,
The Several Lenders
from Time to Time Parties Hereto
BANK OF AMERICA NT & SA, CITIBANK, N.A., DEUTSCHE BANK,
BARCLAYS BANK PLC and BANQUE NATIONALE DE PARIS,
as Syndication Agents
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of January 4, 1999
---------------------------------------
CHASE SECURITIES INC.,
as Lead Arranger and Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SECTION 1. DEFINITIONS ..................................................... 1
1.1 Defined Terms ...................................................... 1
1.2 Other Definitional Provisions ...................................... 14
SECTION 2. AMOUNT AND TERMS OF THE FACILITIES .............................. 14
2.1 Revolving Credit Commitments ....................................... 14
2.2 Procedure for Revolving Credit Borrowing ........................... 15
2.3 Competitive Borrowings ............................................. 15
2.4 Swing Line Commitment .............................................. 19
2.5 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans .. 19
2.6 Termination or Reduction of Commitments ............................ 21
2.7 Prepayments ........................................................ 21
2.8 Conversion and Continuation Options ................................ 21
2.9 Minimum Amounts of Eurodollar Borrowings ........................... 22
2.10 Repayment of Loans; Evidence of Debt .............................. 22
2.11 Interest Rates and Payment Dates .................................. 23
2.12 Facility Fee ...................................................... 24
2.13 Computation of Interest and Fees .................................. 24
2.14 Inability to Determine Interest Rate .............................. 25
2.15 Pro Rata Treatment and Payments ................................... 25
2.16 Illegality ........................................................ 26
2.17 Increased Costs ................................................... 27
2.18 Taxes ............................................................. 28
2.19 Indemnity ......................................................... 29
2.20 Notice of Amounts Payable; Relocation of Lending Office; Mandatory
Assignment...................................................... 30
SECTION 3. LETTERS OF CREDIT ............................................... 31
3.1 L/C Commitment ..................................................... 31
3.2 Procedure for Issuance of Letter of Credit ......................... 31
3.3 Fees and Other Charges ............................................. 31
3.4 L/C Participations ................................................. 32
3.5 Reimbursement Obligation of the Borrower ........................... 33
3.6 Obligations Absolute ............................................... 33
3.7 Letter of Credit Payments .......................................... 33
3.8 Applications ....................................................... 34
SECTION 4. REPRESENTATIONS AND WARRANTIES .................................. 34
4.1 Financial Condition ................................................ 34
4.2 Corporate Existence; Compliance with Law ........................... 34
4.3 Corporate Power; Authorization; Enforceable Obligations ............ 35
4.4 No Legal Bar; No Default ........................................... 35
4.5 No Material Litigation ............................................. 35
4.6 Federal Regulations ................................................ 35
4.7 Investment Company Act ............................................. 36
4.8 ERISA .............................................................. 36
</TABLE>
-i-
<PAGE> 3
<TABLE>
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<S> <C>
4.9 No Material Misstatements ....................................... 36
4.10 Environmental Matters .......................................... 36
4.11 Subsidiaries ................................................... 36
4.12 Year 2000 Matters .............................................. 36
4.13 Purpose of Loans ............................................... 37
SECTION 5. CONDITIONS PRECEDENT ......................................... 37
5.1 Conditions to Initial Extensions of Credit ...................... 37
5.2 Conditions to Each Extension of Credit .......................... 38
SECTION 6. AFFIRMATIVE COVENANTS ........................................ 39
6.1 Financial Statements ............................................ 39
6.2 Certificates; Other Information ................................. 39
6.3 Notices ......................................................... 40
6.4 Conduct of Business and Maintenance of Existence ................ 40
6.5 Books and Records ............................................... 40
6.6 Environmental Laws .............................................. 40
SECTION 7. NEGATIVE COVENANTS ........................................... 41
7.1 Consolidated Leverage Ratio ..................................... 41
7.2 Indebtedness .................................................... 41
7.3 Liens ........................................................... 41
7.4 Sale-Leasebacks ................................................. 42
7.5 Merger, Consolidation, etc ...................................... 42
SECTION 8. EVENTS OF DEFAULT ............................................ 42
SECTION 9. THE ADMINISTRATIVE AGENT ..................................... 45
9.1 Appointment ..................................................... 45
9.2 Delegation of Duties ............................................ 45
9.3 Exculpatory Provisions .......................................... 45
9.4 Reliance by Administrative Agent ................................ 46
9.5 Notice of Default ............................................... 46
9.6 Non-Reliance on Administrative Agent and Other Lenders .......... 46
9.7 Indemnification ................................................. 47
9.8 Administrative Agent in Its Individual Capacity ................. 47
9.9 Successor Administrative Agent .................................. 47
9.10 Syndication Agents and Documentation Agent ..................... 48
SECTION 10. MISCELLANEOUS ............................................... 48
10.1 Amendments and Waivers .......................................... 48
10.2 Notices ......................................................... 49
10.3 No Waiver; Cumulative Remedies .................................. 50
10.4 Survival of Representations and Warranties ...................... 50
10.5 Payment of Expenses and Taxes ................................... 50
10.6 Successors and Assigns; Participations and Assignments .......... 51
10.7 Adjustments ..................................................... 53
10.8 Counterparts .................................................... 53
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
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----
<S> <C>
10.9 Severability ................................................................ 54
10.10 GOVERNING LAW .............................................................. 54
10.11 Confidentiality ............................................................ 54
</TABLE>
SCHEDULES
I Commitments; Competitive Bid Lenders
II Addresses for Notices
III Material Agreements
4.11 Subsidiaries
5.1(e) GM Agreements
EXHIBITS
A Competitive Bid Request
B Invitation for Competitive Bids
C Competitive Bid
D Competitive Bid Accept/Reject Letter
E Assignment and Acceptance
F-1 Opinion of Drinker Biddle & Reath LLP, counsel for the Borrower
F-2 Opinion of Simpson Thacher & Bartlett
G Promissory Note
-iii-
<PAGE> 5
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY, dated as of January
4, 1999, among DELPHI AUTOMOTIVE SYSTEMS CORPORATION, a Delaware corporation
(the "Borrower"), the several banks and other financial institutions from time
to time parties to this Agreement (the "Lenders"), BANK OF AMERICA NT & SA,
CITIBANK, N.A., DEUTSCHE BANK, BARCLAYS BANK PLC and BANQUE NATIONALE DE PARIS,
as syndication agents (collectively, the "Syndication Agents"), and THE CHASE
MANHATTAN BANK, as administrative agent for the Lenders hereunder (in such
capacity, the "Administrative Agent").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day, (b) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1% and (c) the Base CD Rate in effect on such day plus 1%. "Base CD
Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary
CD Rate and (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the C/D Reserve Percentage and (b) the C/D
Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for any day,
the secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business Day)
by the Administrative Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, the ABR shall be determined without
regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in
the ABR due to a change in the Prime Rate, the Federal Funds Effective Rate
or the Three-Month Secondary CD Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Federal
Funds Effective Rate or the Three-Month Secondary CD Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
<PAGE> 6
2
"Agreement": this Agreement, as amended, supplemented or otherwise
modified from time to time.
"Applicable Margin": as defined in subsection 2.11(e).
"Application": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Assignee": as defined in subsection 10.6(c).
"Available Commitment": as to any Lender at any time, the excess, if
any, of such Lender's Commitment over such Lender's Revolving Extensions of
Credit.
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowing": a group of Loans of a single Type made by the Lenders (or,
in the case of a Competitive Borrowing, by the Lender or Lenders whose
Competitive Bids have been accepted pursuant to subsection 2.3) on a single
date and as to which a single Interest Period is in effect.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close; provided that when used in connection with a Eurodollar Loan, the
term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Capital Contribution": the contribution by GM or any wholly-owned
Subsidiary of GM of cash to the Borrower in respect of the issuance of, or
its ownership of, capital stock of the Borrower.
"C/D Assessment Rate": for any day as applied to any ABR Loan, the
annual assessment rate in effect on such day which is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance
Corporation (the "FDIC") classified as well-capitalized and within
supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. Section 327.4 (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for
a Depositary Institution (as defined in Regulation D of the Board as in
effect from time to time) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
<PAGE> 7
3
"Change of Control": (a) prior to an IPO and/or Offering which, when
combined with the Net Cash Proceeds from any Capital Contributions, yields
aggregate Net Cash Proceeds to the Borrower of at least $1,250,000,000, GM
or any wholly-owned Subsidiary of GM shall fail to own 100% of the issued
and outstanding capital stock of the Borrower and (b) following an IPO
and/or Offering which, when combined with the Net Cash Proceeds from any
Capital Contributions, yields aggregate Net Cash Proceeds to the Borrower of
at least $1,250,000,000, any of (i) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date
hereof) other than GM or any wholly-owned Subsidiary of GM, of shares
representing more than 20% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower; or
(ii) occupation of a majority of the seats (other than vacant seats) on the
board of directors of the Borrower by Persons who were neither (X) nominated
by the board of directors of the Borrower or the board of directors of GM
nor (Y) appointed by directors so nominated; or (iii) the acquisition of
direct or indirect Control of the Borrower by any Person or group other than
GM or any wholly-owned Subsidiary of GM.
"Chase": The Chase Manhattan Bank.
"Closing Date": the date on which each of the conditions precedent set
forth in subsection 5.1 shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment": as to any Lender, the obligation of such Lender to make
Revolving Credit Loans to the Borrower and participate in Swing Line Loans
and Letters of Credit hereunder in an aggregate principal and/or face amount
at any one time outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule I, as such amount may be reduced from time to time
in accordance with the provisions of this Agreement.
"Commitment Percentage": as to any Lender at any time, the percentage
which such Lender's Commitment then constitutes of the aggregate Commitments
(or, at any time after the Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Loans then
outstanding constitutes of the aggregate principal amount of the Loans then
outstanding).
"Commitment Period": the period from and including the date hereof to
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Competitive Bid": an offer by a Lender to make a Competitive Loan
pursuant to subsection 2.3.
<PAGE> 8
4
"Competitive Bid Accept/Reject Letter": a notification made by the
Borrower pursuant to subsection 2.3(f) in the form of Exhibit D.
"Competitive Bid Lenders": the Lenders specified on Schedule I as being
"Competitive Bid Lenders."
"Competitive Bid Rate": as to any Competitive Bid made by a Lender
pursuant to subsection 2.3, (i) in the case of a Eurodollar Competitive
Loan, the Eurodollar Rate plus (or minus) the Margin, and (ii) in the case
of a Fixed Rate Loan, the fixed rate of interest offered by the Lender
making such Competitive Bid.
"Competitive Bid Request": a request made pursuant to subsection 2.3(b)
in the form of Exhibit A.
"Competitive Borrowing": a Borrowing consisting of a Competitive Loan
or concurrent Competitive Loans from the Lender or Lenders whose Competitive
Bids for such Borrowing have been accepted by a Borrower under the bidding
procedure described in subsection 2.3.
"Competitive Loan": a Loan (which shall be a Eurodollar Competitive
Loan or a Fixed Rate Loan) made by a Lender pursuant to the bidding
procedure described in subsection 2.3.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated November 1998 and furnished to the Lenders.
"Consolidated EBITDA": for any period, Consolidated Net Income for such
period plus, without duplication and to the extent reflected as a charge in
the statement of such Consolidated Net Income for such period, the sum of
(a) income tax expense, (b) interest expense (other than interest expense or
discount during such period attributable to Permitted Receivables Financing
with an aggregate principal amount not in excess of $1,500,000,000), (c)
amortization or writeoff of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (d) depreciation and amortization
expense, (e) amortization of intangibles (including, but not limited to,
goodwill) and organization costs and (f) any extraordinary, unusual or
non-recurring non-cash expenses or losses, and minus, to the extent included
in the statement of such Consolidated Net Income for such period, the sum of
(a) interest income and (b) any extraordinary, unusual or non-recurring
income or gains, all as determined on a consolidated basis. For the purposes
of calculating Consolidated EBITDA for any period of four consecutive fiscal
quarters (each, a "Reference Period") pursuant to any determination of the
Consolidated Leverage Ratio, if during such Reference Period the Borrower or
any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA
for such Reference Period shall be calculated after giving pro forma effect
thereto as if such Material Acquisition occurred on the first day of such
Reference Period. As used in this paragraph, "Material Acquisition" means
any
<PAGE> 9
5
acquisition of property or series of related acquisitions of property that
involves the payment of consideration (including, without limitation, the
assumption of debt) by the Borrower and its Subsidiaries in excess of
$10,000,000.
"Consolidated Leverage Ratio": as at any day, the ratio of (a)
Consolidated Total Debt on such day (other than any Permitted Receivables
Financing outstanding on such date in an aggregate principal amount not to
exceed $1,500,000,000 and any other Non-Recourse Debt not related to
accounts receivable of the Borrower or any of its Subsidiaries) to (b)
Consolidated EBITDA for the period of four fiscal quarters ending on or most
recently prior to such day; provided, that for the purposes of determining
the Consolidated Leverage Ratio for the fiscal quarters of the Borrower
ending March 31, 1999, June 30, 1999 and September 30, 1999, Consolidated
EBITDA for the relevant period shall be deemed to equal Consolidated EBITDA
for the period beginning on the Closing Date and ending on such dates, plus
Consolidated EBITDA for the segments and Subsidiaries of GM constituting the
Delphi Automotive Systems business of GM for the number of fiscal quarters
immediately preceding the Closing Date which, when added to the number of
fiscal quarters which have begun since the Closing Date and have ended on or
prior to such dates, equals four.
"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Borrower and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Assets": at any date, all amounts that would, in
conformity with GAAP, be set forth opposite the caption "total assets" (or
any like caption) on a consolidated balance sheet of the Borrower and its
Subsidiaries at such date.
