<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
REGISTRATION NO. 333-67333
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
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)
<TABLE>
<S> <C> <C>
DELAWARE 3714 38-3430473
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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 27, 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 $15 AND $18 PER SHARE.
------------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE TRADING SYMBOL "DPH," SUBJECT TO NOTICE OF ISSUANCE.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 12.
------------------------
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 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.
------------------------
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................... 4
Risk Factors......................... 12
Delphi and Its Separation from
General Motors..................... 26
Use of Proceeds...................... 30
Dividends............................ 30
Capitalization....................... 31
Selected Financial Data.............. 32
Unaudited Pro Forma Condensed
Consolidated Financial
Statements......................... 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 39
Business of Delphi................... 63
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management........................... 94
Arrangements Between Delphi and
General Motors..................... 112
Principal Stockholder................ 134
Description of Capital Stock......... 135
Shares Eligible for Future Sale...... 145
Material United States Federal Tax
Consequences to Non-United States
Holders............................ 147
Underwriters......................... 150
Legal Matters........................ 154
Experts.............................. 154
Where You Can Find More Information.. 154
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.
3
<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, systems and modules 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 our
company later in 1999, which we believe will enhance our ability to
increase sales to other vehicle manufacturers over time.
- EXPANDED CUSTOMER BASE. Several 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 30% 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.
4
<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; and
- 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
5
<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 our 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."
6
<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 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. GM
has received a private letter ruling from the IRS to the effect that its
distribution of its shares of Delphi common stock to the holders of its $1 2/3
common stock would be tax-free to GM and its stockholders for U.S. federal
income tax purposes. 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 General Motors Does Not Complete Its
Divestiture of Our Company."
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.
7
<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 $1.573 billion, based on
an assumed initial public offering price of
$16.50 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 grant" stock options and restricted stock units and about
23,718,000 shares of our common stock that will be issuable upon exercise by our
employees of stock options that will be substituted for GM stock options 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."
8
<PAGE> 13
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents summary financial and operating data for our
company, including our Delco Electronics Corporation subsidiary, the electronics
and mobile communication business that GM transferred to us 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 May Not Be Representative of 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:
- this offering;
- a change in intracompany accounts receivable payment terms from GM prior
to the separation; and
- the settlement of certain GM intracompany accounts receivable and an
intracompany note payable.
The pro forma statement of income data give effect to:
- this offering;
- decreased employee benefit costs due to GM's retention of certain benefit
obligations; and
- 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.
9
<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>
OPERATING DATA:
Net sales per employee (U.S.)............................. $185,000 $206,000 $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 $18,003
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) 3,034
</TABLE>
We 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.
Net sales per employee (U.S.) data for 1993 and 1994 do not include sales
or headcount information for our Delco Electronics subsidiary.
10
<PAGE> 15
SUMMARY RECENT FINANCIAL RESULTS
We reported consolidated net income of $88 million for the fourth quarter
of 1998 and a net loss of $93 million for the year ended December 31, 1998. Our
fourth quarter 1998 results include a charge of $310 million ($192 million
after-tax) recorded as a result of our ongoing evaluation of the competitiveness
of our business. The charge primarily related to underperforming assets,
voluntary early retirements and the closure of certain unprofitable joint
ventures. In addition, our full year results were impacted by other special
items, including work stoppages. Excluding the charge associated with the
ongoing evaluation of our business, income was $280 million for the fourth
quarter of 1998. Excluding special items and work stoppages, our income was $820
million for the year ended December 31, 1998. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Recent Financial Results."
11
<PAGE> 16
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
We are subject to the following risks in connection with our separation
from General Motors.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF GENERAL MOTORS DOES NOT COMPLETE
ITS DIVESTITURE OF OUR COMPANY
If General Motors fails to complete its divestiture of our company
substantially within the time contemplated, our business would be adversely
affected. Specifically, we would likely not realize the increased non-GM sales,
improved labor relations, capital planning flexibility and other benefits we
expect to achieve in connection with the divestiture, all of which are important
to our business strategy. Although GM has advised us that it currently plans to
complete its divestiture of our company later in 1999, it is not obligated to do
so and we cannot assure you as to whether or when the divestiture will occur.
This means that we cannot assure you that we will obtain the expected benefits
or as to the timing of any such benefits. For information about GM's plan to
divest Delphi and the benefits we expect to achieve in connection with the
divestiture, see "Delphi and Its Separation from General Motors--Separation from
General Motors."
In addition, until the divestiture occurs, the risks discussed below
relating to GM's control of our company, the potential business conflicts of
interest between our company and GM and the potential conflicts of interest of
the three members of our board of directors who are also directors or executive
officers of GM will continue to be relevant to our stockholders.
WE MAY BE UNABLE TO REALIZE THE BENEFITS OF THE INCREASED NON-GM SALES WE
EXPECT FROM OUR SEPARATION FROM GENERAL MOTORS
We cannot assure you that we will realize the benefits of the increased
non-GM sales that we expect from our separation from GM. 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
that we have entered into with GM in connection with our separation. 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
12
<PAGE> 17
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."
WE MAY BE UNABLE TO REALIZE THE LABOR BENEFITS WE EXPECT FROM OUR
SEPARATION FROM GENERAL MOTORS
One of the principal benefits that we expect to achieve from our separation
from General Motors is an improvement in our labor relations through which we
expect to establish more flexible local work rules and practices, which are very
important to our business because our workforce is highly unionized. 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 common stock to the holders of its $1 2/3 common stock. 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. However, we cannot assure you as to the outcome of
these efforts to work with the unions. See "Business of
Delphi--Strategy--Improve Operating Performance--Labor Relations."
WE MAY INCUR MATERIAL COSTS 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--Making Payments
of Pensions and Other Postretirement Employee Benefits Could Adversely Affect
Our Liquidity" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE WILL BE CONTROLLED BY GENERAL MOTORS AS LONG AS IT OWNS A MAJORITY OF
OUR COMMON STOCK AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME
OF STOCKHOLDER VOTING DURING SUCH TIME
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 our supply agreement with GM 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.
13
<PAGE> 18
After the closing of this offering, we expect that three of our eleven
directors will be directors and/or officers of GM. Under our certificate of
incorporation, our bylaws and board policies established thereunder, so long as
GM owns at least a majority of our outstanding common stock, many actions by our
board of directors require the approval of 80% of all our directors. 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 "Description of
Capital Stock--Certain Provisions of the Restated Certificate of Incorporation
and Bylaws."
THREE 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. 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 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 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."
FIVE OF OUR DIRECTORS AND MANY OF OUR EXECUTIVE OFFICERS MAY HAVE CONFLICTS
OF INTEREST BECAUSE OF THEIR OWNERSHIP OF GENERAL MOTORS STOCK
Five of our directors and many of our executive officers own substantial
amounts of GM stock and options on GM stock because of their relationships with
General Motors prior to the separation of our company from GM. 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. See "Management--Stock Ownership of
Directors and Executive Officers."
WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH GENERAL MOTORS
WITH RESPECT TO OUR PAST AND ONGOING RELATIONSHIPS
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. In addition, we currently have, and
after this offering and the divestiture will continue to have, contractual
arrangements with GM which require GM and its affiliates to provide various
transitional and other services to us. 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;
- 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
14
<PAGE> 19
- 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. Our supply agreement with GM 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
another agreement that we have entered into with General Motors described
elsewhere herein. See "Arrangements Between Delphi and General Motors--IPO and
Distribution Agreement" and "--Supply Agreement."
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF 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 the actual effect of our separation from GM will be. 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 our supply
agreement with GM, the timing of payments from GM to us under existing contracts
changed as of January 1, 1999. 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--Making Payments
of 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 company-wide cash management 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. Since our
credit rating is lower than GM's,
15
<PAGE> 20
we expect that 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 AND OUR ABILITY TO PURSUE OUR BUSINESS OBJECTIVE
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 after the divestiture. In addition, our supply
agreement with GM limits our ability to eliminate product lines, close plants
and divest businesses. These restrictions 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."
THE TRANSITIONAL SERVICES BEING PROVIDED TO US BY GENERAL MOTORS MAY NOT BE
SUFFICIENT TO MEET OUR NEEDS
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
Our business is subject to the following risks, which include risks
relating to the industry in which we operate. These risks do not principally
relate to our separation from General Motors.
WE ARE DEPENDENT ON MAINTAINING OUR CURRENT BUSINESS AND WINNING FUTURE
BUSINESS WITH GENERAL MOTORS
We are highly dependent on GM 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. 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 our supply agreement with GM, 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 replacement cycle of certain product programs. However, in order to
utilize this ability to secure next
16
<PAGE> 21
generation business, we must be competitive in a number of areas. 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. For information about our supply agreement
with GM, see "Arrangements Between Delphi and General Motors--Supply Agreement."
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. These work stoppages
have historically had significant adverse impacts on our net income. 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 the holders of its $1 2/3 common stock.
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
effect on our business.
For more information about our labor relations, see "--Risk Factors
Relating to Separating Our Company from General Motors--We May Be Unable 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 and uncertainties,
including 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 any or 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> 22
WE MAY BE UNABLE TO INCREASE OUR SALES TO VEHICLE MANUFACTURERS 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 successfully increase 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 under our agreements has certain
contractual rights with respect to our plant closures, product line eliminations
and divestitures of businesses. See "Business of Delphi--Strategy--Improve
Operating Performance."
WE MAY BE UNABLE TO COMPETE FAVORABLY 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 vehicle
manufacturers in the United States and internationally that produce components,
systems and modules for sale to vehicle manufacturers 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
18
<PAGE> 23
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.
THE CYCLICALITY OF AUTOMOTIVE PRODUCTION AND SALES 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 economic decline which resulted in a reduction in
automotive production and sales by our customers would have a material adverse
effect on our business.
REGIONAL ECONOMIC ISSUES COULD ADVERSELY AFFECT 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview--Recent Financial Results" and
"--Results of Operations."
MAKING PAYMENTS OF 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 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,
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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 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."
OUR GROSS MARGINS WILL BE ADVERSELY AFFECTED IF WE ARE 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, we are forced to reduce prices both in the
initial bidding process and during the term of the contractual arrangements. 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.
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. 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.
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EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
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 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. We generally do not seek to mitigate
this translation effect through the use of derivative financial instruments. 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 MAY BE UNABLE TO REALIZE OUR BUSINESS STRATEGY OF COMPLETING 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. 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. For a discussion of the principal contractual
restrictions to which we are subject, see "Arrangements Between Delphi and
General Motors--IPO and Distribution Agreement--Preservation of the Tax-Free
Status of the Distribution" and "--Other Delphi Covenants."
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WE MAY INCUR MATERIAL LOSSES AND COSTS AS A RESULT OF 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 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 PRODUCT WARRANTY COSTS
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 AFFECTED IF OUR YEAR 2000 REMEDIATION EFFORTS ARE NOT
SUCCESSFUL
Our business could be adversely impacted by information technology issues
related to the Year 2000. We use software and related computer technologies
essential to our operations that use two digits rather than four
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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 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 MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT OR REALIZE COST SAVINGS FROM OUR
NEW ENTERPRISE SOFTWARE SYSTEM
We are in the process of implementing throughout our global operations on
an incremental basis a new enterprise software system that will replace our
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
There 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.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES
OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET
Sales by GM or others of substantial amounts of our common stock in the
public market or the perception that such sales might occur could have a
material adverse effect on the price of our common stock.
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After this offering, GM will own 465,000,000 shares of our common stock. If GM
distributes these shares to the holders of its $1 2/3 common stock, they would
be eligible for immediate resale in the public market, other than any shares
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 holders of its $1 2/3 common
stock. 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 the holders of its $1 2/3 common stock 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 U.S. federal securities
laws for sale into the public market. See "Arrangements Between Delphi and
General Motors--Registration Rights Agreement."
PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF OUR COMPANY
Our 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 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 AND SOME OF OUR UNDERLYING CONTRACTS 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, upon which we rely for a substantial
portion of our future sales, would likely have a material adverse effect on our
company. For more information, see "Arrangements Between Delphi and General
Motors--Supply Agreement."
In addition to any consequences under our supply agreement with GM, 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.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE OFFERING AND YOU
COULD LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT
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
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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 this initial public
offering of our common stock (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 its Delphi Automotive
Systems business sector in order to more closely integrate Delco Electronics'
expertise in electronics with our capabilities in automotive components and
systems. Our Electronics & Mobile Communication product 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 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
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Motors--Our Business May Be Adversely Affected if General Motors Does Not
Complete Its Divestiture of Our Company."
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
stockholders 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.
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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 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 Separating
Our Company from General Motors--We May Be Unable to Realize the Benefits
of the Increased Non-GM Sales We Expect from Our Separation from General
Motors" and "--Risk Factors Relating to Our Business--We May Be Unable to
Increase Our Sales to Vehicle Manufacturers 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. See "Risk
Factors-- Risk Factors Relating to Separating Our Company from General
Motors--We May Be Unable to Realize the Labor Benefits We Expect from Our
Separation from General Motors."
- 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."
28
<PAGE> 33
- 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 providing for the
separation of our business from General Motors, including a Master Separation
Agreement to which we and GM are parties (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 transfers of
substantially all of these assets and liabilities have been or 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 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 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 arrangements, including the
Supply Agreement between us and GM, see "Arrangements Between Delphi and General
Motors."
29
<PAGE> 34
USE OF PROCEEDS
We estimate that we will receive net proceeds from the Offering of about
$1.573 billion, or about $1.809 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 $16.50 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 Amended and Restated Certificate of
Incorporation (the "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.
30
<PAGE> 35
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 $16.50 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 (3,100)
3,100 3,294
------ ------- ------
Total debt............................... 3,500 -- 3,500
EQUITY (DEFICIT):
Common stock....................................... -- 1 1
Additional paid-in capital......................... -- 1,572
1,498 3,070
General Motors' net investment..................... (2) 1,500
(1,498) --
Accumulated translation adjustments................ (37) -- (37)
------ ------- ------
Total equity (deficit)................... (39) 3,073 3,034
------ ------- ------
Total capitalization................ $3,461 $ 3,073 $6,534
====== ======= ======
</TABLE>
Certain items above reflect the settlement of a $3.1 billion intracompany
note payable to General Motors and a $1.5 billion increase in GM's net
investment in Delphi after considering the $1.6 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 $3.1
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.
31
<PAGE> 36
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 Automotive Systems 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 (unless otherwise disclosed), 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
May Not Be Representative of 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.
32
<PAGE> 37
<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>
We 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.
33
<PAGE> 38
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 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 unaudited 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 unaudited 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 unaudited pro forma condensed
consolidated balance sheet data give effect to:
- the Offering;
- a change in GM's intracompany accounts receivable payment terms; and
- the settlement of certain GM intracompany accounts receivable and the
intracompany note payable.
The unaudited pro forma condensed consolidated statement of income data give
effect to:
- the Offering;
- decreased employee benefit costs due to GM's retention of certain benefit
obligations; and
- certain incremental costs associated with operating Delphi as a
stand-alone publicly traded company.
34
<PAGE> 39
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.
35
<PAGE> 40
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 $ 1,573(6)
(2,100)(7)
3,100(8)
(1,600)(9) $ 1,973
Accounts receivable, net:
General Motors and affiliates.................... 1,962 2,100(7)
(1,600)(8)
1,600(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 3,073 9,432
Property, net......................................... 4,878 -- 4,878
Deferred income taxes................................. 2,552 -- 2,552
Other assets.......................................... 1,141 -- 1,141
------- ------- -------
Total assets.......................................... $14,930 $ 3,073 $18,003
======= ======= =======
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 (3,100)(8)
3,100(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.......................... -- 1,572(6)
1,498(10) 3,070
General Motors' net investment...................... (2) 1,500(8)
(1,498)(10) --
Accumulated translation adjustments................. (37) -- (37)
------- ------- -------
Total equity (deficit)........................... (39) 3,073 3,034
------- ------- -------
Total liabilities and equity (deficit)................ $14,930 $ 3,073 $18,003
======= ======= =======
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
36
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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>
(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
transitional 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
37
<PAGE> 42
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 the year ended December 31, 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 $16.50 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 $1.6 billion will be settled with
the $3.1 billion outstanding intracompany note payable to GM with the
difference resulting in an increase in GM's net investment in Delphi. We
expect that during the first half of 1999, Delphi will finance its
operations through a combination of $3.1 billion in borrowings under
revolving credit facilities, commercial paper, the issuance of long-term
debt, structured financing 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.
38
<PAGE> 43
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 Automotive Systems 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 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 statements. 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 terms of our separation from GM, 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--Our Gross
Margins Will Be Adversely Affected if We Are 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. For additional information on our
consolidated net sales and such break downs, see "--Results of Operations."
39
<PAGE> 44
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>
40
<PAGE> 45
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."
RECENT FINANCIAL RESULTS
Our consolidated financial results for the three months and years ended
December 31, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- -----------------
1997 1998 1997 1998
---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................ $8,079 $7,800 $31,447 $28,479
Operating (loss) income.................. (877) 63 352 (221)
Net (loss) income........................ (521) 88 215 (93)
Basic and diluted (loss) earnings per
share.................................. (1.12) 0.19 0.46 (0.20)
</TABLE>
Net Sales. Net sales for the fourth quarter of 1998 decreased $279 million
compared to the fourth quarter of 1997. The decrease reflects lost volume
associated with the divestiture of our seating, lighting and coil spring
operations during the third quarter of 1998. The sales volume lost from divested
businesses was partially offset by the impact of improved production volumes for
GM-North America and non-GM customers during the fourth quarter of 1998. In
addition, our sales continue to be impacted by price reductions which amounted
to about $125 million (or 1.6% of net sales) in the fourth quarter of 1998. Net
sales for the year ended December 31, 1998 decreased $3.0 billion compared to
the year ended December 31, 1997. The decrease reflects unfavorable volumes
associated with work stoppages, divested businesses and economic conditions in
Asia and Latin America as well as the impact of price reductions during 1998.
Operating (Loss) Income. Operating income was $63 million for the fourth
quarter of 1998 compared to an operating loss of $877 million for the fourth
quarter of 1997. Our operating loss for the year ended December 31, 1998 was
$221 million compared to operating income of $352 million for the year ended
41
<PAGE> 46
December 31, 1997. As part of our ongoing evaluation of the competitiveness of
our business, we recorded a 1998 fourth quarter charge of $310 million ($192
million after-tax). The charge primarily related to underperforming assets,
voluntary early retirements and the closure of certain unprofitable joint
ventures. For additional information on other special items and work stoppages
which impacted our operating results in prior periods, see "--Results of
Operations--Special Items and Work Stoppages."
Operating income, excluding charges associated with the ongoing evaluation
of the competitiveness of our business, was $485 million and $373 million for
the fourth quarters of 1997 and 1998, respectively. Our 1998 fourth quarter
results were unfavorably impacted by continuing worldwide price pressures, the
economic downturn in Latin America and unfavorable design costs and product mix.
These unfavorable items were significantly offset by the impact of our
aggressive cost reduction efforts. Operating income, excluding the impact of
special items and work stoppages, was $1.9 billion and $1.2 billion for the
years ended December 31, 1997 and 1998, respectively. The reduction in operating
income for the 1998 year, excluding the impact of special items and work
stoppages, reflects lower volume and the unfavorable impact of economic
conditions in Asia and Latin America. For the 1998 year, material and
manufacturing cost savings exceeded the impact of price reductions and
unrecovered design costs and partially offset the unfavorable impact of lower
volume.
Net (Loss) Income. Our net income totaled $88 million for the fourth
quarter of 1998 compared to a net loss of $521 million for the comparable period
of 1997. Excluding charges associated with the ongoing evaluation of the
competitiveness of our business and other special items, our income was $280
million and $325 million for the fourth quarter of 1998 and 1997, respectively.
Our net loss was $93 million for the year ended December 31, 1998 compared to
net income of $215 million in 1997. Excluding the impact of special items and
work stoppages, our income was $820 million and $1.17 billion for the years
ended December 31, 1998 and 1997, respectively.
Net 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 and excluding charges associated
with the ongoing evaluation of the competitiveness of our business and other
special items, our income would have been $298 million for the fourth quarter of
1998 compared to $377 million for the fourth quarter of 1997. Our income,
excluding the impact of special items and work stoppages, for the years ended
December 31, 1997 and 1998 would have been $1.38 billion and $889 million,
respectively, after giving effect to the terms of the Separation Agreement. For
additional information on our pro forma results of operations, see "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and "--Results of
Operations--Pro forma 1997 versus pro forma nine months ended September 30,
1998."
Our consolidated financial results for the three months ended December 31,
1997 and 1998 and the year ended December 31, 1998 are unaudited and, in the
opinion of management, include all adjustments, consisting of only normal
recurring items (unless otherwise disclosed), which are necessary for a fair
presentation. 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.
42
<PAGE> 47
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 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 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 our 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 lesser 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
43
<PAGE> 48
second and third quarters of 1998, respectively, after considering
partial recovery of lost production in the third quarter.
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.
- 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.
Ongoing 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 was completed prior to December 31, 1998, resulted in a fourth
quarter 1998 charge of about $310 million ($192 million after-tax). The charge
impacted our product sectors on a pre-tax basis as follows: Electronics & Mobile
Communication--$10 million; Safety, Thermal & Electrical Architecture--$66
million; and Dynamics & Propulsion--$234 million. See "--Overview--Recent
Financial Results" for further discussion of the charge. We will continue to
monitor the competitiveness of all aspects of our business. Accordingly,
44
<PAGE> 49
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 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) as well as lower international production due
to the unfavorable impact of economic conditions in Asia and Latin 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, although we cannot assure you in this regard.
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 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 "--Special Items and Work Stoppages" for additional
information.
45
<PAGE> 50
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 Latin 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.
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.
46
<PAGE> 51
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 our 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, although we cannot assure you in this regard. 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 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
"--Special Items and Work Stoppages" for additional information.
47
<PAGE> 52
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.
48
<PAGE> 53
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,
although we cannot assure you in this regard. 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 "--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>
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<PAGE> 54
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 "--Special Items and Work Stoppages" and Note
18 to the audited consolidated financial statements included elsewhere in this
50
<PAGE> 55
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 $3.1 billion
intracompany note payable to GM and outstanding debt at our international
subsidiaries. The $3.1 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 53.6% 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
51.7%.
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 intracompany note payable occurred before assets and
liabilities were transferred to Delphi Automotive
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<PAGE> 56
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....... -- (3.1) 3.1
Increase in accounts receivable, subsequent to
settlement of intracompany accounts receivable.... (1.6) -- (1.6)
Proceeds from third party financing................. 3.1 3.1 --
Proceeds from the Offering.......................... 1.6 -- 1.6
----- ----- -----
$ 2.0 $ 3.5 $(1.5)
===== ===== =====
</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, which became effective on January
1, 1999, payment terms for intracompany accounts receivable from GM have been
modified such that payments are generally 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 twenty-fifth 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--Payment Terms."
DEBT CAPITALIZATION AND AVAILABLE FINANCING SOURCES
Immediately prior to the transactions contemplated by the Separation
Agreement, approximately $1.6 billion of certain intracompany accounts
receivable from GM was offset with the $3.1 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 $3.1 billion from the $5.0 billion third party revolving credit facilities
described below.
In January 1999, 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 year. The total reduction arising from issuances of common stock and
debt securities will not exceed
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<PAGE> 57
$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. The credit
facilities also provide for certain events of default, including upon a change
of control, which is defined to include the acquisition of more than 20% of the
voting power of our common stock by any person other than GM. 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
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<PAGE> 58
provided by operating activities in 1996 resulted from a decrease in accounts
receivable and cash contributions 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 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 our 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 our Safety, Thermal & Electrical
Architecture product sector during 1997 and 1996 primarily reflected spending to
support expansion into new market areas outside the United States.
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<PAGE> 59
The higher level of capital spending for our 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> 60
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> 61
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 about 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
was substantially completed 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.
Although we have substantially completed the remediation of our critical
systems, we expect to continue to address remediation of these and other
systems on a selectively prioritized basis in the future. 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. This
phase commenced in the fourth quarter of 1998 and is expected to be a
major focus of the Year 2000 program 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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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 about 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 have been
substantially completed with respect to our critical supplier sites. 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 with respect to their Year 2000
compliance; 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, we do 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 are critical to our
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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 as described
above 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.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced 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 adopted 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 have not experienced any significant operational disruptions to date and
do not currently expect the continued implementation of the euro to cause any
significant operational disruptions. In addition, we have not incurred and do
not expect to incur any significant costs from the continued implementation of
the euro, 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 our 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
participated 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, 1998, 1997,
1996 and 1995 and are not expected to be material in 1999 or 2000. 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:
- 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);
- a hedge of the exposure to variable cash flows of a forecasted
transaction (cash flow hedge); or
- 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
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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 adopted SOP 98-1 on 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 were required to
adopt the pronouncement on 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 risks and uncertainties, 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 risks and uncertainties.
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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 30% 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 meet 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; and
- 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, option mix and product pricing. 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 and uncertainties, 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.
Subject to the foregoing risks and uncertainties, we currently estimate
revenues from our existing awarded business to be about $28 billion for 1999 and
about $22 billion for 2003. The amount of our awarded
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business declines over time as the vehicle programs in which we are currently
participating mature and eventually terminate. However, particularly in the
later years, we expect that we will be awarded additional business from GM and
other customers. In estimating our awarded business, we use our own assumptions
about the volume and timing of vehicle production and option mix and product
pricing, except that for business under the Supply Agreement with GM we have
generally used production and mix assumptions used in GM's internal business
planning process and provided to us by GM. While we believe our assumptions to
be reasonable and the methodology by which we track our awarded business to be
appropriate, we continuously evaluate and from time to time make modifications
to such assumptions and methodology. In this regard, we currently anticipate
that, following the Distribution, we will change our methodology so that in
tracking our awarded business with GM we will use our own production and mix
assumptions rather than GM's internal assumptions.
For more information about these matters, see "Risk Factors--Risk Factors
Relating to Our Business--We May Be Unable to Realize All of the Sales
Represented by Our Awarded Business" and "--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 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 General Motors Does Not Complete Its Divestiture of Our Company" and
"--We May Be Unable to Realize the Benefits of the Increased Non-GM Sales We
Expect from Our Separation from 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--We
May Be Unable 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.
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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.
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. 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, the mix of options on
the vehicles produced and product pricing.
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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);
- 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; and
- product pricing, including 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 and any related recoveries of
production; and
- 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
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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 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
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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.
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
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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 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 Increase Our
Sales to Vehicle Manufacturers Other Than GM-North America."
We have made progress towards achieving this goal. Our customers now
include every major manufacturer of light vehicles 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
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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.
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.
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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 28%, 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.
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.)*.............. $185,000 $206,000 $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>
- ------------------
* Net sales per employee (U.S.) data for 1993 and 1994 do not include
sales or headcount information for our Delco Electronics subsidiary.
** This measurement was not tracked on a consistent basis prior to 1995.
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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 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. Excluding Delco Electronics, our structural costs as a percentage
of net sales declined from about 50% in 1993 to 47% 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. Separately,
in connection with the recent integration of Delco Electronics into our
operations, we 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 excluding Delco Electronics.
- 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
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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 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
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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 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
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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 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 occupant protection in frontal, side and rear collisions
and vehicle rollover situations. These include anticipatory
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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 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.
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- 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.
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,
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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."
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.
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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.
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 aftermarket in the United States, 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
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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 service 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 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 13,000 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>
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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 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 the 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.
</TABLE>
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<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
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 simplify manufacturer assembly and
enhance vehicle marketability. The sector also offers thermal products,
including powertrain cooling systems and climate control systems that meet
global 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>
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- 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.
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.
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
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.
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.
</TABLE>
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<PAGE> 90
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION
------------ -----------
<S> <C>
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>
- 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.
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<PAGE> 91
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. In addition to the competitors identified above, 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: Siemens
AG, Mannesman VDO AG and Motorola, Inc.
SAFETY, THERMAL & ELECTRICAL ARCHITECTURE. Our principal competitors in the
Safety, Thermal & Electrical Architecture product sector include the following:
Yazaki Corp., Valeo SA, Autoliv Inc. and TRW Inc.
DYNAMICS & PROPULSION. Our principal competitors in the Dynamics &
Propulsion product sector include the following: 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
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<PAGE> 92
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.
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 and associated freight and
production-related 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,
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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, except for a three to four month supply of platinum group
metals as described above.
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. "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.
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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.
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
were recorded in 1996 and 1997. 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 and will continue to apply to our
workforce after the Offering. 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.
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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 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.
See "Risk Factors--Risk Factors Relating to Separating Our Company from
General Motors--We May Be Unable to Realize the Labor Benefits We Expect from
Our Separation from General Motors" and "--Risk Factors Relating to Our
Business--Our Business May Be Adversely Impacted by Work Stoppages and Other
Labor Relations Matters."
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>
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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>
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 1999 or 2000. 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.
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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 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 January 1, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
J.T. Battenberg III.................. 55 Chairman of the Board, Chief Executive Officer and
President
Alan S. Dawes........................ 44 Chief Financial Officer and Vice President
Volker J. Barth...................... 51 Vice President
William A. Ebbert.................... 56 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.................... 49 Vice President and General Counsel
Mark R. Weber........................ 50 Vice President, Human Resources Management
Thomas H. Wyman...................... 69 Director (Lead Independent 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.................... 59 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. We expect that, after the Offering, 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 independent director." The lead independent 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 independent 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
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October 1994. From 1993 to 1994, Mr. Heilman served as Director of Delphi
Packard Electric Systems' 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.
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Previously, he was Vice President and Chief Financial Officer for Saab
Automobile AB since 1993. From 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.
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From April 1987 to February 1996, he was a lawyer for Chrysler Corporation
serving, among other positions, 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 Independent 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
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Oldsmobile Division in June 1989. In July 1984, Mr. Losh was elected Vice
President of General Motors and General Manager of its Pontiac Division.
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 1993. 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
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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. 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 in connection with and 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 a cash retainer and common
stock units. Non-employee directors other than the lead independent director
will receive total compensation of $110,000 per year, equally divided between
the two components, and the lead independent 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
independent 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.
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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 other holders of GM $1 2/3 common stock. In connection with the
Offering, certain executives, including the executive officers named in the
Summary Compensation Table in the "--Executive Compensation" section below, will
be awarded options to purchase shares of Delphi common stock and will be awarded
restricted stock units. 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 December 31, 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........................ 22,067 14,271 36,338 159,115
Alan S. Dawes.............................. 7,926 2,812 10,738 69,876
David R. Heilman........................... 12,193 1,547 13,740 11,739
Donald L. Runkle........................... 9,250 3,247 12,497 52,792
Paul J. Tosch(4)........................... 7,331 3,547 10,878 30,015
Thomas H. Wyman............................ 1,000 6,796(5) 7,796 2,084
John F. Smith, Jr. ........................ 117,152 52,507 169,659 934,689
Harry J. Pearce............................ 29,960 23,772 53,732 321,837
J. Michael Losh............................ 25,518 13,387 38,905 312,508
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)............................. 286,881 127,257 414,138 2,161,183
</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 $1 2/3 common stock that may be acquired
through the exercise of stock options exercisable within 60 days of December
31, 1998. The shares reported in this column reflect the adjustments to the
original option grants to reflect the effect of the recapitalization of GM
in connection with transactions completed by General Motors in connection
with the 1997 spin-off of the defense electronics business of its Hughes
Electronics subsidiary and the related transfer of Delco Electronics to us
from Hughes Electronics.
(4) Data for Mr. Tosch include 2,009 shares owned by, and 3,285 shares
acquirable pursuant to options held by, his spouse.
(5) Includes amounts under the General Motors Deferred Compensation Plan for
Non-Employee Directors and the General Motors Director's Long-Term Stock
Incentive Plan. These amounts relate to compensation deferred while Mr.
Wyman was a member of the Board of Directors of GM.
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<PAGE> 106
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
chief executive officer and the four other executive officers of Delphi who,
based on salary and bonus compensation from General Motors and its subsidiaries,
were the most highly compensated officers of Delphi for the year ended December
31, 1998. All information set forth in this table reflects compensation earned
by such individuals for services with General Motors and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- -------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING LONG-TERM ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS INCENTIVE COMPENSATION
POSITION YEAR ($) ($)(1) ($) (#)(2) PAYOUTS($)(3) ($)(4)
------------------ ---- ------ ------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J.T. Battenberg III.......... 1998 1,000,000 450,000 50,624 100,000 750,000 49,215
Chairman, Chief Executive 1997 887,000 1,020,000 53,448 108,495 475,000 38,112
Officer and President
Donald L. Runkle............. 1998 458,000 235,000 n/a 16,000 198,000 19,250
Vice President 1997 391,000 325,000 n/a 17,359 111,000 14,085
David R. Heilman............. 1998 369,000 211,000 n/a 16,000 198,000 15,488
Vice President 1997 350,000 295,000 n/a 17,359 111,000 12,600
Paul J. Tosch................ 1998 395,000 202,000 n/a 14,000 198,000 16,590
Vice President 1997 372,000 262,000 n/a 15,189 111,000 13,380
Alan S. Dawes................ 1998 398,000 210,000 n/a 14,000 198,000 16,730
Chief Financial Officer 1997 360,000 262,000 n/a 15,189 111,000 12,960
and Vice President
</TABLE>
- ------------------
(1) These awards are based on performance for 1997 and 1998. General Motors
management recommended and the Executive Compensation Committee concurred
that 1998 annual awards for GM Named Executive Officers, which included Mr.
Battenberg, would be reduced to reflect the year-to-year decline in reported
earnings.
(2) 1997 options are 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.
(3) Reflects long-term incentive payouts in the form of GM $1 2/3 common stock
and GM Class H common stock under the General Motors 1992 Performance
Achievement Plan. The performance period for such awards was 1995 through
1997 and 1996 through 1998. The awards to Mr. Battenberg vest in four equal
installments. The first installment vests on the date the final award is
determined, the second installment vests at the end of the year in which the
final award was determined, the third installment vests one year after the
second installment vests. The fourth installment of the 1996-1998 grant
vests one year after the third installment and the fourth installment of the
1995-1997 grant vests subsequent to retirement. The awards to the other
named executive officers vest in one or two equal annual installments,
depending on the value of the award payout. Dividend equivalents are paid on
unvested shares. The following table sets forth the number of GM shares of
such award that were vested and paid to the executive officers and the
number of shares that remained unvested and unpaid:
<TABLE>
<CAPTION>
FIRST AND SECOND INSTALLMENT OF
1995-97 GRANT AND THIRD
INSTALLMENT OF 1994-96 GRANT
1996-98 GRANT ----------------------------------
------------------------------ SHARES VALUE OF SHARES
SHARES VESTED SHARES VESTED UNVESTED
VESTED AS OF AS OF AS OF
JANUARY SHARES DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999(#) UNVESTED(#) 1998(#) 1998($)* 1998(#)
------------- -------------- -------------- ----------------- --------------
$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.... 2,037 946 6,111 2,836 6,487 2,718 464,210 107,877 6,487 2,717
D.L. Runkle............ 915 0 1,774 0 3,293 0 235,647 0 0 0
D.R. Heilman........... 915 0 1,774 0 1,858 0 132,958 0 0 0
P.J. Tosch............. 915 0 1,774 0 3,178 0 227,418 0 0 0
A.S. Dawes............. 915 0 1,774 0 3,178 0 227,418 0 0 0
</TABLE>
-------------------------
* Based on the closing price of GM $1 2/3 common stock ($71.56) and GM
Class H common stock ($39.69) on the NYSE on December 31, 1998.
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<PAGE> 107
(4) Reflects contributions by General Motors on behalf of each executive officer
under various savings plans. The amount for Mr. Battenberg also includes
imputed income of $7,215 for 1998 and $6,162 for 1997 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 1997 Stock Incentive Plan in the year ended December 31, 1998.