"Consolidated Total Debt": at any date and without duplication, (i) the
aggregate principal amount of (i) all Indebtedness of the Borrower and its
Subsidiaries on a consolidated basis and (ii) all guarantees by the Borrower
or any of its Subsidiaries of Indebtedness on a consolidated basis of any
other Person (other than the Borrower or a Subsidiary) at such date.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
<PAGE> 10
6
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental
Authority, relating to the environment, preservation or reclamation of
natural resources, the management, release or threatened release of any
Hazardous Material or to health and safety matters relating to the
environment.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation,
fines, penalties or indemnities), of the Borrower or any Subsidiary directly
or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to
any Hazardous Materials, (d) the release or threatened release of any
Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or
imposed with respect to any of the foregoing.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of the Board) maintained by a
member bank of such System.
"Eurodollar Borrowing": a Borrowing comprised of Eurodollar Loans.
"Eurodollar Competitive Loan": any Competitive Loan bearing interest at
a rate determined by reference to the Eurodollar Rate.
"Eurodollar Loan": any Eurodollar Competitive Loan or Eurodollar
Revolving Credit Loan.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate of interest determined on the
basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Dow Jones Markets Page as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the Dow
Jones Markets Page (or otherwise on such service), the "Eurodollar Rate"
shall be determined by reference to
<PAGE> 11
7
such other publicly available service for displaying eurodollar rates as may
be agreed upon by the Administrative Agent and the Borrower or, in the
absence of such agreement, the "Eurodollar Rate" shall instead be the rate
per annum equal to the average (rounded upward to the nearest 1/16th of 1%)
of the respective rates notified to the Administrative Agent by each of the
Reference Lenders as the rate at which such Reference Lender is offered
Dollar deposits at or about 10:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted for
delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Reserve Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined
for such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Revolving Credit Loan": any Revolving Credit Loan bearing
interest at a rate determined by reference to the Eurodollar Rate.
"Event of Default": any of the events specified in Section 8; provided
that any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day of such rates on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it.
"Financial Officer": with respect to any Person, the chief financial
officer, principal accounting officer, a financial vice president, treasurer
or assistant treasurer of such Person.
"Fixed Rate Borrowing": a Borrowing comprised of Fixed Rate Loans.
"Fixed Rate Loan": any Competitive Loan bearing interest at a fixed
percentage rate per annum specified by the Lender making such Loan in its
Competitive Bid.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time and as applied by the Borrower in
the preparation
<PAGE> 12
8
of its most recent financial statements delivered pursuant to subsection
4.1(b); provided that, if the Borrower notifies the Administrative Agent
that the Borrower requests an amendment to any provision hereof to eliminate
the effect of any change occurring after the date hereof in GAAP or in the
application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Majority Lenders request
an amendment to any provision hereof for such purpose), regardless of
whether any such notice is given before or after such change in GAAP or in
the application thereof, then such provision shall be interpreted on the
basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
"GM": General Motors Corporation, a Delaware corporation.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of government.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Indebtedness": of any Person at any date, the amount outstanding on
such date under notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed (including, without limitation, indebtedness
for borrowed money evidenced by a loan account).
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding
and on the date such Loan is paid in full, (b) as to any Eurodollar Loan or
Fixed Rate Loan, the last day of the Interest Period applicable thereto and
(c) as to any Eurodollar Loan or Fixed Rate Loan, having an Interest Period
longer than three months or 90 days, as the case may be, each day which is
three months or 90 days, as the case may be, after the first day of the
Interest Period applicable thereto; provided that, in addition to the
foregoing, each of (x) the date upon which both the Commitments have been
terminated and the Loans have been paid in full and (y) the Termination Date
shall be deemed to be an "Interest Payment Date" with respect to any
interest which is then accrued hereunder.
"Interest Period": (a) with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such Eurodollar Loan and
ending one, two, three or six (or if available to all the Lenders (or,
in the case of Eurodollar Competitive Loans, the Lender making such
Loans) nine or twelve) months thereafter, as
<PAGE> 13
9
selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six (or if available to all the Lenders (or, in the
case of Eurodollar Competitive Loans, the Lender making such Loans)
nine or twelve) months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto; and
(b) with respect to any Fixed Rate Loan, the period commencing on
the borrowing date with respect to such Fixed Rate Loan and ending such
number of days thereafter (which shall be not less than seven days or more
than 180 days after the date of such borrowing) as selected by the Borrower
in its Competitive Bid Request given with respect thereto.
provided that all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period would otherwise end on a day that is not
a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of an Interest Period
pertaining to a Eurodollar Loan, the result of such extension would be
to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding
Business Day; and
(2) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
Notwithstanding anything to the contrary contained in this Agreement, no
Interest Period shall be selected by the Borrower which ends on a date after
the Termination Date.
"Invitation for Competitive Bids": an invitation made by the Borrower
pursuant to subsection 2.3(c) in the form of Exhibit B.
"IPO": the initial underwritten public offering by the Borrower of
common stock of the Borrower pursuant to a registration statement filed with
the Securities and Exchange Commission in accordance with the Securities Act
of 1933, as amended.
"Issuing Lender": the collective reference to Chase or any of its
affiliates, in its capacity as issuer of any Letter of Credit.
<PAGE> 14
10
"L/C Commitment": $250,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and
December and the last day of the Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit
which have not then been reimbursed pursuant to subsection 3.5.
"L/C Participants": the collective reference to all the Lenders other
than the Issuing Lender.
"Letters of Credit": as defined in subsection 3.1(a).
"Level I Status": exists at any date if, at such date, the Borrower has
senior unsecured long-term debt outstanding, without third-party credit
enhancement, which is rated A- or better by S&P and A3 or better by Moody's;
provided that if either S&P or Moody's shall cease to issue ratings of debt
securities generally, then the Administrative Agent and the Borrower shall
negotiate in good faith to agree upon a substitute rating agency (and to
correlate the system of ratings of such substitute rating agency with that
of the rating agency for which it is substituting) and (a) until such
substitute rating agency is agreed upon, the foregoing test may be satisfied
on the basis of the rating assigned by the other such rating agency and (b)
after such substitute rating agency is agreed upon, the foregoing test may
be satisfied on the basis of the rating assigned by the other rating agency
and such substitute rating agency.
"Level II Status": exists at any date if, at such date, Level I Status
does not exist and the Borrower has senior unsecured long-term debt
outstanding, without third-party credit enhancement, which is rated BBB+ or
better by S&P and Baa1 or better by Moody's; provided that if either S&P or
Moody's shall cease to issue ratings of debt securities generally, then the
Administrative Agent and the Borrower shall negotiate in good faith to agree
upon a substitute rating agency (and to correlate the system of ratings of
such substitute rating agency with that of the rating agency for which it is
substituting) and (a) until such substitute rating agency is agreed upon,
the foregoing test may be satisfied on the basis of the rating assigned by
the other such rating agency and (b) after such substitute rating agency is
agreed upon, the foregoing test may be satisfied on the basis of the rating
assigned by the other rating agency and such substitute rating agency.
"Level III Status": exists at any date if, at such date, neither Level
I Status nor Level II Status exists and the Borrower has senior unsecured
long-term debt outstanding, without third party credit enhancement, which is
rated BBB or better by S&P and Baa2 or better by Moody's; provided that if
either S&P or Moody's shall cease to issue ratings of debt securities
generally, then the Administrative Agent and the Borrower shall negotiate in
good faith to agree upon a substitute rating agency (and to correlate the
system of
<PAGE> 15
11
ratings of such substitute rating agency with that of the rating agency for
which it is substituting) and (a) until such substitute rating agency is
agreed upon, the foregoing test may be satisfied on the basis of the rating
assigned by the other such rating agency and (b) after such substitute
rating agency is agreed upon, the foregoing test may be satisfied on the
basis of the rating assigned by the other rating agency and such substitute
rating agency.
"Level IV Status": exists at any date if, at such date, none of Level I
Status, Level II Status or Level III Status exists and the Borrower has
senior unsecured long-term debt outstanding, without third party credit
enhancement, which is rated BBB- or better by S&P and Baa3 or better by
Moody's; provided that if either S&P or Moody's shall cease to issue ratings
of debt securities generally, then the Administrative Agent and the Borrower
shall negotiate in good faith to agree upon a substitute rating agency (and
to correlate the system of ratings of such substitute rating agency with
that of the rating agency for which it is substituting) and (a) until such
substitute rating agency is agreed upon, the foregoing test may be satisfied
on the basis of the rating assigned by the other such rating agency and (b)
after such substitute rating agency is agreed upon, the foregoing test may
be satisfied on the basis of the rating assigned by the other rating agency
and such substitute rating agency.
"Level V Status": exists at any date if, at such date, none of Level I
Status, Level II Status, Level III Status or Level IV Status exists.
"Lien": any mortgage, pledge, lien, security interest, conditional sale
or other title retention agreement or other similar encumbrance.
"Loan": a Competitive Loan, a Revolving Credit Loan or a Swing Line
Loan, as the context shall require; collectively, the "Loans."
"Majority Lenders": at any time, Lenders whose Commitment Percentages
represent at least 51% of the aggregate Commitments or, if the Commitments
are terminated or for purposes of acceleration pursuant to Section 8,
Lenders holding Loans representing at least 51% of the aggregate principal
amount of all Loans outstanding.
"Margin": as to any Eurodollar Competitive Loan, the margin to be added
to or subtracted from the Eurodollar Rate in order to determine the interest
rate applicable to such Loan, as specified in the Competitive Bid relating
to such Loan.
"Material Adverse Effect": a material adverse effect on (a) the
financial condition of the Borrower and its Subsidiaries taken as a whole or
(b) the validity or enforceability of this Agreement or the rights or
remedies of the Administrative Agent and the Lenders hereunder.
"Material Agreements": the agreements set forth on Schedule III.
<PAGE> 16
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"Moody's": Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds": in connection with any issuance or sale of equity
securities or debt securities or instruments or the incurrence of loans, the
cash proceeds received from such issuance or incurrence, net of attorneys'
fees, investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Non-Recourse Debt": all Indebtedness which, in accordance with GAAP,
is not required to be recognized on a consolidated balance sheet of the
Borrower as a liability.
"Offering": the offering by the Borrower to any Person (other than GM
or any wholly-owned Subsidiary of GM) of any equity securities of the
Borrower.
"Participant": as defined in subsection 10.6(b).
"Permitted Receivables Financing": at any date of determination, the
aggregate amount of any Non-Recourse Debt outstanding on such date relating
to securitizations or other similar off-balance sheet financings of accounts
receivable of the Borrower or any of its Subsidiaries.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Prime Rate": the rate of interest per annum equal to the prime rate
publicly announced by the majority of the Reference Lenders as its prime
rate (or similar base rate) in effect at its principal office.
"Reference Lenders": The Chase Manhattan Bank, Bank of America NT & SA,
Citibank, N.A., Morgan Guaranty Trust Company and the Bank of New York.
"Refunded Swing Line Loans": as defined in subsection 2.5.
"Refunding Date": as defined in subsection 2.5.
"Register": as defined in subsection 10.6(d).
"Reimbursement Obligation": the obligation of the Borrower to reimburse
the Issuing Lender pursuant to subsection 3.5 for amounts drawn under
Letters of Credit.
"Requirement of Law": as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property
is subject.
<PAGE> 17
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"Revolving Credit Loans": as defined in subsection 2.1(a).
"Revolving Extensions of Credit": as to any Lender at any time, an
amount equal to the sum of (a) the aggregate principal amount of all
Revolving Credit Loans made by such Lender then outstanding, (b) such
Lender's Commitment Percentage of the L/C Obligations then outstanding and
(c) such Lender's Commitment Percentage of the aggregate principal amount of
Swing Line Loans then outstanding.
"Sale-Leasebacks": as defined in subsection 7.4.
"S&P": Standard & Poor's Corporation and its successors.
"Significant Subsidiary": at any time, any Subsidiary of the Borrower
which has at least 5% of the consolidated revenues of the Borrower and its
Subsidiaries at such time as reflected in the most recent annual audited
consolidated financial statements of the Borrower.
"Status": as to the Borrower, the existence of Level I Status, Level II
Status, Level III Status, Level IV Status or Level V Status, as the case may
be.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned by such Person, or by one or more Subsidiaries, or by such Person and
one or more Subsidiaries. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Swing Line Commitment": the obligation of the Swing Line Lenders to
make Swing Line Loans pursuant to subsection 2.4 in an aggregate principal
amount for all Swing Line Loans of all Swing Line Lenders at any one time
outstanding not to exceed $250,000,000; provided, that Chase shall not be
obligated to make Swing Line Loans in an aggregate principal amount in
excess of $100,000,000.
"Swing Line Lender": Chase or any other Lender or Lenders selected by
the Borrower and acceptable to the Administrative Agent and such Lender, in
its capacity as the lender of Swing Line Loans (collectively, the "Swing
Line Lenders").
"Swing Line Loans": as defined in subsection 2.4.
"Swing Line Participation Amount": as defined in subsection 2.5.
"Termination Date": January 3, 2004.
<PAGE> 18
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"Transferee": as defined in subsection 10.6(f).
"Type": as to any Revolving Credit Loan, its nature as an ABR Loan or a
Eurodollar Loan, and as to any Competitive Loan, its nature as a Eurodollar
Competitive Loan or a Fixed Rate Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"Utilization": as of the last day of any fiscal quarter of the
Borrower, the percentage equivalent of a fraction (i) the numerator of which
is the sum of (a) the average daily principal amount of Loans outstanding
(after giving effect to any borrowing or payment on such date) during such
quarter and (b) the average daily face amount of Letters of Credit
outstanding during such quarter and (ii) the denominator of which is the
average daily amount of the aggregate Commitments of all Lenders during such
quarter, after giving effect to any reduction of the Commitments on such
day. For purposes of subsection 2.11(e), if for any reason any Loans remain
outstanding after termination of the Commitments, the Utilization for each
day on or after the date of such termination shall be deemed to be greater
than 33%.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto.
(b) As used herein, and any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the Borrower and its
Subsidiaries not defined in subsection 1.1 and accounting terms partly defined
in subsection 1.1, to the extent not defined, shall have the respective meanings
given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF THE FACILITIES
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time during the
Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lender's Commitment
<PAGE> 19
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Percentage of the sum of (i) the L/C Obligations then outstanding and (ii) the
aggregate principal amount of the Swing Line Loans then outstanding, does not
exceed the amount of such Lender's Commitment. During the Commitment Period, the
Borrower may use the Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. Notwithstanding anything to the contrary contained in this
Agreement, in no event (after giving effect to the use of proceeds of any
Borrowing) shall (i) the amount of any Lender's Commitment Percentage of a
Borrowing of Revolving Credit Loans exceed such Lender's Available Commitment at
the time of such Borrowing or (ii) the aggregate amount of Revolving Credit
Loans, Competitive Loans, Swing Line Loans and Letters of Credit at any one time
outstanding exceed the aggregate Commitments then in effect of all Lenders.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with subsections
2.2 and 2.8; provided that no Revolving Credit Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the Termination Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow
Revolving Credit Loans under the Commitments during the Commitment Period on any
Business Day; provided that the Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 12:00 Noon, New York City time, (a) three Business Days prior to the
requested borrowing date, if all or any part of the requested Revolving Credit
Loans are to be Eurodollar Loans, or (b) one Business Day prior to the requested
borrowing date, otherwise), specifying (i) the amount to be borrowed, (ii) the
requested borrowing date, (iii) whether the Borrowing is to be of Eurodollar
Loans, ABR Loans or a combination thereof and (iv) if the Borrowing is to be
entirely or partly of Eurodollar Loans, the respective amounts of each such Type
of Loan and the respective lengths of the initial Interest Periods therefor.
Each Borrowing under the Commitments shall be in an amount equal to $10,000,000
or a multiple of $1,000,000 in excess thereof. Upon receipt of any such notice
from the Borrower, the Administrative Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share of each
Borrowing available to the Administrative Agent for the account of the Borrower
at the office of the Administrative Agent specified in subsection 10.2 prior to
11:00 A.M., New York City time, on the borrowing date requested by the Borrower
in funds immediately available to the Administrative Agent. Such Borrowing will
then immediately be made available to the Borrower by the Administrative Agent
crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
2.3 Competitive Borrowings.
(a) The Competitive Bid Option. In addition to the Revolving Credit
Loans which may be made available pursuant to subsection 2.1, the Borrower may,
as set forth in this subsection 2.3, request the Lenders to make offers to make
Competitive Loans to the Borrower
<PAGE> 20
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during the Commitment Period. The Lenders may, but shall have no obligation to,
make such offers, and the Borrower may, but shall have no obligation to, accept
any such offers in the manner set forth in this subsection 2.3.
(b) Competitive Bid Request. When the Borrower wishes to request
offers to make Competitive Loans under this subsection 2.3, it shall transmit to
the Administrative Agent a Competitive Bid Request to be received no later than
12:00 Noon (New York City time) on (x) the fourth Business Day prior to the date
of Borrowing proposed therein, in the case of a Borrowing of Eurodollar
Competitive Loans or (y) the Business Day immediately preceding the date of
Borrowing proposed therein, in the case of a Fixed Rate Borrowing, specifying:
(i) the proposed date of Borrowing, which shall be a Business Day,
(ii) the aggregate principal amount of such Borrowing, which shall be
$10,000,000 or a multiple of $1,000,000 in excess thereof,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period contained in
subsection 1.1, and
(iv) whether the Borrowing then being requested is to be of Eurodollar
Competitive Loans or Fixed Rate Loans.
A Competitive Bid Request that does not conform substantially to the format of
Exhibit A may be rejected by the Administrative Agent in its sole discretion,
and the Administrative Agent shall promptly notify the Borrower of such
rejection. The Borrower may request offers to make Competitive Loans for more
than one Interest Period in a single Competitive Bid Request. No Competitive Bid
Request shall be given within three Business Days of any other Competitive Bid
Request pursuant to which the Borrower has made a Competitive Borrowing.
(c) Invitation for Competitive Bids. Promptly after its receipt of a
Competitive Bid Request (but, in any event, no later than 3:00 P.M., New York
City time, on the date of such receipt) conforming to the requirements of
paragraph (b) above, the Administrative Agent shall send to each of the
Competitive Bid Lenders an Invitation for Competitive Bids which shall
constitute an invitation by the Borrower to each such Lender to bid, on the
terms and conditions of this Agreement, to make Competitive Loans pursuant to
the Competitive Bid Request.
(d) Submission and Contents of Competitive Bids. Each Lender to which
an Invitation for Competitive Bids is sent may submit a Competitive Bid
containing an offer or offers to make Competitive Loans in response to such
Invitation for Competitive Bids. Each Competitive Bid must comply with the
requirements of this paragraph (d) and must be submitted to the Administrative
Agent at its offices specified in subsection 10.2 not later than (x) 9:30 A.M.
(New York City time) on the third Business Day prior to the proposed date of
Borrowing, in the case of a Borrowing of Eurodollar Competitive Loans or (y)
9:30 A.M. (New York City time) on the date of the proposed Borrowing, in the
case of a Fixed Rate Borrowing; provided that any Competitive Bids submitted by
the Administrative Agent in the capacity of a Lender may only be
<PAGE> 21
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submitted if the Administrative Agent notifies the Borrower of the terms of the
offer or offers contained therein not later than fifteen minutes prior to the
deadline for the other Lenders. A Competitive Bid submitted by a Lender pursuant
to this paragraph (d) shall be irrevocable.
(ii) Each Competitive Bid shall be in substantially the form of
Exhibit C and shall specify:
(A) the date of the proposed Borrowing,
(B) the principal amount of the Competitive Loan for which each such
offer is being made, which principal amount (w) may be greater than, equal
to or less than the Commitment of the quoting Lender, (x) must be in a
minimum principal amount of $5,000,000 or a multiple of $1,000,000 in excess
thereof, (y) may not exceed the principal amount of Competitive Loans for
which offers were requested and (z) may be subject to a limitation as to the
maximum aggregate principal amount of Competitive Loans for which offers
being made by such quoting Lender may be accepted,
(C) in the case of a Borrowing of Eurodollar Competitive Loans, the
Margin offered for each such Competitive Loan, expressed as a percentage
(specified in increments of 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of a Fixed Rate Borrowing, the rate of interest per
annum (specified in increments of 1/10,000th of 1%) offered for each such
Competitive Loan, and
(E) the identity of the quoting Lender.
A Competitive Bid may set forth up to five separate offers by the quoting Lender
with respect to each Interest Period specified in the related Invitation for
Competitive Bids. Any Competitive Bid shall be disregarded by the Administrative
Agent if the Administrative Agent determines that it: (A) is not substantially
in the form of Exhibit C or does not specify all of the information required by
subsection 2.3(d)(ii); (B) contains qualifying, conditional or similar language
(except for a limitation on the maximum principal amount which may be accepted);
(C) proposes terms other than or in addition to those set forth in the
applicable Invitation for Competitive Bids or (D) arrives after the time set
forth in subsection 2.3(d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly (and,
in any event, by 10:00 A.M., New York City time) notify the Borrower, by
telecopy, of all the Competitive Bids made (including all disregarded bids), the
Competitive Bid Rate and the principal amount of each Competitive Loan in
respect of which a Competitive Bid was made and the identity of the Lender that
made each bid. The Administrative Agent shall send a copy of all Competitive
Bids (including all disregarded bids) to the Borrower for its records as soon as
practicable after completion of the bidding process set forth in this subsection
2.3.
<PAGE> 22
18
(f) Acceptance and Notice by Borrower. The Borrower may in its sole
discretion, subject only to the provisions of this paragraph (f), accept or
reject any Competitive Bid (other than any disregarded bid) referred to in
paragraph (e) above. The Borrower shall notify the Administrative Agent by
telephone, confirmed immediately thereafter by telecopy in the form of a
Competitive Bid Accept/Reject Letter, whether and to what extent it wishes to
accept any or all of the bids referred to in paragraph (e) above not later than
(x) 10:30 A.M. (New York City time) on the third Business Day prior to the
proposed date of Borrowing, in the case of a Competitive Eurodollar Borrowing or
(y) 10:30 A.M. (New York City time) on the proposed date of Borrowing, in the
case of a Fixed Rate Borrowing; provided that:
(i) the failure by the Borrower to give such notice shall be deemed
to be a rejection of all the bids referred to in paragraph (e) above;
(ii) the aggregate principal amount of the Competitive Bids accepted
by the Borrower may not exceed the lesser of (A) the principal amount set
forth in the related Competitive Bid Request and (B) the excess, if any, of
the aggregate Commitments of all Lenders then in effect over the aggregate
principal amount of all Loans outstanding immediately prior to the making of
such Competitive Loans (and after giving effect to the use of proceeds
thereof),
(iii) the principal amount of each Competitive Borrowing must be
$5,000,000 or a multiple of $1,000,000 in excess thereof,
(iv) unless there are any limitations contained in a quoting Lender's
Competitive Bid, the Borrower may not accept a Competitive Bid made at a
particular Competitive Bid Rate if it has decided to reject any portion of a
bid made at a lower Competitive Bid Rate for the same Interest Period, and
(v) the Borrower may not accept any Competitive Bid that is
disregarded by the Administrative Agent pursuant to subsection 2.3(d)(ii) or
that otherwise fails to comply with the requirements of this Agreement.
A notice given by the Borrower pursuant to this paragraph (f) shall be
irrevocable.
(g) Allocation by Administrative Agent. If offers are made by two or
more Lenders with the same Competitive Bid Rates for a greater aggregate
principal amount than the amount in respect of which such offers are accepted
for the related Interest Period, the principal amount of Competitive Loans in
respect of which such offers are accepted shall be allocated by the
Administrative Agent among such Lenders as nearly as possible (in integral
multiples of $1,000,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers.
<PAGE> 23
19
(h) Notification of Acceptance. The Administrative Agent shall promptly
(and, in any event, by 11:00 A.M., New York City time) notify each bidding
Lender whether or not its Competitive Bid has been accepted (and if so, in what
amount and at what Competitive Bid Rate), and each successful bidder will
thereupon become bound, subject to the other applicable conditions hereof, to
make the Competitive Loan in respect of which its bid has been accepted.
2.4 Swing Line Commitment. Subject to the terms and conditions hereof,
each Swing Line Lender agrees to make a portion of the credit otherwise
available to the Borrower under the Commitments from time to time during the
Commitment Period by making swing line loans ("Swing Line Loans") to the
Borrower; provided that (i) the aggregate principal amount of Swing Line Loans
outstanding at any time shall not exceed the Swing Line Commitment then in
effect (notwithstanding that the Swing Line Loans outstanding at any time, when
aggregated with any Swing Line Lender's other outstanding Revolving Credit Loans
hereunder, may exceed the Swing Line Commitment then in effect) and (ii) the
Borrower shall not request, and no Swing Line Lender shall make, any Swing Line
Loan if, after giving effect to the making of such Swing Line Loan, the
aggregate amount of the Available Commitments would be less than zero; provided,
further, that the Swing Line Lender shall not be required to make a Swing Line
Loan to refinance an outstanding Swing Line Loan. During the Commitment Period,
the Borrower may use the Swing Line Commitment by borrowing, repaying and
reborrowing, all in accordance with the terms and conditions hereof. Swing Line
Loans shall be ABR Loans only.
(b) The Borrower shall repay all outstanding Swing Line Loans on the
Termination Date.
2.5 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans.
(a) Whenever the Borrower desires that a Swing Line Lender make Swing Line Loans
it shall give such Swing Line Lender irrevocable telephonic notice confirmed
promptly in writing (which telephonic notice must be received by such Swing Line
Lender not later than 1:00 P.M., New York City time, on the proposed borrowing
date), specifying (i) the amount to be borrowed and (ii) the requested borrowing
date (which shall be a Business Day during the Commitment Period). A copy of
each such notice shall be promptly furnished by the Borrower to the
Administrative Agent. Subject to subsection 3.5, each borrowing under the Swing
Line Commitment shall be in an amount equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof. Not later than 3:00 P.M., New York City time, on
the borrowing date specified in a notice in respect of Swing Line Loans, such
Swing Line Lender shall make available to the Administrative Agent at its office
specified in subsection 10.2 an amount in immediately available funds equal to
the amount of the Swing Line Loan to be made by such Swing Line Lender. The
Administrative Agent shall make the proceeds of such Swing Line Loan available
to the Borrower on such Borrowing Date by crediting the account of the Borrower
on the books of such office in immediately available funds.
<PAGE> 24
20
(b) Each Swing Line Lender, at any time and from time to time in its
sole and absolute discretion may, on behalf of the Borrower (which hereby
irrevocably directs such Swing Line Lender to act on its behalf), on one
Business Day's notice given by such Swing Line Lender no later than 12:00 Noon,
New York City time, request each Lender to make, and each Lender hereby agrees
to make, a Revolving Credit Loan, in an amount equal to such Lender's Commitment
Percentage of the aggregate amount of the Swing Line Loans made by such Swing
Line Lender (the "Refunded Swing Line Loans") outstanding on the date of such
notice, to repay such Swing Line Lender; provided, that any Swing Line Loan
outstanding for five Business Days shall be automatically so refunded on such
fifth Business Day. Each Lender shall make the amount of such Revolving Credit
Loan available to the Administrative Agent at its office set forth in subsection
10.2 in immediately available funds, not later than 10:00 A.M., New York City
time, one Business Day after the date of such notice. The proceeds of such
Revolving Credit Loans shall be immediately applied by such Swing Line Lender to
repay its Refunded Swing Line Loans. The Borrower irrevocably authorizes each
Swing Line Lender to charge the Borrower's accounts with the Administrative
Agent (up to the amount available in each such account) in order to immediately
pay the amount of its Refunded Swing Line Loans to the extent amounts received
from the Lenders are not sufficient to repay in full such Refunded Swing Line
Loans and the Administrative Agent agrees to notify the Borrower of any such
charge; provided, that the failure to so notify the Borrower shall not affect
the validity of any such charge.