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.......... 100,000 0.71 56.00 1/13/08 1,232,000
Donald L. Runkle............. 16,000 0.11 56.00 1/13/08 197,000
David R. Heilman............. 16,000 0.11 56.00 1/13/08 197,000
Paul J. Tosch................ 14,000 0.10 56.00 1/13/08 172,000
Alan S. Dawes................ 14,000 0.10 56.00 1/13/08 172,000
</TABLE>
- ------------------
(1) These options were granted on January 12, 1998 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 January 12, 1999,
January 12, 2000 and January 12, 2001, respectively. The incentive stock
options expire ten years from the date of grant and the non-qualified
options expire two days later.
(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
5.58%, a dividend yield of 3.57% 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.
103
<PAGE> 108
EXERCISES OF STOCK OPTIONS
The following table shows aggregate exercises of options to purchase GM
$1 2/3 common stock in the year ended December 31, 1998 by the executive
officers named in the Summary Compensation Table in the "--Executive
Compensation" section above. Unless exercised prior thereto, the unexercised
options reflected below will be replaced with options to purchase Delphi common
stock in connection with the completion of the Distribution. See "--Incentive
Plans--Substitute Awards."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#)(1) OPTIONS AT FY-END($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J.T. Battenberg III...... 60,513 1,605,951 67,918/194,027 1,193,555/3,351,195
Donald L. Runkle......... -- -- 41,673/27,570 890,393/454,906
David R. Heilman......... 44,089 1,289,493 620/27,570 11,036/205,946
Paul J. Tosch............ 13,019 271,837 17,001/24,122 294,383/398,012
Alan S. Dawes............ 3,309 99,369 60,147/24,122 1,684,322/398,012
</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 ($71.56) on the NYSE on
December 31, 1998.
LONG TERM INCENTIVE PLAN AWARDS
The following table shows long term incentive plan awards made under the
General Motors 1997 Performance Achievement Plan in the year ended December 31,
1998 to the executive officers named in the Summary Compensation Table in the
"--Executive Compensation" section above.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS(1)
SHARES, UNITS OTHER PERIOD --------------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) OR PAYOUT ($) ($) ($)
---- ------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
J.T. Battenberg III................... n/a 1998-2000 320,000 800,000 1,600,000
Donald L. Runkle...................... n/a 1998-2000 84,000 210,000 420,000
David R. Heilman...................... n/a 1998-2000 80,000 200,000 400,000
Paul J. Tosch......................... n/a 1998-2000 80,000 200,000 400,000
Alan S. Dawes......................... n/a 1998-2000 80,000 200,000 400,000
</TABLE>
- ------------------
(1) These awards relate to performance during 1998 through 2000. 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.
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<PAGE> 109
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 occur:
(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 monetary
compensation and 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> 110
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.
FOUNDERS GRANTS. In connection with the Offering, certain executives will
be awarded "founders grant" options to purchase shares of Delphi common stock
and will be awarded "founders grant" restricted stock units. In addition, other
employees of Delphi will be awarded "founders grant" options to purchase shares
of Delphi common stock. The founders grants to executives will be made pursuant
to the Stock Incentive Plan and the founders grants to other employees will be
made pursuant to the Classified Plan. Stock options awarded to executives as
founders grants will vest in equal annual installments over the four years
following the date on which they are granted and restricted stock units awarded
to executives as founders grants will vest in full four years from the date on
which they are granted. Stock options awarded to all other employees as founders
grants will vest in full two years from the date on which they are granted. The
exercise price per share for these stock options will be equal to the average of
the high and low prices of the common stock on the first day of trading of the
common stock as reported in The Wall Street Journal and the assumed grant price
per share of these restricted stock units will be equal to the price per share
at which the common stock is sold in the Offering.
A total of about 26,000,000 shares of common stock will be issuable upon
exercise of these options or vesting of these 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.
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<PAGE> 111
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 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
NQSO 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
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<PAGE> 112
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 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
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<PAGE> 113
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 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
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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 (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
1999 would be entitled to $16,476.
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, 1998) 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 1999 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>
$ 300,000 $ 85,057 $141,762 $198,467 $ 255,172
480,000 139,057 231,762 324,467 417,172
660,000 193,057 321,762 450,467 579,172
840,000 247,057 411,762 576,467 741,172
1,020,000 301,057 501,762 702,467 903,172
1,200,000 355,057 591,762 828,467 1,065,172
</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, 1998 for each of the Named Executive Officers were as
follows: J.T. Battenberg III--$767,500 (36 years); Donald L. Runkle--$366,583
(30 years); Paul J. Tosch--$349,000 (40 years); Alan S. Dawes--$333,667 (17
years); and David R. Heilman--$304,717 (33 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.
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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.
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, 1998) 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 1999 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>
$ 525,000 $101,649 $141,024 $180,399 $ 219,774 $ 259,149
905,000 187,149 255,024 322,899 390,774 458,649
1,285,000 272,649 369,024 465,399 561,774 658,149
1,665,000 358,149 483,024 607,899 732,774 857,649
2,045,000 443,649 597,024 750,399 903,774 1,057,149
2,425,000 529,149 711,024 892,899 1,074,774 1,256,649
</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--$1,453,900 (35 years);
Donald L. Runkle--$642,583 (30 years); Paul J. Tosch--$603,400 (35 years); Alan
S. Dawes--$563,067 (17 years); and David R. Heilman--$542,917 (33 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, we have entered into or will enter into certain ancillary
agreements contemplated by the Separation Agreement (collectively, as amended
from time to time, the "Ancillary Agreements") and certain other agreements
which govern various interim and ongoing relationships between us and GM. The
Ancillary Agreements to be entered into prior to or in connection with 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 FORMS OF
THE IPO AND DISTRIBUTION AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT, THE
SUPPLY AGREEMENT, THE BUSINESS RELATIONSHIP AGREEMENT, THE U.S. EMPLOYEE MATTERS
AGREEMENT AND CERTAIN TAX ALLOCATION AGREEMENTS, HAVE BEEN FILED WITH THE SEC AS
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
SEPARATION AGREEMENT
The Separation Agreement, which became effective on January 1, 1999, 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
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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 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 clause (a) above; 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 on the amount due 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
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us and GM relating to the substance of such agreements. The Separation Agreement
and certain of the 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 have
assumed the liability for all new claims related to the Delphi Automotive
Systems Business and for certain specified claims. GM has agreed to
defend certain other specified claims at our expense and GM has retained
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 have assumed 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 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
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arbitration hearing, including certain limitations on the discovery rights of
the parties. We and GM have agreed that all disputes or other matters related to
the Supply Agreement and certain of the other 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).
Such
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financial statements are substantially similar to the financial statements for
such period included elsewhere in this prospectus.
"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
General Motors Does Not Complete Its Divestiture of Our Company."
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
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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 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 and/or less
than 80% of any other class and/or series of Delphi capital 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 capital 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 either the value of all
outstanding shares of our capital stock or 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:
- 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
- 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.
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- 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:
- we will not voluntarily dissolve or liquidate; and
- 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:
- 80% or more of the total combined voting power of all outstanding shares
of voting stock of such subsidiary; and
- 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:
- 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
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- 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 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 the acquisition
target has an FFO to Debt Ratio of at least 20% and 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.
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"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 that would result
in GM's ownership of our common stock causing the rights to detach or
become exercisable as described under "Description of Capital
Stock--Rights Plan;"
- 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 being in breach or default under any such agreement.
- 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
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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
terms of 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
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 General Motors Does Not
Complete Its Divestiture of Our Company." 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.
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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:
(1) an underwritten public offering;
(2) a shelf registration;
(3) 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
(4) 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 clauses (3) and (4) 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, 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; provided, however, that we may exercise this right only
once in any 12-month period.
- 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.
- 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:
- first, the securities we propose to offer;
- second, the securities requested to be included by GM; and
- 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:
- 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
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- 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);
- 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
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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, including the existing pricing,
duration and purchase order terms and conditions. This includes existing
contracts under which we have not yet begun to supply products. 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 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--Liquidity and Capital
Resources--Extension of Payment Terms." 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.
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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.
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
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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 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.
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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.
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
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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 work with such unions in this regard. For more information
about the status of GM's discussions with the unions, see "Business of
Delphi--Strategy--Improve Operating Performance--Labor Relations." 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 retired 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 we will
assume OPEB obligations and pension obligations for such employees who retire
after October 1, 1999,
As between GM and Delphi, the allocation of these obligations has been made
based on certain estimated levels of employee retirement prior to October 1,
1999 based on historical experience and conditions
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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 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 have established or 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.
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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 the time of the Distribution. Our stockholders, are, however, likely
to experience some dilutive impact from the above-described adjustments.
As of January 15, 1999, there were about 4,700,000 shares of GM $1 2/3
common stock subject to options pursuant to GM Awards (about 1,738,000 of which
were exercisable as of January 15, 1999) held by our employees. If the Ratio
were determined using the closing price of the GM $1 2/3 common stock on January
15, 1999, as reported in The Wall Street Journal ($83.31 per share) and a price
of $16.50 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
23,718,000 shares of our common stock. As of January 15, 1999, 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 is only 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
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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 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.
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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 three years and the rent thereunder
approximates prevailing market rates.
- 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, including 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
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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, 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;
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- 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
those provided 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 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, individually or 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.
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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.
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.
Delphi common stock has been approved for listing on the NYSE under the
symbol "DPH," subject to official notice of issuance.
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;
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- 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 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
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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;
- 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,
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such advance notice provisions require that the stockholder must give written
notice to the Secretary of Delphi:
- 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
- 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 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;
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- 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; and
- 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 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 of the following:
- sale, lease, exchange, mortgage, pledge, transfer or other disposition
of assets of Delphi or any of its subsidiaries to or for the benefit of,
- purchase by Delphi or any of its subsidiaries from,
- issuance of securities by Delphi or any of its subsidiaries to,
- investment, loan, advance, guarantee, participation or other extension
of credit by Delphi or any of its subsidiaries to, from, in or with, or
- 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 approved by a
majority of Delphi's Continuing Directors (as such term is defined in Delphi's
Restated Certificate of Incorporation). This voting requirement will also 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 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
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(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, whichever is higher; and
- the consideration to be received by the holders of each class of capital
stock of Delphi is the same form and amount as that paid by the
Interested Stockholder in connection with its acquisition of such class
of capital stock.
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.
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.
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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 clauses (a) and (b) above or, in
the 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
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 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 our 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.
RIGHTS PLAN
Delphi's Board has adopted a Stockholder Rights Plan (the "Rights Plan").
Pursuant to the Rights Plan, one Right (a "Right") will be issued and attached
to each outstanding share of common stock. Each Right
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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, the form 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
- 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. Shares of common
stock issued after the Distribution Date will not be issued with Rights, except
that shares issued pursuant to any of the following that exist prior to the
Distribution Date may be issued with Rights:
- the exercise of stock options;
- under employee plans or arrangements;
- upon exercise, conversion or exchange of certain securities; or
- a contractual obligation of Delphi.
The Rights will expire at the close of business on January 31, 2009 (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."
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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, or simultaneously with such
person becoming, 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 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:
- $650 plus an amount equal to accrued and unpaid dividends and
distributions thereon to the date of payment; and
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- 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 our 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 our 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% of the then outstanding shares of common stock; and
- 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 our common stock pursuant to the Offering or
acquires shares of our 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 our 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 General
Motors Does Not Complete Its Divestiture of Our Company." 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 Delphi and certain directors and executive officers of Delphi 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 our common stock, subject to certain exceptions. The
Distribution is specifically exempted from this agreement. See "Underwriters."
An aggregate of 111,000,000 shares of our common stock are reserved for
issuance under the Stock Incentive Plan and the Classified Plan. We intend to
file registration statements on Form S-8 covering the issuance of shares of our
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.
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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
proceed with or complete the Distribution or that the Distribution was completed
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--The Market Price of Our Common Stock
Could Be Adversely Affected by Sales of Substantial Amounts of Our Common Stock
in the Public Market."
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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
PURCHASING, OWNING AND DISPOSING OF DELPHI 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 payor.
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.
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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:
- 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.
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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 is engaged in the
conduct of a trade or business in the United States or 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 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 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 our 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 our 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 our 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:
- 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
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- 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 Canadian person.
Pursuant to the Agreement between U.S. and International Underwriters, each
international underwriter has represented and agreed that, with certain
exceptions:
- it is not purchasing any shares for the account of any United States or
Canadian person; and
- 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 made by it in its
capacity as a U.S. underwriter apply only to it in its capacity as a U.S.
underwriter and 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:
- 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;
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- 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
- 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, 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.
Delphi common stock has been approved for listing on the NYSE under the
symbol "DPH," subject to official notice of issuance. 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
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employees of Delphi and others, generally in the United States, who will agree
to hold their shares for at least 180 days after the date of this prospectus.
This directed share program will be administered by Salomon Smith Barney Inc.
and Morgan Stanley & Co. Incorporated. 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 Delphi and certain directors and executive officers of Delphi 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,
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;
- the granting of stock options and/or restricted stock units pursuant to
existing Delphi employee benefit plans, provided that such options do not
become exercisable and such units do not vest during such 180-day period;
- 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;
- transactions in shares of General Motors common stock;
- the Distribution; or
- the substitution of GM Awards with replacement awards under Delphi's
incentive plans and other transactions under Delphi's incentive plans.
In order to facilitate the Offering, 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
153
<PAGE> 158
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 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 any
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
154
<PAGE> 159
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.
155
<PAGE> 160
(This page intentionally left blank)
<PAGE> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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 $3.1 billion intracompany note payable to GM and outstanding debt at
Delphi's international subsidiaries. The $3.1 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> 167
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> 168
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> 169
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> 170
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:
- 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);
- a hedge of the exposure to variable cash flows of a forecasted
transaction (cash flow hedge); or
- 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 adopted 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 was required
to adopt the pronouncement on 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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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 $3.1 billion intracompany note payable to GM and outstanding debt at
Delphi's international subsidiaries. The $3.1 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
<PAGE> 177
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
<PAGE> 178
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
<PAGE> 179
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> 180
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> 181
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.
F-21
<PAGE> 182
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
SFAS No. 133 provides that, if certain conditions are met, a derivative may
be specifically designated as:
- 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);
- a hedge of the exposure to variable cash flows of a forecasted
transaction (cash flow hedge); or
- 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 adopted 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 was required
to adopt the pronouncement on 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>
F-22
<PAGE> 183
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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 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>
F-23
<PAGE> 184
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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>
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> 185
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> 186
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 $3.1 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 January 1999, 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> 187
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 total reduction arising from issuances of common stock and
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 also provide for certain events of default, including upon a change
of control, which is defined to include the acquisition of more than 20% of the
voting power of Delphi common stock by any person other than GM.
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
F-27
<PAGE> 188
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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 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.
F-28
<PAGE> 189
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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.
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.
F-29
<PAGE> 190
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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%.
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.
F-30
<PAGE> 191
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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>
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
F-31
<PAGE> 192
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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.
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>
F-32
<PAGE> 193
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<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>
<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> 194
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> 195
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> 196
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> 197
(This page intentionally left blank)
<PAGE> 198
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> 199
PROSPECTUS COVER GATEFOLD
OUTSIDE BACK
[DELPHI AUTOMOTIVE SYSTEMS LOGO]
<PAGE> 200
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 27, 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 $15 AND $18 PER SHARE.
------------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE TRADING SYMBOL "DPH," SUBJECT TO NOTICE OF ISSUANCE
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 12.
------------------------
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 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.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN SACHS INTERNATIONAL MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE SCHRODERS
, 1999
<PAGE> 201
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> 202
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 Restated 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 will declare a stock dividend pursuant
to which an additional 464,999,990 shares of our common stock will be 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.
1.2 Form of Letter Agreement Relating to Directed Share Program.
3.1 Amended and Restated Certificate of Incorporation of Delphi.
3.2 Bylaws of Delphi.
3.3 Form of Certificate of Designations relating to Series A
Junior Preferred Stock.
4.1 Form of Delphi 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.*
</TABLE>
II-2
<PAGE> 203
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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 the lenders named therein.*
10.16 First Amendment to $3.5 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>
- ------------------
* 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> 204
ITEM 17. 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> 205
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 27, 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 27, 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> 206
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Letter Agreement Relating to Directed Share Program.
3.1 Amended and Restated Certificate of Incorporation of Delphi.
3.2 Bylaws of Delphi.
3.3 Form of Certificate of Designations relating to Series A
Junior Preferred Stock.
4.1 Form of Delphi 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.*
10.16 First Amendment to $3.5 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 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>
- ------------------
* Filed previously.
<PAGE> 1
EXHIBIT 1.1
100,000,000 Shares
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(a Delaware corporation)
Common Stock
($0.01 Par Value Per Share)
UNDERWRITING AGREEMENT
_________ __, 1999
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Schroder & Co. Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Goldman Sachs International
Merrill Lynch International
Donaldson, Lufkin & Jenrette International
J. Henry Schroder & Co. Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Delphi Automotive Systems Corporation, a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the several Underwriters (as defined
below) 100,000,000 shares of its Common Stock, par value $0.01 per share (the
"FIRM SHARES").
<PAGE> 2
It is understood that, subject to the conditions hereinafter stated,
85,000,000 Firm Shares (the "U.S. FIRM SHARES") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. UNDERWRITERS") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 15,000,000 Firm Shares (the "INTERNATIONAL SHARES") will be sold to the
several International Underwriters named in Schedule II hereto (the
"INTERNATIONAL UNDERWRITERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Schroder & Co. Inc. shall act as
representatives (the "U.S. REPRESENTATIVES") of the several U.S. Underwriters,
and Morgan Stanley & Co. International Limited, Goldman Sachs International,
Merrill Lynch International, Donaldson, Lufkin & Jenrette International and J.
Henry Schroder & Co. Limited shall act as representatives (the "INTERNATIONAL
REPRESENTATIVES") of the several International Underwriters. The U.S.
Representatives and the International Representatives are hereinafter
collectively referred to as the Representatives. The U.S. Underwriters and the
International Underwriters are hereinafter collectively referred to as the
Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 15,000,000 shares of its Common Stock,
par value $0.01 per share (the "ADDITIONAL SHARES") if and to the extent that
the U.S. Representatives shall have determined to exercise, on behalf of the
U.S. Underwriters, the right to purchase such shares of common stock granted to
the U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "SHARES." The shares of
Common Stock, par value $0.01 per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "COMMON STOCK."
Prior to the purchase and public offering of the Firm Shares by the
several Underwriters, the Company and the Representatives, acting on behalf of
the several Underwriters, shall enter into an agreement substantially in the
form of Exhibit A hereto (the "PRICING AGREEMENT"). The Pricing Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Shares will
be governed by this Agreement, as supplemented by the Pricing Agreement. From
and after the date of the execution and delivery of the Pricing Agreement, this
2
<PAGE> 3
Agreement shall be deemed to incorporate the Pricing Agreement. The date of the
Pricing Agreement is referred to as the "REPRESENTATION DATE."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-1 (File No. 333-67333) relating
to the Shares. The registration statement contains two prospectuses to be used
in connection with the offering and sale of the Shares: the U.S. prospectus, to
be used in connection with the offering and sale of Shares in the United States
and Canada to United States and Canadian Persons, and the international
prospectus, to be used in connection with the offering and sale of Shares
outside the United States and Canada to persons other than United States and
Canadian Persons. The international prospectus is identical to the U.S.
prospectus except for the outside front cover page. The registration statement
as amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A of these rules and regulations (the "1933 ACT
REGULATIONS") of the Commission under the Securities Act of 1933, as amended
(the "1933 ACT"), is hereinafter referred to as the "REGISTRATION STATEMENT";
the U.S. prospectus and the international prospectus in the respective forms
first used to confirm sales of Shares are hereinafter collectively referred to
as the "PROSPECTUS." If the Company has filed an abbreviated registration
statement to register additional shares of Common Stock pursuant to Rule 462(b)
under the 1933 Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462 Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley & Co.
Incorporated has agreed to reserve out of the Shares set forth opposite its name
on Schedule I to this Agreement up to _____________ Shares, for sale to certain
of the Company's employees, officers, and directors and other parties associated
with the Company as designated by the Company (collectively, "MS PARTICIPANTS"),
as set forth in the Prospectus under the heading "Underwriters" (the "MS
DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan Stanley & Co.
Incorporated pursuant to the MS Directed Share Program (the "MS DIRECTED
SHARES") will be sold by Morgan Stanley & Co. Incorporated pursuant to this
Agreement at the public offering price in the jurisdictions designated by the
Company to those MS Participants who have signed a 180 day lock-up agreement in
a form acceptable to the Company . Any MS Directed Shares not orally confirmed
for purchase by any MS Participants by the end of the first business day after
the date on which this Agreement is executed will be offered to the public by
Morgan Stanley & Co. Incorporated as set forth in the Prospectus. Morgan Stanley
& Co. Incorporated has also agreed to reserve out of the Shares set forth
opposite its name on Schedule I to this Agreement up to ___________ Shares, for
sale by Salomon Smith Barney Inc. to certain of the Company's employees,
officers and directors, pursuant to the terms of a letter
3
<PAGE> 4
agreement dated the date hereof between the Company and Salomon Smith Barney
Inc.
I.
On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter, severally and not jointly, and each Underwriter, severally
and not jointly, agrees to purchase from the Company, at the price per share set
forth in the Pricing Agreement, the number of Firm Shares set forth in Schedule
I and Schedule II, as the case may be, opposite the name of such Underwriter
(except as otherwise provided in the Pricing Agreement), plus any additional
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Article IX hereof, subject to adjustments as the
Underwriters in their discretion shall make to eliminate any sales or purchases
of fractional securities.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants a one-time option to the U.S. Underwriters, severally and not
jointly, to purchase the Additional Shares at the price per share set forth in
the Pricing Agreement. The option hereby granted will expire 30 days after the
Representation Date and may be exercised in whole or in part only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by the U.S.
Representatives to the Company setting forth the number of Additional Shares as
to which the several U.S. Underwriters are exercising the option and the time,
date and place of payment and delivery for such Additional Shares. Such time and
date of delivery (the "DATE OF DELIVERY") shall be determined by the U.S.
Representatives but shall not be later than ten full business days after the
exercise of said option, nor in any event prior to Closing Time, as hereinafter
defined, unless otherwise agreed upon by the U.S. Representatives and the
Company. If the option is exercised as to all or any portion of the Additional
Shares, the Company will issue and sell and each of the U.S. Underwriters,
acting severally and not jointly, will purchase from the Company that proportion
of the Additional Shares (subject to such adjustments to eliminate fractional
shares as the U.S. Representatives may determine), as may be adjusted on a pro
rata basis to reflect the aggregate number of Additional Shares being purchased,
which the number of U.S. Firm Shares set forth in Schedule I opposite the name
of such U.S. Underwriter bears to the total number of U.S. Firm Shares.
The purchase price per share to be paid by the several Underwriters for
the Firm Shares shall be an amount equal to the initial public offering price,
less an
4
<PAGE> 5
amount per share to be determined by agreement between the Underwriters and the
Company. The initial public offering price and the purchase price, when so
determined, shall be set forth in the Pricing Agreement.
II.
The Company understands that the Underwriters propose to make a public
offering of the Shares as soon as they deem advisable after the Registration
Statement becomes effective and the Pricing Agreement has been executed and
delivered.
III.
Payment for the Firm Shares shall be made to the Company in Federal or
other funds immediately available in New York City against delivery of such Firm
Shares for the respective accounts of the several Underwriters at 10:00 a.m.,
New York City time, on ____________, 1999, or at such other time on the same or
such other date, not later than _________, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "CLOSING TIME."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several U.S.
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Article I or at such other time on the same or on such other
date, in any event not later than _______, 1999, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "DATE OF DELIVERY."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Time or the Date of Delivery, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you as
you direct on the Closing Time or the Date of Delivery, as the case may be, for
the respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters duly
paid, against payment of the purchase price therefor.
5
<PAGE> 6
IV.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall be in effect, and no proceedings for such purpose shall be
pending before or threatened by the Commission, and there shall have been no
material adverse change or development involving a prospective material adverse
change in the condition of the Company and its subsidiaries, taken as a whole,
from that set forth in the Registration Statement; and you shall have received,
at the Closing Time, a certificate of an executive officer of the Company
(acting on behalf of the Company and without personal liability), dated the
Closing Time, to the foregoing effect. Such certificate will also provide that
the representations and warranties of the Company contained herein are true and
correct as of the Closing Time and that the Company has complied in all material
respects with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or before the Closing Time. The
officer may rely upon the best of his knowledge as to proceedings threatened.
(b) You shall have received the favorable opinion, dated as of the
Closing Time, of Kirkland & Ellis, counsel for the Company, to the effect that:
(i) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(ii) the authorized capital stock of the Company conforms as to
legal matters in all material respects to the description thereof
contained under the heading "Description of Capital Stock" in the
Prospectus;
(iii) the Shares have been duly authorized and, when appropriate
certificates representing those Shares are duly countersigned by the
Company's transfer agent, issued and delivered against payment therefor
in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights under the Delaware
General Corporation Law, the Company's Restated Certificate of
Incorporation or By-laws or any contractual provision of which we have
knowledge;
6
<PAGE> 7
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) the execution, delivery and performance of the Company's
obligations under this Agreement will not violate any provision of
applicable law (except that such counsel need express no opinion in
this paragraph as to compliance with any disclosure requirement or any
prohibition against fraud or misrepresentation or as to whether
performance of any indemnification or contribution provisions would be
permitted) or the Certificate of Incorporation or By-laws of the
Company or breach any agreement filed as Exhibit 10.1 through 10.16 of
the Registration Statement (provided that such counsel need express no
opinion as to compliance with any financial test or cross default
provision in any such agreement) or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any of its Significant Subsidiaries, (as defined below)
known to such counsel;
(vi) in connection with the offer and sale of the Shares by the
U.S. Underwriters as contemplated by the Registration Statement, the
Company is not required to obtain any consent, approval or
authorization of any governmental body or agency for the performance of
its obligations under this Agreement other than the registration of the
Shares under the 1933 Act and compliance with the insurance, securities
and Blue Sky Laws of various jurisdictions (as to which we express no
opinion);
(vii) the statements (A) in the Prospectus under the captions
"Management -- Committees of the Board of Directors," "-- Change in
Control Agreements," "-- Incentive Plans, (except for the statements
under the caption "-- Founders Grants" and "-- Substitute Awards")
"Arrangements Between Delphi and General Motors" (except for the
statements under the captions "-- Employee Matters" and "--
International Agreements" thereunder), "Description of Capital Stock"
and "Shares Eligible for Future Sale" and (B) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein; and
(viii) to our knowledge, there is no legal or governmental
proceeding or investigation pending or threatened against the Company
or any of its Significant Subsidiaries or to which any of the
properties of the
7
<PAGE> 8
Company or any of its Significant Subsidiaries is subject that has
caused us to conclude that such proceeding or investigation is required
by Item 103 of Regulation S-K to be described in the Registration
Statement or the Prospectus and is not so described; we have no
knowledge of any contract to which the Company or any of its
Significant Subsidiaries is subject that has caused us to conclude that
such contract is required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required.
Such counsel shall also provide its advice that (relying as to factual
matters to the extent deemed appropriate by such counsel upon representations
and statements of officers and other representatives of the Company and General
Motors Corporation) no facts came to its attention that caused such counsel to
conclude that (i) the Registration Statement, on its effective date, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) the Prospectus, on the date it bears or as of the Closing Time,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading or (iii)
as of the effective date of the Registration Statement, either the Registration
Statement or the Prospectus appears on its face not to be responsive in all
material respects to the requirements of Form S-1, except for, in each case,
financial statements and schedules and other financial and statistical data
included therein or omitted therefrom, as to which such counsel need not express
any opinion.
(c) You shall have received the favorable opinion, dated as of the
Closing Time, of Warren G. Andersen, Senior Attorney, Legal Staff, of General
Motors Corporation, a Delaware corporation ("GENERAL MOTORS"), to the effect
that:
(i) the Separation Agreement and the Ancillary Agreements (as such
terms are defined in the Registration Statement) have each been duly
authorized, executed and delivered by General Motors and each such
agreement constitutes a valid and binding agreement of General Motors;
(ii) the execution, delivery and performance of the Separation
Agreement and the Ancillary Agreements will not violate any provision
of applicable law or the Certificate of Incorporation or By-laws of
General Motors or breach any material agreement or other instrument
known to such counsel and binding upon General Motors or any of its
Significant Subsidiaries, or any material judgment, order or decree
known to such counsel of any governmental body, agency or court having
jurisdiction
8
<PAGE> 9
over General Motors or any of its Significant Subsidiaries, provided
that no opinion need be given with respect to the need for third party
consents as described in the Prospectus in the last paragraph under the
caption "Business of Delphi -- Customers -- Other VMs"; and
(iii) no consent, approval or authorization of any governmental
body or agency is required for the performance by General Motors and
its subsidiaries of the Separation Agreement and the Ancillary
Agreements, except such as shall have been obtained or waived or that,
if not obtained or waived, would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole, or the ability of
the Company or the Underwriters to consummate the offering contemplated
hereby.
(d) You shall have received the favorable opinion, dated as of the
Closing Time, of Logan G. Robinson, General Counsel of the Company, to the
effect that:
(i) the Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction listed on Schedule A to such opinion, a draft of which has
been previously provided to you;
(ii) each Significant Subsidiary of the Company has been duly
incorporated or organized, as the case may be, is validly existing as a
corporation or a limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation, has
the corporate or limited liability company power and authority to own
its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction listed on Schedule B to such opinion, a draft of
which has been previously provided to you;
9
<PAGE> 10
(iii) all of the issued and outstanding shares of capital stock or limited
liability company interests, as the case may be, of each Significant Subsidiary
of the Company have been duly and validly authorized and issued, are fully paid
and non-assessable in the case of a corporation and are owned of record,
directly or indirectly, by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iv) the Separation Agreement and the Ancillary Agreements have
each been duly authorized, executed and delivered by the Company and
each such agreement constitutes a valid and binding agreement of the
Company;
(v) the execution, delivery and performance of the Separation
Agreement and the Ancillary Agreements will not violate any provision
of applicable law or the Certificate of Incorporation or By-laws of the
Company or breach any agreement or other instrument known to such
counsel and binding upon the Company or any of its Significant
Subsidiaries, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any of
its Significant Subsidiaries, provided that no opinion need be given
with respect to the need for third party consents as described in the
Prospectus in the last paragraph under the caption "Business of Delphi
-- Customers -- Other VMs";
(vi) no consent, approval or authorization of any governmental
body or agency is required for the performance by the Company and its
subsidiaries of the Separation Agreement and the Ancillary Agreements,
except such as shall have been obtained or waived or that, if not
obtained or waived, would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole, or the ability of the
Company or the Underwriters to consummate the offering contemplated
hereby; and
(vii) the statements in the Prospectus under the captions
"Business of Delphi -- Intellectual Property," " -- Employees; Union
Representation," "-- Environmental Matters," "-- Legal Proceedings,"
"Arrangements Between Delphi and General Motors -- Employee Matters"
and "-International Agreements," in each case insofar as such
statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein.
10
<PAGE> 11
(e) You shall have received the favorable opinion, dated as of the
Closing Time, of Davis Polk & Wardwell, counsel for the Underwriters, covering
the matters referred to in clauses (b)(iii), (b)(iv), (b)(vii) (but only as to
the statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and the last paragraph of clause (b).
(f) You shall have received the favorable opinion, dated as of the
Closing Time, of Kirkland & Ellis to the effect that the discussion set forth
under the caption "Material United States Federal Tax Consequences to Non-United
States Holders" in the Prospectus accurately reflects such counsel's views on
the matters discussed therein and is based on reasonable interpretations of
existing law.
With respect to the last paragraph of clause (b) above, each counsel
referred to in clauses (b) and (e) may state that their opinion and belief are
based upon their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinions of Kirkland & Ellis, Warren G. Andersen and Logan Robinson
described in clauses (b), (c), (d) and (f) above shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(g) The Representatives shall have received on the date of this
Agreement a letter dated such date and also at the Closing Time a letter dated
as of the Closing Time, in each case in form and substance satisfactory to the
Representatives, from Deloitte & Touche LLP, independent auditors, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus; provided that the letter delivered at the Closing Time shall use a
"cut-off date" not earlier than the date hereof.
(h) At the Closing Time counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the sale of the Shares as contemplated
herein and related proceedings, or in order to evidence the accuracy of any of
the representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the sale of the Shares as herein or therein contemplated shall be reasonably
satisfactory in form and substance to you and your counsel.
11
<PAGE> 12
(i) The "lock-up" agreements, substantially in the form of Exhibit B
hereto, between you and General Motors and certain employees of the Company
relating to sales and certain other dispositions of shares of Common Stock or
certain other securities, delivered to you on or before the date hereof, shall
be in full force and effect at the Closing Time.
(j) The New York Stock Exchange shall have approved the Common Stock
for listing, subject only to official notice of issuance.
(k) The Representatives shall have received on the date of this
Agreement a certificate relating to awarded business, in form and substance
satisfactory to the Representatives, from an executive officer of the Company
and such certificate shall remain true and correct and of full force and effect
at the Closing Time.
(l) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Date of Delivery of such documents as they may reasonably
request, which in any case shall be substantially similar to those documents
delivered pursuant to clause (h) above at the Closing Time.
If any condition specified in this Article shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Representatives by notice to the Company at any time at or prior to
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Article IX.
V.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish the Representatives, without charge, 6 signed copies of
the Registration Statement as filed with the Commission (including exhibits
thereto) and for delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and to furnish to you in New
York City, without charge, prior to 5:00 p.m. New York City time on the business
day succeeding the date of this Agreement as many copies of the Prospectus and,
during the period mentioned in paragraph (c) below, any supplements and
amendments thereto or to the Registration Statement as Morgan Stanley & Co.
Incorporated may reasonably request.
12
<PAGE> 13
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish you a copy of each such proposed amendment or supplement
and not to file any such proposed amendment or supplement to which you
reasonably object, unless counsel to the Company advises that such filing is
required by law, and to file with the Commission within the applicable period
specified in Rule 424(b) under the 1933 Act any prospectus required to be filed
pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of your counsel the Prospectus is required by
law to be delivered in connection with sales by an Underwriter or dealer, any
event shall occur as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if it is necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish to
the Company) to which Shares may have been sold by you and to any other dealers
upon request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the U.S. Representatives
shall reasonably request and to pay all expenses (including reasonable fees and
disbursements of counsel) in connection therewith.
(e) To make generally available to the Company's security holders as
soon as practicable an earnings statement covering the twelve month period
ending ___________, 2000, which shall satisfy the provisions of Section 11(a) of
the 1933 Act and the 1933 Act Regulations.
(f) Without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, during the period ending 180 days
after the date of the Prospectus, not to (i) 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, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) 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 in clause (i) or (ii) above is to
be settled by delivery of
13
<PAGE> 14
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof of
which the Underwriters have been advised in writing, (C) the granting of stock
options and/or restricted stock units pursuant to existing Company employee
benefit plans, provided that such options do not become exercisable and such
units do not vest during such 180 day period or (D) the substitution of awards
based on the common stock of General Motors into replacement awards under the
Company's incentive plans and other transactions under the Company's incentive
plans.
(g) In connection with the MS Directed Share Program, the Company will use
its reasonable best efforts to ensure that the MS Directed Shares of MS
Participants will be restricted to the extent required by the National
Association of Securities Dealers, Inc. or the rules of such association from
sale, transfer, assignment, pledge or hypothecation for a period of three months
following the date of the effectiveness of the Registration Statement. Morgan
Stanley & Co. Incorporated will notify the Company as to which MS Participants
will need to be so restricted. At the request of Morgan Stanley & Co.
Incorporated, the Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of time. The Company will pay
all reasonable and documented fees and disbursements of counsel incurred by the
Underwriters in connection with the MS Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the MS Directed Share Program.
Furthermore, the Company covenants with Morgan Stanley & Co.
Incorporated that the Company will comply in all material respects with all
applicable securities and other applicable laws, rules and regulations in each
foreign jurisdiction in which the MS Directed Shares are offered in connection
with the MS Directed Share Program.