(c) If prior to the time a Revolving Credit Loan would have otherwise
been made pursuant to subsection 2.5(b), one of the events described in Section
8(g) shall have occurred and be continuing with respect to the Borrower or if
for any other reason, as determined by a Swing Line Lender in its sole
discretion, Revolving Credit Loans may not be made as contemplated by subsection
2.5(b), each Lender shall, on the date such Revolving Credit Loan was to have
been made pursuant to the notice referred to in Section 2.5(b) (the "Refunding
Date"), purchase for cash an undivided participating interest in an amount equal
to (i) its Commitment Percentage times (ii) the aggregate principal amount of
Swing Line Loans of each Swing Line Lender then outstanding which were to have
been repaid with such Revolving Credit Loans (the "Swing Line Participation
Amount").
(d) Whenever, at any time after a Swing Line Lender has received from
any Lender such Lender's Swing Line Participation Amount, such Swing Line Lender
receives any payment on account of the Swing Line Loans of such Swing Line
Lender, such Swing Line Lender will distribute to such Lender its Swing Line
Participation Amount (appropriately adjusted, in the case of interest payments,
to reflect the period of time during which such Lender's participating interest
was outstanding and funded and, in the case of principal and interest payments,
to reflect such Lender's pro rata portion of such payment if such payment is not
sufficient to pay the principal of and interest on all Swing Line Loans then
due); provided, however, that in the event that such payment received by such
Swing Line Lender is required to be returned, such Lender will return to such
Swing Line Lender any portion thereof previously distributed to it by such Swing
Line Lender.
(e) Each Lender's obligation to make the Loans referred to in
subsection 2.5(b) and to purchase participating interests pursuant to subsection
2.5(c) shall be absolute and
<PAGE> 25
21
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any setoff, counterclaim, recoupment, defense or other right
which such Lender or the Borrower may have against any Swing Line Lender, the
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default or an Event of Default or the failure to satisfy any of
the other conditions specified in Section 5; (iii) any adverse change in the
condition (financial or otherwise) of the Borrower; (iv) any breach of this
Agreement by the Borrower or any other Lender; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(f) Within two Business Days following the last day of each calendar
month, each Swing Line Lender shall deliver to the Administrative Agent a
statement showing the average daily principal amount of the Swing Line Loans
outstanding during the calendar quarter most recently ended.
2.6 Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Commitments when no Loans or Letters of Credit are then
outstanding or, from time to time, to reduce the unutilized portion of the
Commitments. Any such reduction shall be in an amount equal to $10,000,000 or a
multiple of $1,000,000 in excess thereof and shall reduce permanently the
Commitments then in effect.
2.7 Prepayments. The Borrower may, at any time and from time to time,
prepay the Revolving Credit Loans, in whole or in part, without premium or
penalty (but subject to the provisions of subsection 2.19), upon at least two
Business Days' irrevocable notice to the Administrative Agent, specifying the
date and amount of prepayment and whether the prepayment is of Eurodollar
Revolving Credit Loans, ABR Loans or a combination thereof, and, if of a
combination thereof, the amount allocable to each. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Lender thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable
pursuant to subsection 2.19. Partial prepayments shall be in an aggregate
principal amount of $10,000,000 or a multiple of $1,000,000 in excess thereof.
Notwithstanding anything to the contrary contained herein, the Borrower shall
not prepay the Competitive Loans except pursuant to Section 8 or with the
consent of the Competitive Bid Lender which has made such Competitive Loan.
2.8 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Revolving Credit Loans to ABR Loans by
giving the Administrative Agent at least one Business Day's prior irrevocable
notice of such election; provided that any such conversion of Eurodollar
Revolving Credit Loans may only be made on the last day of an Interest Period
with respect thereto. The Borrower may elect from time to time to convert ABR
Loans to Eurodollar Revolving Credit Loans by giving the Administrative Agent at
least three Business Days' prior irrevocable notice of such election. Any such
notice of conversion to Eurodollar Revolving Credit Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon receipt
of any such notice the Administrative Agent shall promptly notify each Lender
thereof. All or any part of outstanding Eurodollar Revolving
<PAGE> 26
22
Credit Loans and ABR Loans may be converted as provided herein; provided that
(i) no Loan may be converted into a Eurodollar Revolving Credit Loan when any
Event of Default has occurred and is continuing and (ii) no Loan may be
converted into a Eurodollar Revolving Credit Loan after the date that is one
month prior to the Termination Date.
(b) Any Eurodollar Revolving Credit Loans may be continued as such
upon the expiration of the then current Interest Period with respect thereto by
the Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans;
provided that no Eurodollar Revolving Credit Loan may be continued as such (i)
when any Event of Default has occurred and is continuing or (ii) after the date
that is one month prior to the Termination Date and provided, further, that if
the Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso such Eurodollar Revolving Credit Loans shall be automatically converted
to ABR Loans on the last day of such then expiring Interest Period.
2.9 Minimum Amounts of Eurodollar Borrowings. All borrowings,
conversions and continuations of Revolving Credit Loans hereunder and all
selections of Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections so that, after giving effect thereto, the aggregate
principal amount of the Revolving Credit Loans comprising each Eurodollar
Borrowing shall be equal to $10,000,000 or a multiple of $1,000,000 in excess
thereof and so that there shall not be more than 20 Eurodollar Borrowings
outstanding at any one time.
2.10 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to each Lender (i) on the Termination Date (or
such earlier date as the Loans become due and payable pursuant to Section 8 or
subsection 2.7), the unpaid principal amount of each Loan made by such Lender
and (ii) on the last day of the applicable Interest Period, the unpaid principal
amount of each Competitive Loan made by such Lender; provided that on each date
that a Revolving Credit Loan or Competitive Loan is made, the Borrower shall
repay all Swing Line Loans then outstanding. The Borrower hereby further agrees
to pay interest in immediately available funds at the office of the
Administrative Agent on the unpaid principal amount of such Loans from time to
time from the date hereof until payment in full thereof at the rates per annum,
and on the dates, set forth in subsection 2.11.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to the
appropriate lending office of such Lender resulting from each Loan made by such
lending office of such Lender from time to time, including the amounts of
principal and interest payable and paid to such lending office of such Lender
from time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 10.6(d), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount of each Loan made
hereunder, the Type of each Loan made and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) the
amount
<PAGE> 27
23
of any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
(d) The entries made in the Register and accounts maintained pursuant
to paragraphs (b) and (c) of this subsection 2.10 shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain such account, such
Register or such subaccount, as applicable, or any error therein, shall not in
any manner affect the obligation of the Borrower to repay (with applicable
interest) the Loans made to the Borrower by such Lender in accordance with the
terms of this Agreement.
2.11 Interest Rates and Payment Dates. (a) Each ABR Loan shall bear
interest at a rate per annum equal to the ABR.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at a rate per annum equal to (i) in the case of each Eurodollar Revolving Credit
Loan, the Eurodollar Rate for the Interest Period in effect for such Borrowing
plus the Applicable Margin and (ii) in the case of each Eurodollar Competitive
Loan, the Eurodollar Rate for the Interest Period in effect for such Borrowing
plus (or minus, as the case may be) the Margin offered by the Lender making such
Loan and accepted by the Borrower pursuant to subsection 2.3.
(c) Each Fixed Rate Loan shall bear interest at a rate per annum equal
to the fixed rate of interest offered by the Lender making such Loan and
accepted by the Borrower pursuant to subsection 2.3.
(d) Subject to the provisions of the following sentence, interest shall
be payable in arrears on each Interest Payment Date; provided that interest
accruing pursuant to paragraph (f) of this subsection 2.11 shall be payable from
time to time on demand. The amount of interest on Revolving Credit Loans to be
paid on any Interest Payment Date shall be the amount which would be due and
payable if the Utilization for the period for which such interest is paid was
less than 33%. On the first Business Day following the last day of each fiscal
quarter of the Borrower and on the Termination Date (or, if earlier, on the date
upon which both the Commitments are terminated and the Loans are paid in full),
the Borrower shall pay to the Administrative Agent, for the ratable benefit of
the Lenders, an additional amount of interest equal to the difference (if any)
between (i) the amount of interest which would have been payable during such
fiscal quarter (or, in the case of the payment due on the Termination Date, the
portion thereof ending on such date) after giving effect to the actual
Utilization during such period and (ii) the amount of interest which actually
was paid during such period.
<PAGE> 28
24
(e) The "Applicable Margin" with respect to each Revolving Credit Loan
at any date shall be the applicable percentage amount set forth in the table
below based upon the Type of such Loan and the Utilization and Status on such
date:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V
Status Status Status Status Status
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
If Utilization is less than
33%:
Eurodollar Loans 0.3000% 0.3500% 0.4500% 0.8000% 0.9500%
ABR Loans 0% 0% 0% 0% 0%
If Utilization is equal to
or greater than 33%:
Eurodollar Loans 0.4250% 0.4750% 0.5750% 0.8000% 0.9500%
ABR Loans 0% 0% 0% 0% 0%
</TABLE>
(f) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any facility fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is (x) in the case of overdue principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection 2.11 plus 2% or (y) in the case of overdue interest, facility fee or
other amount, the rate described in paragraph (a) of this subsection 2.11 plus
2%, in each case from the date of such non-payment until such amount is paid in
full (as well after as before judgment). For purposes of this Agreement,
principal shall be "overdue" only if not paid in accordance with the provisions
of subsection 2.10.
2.12 Facility Fee. The Borrower shall pay to the Administrative Agent,
for the ratable account of the Lenders, a facility fee at the rate per annum
equal to (a) for each day that the Borrower has Level I Status, .1000% of the
aggregate Commitments on such day, (b) for each day that the Borrower has Level
II Status, .1500% of the aggregate Commitments, (c) for each day that the
Borrower has Level III Status, .1750% of the aggregate Commitments, (d) for each
day that the Borrower has Level IV Status, .2000% of the aggregate Commitments
and (e) for each day that the Borrower has Level V Status, 0.3000% of the
aggregate Commitments. On the first Business Day following the last day of each
fiscal quarter of the Borrower and on the Termination Date (or, if earlier, on
the date upon which both the Commitments are terminated and the Loans are paid
in full), the Borrower shall pay to the Administrative Agent, for the ratable
benefit of the Lenders, the portion of such facility fee which accrued during
the fiscal quarter most recently ended (or, in the case of the payment due on
the Termination Date, the portion thereof ending on such date). Such facility
fee shall be based upon the aggregate Commitments of the Lenders from time to
time, regardless of the Utilization from time to time thereunder.
2.13 Computation of Interest and Fees. Interest on all Loans shall be
computed on the basis of the actual number of days elapsed over a year of 360
days or, on any
<PAGE> 29
25
date when the ABR is determined by reference to the Prime Rate, a year of 365 or
366 days as appropriate (in each case including the first day but excluding the
last day). Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. All fees shall be
computed on the basis of a year composed of twelve 30-day months. At any time
and from time to time upon request of the Borrower, (i) the Administrative Agent
shall deliver to the Borrower a statement showing the quotations used by the
Administrative Agent in determining any interest rate applicable to Revolving
Credit Loans pursuant to this Agreement and (ii) the relevant Swing Line Lender
shall deliver to the Borrower a statement showing the quotations used by such
Swing Line Lender in determining any interest rate applicable to Swing Line
Loans made by such Swing Line Lender pursuant to this Agreement. Each change in
the Applicable Margin applicable to Loans or the Facility Fee as a result of a
change in the Borrower's Status shall become effective on the date upon which
such change in Status occurs.
(b) If any Reference Lender shall for any reason no longer have a
Commitment, such Reference Lender shall thereupon cease to be a Reference
Lender, and if, as a result thereof, there shall only be one Reference Lender
remaining, the Borrower and the Administrative Agent (after consultation with
the Lenders) shall, by notice to the Lenders, designate another Lender as a
Reference Lender so that there shall at all times be at least two Reference
Lenders.
(c) Each Reference Lender shall use its best efforts to furnish
quotations of rates to the Administrative Agent as contemplated hereby. If any
of the Reference Lenders shall be unable or shall otherwise fail to supply such
rates to the Administrative Agent upon its request, the rate of interest shall,
subject to the provisions of subsection 2.14, be determined on the basis of the
quotations of the remaining Reference Lenders.
2.14 Inability to Determine Interest Rate. If the Eurodollar Rate
cannot be determined by the Administrative Agent in the manner specified in the
definition of the term "Eurodollar Rate" contained in subsection 1.1 of this
Agreement, the Administrative Agent shall give telecopy or telephonic notice
thereof to the Borrower and the Lenders as soon as practicable thereafter. Until
such time as the Eurodollar Rate can be determined by the Administrative Agent
in the manner specified in the definition of such term contained in said
subsection 1.1, no further Eurodollar Loans shall be continued as such at the
end of the then current Interest Period or (other than any Eurodollar Loans
previously requested and with respect to which the Eurodollar Rate previously
was determined) shall be made, nor shall the Borrower have the right to convert
ABR Loans to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments. (a) Each borrowing of Revolving
Credit Loans from the Lenders hereunder, each payment by the Borrower on account
of any facility fee hereunder and (except as provided in subsection 2.20(c)) any
reduction of the Commitments of the Lenders shall be made pro rata according to
the respective Commitment Percentages of the Lenders. Each payment (including
each prepayment) by the Borrower on account of principal of and interest on the
Revolving Credit Loans shall be made pro rata according to the respective
outstanding principal amounts of the Revolving Credit Loans then held by the
Lenders. Each payment by the Borrower on account of principal of and interest on
any Borrowing of
<PAGE> 30
26
Competitive Loans shall be made pro rata among the Lenders participating in such
Borrowing according to the respective principal amounts of their outstanding
Competitive Loans comprising such Borrowing.
(b) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without set-off or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the relevant Lenders, at the Agent's office specified in subsection
10.2, in Dollars and in immediately available funds. Notwithstanding the
foregoing, the failure by the Borrower to make a payment (or prepayment) prior
to 12:00 Noon on the due date thereof shall not constitute a Default or Event of
Default if such payment is made on such due date; provided, however, that any
payment (or prepayment) made after such time on such due date shall be deemed
made on the next Business Day for the purposes of interest and reimbursement
calculations. The Administrative Agent shall distribute such payments to the
relevant Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day, and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension. If
any payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day.
(c) Unless the Administrative Agent shall have been notified in writing
by any Lender prior to the deadline for funding a Borrowing that such Lender
will not make the amount that would constitute its Commitment Percentage of such
Borrowing available to the Administrative Agent, the Administrative Agent may
assume that such Lender is making such amount available to the Administrative
Agent, and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount is not made
available to the Administrative Agent by the required time on the borrowing date
therefor, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the daily average Federal Funds
Effective Rate for the period until such Lender makes such amount immediately
available to the Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under this subsection
2.15 shall be conclusive in the absence of manifest error. If such Lender's
Commitment Percentage of such Borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such borrowing
date, the Administrative Agent shall be entitled to recover such amount with
interest thereon at the Federal Funds Effective Rate, on demand, from the
Borrower.
2.16 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, such Lender shall give
notice thereof to the Administrative Agent and the Borrower describing the
relevant provisions of such Requirement of Law (and, if the Borrower shall so
<PAGE> 31
27
request, provide the Borrower with a memorandum or opinion of counsel of
recognized standing (as selected by such Lender) as to such illegality),
following which (a) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar
Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding
as Eurodollar Loans (including, without limitation, such Lender's Eurodollar
Competitive Loans in the case of clause (ii) below), if any, shall be converted
automatically to ABR Loans (i) on the respective last days of the then current
Interest Periods with respect to such Loans or (ii) within such earlier period
as required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.19.
2.17 Increased Costs. (a) If (i) there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining any
Loans or Letters of Credit or (ii) any reduction in any amount receivable in
respect thereof, and such increased cost or reduced amount receivable is due to
either:
(x) the introduction of or any change in or in the interpretation of
any law or regulation after the date hereof; or
(y) the compliance with any guideline or request made after the date
hereof from any central bank or other Governmental Authority (whether or not
having the force of law),
then (subject to the provisions of subsection 2.20) the Borrower shall from time
to time, upon demand by such Lender pay such Lender additional amounts
sufficient to compensate such Lender for such increased cost or reduced amount
receivable.
(b) If any Lender shall have reasonably determined that (i) the
applicability of any law, rule, regulation or guideline adopted after the date
hereof pursuant to or arising out of the July 1988 paper of the Basle Committee
on Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital Measurement and Capital Standards," or (ii) the adoption
after the date hereof of any other law, rule, regulation or guideline regarding
capital adequacy affecting such Lender, or (iii) any change arising after the
date hereof in the foregoing or in the interpretation or administration of any
of the foregoing by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or (iv)
compliance by such Lender (or any lending office of such Lender), or any holding
company for such Lender which is subject to any of the capital requirements
described above, with any request or directive of general application issued
after the date hereof regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's capital or
on the capital of any such holding company as a direct consequence of such
Lender's obligations hereunder or under any Letter of Credit to a level below
that which such Lender or any such holding company could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's
policies and the policies of such holding company with respect to
<PAGE> 32
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capital adequacy) by an amount deemed by such Lender to be material, then
(subject to the provisions of subsection 2.19) from time to time such Lender may
request the Borrower to pay to such Lender such additional amounts as will
compensate such Lender or any such holding company for any such reduction
suffered, net of the savings (if any) which may be reasonably projected to be
associated with such increased capital requirement. Any certificate as to such
amounts which is delivered pursuant to subsection 2.20(a) shall, in addition to
any items required by subsection 2.20(a), include the calculation of the savings
(if any) which may be reasonably projected to be associated with such increased
capital requirement; provided that in no event shall any Lender be obligated to
pay or refund any amounts to the Borrower on account of such savings.
(c) In the event that any Governmental Authority shall impose any
Eurocurrency Reserve Requirements which increase the cost to any Lender of
making or maintaining Eurodollar Loans, then (subject to the provisions of
subsection 2.20) the Borrower shall thereafter pay in respect of the Eurodollar
Loans of such Lender a rate of interest based upon the Eurodollar Reserve Rate
(rather than upon the Eurodollar Rate). From and after the delivery to the
Borrower of the certificate required by subsection 2.20(a), all references
contained in this Agreement to the Eurodollar Rate shall be deemed to be
references to the Eurodollar Reserve Rate with respect to each such affected
Lender.
2.18 Taxes. (a) All payments made by the Borrower under this Agreement
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
net income taxes and franchise taxes or any other tax based upon net income
imposed on the Administrative Agent or any Lender as a result of a present or
former connection between the Administrative Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Administrative Agent or such Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Agreement). If any such non-excluded taxes, levies, imposts,
duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Administrative Agent or
any Lender hereunder, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
or pursuant to this Agreement; provided, however, that the Borrower shall not be
required to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state thereof if
such Lender fails to comply with the requirements of paragraph (b) of this
subsection 2.18. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to the Administrative
Agent for its own account or for the account of such Lender, as the case may be,
a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the
Administrative Agent the required receipts or other required documentary
evidence, the
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Borrower shall indemnify the Administrative Agent and the Lenders for any
incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure. The
agreements in this subsection 2.18 shall survive the termination of this
Agreement and the payment of all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent (A) two
duly completed copies of United States Internal Revenue Service Form
1001 or 4224, or successor applicable form, as the case may be, and (B)
an Internal Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date
that any such form or certification expires or becomes obsolete and
after the occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and completing such
forms or certifications as may reasonably be requested by the Borrower
or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person not incorporated under the laws of
the United States of America or a state thereof that is an Assignee hereunder
pursuant to subsection 10.6 shall, upon the effectiveness of the related
transfer, be required to provide all of the forms and statements required
pursuant to this subsection 2.18.
2.19 Indemnity. Subject to the provisions of subsection 2.20(a),
the Borrower agrees to indemnify each Lender and to hold each Lender harmless
from any loss or reasonable expense which such Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of any Loan hereunder after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (c) the
making of a prepayment of Eurodollar Loans or Fixed Rate Loans on a day which is
not the last day of an Interest Period with respect thereto. Such
indemnification shall be in an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or
<PAGE> 34
30
of such failure to borrow, convert or continue to the last day of such Interest
Period (or, in the case of a failure to borrow, convert or continue, the
Interest Period that would have commenced on the date of such failure) in each
case at the applicable rate of interest for such Loans provided for herein
(excluding the Applicable Margin included therein) over (ii) the amount of
interest (as determined by such Lender) which would have accrued to such Lender
on such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall survive
the termination of this Agreement and the payment of all other amounts payable
hereunder.
2.20 Notice of Amounts Payable; Relocation of Lending Office; Mandatory
Assignment. (a) In the event that any Lender becomes aware that any amounts are
or will be owed to it pursuant to subsection 2.16, 2.17, 2.18(a) or 2.19, then
it shall promptly notify the Borrower thereof and, as soon as possible
thereafter, such Lender shall submit to the Borrower a certificate indicating
the amount owing to it and the calculation thereof. The amounts set forth in
such certificate shall be prima facie evidence of the obligations of the
Borrower hereunder; provided, however, that the failure of the Borrower to pay
any amount owing to any Lender pursuant to subsection 2.16, 2.17, 2.18(a) or
2.19 shall not be deemed to constitute a Default or an Event of Default
hereunder to the extent that the Borrower is contesting in good faith its
obligation to pay such amount by ongoing discussions diligently pursued with
such Lender or by appropriate proceedings.
(b) If a Lender claims any additional amounts payable pursuant to
subsection 2.16, 2.17 or 2.18(a), it shall use its reasonable efforts
(consistent with legal and regulatory restrictions) to avoid the need for paying
such additional amounts, including changing the jurisdiction of its applicable
lending office, provided that the taking of any such action would not, in the
reasonable judgment of the Lender, be disadvantageous to such Lender.
(c) In the event that any Lender delivers to the Borrower a certificate
in accordance with subsection 2.20(a) (other than a certificate as to amounts
payable pursuant to subsection 2.19), or the Borrower is required to pay any
additional amounts or other payments in accordance with subsection 2.16, 2.17 or
2.18(a), the Borrower may, at its own expense and in its sole discretion, (i)
require such Lender to transfer or assign, in whole or in part, without recourse
(in accordance with subsection 10.6), all or part of its interests, rights and
obligations under this Agreement (other than any outstanding Competitive Loans)
to another Person (provided that the Borrower, with the full cooperation of such
Lender, can identify a Person who is ready, willing and able to be an Assignee
with respect to thereto) which shall assume such assigned obligations (which
Assignee may be another Lender, if such Assignee Lender accepts such assignment)
or (ii) during such time as no Default or Event of Default has occurred and is
continuing, terminate the Commitment of such Lender and prepay all outstanding
Loans (other than Competitive Loans) of such Lender; provided that (x) the
Borrower or the Assignee, as the case may be, shall have paid to such Lender in
immediately available funds the principal of and interest accrued to the date of
such payment on the Loans (other than Competitive Loans) made by it hereunder
and (subject to subsection 2.19) all other amounts owed to it hereunder and (y)
such assignment or termination of the Commitment of such Lender and prepayment
of Loans does not conflict with any law, rule or regulation or order of any
court or Governmental Authority.
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SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. Subject to the terms and conditions hereof, the
Issuing Lender, in reliance on the agreements of the other Lenders set forth in
subsection 3.4(a), agrees to issue letters of credit ("Letters of Credit") for
the account of the Borrower on any Business Day during the Commitment Period in
such form as may be approved from time to time by the Issuing Lender; provided
that the Issuing Lender shall have no obligation to issue any Letter of Credit
if, after giving effect to such issuance, (i) the L/C Obligations would exceed
the L/C Commitment or (ii) the aggregate amount of the Available Commitments
would be less than zero. Letters of Credit may be either standby letters of
credit or commercial letters of credit. Each Letter of Credit shall (i) be
denominated in Dollars and (ii) expire no later than the earlier of (x) the
first anniversary of its date of issuance and (y) the date that is five Business
Days prior to the Termination Date, provided that any Letter of Credit with a
one-year term may provide for the renewal thereof for additional one-year
periods (which shall in no event extend beyond the date referred to in clause
(y) above), provided, however, that any Letter of Credit which is a commercial
letter of credit shall expire no later than 180 days after its date of issuance.
(b) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(c) The Issuing Lender shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may from
time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender and the Administrative Agent at their
respective addresses for notices specified herein (or to such other address
provided by such Issuing Lender) an Application therefor, completed to the
reasonable satisfaction of the Issuing Lender, and such other certificates,
documents and other papers and information as the Issuing Lender may reasonably
request. Upon receipt of any Application, the Issuing Lender will process such
Application and the certificates, documents and other papers and information
delivered to it in connection therewith in accordance with its customary
procedures and shall promptly issue the Letter of Credit requested thereby (but
in no event shall the Issuing Lender be required to issue any Letter of Credit
earlier than three Business Days after its receipt of the Application therefor
and all such other certificates, documents and other papers and information
relating thereto) by issuing the original of such Letter of Credit to the
beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and
the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit
to the Borrower promptly following the issuance thereof. The Issuing Lender
shall promptly furnish to the Administrative Agent, which shall in turn promptly
furnish to the Lenders, notice of the issuance of each Letter of Credit
(including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
outstanding Letters of Credit at a per annum rate equal to (i) the Applicable
Margin then in effect with respect
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to Eurodollar Loans times (ii) the average daily undrawn face amount of all such
Letters of Credit, shared ratably among the Lenders and payable quarterly in
arrears on each L/C Fee Payment Date after the issuance date. In addition, the
Borrower shall pay to the Issuing Lender for its own account a fronting fee at a
rate to be agreed upon between the Borrower and the Issuing Lender, payable
quarterly in arrears on each L/C Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary reasonable costs and
expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under or amending any Letter of Credit or normal
and customary reasonable costs and expenses as are incurred or charged by the
Issuing Lender in otherwise administering any Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at the Issuing Lender's address for
notices specified herein an amount equal to such L/C Participant's Revolving
Percentage of the amount of such draft, or any part thereof, that is not so
reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to subsection 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of such amount, times the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times a fraction the numerator of which is the number of days
that elapse during such period and the denominator of which is 360. If any such
amount required to be paid by any L/C Participant pursuant to subsection 3.4(a)
is not made available to the Issuing Lender by such L/C Participant within three
Business Days after the date such payment is due, the Issuing Lender shall be
entitled to recover from such L/C Participant, on demand, such amount with
interest thereon calculated from such due date at the rate per annum applicable
to ABR Loans. A certificate of the Issuing Lender submitted to any L/C
Participant with respect to any amounts owing under this Section shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in
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accordance with subsection 3.4(a), the Issuing Lender receives any payment
related to such Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the Issuing
Lender), or any payment of interest on account thereof, the Issuing Lender will
distribute to such L/C Participant its pro rata share thereof; provided,
however, that in the event that any such payment received by the Issuing Lender
shall be required to be returned by the Issuing Lender, such L/C Participant
shall return to the Issuing Lender the portion thereof previously distributed by
the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse the Issuing Lender not later than the next Business Day following each
date on which the Issuing Lender notifies the Borrower of the date and amount of
a draft presented under any Letter of Credit and paid by the Issuing Lender for
the amount of (a) such draft so paid and (b) any taxes, fees, charges or other
reasonable costs or expenses incurred by the Issuing Lender in connection with
such payment. Each such payment shall be made to the Issuing Lender at its
address for notices specified herein in lawful money of the United States of
America and in immediately available funds. Interest shall be payable on any and
all amounts remaining unpaid by the Borrower under this Section from the date
such amounts were paid by the Issuing Lender (whether at stated maturity, by
acceleration or otherwise) until payment in full at the rate set forth in
subsection 2.11(f).