VI.
The Company represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or to its knowledge threatened
by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be
14
<PAGE> 15
stated therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the 1933
Act and the applicable rules and regulations of the Commission thereunder and
(iii) the Prospectus, on the date it bears or as of the Closing Time, does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(d) Each Significant Subsidiary of the Company has been duly incorporated
or organized, as the case may be, is validly existing as a corporation or a
limited liability company, as the case may be, in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole; all of the issued shares
of capital stock or limited liability company interests, as the case may be, of
each Significant Subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned by the Company and
its subsidiaries as set forth in Exhibit 21.1 to the Registration Statement,
free and clear of all liens, encumbrances, equities or claims. Delphi Automotive
Systems LLC, Delco Electronics Corporation and Delphi Automotive Systems
(Holding), Inc. (collectively, the "Significant Subsidiaries") are the only
subsidiaries of the Company that are "significant subsidiaries" as such term is
defined in Rule 1-02 (w) of Regulation S-X.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
15
<PAGE> 16
(f) The authorized capital stock of the Company conforms as to legal
matters in all material respects to the description thereof contained under the
heading "Description of Capital Stock" in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and delivered
in accordance with the terms of this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(i) The execution, delivery and performance of this Agreement will not
violate (i) any provision of applicable law or the Certificate of Incorporation
or By-laws of the Company or (ii) any agreement or other instrument binding upon
the Company or any of its Significant Subsidiaries, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or any of its Significant Subsidiaries, except for any such agreements,
instruments, judgments, orders or decrees that would not, singularly or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(j) No consent, approval or authorization of any governmental body or
agency is required for the performance of this Agreement other than the
registration of the Shares under the 1933 Act and compliance with the insurance,
securities and Blue Sky Laws of various jurisdictions.
(k) The Separation Agreement and the Ancillary Agreements have each
been duly authorized, executed and delivered by the Company and each such
agreement constitutes a valid and binding agreement of the Company.
(l) The execution, delivery and performance of the Separation Agreement
and the Ancillary Agreements will not violate any provision of applicable law or
the Certificate of Incorporation or By-laws of the Company or any agreement or
other instrument binding upon the Company or any of its Significant
Subsidiaries, or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Company or any of its Significant
Subsidiaries, except for any such agreements, instruments, judgments, orders or
decrees that would not, singularly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
16
<PAGE> 17
(m) No consent, approval or authorization of any governmental body or
agency is required for the performance by the Company and its subsidiaries of
the Separation Agreement and the Ancillary Agreements, except such as shall have
been obtained or waived or that, if not obtained or waived, would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole,
or the ability of the Company or the Underwriters to consummate the offering
contemplated hereby.
(n) In connection with the MS Directed Share Program, (i) the Company has
not offered, or caused the Underwriters to offer, Shares to any person with the
specific intent to unlawfully influence (A) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (B) a trade journalist or publication to write or publish favorable
information about the Company or its products; (ii) the Registration Statement,
the Prospectus and any preliminary prospectus comply, and any further amendments
or supplements thereto will comply,in all material respects with any applicable
laws or regulations of foreign jurisdictions in which the Prospectus or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in accordance with this agreement; and (iii) no authorization,
approval, consent, license, order, registration or qualification of or with any
government, governmental instrumentality or court, other than such as have been
obtained, is necessary under the securities laws and regulations of foreign
jurisdictions in which the MS Directed Shares are to be offered outside the
United States in accordance with this agreement.
VII.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the "1934 ACT"), from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary Prospectus, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such losses, claims, damages or liabilities promptly after receipt
of adequate
17
<PAGE> 18
documentation relating thereto; provided that the foregoing indemnity agreement
with respect to any preliminary prospectus or Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure is the result of noncompliance by
the Company with Article V(a) hereof.
The Company agrees to indemnify and hold harmless Morgan Stanley & Co.
Incorporated and each person, if any, who controls Morgan Stanley & Co.
Incorporated within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act ("MORGAN STANLEY ENTITIES"), from and against any and all
losses, claims, damages and liabilities (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in the prospectus wrapper
material prepared by or with the consent of the Company for distribution in
foreign jurisdictions in connection with the MS Directed Share Program attached
to the Prospectus or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein, when considered in conjunction with
the Prospectus or any applicable preliminary prospectus, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; (ii) caused by the
failure of any Participant to pay for and accept delivery of the Shares which,
immediately following the effectiveness of the Registration Statement, were
subject to a properly confirmed agreement to purchase; or (iii) related to,
arising out of, or in connection with the MS Directed Share Program, provided
that the Company shall not be responsible under this clause (iii) for any
losses, claims, damages or liabilities (or expenses relating thereto) that
resulted primarily from the bad faith, willful misconduct or negligence of any
of the Morgan Stanley Entities. The Company also agrees to reimburse each of the
Morgan Stanley Entities, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such losses,
claims, damages or liabilities promptly after receipt of adequate documentation
relating thereto. Notwithstanding the foregoing, the indemnity agreement
contained in this paragraph with respect to any prospectus wrapper material
shall not inure to the benefit of any of the Morgan Stanley Entities from whom
the person asserting any
18
<PAGE> 19
such losses, claims, damages or liabilities purchased Shares, if a copy of such
prospectus wrapper material (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Morgan Stanley Entity to such person, if required
by law so to have been delivered, at or prior to the written confirmation of the
sale of the Shares to such person, and if the prospectus wrapper material (as so
amended or supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of failure by
the Company to deliver sufficient copies of the prospectus wrapper material (as
so amended or supplemented) in a timely manner to the Morgan Stanley Entities.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, each of its officers who signs the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
to the same extent as the foregoing indemnity from the Company to such
Underwriter, but only with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any preliminary prospectus.
In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to any of the three preceding paragraphs, such person (hereinafter
called the indemnified party) shall promptly notify the person against whom such
indemnity may be sought (hereinafter called the indemnifying party) in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
shall have agreed in writing to pay such fees and expenses, (ii) the
indemnifying party shall have failed to assume the defense of such proceeding
and employ counsel reasonably satisfactory to the indemnified person in such
proceeding or (iii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all such indemnified parties, and that all such
19
<PAGE> 20
fees and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Underwriters and such control persons of
Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is entitled to indemnification hereunder, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to the second paragraph of this Article VII in respect of such
action or proceeding and the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them, then in addition to
such separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for Morgan Stanley & Co. Incorporated for the
defense of any losses, claims, damages and liabilities arising out of the MS
Directed Share Program, and all persons, if any, who control Morgan Stanley &
Co. Incorporated within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act.
If the indemnification provided for in the first through third
paragraphs of this Article VII is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other hand in connection with the offering of the Shares shall be deemed
to
20
<PAGE> 21
be in the same respective proportions as the net proceeds from the offering of
the Shares (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Article VII are several in proportion
to the respective number of Shares they have purchased hereunder, and not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article VII are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Article VII
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its officers or directors or any person controlling the Company
and (iii) acceptance of and payment for any of the Shares.
21
<PAGE> 22
VIII.
This Agreement shall be subject to termination in the absolute
discretion of Morgan Stanley & Co. Incorporated, by notice given to the Company,
if (a) after the execution and delivery of this Agreement and prior to the
Closing Time (i) trading in securities generally on the New York Stock Exchange
or the American Stock Exchange shall have been suspended or materially limited,
(ii) trading of any securities of the Company or of General Motors shall have
been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any material outbreak or escalation of hostilities or other
calamity and (b) in the case of any of the events specified in clauses (i)
through (iv), such event, singly or together with any other such event, makes
it, in your reasonable judgement, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
IX.
This Agreement shall become effective when notification of the
effectiveness of the Registration Statement has been released by the Commission
and the Representatives and the Company shall have agreed upon the public
offering price. If the public offering price and the purchase price of the
Shares shall not have been agreed upon, and the Pricing Agreement shall not have
been executed and delivered by all parties thereto, prior to 5:00 p.m., New York
Time, on the seventh full business day after the Registration Statement shall
have become effective, this Agreement shall thereupon terminate without
liability on the part of the Underwriters or the Company, except as set forth
herein.
If as of the Closing Time or the Date of Delivery, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of the Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions which the number of
Firm Shares set forth opposite their names in Schedule I or Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares which any Underwriter has agreed to
purchase pursuant to Schedule I or Schedule II be increased pursuant to this
Article VIII by an amount
22
<PAGE> 23
in excess of one-ninth of such number without the written consent of such
Underwriter. If, at the Closing Time, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Time, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Date of Delivery, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, shall be reimbursed for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
* * * * * *
Very truly yours,
23
<PAGE> 24
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By:
---------------------------------
Name:
Title:
24
<PAGE> 25
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SCHRODER & CO. INC.
Acting severally on behalf of themselves and the
several U.S. Underwriters named in Schedule I
hereto.
By: Morgan Stanley & Co. Incorporated
By:
-----------------------------------
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
J. HENRY SCHRODER & CO. LIMITED
Acting severally on behalf of themselves and the
several International Underwriters named in
Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:
----------------------------------
Name:
Title:
25
<PAGE> 26
SCHEDULE I
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------------------------------- ----------------------
<S> <C>
Morgan Stanley & Co. Incorporated.............................
Goldman, Sachs & Co...........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Donaldson, Lufkin & Jenrette
Securities Corporation.....................................
Schroder & Co. Inc............................................
[NAMES OF OTHER U.S.
UNDERWRITERS]................................................. -----------------------
Total U.S. Firm Shares.................................. 85,000,000
-----------------------
-----------------------
</TABLE>
<PAGE> 27
SCHEDULE II
INTERNATIONAL UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- ----------------------------------------------------------- -----------------------
<S> <C>
Morgan Stanley & Co. International Limited....................
Goldman Sachs International...................................
Merrill Lynch International...................................
Donaldson, Lufkin & Jenrette International....................
J. Henry Schroder & Co. Limited...............................
[NAMES OF OTHER INTERNATIONAL
UNDERWRITERS............................................ ---------------------------
Total International Shares.............................. 15,000,000
---------------------------
---------------------------
</TABLE>
<PAGE> 28
EXHIBIT A
100,000,000 Shares
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(a Delaware corporation)
Common Stock
($0.01 Par Value Per Share)
PRICING AGREEMENT
_______, 1999
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Schroder & Co. Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Goldman Sachs International
Merrill Lynch International
Donaldson, Lufkin & Jenrette International
J. Henry Schroder & Co. Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
<PAGE> 29
Dear Sirs and Mesdames:
Reference is made to the Underwriting Agreement, dated _____, 1999 (the
"Underwriting Agreement"), relating to the purchase by the several Underwriters
named in Schedule I thereto (the "UNDERWRITERS"), of the above shares of Common
Stock (the "SHARES") of Delphi Automotive Systems Corporation (the "COMPANY").
Pursuant to Article I of the Underwriting Agreement, the Company agrees
with each Underwriter as follows:
(1) The initial public offering price per share for the Shares,
determined as provided in said Article I, shall be $_____.
(2) The purchase price per share for the Shares to be paid by the
several Underwriters shall be $____, being an amount equal to the initial public
offering price set forth above less $____ per share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Underwriters and the Company in accordance with its terms.
* * * * * *
Very truly yours,
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By:
-----------------------------------
Name:
Title:
2
<PAGE> 30
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SCHRODER & CO. INC.
Acting severally on behalf of themselves and the
several U.S. Underwriters named in Schedule I
to the Underwriting Agreement.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------------
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
J. HENRY SCHRODER & CO. LIMITED
Acting severally on behalf of themselves and the
several International Underwriters named in
Schedule II to the Underwriting Agreement.
By: Morgan Stanley & Co. International Limited
By:
-------------------------------------
Name:
Title:
3
<PAGE> 31
EXHIBIT B
[FORM OF LOCK-UP LETTER]
____________, 1999
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Schroder & Co. Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Goldman Sachs International
Merrill Lynch International
Donaldson, Lufkin & Jenrette International
J. Henry Schroder & Co. Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT")
with Delphi Automotive Systems Corporation, a Delaware corporation (the
"COMPANY") providing for the public offering (the "PUBLIC OFFERING") by the
several Underwriters, including Morgan Stanley and MSIL (the "UNDERWRITERS") of
up to 115,000,000 shares (the "SHARES") of the Common Stock, par value $0.01 per
share of the Company (the "COMMON STOCK").
<PAGE> 32
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, he, she or it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "PROSPECTUS"), (1) 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, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) 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 in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement, (b)
transactions relating to shares of Common Stock or other securities acquired in
open market or other transactions after the completion of the Public Offering,
(c) transactions in shares of General Motors common stock and (d) the
Distribution (as such term is defined in the Registration Statement). In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, he, she or it will not,except in
connection with the Distribution, during the period commencing on the date
hereof and ending 180 days after the date of the Prospectus, make any demand for
or exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
GENERAL MOTORS CORPORATION
By:
---------------------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 1.2
, 1999
- --------- ---
Salomon Smith Barney Inc.
390 Greenwich Street
New York, New York 10013
Dear Sirs and Mesdames:
We refer to the Underwriting Agreement (the "UNDERWRITING AGREEMENT")
dated as of the date hereof among Delphi Automotive Systems Corporation (the
"COMPANY") and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Schroder & Co. Inc., as representatives of the
several U.S. Underwriters named in Schedule I thereto, and Morgan Stanley & Co.
International Limited, Goldman Sachs International, Donaldson, Lufkin & Jenrette
International and J. Henry Schroder & Co. Limited, as representatives of the
several International Underwriters named in Schedule II thereto. Pursuant to the
Underwriting Agreement, the Company proposes to issue and sell (the "OFFERING")
to the several Underwriters (as defined therein) up to 100,000,000 shares of its
Common Stock, par value $0.01 per share (the "SHARES"). The proposed principal
terms of the Offering are set forth in the Underwriting Agreement, and are
incorporated by reference herein. The parties hereto acknowledge that the
provisions of the Underwriting Agreement shall apply to the parties hereunder,
and that such parties shall be entitled to the rights and subject to the
obligations contained in the Underwriting Agreement.
As part of the offering contemplated by the Underwriting Agreement, Morgan
Stanley & Co. Incorporated has agreed to reserve, as part of the Offering, up
to _______ Shares for sale by Salomon Smith Barney Inc. ("SALOMON SMITH BARNEY")
to certain of the Company's employees, officers and directors who reside in the
United States as designated by the Company (collectively, "SSB PARTICIPANTS"),
as set forth in the Prospectus under the heading "Underwriters" (the "SSB
DIRECTED SHARE PROGRAM"). The Shares to be sold by Salomon Smith Barney pursuant
to the SSB Directed Share Program (the "SSB DIRECTED SHARES") will be sold by
Salomon Smith Barney pursuant to this Agreement at the public offering price set
forth in the Pricing Agreement (as such term is defined in the Underwriting
<PAGE> 2
Agreement) in the jurisdictions designated by the Company. Any Directed Shares
not orally confirmed for purchase by any SSB Participants by the end of the
first business day after the date on which this Agreement is executed will be
returned to Morgan Stanley & Co. Incorporated for offer to the public as set
forth in the Prospectus. As a condition to the purchase by any SSB Participant
of any SSB Directed Shares, Salomon Smith Barney will require each Participant
to complete appropriate documentation relating to the SSB Directed Share
Program, in form and substance satisfactory to the Company, that, among other
things, such Participant (a) is a resident of the United States and (b) agrees
to the restrictions on the Directed Shares set forth in Section 1 below.
1. Covenants of the Company. In further consideration of the
agreements of Salomon Smith Barney herein contained, the Company covenants that
in connection with the SSB Directed Share Program, the Company will ensure that
the Directed Shares of SSB Participants will be restricted, without exception,
from any sale, transfer, assignment, pledge or hypothecation, except with the
consent of Salomon Smith Barney, for a period of six months following the date
of the effectiveness of the Registration Statement by directing the transfer
agent to place stop transfer restrictions upon the Directed Shares for such
period of time.
2. Representations and Warranties. The Company represents and warrants
to Salomon Smith Barney that the Company has not offered, or caused the
Underwriters to offer, Shares to any person with the specific intent to
unlawfully influence (A) a customer or supplier of the Company to alter the
customer's or supplier's level or type of business with the Company or (B) a
trade journalist or publication to write or publish favorable information about
the Company or its products.
3. Indemnification and Contribution. The indemnification and
contribution provisions of Section VII of the Underwriting Agreement shall apply
hereto as if stated herein, with the same force and effect as if used herein.
Furthermore, the provisions of the second paragraph and the last sentence of the
fourth paragraph of Section VII of the Underwriting Agreement shall apply to
Salomon Smith Barney as if Salomon Smith Barney were the party named therein
instead of Morgan Stanley & Co. Incorporated.
4. Miscellaneous. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement may
not be amended except in writing signed by all parties hereto.
2
<PAGE> 3
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
The several obligations of Salomon Smith Barney hereunder will be
subject to satisfactory completion of all of the obligations and conditions
contained in the Underwriting Agreement.
This Agreement may be terminated by Salomon Smith Barney at any time or
by the Company at any time after 60 days from the date hereof upon written
notice. The indemnification and contribution provisions of Section 3 and the
governing law provision of Section 4 contained herein shall survive any
termination of this Agreement.
* * * * *
Very truly yours,
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By:
---------------------------------
Name:
Title:
Accepted as of the date hereof
SALOMON SMITH BARNEY INC.
By:
--------------------------
Name: James C. Cowles
Title: Managing Director
3
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
The name of the corporation is Delphi Automotive Systems Corporation.
The original certificate of incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on September, 16, 1998.
This Amended and Restated Certificate of Incorporation amends and, as
amended, restates in its entirety the corporation's certificate of incorporation
and has been duly proposed by resolutions adopted and declared advisable by the
Board of Directors of the Corporation, duly adopted by the sole stockholder of
the Corporation and duly executed and acknowledged by the officers of the
Corporation in accordance with Sections 103, 242 and 245 of the General
Corporation Law of the State of Delaware. In connection with such amendment, and
simultaneously with the effectiveness thereof, the par value of all shares of
stock of the corporation (both outstanding shares and authorized but unissued or
treasury shares) shall be decreased from $0.10 per share to $0.01 per share and
such shares shall be designated as shares of Common Stock of such par value, as
authorized by this Amended and Restated Certificate of Incorporation.
The text of the certificate of incorporation of the corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (hereinafter referred to as the
"CORPORATION") is Delphi Automotive Systems Corporation.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be
<PAGE> 2
incorporated under the General Corporation Law of the State of Delaware, as from
time to time in effect (the "DGCL").
ARTICLE IV
CAPITAL STOCK
Section 1. Authorized Stock. The Corporation shall be authorized to
issue two billion (2,000,000,000) shares of capital stock, of which one billion
three hundred and fifty million (1,350,000,000) shares shall be shares of Common
Stock, $0.01 par value per share ("COMMON STOCK"), and six hundred and fifty
million (650,000,000) shares shall be shares of Preferred Stock, $0.10 par value
per share ("PREFERRED STOCK").
Section 2. Designation of Preferred Stock Terms. The Preferred Stock
may be issued from time to time in one or more series. The Board of Directors is
hereby authorized to provide for the issuance of shares of Preferred Stock in
series and, by filing a certificate pursuant to the DGCL (hereinafter referred
to as a "PREFERRED STOCK DESIGNATION"), to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, privileges, preferences and rights of the shares of each such series and
the qualifications, limitations and restrictions thereon. The authority of the
Board of Directors with respect to each series shall include, but not be limited
to, determination of the following:
(a) the designation of the series, which may be by distinguishing
number, letter or title;
(b) the number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding) in the manner permitted by law;
(c) the rate of any dividends (or method of determining the
dividends) payable to the holders of the shares of such series, any conditions
upon which such dividends shall be paid and the date or dates or the method for
determining the date or dates upon which such dividends shall be payable;
(d) whether dividends, if any, shall be cumulative or
noncumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates or
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<PAGE> 3
method of determining the date or dates from which dividends on the shares of
such series shall cumulate;
(e) if the shares of such series may be redeemed by the
Corporation, the price or prices (or method of determining such price or prices)
at which, the form of payment of such price or prices (which may be cash,
property or rights, including securities of the Corporation or of another
corporation or other entity) for which, the period or periods within which and
the other terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option of the Corporation or at the option
of the holder or holders thereof or upon the happening of a specified event or
events, if any, including the obligation, if any, of the Corporation to purchase
or redeem shares of such series pursuant to a sinking fund or otherwise;
(f) the amount payable out of the assets of the Corporation to
the holders of shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation;
(g) provisions, if any, for the conversion or exchange of the
shares of such series, at any time or times, at the option of the holder or
holders thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same class of capital stock of the Corporation or into any
other security of the Corporation, or into the stock or other securities of any
other corporation or other entity, and the price or prices or rate or rates of
conversion or exchange and any adjustments applicable thereto, and all other
terms and conditions upon which such conversion or exchange may be made;
(h) restrictions on the issuance of shares of the same series or
of any other class or series of capital stock of the Corporation, if any; and
(i) the voting rights and powers, if any, of the holders of
shares of the series.
Section 3. Powers, Privileges and Rights Pertaining to the Common
Stock. The powers, privileges and rights pertaining to the Common Stock shall be
subject to the powers, privileges, preferences and rights pertaining to the
Preferred Stock and any and all series thereof. The holders of shares of Common
Stock shall be entitled to one vote for each such share upon all matters and
proposals presented to the stockholders on which the
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<PAGE> 4
holders of Common Stock are entitled to vote. Except as otherwise provided by
law or by another provision of the certificate of incorporation of the
Corporation or by a Preferred Stock Designation, the Common Stock shall have the
exclusive right to vote for the election of directors and on all other matters
or proposals presented to the stockholders; provided, however, that the holders
of shares of Common Stock, as such, shall not be entitled to vote on any
amendment of the certificate of incorporation of the Corporation (including any
amendment of any provision of a Preferred Stock Designation) that solely relates
to the powers, privileges, preferences or rights pertaining to one or more
outstanding series of Preferred Stock, or the number of shares of any 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, if the
holders of any of such series of Preferred Stock are entitled, separately or
together with the holders of any other series of Preferred Stock, to vote
thereon pursuant to the certificate of incorporation of the Corporation
(including any Preferred Stock Designation) or pursuant to the DGCL, unless a
vote of holders of shares of Common Stock is otherwise required by any provision
of the Preferred Stock Designation for any such series or any other provision of
the certificate of incorporation of the Corporation fixing the powers,
privileges, powers and rights of any such series or the qualifications,
limitations or restrictions thereon or is otherwise required by law. Holders of
shares of Preferred Stock (of any series) shall not be entitled to receive
notice of any meeting of stockholders at which they are not entitled to vote,
except as may be explicitly provided by any Preferred Stock Designation. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock,
without a vote of the holders of the Preferred Stock, or of any series thereof,
unless a vote of any such holders is required pursuant to another provision of
the certificate of incorporation of the Corporation (including any Preferred
Stock Designation).
ARTICLE V
BYLAWS
Bylaws for the Corporation may be adopted, consistent with law and the
provisions of the certificate of incorporation of the Corporation (including any
Preferred Stock Designation), and, once adopted, any Bylaw may be altered or
repealed: (i) by the affirmative vote of the holders of a majority of the voting
power of the capital stock issued and outstanding and entitled to
4
<PAGE> 5
vote thereon; provided, however, that any proposed alteration or repeal of, or
the adoption of any Bylaw inconsistent with, Section 2.2, 2.7 or 2.10 of Article
II or Section 3.1, 3.2 or 3.12 of Article III or Section 8.6 of Article VIII or
Article IX of the Bylaws in effect on, and as the same may be amended from time
to time in accordance herewith after, the date of the effectiveness of this
Amended and Restated Certificate of Incorporation, shall require the affirmative
vote of the holders of at least 80% of the voting power of all shares of capital
stock of the Corporation entitled generally to vote on the election of directors
of the Corporation ("VOTING STOCK") then outstanding, voting together as a
single class; and provided, further, however, that in the case of any such
stockholder action at a special meeting of stockholders, notice of the proposed
alteration, repeal or adoption of the new Bylaw or Bylaws must be contained in
the notice of such special meeting, or (ii) by the affirmative vote of a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (the "WHOLE BOARD"); provided,
however, that any amendment of the Bylaws by action of the Board of Directors
shall require the affirmative vote of a greater number of the directors if so
provided by the Bylaws (as from time to time amended and in effect from time to
time). Notwithstanding anything to the contrary elsewhere contained in the
certificate of incorporation of the Corporation, the affirmative vote of the
holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend or repeal, or to adopt any provision inconsistent with, this Article.
ARTICLE VI
STOCKHOLDER ACTION
Section 1. Action By Consent In Lieu of a Meeting. Effective upon and
commencing as of the day following the day on which General Motors Corporation,
a Delaware corporation ("GM"), and any company that is directly or indirectly
controlled by GM and of which at least a majority of the equity interests
therein are directly or indirectly beneficially owned by GM shall first cease to
be the owner, in the aggregate, of at least a majority of the then outstanding
shares of Common Stock (the "TRIGGER DATE"), and except as otherwise provided
pursuant to provisions of the certificate of incorporation of the Corporation
(including any Preferred Stock Designation) fixing the powers, privileges or
rights of any class or series of stock other than the Common Stock in respect of
action by written consent of the holders of such class or series of stock, any
action required or permitted
5
<PAGE> 6
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders.
Section 2. Special Meetings. Effective upon and commencing as of the
Trigger Date, except as otherwise required by law and subject to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or distributions upon liquidation, special meetings of
stockholders of the Corporation of any class or series for any purpose or
purposes may be called only by the Board of Directors pursuant to a resolution
stating the purpose or purposes thereof approved by a majority of the Whole
Board and, effective as of the Trigger Date, any power of stockholders to call a
special meeting is specifically denied. No business other than that stated in
the notice shall be transacted at any special meeting.
Section 3. Stockholder Nomination of Director Candidates and Other
Stockholder Proposals. Advance notice of stockholder nominations for the
election of directors and of the proposal by stockholders of any other action to
be taken by the stockholders shall be given in such manner as shall be provided
in the Bylaws of the Corporation (as amended and in effect from time to time).
Section 4. Amendment of this Article. Notwithstanding anything to the
contrary contained in the certificate of incorporation of the Corporation, 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,
shall be required to alter, amend or repeal, or to adopt any provision
inconsistent with, this Article.
ARTICLE VII
BOARD OF DIRECTORS
Section 1. Powers of the Board of Directors. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, which shall be constituted as provided in this Article and as
provided by law.
Section 2. Number, Election and Term of Office. Except in respect of
the election of additional directors as otherwise provided for by or pursuant to
the provisions of the certificate of incorporation of the Corporation (including
any Preferred Stock Designation) pertaining to any class or series of
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<PAGE> 7
stock having a preference over the Common Stock as to dividends or distributions
upon liquidation, the number of the directors of the Corporation shall be fixed
from time to time (and may be changed) exclusively pursuant to a resolution
adopted by a majority of the Whole Board, but shall not be less than three;
provided, however, that (i) no reduction in the number of directors shall end
the term of office of any incumbent director prior to the date such director's
term of office would otherwise end, and (ii) the Bylaws may provide that the
vote of a greater number of the directors may be required for action of the
Board of Directors changing the size of the Board of Directors. The directors,
other than those who may be elected by the holders of any class or series of
stock having a preference over the Common Stock as to dividends or distributions
upon liquidation, shall be classified, by the Board of Directors with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible, one class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2000, another class
to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 2001, and another class to be originally elected for
a term expiring at the annual meeting of stockholders to be held in 2002, with
each director to hold office until his or her successor is duly elected and
qualified, such classification to be effective upon the date shares of Common
Stock are first publicly held. At each succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each director to hold
office until his or her successor shall have been duly elected and qualified.
Section 3. Written Ballot Not Required. Unless and except to the extent
that the Bylaws of the Corporation shall so require, the election of directors
of the Corporation need not be by written ballot.
Section 4. Newly Created Directorships and Vacancies. Except for the
election of one or more directors as provided for by or pursuant to the
provisions of the certificate of incorporation of the Corporation (including any
Preferred Stock Designation) pertaining to any class or series of stock having a
preference over the Common Stock as to dividends or distributions upon
liquidation and except as the stockholders shall otherwise be entitled to elect
directors as provided by law, newly created directorships resulting from any
increase in the number of directors constituting the Board of Directors and any
vacancies on the Board of Directors occurring for any reason shall be
7
<PAGE> 8
filled only by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors, and
not by the stockholders; provided, however, that the Bylaws may provide that the
vote of a greater number of the directors may be required for action of the
Board of Directors to fill any vacancy on the Board of Directors and may provide
that any vacancy on the Board of Directors may be filled by vote of the
stockholders. Any director elected to fill a vacancy on the Board of Directors
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or in which the vacancy occurred and
until such director's successor shall have been duly elected and qualified.
Section 5. Removal. Subject to the rights of any class of Preferred
Stock or series thereof to elect and remove additional directors under specified
circumstances, (i) prior to the Trigger Date, any director may be removed from
office, 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, (ii) on and after the Trigger Date, any
director may be removed from office only for 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.
Section 6. Amendment of this Article. Notwithstanding anything to the
contrary elsewhere contained in the certificate of incorporation of the
Corporation, 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, shall be required to alter, amend or repeal, or to adopt any
provision inconsistent with, this Article.
ARTICLE VIII
LIMITATIONS ON LIABILITY OF AND INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. Limited Liability of Directors. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for any liability imposed by law (as in effect from time to time) (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for any act or omission not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any
8
<PAGE> 9
transaction from which the director derived an improper personal benefit.
Neither the amendment nor the repeal of this Section 1 of this Article shall
eliminate or reduce the effect thereof in respect of any matter occurring, or
any cause of action, suit or claim that, but for this Section 1 of this Article
would accrue or arise, prior to such amendment or repeal.
Section 2. Indemnification.
(a) Indemnification of Directors, Officers, Employees or Agents.
Each person who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative in nature, including any appeal (hereinafter a
"PROCEEDING"), by reason of the fact that such person (or a person of whom such
person is the legal representative) is or was a director, officer, employee or
agent of the Corporation or, while a director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, trustee, partner, member, employee, other fiduciary or agent of another
corporation or of a partnership, joint venture, limited liability company, trust
or other enterprise, including service with respect to employee benefit plans or
public service or charitable organizations, whether the basis of such claim or
proceeding is alleged actions or omissions in any such capacity or in any other
capacity while serving as a director, officer, trustee, partner, member,
employee, other fiduciary or agent thereof, may be indemnified and held harmless
by the Corporation to the fullest extent permitted by the DGCL, against all
expense and liability (including without limitation, attorneys' fees and
disbursements, court costs, damages, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties) reasonably incurred or suffered by
such person in connection therewith and such indemnification may continue as to
a person who has ceased to be a director, officer, employee or agent of the
Corporation and may inure to the benefit of such person's heirs, executors and
administrators. The Corporation, by provisions in its Bylaws or by agreement,
may accord to any current or former director, officer, employee or agent of the
Corporation the right to, or regulate the manner of providing to any current or
former director, officer, employee or agent of the Corporation, indemnification
to the fullest extent permitted by the DGCL.
(b) Advance of Expenses. The Corporation to the fullest extent
permitted by the DGCL may advance to any person who is or was a director,
officer, employee or agent of the Corporation (or to the legal representative
thereof) any and all
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expenses (including, without limitation, attorneys fees and disbursements and
court costs) reasonably incurred by such person in respect of any proceeding to
which such person (or a person of whom such person is a legal representative) is
made a party or threatened to be made a party by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation or,
while a director, officer, employee or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, trustee,
partner, member, employee, other fiduciary or agent of another corporation or a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to employee benefit plans or public
service or charitable organizations; provided, however, that, to the extent the
DGCL requires, the payment of such expenses in advance of the final disposition
of the proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such person, to repay all amounts so advanced if
it shall ultimately be determined that such person is not entitled to be
indemnified against such expense under this Section 2 or otherwise. The
Corporation by provisions in its Bylaws or by agreement may accord any such
person the right to, or regulate the manner of providing to any such person,
such advancement of expenses to the fullest extent permitted by the DGCL.
(c) Non-Exclusivity of Rights. Any right to indemnification and
advancement of expenses conferred as permitted by this Section 2 shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute (including the DGCL), any other provision of the certificate
of incorporation of the Corporation, any agreement, any vote of stockholders or
the Board of Directors or otherwise.
Section 3. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or of another corporation or a partnership, joint venture, limited
liability company, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the DGCL.
Section 4. Severability. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable as applied to any
circumstance for any reason whatsoever: (a) the validity, legality and
enforceability of such provisions in any other circumstance and of the remaining
provisions of this Article (including, without limitation, each
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portion of any paragraph of this Article containing any such provision held to
be invalid, illegal or unenforceable that is not itself held to be invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby
and (b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each such portion of any paragraph of this
Article containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to permit the Corporation to protect its
directors, officers, employees and agents from personal liability in respect of
their good faith service to or for the benefit of the Corporation to the fullest
extent permitted by law.
ARTICLE IX
CERTAIN BUSINESS COMBINATIONS
Section 1. Vote Required for Certain Business Combinations. In addition
to any affirmative vote required by law or the certificate of incorporation or
the Bylaws of the Corporation, and except as otherwise expressly provided in
Section 2 of this Article, a Business Combination (as hereinafter defined)
involving as a party, or proposed by or on behalf of, an Interested Stockholder
(as hereinafter defined) or an Affiliate or Associate (as hereinafter defined)
of an Interested Stockholder or a person who upon consummation of such Business
Combination would become an Affiliate or Associate of an Interested Stockholder
shall, except as otherwise prohibited by applicable law, require the affirmative
vote of not less than 66- 2/3% of the votes entitled to be cast by the holders
of all the then outstanding shares of Voting Stock, voting together as a single
class, excluding Voting Stock Beneficially Owned (as hereinafter defined) by any
Interested Stockholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage affirmative
vote or the vote of any other class of stockholders may otherwise be required,
by law or otherwise.
Section 2. Exceptions to Vote Required by Section 1. The provisions of
Section 1 of this Article shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such stockholder
vote, if any, as is required by law or by any other provision of the certificate
of incorporation or Bylaws of the Corporation, if all of the conditions
specified in either of the following paragraphs (a) or (b) are met or, in the
case of a Business Combination not involving the payment of consideration to the
holders of the
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Corporation's outstanding capital stock, if the condition specified in the
following paragraph (a) is met:
(a) Continuing Director Approval. The Business Combination shall
have been approved, either specifically or as a transaction which is within an
approved category of transactions, by a majority of the Continuing Directors (as
hereinafter defined), whether such approval is given prior to or subsequent to
the acquisition of, or announcement or public disclosure of the intention to
acquire, Beneficial Ownership of Voting Stock that caused the Interested
Stockholder to become an Interested Stockholder.
(b) Other Conditions. All of the following conditions shall have
been met:
(i) the aggregate amount of cash and the Fair Market Value
(as hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of Common Stock in such Business Combination shall be at least equal to
the highest amount determined under clauses (A) and (B) below:
(A) if applicable, the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any share of Common
Stock in connection with the acquisition by the Interested Stockholder of
Beneficial Ownership of shares of Common Stock (x) within the two-year period
immediately prior to the first public announcement of the proposed Business
Combination (the "ANNOUNCEMENT DATE") or (y) in the transaction in which it
became an Interested Stockholder, whichever is higher, in either case as
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock; and
(B) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested Stockholder became
an Interested Stockholder (the "DETERMINATION DATE"), whichever is higher, as
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock.
(ii) The aggregate amount of cash and the Fair Market Value,
as of the date of the consummation of the Business Combination, of consideration
other than cash to be received per share by holders of shares of any class or
series of outstanding capital stock, other than Common Stock, shall be at least
equal
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to the highest amount determined under clauses (A), (B), (C) and (D) below:
(A) if applicable, the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any share of such
class or series of capital stock in connection with the acquisition by the
Interested Stockholder of Beneficial Ownership of shares of such class or series
of capital stock (x) within the two-year period immediately prior to the
Announcement Date or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with respect to
such class or series of capital stock;
(B) the Fair Market Value per share of such class or
series of capital stock on the Announcement Date or on the Determination Date,
whichever is higher, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class or series of capital
stock;
(C) if applicable, the price per share equal to the
Fair Market Value per share of such class or series of capital stock determined
pursuant to the immediately preceding clause (B), multiplied by the ratio of (x)
the highest per share price (including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder
for any share of such class or series of capital stock in connection with the
acquisition by the Interested Stockholder of Beneficial Ownership of shares of
such class or series of capital stock within the two-year period immediately
prior to the Announcement Date, as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect to such class or
series of capital stock to (y) the Fair Market Value per share of such class or
series of capital stock on the first day in such two-year period on which the
Interested Stockholder acquired Beneficial Ownership of any share of such class
or series of capital stock, as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to such class or series
of capital stock; and
(D) if applicable, the highest preferential amount per
share to which the holders of shares of such class or series of capital stock
would be entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up
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of the affairs of the Corporation, regardless of whether the Business
Combination to be consummated constitutes such an event.
The provisions of this paragraph (b) shall be required to be met with respect to
every class or series of outstanding capital stock, whether or not the
Interested Stockholder has previously acquired Beneficial Ownership of any
shares of a particular class or series of capital stock.
(iii) The consideration to be received by holders of a
particular class or series of outstanding capital stock shall be in cash or in
the same form as previously has been paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect acquisition of Beneficial
Ownership of shares of such class or series of capital stock. If the
consideration so paid for shares of any class or series of capital stock varied
as to form, the form of consideration for such class or series of capital stock
shall be either cash or the form used to acquire Beneficial Ownership of the
largest number of shares of such class or series of capital stock previously
acquired by the Interested Stockholder.
(iv) After the Determination Date and prior to the
consummation of such Business Combination: (A) except as approved by a majority
of the Continuing Directors, there shall have been no failure to declare and pay
at the regular date therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any outstanding capital
stock; (B) there shall have been no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any stock split, stock
dividend, subdivision or reclassification with respect to the Common Stock),
except as approved by a majority of the Continuing Directors; (C) there shall
have been an increase in the annual rate of dividends paid on the Common Stock
as necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction that has the
effect of reducing the number of outstanding shares of Common Stock, unless the
failure so to increase such annual rate is approved by a majority of the
Continuing Directors; and (D) such Interested Stockholder shall not have become
the beneficial owner of any additional shares of capital stock except as part of
the transaction that results in such Interested Stockholder becoming an
Interested Stockholder and except in a transaction that, after giving effect
thereto, would not result in any increase in the Interested Stockholder's
percentage Beneficial Ownership of any class or series of capital stock.
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(v) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (the
"ACT") (or any subsequent provisions replacing such Act, rules or regulations)
shall be mailed to all stockholders of the Corporation at least 20 business days
prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such Act or
subsequent provisions). The proxy or information statement shall contain on the
first page thereof, in a prominent place, any statement as to the advisability
(or inadvisability) of the Business Combination that the Continuing Directors,
or any of them, may choose to make and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by a
majority of the Continuing Directors as to the fairness (or not) of the terms of
the Business Combination from a financial point of view to the holders of the
outstanding shares of capital stock other than the Interested Stockholder and
its Affiliates or Associates, such investment banking firm to be paid by the
Corporation a reasonable fee for its services.
(vi) Neither such Interested Stockholder nor any
Affiliate or Associate of such Interested Stockholder shall have acted on behalf
of the Corporation or any Subsidiary (as hereinafter defined) to cause any
material change in the business or equity capital structure of the Corporation
or a Subsidiary without the approval of a majority of the Continuing Directors.
Section 3. Certain Definitions. For purposes of this Article, the
following definitions shall apply:
(a) The term "BUSINESS COMBINATION" shall mean:
(i) any merger or consolidation of the Corporation or any
Subsidiary with (A) any Interested Stockholder or (B) any other company (whether
or not itself an Interested Stockholder) which is or after such merger or
consolidation would be an Affiliate or Associate of an Interested Stockholder;
or
(ii) any (A) sale, lease, exchange, mortgage, pledge,
transfer or other disposition or hypothecation of assets of the Corporation or
of any Subsidiary (whether or not in connection with the dissolution of the
Corporation) to or for the benefit of, or (B) purchase by the Corporation or any
Subsidiary from or (C) issuance by the Corporation or any Subsidiary of
securities to or (D) investment, loan, advance, guarantee, participation or
other extension of credit by the Corporation or
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any Subsidiary to, from, in or with or (E) establishment of a partnership, joint
venture or other joint enterprise with or for the benefit of, in each case, any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder which transaction, alone or taken together with any related
transaction or transactions, has an aggregate Fair Market Value and/or involves
aggregate commitments of $25,000,000 or more or any arrangement, whether as
employee, consultant or otherwise (other than service as a director) pursuant to
which any Interested Stockholder or any Affiliate or Associate thereof shall,
directly or indirectly, attain any control over or responsibility for the
management of any aspect of the business or affairs of the Corporation which
involves assets which have an aggregate Fair Market Value of $25,000,000 or
more; or
(iii) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation; or
(iv) any (A) reclassification of securities (including any
reverse stock split), or (B) recapitalization of the Corporation (including any
change to or exchange of securities of the Corporation), or (C) any merger or
consolidation of the Corporation with any of its Subsidiaries or (D) any other
transaction (whether or not with or otherwise involving as a party an Interested
Stockholder) that, in each case, has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of capital stock, or
any securities convertible into or exchangeable for capital stock or other
equity securities, of the Corporation or any Subsidiary that is Beneficially
Owned by any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder, or
(v) any agreement, contract or other arrangement providing
for any one or more of the actions specified in the foregoing clauses (i)
through (iv).
(b) The term "PERSON" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of capital stock.
(c) The term "INTERESTED STOCKHOLDER" shall mean any person
(other than (i) the Corporation or any Subsidiary, any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee
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or fiduciary with respect to any such plan or holding Voting Stock for the
purpose of funding any such plan or funding other employee benefits for
employees of the Corporation or any Subsidiary when acting in such capacity and
(ii) until immediately following the date on which GM and any Affiliate or
Associate thereof shall first cease to Beneficially Own shares of Voting Stock
representing ten percent or more of the votes entitled to be cast by the holders
of all then outstanding shares of Voting Stock, GM or any company directly or
indirectly controlled by GM and of which at least a majority of the equity
interests therein are directly or indirectly beneficially owned by GM) who is,
or has announced or publicly disclosed a plan or intention to become, the
Beneficial Owner of Voting Stock representing ten percent or more of the votes
entitled to be cast by the holders of all then outstanding shares of Voting
Stock.
(d) A person shall be a "BENEFICIAL OWNER" of any capital stock or
other securities of the Corporation: (i) which such person or any of its
Affiliates or Associates owns or has the economic benefit of ownership of,
directly or indirectly; (ii) which such person or any of its Affiliates or
Associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding; or
(iii) any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock, owns or
has the economic benefit of ownership of. For the purposes of determining
whether a person is an Interested Stockholder pursuant to paragraph (c) of this
Section 3, the number of shares of capital stock of the Corporation deemed to be
outstanding shall include shares deemed beneficially owned by such person
through application of this paragraph (d) of this Section 3, but shall not
include any other shares of capital stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise. Notwithstanding the foregoing, for purposes
of this Article, a person shall not be deemed a "Beneficial Owner" of any
capital stock which such person has the right to acquire upon exercise of the
Rights issued pursuant to the Rights Agreement, dated as of February 1, 1999,
between the Corporation and BankBoston, N.A., as Rights Agent (including any
successor rights plan thereto), if such person would not be deemed the
beneficial
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owner of such capital stock under the terms of such Rights Agreement.
(e) The term "AFFILIATE" in respect of a person means any person
controlling, controlled by or under common control with such person.
(f) The term "ASSOCIATE" in respect of an individual means (i) any
corporation or other organization of which such person is an officer or partner
or otherwise participates in a material way in the management or policy-making
thereof or is the Beneficial Owner of ten percent (10%) or more of any class of
equity security, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar fiduciary capacity and (iii) any parent or lineal descendant of
such person or the spouse of such person or any relative of such person who has
the same home as such person or who is a director, officer, partner, limited
liability company member, trustee or other fiduciary of any organization of
which such person is also a director, officer, partner, limited liability
company member, trustee or other fiduciary or substantial beneficiary. The term
"ASSOCIATE" in respect of any company means (i) any director, officer or trustee
of such company or in the case of a limited liability company any manager or
managing member or in the case of a partnership any general partner, (ii) any
other person who participates in a material way in the management or
policy-making of such company and (iii) any person who is the Beneficial Owner
of ten percent (10%) or more of any class of equity security of such company.
(g) The term "SUBSIDIARY" means any company of which a majority of any
class of equity securities are directly or indirectly owned by the Corporation.
(h) The term "CONTINUING DIRECTOR" with respect to an Interested
Stockholder means any member of the Board of Directors (while such person is a
member of the Board of Directors) who is not an Affiliate or Associate or
representative of such Interested Stockholder and who was a member of the Board
of Directors prior to the time that such Interested Stockholder became an
Interested Stockholder, and any successor of a Continuing Director (while such
successor is a member of the Board of Directors) who is not an Affiliate or
Associate or representative of such Interested Stockholder and is recommended or
elected to succeed the Continuing Director by a majority of the Continuing
Directors.
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(i) The term "FAIR MARKET VALUE" means: (i) in the case of cash, the
amount of such cash; (ii) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a share
of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Act on which such stock
is listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on The Nasdaq Stock Market or any similar
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (iii) in the case of
property other than cash or stock, the fair market value of such property on the
date in question as determined in good faith by a majority of the Continuing
Directors.
(j) In the event of any Business Combination in which the Corporation
survives the transaction as a juridic entity, the phrase "consideration other
than cash to be received" as used in clause (i) of paragraph (b) of Section 2 of
this Article shall include the shares of Common Stock and/or the shares of any
other class or series of capital stock retained by the holders of such shares.
Section 4. Certain Determinations. A majority of the Continuing
Directors shall have the power and duty to determine for the purposes of this
Article, on the basis of information known to them after reasonable inquiry, all
questions arising under this Article, including, without limitation, (a) whether
a person is an Interested Stockholder, (b) the number of shares of capital stock
or other securities Beneficially Owned by any person, (c) whether a person is an
Affiliate or Associate of another person, (d) whether a Business Combination is
proposed by or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder or a person who upon consummation of such
Business Combination would become an Affiliate or Associate of such Interested
Stockholder, (e) whether the assets that are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $25,000,000 or more, and (f)
the application of any other term used in this Article. Any such determination
made
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in good faith shall be binding and conclusive on the Corporation, all of its
stockholders and all other parties.
Section 5. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Article shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
Section 6. Compliance with Section 2 Does Not Obligate or Limit Board
of Directors. The fact that any Business Combination complies with the
provisions of Section 2 of this Article shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve such Business Combination or recommend its adoption
or approval to the stockholders of the Corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
Section 7. Business Combination Proposed By an Interested Stockholder.
For the purposes of this Article, a Business Combination shall be presumed to
have been proposed by or on behalf of an Interested Stockholder or an Affiliate
or Associate of an Interested Stockholder or a person who upon consummation of
such Business Combination would become an Affiliate or Associate of an
Interested Stockholder if, after such Interested Stockholder became such, the
Business Combination is proposed following the election of any director of the
Corporation who with respect to such Interested Stockholder would not qualify to
serve as a Continuing Director.
Section 8. Amendment of this Article. Notwithstanding anything to the
contrary elsewhere contained in the certificate of incorporation of the
Corporation, any proposal to alter, amend or repeal, or to adopt any provision
inconsistent with, this Article shall require the affirmative vote of the
holders of not less than 66-2/3% of the votes entitled to be cast by the holders
of all the then outstanding shares of Voting Stock, voting together as a single
class, excluding Voting Stock beneficially owned by any Interested Stockholder;
provided, however, that this Section 8 shall not apply to, and such 66-2/3% vote
shall not be required for, any alteration, amendment or repeal of, or the
adoption of any provision inconsistent with, this Article unanimously
recommended by the Board of Directors if a majority of the directors are persons
who are Continuing Directors with respect to any Interested Stockholder.
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ARTICLE X
CERTAIN TRANSACTIONS WITH STOCKHOLDERS AND CORPORATE
OPPORTUNITIES
Section 1. Certain Acknowledgements. In recognition and anticipation
that (i) the Corporation will cease to be a wholly-owned subsidiary of GM but
that GM will remain, for a period of time, a significant stockholder of the
Corporation, (ii) that directors, officers and/or employees of GM or of
Affiliated Companies (as defined below in this Article) of GM may serve as
directors and/or officers of the Corporation, (iii) that GM and Affiliated
Companies thereof engage and are expected to continue to engage in the same,
similar or related lines of business as those in which the Corporation, directly
or indirectly, may engage and/or other business activities that overlap with or
compete with those in which the Corporation, directly or indirectly, may engage,
(iv) that the Corporation and Affiliated Companies thereof will engage in
material business transactions with GM and Affiliated Companies thereof,
including (without limitation) being a significant supplier of GM and Affiliated
Companies thereof, and that the Corporation is expected to benefit therefrom,
and (v) that, as a consequence of the foregoing, it is in the best interests of
the Corporation that the respective rights and duties of the Corporation and of
GM and Affiliated Companies of GM, and the duties of any directors or officers
of the Corporation who are also directors, officers or employees of GM or
Affiliated Companies thereof, be determined and delineated in respect of any
transactions between, or opportunities that may be suitable for both, the
Corporation and Affiliated Companies thereof, on the one hand, and GM and
Affiliated Companies thereof, on the other hand, the provisions of this Article
shall regulate and define the conduct of certain of the business and affairs of
the Corporation in relation to GM and Affiliated Companies thereof.
Section 2. Certain Agreements and Transactions Permitted; Certain
Fiduciary Duties of Certain Stockholders, Directors and Officers. The
Corporation may from time to time enter into and perform, and cause or permit
any Affiliated Company of the Corporation to enter into and perform, one or more
agreements (or modifications or supplements to pre-existing agreements) with GM
or Affiliated Companies thereof pursuant to which the Corporation or an
Affiliated Company thereof, on the one hand, and GM or an Affiliated Company
thereof, on the other hand, agree to engage in transactions of any kind or
nature with each other or with Affiliated Companies thereof and/or agree to
compete, or to refrain from competing or to limit or restrict
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their competition, with each other, including to allocate and to cause their
respective directors, officers and employees (including any who are directors,
officers or employees of both) to allocate opportunities between or to refer
opportunities to each other. Subject to Section 4 of this Article, no such
agreement, or the performance thereof by the Corporation or GM, or any
Affiliated Company thereof, shall be considered contrary to (i) any fiduciary
duty that GM or any Affiliated Company thereof may owe to the Corporation or any
Affiliated Company thereof or to any stockholder or other owner of an equity
interest in the Corporation or any Affiliated Company thereof by reason of GM or
any Affiliated Company thereof being a controlling stockholder of the
Corporation or participating in the control of the Corporation or of any
Affiliated Company thereof or (ii) any fiduciary duty of any director or officer
of the Corporation or of any Affiliated Company thereof who is also a director,
officer or employee of GM or any Affiliated Company thereof to the Corporation
or such Affiliated Company, or to any stockholder thereof, if any of the
following conditions shall have been satisfied:
(A) such agreement shall have been entered into before the Corporation
ceased to be a wholly-owned subsidiary of GM and continued in
effect in respect of any such transaction or opportunity after
such time; or
(B) such agreement shall have been approved (I) by the Board of
Directors of the Corporation by the affirmative vote of a majority
of the members (even though less than a quorum) who are not
Interested Persons (as defined below in this Article) in respect
of such agreement or (II) by a committee of the Board of Directors
of the Corporation constituted solely of members who are not
Interested Persons in respect of such agreement by the affirmative
vote of a majority of the members of such committee or (III) by
one or more officers or employees of the Corporation (including
officers or employees of the Corporation acting as directors,
officers, trustees, partners or members of, or in any similar
capacity on behalf of, any Affiliated Company of the Corporation)
who in each case is not an Interested Person in respect of such
agreement and to whom the authority to approve such agreement has
been delegated either by the Board of Directors by the same
affirmative vote
22
<PAGE> 23
required by subclause (I) of this subparagraph for approval of
such agreement by the Board of Directors or by a committee of the
Board of Directors constituted as provided by and acting by the
same affirmative vote as required by subclause (II) of this
subparagraph for approval of such agreement by such committee or,
in the case of an employee, to whom such authority has been
delegated by an officer to whom authority to approve such
agreement has been so delegated; provided, however, that, before
approval of such agreement, the material facts of the relationship
between the Corporation or such Affiliated Company thereof, on the
one hand, and GM or such Affiliated Company thereof, on the other
hand, and the material terms and facts as to such agreement were
disclosed to or were known by the members of the Board of
Directors or of such committee or the officer or officers or
employee or employees who acted on approval of such agreement, as
the case may be; or
(C) such agreement was fair to the Corporation as of the time it was
entered into by the Corporation; or
(D) such agreement was approved by the affirmative vote of the holders
of a majority of the shares of capital stock of the Corporation
entitled to vote thereon and who do vote thereon, exclusive of GM
and any Affiliated Company thereof and any Interested Person in
respect of such agreement; or
(E) in the case of any such transaction that was not entered into in
the performance of an agreement that satisfied the requirements of
clause (A), (B), (C) or (D) of this sentence, such transaction
shall have been approved or ratified by (I) the Board of Directors
of the Corporation by the affirmative vote of a majority of the
members (even though less than a quorum) who are not Interested
Persons in respect of such transaction or (II) by a committee of
the Board of Directors of the Corporation constituted solely of
members who are not Interested Persons in respect of such
transaction by the affirmative vote of a majority of the members
of such committee or (III) by one or more officers or employees of
the Corporation
23
<PAGE> 24
(including officers or employees of the Corporation acting as
directors, officers, trustees, partners or members of, or in any
similar capacity on behalf of, any Affiliated Company of the
Corporation) who in each case is not an Interested Person in
respect of such transaction and to whom the authority to approve
such transaction has been delegated either by the Board of
Directors by the same affirmative vote required by subclause (I)
of this subparagraph for approval of such transaction by the Board
of Directors or a committee of the Board of Directors constituted
as provided by and acting by the same affirmative vote as required
by subclause (II) of this subparagraph for approval of such
transaction by such committee or, in the case of an employee, to
whom such authority has been delegated by an officer to whom
authority to approve such transaction has been so delegated;
provided, however, that, before such approval or ratification, the
material facts of the relationship between the Corporation or such
Affiliated Company thereof, on the one hand, and GM or such
Affiliated Company thereof, on the other hand, and the material
facts as to such transaction were disclosed to or were known by
the members of the Board of Directors or of such committee or the
officer or officers or employee or employees who acted on approval
or ratification of such transaction, as the case may be; or
(F) in the case of any such transaction that was not entered into in
the performance of an agreement that satisfied the requirements of
clause (A), (B), (C) or (D) of this sentence, such transaction was
fair to the Corporation as of the time it was entered into by the
Corporation; or
(G) in case of any such transaction that was not entered into in the
performance of an agreement that satisfied the requirements of
clause (A), (B), (C) or (D) of this sentence, such transaction was
approved or ratified by the affirmative vote of the holders of a
majority of the shares of capital stock of the Corporation
entitled to vote thereon and who do vote thereon, exclusive of GM
and any Affiliated Company thereof and any Interested Person in
respect of such transaction.
24
<PAGE> 25
Subject to Section 4 of this Article, neither GM nor any Affiliated Company
thereof, as a stockholder of the Corporation or participant in control of the
Corporation, shall have or be under any fiduciary duty to refrain from entering
into any agreement or participating in any transaction that meets the
requirements of any of clauses (A), (B), (C), (D), (E), (F) or (G) of the
immediately preceding sentence and no director, officer or employee of the
Corporation who is also a director, officer or employee of GM or any Affiliated
Company thereof shall have or be under any fiduciary duty to the Corporation to
refrain from acting on behalf of the Corporation or any Affiliated Company
thereof in respect of any such agreement or transaction or performing any such
agreement in accordance with its terms. Any person purchasing or otherwise
acquiring any shares of capital stock of the Corporation, or any interest
therein, shall be deemed to have notice of and to have consented to the
provisions of this Article. The failure of any agreement or transaction between
the Corporation or an Affiliated Company thereof, on the one hand, and GM or an
Affiliated Company thereof, on the other hand, to satisfy the requirements of
this Section shall not, by itself, cause such agreement or transaction to
constitute any breach of any fiduciary duty to the Corporation or to any
Affiliated Company thereof, or, any to stockholder or other owner of an equity
interest therein, by any controlling stockholder of the Corporation or such
Affiliated Company thereof or by any director or officer of the Corporation.
Section 3. Certain Definitions. For purposes of this Article, the
following definitions shall apply:
(a) "AFFILIATED COMPANY" shall mean in respect of GM any company which
is controlled by GM, controls GM or is under common control with
GM (other than the Corporation and any company that is controlled
by the Corporation) and in respect of the Corporation shall mean
any company controlled by the Corporation.
(b) "INTERESTED PERSON" in respect of an agreement or transaction
referred to in Section 2 of this Article shall mean any director,
officer or employee of GM or an Affiliated Company thereof and any
person who has a financial interest that is material to such
person in GM or such Affiliated Company or otherwise has a
personal financial interest that is material to such person in
such agreement or transaction; provided, however, that no
such financial interest shall be
25
<PAGE> 26
considered material by reason of a person's ownership of
securities of GM or an Affiliated Company thereof, if such
ownership of securities has been determined in good faith not to
be reasonably likely to influence such individual's decision on
behalf of the Corporation or an Affiliated Company thereof in
respect of the agreement or transaction either in the specific
instance by, or pursuant to a policy adopted by, the Board of
Directors of the Corporation by the affirmative vote of a majority
of the members (even though less than a quorum) who are not
directors, officers or employees of GM or any Affiliated Company
thereof or a committee of the Board of Directors of the
Corporation constituted solely of members who are not directors,
officers or employees of GM or any Affiliated Company thereof by
the affirmative vote of a majority of such committee.
Section 4. Termination. The provisions of this Article shall have no
further force or effect at such time as GM and any company controlling,
controlled by or under common control with GM shall first cease to be the owner,
in the aggregate, of Voting Stock representing twenty-five percent (25%) or more
of the votes entitled to be cast by the holders of all the then outstanding
shares of Voting Stock; provided, however, that such termination shall not
terminate the effect of such provisions with respect to (i) any agreement
between the Corporation or an Affiliated Company thereof and GM or an Affiliated
Company thereof 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 (ii) any transaction entered into between the Corporation
or an Affiliated Company thereof and GM or an Affiliated Company thereof or the
allocation of any opportunity between them before such time.
Section 5. Amendment of this Article. Notwithstanding anything
to the contrary elsewhere contained in the certificate of incorporation of the
Corporation, 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, shall be required to alter, amend or repeal, or to adopt any
provision inconsistent with, this Article.
26
<PAGE> 27
ARTICLE XI
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in the certificate of
incorporation of the Corporation, as from time to time in effect, and to add
thereto any other provision authorized by the laws of the State of Delaware at
the time in force, and, except as may otherwise be explicitly provided by any
provision of the certificate of incorporation of the Corporation, all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or officers of the Corporation or any other person whomsoever by and
pursuant to the certificate of incorporation of the Corporation in its present
form, or as hereafter amended, are granted subject to the right reserved in this
Article. Any provision of the certificate of incorporation of the Corporation
may be altered, amended or repealed, and any inconsistent provision may be
added, by such action (if any) of the Board of Directors and the stockholders,
and otherwise in such manner, as is provided by law; provided, however, that, in
addition to any other vote of stockholders (if any) required by law and
notwithstanding that a lower vote (or no vote) of stockholders otherwise would
be required, (a) if any provision of the certificate of incorporation of the
Corporation other than this Article requires a particular vote of stockholders
in order to alter, amend or repeal, or adopt any provision inconsistent with,
any provision of the certificate of incorporation of the Corporation, then such
vote of stockholders shall be required for such change and (b) the vote of
stockholders required to alter, amend or repeal, or adopt any provision
inconsistent with, this proviso shall be the affirmative vote of the holders of
at least 80% of the Voting Stock then outstanding, voting together as a single
class.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be duly executed this 26th day of
January __, 1999.
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
By: /s/ Logan G. Robinson
-----------------------------------
Name: Logan G. Robinson
Title: Vice President and
General Counsel
27
<PAGE> 1
EXHIBIT 3.2
================================================================================
BYLAWS
OF
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(Incorporated under the Laws of the State of Delaware)
As of January 26, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
Offices And Records; Certain Definitions................. 1
Section 1.1 Delaware Office................................................. 1
Section 1.2 Other Offices................................................... 1
Section 1.3 Books and Records............................................... 1
Section 1.4 Certain Definitions............................................. 1
ARTICLE II
Action By Stockholders.......................... 2
Section 2.1 Annual Meetings................................................. 2
Section 2.2 Special Meetings................................................ 2
Section 2.3 Place of Meetings............................................... 2
Section 2.4 Notice of Meetings; Postponement or
Cancellation.................................................. 2
Section 2.5 Quorum and Adjournment.......................................... 3
Section 2.6 Proxies......................................................... 4
Section 2.7 Notice of Stockholder Nominations and
Other Proposed Stockholder Action............................. 4
Section 2.8 Procedure for Election of Directors and
Other Stockholder Votes....................................... 8
Section 2.9 Vote Required for Stockholder Action............................ 9
Section 2.10 No Stockholder Action by Written Consent....................... 9
ARTICLE III
Board of Directors............................ 9
Section 3.1 General Powers.................................................. 9
Section 3.2 Number and Tenures of Directors................................. 9
Section 3.3 Regular Meetings................................................ 10
Section 3.4 Special Meetings................................................ 10
Section 3.5 Notice of Meetings.............................................. 10
Section 3.6 Action by Written Consent In Lieu of a
Meeting....................................................... 11
Section 3.7 Telephonic Participation in Meetings............................ 11
Section 3.8 Quorum; Vote Required for Action................................ 11
Section 3.9 Vacancies....................................................... 12
Section 3.10 Board Approval Policies........................................ 12
Section 3.11 Committees of the Board of Directors........................... 13
i
<PAGE> 3
Page
----
Section 3.12 Removal........................................................ 17
Section 3.13 Minutes of the Board and Certain Other Records................. 17
ARTICLE IV
Officers................................. 18
Section 4.1 Officers........................................................ 18
Section 4.2 Election and Term of Office..................................... 18
Section 4.3 Chairman of the Board; Chief Executive
Officer; Vice Chairmen of the Board........................... 19
Section 4.4 President....................................................... 19
Section 4.5 Vice Presidents................................................. 19
Section 4.6 Treasurer; Assistant Treasurers................................. 20
Section 4.7 General Counsel; Assistant General
Counsel....................................................... 20
Section 4.8 Secretary; Assistant Secretaries................................ 20
Section 4.9 Agents; Employees............................................... 21
Section 4.10 Removal........................................................ 21
Section 4.11 Vacancies...................................................... 22
ARTICLE V
Indemnification of Directors, Officers,
Employees and Agents........................... 22
Section 5.1 Indemnification Respecting Third Party
Claims........................................................ 22
Section 5.2 Indemnification Respecting Derivative
Claims........................................................ 23
Section 5.3 Determination of Entitlement to
Indemnification............................................... 24
Section 5.4 Right to Indemnification In Certain
Circumstances................................................. 25
Section 5.5 Advances of Expenses............................................ 26
Section 5.6 Indemnification Not Exclusive................................... 26
Section 5.7 Corporate Obligations; Reliance................................. 27
Section 5.8 Accrual of Claims; Successors................................... 27
Section 5.9 Insurance....................................................... 27
Section 5.10 Definitions of Certain Terms................................... 28
ARTICLE VI
Stock Certificates and Transfers..................... 28
Section 6.1 Stock Certificates and Transfers................................ 28
Section 6.2 Lost, Stolen or Destroyed Certificates.......................... 29
ii
<PAGE> 4
Page
----
ARTICLE VII
Contracts, Proxies, Etc.......................... 29
Section 7.1 Contracts....................................................... 29
Section 7.2 Proxies......................................................... 29
ARTICLE VIII
Miscellaneous Provisions......................... 30
Section 8.1 Fiscal Year..................................................... 30
Section 8.2 Dividends....................................................... 30
Section 8.3 Seal............................................................ 30
Section 8.4 Waiver of Notice................................................ 30
Section 8.5 Annual Audit.................................................... 30
Section 8.6 Resignations.................................................... 31
ARTICLE IX
Amendments................................ 31
iii
<PAGE> 5
BYLAWS
OF
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(As of January 26, 1999)
(Incorporated under the Laws of the State of Delaware)
ARTICLE I
OFFICES AND RECORDS; CERTAIN DEFINITIONS
Section 1.1 Delaware Office. The principal office of the Corporation in
the State of Delaware shall be located in the City of Wilmington, County of New
Castle, and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street in the City of Wilmington, County of New
Castle.
Section 1.2 Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the business of the
Corporation may from time to time require and as may be authorized by the Board
of Directors or the officers.
Section 1.3 Books and Records. The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors or officers.
Section 1.4 Certain Definitions. Except where otherwise explicitly
provided, all references herein to the "CERTIFICATE OF INCORPORATION" shall mean
the certificate of incorporation of the Corporation as from time to time amended
or restated and in effect (including any certificates of designations (a
"PREFERRED STOCK DESIGNATION") filed under section 151(g) (or any successor
provision) of the General Corporation Law of the State of Delaware, as amended
and in effect from time to time (the "DGCL")), starting with the Amended and
Restated Certificate of Incorporation dated January 26, 1999 in effect on the
date these Bylaws become effective. In the event of any amendment of these
Bylaws that does not involve a complete restatement thereof, any reference
herein to "THE BYLAWS" or "THESE BYLAWS" or "HEREIN", or "HEREOF" or a like
reference shall refer to these Bylaws as so amended.
<PAGE> 6
ARTICLE II
ACTION BY STOCKHOLDERS
Section 2.1 Annual Meetings. The Annual Meeting of Stockholders of the
Corporation for the election of directors and to act on such other matters as
may properly be brought before the meeting shall be held on such date and at
such time as may be fixed by resolution of the Board of Directors, except as may
otherwise be provided by law.
Section 2.2 Special Meetings. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the common stock as to dividends or distributions upon
liquidation, special meetings of stockholders of the Corporation of any class or
series for any purpose or purposes may be called only by the Board of Directors
pursuant to a resolution stating the purpose or purposes thereof approved by a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (the "WHOLE BOARD"); provided,
however, that, in addition, prior to the "TRIGGER DATE" (as defined in the
Certificate of Incorporation), the Secretary of the Corporation shall call a
special meeting of stockholders promptly upon request by General Motors
Corporation, a Delaware corporation ("GM"), or any of its affiliates (as defined
in Section 2.7 of these Bylaws), in each case if such entity is a common
stockholder of the Corporation. No business other than that stated in the notice
shall be transacted at any special meeting.
Section 2.3 Place of Meetings. The Board of Directors shall designate
the place of meeting for any annual meeting or for any special meeting of the
stockholders. If no designation is so made, the place of meeting shall be the
principal office of the Corporation.
Section 2.4 Notice of Meetings; Postponement or Cancellation. Written
notice of a meeting of stockholders, stating the place, day and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given, either personally or by mail, by the
Corporation not less than 10 calendar days nor more than 60 calendar days before
the date of the meeting to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail with postage thereon prepaid, addressed to the
stockholder at such person's address as it appears on the
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<PAGE> 7
stock transfer books of the Corporation. Such further notice shall be given as
may be required by law. Only such business shall be conducted at a special
meeting of stockholders of which notice shall have been given in accordance
herewith. Any proper matter for stockholder action may be brought before an
Annual Meeting of Stockholders, provided that notice of any such matter to be
brought before the meeting by any stockholder shall have been given to the
Corporation as provided by Section 2.7 of these Bylaws. Meetings may be held
without notice if all stockholders entitled to vote are present, or if notice is
waived in accordance with Section 8.4 of these Bylaws by those not present or
not provided notice. Any previously scheduled meeting of the stockholders may be
postponed or cancelled, and any special meeting of the stockholders called by
the Board of Directors may be postponed or cancelled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of all outstanding shares of the Corporation entitled to vote generally in
the election of directors ("VOTING STOCK"), represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders, except that, when
specified business is to be voted on by one or more classes or series of stock
voting as a class, unless otherwise provided by law or the Certificate of
Incorporation, the holders of a majority of the voting power on such matter of
the shares of all such classes or series shall constitute a quorum for the
transaction of such business. Any meeting may be adjourned from time to time,
whether or not there is a quorum, either (i) in the discretion of the Chairman
of the meeting where necessary for the proper and orderly conduct of the meeting
(including, without limitation, where necessary to tabulate any vote the
tabulation of which is necessary for the continued conduct of the meeting) or
(ii) by vote of the holders of a majority of the voting power of the shares of
stock present at the meeting. Other than an announcement at the meeting of the
time and place of the adjourned meeting, no notice of the time and place of
adjourned meetings need be given except as required by law. The stockholders
present at a duly called meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, provided that the vote required for
the taking of any particular stockholder action shall nonetheless continue to be
required for such action.
3
<PAGE> 8
Section 2.6 Proxies. At all meetings of stockholders, a stockholder may
vote by proxy in writing (or in such other form as permitted by the DGCL)
executed by the stockholder or by the stockholder's duly authorized
attorney-in-fact.
Section 2.7 Notice of Stockholder Nominations and Other Proposed
Stockholder Action.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election as directors and the
proposal of matters to be considered and voted on by the stockholders
at an Annual Meeting of Stockholders made be made only (i) by or at the
direction of the Board of Directors, or (ii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving the
notice required by this Section and who shall be entitled to vote at
the meeting (or a duly authorized proxy therefor) and who complies with
the notice procedures set forth in this Section.
(2) For nominations or other proposals to be properly brought
before an Annual Meeting of Stockholders by a stockholder pursuant to
paragraph (a)(1) of this Section, the stockholder must have given
timely notice thereof (including the information required hereby) in
writing to the Secretary of the Corporation and any such proposal must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the 90th calendar day nor earlier than the close of
business on the 120th calendar day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is more than 30 calendar days
before or more than 60 calendar days after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the 120th calendar day prior to such
annual meeting and not later than the close of business on the later of
the 90th calendar day prior to such annual meeting or the 10th calendar
day following the calendar day on which public announcement of the date
of such meeting is first made by the Corporation. For purposes of
determining whether a stockholder's notice shall have
4
<PAGE> 9
been delivered in a timely manner for the annual meeting of
stockholders in 2000, to be timely, a stockholder's notice shall have
been delivered not later than the close of business on December 2, 1999
nor earlier than the close of business on November 2, 1999. In no event
shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice of
a nomination or proposed action as described above. Such stockholder's
notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and Rule 14a-11 thereunder (or any successor provision
of law), including such person's written consent to being named as a
nominee and to serving as a director if elected; (b) as to any other
business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of any
of such stockholder's affiliates (as defined below) and of any person
who is the beneficial owner (as defined below), if any, of such stock;
and (c) as to the stockholder giving the notice and each beneficial
owner, if any, of such stock, the name and address of such stockholder,
as they appear on the Corporation's stock ownership records, and the
name and address of each beneficial owner of such stock and the
class and number of shares of capital stock the Corporation which are
owned of record or beneficially by each such person.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation at
an annual meeting of stockholders is increased and there is no public
announcement by the Corporation specifying the increased size of the
Board of Directors at least 100 calendar days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section shall
5
<PAGE> 10
also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the 10th calendar
day following the day on which such public announcement is first made
by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting under
Section 2.4 of these Bylaws. Nominations of persons for election to the
Board of Directors at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting may be
made only (i) by or at the direction of the Board of Directors or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving the notice required by this
Section and who shall be entitled to vote at the meeting (or a duly
authorized proxy therefor) and who complies with the notice procedures set
forth in this Section. In the event the Corporation calls a special meeting
of stockholders for the purpose of electing one or more directors to the
Board of Directors, for nominations to be properly brought before the
special meeting by a stockholder pursuant to this paragraph, the stockholder
must give notice thereof containing the information required in the case of
a nomination to be made by a stockholder at an annual meeting of
stockholders by paragraph (a)(2) of this Section to the Secretary of the
Corporation at the principal executive offices of the Corporation not
earlier than the close of business on the 120th calendar day prior to such
special meeting and not later than the close of business on the later of the
90th calendar day prior to such special meeting or the 10th calendar day
following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors
to be elected at such meeting. In no event shall the public announcement of
an adjournment of a special meeting commence a new time period for the
giving of a stockholder's notice of a nomination as described above.