3.6 Obligations Absolute. The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under subsection 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged (subject to the immediately succeeding sentence), or any
dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
any claims whatsoever of the Borrower against any beneficiary of such Letter of
Credit or any such transferee. The Issuing Lender shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions resulting from the gross negligence or
willful misconduct of the Issuing Lender. The Borrower agrees that any action
taken or omitted by the Issuing Lender under or in connection with any Letter of
Credit or the related drafts or documents, if done in the absence of gross
negligence or willful misconduct and in accordance with the standards of care
specified in the Uniform Commercial Code of the State of New York, shall be
binding on the Borrower and shall not result in any liability of the Issuing
Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment
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obligation expressly provided for in such Letter of Credit, be limited to
determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment are substantially in
conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4.1 REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Borrower hereby represents and warrants to the Administrative Agent
and each Lender that:
4.1 Financial Condition. (a) The Borrower has heretofore furnished to
each Lender the unaudited pro forma consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at January 1, 1999 (including the notes
thereto) (the "Pro Forma Balance Sheet"). The Pro Forma Balance Sheet has been
prepared giving effect (as if such events had occurred on such date) to (i) the
consummation of the transactions expected to occur on the Closing Date, (ii) the
Loans to be made on the Closing Date and the use of proceeds thereof and (iii)
the payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheet has been prepared based on the best information available to the
Borrower as of the date of delivery thereof, and presents fairly on a pro forma
basis the estimated financial position of Borrower and its consolidated
Subsidiaries as at January 1, 1999, assuming that the events specified in the
preceding sentence had actually occurred at such date. The Pro Forma Balance
Sheet reflects cash and cash equivalents of at least $750,000,000 and is
substantially in the form previously provided to the Administrative Agent.
(b) The Borrower has heretofore furnished to each Lender a copy of the
audited combined financial statements of the segments and Subsidiaries of GM
constituting the Delphi Automotive Systems business of GM for the fiscal years
of GM ended December 31, 1996 and December 31, 1997 and unaudited interim
combined financial statements of the segments and Subsidiaries of GM
constituting the Delphi Automotive Systems business of GM for each quarterly
period ended subsequent to December 31, 1997 and on or prior to September 30,
1998. Such financial statements present fairly the financial condition and
results of operations of the segments and Subsidiaries of GM constituting the
Delphi Automotive Systems business of GM as of, and for the fiscal years and
fiscal quarters ended on, such dates in accordance with GAAP (subject, in the
case of such quarterly statements, to normal year-end audit adjustments). Other
than as disclosed in the Borrower's S-1 dated November 16, 1998, between
December 31, 1997 and the Closing Date, there has been no development or event
which has had a Material Adverse Effect.
4.2 Corporate Existence; Compliance with Law. The Borrower (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its
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organization, (b) has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified as
a foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except to the extent that all failures to
be duly qualified and in good standing could not, in the aggregate, have a
Material Adverse Effect and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.3 Corporate Power; Authorization; Enforceable Obligations. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform this Agreement and the Applications and to borrow hereunder
and has taken all necessary corporate action to authorize the borrowings on the
terms and conditions of this Agreement and to authorize the execution, delivery
and performance of this Agreement and the Applications. No consent or
authorization of any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or the Applications.
This Agreement has been, and each Application will be, duly executed and
delivered on behalf of the Borrower. This Agreement constitutes, and each
Application when executed and delivered will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
4.4 No Legal Bar; No Default. The execution, delivery and performance
of this Agreement, the Applications, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower and will not result in, or require, the creation or
imposition of any Lien on any of its properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation, except to the extent that all such
violations and creation or imposition of Liens could not, in the aggregate, have
a Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
4.5 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of its or their respective properties or
revenues as of the Closing Date (a) with respect to this Agreement or any of the
actions contemplated hereby, or (b) which involves a probable risk of an adverse
decision which would materially restrict the ability of the Borrower to comply
with its obligations under this Agreement.
4.6 Federal Regulations. No part of the proceeds of any Loans will be
used for "buying," "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve
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36
System as now and from time to time hereafter in effect or for any purpose which
violates the provisions of the Regulations of such Board of Governors.
4.7 Investment Company Act. The Borrower is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
4.8 ERISA. The Borrower is in compliance with all material provisions
of ERISA, except to the extent that all failures to be in compliance could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect.
4.9 No Material Misstatements. No report, financial statement or other
written information furnished by or on behalf of such Borrower to the
Administrative Agent or any Lender pursuant to subsection 4.1 or subsection
6.1(a) contains or will contain any material misstatement of fact or omits or
will omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were, are or will be made, not
misleading, except to the extent that the facts (whether misstated or omitted)
do not result in a Material Adverse Effect. No report, financial statement or
other written information furnished by or on behalf of the Borrower for
inclusion in the Confidential Information Memorandum contained as of the Closing
Date any material misstatement of fact or omitted to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The projections and pro forma financial
information contained in the Confidential Information Memorandum are based upon
good faith estimates and assumptions believed by management of the Borrower to
be reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount.
4.10 Environmental Matters. Except with respect to any matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i)
has failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
4.11 Subsidiaries. The Subsidiaries listed on Schedule 4.11 constitute
all the Subsidiaries of the Borrower on the date hereof which are "significant
subsidiaries" within the meaning of Regulation S-X of the U.S. Securities and
Exchange Commission (other than as set forth on such schedule).
4.12 Year 2000 Matters. The Borrower uses software and related
computer technologies essential to its operations that use two digits rather
than four to specify the year, which could result in a date recognition problem
with the transition to the year 2000. The Borrower has established a plan to
identify and remediate potential Year 2000 problems in its
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37
material business information systems, infrastructure and production and
manufacturing facilities. The Borrower has substantially completed an inventory
of potentially date-sensitive material systems to determine which systems
require remediation and developed remediation plans where necessary. The
Borrower has also begun surveying its suppliers and service providers for Year
2000 compliance. The Borrower is currently in the remediation and testing phase
of its Year 2000 plan. The implementation of new enterprise software as part of
its Year 2000 remediation program is not scheduled to be completed until July
1999 at one of its principal product group sites. The Borrower does not
anticipate that a Material Adverse Effect will occur as a result of the Year
2000 issue.
4.13 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrower for its general corporate purposes including transactions with its
Subsidiaries.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extensions of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit, of the following conditions precedent:
(a) Credit Agreement. The Administrative Agent shall have received this
Agreement, executed and delivered (including, without limitation, by way of
a telecopied signature page) by a duly authorized officer of the Borrower
and each Lender.
(b) Secretary's Certificate. The Administrative Agent shall have
received a certificate of the Secretary or Assistant Secretary of the
Borrower, in form and substance satisfactory to the Administrative Agent,
which certificate shall (i) certify as to the incumbency and signature of
the officers of the Borrower executing this Agreement (with the President or
a Vice President of the Borrower attesting to the incumbency and signature
of the Secretary or Assistant Secretary providing such certificate), (ii)
have attached to it a true, complete and correct copy of each of the
certificate of incorporation and by-laws of the Borrower, (iii) have
attached to it a true and correct copy of the resolutions of the Board of
Directors of the Borrower or a duly authorized committee thereof, which
resolutions shall authorize the execution, delivery and performance of this
Agreement and the borrowings by the Borrower hereunder and (iv) certify
that, as of the date of such certificate (which shall not be earlier than
the date hereof), none of such certificate of incorporation, by-laws or
board resolutions shall have been amended, supplemented, modified, revoked
or rescinded.
(c) Fees. The Administrative Agent shall have received, for the benefit
of the Lenders, the fees payable to the Lenders on the Closing Date pursuant
to their respective commitment letters to the Borrower in respect of this
Agreement.
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38
(d) Legal Opinions. The Administrative Agent shall have received, (i)
the executed legal opinion of Drinker Biddle & Reath LLP, counsel to the
Borrower, substantially in the form of Exhibit F-1 and (ii) the executed
legal opinion of Simpson Thacher & Bartlett, counsel to the Administrative
Agent, substantially in the form of Exhibit F-2. The Borrower hereby
instructs the counsel referenced in clause (i) to deliver its opinion for
the benefit of the Administrative Agent and each of the Lenders.
(e) Agreements. The Administrative Agent shall have received copies of
(i) the agreements between the Borrower and GM identified on Schedule
5.1(e), and all amendments thereto, providing for the separation of the
Borrower's business from GM, and (ii) all transition services agreements and
other agreements between the Borrower and GM identified on Schedule 5.1(e),
and all amendments thereto.
(f) No Material Adverse Effect. Other than as disclosed in the
Borrower's S-1 dated November 16, 1998, since December 31, 1997, no
development or event shall have occurred that has had or could reasonably be
expected to have a Material Adverse Effect.
The Administrative Agent shall notify the Borrower and each Lender promptly
after the satisfaction of the foregoing conditions.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit and any
Competitive Loan to be made by it) is subject to the satisfaction of the
following conditions:
(a) Notice of Borrowing. The Administrative Agent shall have received a
notice of borrowing, as required by subsection 2.2 or 2.3, as the case may
be or, in the case of a Letter of Credit, an Application as required by
subsection 3.2.
(b) Representations and Warranties. Each of the representations and
warranties made by the Borrower in or pursuant to this Agreement shall be
true and correct in all material respects on and as of such date as if made
on and as of such date, except to the extent any such representation and
warranty specifically relates to an earlier date, in which case such
representation and warranty shall have been true and correct as of such
earlier date.
(c) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and Letter of Credit issued on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such Loan or Letter of Credit that the conditions contained in this
subsection 5.2 have been satisfied.
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39
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, or any amount is owing to any Lender or the Administrative Agent
hereunder, the Borrower shall:
6.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 110 days after the
end of each fiscal year of the Borrower, a copy of the consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such year and the related consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year; and
(b) as soon as available, but in any event not later than 60 days after
the end of each of the first three quarterly periods of each fiscal year of
the Borrower, the unaudited consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and retained earnings and of
cash flows of the Borrower and its consolidated Subsidiaries for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year;
all such financial statements shall be complete and correct in all material
respects and shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
6.2 Certificates; Other Information. Furnish to:
(a) each Lender, concurrently with the delivery of the financial
statements referred to in subsection 6.1(a), a certificate of Deloitte &
Touche or other independent certified public accountants of nationally
recognized standing stating that, in making the examination necessary
therefor, nothing came to their attention that caused them to believe that
the Borrower was, as at the date at which such financial statements were
made, in breach of subsection 7.1;
(b) each Lender, concurrently with the delivery of the financial
statements referred to in subsections 6.1(a) and 6.1(b), a certificate of a
Financial Officer (i) stating that, to the best of such Officer's knowledge,
(A) such financial statements present fairly the financial condition and
results of operations of the Borrower and its Subsidiaries for the period
referred to therein (subject, in the case of interim statements, to normal
year-end audit adjustments) and (B) during such period the Borrower has
performed all of its covenants and other agreements contained in this
Agreement to be performed by it, and that no Default or Event of Default has
occurred, except as specified in such certificate, and (ii) setting forth in
reasonable detail the calculations required to establish whether the
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40
Borrower was in compliance with the provisions of subsection 7.1 on the date
of such financial statements;
(c) each Lender, within 15 days after the same become public, copies of
all financial statements and reports which the Borrower may make to, or file
with, the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(d) the Administrative Agent, within ten Business Days after the
occurrence thereof, written notice of any change in Status; provided that
the failure to provide such notice shall not delay or otherwise affect any
change in the Applicable Margin or other amount payable hereunder which is
to occur upon a change in Status pursuant to the terms of this Agreement;
and
(e) the Administrative Agent, promptly, such additional financial and
other information as the Administrative Agent, on behalf of any Lender, may
from time to time reasonably request and that is reasonably related to such
Lender's credit analysis of the Borrower and which request does not impose
an unreasonable burden on the Borrower to satisfy.
6.3 Notices. Promptly give notice to the Administrative Agent and each
Lender of (a) the occurrence of any Default or Event of Default, accompanied by
a statement of a Financial Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower proposes to take with
respect thereto and (b) so long as the Borrower is not subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, (i)
the filing or commencement of any action, suit or proceeding by or before any
arbitrator or Governmental Authority against or affecting the Borrower or any
affiliate thereof that could reasonably be expected to result in a Material
Adverse Effect and (ii) any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.
6.4 Conduct of Business and Maintenance of Existence. (a) Continue to
engage in its principal line of business as now conducted by it, (b) preserve,
renew and keep in full force and effect its corporate existence and (c) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its principal line of business, except, in
any such case, as otherwise permitted pursuant to subsection 7.5 or to the
extent that failure to do so would not have a Material Adverse Effect.
6.5 Books and Records. The Borrower will, and will cause each of its
Subsidiaries to, keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
business and activities.
6.6 Environmental Laws. Except as could not in the aggregate
reasonably be expected to result in a Material Adverse Effect:
<PAGE> 45
41
(a) comply with all applicable Environmental Laws, and obtain and
comply with and maintain any and all permits, licenses or other approvals
required by applicable Environmental Laws; and
(b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives
of all Governmental Authorities regarding Environmental Laws.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Administrative Agent
hereunder:
7.1 Consolidated Leverage Ratio. The Borrower shall not, directly or
indirectly, permit the Consolidated Leverage Ratio to exceed 3.25 to 1.0 at the
end of any fiscal quarter.
7.2 Indebtedness. The Borrower shall not, directly or indirectly,
permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness or any guarantee of Indebtedness (other than Indebtedness of any
Subsidiary to the Borrower or to any other Subsidiary and other than Permitted
Receivables Financings), except Indebtedness and guarantees in an aggregate
principal amount at any one time outstanding, which when combined with (but
without duplication) (i) the aggregate outstanding principal amount of
obligations secured by a Lien upon any of the property or revenues of the
Borrower or any of its Subsidiaries at such time and (ii) the aggregate amount
of Sale-Leasebacks consummated since the Closing Date and which are outstanding
on the relevant date of determination (other than Sale-Leasebacks to the extent
the proceeds thereof are used to refinance any Sale-Leaseback which was in
existence on the date hereof), shall not exceed 15% of Consolidated Total Assets
as reflected in the most recent annual audited consolidated financial statements
of the Borrower delivered pursuant to subsection 6.1(a).