6
<PAGE> 11
(c) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section. Except as
otherwise provided by law, the Certificate of Incorporation or these
Bylaws, the Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section and, if any
proposed nomination or business is not in compliance with this Section,
to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section, "AFFILIATE" in respect of a
person shall mean another person who controls, is controlled by or is
under common control with such person and the term "BENEFICIALLY OWNS"
(and variations thereof) shall have the same meaning as when used in
Section 13(d) of the Exchange Act and Regulation 13D-G thereunder (or
any successor provision of law). For purposes of this Section, "PUBLIC
ANNOUNCEMENT" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section, (i)
a stockholder shall also be required to comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section and
nothing contained herein shall constitute a waiver by the Corporation
or any stockholder of compliance therewith and (ii) nothing in this
Section shall be deemed to affect any rights (A) of stockholders to
request inclusion of proposals in the Corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act (or any successor
provision of law) or (B) of the holders of any series of preferred
stock to
7
<PAGE> 12
elect directors in accordance with the provision of an applicable
Preferred Stock Designation.
(4) Notwithstanding the foregoing provisions of this Section, any
common stockholder who, together with its affiliates, owns shares of
common stock entitled to exercise a majority of the voting power which
all outstanding shares of Voting Stock are entitled to exercise in the
election of directors may nominate one or more individuals for election
as directors by giving to the Secretary of the Corporation in writing
notice only of the name and business or residence address of its
nominee or nominees, including each such individual's written consent
to being named as a nominee and to serving as a director if elected,
not later than five days before the day on which the meeting for the
election of directors is scheduled to be held.
Section 2.8 Procedure for Election of Directors and Other Stockholder
Votes. Election of directors at all meetings of the stockholders at which
directors are to be elected shall be by ballot only if required by the Chairman
of the meeting. The Board of Directors by resolution shall appoint, or shall
authorize an officer of the Corporation to appoint, one or more inspectors of
election with respect to all votes at any annual or special meeting of
stockholders, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives. One or more persons may be designated as
alternate inspector(s) to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act or is able to act at a meeting
of stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging such
person's duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of such person's
ability. The inspector(s) shall collect any ballots and tabulate all votes and
make a report thereon and shall have the other duties prescribed by law. The
Chairman of the meeting shall fix and announce at the meeting the time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote at the meeting, provided, however, that procedural matters may be
voted on by voice vote or other means, without a tabulation of votes.
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Section 2.9 Vote Required for Stockholder Action. Subject to the rights
(if any) of the holders of any series of preferred stock to elect directors from
time to time as provided by the Certificate of Incorporation, a plurality of the
votes cast in favor of a nominee at the meeting shall be required for, and
sufficient to, elect a director. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws (including with respect to removal
of directors), in all matters other than the election or removal of directors,
the affirmative vote of a majority of the voting power of the shares present in
person or represented by proxy at a meeting and entitled to vote on a matter
presented to the meeting and voting in favor of or against the matter presented
shall be required for, and sufficient to constitute, the act of the stockholders
on such matter.
Section 2.10 No Stockholder Action by Written Consent. Effective as of
the Trigger Date, except as otherwise provided pursuant to provisions of the
Certificate of Incorporation fixing the powers, privileges or rights of any
series of preferred stock in respect of action by written consent of the holders
of such series of preferred stock, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of such holders and may not be effected by any consent in
writing by such holders. Prior to the Trigger Date, action of the stockholders
or any class or classes, or series thereof, may be taken by written consent as
permitted by law.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
Section 3.2 Number and Tenures of Directors. Except as otherwise fixed
by or pursuant to provisions of the Certificate of Incorporation relating to the
rights of the holders of any class of preferred stock or series thereof with
respect to the election of additional directors under specified circumstances,
the number of the directors of the Corporation shall be fixed
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from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board (but shall not be less than three); provided, however, that (i)
no reduction in the number of directors shall reduce the term of office of any
director then in office and (ii) before the Trigger Date action by the Board of
Directors fixing the number of directors shall require the affirmative vote of
80% of the Whole Board. The directors, other than those who may be elected by
the holders of any class of preferred stock or any series thereof, shall be
classified by the Board of Directors with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, one class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2000, another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2001, and another class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2002, with a director of each class
to hold office until his or her successor is duly elected and qualified (such
classification to be effective upon the date shares of common stock of the
Corporation are first publicly held). At each succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election (and until such person's
successor shall have been duly elected and qualified).
Section 3.3 Regular Meetings. The Board of Directors may, by
resolution, provide the time and place for the holding of regular meetings
without other notice than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, any Vice Chairman of the
Board (if any), the President or any three directors then in office. The person
or persons authorized to call a special meeting of the Board of Directors may
fix the place, date and time of the meeting. Upon request by the person or
persons authorized to call a special meeting, the Secretary shall give any
requisite notice for the meeting.
Section 3.5 Notice of Meetings. Notice of any special meeting of
directors shall be given to each director in a writing addressed to such
person's business address or principal residence (as the Secretary has most
recently been advised of) and sent by hand delivery, first-class or overnight
mail or courier service, telegram or facsimile transmission, or given to the
director orally. If mailed by first-class mail, such notice shall be deemed
adequately delivered when deposited in the United
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States mails so addressed, with postage thereon prepaid, at least 5 calendar
days before such meeting. If by telegram, overnight mail or courier service,
such notice shall be deemed adequately delivered when the telegram is delivered
to the telegraph company or the notice is delivered to the overnight mail or
courier service company at least 24 hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least 12 hours before such meeting. If given orally (by
telephone or in person) or by hand delivery, the notice shall be given at least
12 hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting. A meeting may be
held at any time without notice if all the directors then in office are present
or if all directors then in office waive in writing notice of the meeting either
before or after such meeting.
Section 3.6 Action by Written Consent In Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.7 Telephonic Participation in Meetings. Members of the Board
of Directors or any committee thereof may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting; provided, however, that provision
of such means for telephonic participation shall be in the discretion of the
Board of Directors.
Section 3.8 Quorum; Vote Required for Action. Subject to Section 3.9 of
these Bylaws, a quorum for the transaction of business by the Board of Directors
at a meeting thereof shall, prior to the Trigger Date, be 80% of the Whole Board
and, on and after the Trigger Date, be a majority of the Whole Board, but, if at
any meeting of the Board of Directors there shall be less than a quorum present,
a majority of the directors present may adjourn the meeting from time to time
without notice to all the directors not present of the time and place of the
adjourned meeting; provided, however, that (i) no adjourned meeting shall
continue past the date for which the next notice of meeting is given or
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the next regular meeting is scheduled and (ii) prior to the Trigger Date, if all
the directors then in office waive in writing before or after a meeting the
requirement that 80% of the Whole Board shall constitute a quorum, a majority of
the Whole Board shall be sufficient to constitute a quorum. Except as otherwise
provided in the Certificate of Incorporation or these Bylaws (including, without
limitation, Section 3.10 of these Bylaws), the affirmative vote of the majority
of the directors present at a meeting at which a quorum is present when the
meeting is convened shall be the act of the Board of Directors. The directors
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal from the meeting of enough directors
to leave less than a quorum, provided that the votes required for the taking of
any particular action shall nonetheless continue to be required for such action
to be taken.
Section 3.9 Vacancies. Except as otherwise provided for or fixed by or
pursuant to provisions of the Certificate of Incorporation relating to the
rights of the holders of any class or preferred stock or series thereof with
respect to the election of additional directors under specified circumstances,
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting for any reason
shall be filled by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors;
provided, however, that, prior to the Trigger Date, the affirmative vote of at
least 80% of the remaining directors then in office, even though less than a
quorum of the Board of Directors, shall be required to fill vacancies on the
Board resulting from any increase in the number of directors or for any other
reason. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 3.10 Board Approval Policies. The Board of Directors by
resolution adopted by the affirmative vote of a majority of the Whole Board
shall establish such policies for the Corporation with respect to the categories
of matters which shall require the approval of the Board of Directors or a
committee thereof prior to the Corporation taking action to put such a matter
into effect, as the Board of Directors shall from time to time consider
appropriate for the exercise of effective oversight
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of the Corporation's business and affairs by the Board of Directors. Any such
resolution or resolutions may provide that the approval by the Board of
Directors required for a particular category of matter shall require the
affirmative vote of a number of directors greater than that which would
otherwise be required by Section 3.8 of these Bylaws (but not greater than 80%
of the Whole Board) and any such greater vote requirement established by such
resolution requiring the affirmative vote of a number of directors greater than
that which would otherwise be required by Section 3.8 of these Bylaws shall have
the same force and effect as if set forth in these Bylaws; provided, however,
that such resolution shall have been adopted by the like affirmative vote of the
Board of Directors as that required by such resolution for such approval of the
Board of Directors; and provided further that, (i) prior to the Trigger Date,
any such resolution establishing such Board of Directors approval policies
(including any providing for such greater vote requirement for such approval by
the Board of Directors) that has been adopted by the Board of Directors may be
rescinded or amended only by the affirmative vote of 80% of the Whole Board and
(ii) on or after the Trigger Date, any such resolution that has been adopted by
the Board of Directors may be rescinded or amended only by the affirmative vote
of a majority of the Whole Board.
Section 3.11 Committees of the Board of Directors.
(a) Designation of Committees. The Board of Directors may by resolution
designate one or more committees in addition to the standing committees of
the Board of Directors hereinafter provided for, consisting of one or more
directors of the Corporation, which, to the extent authorized in any
resolution of the Board of Directors or these Bylaws and permissible under
the laws of the State of Delaware and the Certificate of Incorporation,
shall have and may exercise any or all the powers and authority of the Board
of Directors in the management of the business and affairs of the
Corporation; provided, however, that, prior to the Trigger Date, such
resolution be approved by the affirmative vote of at least 80% of the Whole
Board. The Board of Directors by resolution shall have power at any time to
fill vacancies in, to change the membership of or to dissolve any such
committee; provided, however, that, prior to the Trigger Date, such
resolution be approved by the affirmative vote of at least 80% of the Whole
Board. Any committee of the Board of Directors may authorize the seal of the
Corporation to be affixed to any papers which may require it pertaining to
matters within the committee's authority.
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(b) Alternate Members of Committee. The Board of Directors may
designate one or more directors as alternate members of any committee (by
the same vote required to elect a regular member of the committee), who may
replace any absent or disqualified member at any meeting of the committee.
The presence of such an alternate at a meeting of the committee shall count
towards the quorum for such meeting and the vote or consent of such an
alternate shall have the same force and effect as that of a regular member
of the committee.
(c) Committee Procedures; Quorum; Vote Required For Action. A majority
of any committee may determine its procedures for conduct of business and
fix the time and place of its meetings, unless the Board of Directors shall
by resolution otherwise provide. Notice of such meetings shall be given to
each member of the committee in the same manner as provided for meetings of
the Board of Directors by Section 3.5 of these Bylaws. Each committee shall
keep written minutes of its proceedings and shall report such proceedings to
the Board of Directors when required. Except as otherwise provided by
resolution of the Board of Directors, a quorum for the transaction of
business by a committee at a meeting thereof shall be a majority of the
members and the affirmative vote of a majority of the members present at a
meeting at which a quorum is present shall be the act of the committee.
(d) Committees of the Corporation. Nothing herein shall be deemed to
prevent the Board of Directors from appointing one or more committees
consisting in whole or in part of one or more officers, employees or persons
who are not directors of the Corporation to conduct any part of the business
or affairs of the Corporation; provided, however, that no such committee
shall have or may exercise any authority of the Board of Directors.
(e) Standing Committees. The following committees shall be standing
committees of the Board of Directors: the Executive Committee, the Audit
Committee, the Compensation and Executive Development Committee, and the
Corporate Governance and Public Issues Committee. The members and chairmen
of each standing committee of the Board of Directors shall be elected
annually by the Board of Directors at its first meeting after each Annual
Meeting of Stockholders or at any other time as the Board of Directors shall
determine, but each such committee shall have at least three members. No
officer or employee of the Corporation or
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any subsidiary of the Corporation or, prior to the Trigger Date, of GM or an
affiliate (as defined in Section 2.7 of these Bylaws) thereof shall be a
member of the Audit Committee or the Corporate Governance and Public Issues
Committee. No officer or employee of the Corporation or any subsidiary of
the Corporation shall be a member of the Compensation and Executive
Development Committee.
(f) Executive Committee. The Executive Committee shall have and may
exercise, between meetings of the Board of Directors, all of the powers and
authority which the Board of Directors may exercise in the direction and
management of the business and affairs of the Corporation, except as
prohibited by the DGCL or the Certificate of Incorporation and except to the
extent another committee shall have been accorded authority over the matter.
The executive committee shall also have responsibility, and may exercise
such powers and authority as may be necessary, to oversee the management of
the investment funds of the Corporation and its subsidiaries and to serve as
named fiduciary of all benefit plans of the Corporation and its subsidiaries
covered by the Employee Retirement Income Security Act of 1974, as from time
to time amended ("ERISA"), except to the extent that a different person,
committee or entity is so designated by the documents governing such plans
as approved by the Executive Committee or the Board of Directors.
(g) Audit Committee. The Audit Committee shall have responsibility, and
may exercise such powers and authority as may be necessary, to select, and
to establish the scope of, and oversee the annual audit to be conducted by,
the independent auditors for the Corporation and its consolidated
subsidiaries, such selection for the ensuing calendar year to be made
annually in advance of the annual meeting of stockholders. Such selection
may be submitted to the stockholders for ratification or rejection at such
meeting. The Audit Committee shall have such other responsibilities, and
such powers and authority, as are normally incident to the functions of an
audit committee or as may be determined by the Board of Directors. The
members of the Audit Committee shall not be eligible to participate in any
incentive compensation plan for employees of the Corporation or any of its
subsidiaries.
(h) Compensation and Executive Development Committee.
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(1) The Compensation and Executive Development Committee shall
determine the compensation of: (a) employees of the Corporation who are
directors of the Corporation and (b) after receiving and considering the
recommendation of the Chief Executive Officer and the President of the
Corporation, all officers of the Corporation or any other employee of the
Corporation or any of its direct or indirect subsidiaries who occupy such
other positions as may be designated by the committee from time to time.
(2) Where any employee benefit or incentive compensation plan affects
employees of the Corporation or its subsidiaries whose compensation is to be
determined or is subject to review by the Compensation and Executive
Development Committee, such plan shall first be submitted to the committee
for its review. Any such plan or amendment or modification shall be made
effective with respect to such employees only if and to the extent approved
by the committee. The committee also shall have and may exercise the powers
and authority granted to it by any incentive compensation plan for employees
of the Corporation or any of its subsidiaries.
(3) The Compensation and Executive Development Committee shall have
such powers and authority as necessary to carry out the foregoing
responsibilities and shall have such other responsibilities, and such other
powers and authority, as may be determined by the Board of Directors.
(i) Corporate Governance and Public Issues Committee.
(1) The Corporate Governance and Public Issues Committee shall be
responsible for matters relating to the governance of the Corporation,
except as otherwise explicitly allocated by these Bylaws to the Executive
Committee (with respect to investment funds), the Audit Committee or the
Compensation and Executive Development Committee. The committee also shall,
upon its own initiative or otherwise, inquire as it considers appropriate
into all phases of the Corporation's business activities that relate to
matters of public policy. The committee may make recommendations to the
Board of Directors to assist it in the formulation and adoption of basic
policies calculated to promote the
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best interests of the Corporation and the communities in which it
operates.
(2) The Corporate Governance and Public Issues Committee shall
also be responsible for matters relating to service on the Board of
Directors, subject to any policies adopted by the Board of Directors.
The committee from time to time shall conduct studies of the size and
composition of the Board of Directors. Prior to each annual meeting of
stockholders, the committee shall recommend to the Board of Directors
the individuals to constitute the nominees of the Board of Directors,
for whose election the Board of Directors will solicit proxies. The
committee shall review the qualifications of individuals for
consideration as director candidates and shall recommend to the Board
of Directors, for its consideration, the names of individuals for
election by the Board of Directors. In addition, the committee shall
from time to time conduct studies and make recommendations to the Board
of Directors regarding compensation of directors.
(3) The Corporate Governance and Public Issues Committee shall
have such powers and authority as necessary to carry out the foregoing
responsibilities and shall have such other responsibilities, and such
other powers and authority, as may be determined by the Board of
Directors.
Section 3.12 Removal. Subject to the rights of any class of preferred
stock or series thereof to elect and remove additional directors under specified
circumstances, prior to the Trigger Date, any director may be removed from
office, 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, on and after the Trigger Date, any
director may be removed from office only for 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.
Section 3.13 Minutes of the Board and Certain Other Records. The Board
of Directors shall cause to be kept a record containing the minutes of the
proceedings of the meetings of the Board and its committees, and of any actions
thereof not taken at a meeting, and of the meetings of the stockholders and of
any actions thereof not taken at a meeting, and appropriate stock transfer books
and registers and such other books of records and
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accounts as may be necessary for the proper conduct of the business of the
Corporation.
ARTICLE IV
OFFICERS
Section 4.1 Officers. The Board of Directors shall elect, as officers
of the Corporation, a Chairman of the Board of Directors, a President, a
Treasurer, a General Counsel, a Secretary, and such other officers (including,
without limitation, one or more Vice Chairmen, a Controller, and such Vice
Presidents, Senior Vice Presidents and Executive Vice Presidents) as the Board
of Directors from time to time shall determine to be appropriate for the conduct
of the Governance and affairs of the Corporation. The Chairman of the Board
shall be chosen from among the directors. All officers elected by the Board of
Directors shall each have such powers and duties as are provided by these Bylaws
and determined by the Board of Directors or a committee thereof and, subject
thereto, as customarily pertain to their respective offices. The Board or any
committee thereof may from time to time also elect, or the Chairman of the
Board, as chief executive officer of the Corporation, or the President may
appoint, such subordinate officers (including one or more Assistant Vice
Presidents, Assistant General Counsel, Assistant Controllers, Assistant
Secretaries and Assistant Treasurers), as the Board or such officer shall
determine to be appropriate for the conduct of the business and affairs of the
Corporation, provided that the Board of Directors shall be notified of the
appointment by the Chairman of the Board or President of any such subordinate
officer. Such subordinate officers shall have such duties and shall hold their
offices for such terms as shall be prescribed by the Board or a committee
thereof or, if appointed thereby, by the Chairman of the Board or President, as
the case may be. Two or more offices may be held by one individual. The Board of
Directors shall designate, from among the officers, a chief financial officer
and a chief accounting officer.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer shall
hold office until such person's successor shall have been duly elected and shall
have qualified or until such
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person's death or incapacity or until he shall resign or be removed pursuant to
Section 4.10 of these Bylaws.
Section 4.3 Chairman of the Board; Chief Executive Officer; Vice
Chairmen of the Board. The Chairman of the Board shall (if present) preside at
all meetings of the stockholders and of the Board of Directors. The Chairman of
the Board shall be the chief executive officer of the Corporation. As the
Corporation's chief executive, the Chairman of the Board shall be responsible
for the general supervision of the management and the policies and affairs of
the Corporation and shall perform the duties, and have the powers and authority,
customarily incidental to such office and all such other duties, powers and
authority as are determined by the Board of Directors. As chief executive of the
Corporation, he or she shall be responsible to keep the Board of Directors
reasonably informed about the business and affairs of the Corporation, and shall
see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect. The Chairman of the Board may also
serve as President, if so elected by the Board. The directors also may elect one
or more Vice-Chairmen to act in the place of the Chairman upon his or her
absence or inability to act and to have such other responsibilities, and powers
and authority, as may be determined by the Board of Directors.
Section 4.4 President. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the general
supervision of the management and the policies and affairs of the Corporation
and shall supervise the day-to-day operations of the Corporation. The President,
if he or she is also a director, shall, in the absence of or because of the
inability to act of the Chairman of the Board, perform all duties of the
Chairman of the Board and preside at all meetings of stockholders and of the
Board of Directors.
Section 4.5 Vice Presidents. The Board of Directors may elect such
Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, with such
powers, authority and duties, as the Board of Directors shall determine to be
appropriate for the conduct of the business and affairs of the Corporation. The
Vice Presidents shall have such power and duties and shall be subject to such
directions, as may be provided from time to time by the Board of Directors, any
committee thereof, the Chairman of the Board or the President. Assistant Vice
Presidents shall have such of the powers, authority and duties of the Vice
Presidents they assist as may be assigned by the Board of Directors, a committee
thereof, the Chairman of the Board as chief executive officer, the President or
such Vice President and during the
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absence or the disability of such Vice President, may exercise such of his or
her powers and authority and perform such of his or her duties as may be
appropriate to the conduct of the business and affairs of the Corporation.
Section 4.6 Treasurer; Assistant Treasurers. The Treasurer shall
exercise general supervision over the receipt, custody and disbursement of the
funds, including cash-equivalent securities, of the Corporation. The Treasurer
shall cause the funds of the Corporation to be deposited in such banks, other
depository institutions and brokerage firms as may be authorized by the Board of
Directors or designated in such manner as may be provided by resolution of the
Board of Directors. The Treasurer shall have such further powers and duties, and
shall be subject to such directions, as may be provided from time to time by the
Board of Directors, any committee thereof, the Chairman of the Board or the
President. Assistant Treasurers shall have such of the powers, authority and
duties of the Treasurer as may be assigned by the Board of Directors, a
committee thereof, the Chairman of the Board as chief executive officer, the
President or the Treasurer and, during the absence or the disability of the
Treasurer, may exercise such of his or her powers and authority and perform such
of his or her duties as may be appropriate for the conduct of the business and
affairs of the Corporation.
Section 4.7 General Counsel; Assistant General Counsel. The General
Counsel shall be the chief legal officer of the Corporation, shall exercise
general supervision of the Corporation's legal affairs and may represent, or
designate counsel to represent, the Corporation before any court, regulatory or
investigative body or arbitral or other tribunal. The General Counsel shall have
such other powers and duties, and shall be subject to such directions, as may be
provided from time to time by the Board of Directors, any committee thereof, the
Chairman of the Board or the President. Assistant General Counsels shall have
such of the powers, authority and duties of the General Counsel as may be
assigned by the Board of Directors, a committee thereof, the Chairman of the
Board as chief executive officer, the President or the General Counsel and,
during the absence or disability of the General Counsel, may exercise such of
his or her powers and authority and perform such of his or her duties as may be
appropriate for the conduct of the business and affairs of the Corporation.
Section 4.8 Secretary; Assistant Secretaries. The Secretary shall keep
or cause to be kept minutes of all meetings of the Board, the committees of the
Board and the stockholders; shall see that all notices of meetings thereof or
actions taken
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thereby are duly given in accordance with the provisions of these Bylaws and as
required by law; shall be custodian of the seal of the Corporation and may cause
it to be affixed to all stock certificates of the Corporation (unless the seal
of the Corporation on such certificates shall be a facsimile, as hereinafter
provided) and to all other documents to be executed on behalf of the Corporation
under its seal; shall certify or attest to actions of the Board of Directors,
the committees thereof, or the stockholders or officers of the Corporation and
shall see that all such certificates and other documents required by law to be
kept and filed are properly kept and filed; and, in general, shall perform all
the duties customarily incident to the office of secretary of a Corporation. The
Secretary shall have such other powers and duties, and shall be subject to such
directions, as may be provided from time to time by the Board, a committee
thereof the Chairman of the Board as chief executive officer, the President or,
as to legal matters, the General Counsel. Assistant Secretaries shall have such
of the powers, authority and the duties of the Secretary as may be assigned by
the Board of Directors, a committee thereof, the Chairman of the Board as chief
executive office, the President or the Secretary and during the absence or
disability of the Secretary, may exercise such of his or her powers and
authority and perform such of his or her duties as may be appropriate for the
conduct of the business and affairs of the Corporation.
Section 4.9 Agents; Employees. The Board of Directors, a committee
thereof and each officer of the Corporation may appoint such employees or other
agents to perform any of its responsibilities and to exercise any of its powers
as may be permitted by law.
Section 4.10 Removal. Any officer elected, or agent appointed, by the
Board of Directors or a committee thereof and any subordinate officer or
employee or agent appointed by the Board of Directors, a committee thereof, the
Chairman of the Board as chief executive officer or the President may be removed
by the Board of Directors, a committee or the officer who appointed such
subordinate officer, employee or agent whenever, in the judgment thereof, the
best interests of the Corporation would be served thereby. No officer shall have
any rights against the Corporation for compensation by virtue of such election
beyond the date of the election of such person's successor, such person's death,
such person's resignation or such person's removal, whichever event shall first
occur, except as otherwise provided in an employment or other contract or under
an employee benefit plan.
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Section 4.11 Vacancies. A newly created office and any vacancy in any
elected office arising for any reason may be filled by the Board of Directors or
a committee thereof. Any vacancy in a subordinate office appointed by the
Chairman of the Board or the President arising for any reason may be filled by
the Chairman of the Board or the President.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Section 5.1 Indemnification Respecting Third Party Claims.
(a) Indemnification of Directors and Officers. The Corporation, to the
fullest extent permitted and in the manner required, by the laws of the
State of Delaware as in effect from time to time shall indemnify in
accordance with the following provisions of this Article any person who was
or is made a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including any appeal
thereof), whether civil, criminal, administrative, regulatory or
investigative in nature (other than an action by or in the right of the
Corporation), by reason of the fact that such person is or was a director or
officer of the Corporation, or, if at a time when he or she was a director
or officer of the Corporation, is or was serving at the request of, or to
represent the interests of, the Corporation as a director, officer, partner,
member, trustee, fiduciary, employee or agent (a "SUBSIDIARY OFFICER") of
another corporation, partnership, joint venture, limited liability company,
trust, employee benefit plan or other enterprise including any charitable or
not-for-profit public service organization or trade association (an
"AFFILIATED ENTITY"), against expenses (including attorneys' fees and
disbursements), costs, judgments, fines, penalties and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful; provided, however, that (i) the Corporation shall not be obligated
to indemnify a director or officer of the Corporation or a Subsidiary
Officer of any Affiliated Entity against expenses incurred
22
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in connection with an action, suit, proceeding or investigation to which
such person is threatened to be made a party but does not become a party
unless such expenses were incurred with the approval of the Board of
Directors, a committee thereof or the Chairman, a Vice Chairman or the
President of the Corporation and (ii) the Corporation shall not be obligated
to indemnify against any amount paid in settlement unless the Corporation
has consented to such settlement. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that
such person had reasonable cause to believe that his or her conduct was
unlawful. Notwithstanding anything to the contrary in the foregoing
provisions of this paragraph, a person shall not be entitled, as a matter of
right, to indemnification pursuant to this paragraph against costs or
expenses incurred in connection with any action, suit or proceeding
commenced by such person against the Corporation or any Affiliated Entity or
any person who is or was a director, officer, partner, member, fiduciary,
employee or agent of the Corporation or a Subsidiary Officer of any
Affiliated Entity in their capacity as such, but such indemnification may be
provided by the Corporation in a specific case as permitted by Section 5.6
of these Bylaws.
(b) Indemnification of Employees and Agents. The Corporation may
indemnify any employee or agent of the Corporation in the manner and to the
same or a lesser extent that it shall indemnify any director or officer
under paragraph (a) above in this Section.
Section 5.2 Indemnification Respecting Derivative Claims.
(a) The Corporation, to the fullest extent permitted and in the manner
required, by the laws of the State of Delaware as in effect from time to
time shall indemnify, in accordance with the following provisions of this
Article, any person who was or is made a party to or is threatened to be
made a party to any threatened, pending or completed action or suit
(including any appeal thereof) brought by or in the right of the Corporation
to procure a judgment in its favor by reason of the fact that such person is
or was a director or officer of the Corporation, or, if at a time
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when he or she was a director or officer to the Corporation, is or was
serving at the request of, or to represent the interests of, the Corporation
as a Subsidiary Officer of an Affiliated Entity against expenses (including
attorneys' fees and disbursements) and costs actually and reasonably
incurred by such person in connection with such action or suit if such
person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, except
that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless, and only to the extent that, the Court of Chancery of
the State of Delaware or the court in which such judgment was rendered shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses and costs as the Court of
Chancery of the State of Delaware or such other court shall deem proper;
provided, however, that the Corporation shall not be obligated to indemnify
a director or officer of the Corporation or a Subsidiary Officer of any
Affiliated Entity against expenses incurred in connection with an action or
suit to which such person is threatened to be made a party but does not
become a party unless such expenses were incurred with the approval of the
Board of Directors, a committee thereof, or the Chairman, a Vice Chairman or
the President of the Corporation. Notwithstanding anything to the contrary
in the foregoing provisions of this paragraph, a person shall not be
entitled, as a matter of right, to indemnification pursuant to this
paragraph against costs and expenses incurred in connection with any action
or suit in the right of the Corporation commenced by such Person, but such
indemnification may be provided by the Corporation in any specific case as
permitted by Section 5.6 of these Bylaws.
(b) Indemnification of Employees and Agents. The Corporation may
indemnify any employee or agent of the Corporation in the manner and to the
same or a lesser extent that it shall indemnify any director or officer
under paragraph (a) above in this Section.
Section 5.3 Determination of Entitlement to Indemnification. Any
indemnification to be provided under any of paragraphs of Section 5.1 or 5.2 of
these Bylaws (unless ordered by a court of competent jurisdiction) shall be made
by the Corporation only as authorized in the specific case upon a
24
<PAGE> 29
determination that indemnification is proper under the circumstances because
such person has met the applicable standard of conduct set forth in such
paragraph. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding in respect of which indemnification is sought or by
majority vote of the members of a committee of the Board of Directors composed
of at least three members each of whom is not a party to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable and/or such a committee
is not established or obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders entitled to vote thereon. In the event a
request for indemnification is made by any person referred to in paragraph (a)
of Section 5.1 or 5.2 of these Bylaws, the Corporation shall use its best
efforts to cause such determination to be made not later than 90 days after such
request is made.
Section 5.4 Right to Indemnification In Certain Circumstances.
(a) Indemnification Upon Successful Defense. Notwithstanding the other
provisions of this Article, to the extent that a director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in any of
paragraphs (a) or (b) of Section 5.1 or 5.2 of these Bylaws, or in defense
of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees and disbursements) and costs
actually and reasonably incurred by such person in connection therewith.
(b) Indemnification for Service As a Witness. To the extent any person
who is or was a director or officer of the Corporation has served or
prepared to serve as a witness in any action, suit or proceeding (whether
civil, criminal, administrative, regulatory or investigative in nature),
including any investigation by any legislative body or any regulatory or
self-regulatory body by which the Corporation's business is regulated, by
reason of his or her services as a director or officer of the Corporation or
his or her service as a Subsidiary Officer of an Affiliated Entity at a time
when he or she was a director or officer of the Corporation (assuming such
person is or was serving at the request of, or to represent the interests
of, the Corporation as a Subsidiary Officer of such Affiliated Entity) but
excluding service as a witness in an action or
25
<PAGE> 30
suit commenced by such person, the Corporation shall indemnify such person
against out-of-pocket costs and expenses (including attorneys' fees and
disbursements) actually and reasonably incurred by such person in connection
therewith and shall use its best efforts to provide such indemnity within 45
days after receipt by the Corporation from such person of a statement
requesting such indemnification, averring such service and reasonably
evidencing such expenses and costs; it being understood, however, that the
Corporation shall have no obligation under this Article to compensate such
person for such person's time or efforts so expended. The Corporation may
indemnify any employee or agent of the Corporation to the same or a lesser
extent as it may indemnify any director or officer of the Corporation
pursuant to the foregoing sentence of this paragraph.
Section 5.5 Advances of Expenses.
(a) Advances to Directors and Officers. Expenses and costs, incurred by
any person referred to in paragraph (a) of Section 5.1 or 5.2 of these
Bylaws in defending a civil, criminal, administrative, regulatory or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking in writing by or on behalf of such person to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified in respect of such costs and expenses by the
Corporation as authorized by this Article.
(b) Advances to Employees and Agents. Expenses and costs incurred by
any person referred to in paragraph (b) of Section 5.1 or 5.2 of these
Bylaws in defending a civil, criminal, administrative, regulatory or
investigative action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors, a committee thereof or an officer of
the Corporation authorized to so act by the Board of Directors upon receipt
of an undertaking in writing by or on behalf of such person to repay such
amount if it shall ultimately be determined that such person is not entitled
to be indemnified by the Corporation in respect of such costs and expenses
as authorized by this Article.
Section 5.6 Indemnification Not Exclusive. The provision of
indemnification to or the advancement of expenses
26
<PAGE> 31
and costs to any person under this Article, or the entitlement of any person to
indemnification or advancement of expenses and costs under this Article, shall
not limit or restrict in any way the power of the Corporation to indemnify or
advance expenses and costs to such person in any other way permitted by law or
be deemed exclusive of, or invalidate, any right to which any person seeking
indemnification or advancement of expenses and costs may be entitled under any
law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's capacity as an officer, director, employee or
agent of the Corporation and as to action in any other capacity.
Section 5.7 Corporate Obligations; Reliance. The provisions of this
Article shall be deemed to create a binding obligation on the part of the
Corporation to the persons who from time to time are elected officers or
directors of the Corporation, and such persons in acting in their capacities as
officers or directors of the Corporation or Subsidiary Officers of any
Affiliated Entity shall be entitled to rely on such provisions of this Article,
without giving notice thereof to the Corporation.
Section 5.8 Accrual of Claims; Successors. The indemnification provided
or permitted under the foregoing provisions of this Article shall or may, as the
case may be, apply in respect of any expense, cost, judgment, fine, penalty or
amount paid in settlement, whether or not the claim or cause of action in
respect thereof accrued or arose before or after the effective date of such
provisions of this Article. The right of any person who is or was a director,
officer, employee or agent of the Corporation to indemnification or advancement
of expenses as provided under the foregoing provisions of this Article shall
continue after he or she shall have ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, distributees, executors,
administrators and other legal representatives of such person.
Section 5.9 Insurance. The Corporation may 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, or to
represent the interests of, the Corporation as a Subsidiary Officer of any
Affiliated Entity, against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this Article or
applicable law.
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<PAGE> 32
Section 5.10 Definitions of Certain Terms. For purposes of this
Article, (i) references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed into the Corporation in a consolidation or merger if
such corporation would have been permitted (if its corporate existence had
continued) under applicable law to indemnify its directors, officers, employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request, or
to represent the interests of, such constituent corporation as a director,
officer, employee or agent of any Affiliated Entity shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued; (ii) references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; (iii) references to "serving at the request of the Corporation"
shall include any service as a director, officer, partner, member, trustee,
fiduciary, employee or agent of the Corporation or any Affiliated Entity which
service imposes duties on, or involves services by, such director, officer,
partner, member, trustee, fiduciary, employee or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and (iv) a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interest of the
Corporation" as referred to in this Article.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFERS
Section 6.1 Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the Board of Directors or appropriate officers of the
Corporation may from time to time prescribe in accordance with the DGCL, the
Certificate of Incorporation and these Bylaws, provided that the Board of
Directors may provide by resolution that some or all of any or all classes or
series of stock of the Corporation shall be uncertificated. Any such resolution,
however, shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of a
resolution by the Board of Directors providing that shares of any class or
series of stock of the Corporation shall be
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<PAGE> 33
uncertificated, every holder of uncertificated shares shall be entitled to
receive from the Corporation a certificate representing the number of shares
registered in such holder's name. The shares of the stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof in
person or by such person's attorney, upon surrender for cancellation of
certificates for at least the same number of shares, with an assignment and
power of transfer endorsed thereon or attached thereto, duly executed, with such
proof of the authenticity of such signature as the Corporation or its agents may
reasonably require. The certificates of stock shall be signed, countersigned and
registered in such manner as required by the DGCL and as the Board of Directors
may by resolution prescribe.
Section 6.2 Lost, Stolen or Destroyed Certificates. No certificate for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount (if any), upon such terms and secured by
such surety, as the Board of Directors or an appropriate officer may in its, his
or her discretion require.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
Section 7.1 Contracts. Except as otherwise explicitly prohibited or
required by law, the Certificate of Incorporation or these Bylaws, any contract
or other instrument may be executed and delivered in the name and on the behalf
of the Corporation, and under its corporate seal, by such officer or officers,
or such employee or employees or other agent or agents, of the Corporation as by
or pursuant to these Bylaws may be authorized to act on the subject matter
thereof, (and within any such limits as may have been established by the Board
of Directors) without further specific direction thereunto from the Board of
Directors.
Section 7.2 Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board as chief executive officer,
the President or any Vice President may from time to time act or appoint an
attorney or attorneys or agent or agents of the Corporation to act, in the name
and on behalf of the Corporation, to cast any votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation or other company, at
29
<PAGE> 34
meetings of the holders of the stock or other securities of such other company,
or to consent in writing, in the name of the Corporation as such holder, to any
action by such other company or to waiver of any notice, or to exercise or waive
any right appurtenant to such stock or other securities and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent or waiver or exercising or waiving any such right, and may execute
or cause to be executed, in the name and on behalf of the Corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem appropriate for the conduct of the business and affairs of the
Corporation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January and end on the last day of December of each year.
Section 8.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
Section 8.3 Seal. The corporate seal shall have inscribed thereon the
words Corporate Seal, the year of incorporation and the word Delaware.
Section 8.4 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or the Board of Directors or
committee thereof need be specified in any waiver of notice of such meeting.
Section 8.5 Annual Audit. The accounts, books and records of the
Corporation and its consolidated subsidiaries shall be audited upon the
conclusion of each fiscal year by a firm of independent certified public
accountants selected by the Audit Committee of the Board of Directors, and it
shall be the
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<PAGE> 35
duty of the Board of Directors to cause such audit to be done annually.
Section 8.6 Resignations. Any director or any officer, whether elected
or appointed, may resign at any time by giving written notice of such
resignation to the Chairman of the Board, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary, or at such later time as is specified therein. No acceptance or
other formal action shall be required of the Board of Directors, the
stockholders or any officers to make any such resignation effective.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered or repealed and new Bylaws may be adopted
(i) at any annual or special meeting of stockholders by the affirmative vote of
the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereon; provided, however, that any proposed
alteration or repeal of, or the adoption of any Bylaw inconsistent with, any of
Section 2.2, 2.7 or 2.10 of Article II or Section 3.1, 3.2, or 3.12 of Article
III or Section 8.6 of Article VIII or this Article IX of these Bylaws by the
stockholders shall require the affirmative vote of the holders of at least 80%
of the voting power of all Voting Stock then outstanding, voting together as a
single class; and provided, further, that, in the case of any such stockholder
action at a special meeting of stockholders, notice of the proposed alteration,
repeal or adoption of the new Bylaw or Bylaws must be contained in the notice of
such special meeting, or (ii) by the affirmative vote of a majority of the Whole
Board; provided, however, that, before the Trigger Date, the affirmative vote of
80% of the Whole Board shall be required to alter or repeal any provision of
these Bylaws or to adopt any new Bylaw.
31
<PAGE> 1
EXHIBIT 3.3
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PREFERRED STOCK
OF
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
Pursuant to Section 151 of the Delaware
General Corporation Law
I, ____________, ____________ of Delphi Automotive Systems
Corporation, a corporation organized and existing under the Delaware General
Corporation Law (the "CORPORATION"), in accordance with the provisions of
Section 151 of such law, DO HEREBY CERTIFY that pursuant to the authority
conferred upon the IPO Committee of the Board of Directors by Board of Directors
and upon the Board of Directors by the Amended and Restated Certificate of
Incorporation of the Corporation, the IPO Committee of the Board of Directors on
February __, 1999, adopted the following resolution which creates a series of
shares of Preferred Stock designated as Series A Junior Preferred Stock, as
follows:
RESOLVED, that pursuant to Section 151(g) of the Delaware
General Corporation Law and the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of ARTICLE FOURTH of the
Amended and Restated Certificate of Incorporation of the Corporation and
delegated to the IPO Committee by the Board of Directors, a series of Preferred
Stock of the Corporation be, and hereby is, created, and the powers,
designations, preferences and relative,
<PAGE> 2
participating, optional or other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof, be, and hereby are,
as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Preferred Stock" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting such series shall be
____________.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set
forth, and subject to the rights of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, (i) cash dividends in an amount per
share (rounded to the nearest cent) equal to 100 times the aggregate per share
amount of all cash dividends declared or paid on the Common Stock, $0.01 par
value per share, of the Corporation (the "COMMON STOCK") and (ii) a preferential
cash dividend (the "PREFERENTIAL DIVIDENDS"), if any, in preference to the
holders of Common Stock, on the first day of January, April, July and October of
each year (each a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, payable in an amount (except in the case
of the first Quarterly Dividend Payment if the date of the first issuance of
Series A Preferred Stock is a date other than a Quarterly Dividend Payment date,
in which case such payment shall be a prorated amount of such amount) equal to
$__.__ per share of Series A Preferred Stock less the per share amount of all
cash dividends declared on the Series A Preferred Stock pursuant to clause (i)
of this sentence since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall, at any time after the issuance of any share
or fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock of the Corporation, whether by way of a dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the Corporation or otherwise, which is payable in cash or any
debt security, debt instrument, real or personal property
2
<PAGE> 3
or any other property (other than cash dividends subject to the immediately
preceding sentence, a distribution of shares of Common Stock or other capital
stock of the Corporation or a distribution of rights or warrants to acquire any
such share, including any debt security convertible into or exchangeable for any
such share, at a price less than the Fair Market Value (as hereinafter defined)
of such share), then, and in each such event, the Corporation shall
simultaneously pay on each then outstanding share of Series A Preferred Stock of
the Corporation a distribution, in like kind, of 100 times such distribution
paid on a share of Common Stock (subject to the provisions for adjust ment
hereinafter set forth). The dividends and distributions on the Series A
Preferred Stock to which holders thereof are entitled pursuant to clause (i) of
the first sentence of this paragraph and pursuant to the second sentence of this
paragraph are hereinafter referred to as "DIVIDENDS" and the multiple of such
cash and non-cash dividends on the Common Stock applicable to the determination
of the Dividends, which shall be 100 initially but shall be adjusted from time
to time as hereinafter provided, is hereinafter referred to as the "DIVIDEND
MULTIPLE". In the event the Corporation shall at any time after the date shares
of Common Stock are first publicly held declare or pay any dividend or make any
distribution on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple thereafter applicable
to the determination of the amount of Dividends which holders of shares of
Series A Preferred Stock shall be entitled to receive shall be the Dividend
Multiple applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare each Dividend at the same
time it declares any cash or non-cash dividend or distribu tion on the Common
Stock in respect of which a Dividend is required to be paid. No cash or non-cash
dividend or distribu tion on the Common Stock in respect of which a Dividend is
required to be paid shall be paid or set aside for payment on the Common Stock
unless a Dividend in respect of such dividend or distribution on the Common
Stock shall be simultaneously paid, or set aside for payment, on the Series A
Preferred Stock.
(C) Preferential Dividends shall begin to accrue on
outstanding shares of Series A Preferred Stock from the Quarterly
3
<PAGE> 4
Dividend Payment Date next preceding the date of issuance of any shares of
Series A Preferred Stock. Accrued but unpaid Preferen tial Dividends shall
cumulate but shall not bear interest. Preferential Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment herein after set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the holders of the Common
Stock. The number of votes which a holder of Series A Preferred Stock is
entitled to cast, as the same may be adjusted from time to time as herein after
provided, is hereinafter referred to as the "VOTE MULTIPLE". In the event the
Corporation shall at any time after shares of Common Stock are first publicly
held declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or split or a combination, consolidation or
reverse split of the outstanding shares of Common Stock into a greater or lesser
number of shares of Common Stock, then in each such case the Vote Multiple
thereafter applicable to the determination of the number of votes per share to
which holders of shares of Series A Preferred Stock shall be entitled after such
event shall be the Vote Multiple immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Amended and
Restated Certificate of Incorporation or by law, the holders of shares of Series
A Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) In the event that the Preferential Dividends accrued on
the Series A Preferred Stock for four or more quar terly dividend periods,
whether consecutive or not, shall not have been declared and paid or irrevocably
set aside for payment, the holders of record of Preferred Stock of the
Corporation of all series (including the Series A Preferred Stock), other than
any series in respect of which such right is expressly withheld
4
<PAGE> 5
by the Amended and Restated Certificate of Incorporation or the authorizing
resolutions included in any Certificate of Desig nations therefor, shall have
the right, at the next meeting of stockholders called for the election of
directors, to elect two members to the Board of Directors, which directors shall
be in addition to the number required prior to such event, to serve until the
next Annual Meeting and until their successors are elected and qualified or
their earlier resignation, removal or incapacity or until such earlier time as
all accrued and unpaid Preferential Dividends upon the outstanding shares of
Series A Preferred Stock shall have been paid (or irrevocably set aside for
payment) in full. The holders of shares of Series A Preferred Stock shall
continue to have the right to elect directors as provided by the immediately
preceding sentence until all accrued and unpaid Preferential Dividends upon the
out standing shares of Series A Preferred Stock shall have been paid (or set
aside for payment) in full. Such directors may be removed and replaced by such
stockholders, and vacancies in such directorships may be filled only by such
stockholders (or by the remaining director elected by such stockholders, if
there be one) in the manner permitted by law; provided, however, that any such
action by stockholders shall be taken at a meeting of stock holders and shall
not be taken by written consent thereto.
(D) Except as otherwise required by the Amended and Restated
Certificate of Incorporation or by law or set forth herein, holders of Series A
Preferred Stock shall have no other special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for the taking of any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Dividends are in
arrears or the Corporation shall be in default of payment thereof, thereafter
and until all accrued and unpaid Preferential Dividends and Dividends, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid or set irrevocably aside for payment in full, and in addition to any
and all other rights which any holder of shares of Series A Preferred Stock may
have in such circumstances, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
5
<PAGE> 6
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity as to
dividends with the Series A Preferred Stock, unless dividends are paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled if
the full dividends accrued thereon were to be paid;
(iii) except as permitted by subparagraph (iv) of this
paragraph 4(A), redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior
(both as to dividends and upon liquidation, dissolution or winding up)
to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock (either as to dividends or
upon liquidation, dissolution or winding up), except in accordance with
a purchase offer made to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any Subsidiary (as
hereinafter defined) of the Corporation to purchase or other wise acquire for
consideration any shares of stock of the Corporation unless the Corporation
could, under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner. A "SUBSIDIARY" of the Corporation shall
mean any corporation or other entity of which securities or other ownership
interests having ordinary voting power sufficient to elect a majority of the
board of directors of such corporation or other entity or other persons
performing similar functions are beneficially owned, directly or indirectly, by
the Corporation or by any corporation or other entity that is otherwise
controlled by the Corporation.
6
<PAGE> 7
(C) The Corporation shall not issue any shares of Series A
Preferred Stock except upon exercise of Rights issued pursuant to that certain
Rights Agreement dated as of February 1, 1999 between the Corporation and
BankBoston, N.A., as Rights Agent, as it may be amended from time to time, a
copy of which is on file with the Secretary of the Corporation at its principal
executive office and shall be made available to stockholders of record without
charge upon written request therefor addressed to said Secretary.
Notwithstanding the foregoing sentence, nothing contained in the provisions
hereof shall prohibit or restrict the Corporation from issuing for any purpose
any series of Preferred Stock with rights and privileges similar to, different
from, or greater than, those of the Series A Preferred Stock.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and can celled promptly after the acquisition
thereof. All such shares upon their retirement and cancellation shall become
authorized but unissued shares of Preferred Stock, without designation as to
series, and such shares may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless the holders of shares of
Series A Preferred Stock shall have received for each share of Series A
Preferred Stock, subject to adjustment as hereinafter provided, (A) $650 plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment or, (B) if greater than the amount
specified in clause (i)(A) of this sentence, an amount equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, as the
same may be adjusted as hereinafter provided and (ii) to the holders of stock
ranking on a parity upon liquida tion, dissolution or winding up with the Series
A Preferred Stock, unless simultaneously therewith distributions are made
ratably on the Series A Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of shares of
Series A Preferred Stock are entitled under clause (i)(A) of this sentence and
to which the holders of such parity shares are entitled, in each case upon such
liquidation, dissolution
7
<PAGE> 8
or winding up. The amount to which holders of Series A Preferred Stock may be
entitled upon liquidation, dissolution or winding up of the Corporation pursuant
to clause (i)(B) of the foregoing sentence is hereinafter referred to as the
"PARTICIPATING LIQUIDATION AMOUNT" and the multiple of the amount to be
distributed to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the Corporation applicable pursuant to said clause
to the determination of the Participating Liquidation Amount, as said multiple
may be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "LIQUIDATION MULTIPLE". In the event the Corporation shall at
any time after the date shares of Common Stock are first publicly held declare
or pay any dividend on Common Stock payable in shares of Common Stock, or effect
a subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then, in each such case, the Liquidation Multiple thereafter
applicable to the determination of the Participating Liquidation Amount to which
holders of Series A Preferred Stock shall be entitled after such event shall be
the Liquidation Multiple applicable immediately prior to such event multiplied
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock of the
Corporation receive after the date shares of Common Stock are first publicly
held, in respect of their shares of Common Stock any share of capital stock of
the Corporation (other than any share of Common Stock of the Corporation),
whether by way of reclassification, recapitalization, reorganization, dividend
or other distribution or otherwise (a "TRANSACTION"), then, and in each such
event, the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall be adjusted so that after such event the holders of Series A
Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such Transaction multiplied by the additional dividends which the holder of a
share of Common Stock shall be entitled to receive by virtue of the receipt in
the Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder of a share of Common
8
<PAGE> 9
Stock shall be entitled to receive by virtue of the receipt in the Transaction
of such capital stock and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the Liquidation Multiple
in effect immediately prior to such Transaction multiplied by the addi tional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Corporation by virtue of the
receipt in the Transaction of such capital stock, as the case may be, all as
provided by the terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the
Corporation receive after the date shares of Common Stock are first publicly
held, in respect of their shares of Common Stock any right or warrant to
purchase Common Stock (including as such a right, for all purposes of this
paragraph, any security convertible into or exchangeable for Common Stock) at a
purchase price per share less than the Fair Market Value of a share of Common
Stock on the date of issuance of such right or warrant, then and in each such
event the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall each be adjusted so that after such event the Dividend Multiple, the
Vote Multiple and the Liquidation Multiple shall each be the product of the
Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case
may be, in effect immediately prior to such event multiplied by a fraction the
numerator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the maximum number
of shares of Common Stock which could be acquired upon exercise in full of all
such rights or warrants and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the number of shares of Common Stock which could be purchased, at
the Fair Market Value of the Common Stock at the time of such issuance, by the
maximum aggregate consideration payable upon exercise in full of all such rights
or warrants.
(C) In the event that holders of shares of Common Stock of the
Corporation receive after the date shares of Common Stock are first publicly
held, in respect of their shares of Common Stock any right or warrant to
purchase capital stock of the Corporation (other than shares of Common Stock),
including as such a right, for all purposes of this paragraph, any security
convertible into or exchangeable for capital stock of the Corporation (other
than Common Stock), at a purchase price per share less than the Fair Market
Value of such shares of capital
9
<PAGE> 10
stock on the date of issuance of such right or warrant, then and in each such
event the dividend rights, voting rights and rights upon liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall each be adjusted so that after such event each holder of a share of
Series A Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such event, to receive (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such event multiplied, first, by the additional dividends to which the holder
of a share of Common Stock shall be entitled upon exercise of such right or
warrant by virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction (as hereinafter defined)
and (ii) such addi tional voting rights as equal the Vote Multiple in effect
immedi ately prior to such event multiplied, first, by the additional voting
rights to which the holder of a share of Common Stock shall be entitled upon
exercise of such right or warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the Discount Fraction and
(iii) such additional distributions upon liquidation, dissolution or winding up
of the Corporation as equal the Liquidation Multiple in effect immediately prior
to such event multiplied, first, by the additional amount which the holder of a
share of Common Stock shall be entitled to receive upon liquidation, dissolution
or winding up of the Corporation upon exercise of such right or warrant by
virtue of the capital stock which could be acquired upon such exercise and
multiplied again by the Discount Fraction. For purposes of this paragraph, the
"DISCOUNT FRACTION" shall be a fraction the numerator of which shall be the
difference between the Fair Market Value of a share of the capital stock subject
to a right or warrant distributed to holders of shares of Common Stock of the
Corporation as contem plated by this paragraph immediately after the
distribution thereof and the purchase price per share for such share of capital
stock pursuant to such right or warrant and the denom inator of which shall be
the Fair Market Value of a share of such capital stock immediately after the
distribution of such right or warrant.
(D) For purposes of this Certificate of Designations, the
"FAIR MARKET VALUE" of a share of capital stock of the Corporation (including a
share of Common Stock) on any date shall be deemed to be the average of the
daily closing price per share thereof over the 30 consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date; provided,
however, that, in the event that such Fair Market Value of any
10
<PAGE> 11
such share of capital stock is determined during a period which includes any
date that is within 30 Trading Days after (i) the ex-dividend date for a
dividend or distribution on stock payable in shares of such stock or securities
convertible into shares of such stock, or (ii) the effective date of any
subdivision, split, combination, consolidation, reverse stock split or
reclassifica tion of such stock, then, and in each such case, the Fair Market
Value shall be appropriately adjusted by the Board of Directors of the
Corporation to take into account ex-dividend or post-effective date trading. The
closing price for any day shall be the last sale price, regular way, or, in
case, no such sale takes place on such day, the average of the closing bid and
asked prices, regular way (in either case, as reported in the applicable
transaction reporting system with respect to securi ties listed or admitted to
trading on the New York Stock Exchange), or, if the shares are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
applicable transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares are listed or
admitted to trading or, if the shares are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or if on any such
date the shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the shares selected by the Board of Directors of the Corporation.
The term "TRADING DAY" shall mean a day on which the principal national
securities exchange on which the shares are listed or admitted to trading is
open for the transaction of business or, if the shares are not listed or
admitted to trading on any national securities exchange, on which the New York
Stock Exchange or such other national securities exchange as may be selected by
the Board of Directors of the Corporation is open. If the shares are not
publicly held or not so listed or traded on any day within the period of 30
Trading Days applicable to the determination of Fair Market Value thereof as
aforesaid, "FAIR MARKET VALUE" shall mean the fair market value thereof per
share as determined in good faith by the Board of Directors of the Corporation.
In either case referred to in the foregoing sentence, the determination of Fair
Market Value shall be described in a statement filed with the Secretary of the
Corporation.
11
<PAGE> 12
Section 8. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, com bination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.
Section 9. Effective Time of Adjustments.
(A) Adjustments to the Series A Preferred Stock required by
the provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.
(B) The Corporation shall give prompt written notice to each
holder of a share of Series A Preferred Stock of the effect of any adjustment to
the voting rights, dividend rights or rights upon liquidation, dissolution or
winding up of the Corporation of such shares required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the Corporation to give
such notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment.
Section 10. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable at the option of the Corporation or any holder
thereof. Notwithstanding the foregoing sentence of this Section, the Corporation
may acquire shares of Series A Preferred Stock in any other manner permitted by
law, the provisions hereof and the Amended and Restated Certificate of
Incorporation of the Corporation.
Section 11. Ranking. Unless otherwise provided in the Amended
and Restated Certificate of Incorporation of the Corporation or a Certificate of
Designations relating to a subsequent series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to all other series
of the Corporation's preferred stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up and senior to
the Common Stock.
Section 12. Amendment. The provisions hereof and the Amended
and Restated Certificate of Incorporation of the Corporation shall not be
amended in any manner which would
12
<PAGE> 13
adversely affect the rights, privileges or powers of the Series A Preferred
Stock without, in addition to any other vote of stock holders required by law,
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series A Pre ferred Stock, voting together as a single class.
13
<PAGE> 14
IN WITNESS WHEREOF, I have executed and subscribed this
Certificate of Designations and do affirm the foregoing as true under the
penalties of perjury this ___ day of _________, 1999.
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------------
<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>
DELPHI AUTOMOTIVE SYSTEMS CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A
STATEMENT OR SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF WHICH THE CORPORATION IS AUTHORIZED TO ISSUE AND OF THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST IS TO BE ADDRESSED
TO THE TRANSFER AGENT.
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.
This certificate also evidences and entitles the holder hereof to the same number of Rights (subject to
adjustment) as the number of shares of Common Stock represented by this certificate, such Rights being on the terms
provided under the Rights Agreement between Delphi Automotive Systems Corporation and BankBoston, N.A. (the "Rights
Agent"), dated as of February 1, 1999, as it may be amended from time to time (the "Agreement"), the terms of which
are incorporated herein by reference and a copy of which is on file at the principal executive offices of Delphi
Automotive Systems Corporation. Under certain circumstances, as set forth in the Agreement, such Rights shall be
evidenced by separate certificates and shall no longer be evidenced by this certificate. Delphi Automotive Systems
Corporation shall mail to the registered holder of this certificate a copy of the Agreement without charge within
five days after receipt of a written request therefor. As provided in Section 7(e) of the Agreement, Rights issued
to or Beneficially Owned by Acquiring Persons or their Affiliates or Associates (as such terms are defined in the
Agreement) or any subsequent holder of such Rights shall be null and void and may not be exercised by or
transferred to any Person.
</TABLE>
<PAGE> 1
EXHIBIT 4.2
================================================================================
RIGHTS AGREEMENT
by and between
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
and
BANKBOSTON, N.A.,
as Rights Agent
---------------
Dated as of
February 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1. Certain Definitions..................................................... 1
2. Appointment of Rights Agent............................................. 8
3. Issuance of Right Certificates.......................................... 8
4. Form of Right Certificates.............................................. 11
5. Countersignature and Registration....................................... 11
6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates.................................... 12
7. Exercise of Rights; Exercise Price; Expiration Date
of Rights.................................................... 13
8. Cancellation and Destruction of Right Certificates...................... 16
9. Reservation and Availability of Shares of Preferred
Stock........................................................ 16
10. Preferred Stock Record Date............................................ 18
11. Adjustment of Exercise Price or Number of Shares....................... 18
12. Certification of Adjusted Exercise Price or Number
of Shares.................................................... 25
13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power............................................. 26
14. Fractional Rights and Fractional Shares................................ 31
15. Rights of Action....................................................... 31
16. Agreement of Right Holders............................................. 32
17. Right Certificate Holder Not Deemed a Stockholder...................... 33
18. Concerning the Rights Agent............................................ 33
<PAGE> 3
Section Page
- ------- ----
19. Merger or Consolidation of, or Change in Name of,
the Rights Agent............................................. 34
20. Duties of Rights Agent................................................. 35
21. Change of Rights Agent................................................. 37
22. Issuance of New Right Certificates..................................... 38
23. Redemption............................................................. 39
24. Notice of Proposed Actions............................................. 40
25. Notices ............................................................. 41
26. Supplements and Amendments............................................. 42
27. Exchange ............................................................. 42
28. Successors............................................................. 44
29. Benefits of this Agreement............................................. 44
30. Delaware Contract...................................................... 44
31. Counterparts........................................................... 44
32. Descriptive Headings................................................... 45
33. Severability........................................................... 45
34. Determinations and Actions by the Board of Directors .................. 45
Exhibit A - Summary of Rights
Exhibit B - Form of Right Certificate
Exhibit C - Form of Certificate of Designations of Series A
Junior Preferred Stock
<PAGE> 4
RIGHTS AGREEMENT
Rights Agreement (this "AGREEMENT"), dated as of February 1,
1999, by and between Delphi Automotive Systems Corporation, a Delaware
corporation (the "CORPORATION"), and BankBoston, N.A., a national banking
association (the "RIGHTS AGENT").
W I T N E S S E T H :
WHEREAS, on February __, 1999, the IPO Committee of the
Board of Directors (the "IPO COMMITTEE"), as specifically authorized by the
Board of Directors of the Corporation, authorized the issuance, as a dividend,
of one right (a "RIGHT") for each share of Common Stock, $0.01 par value per
share, of the Corporation outstanding as of the time and date determined by the
IPO Committee to be the record date of such distribution (the "RECORD DATE"),
each such Right representing the right to purchase one one-hundredth of a share
of Series A Junior Preferred Stock of the Corporation ("PREFERRED STOCK") having
the rights and preferences set forth in the form of Certificate of Designations
attached hereto as Exhibit C, which was authorized by the IPO Committee of the
Board of Directors on February ___, 1999, upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, the Board of Directors of the Corporation further
authorized the issuance of one Right (subject to adjustment) with respect to
each share of Common Stock which may be issued between the Record Date and the
earlier to occur of the Distribution Date, the Expiration Date or the Final
Expiration Date (as such terms are hereinafter defined), including any shares of
Common Stock of the Corporation issued in connection with the initial public
offering of the Common Stock; provided, however, that Rights may be issued with
respect to shares of Common Stock that shall become outstanding after the
Distribution Date and prior to the Expiration Date in accordance with Section 22
hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms shall have the meanings provided by this Section
1, any capitalized term defined in this Section 1 and used in the following
definitions having the meaning provided by this Section 1:
<PAGE> 5
(a) "ACQUIRING PERSON" shall mean any Person who or
which, together with all Affiliates and Associates of such
Person, shall be the Beneficial Owner of 15% or more of the
Voting Stock of the Corporation then outstanding; provided,
however, that an Acquiring Person shall not include (i) an
Exempt Person or any Affiliate or Associate of an Exempt
Person or (ii) any Person who or which, together with all
Affiliates and Associates of such Person, would be an
Acquiring Person solely by reason of (A) being the
Beneficial Owner of shares of Voting Stock of the
Corporation, the Beneficial Ownership of which was acquired
by such Person (together with all Affiliates and Associates
of such Person) pursuant to any action or transaction or
series of related actions or transactions approved by the
Board of Directors before such Person (together with all
Affiliates and Associates of such Person) otherwise became
an Acquiring Person or (B) a reduction in the number of
issued and outstanding shares of Voting Stock of the
Corporation pursuant to a transaction or a series of related
transactions approved by the Board of Directors of the
Corporation; provided, further, that in the event a Person
described in this clause (ii) does not become an Acquiring
Person by reason of subclause (A) or (B) of this clause
(ii), such Person nonetheless shall become an Acquiring
Person in the event such Person (together with all
Affiliates and Associates of such Person) thereafter
acquires Beneficial Ownership of an additional 1% of the
Voting Stock of the Corporation, unless the acquisition of
such additional Voting Stock results from one or more
actions or transactions approved by the Board of Directors
of the Corporation. Notwithstanding the foregoing, if the
Board of Directors of the Corporation determines in good
faith that a Person who would otherwise be an "Acquiring
Person" as defined pursuant to the foregoing provisions of
this paragraph (a) has become such inadvertently, and such
Person divests as promptly as practicable (as determined in
good faith by the Board of Directors) a sufficient number of
shares of Common Stock so that such Person would no longer
be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person
shall not be deemed an "Acquiring Person" for any purposes
of this Agreement.
(b) "AFFILIATE" shall have the meaning ascribed to such
term in Rule 12b-2 of the General Rules and
2
<PAGE> 6
Regulations under the Securities Exchange Act of 1934, as
amended ("EXCHANGE ACT"), as in effect on the date of this
Agreement.
(c) "ASSOCIATE" of a Person shall mean (i) with respect
to a corporation, any officer or director thereof or any
Associate of any Subsidiary thereof, or any Beneficial Owner
of 10% or more of any class of equity security thereof, (ii)
with respect to an association, any officer or director
thereof or any Associate of a Subsidiary thereof, (iii) with
respect to a partnership, any general partner thereof or any
limited partner thereof who is, directly or indirectly, the
Beneficial Owner of a 10% ownership interest therein, and
any Associate of any Subsidiary thereof, (iv) with respect
to a limited liability company, any manager or managing
member thereof and any Beneficial Owner of 10% or more or
any class of membership interest therein or other equity
security thereof, and any Associate of any Subsidiary
thereof, (v) with respect to a business trust, any officer
or trustee thereof or any Associate of any Subsidiary
thereof, (vi) with respect to any other trust or an estate,
any trustee, executor or similar fiduciary and any Person
who has a 15% or greater interest as a beneficiary in the
income from or principal of such trust or estate, (vii) with
respect to a natural person, the parents and children
thereof and any spouse or relative thereof, or any relative
of such spouse, who has the same home as such person, and
(viii) any Affiliate of such Person.
(d) A person shall be deemed the "BENEFICIAL OWNER" of,
or to "BENEFICIALLY OWN", any securities (and correlative
terms shall have correlative meanings):
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly, for purposes of Section 13(d) of the
Exchange Act and Regulations 13D and 13G thereunder (or
any comparable or successor law or regulation), in each
case as in effect on the date hereof; or
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only
after the passage of time
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<PAGE> 7
or the fulfillment of a condition or both) pursuant to
any agreement, arrangement or understanding, or upon
the exercise of conversion rights, exchange rights,
other rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of,
or to "Beneficially Own", securities tendered pursuant
to a tender or exchange offer made by such Person or
any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or
exchange or (B) the right to vote, alone or in concert
with others, pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided,
however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "Beneficially Own", any
securities if the agreement, arrangement or
understanding to vote such security (1) arises solely
from a revocable proxy or consent given in response to
a proxy or consent solicitation made pursuant to, and
in accordance with, the applicable rules and
regulations under the Exchange Act and (2) is not at
the time reportable by such Person on a Schedule 13D
report under the Exchange Act (or any comparable or
successor report), other than by reference to a proxy
or consent solicitation being conducted by such Person;
or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person
or any of such Person's Affiliates or Associates has
any agreement, arrangement or understanding (whether or
not in writing) for the purpose of acquiring, holding,
voting (except as described in clause (B) of
subparagraph (ii) of this paragraph (d)) or disposing
of any securities of the Corporation; provided,
however, that for purposes of determining Beneficial
Ownership of securities under this Agreement, officers
and directors of the Corporation solely by reason of
their status as such shall not constitute a group
(notwithstanding that they may be Associates of one
another or may be deemed to constitute a group for
purposes of Section 13(d) the Exchange Act) and shall
not be deemed to own shares owned by another officer or
director of the Corporation.
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<PAGE> 8
Notwithstanding anything in this paragraph (d) to the
contrary, (1) a Person engaged in the business of
underwriting securities shall not be deemed the "Beneficial
Owner" of, or to "Beneficially Own," any securities acquired
or otherwise beneficially owned in good faith in a firm
commitment underwriting until the expiration of forty days
after the date of the sale of securities to the public
pursuant to such firm commitment underwriting, and (2) no
Person (and no Affiliate or Associate of any Person) shall
at any time prior to the Divestiture Date be deemed the
"Beneficial Owner" of, or to "Beneficially Own," any
securities if such Person is the "Beneficial Owner" of, or
"Beneficially Owns," such securities as a result of one or
more agreements, arrangements or understandings with any GM
Entity (whether or not the Corporation or any other Person
is a party thereto) and if such Person would not be the
"Beneficial Owner" of, or "Beneficially Own", such
securities if such agreements, arrangements or
understandings were not then in effect.
(e) "BUSINESS DAY" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in
the State of New York or the Commonwealth of Massachusetts
are authorized or obligated by law or executive order to
close.
(f) "CLOSE OF BUSINESS" on any given date shall mean
5:00 P.M., Eastern time, on such date; provided, however,
that if such date is not a Business Day it shall mean 5:00
P.M., Eastern time, on the next succeeding Business Day.
(g) "COMMON STOCK" when used with reference to the
Corporation shall collectively mean the Common Stock, $0.01
par value, of the Corporation and any other common stock of
the Corporation into or for which it is changed, converted
or exchanged. "COMMON STOCK" when used with reference to any
Person other than the Corporation which shall be organized
in corporate form shall mean the capital stock or other
equity security having of all classes of capital stock or
equity securities of such corporation the greatest aggregate
voting power in the election of directors. "COMMON STOCK"
when used with reference to any Person other than the
Corporation which shall not be organized in corporate form
shall mean units of beneficial interest in the profits or
losses of such Person or other equity
5
<PAGE> 9
security of such Person having of all classes of equity
securities of such Person the greatest aggregate voting
power in the election of the directors, trustees, managers
or other Persons performing like governance functions for
such Person.
(h) "CORPORATION" shall have the meaning provided at
the beginning hereof; provided, however, that "Corporation"
shall also include any successors to the Corporation as
provided by Section 28 hereof and shall mean a Principal
Party as provided by Section 13(a) hereof.
(i) "DISTRIBUTION DATE" shall have the meaning set
forth in Section 3(b) hereof.
(j) "DIVESTITURE DATE" shall mean the time at which GM
shall first cease to Beneficially Own fifteen (15%) or more
of the Voting Stock of the Corporation then outstanding.
(k) "EXCHANGE ACT" shall have the meaning set forth in
Section 1(b) hereof.
(l) "EXEMPT PERSON" shall mean (i) the Corporation,
(ii) any Subsidiary of the Corporation, (iii) any employee
benefit plan or employee stock plan of the Corporation or
any Subsidiary of the Corporation, or any trust or other
entity organized, appointed, established or holding Voting
Stock for or pursuant to the terms of any such plan, or (iv)
prior to the Divestiture Date, any GM Entity.
(m) "EXERCISE PRICE" shall have the meaning set forth
in Section 4 hereof.
(n) "EXPIRATION DATE" shall have the meaning set forth
in Section 7(a) hereof.
(o) "FAIR MARKET VALUE" of any property shall mean the
fair market value of such property as determined in
accordance with Section 11(b) hereof.
(p) "FINAL EXPIRATION DATE" shall have the meaning set
forth in Section 7(a) hereof.
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<PAGE> 10
(q) "GM" shall mean General Motors Corporation, a
Delaware corporation, and any successor company thereto by
merger, consolidation or a like transaction.
(r) "GM ENTITY" shall mean GM or any Affiliate or
Associate of GM.
(s) "PERSON" shall mean any individual, company, firm,
corporation or other entity.
(t) "PRINCIPAL PARTY" shall have the meaning set forth
in Section 13(b) hereof.
(u) "REDEMPTION PRICE" shall have the meaning set forth
in Section 23(a) hereof.
(v) "RIGHT CERTIFICATE" shall have the meaning set
forth in Section 3(d) hereof.
(w) "STOCK ACQUISITION DATE" shall mean the first date
on which there shall be a public announcement by the
Corporation or an Acquiring Person that an Acquiring Person
has become such (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant
to Section 13(d) of the Exchange Act) or such earlier date
as a majority of the Board of Directors of the Corporation
shall become aware of the existence of an Acquiring Person.
(x) "SUBSIDIARY" of a Person shall mean any corporation
or other entity of which securities or other ownership
interests having voting power sufficient to elect a
majority of the board of directors or other persons
performing similar functions are beneficially owned,
directly or indirectly, by such Person or by any corporation
or other entity that is otherwise controlled by such Person.