7.3 Liens. The Borrower shall not nor shall it permit any Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
upon any of its property or revenues, whether now owned or hereafter acquired,
except Liens at any one time outstanding with respect to which the aggregate
outstanding principal amount of the obligations secured thereby, which when
combined with (but without duplication) (i) the aggregate principal amount of
Indebtedness and guarantees of Indebtedness of any Subsidiary outstanding at
such time (other than Indebtedness of any Subsidiary to the Borrower or to any
other Subsidiary and other than Permitted Receivables Financings) and (ii) the
aggregate amount of Sale-Leasebacks consummated since the Closing Date and which
are outstanding on the relevant date of determination (other than
Sale-Leasebacks to the extent the proceeds thereof are used to refinance any
Sale-Leaseback which was in existence on the date hereof), shall not exceed 15%
of Consolidated Total Assets as reflected in the most recent annual audited
consolidated financial statements of the Borrower delivered pursuant to
subsection 6.1(a).
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7.4 Sale-Leasebacks. The Borrower shall not nor shall it permit any
Subsidiary to, directly or indirectly, enter into any arrangement with any
Person providing for the leasing by the Borrower or any Subsidiary of any
property owned by the Borrower or any Subsidiary (except for leases between the
Borrower and a Subsidiary or between Subsidiaries), which property has been or
is to be sold or transferred by the Borrower or such Subsidiary to such Person
("Sale-Leasebacks"), except for Sale-Leasebacks consummated since the Closing
Date and which are outstanding on the relevant date of determination (other than
Sale-Leasebacks to the extent the proceeds thereof are used to refinance any
Sale-Leaseback which was in existence on the date hereof) in an aggregate
amount, which when combined with (but without duplication) (i) the aggregate
outstanding principal amount of obligations secured by a Lien upon any of the
property or revenues of the Borrower or any of its Subsidiaries at the time of
entering into any such Sale-Leaseback and (ii) the aggregate principal amount of
Indebtedness and guarantees of Indebtedness of any Subsidiary outstanding at
such time (other than Indebtedness of any Subsidiary to the Borrower or to any
other Subsidiary and other than Permitted Receivables Financings), shall not
exceed 15% of Consolidated Total Assets as reflected in the most recent annual
audited consolidated financial statements of the Borrower delivered pursuant to
subsection 6.1(a).
7.5 Merger, Consolidation, etc. The Borrower shall not, directly or
indirectly, merge or consolidate with any other Person, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution) or sell or convey all
or substantially all of its assets to any Person unless, in the case of mergers
and consolidations, (a) the Borrower shall be the continuing corporation and (b)
immediately before and immediately after giving effect to such merger or
consolidation, no Default or Event of Default shall have occurred and be
continuing.
SECTION 8.EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation when due in accordance with the terms hereof or
fail to pay any interest on any Loan or any Reimbursement Obligation or any
other amount which is payable hereunder and (in the case of this clause (ii)
only) such failure shall continue unremedied for more than five Business
Days after written notice thereof has been given to the Borrower by the
Administrative Agent or the Majority Lenders; or
(b) Any representation or warranty made or deemed made by the Borrower
in Section 4 or any certified statement furnished pursuant to subsection
6.2(b) shall prove to have been incorrect on or as of the date made or
deemed made or certified if the facts or circumstances incorrectly
represented or certified result in a Material Adverse Effect; or
(c) The Borrower shall default in the observance of the agreement
contained in subsection 6.3(a) or subsection 6.4(a) or (b) or Section 7; or
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43
(d) The Borrower shall default in the observance or performance of any
other agreement contained in this Agreement (other than as provided in
paragraphs (a), (b) and (c) of this Section 8), and such default shall
continue unremedied for a period of 30 days after written notice thereof
shall have been given to the Borrower by the Administrative Agent or the
Majority Lenders; or
(e) The Borrower or any Significant Subsidiary shall default in any
payment of $10,000,000 or more of principal of or interest on any
Indebtedness or in the payment of $10,000,000 or more on account of any
guarantee in respect of Indebtedness, beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness or
guarantee was created; or
(f) Any event or condition occurs that results in any Indebtedness or
any guarantee of Indebtedness of the Borrower or any of its Significant
Subsidiaries of an aggregate principal amount of $20,000,000 or more
becoming due in full or payable in full prior to the scheduled maturity of
such Indebtedness or guarantee or that requires the prepayment, repurchase,
redemption or defeasance thereof in full, prior to the scheduled maturity of
such Indebtedness or guarantee (other than pursuant to any voluntary
prepayments, customary due-on-sale clause or any provision requiring
prepayment of such Indebtedness based on excess cash flow, permitted asset
sales or permitted debt or equity issuances, in each case contained in the
terms of such Indebtedness); provided that this clause (f) shall not apply
to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness;
(g) (i) The Borrower or any of its Significant Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all
or any substantial part of its assets, or the Borrower or any of its
Significant Subsidiaries shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower or any
of its Significant Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 90 days; or (iii)
there shall be commenced against the Borrower or any of its Significant
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or stayed
or bonded pending appeal within 90 days from the entry thereof; or
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44
(h) One or more judgments or decrees shall (i) be entered against the
Borrower, (ii) not have been vacated, discharged, satisfied, stayed or
bonded pending appeal within 60 days from the entry thereof and (iii)
involve a liability (not paid or fully covered by insurance) of either (A)
$20,000,000 or more, in the case of any single judgment or decree or (B)
$50,000,000 or more in the aggregate, in the case of all such judgments and
decrees; or
(i) The Borrower or any of its Significant Subsidiaries shall default
in the performance of any of its obligations under, or otherwise fail to
observe or perform any covenant, condition or agreement contained in, any of
the Material Agreements, to the extent the consequences of any such default
or failure could reasonably be expected to result in a Material Adverse
Effect; or
(j) A Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) shall immediately become due
and payable, and (B) if such event is any other Event of Default, either or both
of the following actions may be taken: (i) with the consent of the Majority
Lenders, the Administrative Agent may, or upon the request of the Majority
Lenders, the Administrative Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the consent of the Majority Lenders, the
Administrative Agent may, or upon the request of the Majority Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this Section 8, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal to
the aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Lender and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other
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45
obligations of the Borrower hereunder. After all such Letters of Credit shall
have expired or been fully drawn upon, all Reimbursement Obligations shall have
been satisfied and all other obligations of the Borrower hereunder shall have
been paid in full, the balance, if any, in such cash collateral account shall be
returned to the Borrower. The Borrower shall execute and deliver to the
Administrative Agent, for the account of the Issuing Lender and the L/C
Participants, such further documents and instruments as the Administrative Agent
may reasonably request to evidence the creation and perfection of the within
security interest in such cash collateral account.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and appoints
Chase as the Administrative Agent of such Lender under this Agreement, and each
such Lender irrevocably authorizes Chase, as the Administrative Agent for such
Lender, to take such action on its behalf under the provisions of this Agreement
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein, or
any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any of
its officers, directors, employees or affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement (except for its or such Person's own gross
negligence or willful misconduct) or (ii) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
the Borrower or any officer thereof contained in this Agreement or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or for any failure of the Borrower to perform
its obligations hereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower.
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9.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it in good faith to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the Lender specified in the Register
with respect to any amount owing hereunder as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this Agreement
unless it shall first receive such advice or concurrence of the Majority Lenders
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement in accordance with a request of the Majority
Lenders (or, to the extent that this Agreement expressly requires a higher
percentage of Lenders, such higher percentage), and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders
and all future holders of the obligations owing by the Borrower hereunder.
9.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall promptly notify the Borrower (unless the Borrower shall have
delivered such notice to the Administrative Agent) and then give notice thereof
to the Lenders (provided that the failure to notify the Borrower shall not
impair any of the rights of the Administrative Agent and the Lenders with
respect to the events and circumstances specified in such notice). The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Majority Lenders;
provided that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
9.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and
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47
enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Borrower which may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
9.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought under this subsection 9.7 (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date of payment in full), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the amounts owing hereunder) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of this
Agreement or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. The Administrative Agent shall have the right to deduct any
amount owed to it by any Lender under this subsection 9.7 from any payment made
by it to such Lender hereunder. The agreements in this subsection 9.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity. The Administrative
Agent and its affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Borrower as though the Administrative
Agent were not the Administrative Agent hereunder. With respect to its Loans
made or renewed by it and with respect to any Letter of Credit issued or
participated in by it, the Administrative Agent shall have the same rights and
powers under this Agreement as any Lender and may exercise the same as though it
were not the Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may resign
as Administrative Agent upon 90 days' notice to the Lenders and the Borrower and
following the
<PAGE> 52
48
appointment of a successor Administrative Agent in accordance with the
provisions of this subsection 9.9. If the Administrative Agent shall resign as
Administrative Agent under this Agreement, then the Majority Lenders shall
appoint from among the Lenders willing to serve as Administrative Agent a
successor Administrative Agent for the Lenders, which successor Administrative
Agent shall be approved by the Borrower (which approval shall not be
unreasonably withheld), whereupon such successor Administrative Agent shall
succeed to the rights, powers and duties of the Administrative Agent, and the
term "Administrative Agent" shall mean such successor Administrative Agent
effective upon such appointment and approval, and the former Administrative
Agent's rights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of
the obligations owing hereunder. If no successor agent has accepted appointment
as Administrative Agent by the date that is 90 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Majority Lenders appoint a successor
agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement.
9.10 Syndication Agents and Documentation Agent. Neither of the
Syndication Agents nor the Documentation Agent shall have any duties or
responsibilities hereunder in their capacities as such.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, nor any terms
hereof may be amended, supplemented or modified except in accordance with the
provisions of this subsection 10.1. The Majority Lenders may, or, with the
written consent of the Majority Lenders, the Administrative Agent may, from time
to time, (a) enter into with the Borrower written amendments, supplements or
modifications hereto for the purpose of adding any provisions to this Agreement
or changing in any manner the rights of the Lenders or of the Borrower hereunder
or (b) waive, on such terms and conditions as the Majority Lenders or the
Administrative Agent, as the case may be, may specify in such instrument, any of
the requirements of this Agreement or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (i) reduce the principal amount of any Loan, or
reduce the stated rate of any interest or fee payable hereunder, or extend the
scheduled date of any payment thereof, or increase the amount or extend the
expiration date of any Lender's Commitment, in each case without the consent of
each Lender directly affected thereby, or (ii) amend, modify or waive any
provision of this subsection 10.1 or reduce the percentage specified in the
definition of Majority Lenders, or consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement, in each case
without the written consent of all the Lenders, or (iii) amend, modify or waive
any provision of Section 9 or any other provision of this Agreement governing
<PAGE> 53
49
the rights or obligations of the Administrative Agent without the written
consent of the then Administrative Agent, or (iv) amend, modify or waive any
provision of subsection 2.4 or 2.5 without the written consent of the Swing Line
Lenders at such time; or (v) amend, modify or waive any provision of Section 3
without the written consent of the Issuing Lender. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Borrower, the Lenders, the Administrative Agent
and all future holders of the obligations owing hereunder. In the case of any
waiver, the Borrower, the Lenders and the Administrative Agent shall be restored
to their former position and rights hereunder, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or four days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule II in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the obligations owing
hereunder:
The Borrower: Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48098
Attention: Treasurer
Telecopy: (248) 813-2590
Telephone: (248) 813-2592
The Administrative
Agent: The Chase Manhattan Bank
The Loan and Agency Services Group
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Lenora Kiernan
Telecopy: (212) 552-5650
Telephone: (212) 552-7309
with a copy to: The Chase Manhattan Bank
270 Park Avenue
47th Floor
New York, New York 10017
Attention: Rosemary Bradley
Telecopy: (212) 972-9854
Telephone: (212) 270-7853
<PAGE> 54
50
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.3, 2.4, 2.6, 2.7, 2.8 and 3.2 shall
not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the making of the Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses reasonably incurred in connection with the development, preparation
and execution of, and any amendment, supplement or modification to, this
Agreement and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay or reimburse
each Lender and the Administrative Agent for all its reasonable costs and
expenses reasonably incurred in connection with the enforcement of any rights
under this Agreement, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent and to the several Lenders
(other than those incurred in connection with the compliance by the relevant
Lender with the provisions of subsection 2.20(a)), and (c) to pay, indemnify,
and hold each Lender and the Administrative Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay by the Borrower in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, and (d) to
pay, indemnify, and hold each Lender and the Administrative Agent harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind or nature whatsoever (it being understood that this
shall not include the fees and disbursements of counsel to any of the Lenders
(other than Chase) in connection with (i) their review of this Agreement prior
to the Closing Date or (ii) prior to the occurrence of a Default or an Event of
Default, any amendment or waiver to this Agreement or any assignment to another
Lender pursuant to the terms hereof) with respect to the execution, delivery,
enforcement, performance and administration of this Agreement (all the foregoing
in this clause (d), collectively, the "indemnified liabilities"); provided that
the Borrower shall have no obligation hereunder to the Administrative Agent or
any Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Administrative Agent or
<PAGE> 55
51
any such Lender. The agreements in this subsection 10.5 shall survive repayment
of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent, all future holders of the obligations owing
hereunder and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities ("Participants") participating interests in any
Loan owing to such Lender, any Commitment of such Lender or any other interest
of such Lender hereunder; provided that such Lender shall have given prior
written notice to the Borrower of the identity of such Participant. In the event
of any such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any obligation owing
to it hereunder for all purposes under this Agreement, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement. In
no event shall any Participant under any such participation have any right to
approve any amendment or waiver of any provision of this Agreement, or any
consent to any departure by the Borrower therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Loans or any fees payable hereunder, or postpone the date of the final
maturity of the Loans, in each case to the extent subject to such participation.