(y) "SUMMARY OF RIGHTS" shall have the meaning set
forth in Section 3(a) hereof.
(z) "TRADING DAY" shall have the meaning set forth in
Section 11(b) hereof.
(aa) "TRANSFER TAX" shall mean any tax or charge,
including any documentary stamp tax, imposed or collected
by any governmental or regulatory authority in respect of
any transfer of any security, instrument or
7
<PAGE> 11
right, including the Rights, shares of the Common Stock
and shares of the Preferred Stock.
(bb) "VOTING STOCK" shall mean (i) the Common Stock of
the Corporation and (ii) any other shares of capital stock
of the Corporation entitled to vote generally in the
election of directors or entitled generally to vote together
with the Common Stock in respect of a merger, consolidation,
sale of all or substantially all of the Corporation's
assets, liquidation, dissolution or winding up which holders
of Common Stock are entitled to vote on. For purposes of
this Agreement, a stated percentage of the Voting Stock
shall mean a number of shares of the Voting Stock as shall
equal in voting power that stated percentage of the total
voting power of the then outstanding shares of Voting Stock
in the election of a majority of the Board of Directors of
the Corporation or in respect of a merger, consolidation,
sale of all or substantially all of the Corporation's
assets, liquidation, dissolution or winding up.
Any determination required to be made by the Board of Directors of the
Corporation for purposes of applying the definitions contained in this Section 1
shall be made by a majority of the Board of Directors in its good faith
judgment, which determination shall be binding on the Rights Agent and the
holders of the Rights.
Section 2. Appointment of Rights Agent. The Corporation
hereby appoints the Rights Agent to act as agent for the Corporation and the
holders of the Rights (who, in accordance with Section 3 hereof, shall prior to
the Distribution Date be the holders of Common Stock) in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such Co-Rights Agents
as it may deem necessary or desirable, upon ten (10) days prior written notice
to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall
in no event be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issuance of Right Certificates.
(a) On the Record Date (or as soon as practicable
thereafter), the Corporation or the Rights Agent shall send a copy of a Summary
of Rights, in substantially the form attached hereto as Exhibit A (the "SUMMARY
OF RIGHTS"), by first class mail, postage prepaid, to each record holder of the
Common Stock
8
<PAGE> 12
as of the Record Date, at the address of such holder shown on the
records of the Corporation.
(b) Until the close of business on the day which is the
earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than an Exempt Person) of, or
the first public announcement of the intent of any Person (other than an Exempt
Person) to commence, a tender or exchange offer upon the successful consummation
of which such Person would be the Beneficial Owner of 15% or more of the then
outstanding shares of Voting Stock of the Corporation (including any such date
which is after the date of this Agreement and prior to the issuance of the
Rights; the earlier of such dates being herein referred to as the "DISTRIBUTION
DATE"), (x) the Rights shall be evidenced by the certificates for Common Stock
(or in the case of uncertificated shares of Common Stock, by the book-entry
account that evidences record ownership of such shares) registered in the names
of the holders of Common Stock (together with, in the case of certificates for
Common Stock outstanding as of the Record Date, the Summary of Rights) and not
by separate Right certificates and the record holders of such certificates (or
such book-entry accounts) for Common Stock shall be the record holders of the
Rights represented thereby and (y) each Right shall be transferable only
simultaneously and together with the transfer of a share of Common Stock
(subject to adjustment as hereinafter provided). Until the Distribution Date
(or, if earlier, the Expiration Date or Final Expiration Date), the surrender
for transfer of any certificate for Common Stock (or the effectuation of a book
entry transfer of shares of Common Stock) shall constitute the surrender for
transfer of the Right or Rights associated with the Common Stock evidenced
thereby, whether or not accompanied by a copy of the Summary of Rights.
(c) Rights shall be issued in respect of all shares of
Common Stock that become outstanding after the Record Date but prior to the
earliest of the Distribution Date, the Expiration Date or the Final Expiration
Date. Certificates for Common Stock (including, without limitation, certificates
issued upon original issuance, disposition from the Corporation's treasury or
transfer or exchange of Common Stock) after the Record Date but prior to the
earliest of the Distribution Date, the Expiration Date, or the Final Expiration
Date shall have impressed, printed, written or stamped thereon or otherwise
affixed thereto the following legend:
9
<PAGE> 13
This certificate also evidences and entitles the holder
hereof to the same number of Rights (subject to adjustment) as
the number of shares of Common Stock represented by this
certificate, such Rights being on the terms provided under the
Rights Agreement between Delphi Automotive Systems Corporation
and BankBoston, N.A. (the "Rights Agent"), dated as of February
1, 1999, as it may be amended from time to time (the
"Agreement"), the terms of which are incorporated herein by
reference and a copy of which is on file at the principal
executive offices of Delphi Automotive Systems Corporation. Under
certain circumstances, as set forth in the Agreement, such Rights
shall be evidenced by separate certificates and shall no longer
be evidenced by this certificate. Delphi Automotive Systems
Corporation shall mail to the registered holder of this
certificate a copy of the Agreement without charge within five
days after receipt of a written request therefor. As provided in
Section 7(e) of the Agreement, Rights issued to or Beneficially
Owned by Acquiring Persons or their Affiliates or Associates (as
such terms are defined in the Agreement) or any subsequent holder
of such Rights shall be null and void and may not be exercised by
or transferred to any Person.
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Corporation purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
canceled and retired so that the Corporation shall not be entitled to exercise
any Rights associated with the Common Stock which are no longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not affect
the enforceability of any part of this Agreement or the rights of any holder of
the Rights.
(d) As soon as practicable after the Distribution Date, the
Corporation will prepare and execute, the Rights Agent will countersign, and the
Corporation will send or cause to be sent (and the Rights Agent will, if
requested, send), by first class mail, postage prepaid, to each record holder of
the Common
10
<PAGE> 14
Stock as of the close of business on the Distribution Date, as shown by the
records of the Corporation, at the address of such holder shown on such records,
a certificate in the form provided by Section 4 hereof (a "RIGHT CERTIFICATE"),
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held. As of and after the Distribution Date, the Rights shall
be evidenced solely by Right Certificates and may be transferred by the transfer
of the Right Certificate as permitted hereby, separately and apart from any
transfer of one or more shares of Common Stock.
Section 4. Form of Right Certificates. The Right
Certificates (and the forms of election to purchase shares, certificate and
assignment to be printed on the reverse thereof), when, as and if issued, shall
be substantially in the form set forth in Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as may be required to comply with any law or with
any rule or regulation made pursuant thereto or with any rule or regulation of
any stock exchange on which the Common Stock or the Rights may from time to time
be listed or as the Corporation may deem appropriate to conform to usage or
otherwise and as are not inconsistent with the provisions of this Agreement.
Subject to the provisions of Section 22 hereof, Right Certificates evidencing
Rights whenever issued, (i) shall be dated as of the date of issuance of the
Rights they represent and (ii) subject to adjustment from time to time as
provided herein, on their face shall entitle the holders thereof to purchase
such number of one one-hundredths of a share (including fractional shares which
are integral multiples of one-hundredth of a share) of Preferred Stock as shall
be set forth thereon at the price per one one-hundredth of a share of Preferred
Stock payable upon exercise of a Right provided by Section 7(b) hereof, as the
same may from time to time be adjusted as provided herein (the "EXERCISE
PRICE").
Section 5. Countersignature and Registration.
(a) Each Right Certificate shall be executed on behalf of
the Corporation by its Chairman of the Board, President or any Vice President,
either manually or by facsimile signature, and have affixed thereto the
Corporation's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Corporation, either manually or by
facsimile signature. Each Right Certificate shall be countersigned by the Rights
Agent either manually or by facsimile signature and shall not be valid for any
purpose unless so countersigned. In case any officer of the Corporation who
shall have signed any Right
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<PAGE> 15
Certificate shall cease to be such officer of the Corporation before
countersignature by the Rights Agent and issuance and delivery of the
certificate by the Corporation, such Right Certificate, nevertheless, may be
countersigned by the Rights Agent and issued and delivered with the same force
and effect as though the person who signed such Right Certificates had not
ceased to be such officer of the Corporation. Any Right Certificate may be
signed on behalf of the Corporation by any person who, on the date of the
execution of such Right Certificate, shall be a proper officer of the
Corporation to sign such Right Certificate, although at the date of the
execution of this Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or one or more offices
designated as the appropriate place for surrender of Right Certificates upon
exercise or transfer, and in such other locations as may be required by law,
books for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Section 7(e), 7(f) and 14
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the earlier of the Expiration Date or the
Final Expiration Date, any Right Certificate, may be (i) transferred or (ii)
split up, combined or exchanged for one or more other Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a share of Preferred Stock as the Right Certificate or Rights Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate shall
surrender the Right Certificate at the office of the Rights Agent designated for
the surrender of Right Certificates with the form of certificate and assignment
on the reverse side thereof duly endorsed (or enclose with such Right
Certificate a written instrument of transfer in form satisfactory to the
Corporation and the Rights Agent), duly executed by the registered holder
thereof or his attorney duly authorized in writing, and with such signature duly
guaranteed. Any registered holder desiring to split up, combine or exchange any
Right Certificate shall make
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<PAGE> 16
such request in writing delivered to the Rights Agent, and shall surrender the
Right Certificate to be split up, combined or exchanged at the office of the
Rights Agent designated therefor. Thereupon, the Rights Agent shall countersign
and deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Corporation may require
payment of a sum sufficient to cover any Transfer Tax that may be imposed in
connection with any transfer, split up, combination or exchange of any Right
Certificates.
(b) Subject to the provisions of Section 7(e), 7(f) and 14
hereof, at any time after the Distribution Date and prior to the Expiration
Date, upon receipt by the Corporation and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them and, if requested by the Corporation,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, or upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation shall cause a new Right
Certificate of like tenor to be issued and delivered to the registered owner in
lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expira-
tion Date of Rights.
(a) The Rights shall not be exercisable until, and shall
become exercisable on, the Distribution Date (unless otherwise provided herein,
including, without limitation, the restrictions on exercisability set forth in
Section 7(e) and 27(b) hereof). Except as otherwise provided herein, the Rights
may be exercised, in whole or in part, at any time commencing with the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and certificate on the reverse side thereof duly executed
(with signatures duly guaranteed), to the Rights Agent at the principal office
of the Rights Agent at 150 Royall Street, Mail Stop 45-02-62, Camden,
Massachusetts 02021 (as such address may from time to time be changed), together
with payment of the Exercise Price for each Right exercised (as the same may
have been adjusted as hereinafter provided), at or prior to the Close of
Business on the earlier of (i) January 31, 2009 (the "FINAL EXPIRATION DATE") or
(ii) the date on which the Rights are redeemed as provided in Section 23 hereof
or the date on which the Rights are exchanged as provided in Section 27 hereof
(such earlier date being herein referred to as the "EXPIRATION DATE").
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<PAGE> 17
(b) The Exercise Price shall initially be $65 for each one
one-hundredth (1/100) of a share of Preferred Stock issued pursuant to the
exercise of a Right. The Exercise Price and the number of one one-hundredths of
a share of Preferred Stock or other securities or property to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof. The Exercise Price shall be payable in lawful
money of the United States of America, in accordance with paragraph (c) below.
(c) Except as otherwise provided herein, upon receipt of a
Right Certificate representing exercisable Rights with the form of election to
purchase and certificate duly executed, accompanied by payment by certified
check, cashier's check, bank draft or money order payable to the Corporation or
the Rights Agent of the Exercise Price for the shares of Preferred Stock to be
purchased and an amount equal to any applicable Transfer Tax required to be paid
by the holder of the Right Certificate in accordance with Section 9(e) hereof,
the Rights Agent shall thereupon promptly (i) requisition from any transfer
agent of the Preferred Stock of the Corporation one or more certificates
representing the number of shares of Preferred Stock to be so purchased, and the
Corporation hereby authorizes and directs such transfer agent to comply with all
such requests, (ii) as provided in Section 14(b), at the election of the
Corporation, cause depositary receipts to be issued in lieu of fractional shares
of Preferred Stock, (iii) if the election provided for in the immediately
preceding clause (ii) has not been made, requisition from the Corporation the
amount of cash to be paid in lieu of the issuance of fractional shares (other
than fractions that are integral multiples of one one-hundredth of a share) in
accordance with Section 14(b) hereof, (iv) after receipt of such Preferred Stock
certificates and, if applicable, depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (v) when appropriate, after receipt, promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate; provided,
however, that in the case of a purchase of securities other than Preferred
Stock, pursuant to Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding in such case to that referred to in the
foregoing clauses (i) through (v) of this Section 7(c). Notwithstanding the
foregoing provisions of this Section 7(c), the Corporation may suspend the
issuance of shares of Preferred Stock and other securities upon exercise of a
Right for a reasonable period, not in excess of 90 days, during which the
Corporation seeks to register under the Securities Act of 1933, as amended (the
14
<PAGE> 18
"ACT"), and any applicable securities law of any other jurisdiction, the shares
of Preferred Stock or other securities to be issued pursuant to the Rights;
provided, however, that nothing contained in this Section 7(c) shall relieve the
Corporation of its obligations under Section 9(d) hereof. Upon any such
suspension, the Corporation shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or his assign, subject to the provisions of Section 14(b) hereof.
(e) Notwithstanding any provision of this Agreement to the
contrary, from and after the time (the "INVALIDATION TIME") when any Person
first becomes an Acquiring Person, any Rights that are Beneficially Owned by (x)
such Acquiring Person (or any Associate or Affiliate of such Acquiring Person),
(y) a transferee of such Acquiring Person (or any such Associate or Affiliate)
who becomes a transferee after the invalidation time or (z) a transferee of such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
prior to or concurrently with the invalidation time pursuant to either (I) a
transfer from the Acquiring Person (or any such Associate or Affiliate) to
holders of its equity securities or to any Person with whom it has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (II) a transfer which the Board of Directors has determined is part of
a plan, arrangement or understanding which has the purpose or effect of avoiding
the provisions of this Section 7(e), and subsequent transferees of such Persons
referred to in clause (y) and (z) above, shall be null and void without any
further action and any holder of such Rights shall thereafter have no rights
whatsoever with respect to such Rights under any provision of this Agreement.
The Corporation shall use all reasonable efforts to ensure that the provisions
of this Section 7(e) are complied with, but shall have no liability to any
holder of Right Certificates or any other Person as a result of its failure to
make any determination with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder. No Right Certificate shall be issued
pursuant to Section 3 hereof that represents Rights beneficially owned by an
Acquiring Person or any Affiliate or Associate thereof whose Rights would be
null and void pursuant to the provisions of this Section 7(e); no Right
15
<PAGE> 19
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person (or an Affiliate or Associate of such Acquiring Person) whose
Rights would be null and void pursuant to the provisions of this Section 7(e) or
any Associate or Affiliate thereof or to any nominee of such Acquiring Person,
Associate or Affiliate; and any Right Certificate delivered to the Rights Agent
for transfer to an Acquiring Person (or an Associate or Affiliate of such
Acquiring Person) whose Rights would be void pursuant to the provisions of this
Section 7(e) shall be cancelled.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Corporation shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate following the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Corporation shall reasonably request.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the
Corporation or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Agreement. The
Corporation shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall cancel and retire, any Right Certificate purchased or
acquired by the Corporation otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Right Certificates to the Corporation, or
shall, at the written request of the Corporation, destroy such cancelled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Corporation.
Section 9. Reservation and Availability of Shares of
Preferred Stock.
(a) The Corporation covenants and agrees that it will cause
to be reserved and kept available out of the authorized and unissued shares of
preferred stock, $0.10 par value per share, of the Corporation or out of
authorized and issued shares of Preferred Stock held in its treasury, such
number of shares of
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Preferred Stock as will from time to time be sufficient to permit the exercise
in full of all outstanding Rights.
(b) The Corporation shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all shares of
Preferred Stock issued or reserved for issuance in accordance with this
Agreement to be listed, upon official notice of issuance, upon the principal
national securities exchange, if any, upon which the Common Stock is listed or,
if the principal market for the Common Stock is not on any national securities
exchange, to be eligible for quotation in the National Association of Securities
Dealers' Automated Quotation System or any successor thereto or other comparable
quotation system.
(c) The Corporation covenants and agrees that it will take
all such action as may be necessary to ensure that all shares of Preferred Stock
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Exercise Price in
respect thereof), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(d) The Corporation shall use its best efforts to (i) file,
as soon as practicable following the occurrence of the event described in
Section 11(a)(ii), or as soon as is required by law following the Distribution
Date, as the case may be, a registration statement under the Act, with respect
to the shares of Preferred Stock purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (a) the date as of which the
Rights are no longer exercisable for Preferred Stock and (b) the earlier of the
Expiration Date and the Final Expiration Date. The Corporation may temporarily
suspend, for a period of time not to exceed ninety days, the issuance of shares
of Preferred Stock upon exercise of a Right in order to prepare and file a
registration statement under the Act and permit it to become effective. The
Corporation will also take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. Notwithstanding any provision
of this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the Act (if required)
shall have been declared effective.
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(e) The Corporation covenants and agrees that it will pay
when due and payable any and all federal and state Transfer Taxes which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of Preferred Stock issued or delivered upon the exercise of Rights.
The Corporation shall not, however, be required to pay any Transfer Tax which
may be payable in respect of any transfer or delivery of a Right Certificate to
a Person other than, or the issuance or delivery of certificates for Preferred
Stock upon exercise of Rights in a name other than that of, the registered
holder of the Right Certificate, and the Corporation shall not be required to
issue or deliver a Right Certificate or certificate for Preferred Stock to a
Person other than such registered holder until any such Transfer Tax shall have
been paid (any such Transfer Tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Corporation's satisfaction that no such Transfer Tax is due.
(f) The requirements of this Section 9 shall apply to shares
of Common Stock of the Corporation if the Corporation has elected in accordance
with Section 11(a)(iii) hereof to substitute shares of Common Stock for shares
of Preferred Stock that otherwise may be purchased upon the exercise of Rights.
Section 10. Preferred Stock Record Date. Each Person in
whose name any certificate for shares of Preferred Stock is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Preferred Stock represented thereby on, and such certificate shall
be dated as of, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Exercise Price (and any applicable
Transfer Taxes) was made; provided, however, that, if the date of such surrender
and payment is a date upon which the Preferred Stock transfer books of the
Corporation are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated as of, the next
succeeding Business Day on which the Preferred Stock transfer books of the
Corporation are open.
Section 11. Adjustment of Exercise Price or Number of
Shares. The Exercise Price and the number of shares of Preferred Stock which may
be purchased upon exercise of a Right are subject to adjustment from time to
time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after
the date of this Agreement (A) declare or pay any dividend
on Common Stock payable in shares of Common Stock, (B)
subdivide or split the outstanding
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shares of Common Stock into a greater number of shares or
(C) combine or consolidate the outstanding shares of Common
Stock into a smaller number of shares or effect a reverse
split of the outstanding shares of Common Stock, then and in
each such event the number of one one-hundredths of a share
of Preferred Stock issuable upon the Exercise of a Right
after the record date for such event (if one shall have been
established or, if not, after the date of such event) shall
be the number of one one-hundredths of a share of Preferred
Stock issuable immediately prior to such event multiplied by
a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately prior to such event
and the denominator of which is the number of shares of
Common Stock outstanding immediately after such event and
the Exercise Price to be in effect after the record date for
such event (if one shall have been established or, if not,
after the date of such event) shall be determined by
multiplying the Exercise Price in effect immediately prior
to such event by such fraction. If an event occurs which
would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in
this Section 11(a)(i) shall be in addition to, and shall be
made prior to, any adjustment required pursuant to Section
11(a)(ii).
(ii) Subject to Section 27 of this Agreement, in the
event that any Person shall become an Acquiring Person,
then, except as otherwise provided in this Section 11, each
holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive upon
exercise of such Right in accordance with the terms of this
Agreement and payment of the Exercise Price, such number of
one one-hundredths of a share of Preferred Stock as shall
equal the result obtained by (1) multiplying the then
current Exercise Price by the number of one one-hundredths
of a share of Preferred Stock for which a Right is then
exercisable and dividing the product by (2) 50% of the per
share Fair Market Value of the Preferred Stock (determined
pursuant to Section 11(b) hereof) on the date of such
occurrence.
(iii) In the event that the Corporation does not have
available sufficient authorized but unissued Preferred Stock
to permit the exercise in full of the Rights in accordance
with the foregoing subparagraph
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(ii), the Corporation shall take all such action as may be
necessary to authorize and reserve for issuance such number
of additional shares of Preferred Stock as may from time to
time be required to be issued upon the exercise in full of
all Rights from time to time outstanding and, if necessary,
shall use its best efforts to obtain stockholder approval
thereof. In lieu of issuing shares of Preferred Stock in
accordance with the foregoing subparagraph (ii), the
Corporation may, if the Board of Directors determines that
such action is necessary or appropriate and not contrary to
the interests of holders of Rights, elect to issue or pay,
upon the exercise of the Rights, cash, property, shares of
Preferred or Common Stock, or any combination thereof,
having an aggregate Fair Market Value equal to the Fair
Market Value of the shares of Preferred Stock which
otherwise would have been issuable pursuant to Section
11(a)(ii), which Fair Market Value shall be determined by an
investment banking firm selected by the Board of Directors.
For purposes of the preceding sentence, the Fair Market
Value of the Preferred Stock shall be as determined pursuant
to Section 11(b). Subject to Section 23 hereof, any such
election by the Board of Directors of the Corporation must
be made and publicly announced within thirty (30) days after
the date on which the event described in Section 11(a)(ii)
occurs.
(b) For the purpose of this Agreement, the "FAIR MARKET
VALUE" of any share of Preferred Stock, Common Stock or any other stock or any
Right or other security or any other property on any date shall be determined as
provided in this Section 11(b). In the case of a publicly traded stock or other
security, the Fair Market Value on any date shall be deemed to be the average of
the daily closing prices per share of such stock or per unit of such other
security for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that in the event
that the Fair Market Value per share of any share of Common Stock is determined
during a period which includes any date that is within 30 Trading Days after (i)
the ex-dividend date for a dividend or distribution on such stock payable in
shares of Common Stock or securities convertible into shares of Common Stock,
or (ii) the effective date of any subdivision, split, combination,
consolidation, reverse stock split or reclassification of such stock, then, and
in each such case, the Fair Market Value shall be appropriately adjusted by the
Board of Directors of the Corporation to take into account ex-dividend or
post-effective date trading. The
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closing price for any day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way (in either case, as reported in the applicable transaction
reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange), or, if the securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the applicable
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading; or, if not listed or admitted to trading on any national securities
exchange, the last quoted price (or, if not so quoted, the average of the high
bid and low asked prices) in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use; or, if no bids for such security
are quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in such
security selected by the Board of Directors of the Corporation. The term
"TRADING DAY" shall mean a day on which the principal national securities
exchange on which such security is listed or admitted to trading is open for the
transaction of business or, if such security is not listed or admitted to
trading on any national securities exchange, a Business Day. If a security is
not publicly held or not so listed or traded, "Fair Market Value" shall mean the
fair value per share of stock or per other unit of such other security, as
determined by an independent investment banking firm experienced in the
valuation of securities selected in good faith by the Board of Directors of the
Corporation, or, if no such investment banking firm is, in the good faith
judgment of the Board of Directors, available to make such determination, in
good faith by the Board of Directors of the Corporation; provided, however, that
for purposes of making the adjustment provided for by Section 11(a)(ii) hereof,
the Fair Market Value of a share of Preferred Stock shall not be less than 100%
of the product of the Fair Market Value of a share of Common Stock multiplied by
the higher of the then Dividend Multiple or Vote Multiple applicable to the
Preferred Stock (as defined in the Certificate of Designations relating to the
Preferred Stock) and shall not exceed 105% of the product of the then Fair
Market Value of a share of Common Stock multiplied by the higher of the then
Dividend Multiple or Vote Multiple applicable to the Preferred Stock. In the
case of property other than securities, the "Fair Market Value" thereof shall be
determined in good faith by the Board of Directors of the Corporation based upon
such appraisals or valuation reports of such independent experts as the Board of
Directors of the Corporation shall in good faith determine to be
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<PAGE> 25
appropriate in accordance with good business practices and the interests of the
holders of Rights. Any such determination of Fair Market Value shall be
described in a statement filed with the Rights Agent and shall be binding upon
the Rights Agent.
(c) In case the Corporation shall fix a record date for the
issuance of rights, options or warrants to all holders of Common Stock entitling
them (for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Common Stock or securities convertible into Common
Stock at a price per share (or having a conversion price per share, if a
security convertible into Common Stock) less than the then current per share
Fair Market Value of the Common Stock on such record date, the Exercise Price to
be in effect after such record date shall be determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current Fair Market Value
and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Corporation, whose
determination shall be described in a statement filed with the Rights Agent.
Shares of Common Stock owned by or held for the account of the Corporation shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed and
in the event that such rights, options or warrants are not so issued, the
Exercise Price shall be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.
(d) In case the Corporation shall fix a record date which is
subsequent to the 270th day after the initial issuance of Rights for the making
of a distribution to all holders of the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular quarterly cash dividend not in excess
of 150% of the previous regular quarterly cash
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<PAGE> 26
dividend out of the earnings or retained earnings of the Corporation), assets
(other than a dividend payable in shares of Common Stock) or subscription rights
or warrants (excluding those referred to in Section 11(c) hereof), the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Fair Market Value of the shares of
Common Stock on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Corporation, whose determination
shall be described in a statement filed with the Rights Agent) of the portion of
the assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one share of Common Stock and the
denominator of which shall be such current Fair Market Value of the shares of
Common Stock. Such adjustment shall be made successively whenever such a record
date is fixed and in the event that such distribution is not so made, the
Exercise Price shall again be adjusted to be the Exercise Price which would then
be in effect if such record date had not been fixed.
(e) Unless the Corporation shall have exercised its election
as provided in Section 11(f), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(c) and (d), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of one
one-hundredths of a share of Preferred Stock obtained by (i) multiplying (x) the
number of one one-hundredths of a share of Preferred Stock that could be
purchased upon exercise of a Right immediately prior to the adjustment pursuant
to this Section 11(e) by (y) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price and (ii) dividing the product so obtained
by the Exercise Price in effect immediately after such adjustment of the
Exercise Price.
(f) The Corporation may elect on or after the date of any
adjustment of the Exercise Price pursuant to Section 11(c) and 11(d) to adjust
the number of Rights in substitution for any adjustment pursuant to Section
11(e) in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights obtained by dividing the Exercise Price in effect immediately
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<PAGE> 27
prior to adjustment of the Exercise Price by the Exercise Price in effect
immediately after adjustment of the Exercise Price. The Corporation shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Exercise
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If the Right Certificates have been issued, upon each adjustment
of the number of Rights pursuant to this Section 11(e), the Corporation shall,
as promptly as practicable, cause to be distributed to holders of record of
Right Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights, if any, to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Corporation,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Corporation, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein and shall
be registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(g) All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one one-hundredth of a share, as the case may
be.
(h) Irrespective of any adjustment or change in the Exercise
Price or the number of shares of Preferred Stock issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Exercise Price and the number of shares to be issued
upon exercise of the Rights as in the initial Right Certificates issued
hereunder but, nevertheless, shall represent the Rights as so adjusted.
(i) Before taking any action that would cause an adjustment
reducing the purchase price per whole share of Preferred Stock upon exercise of
the Rights below the then par value, if any, of the shares of Preferred Stock,
the Corporation shall use its best efforts to take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and non-
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assessable shares of such Preferred Stock at such adjusted purchase price per
share.
(j) Anything in this Section 11 to the contrary
notwithstanding, in the event of any reclassification of stock of the
Corporation or any recapitalization, reorganization or partial liquidation of
the Corporation or similar transaction, the Corporation shall be entitled to
make such further adjustments in the number of shares of Preferred Stock which
may be acquired upon exercise of the Rights, and such adjustments in the
Exercise Price therefor, in addition to those adjustments expressly required by
the other paragraphs of this Section 11, as the Board of Directors of the
Corporation shall determine to be necessary or appropriate in order for the
holders of the Rights in such event to be treated equitably and in accordance
with the purpose and intent of this Agreement or in order that any such event
shall not, but for such adjustment, in the opinion of counsel to the
Corporation, result in the stockholders of the Corporation being subject to any
United States federal income tax liability by reason thereof.
(k) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Corporation other than the
Preferred Stock, thereafter the Exercise Price and the number of such other
shares so receivable upon exercise of a Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Preferred Stock contained in Sections
11(a), 11(c), 11(e), 11(f) and 11(j) hereof, as applicable, and the provisions
of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.
Section 12. Certification of Adjusted Exercise Price or
Number of Shares. Whenever an adjustment is made as provided in Section 11, 13,
23 or 27, the Corporation shall (a) promptly prepare a certificate setting forth
such adjustment, and a brief statement of the facts giving rise to such
adjustment, (b) promptly file with the Rights Agent and with each transfer agent
for the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25.
Notwithstanding the foregoing sentence, the failure of the Corporation to make
such certification or give such notice shall not affect the validity of or the
force or effect of the requirement for such adjustment. Any adjustment to be
made pursuant to Section 11, 13 or 23(c) of this Agreement shall be effective as
of the date of the event
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giving rise to such adjustment. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any adjustment unless and until it
shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power.
(a) In the event that, at any time after the time
that any Person becomes an Acquiring Person, (x) the Corporation shall, directly
or indirectly, consolidate with, or merge with and into, any other Person or
Persons (other than an Exempt Person) and the Corporation shall not be the
surviving or continuing corporation of such consolidation or merger, or (y) any
Person or Persons (other than an Exempt Person) shall, directly or indirectly,
consolidate with, or merge with and into, the Corporation, and the Corporation
shall be the continuing or surviving corporation of such consolidation or merger
and, in connection with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed or converted into or
exchanged for stock or other securities of any other Person (other than an
Exempt Person) or of the Corporation or cash or any other property, or (z) the
Corporation or one or more of its Subsidiaries shall, directly or indirectly,
sell or otherwise transfer to any other Person (other than an Exempt Person), in
one or more transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Corporation and its Subsidiaries (taken as a
whole), then, on the first occurrence of any such event, proper provision shall
be made so that (i) each holder of record of a Right, except as provided in
Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Exercise Price multiplied
by the number of one one-hundredths of a share of Preferred Stock for which a
Right is then exercisable, in accordance with the terms of this Agreement and in
lieu of shares of Preferred Stock, such number of shares of validly issued,
fully paid, non-assessable and freely tradeable Common Stock of the Principal
Party (as defined in Section 13(b) hereof), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (1) multiplying the then current Exercise Price by the
number of one one-hundredths of a share of Preferred Stock for which a Right is
then exercisable and dividing that product by (2) 50% of the then per share Fair
Market Value of the Common Stock of the Principal Party on the date of the
consummation, merger, sale or transfer; provided, however, that the Exercise
Price (as adjusted) and the number of shares of
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Common Stock of such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in accordance with Section
11 hereof to reflect any events occurring in respect of the Common Stock of such
Principal Party after the occurrence of such consolidation, merger, sale or
transfer; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Corporation pursuant to this Agreement; (iii) the
term "Corporation" for all purposes of this Agreement shall thereafter be deemed
to refer to such Principal Party; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock in accordance with the provisions of Section 9 hereof
applicable to the reservation of Preferred Stock) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
provided, however, that, upon the subsequent occurrence of any merger,
consolidation, sale of all or substantially all of the assets, recapitalization,
reclassification of shares, reorganization or other extraordinary transaction in
respect of such Principal Party, each holder of a Right shall thereupon be
entitled to receive, upon exercise of a Right and payment of the Exercise Price,
such cash, shares, rights, warrants and other property which such holder would
have been entitled to receive had it, at the time of such transaction, owned the
shares of Common Stock of the Principal Party purchasable upon the exercise of a
Right, and such Principal Party shall take such steps (including, but not
limited to, reservation of shares of stock) as may be necessary to permit the
subsequent exercise of the Rights in accordance with the terms hereof for such
cash, shares, rights, warrants and other property; and (v) the provisions of
Section 11(a)(ii) hereof shall be of no effect following the occurrence of any
event described in clause (x), (y) or (z) above of this Section 13(a).
(b) "PRINCIPAL PARTY" shall mean
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a) hereof:
(A) the Person that is the issuer of the securities into
which shares of Common Stock of the Corporation are changed
or otherwise exchanged or converted in such merger or
consolidation, or, if there is more than one such issuer,
the issuer of the Common Stock of which has the greatest
market value or (B) if
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no securities are so issued, (I) the Person that is the
other party to the merger or consolidation and that survives
such merger or consolidation, or, if there is more than one
such Person, the Person the Common Stock of which has the
greatest market value or (II) if the Person that is the
other party to the merger or consolidation does not survive
the merger or consolidation, the Person that does survive
the merger or consolidation (including the Corporation if it
survives); and
(ii) in the case of any transaction described in clause
(z) of the first sentence in Section 13(a), the Person that
is the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or
transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person
receiving the greatest portion of the assets or earning
power cannot be determined, whichever of such Persons as is
the issuer of Common Stock having the greatest market value
of shares outstanding;
provided, however, that in any such case, if the Common Stock of such Person is
not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then (1) if such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, the term "Principal Party" shall refer to such
other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stocks of all of which are and have been so
registered, the term "Principal Party" shall refer to whichever of such Persons
is the issuer of the Common Stock having the greatest market value of shares
outstanding, or (3) if such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2) above
shall apply to each of the owners having an interest in the venture as if the
Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall bear the obligations
set forth in this Section 13 in the same ratio as its interest in such Person
bears to the total of such interests.
(c) The Corporation shall not consummate any consolidation,
merger or sale or transfer of assets or earning power
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referred to in Section 13(a) unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock that have not been issued or
reserved for issuance to permit exercise in full of all Rights in accordance
with this Section 13 and unless prior thereto the Corporation and the Principal
Party involved therein shall have executed and delivered to the Rights Agent an
agreement confirming that the Principal Party shall, upon consummation of such
consolidation, merger or sale or transfer of assets or earning power, assume
this Agreement in accordance with Section 13(a) hereof and that all rights of
first refusal or preemptive rights in respect of the issuance of shares of
Common Stock of the Principal Party upon exercise of outstanding Rights have
been waived and that such transaction shall not result in a default by the
Principal Party under this Agreement, and further providing that, as soon as
practicable after the date of any consolidation, merger or sale or transfer of
assets or earning power referred to in Section 13(a) hereof, the Principal Party
will:
(i) prepare and file a registration statement under the
Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate
form, use its best efforts to cause such registration
statement to become effective as soon as practicable after
such filing and use its best efforts to cause such
registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act)
until the date of expiration of the Rights, and similarly
comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon
exercise of the Rights on a national securities exchange or
to meet the eligibility requirements for quotation on
NASDAQ;
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party which comply
in all respects with the requirements for registration on
Form 10 (or any successor form) under the Exchange Act. In
the event that any of the transactions described in Section
13(a) hereof shall occur at any time after the occurrence of
a transaction described in Section 11(a)(ii) hereof, the
Rights which have not theretofore been exercised shall,
subject to the provisions of Section 7(e) hereof, thereafter
be
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exercisable in the manner described in Section 13(a);
and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Stock of the
Principal Party subject to purchase upon exercise of
outstanding Rights.