The Borrower hereby agrees that each Participant shall be entitled to the
benefits of subsections 2.17, 2.18 and 2.19 with respect to its participation in
the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any affiliate thereof or, with the consent of the Borrower (which
shall not be unreasonably withheld), the Administrative Agent, the Issuing
Lender and the Swing Line Lenders, to an additional bank or financial
institution (an "Assignee") all or any part of its rights and obligations under
this Agreement pursuant to an Assignment and Acceptance, substantially in the
form of Exhibit E, executed by such Assignee, such assigning Lender (and, in the
case of an Assignee that is not then a Lender or an affiliate thereof, by the
Borrower, the Administrative Agent, the Issuing Lender and the Swing Line
Lenders) and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that, unless the Borrower and the
Administrative Agent otherwise consent, any such assignment to an Assignee which
is not a Lender (before giving effect to such assignment) or an affiliate
thereof shall be in a minimum amount of $10,000,000. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
<PAGE> 56
52
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of (and be) a Lender hereunder with a Commitment
as set forth therein, and (y) the assigning Lender thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such assigning Lender shall cease to be a
party hereto). Notwithstanding anything to the contrary contained herein, any
Lender may sell, transfer, assign or grant participations in all or any part of
the Competitive Loans made by it.
(d) The Administrative Agent shall maintain at its address referred to
in subsection 10.2 a copy of each Assignment and Acceptance delivered to it and
a register (the "Register") for the recordation of the names and addresses of
the Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time. The entries in the Register shall be prima facie
evidence of the existence and amounts of the obligations of the Borrower therein
recorded, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The Register shall be
available for inspection and copying by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice. The
Administrative Agent shall provide a copy of the Register to the Borrower on a
monthly basis.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent) together with payment by the Lender to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the assigning
Lender, its Assignee and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any prospective
Participant, any Participant or any prospective Assignee (each, a "Transferee")
any and all financial information in such Lender's possession concerning the
Borrower and its affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which has been delivered to
all Lenders by or on behalf of the Borrower in connection with their respective
credit evaluations of the Borrower and its affiliates prior to becoming a party
to this Agreement; provided that (i) such Transferee has executed and delivered
to the Borrower a written confidentiality agreement substantially in the form of
that which has been executed and delivered by each Lender prior to the date
hereof and (ii) in the case of any information other than that contained in the
Confidential Information Memorandum, the Borrower has been informed of the
identity of such Transferee and has consented to the disclosure of such
information thereto. Nothing contained in this subsection 10.6(f) shall be
deemed to prohibit the delivery to any Transferee of any financial information
which is otherwise publicly available.
<PAGE> 57
53
(g) Nothing herein shall prohibit any Lender from pledging or assigning
all or any portion of its Loans to any Federal Reserve Bank in accordance with
applicable law. In order to facilitate such pledge or assignment, the Borrower
hereby agrees that, upon request of any Lender at any time and from time to time
after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrower's own expense, a promissory note,
substantially in the form of Exhibit G, evidencing the Revolving Credit Loans
owing to such Lender.
10.7 Adjustments. If any Lender (a "benefitted Lender") shall at any
time receive any payment of all or part of its Loans or the Reimbursement
Obligations owing to it, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 8(g), or otherwise),
such that it has received aggregate payments or collateral on account of its
Loans or the Reimbursement Obligations owing to it in a greater proportion than
any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans which are then due and payable, or interest
thereon, such benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loans or the
Reimbursement Obligations owing to it, or shall provide such other Lenders with
the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(a) Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
(b) By its signature hereto, each Lender hereby agrees that this
Agreement shall become effective immediately upon the execution and delivery on
January 4, 1999 by the Borrower and the Administrative Agent of this Agreement.
In the event that this Agreement has not been duly executed and delivered by
each Person listed on the signature pages hereto (other than the Borrower and
the Administrative Agent, with respect to which the execution and delivery of
this Agreement shall be a condition precedent to its effectiveness) on or before
the date upon which this Agreement becomes effective in accordance with the
immediately preceding sentence, this Agreement shall nevertheless become
effective with respect to those Persons who have executed and delivered it on or
before such effective date and those Persons who have not executed and delivered
it (such Persons, the "Non-Executing Banks") shall be deemed not to be Lenders
hereunder.
(c) On the date of effectiveness of this Agreement, the Borrower may
(after consultation with the Administrative Agent) designate one or more Lenders
(the "Designated Lenders") to assume the Commitments which would have been held
by the Non-Executing Banks
<PAGE> 58
54
and, if the Designated Lenders agree to assume such Commitments, (i) Schedules I
and II shall be deemed to be amended to reflect such increase in the respective
Commitment of each Designated Lender and the omission of each Non-Executing Bank
as a Lender hereunder and (ii) the respective Commitment of each Designated
Lender shall be deemed to be such increased amount for all purposes hereunder.
(d) Notwithstanding anything to the contrary contained herein, (i) the
Commitment of a Lender shall not be increased (without the prior written consent
of such Lender) as a result of the failure of any other Person to execute and
deliver this Agreement or otherwise and (ii) in no event shall the aggregate
Commitments of all Lenders exceed $1,500,000,000.
10.9 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.11 Confidentiality. Each of the Administrative Agent, the Issuing
Lender and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent required by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this subsection, to any Assignee
of or Participant in, or any prospective Assignee of or Participant in, any of
its rights or obligations under this Agreement, (g) with the consent of the
Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this subsection or (ii) becomes available
to the Administrative Agent, the Issuing Lender or any Lender on a
nonconfidential basis from a source other than the Borrower. For the purposes of
this Section, "Information" means all information received from the Borrower
relating to the Borrower or its business, other than any such information that
is available to the Administrative Agent, the Issuing Lender or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; provided that, in the
case of information received from the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this subsection shall be considered to have complied
<PAGE> 59
55
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
<PAGE> 60
56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By: /s/ John Blahnik
-----------------------------------------
Name: John Blahnik
Title: Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Rosemary Bradley
-----------------------------------------
Name: Rosemary Bradley
Title: Vice President
[OTHER LENDERS]
<PAGE> 61
BANK OF AMERICA NT & SA, as Syndication
Agent and Lender
By: /s/ Steven K. Ahrenholz
-----------------------------------
Name: Steven K. Ahrenholz
Title: Vice President
<PAGE> 62
CITIBANK, N.A., as Syndication Agent and
Lender
By: /s/ Robert D. Wetrus
--------------------------------------
Name: Robert D. Wetrus
Title: Citibank, N.A. Attorney-in-Fact
<PAGE> 63
DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH, as Syndication
Agent and Lender
By: /s/ Hans-Josef Thiele
----------------------------------
Name: Hans-Josef Thiele
Title: Director
By: /s/ Stephan A. Wiedemann
----------------------------------
Name: Stephan A. Wiedemann
Title: Director
<PAGE> 64
BARCLAYS BANK PLC, as Syndication Agent
and Lender
By: /s/ T.E. Weidman
-----------------------------------
Name: T.E. Weidman
Title: Director
<PAGE> 65
BANQUE NATIONALE DE PARIS, as
Syndication Agent and Lender
By: /s/ Christine L. Howatt
----------------------------------
Name: Christine L. Howatt
Title: Vice President and Manager,
Credit Department
<PAGE> 66
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED
By: /s/ Christine S. Pomeranz
-----------------------------------
Name: Christine S. Pomeranz
Title: Vice President
<PAGE> 67
BANCA COMMERCIALE ITALIANA-NEW
YORK BRANCH
By: /s/ Charles Dougherty
-----------------------------------
Name: C. Dougherty
Title: VP
By: /s/ Karen Purelis
-----------------------------------
Name: Karen Purelis
Title: VP
<PAGE> 68
BANCA DI ROMA
By: /s/ Luca Balestra
-----------------------------------
Name: Luca Balestra
Title: VP
By: /s/ C. Perna
-----------------------------------
Name: C. Perna
Title: SVP
<PAGE> 69
BANKBOSTON, N.A.
By: /s/ Demetric A. Duckett
-----------------------------------
Name: Demetric A. Duckett
Title: Vice President
<PAGE> 70
BANK OF MONTREAL
By: /s/ Richard W. Camm
-----------------------------------
Name: Richard W. Camm
Title: Managing Director
<PAGE> 71
THE BANK OF NEW YORK
By: /s/ William Barnum
-------------------------------
Name: William Barnum
Title: Vice President
<PAGE> 72
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
-------------------------------------
Name: F.C.H. Asby
Title: Senior Manager Loan Operations
<PAGE> 73
BANK OF TOKYO-MITSUIBISHI TRUST
COMPANY
By: /s/ Friedrich N. Wilms
----------------------------------------
Name: Friedrich N. Wilms
Title: Vice President
<PAGE> 74
BAYERISCHE LANDESBANK
GIROZENTRALE
CAYMAN ISLANDS BRANCH
By: /s/ Peter Obermann
------------------------------------
Name: Peter Obermann
Title: Senior Vice President
By: /s/ James H. Boyle
------------------------------------
Name: James H. Boyle
Title: Second Vice President
<PAGE> 75
CIBC INC.
By: /s/ Cyd Petre
-------------------------------
Name: Cyd Petre
Title: Executive Director
CIBC Oppenheimer Corp., As Agent
<PAGE> 76
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
(NEW YORK BRANCH)
By: /s/ Martha Skidmore
------------------------------------
Name: Martha Skidmore
Title: Vice President
By: /s/ Eric Longuet
------------------------------------
Name: Eric Longuet
Title: Vice President
<PAGE> 77
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
(PARIS HEAD OFFICE)
By: /s/ A. Roland-Gosselin
-----------------------------------------
Name: A. Roland-Gosselin
Title: V.P.
By: /s/ Yann de Saint Pol
-----------------------------------------
Name: Yann de Saint Pol
Title: V.P.
<PAGE> 78
COMERICA BANK
By: /s/ Robert M. Ramirez
-------------------------------
Name: Robert M. Ramirez
Title: Account Officer
<PAGE> 79
COMMERZBANK AKTIENGESELLSCHAFT,
CHICAGO BRANCH
By: /s/ William Binder
--------------------------------
Name: William Binder
Title: Vice President
By: /s/ Rie Ando
--------------------------------
Name: Rie Ando
Title: Assistant Treasurer
<PAGE> 80
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl
------------------------------------
Name: David Bouhl
Title: F.V.P.
Head of Corporate Banking
Chicago
By: /s/ Dean Balice
------------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
<PAGE> 81
CREDIT LYONNAIS, CHICAGO BRANCH
By: /s/ Lee E. Greve
----------------------------------
Name: Lee E. Greve
Title: First Vice President
<PAGE> 82
DAI ICHI KANGYO BANK LTD.
By: /s/ David McCann
-----------------------------------
Name: David McCann
Title: Assistant Vice President
<PAGE> 83
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK AG,
CAYMAN ISLAND BRANCH
By: /s/ Stefanie Gaensslen
-----------------------------------
Name: Stefanie Gaensslen
Title: Asst. Vice President
By: /s/ Trevor H. Brookes
-----------------------------------
Name: Trevor H. Brookes
Title: Assistant Vice President
<PAGE> 84
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Howard L. Ramlal
-----------------------------------
Name: Howard L. Ramlal
Title: Assistant Vice President
By: /s/ Brigitte Sacin
-----------------------------------
Name: Brigitte Sacin
Title: Assistant Treasurer
<PAGE> 85
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ R.H. Huttenhocher
-----------------------------------
Name: R.H. Huttenlocher
Title: FVP
<PAGE> 86
FIRST UNION NATIONAL BANK
By: /s/ John E. Reid
-----------------------------------
Name: John E. Reid
Title: Vice President
<PAGE> 87
GENERALE BANK
By: /s/ E. Matthews
-----------------------------------
Name: E. Matthews
Title: SVP
By: /s/ David Snyder
-----------------------------------
Name: David Snyder
Title: SVP
<PAGE> 88
BAYERISCHE HYPO- UND VEREINSBANK AG
By: /s/ David J. Thompson
-----------------------------------
Name: David J. Thompson
Title: Director
By: /s/ Martin J. O'Malley
-----------------------------------
Name: Martin J. O'Malley
Title: Director
<PAGE> 89
KBC BANK N.V.
By: /s/ John E. Thierfelder
-----------------------------------
Name: John E. Thierfelder
Title: Vice President
By: /s/ Robert Snauffer
-----------------------------------
Name: Robert Snauffer
Title: First Vice President
<PAGE> 90
KEYBANK NATIONAL ASSOCIATION
By: /s/ J.T. Taylor
-----------------------------------
Name: J.T. Taylor
Title: Vice President
<PAGE> 91
MARINE MIDLAND BANK
By: /s/ Mark J. Rakov
-----------------------------------
Name: Mark J. Rakov
Title: Vice President
<PAGE> 92
MIDLAND BANK PLC
By: /s/ Nigel Batley
-----------------------------------
Name: Nigel Batley
Title: Corporate Banking Manager
<PAGE> 93
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By: /s/ R.J. Freedman
---------------------------------
Name: R.J. Freedman
Title: Director
North America
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By: /s/ R.J. Freedman
---------------------------------
Name: R.J. Freedman
Title: Director
North America
<PAGE> 94
THE NORTHERN TRUST COMPANY
By: /s/ Tracy J. Toulouse
----------------------------
Name: Tracy J. Toulouse
Title: Vice President
<PAGE> 95
THE SANWA BANK, LTD
NEW YORK BRANCH
By: /s/ Joseph E. Leo
---------------------------------------------
Name: Joseph E. Leo
Title: Vice President and Area Manager
<PAGE> 96
SOCIETE GENERALE
By: /s/ Eric E.O. Siebert Jr.
---------------------------------
Name: Eric E.O. Siebert Jr.
Title: Director
<PAGE> 97
TORONTO DOMINION (TEXAS), INC.
By: /s/ Lynn Chasin
---------------------------------
Name: Lynn Chasin
Title: Vice President
<PAGE> 98
WESTPAC BANKING CORPORATION
By: /s/ Craig L. Jones
-----------------------------------------
Name: Craig L. Jones
Title: Head of Corporate and Financial
Institution Relationships
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-67333 relating to 100,000,000 shares of Common Stock of Delphi Automotive
Systems Corporation on Form S-1 of our report dated January 14, 1999, appearing
in the prospectus, which is a part of this Registration Statement, and to the
reference to us under the heading "Experts" in such prospectus.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
January 14, 1999