(d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or By-laws or other
instrument governing its affairs, which provision would have the effect of (i)
causing such Principal Party to issue, in connection with, or as a consequence
of, the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then Fair Market Value per
share (determined pursuant to Section 11(b) hereof) or securities exercisable
for, or convertible into, Common Stock of such Principal Party at less than such
then Fair Market Value (other than to holders of Rights pursuant to this Section
13) or (ii) providing for any special tax or similar payment in connection with
the issuance to any holder of a Right of Common Stock of such Principal Party
pursuant to the provisions of this Section 13, then, in such event, the
Corporation shall not consummate any such transaction unless prior thereto the
Corporation and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(e) The Corporation covenants and agrees that it shall not,
at any time after any Person becomes an Acquiring Person, enter into any
transaction of the type described in clauses (x) through (z) of the first
sentence of Section 13(a) hereof if (i) at the time of or immediately after such
consolidation, merger, sale, transfer or other transaction there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights, (ii) prior to, simultaneously with or immediately
after such consolidation, merger, sale, transfer or other transaction, the
stockholders of the Person who constitutes, or would constitute, the Principal
Party for purposes of Section 13(a) hereof shall have received a distribution of
Rights previously
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owned by such Person or any of its Affiliates or Associates or (iii) the form or
nature of organization of the Principal Party would preclude or limit the
exercisability of the Rights.
Section 14. Fractional Rights and Fractional Shares.
(a) The Corporation shall not be required to issue fractions
of Rights or to distribute Right Certificates which evidence fractional Rights
(i.e., Rights to acquire less than one one-hundredth of a share of Preferred
Stock), unless such fractional Rights result from a transaction referred to in
Section 11(a)(i) or 11(f) hereof. If the Corporation shall determine not to
issue such fractional Rights, then, in lieu of such fractional Rights, there
shall be paid to the holders of record of the Right Certificates with regard to
which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the Fair Market Value of a whole Right.
(b) The Corporation shall not be required to issue fractions
of shares of Preferred Stock (other than fractions that are integral multiples
of one one-hundredth of a share) upon exercise of the Rights or to distribute
certificates which evidence fractional shares (other than fractions that are
integral multiples of one one-hundredth of a share). In lieu of issuing
fractions of shares of Preferred Stock, the Corporation may, at its election,
issue depositary receipts evidencing fractions of shares pursuant to an
appropriate agreement between the Corporation and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all of the rights, privileges and preferences to which they
would be entitled as owners of the Preferred Stock. With respect to fractional
shares that are not integral multiples of one one-hundredth of a share, if the
Corporation does not issue such fractional shares or depositary receipts in lieu
thereof, there shall be paid to the holders of record of Right Certificates at
the time such Right Certificates are exercised as herein provided an amount in
cash equal to the same fraction of the Fair Market Value of a share of Preferred
Stock.
(c) The holder of a Right by the acceptance of a Right
expressly waives his right to receive any fractional Right or any fractional
shares of Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share) upon exercise of a Right.
Section 15. Rights of Action. All rights of action in
respect of this Agreement, except the rights of action given to
the Rights Agent in Section 18 hereof, are vested in the
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respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the holders of record of the Common Stock); and any holder of
record of any Right Certificate (or, prior to the Distribution Date, of the
Common Stock), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of the Common
Stock), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Corporation to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Each holder of a
Right, by accepting the same, consents and agrees with the Corporation and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights shall be
evidenced by the certificates for Common Stock (or in the case of
uncertificated shares of Common Stock, by the book-entry account
that evidences record ownership of such shares) registered in the
name of the holders of Common Stock (together, as applicable,
with the Summary of Rights), which certificates for Common Stock
(or book-entry account) shall also constitute certificates for
Rights, and not by separate Right Certificates, and each Right
shall be transferable only simultaneously and together with the
transfer of shares of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of
transfer; and
(c) the Corporation and the Rights Agent may deem and treat
the Person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Stock certificate or, in
the case of uncertificated shares of Common Stock, the book-entry
account evidencing record
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<PAGE> 36
ownership of such shares) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificates or
the associated Common Stock certificate made by anyone other than
the Corporation or the Rights Agent) for all purposes whatsoever,
and neither the Corporation nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of Preferred
Stock or any other securities which may at any time be issuable on the exercise
of the Rights represented thereby, nor shall anything contained herein or in
any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder or other securityholder
of the Corporation or of a securityholder of any other Person or any right to
vote for the election of directors or upon any matter submitted to stockholders
at any meeting thereof, or to give or withhold consent to any corporate action
or securityholder action, or to receive notice of meetings or other actions
affecting stockholders or securityholders (except as provided in Section 24
hereof), or to receive dividends or subscription rights, or otherwise, except in
any such case the rights, if any, in respect thereof provided by this Agreement,
until the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof for such stock or other
security.
Section 18. Concerning the Rights Agent.
(a) The Corporation agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Corporation also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted to be done by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the cost and expenses
of defending against any claim of liability relating to the Rights or this
Agreement.
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(b) The Rights Agent shall be protected against, and shall
incur no liability for or in respect of, any action taken, suffered or omitted
by it in connection with its administration of this Agreement in reliance upon
any Right Certificate or certificate for Preferred Stock or for other securities
of the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons.
Section 19. Merger or Consolidation of, or Change in Name
of, the Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; in case at
that time any of the Right Certificates shall not have been countersigned, the
Rights Agent may countersign such Right Certificates either in its prior name or
in its changed name; in all such cases such
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<PAGE> 38
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Corporation and the holders
of Right Certificates by their acceptance thereof shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Corporation), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Corporation prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the Chairman of the Board, the
President or any Vice President and by the Treasurer, Secretary or any Assistant
Secretary of the Corporation and delivered to the Rights Agent. Any such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct. Anything to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
indirect, consequential or incidental loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Rights Agent has been
advised of the likelihood of such loss or damage.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of
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<PAGE> 39
any Right Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Corporation of any covenant or condition
contained in this Agreement or in any Right Certificate; nor shall it be
responsible for any adjustment required under the provisions of Section 11 or 13
hereof or responsible for the manner, method or amount of any such adjustment or
the ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate describing any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Preferred Stock to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
shares of Preferred Stock will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(f) The Corporation agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of the Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President or any Vice President or the Secretary
or the Treasurer of the Corporation, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written instructions
from the Corporation may, at the option of the Rights Agent, set forth in
writing any action proposed to be taken or omitted by the Rights Agent under
this Agreement and the date on and/or after which such action shall be taken or
such omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Corporation actually receives such application unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written
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instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any shareholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not the Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Corporation or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Corporation resulting from any
such act, default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate contained in the
form of assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has not been completed to certify the holder is not
an Acquiring Person (or an Affiliate or Associate thereof), a Rights Agent shall
not take any further action with respect to such requested exercise or transfer
without first consulting with the Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Corporation and to each
transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail. The Corporation may remove the Rights Agent or any successor
Rights Agent (with or without cause) upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Corporation shall appoint a successor
to the Rights Agent. Notwithstanding the foregoing provisions of this Section
21, in no event shall the resignation or removal of a Rights Agent be effective
until a successor Rights Agent shall have been appointed and have
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accepted such appointment. If the Corporation shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the
Corporation), then the incumbent Rights Agent or the holder of record of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Corporation or by such a court, shall be (a) a corporation organized and
doing business under the laws of the United States or of any state thereof, in
good standing, which is authorized under such laws to exercise corporate trust
or stock transfer powers and is subject to supervision or examination in the
conduct of its corporate trust or stock transfer business by federal or state
authorities and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $5,000,000 or (b) an Affiliate
controlled by a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed, but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Corporation shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be. Notwithstanding the foregoing
provisions, in the event of resignation, removal or incapacity of the Rights
Agent, the Corporation shall have the authority to act as the Rights Agent until
a successor Rights Agent shall have assumed the duties of the Rights Agent
hereunder.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Corporation may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Exercise Price per share and the number
or kind or class of shares of stock or other securities or property
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purchasable under the Right Certificates made in accordance with the provisions
of this Agreement. In addition, in connection with the issuance or sale of
Voting Stock following the Distribution Date and prior to the Expiration Date,
the Corporation may with respect to shares of Voting Stock so issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities,
notes or debentures issued by the Corporation or (iv) a contractual obligation
of the Corporation, in each case existing prior to the Distribution Date, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale.
Section 23. Redemption.
(a) The Corporation may, at its option, but only by the vote
of a majority of the Board of Directors (determined as if there were no
vacancies), redeem all but not less than all of the then outstanding Rights at
any time prior to the Close of Business on the tenth day following the Stock
Acquisition Date at a redemption price of $.01 per Right, subject to adjustments
as provided in Section 23(c) (the "REDEMPTION PRICE"). The redemption of the
Rights by the Board of Directors may be made effective at such time after the
Board's action to redeem the Rights on such basis and subject to such
conditions, as the Board of Directors in its absolute discretion may establish.
(b) Without any further action and without any notice, the
right to exercise the Rights will terminate effective at the time so designated
by action of the Board of Directors ordering the redemption of the Rights and
the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 days after the effective time of the action of the
Board of Directors ordering the redemption of the Rights, the Corporation shall
give notice of such redemption to the holders of the then outstanding Rights by
mailing such notice to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each notice of redemption will state the
method by which the payment of the Redemption Price will be made. At the option
of the Board of Directors, the Redemption Price may be paid in cash to each
Rights holder or by the issuance of shares (and, at the Corporation's election
pursuant to Section 14(b) hereof, cash or depositary receipts in lieu of
fractions of shares other than fractions which are integral multiples of one
one-hundredth of a
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share) of Preferred Stock or Common Stock having a Fair Market Value equal to
such cash payment.
(c) In the event the Corporation shall at any time after the
date of this Agreement but before the Distribution Date (A) pay any dividend on
Common Stock in shares of Common Stock, (B) subdivide or split the outstanding
shares of Common Stock into a greater number of shares or (C) combine or
consolidate the outstanding shares of Common Stock into a smaller number of
shares or effect a reverse split of the outstanding shares of Common Stock and
as a consequence thereof the number of Rights outstanding shall change, then,
and in each such event, the Redemption Price may, by action of the Board of
Directors of the Corporation in its discretion, be appropriately adjusted in
respect of such transaction so as to maintain the aggregate Redemption Price of
all Rights after such transaction at the same amount, insofar as practicable, as
before the transaction.
Section 24. Notice of Proposed Actions.
(a) In case the Corporation, after the Distribution Date,
shall propose (i) to effect any of the transactions referred to in Section
11(a)(i) or to pay any dividend to the holders of record of its shares of Common
Stock payable in shares of capital stock of any class or to make any other
distribution to the holders of record of its Common Stock (other than a regular
periodic cash dividend at a rate not in excess of 150% of the rate of the last
cash dividend theretofore paid), or (ii) to offer to the holders of record of
its Common Stock options, warrants, or other rights to subscribe for or to
purchase shares of Common Stock (including any security convertible into or
exchangeable for Common Stock) or shares of stock of any class or any other
securities, options, warrants, convertible or exchangeable securities or other
rights, or (iii) to effect any reclassification of its Preferred Stock or Common
Stock or any recapitalization or reorganization of the Corporation, or (iv) to
effect any consolidation or merger with or into, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Corporation and its Subsidiaries (taken as a whole) to, any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Corporation, then, in each such case, the Corporation shall
give to each holder of record of a Right Certificate, in accordance with Section
25, notice of such proposed action, which shall specify the record date for the
purposes of such transaction referred to in Section 11(a)(i) or such dividend or
distribution, or the date on which
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such reclassification, recapitalization, reorganization, consolidation, merger,
sale or transfer of assets, liquidation, dissolution, or winding up is to take
place and the record date for determining participation therein by the holders
of record of Common Stock or Preferred Stock, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of record of the Preferred Stock for purposes of such action, and in the
case of any such other action, at least 10 days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
record of Common Stock or Preferred Stock, whichever shall be the earlier. The
failure to give notice required by this Section 24 or any defect therein shall
not affect the legality or validity of the action taken by the Corporation or
the vote upon any such action.
(b) In case the event referred to in Section 11(a)(ii) shall
occur, then the Corporation shall as soon as practicable thereafter, in
accordance with Section 25 hereof, give to each holder of a Right notice of the
occurrence of such event, which notice shall describe the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of record of
any Right Certificate or Right to or on the Corporation shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Rights Agent) as follows:
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48098-2815
Attention: Logan G. Robinson
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Corporation or by the holder of record of
any Right Certificate or Right to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Corporation) as follows:
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BankBoston, N.A.
150 Royall Street,
Mail Stop 45-02-65
Camden, Massachusetts 02021
Attention: Nancy Rizza
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of record of any Right Certificate
or Right shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Corporation.
Section 26. Supplements and Amendments. For as long as the
Rights are then redeemable and except as provided in the last sentence of this
Section 26, the Corporation may, in its sole and absolute discretion, and the
Rights Agent shall if the Corporation so directs, supplement or amend any
provision of this Agreement without the approval of any holders of the Rights.
At any time when the Rights are not then redeemable and except as provided in
the last sentence of this Section 26, the Corporation may, and the Rights Agent
shall if the Corporation so directs, supplement or amend this Agreement without
the approval of any holders of Right Certificates (i) to cure any ambiguity,
(ii) to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein or (iii) to change or
supplement the provisions hereunder in any manner which the Corporation may deem
necessary or desirable, provided that no such supplement or amendment pursuant
to this clause (iii) shall materially adversely affect the interest of the
holders of Right Certificates. Upon the delivery of a certificate from an
appropriate officer of the Corporation which states that the proposed supplement
or amendment is in compliance with the terms of this Section 26, the Rights
Agent shall execute such supplement or amendment. Notwithstanding anything
contained in this Agreement to the contrary, no supplement or amendment shall be
made which changes the Redemption Price; it being understood that an adjustment
of the Redemption Price in accordance with Section 23 shall not be considered a
supplement or amendment of this Agreement.
Section 27. Exchange.
(a) The Board of Directors of the Corporation may,
at its option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become null and void pursuant to the provisions of
Section 7(e)
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hereof) for shares of Common Stock at an exchange ratio of one share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "EXCHANGE RATIO"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than an Exempt Person), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Voting Stock then outstanding, but may effect such exchange as of
and simultaneously with such Person becoming, together with its Affiliates and
Associates, the Beneficial Owner of 50% or more of the Voting Stock then
outstanding. From and after the occurrence of an event specified in Section
13(a) hereof, any Rights that theretofore have not been exchanged pursuant to
this Section 27(a) shall thereafter be exercisable only in accordance with
Section 13 and may not be exchanged pursuant to this Section 27(a).
(b) Immediately upon the action of the Board of Directors of
the Corporation ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 27 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Corporation shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Corporation promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become null and void
pursuant to the provisions of Section 7(e) hereof) held by each holder of
Rights.
(c) In the event that there shall not be sufficient shares
of Common Stock issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 27, the
Corporation shall substitute to the extent of such insufficiency, for each share
of Common
43
<PAGE> 47
Stock that would otherwise be issuable upon exchange of a Right, a number of
shares of Preferred Stock or fractions thereof having an aggregate Fair Market
Value equal to the Fair Market Value of one share of Common Stock as of the date
any Person becomes an Acquiring Person.
(d) The Corporation shall not be required to issue fractions
of shares of Common Stock or to distribute certificates which evidence
fractional shares. In lieu of such fractional shares, the Corporation shall pay
to the registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this paragraph (d), the current market value
of a whole share of Common Stock shall be the closing price of a share of Common
Stock for the Trading Day immediately prior to the date of exchange pursuant to
this Section 27.
Section 28. Successors. All of the covenants and provisions
of this Agreement by or for the benefit of the Corporation or the Rights Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Corporation, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the holders of Common Stock
in their capacity as holders of the Rights) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Corporation, the Rights Agent and the holders of record
of the Right Certificates (and, prior to the Distribution Date, the holders of
Common Stock in their capacity as holders of the Rights).
Section 30. Delaware Contract. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed and enforced in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.
Section 31. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
44
<PAGE> 48
Section 32. Descriptive Headings. Descriptive headings of
the several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
Section 33. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 34. Determinations and Actions by the Board of
Directors. The Board of Directors of the Corporation shall have the exclusive
power and authority to interpret and apply this Agreement and to exercise the
rights and powers specifically granted to the Board of Directors of the
Corporation hereunder and may take such action as may be necessary or advisable
in the administration of this Agreement or to amend or supplement this Agreement
in accordance with its terms, including, without limitation, the right and power
to (i) make all determinations deemed necessary or advisable for the
administration of this Agreement or (ii) decide to redeem the Rights or (iii)
decide to amend this Agreement. All such actions, calculations, interpretations
and determinations (including any decision not to take any action) done or made
by the Board of Directors of the Corporation in good faith shall (x) be final,
conclusive and binding on the Corporation, the Rights Agent, the holders of the
Rights, as such, and all other Persons, and (y) not subject any member of the
Board of Directors to any liability to the holders of Rights.
45
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By:
-------------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------------
Name:
Title:
46
<PAGE> 50
EXHIBIT A
AS PROVIDED IN THE RIGHTS AGREEMENT (AS REFERRED
TO BELOW), RIGHTS ISSUED TO OR BENEFICIALLY OWNED
BY ACQUIRING PERSONS OR THEIR AFFILIATES OR
ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS SHALL BE NULL AND VOID AND MAY NOT
BE EXERCISED OR TRANSFERRED TO ANY PERSON.
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
SUMMARY OF RIGHTS TO PURCHASE
SERIES A JUNIOR PREFERRED STOCK
On February __, 1999, the IPO Committee of the Board of Directors (the
"IPO Committee") of Delphi Automotive Systems Corporation (the "Corporation")
declared a dividend distribution of one Preferred Stock Purchase Right for each
outstanding share of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation. The distribution is payable as of the time and date
determined by the IPO Committee to be the record date of such distribution to
stockholders of record on such time and date (the "Record Date"). Each Right
entitles the registered holder to purchase from the Corporation one
one-hundredth (1/100) of a share of preferred stock of the Corporation,
designated as Series A Junior Preferred Stock (the "Preferred Stock") at a price
of $65 per one one- hundredth (1/100) of a share ("Exercise Price"). The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Corporation and BankBoston, N.A., as Rights
Agent (the "Rights Agent").
As discussed below, initially the Rights will not be exercisable,
certificates will not be sent to stockholders and the Rights will automatically
trade with the Common Stock.
The Rights, unless earlier redeemed by the Board of Directors, become
exercisable upon the close of business on the day (the "Distribution Date")
which is the earlier of (i) the tenth day following a public announcement that a
person or group of affiliated or associated persons, with certain exceptions set
forth below, has acquired beneficial ownership of 15% or more of the outstanding
voting stock of the Corporation (an "Acquiring Person") and (ii) the tenth
business day (or such later date as may be determined by the Board of Directors
prior to such time as any person or group of affiliated or associated persons
becomes an Acquiring
<PAGE> 51
Person) after the date of the commencement or announcement of a person's or
group's intention to commence a tender or exchange offer the consummation of
which would result in the ownership of 15% or more of the Corporation's
outstanding voting stock (even if no shares are actually purchased pursuant to
such offer); prior thereto, the Rights would not be exercisable, would not be
represented by a separate certificate, and would not be transferable apart from
the Corporation's Common Stock, but will instead be evidenced, with respect to
any of the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate with a copy of this Summary of Rights attached thereto
(or in the case of uncertificated shares of Common Stock, by the book entry
account that evidences record ownership of such shares). An Acquiring Person
does not include (A) the Corporation, (B) any subsidiary of the Corporation, (C)
any employee benefit plan or employee stock plan of the Corporation or of any
subsidiary of the Corporation, or any trust or other entity organized,
appointed, established or holding voting stock for or pursuant to the terms of
any such plan, (D) any person or group of affiliated or associated persons whose
ownership of 15% or more of the shares of voting stock of the Corporation then
outstanding results solely from (i) any action or transaction or transactions
approved by the Board of Directors before such person or group became an
Acquiring Person or (ii) a reduction in the number of issued and outstanding
shares of voting stock of the Corporation pursuant to a transaction or
transactions approved by the Board of Directors (provided that any person or
group that does not become an Acquiring Person by reason of clause (i) or (ii)
above shall become an Acquiring Person upon acquisition of an additional 1% of
the Corporation's voting stock unless such acquisition of additional voting
stock results from one or more actions or transactions approved by the Board of
Directors of the Corporation), or (E) prior to the time at which General Motors
Corporation ("GM") shall first cease to beneficially own 15% or more of the
voting stock of the Corporation then outstanding, GM or any affiliate or
associate of GM.
Until the Distribution Date (or earlier redemption, exchange or
expiration of the Rights), new Common Stock certificates issued after the Record
Date will contain a legend incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption, exchange or expiration of
the Rights), the surrender for transfer of any of the Common Stock
2
<PAGE> 52
certificates outstanding as of the Record Date, with or without a copy of this
Summary of Rights attached thereto, will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate certificates alone will evidence the Rights from and after the
Distribution Date.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on January 31, 2009, unless earlier
redeemed by the Corporation as described below.
The Preferred Stock is nonredeemable and, unless otherwise provided in
connection with the creation of a subsequent series of preferred stock,
subordinate to any other series of the Corporation's preferred stock. The
Preferred Stock may not be issued except upon exercise of Rights. Each share of
Preferred Stock will be entitled to receive when, as and if declared, a
quarterly dividend in an amount equal to the greater of $__.__ per share or 100
times the cash dividends declared on the Corporation's Common Stock. In
addition, the holders of the Preferred Stock are entitled to receive 100 times
any non-cash dividends (other than dividends payable in equity securities)
declared on the Common Stock, in like kind. In the event of the liquidation of
the Corporation, the holders of Preferred Stock will be entitled to receive, for
each share of Preferred Stock, a payment in an amount equal to the greater of
$650 or 100 times the payment made per share of Common Stock. Each share of
Preferred Stock will have 100 votes, voting together with the Common Stock. In
the event of any merger, consolidation or other transaction in which Common
Stock is exchanged, each share of Preferred Stock will be entitled to receive
100 times the amount received per share of Common Stock. The rights of Preferred
Stock as to dividends, liquidation and voting are protected by anti-dilution
provisions.
The number of shares of Preferred Stock issuable upon exercise of the
Rights and Exercise Price of the Rights are subject to certain adjustments from
time to time in the event of a stock dividend on, or a subdivision or
combination of, the Common Stock. The Exercise Price for the Rights also is
subject to adjustment in the event of
3
<PAGE> 53
extraordinary distributions of cash or other property to holders of Common
Stock.
Unless the Rights are earlier redeemed or exchanged, in the event
that, after the time that a Person becomes an Acquiring Person, the Corporation
were to be acquired in a merger or other business combination (in which any
shares of Common Stock are changed into or exchanged for other securities or
assets) or more than 50% of the assets or earning power of the Corporation and
its subsidiaries (taken as a whole) were to be sold or transferred in one or a
series of related transactions, the Rights Agreement provides that proper
provision will be made so that each holder of record of a Right will from and
after such date have the right to receive, upon payment of the Exercise Price,
that number of shares of common stock of the acquiring company having a market
value at the time of such transaction equal to two times the Exercise Price.
In addition, unless the Rights are earlier redeemed, in the event that
a person or group becomes an Acquiring Person, the Rights Agreement provides
that proper provisions will be made so that each holder of record of a Right,
other than the Acquiring Person (whose Rights will thereupon become null and
void), will thereafter have the right to receive, upon payment of the Exercise
Price, that number of shares of the Preferred Stock having a market value at the
time of the transaction equal to two times the Exercise Price (such market value
to be determined with reference to the market value of the Corporation's Common
Stock as provided in the Rights Agreement).
At any time after any person or group becomes an Acquiring Person and
prior to, or simultaneously with, the acquisition by such person or group of 50%
or more of the outstanding voting stock, the Board of Directors of the
Corporation may exchange the Rights (other than Rights owned by such person or
group which will have become void), in whole or in part, at an exchange ratio of
one share of Common Stock per Right (subject to adjustment).
Fractions of shares of Preferred Stock (other than fractions which are
integral multiples of one one-hundredth of a share) may, at the election of the
Corporation, be evidenced by depositary receipts. The Corporation may also issue
cash in lieu of fractional shares which are not integral multiples of one
one-hundredth of a share.
4
<PAGE> 54
At any time prior to the close of business on the tenth day after
there has been a public announcement that a person has become an Acquiring
Person, the Corporation may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price"). Immediately upon the effective
time of the action of the Board of Directors of the Corporation authorizing
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
For as long as the Rights are then redeemable, the Corporation may,
except with respect to the Redemption Price, amend the Rights in any manner,
including an amendment to extend the time period in which the Rights may be
redeemed. At any time when the Rights are not then redeemable, the Corporation
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, as such, will have no rights
as a stockholder of the Corporation, including, without limitation, the right to
vote or to receive dividends.
A copy of the form of Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to the Corporation's
Registration Statement on Form S-1 (Registration No. 333-67333). A copy of the
Rights Agreement is available free of charge from the Corporation. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement which is incorporated in this
summary description herein by reference.
5
<PAGE> 55
EXHIBIT B
[Form of Right Certificate]
Certificate No. W- ______ Rights
NOT EXERCISABLE AFTER JANUARY 31, 2009 OR EARLIER IF EXCHANGED OR
REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
CORPORATION AND UNDER CERTAIN OTHER CIRCUMSTANCES, AT $.01 PER RIGHT
(SUBJECT TO ADJUSTMENT), ON THE TERMS SET FORTH OR REFERRED TO IN THE
RIGHTS AGREEMENT. AS PROVIDED IN THE RIGHTS AGREEMENT (AS REFERRED TO
BELOW), RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY ACQUIRING PERSONS OR
THEIR AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BE NULL AND
VOID AND MAY NOT BE EXERCISED OR TRANSFERRED TO ANY PERSON.
Right Certificate
This certifies that , or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of February 1, 1999 (the "Rights Agreement") by
and between Delphi Automotive Systems Corporation, a Delaware corporation (the
"Corporation"), and BankBoston, N.A., a national banking association (the
"Rights Agent"), to purchase from the Corporation at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M. (Eastern time) on January 31, 2009 at the office of the Rights Agent
designated in the Rights Agreement for such purpose, or its successor as Rights
Agent, one one-hundredth (1/100) of a fully paid nonassessable share of Series A
Junior Preferred Stock (the "Preferred Stock") of the Corporation at a purchase
price of $65, as the same may from time to time be adjusted in accordance with
the Rights Agreement (the "Exercise Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase attached hereto
duly executed.
As provided in the Rights Agreement, the Exercise Price and the number
of shares of Preferred Stock which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events and, upon
<PAGE> 56
the happening of certain events, securities other than shares of Preferred
Stock, or other property, may be acquired upon exercise of the Rights evidenced
by this Right Certificate, as provided in the Rights Agreement.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Corporation and the holders of record of Right Certificates. Copies of the
Rights Agreement are on file at the principal executive office of the
Corporation.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated in the Rights Agreement
for such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder of
record to purchase a like aggregate number of shares of Preferred Stock as the
Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender
hereof, another Right Certificate or Right Certificates for the number of whole
Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Corporation at its option or under
certain other circumstances at a redemption price of $.01 per Right.
No fractional shares of Preferred Stock (other than fractions which are
integral multiples of one one-hundredth (1/100) of a share) are required to be
issued upon the exercise of any Right or Rights evidenced hereby, and in lieu
thereof the Corporation may cause depositary receipts to be issued and/or a cash
payment may be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Preferred Stock
or of any other securities of the Corporation which may at any time be issuable
on the exercise hereof, nor shall anything
2
<PAGE> 57
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Corporation or
any right to vote for the election of directors or upon any matter submitted to
stockholders at meeting thereof, or to give or withhold consent to any corporate
action or to receive notice of meetings or other actions affecting stockholders
(except as provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by this
Right Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Corporation and its corporate seal. Dated as of
---------------- -----, --------
ATTEST: DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By
- ------------------------------ ------------------------------
[Assistant] Secretary Title:
Countersigned:
BANKBOSTON, N.A.
By
---------------------------
Authorized Signature
3
<PAGE> 58
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificates.)
FOR VALUE RECEIVED
------------------------------------------
hereby sells, assigns and transfers unto
---------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
Rights evidenced by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and
appoint__________________________ Attorney to transfer the within Right
Certificate on the books of the within-named Corporation, with full power of
substitution.
Dated:
---------------------- -----, -------
-------------------------------------
Signature
Signature Guaranteed:
4
<PAGE> 59
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned or
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Associate or an Affiliate thereof (as such terms are defined in the Rights
Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
Dated:
------------------ -----, ---------- ----------------------------
Signature
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
5
<PAGE> 60
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if registered holder
desires to exercise the Right Certificate.)
TO
-------------------------:
The undersigned hereby irrevocably elects to exercise
----------------
Rights represented by this Right Certificate to purchase the shares of Preferred
Stock issuable upon the exercise of such Rights and requests that certificates
for such share(s) be issued in the following name:
Please insert social security
or other identifying number:
---------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number:
---------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
-------------- -----, ---------
----------------------------------------
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Right Certificate)
Signature Guaranteed:
6
<PAGE> 61
EXHIBIT C
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PREFERRED STOCK
OF
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
Pursuant to Section 151 of the Delaware
General Corporation Law
I, ____________, ____________ of Delphi Automotive Systems
Corporation, a corporation organized and existing under the Delaware General
Corporation Law (the "CORPORATION"), in accordance with the provisions of
Section 151 of such law, DO HEREBY CERTIFY that pursuant to the authority
conferred upon the IPO Committee of the Board of Directors by Board of Directors
and upon the Board of Directors by the Amended and Restated Certificate of
Incorporation of the Corporation, the IPO Committee of the Board of Directors on
February __, 1999, adopted the following resolution which creates a series of
shares of Preferred Stock designated as Series A Junior Preferred Stock, as
follows:
RESOLVED, that pursuant to Section 151(g) of the Delaware
General Corporation Law and the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of ARTICLE FOURTH of the
Amended and Restated Certificate of Incorporation of the Corporation and
delegated to the IPO Committee by the Board of Directors, a series of Preferred
Stock of the Corporation be, and hereby is, created, and the powers,
designations, preferences and relative,
<PAGE> 62
participating, optional or other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof, be, and hereby are,
as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Preferred Stock" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting such series shall be
____________.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment here inafter set
forth, and subject to the rights of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, (i) cash dividends in an amount per
share (rounded to the nearest cent) equal to 100 times the aggregate per share
amount of all cash dividends declared or paid on the Common Stock, $0.01 par
value per share, of the Corporation (the "COMMON STOCK") and (ii) a preferential
cash dividend (the "PREFERENTIAL DIVIDENDS"), if any, in preference to the
holders of Common Stock, on the first day of January, April, July and October of
each year (each a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, payable in an amount (except in the case
of the first Quarterly Dividend Payment if the date of the first issuance of
Series A Preferred Stock is a date other than a Quarterly Dividend Payment date,
in which case such payment shall be a prorated amount of such amount) equal to
$__.__ per share of Series A Preferred Stock less the per share amount of all
cash dividends declared on the Series A Preferred Stock pursuant to clause (i)
of this sentence since the immediately preceding Quar terly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall, at any time after the issuance of any share
or fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock of the Corporation, whether by way of a dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the Corporation or otherwise, which is payable in cash or any
debt security, debt instrument, real or personal property
2
<PAGE> 63
or any other property (other than cash dividends subject to the immediately
preceding sentence, a distribution of shares of Common Stock or other capital
stock of the Corporation or a distribution of rights or warrants to acquire any
such share, including any debt security convertible into or exchangeable for any
such share, at a price less than the Fair Market Value (as hereinafter defined)
of such share), then, and in each such event, the Corporation shall
simultaneously pay on each then outstanding share of Series A Preferred Stock of
the Corporation a distribution, in like kind, of 100 times such distribution
paid on a share of Common Stock (subject to the provisions for adjust ment
hereinafter set forth). The dividends and distributions on the Series A
Preferred Stock to which holders thereof are entitled pursuant to clause (i) of
the first sentence of this paragraph and pursuant to the second sentence of this
paragraph are hereinafter referred to as "DIVIDENDS" and the multiple of such
cash and non-cash dividends on the Common Stock applicable to the determination
of the Dividends, which shall be 100 initially but shall be adjusted from time
to time as hereinafter provided, is hereinafter referred to as the "DIVIDEND
MULTIPLE". In the event the Corporation shall at any time after the date shares
of Common Stock are first publicly held declare or pay any dividend or make any
distribution on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple thereafter applicable
to the determination of the amount of Dividends which holders of shares of
Series A Preferred Stock shall be entitled to receive shall be the Dividend
Multiple applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare each Dividend at the same
time it declares any cash or non-cash dividend or distribu tion on the Common
Stock in respect of which a Dividend is required to be paid. No cash or non-cash
dividend or distribu tion on the Common Stock in respect of which a Dividend is
required to be paid shall be paid or set aside for payment on the Common Stock
unless a Dividend in respect of such dividend or distribution on the Common
Stock shall be simultaneously paid, or set aside for payment, on the Series A
Preferred Stock.
(C) Preferential Dividends shall begin to accrue on
outstanding shares of Series A Preferred Stock from the Quarterly
3
<PAGE> 64
Dividend Payment Date next preceding the date of issuance of any shares of
Series A Preferred Stock. Accrued but unpaid Preferen tial Dividends shall
cumulate but shall not bear interest. Preferential Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment herein after set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the holders of the Common
Stock. The number of votes which a holder of Series A Preferred Stock is
entitled to cast, as the same may be adjusted from time to time as herein after
provided, is hereinafter referred to as the "VOTE MULTIPLE". In the event the
Corporation shall at any time after shares of Common Stock are first publicly
held declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or split or a combination, consolidation or
reverse split of the outstanding shares of Common Stock into a greater or lesser
number of shares of Common Stock, then in each such case the Vote Multiple
thereafter applicable to the determination of the number of votes per share to
which holders of shares of Series A Preferred Stock shall be entitled after such
event shall be the Vote Multiple immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Amended and
Restated Certificate of Incorporation or by law, the holders of shares of Series
A Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) In the event that the Preferential Dividends accrued on
the Series A Preferred Stock for four or more quar terly dividend periods,
whether consecutive or not, shall not have been declared and paid or irrevocably
set aside for payment, the holders of record of Preferred Stock of the
Corporation of all series (including the Series A Preferred Stock), other than
any series in respect of which such right is expressly withheld
4
<PAGE> 65
by the Amended and Restated Certificate of Incorporation or the authorizing
resolutions included in any Certificate of Desig nations therefor, shall have
the right, at the next meeting of stockholders called for the election of
directors, to elect two members to the Board of Directors, which directors shall
be in addition to the number required prior to such event, to serve until the
next Annual Meeting and until their successors are elected and qualified or
their earlier resignation, removal or incapacity or until such earlier time as
all accrued and unpaid Preferential Dividends upon the outstanding shares of
Series A Preferred Stock shall have been paid (or irrevocably set aside for
payment) in full. The holders of shares of Series A Preferred Stock shall
continue to have the right to elect directors as provided by the immediately
preceding sentence until all accrued and unpaid Preferential Dividends upon the
out standing shares of Series A Preferred Stock shall have been paid (or set
aside for payment) in full. Such directors may be removed and replaced by such
stockholders, and vacancies in such directorships may be filled only by such
stockholders (or by the remaining director elected by such stockholders, if
there be one) in the manner permitted by law; provided, however, that any such
action by stockholders shall be taken at a meeting of stock holders and shall
not be taken by written consent thereto.
(D) Except as otherwise required by the Amended and Restated
Certificate of Incorporation or by law or set forth herein, holders of Series A
Preferred Stock shall have no other special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for the taking of any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Dividends are in
arrears or the Corporation shall be in default of payment thereof, thereafter
and until all accrued and unpaid Preferential Dividends and Dividends, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid or set irrevocably aside for payment in full, and in addition to any
and all other rights which any holder of shares of Series A Preferred Stock may
have in such circumstances, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
5
<PAGE> 66
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity as to
dividends with the Series A Preferred Stock, unless dividends are paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled if
the full dividends accrued thereon were to be paid;
(iii) except as permitted by subparagraph (iv) of this
paragraph 4(A), redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior
(both as to dividends and upon liquidation, dissolution or winding up)
to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock (either as to dividends or
upon liquidation, dissolution or winding up), except in accordance with
a purchase offer made to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any Subsidiary (as
hereinafter defined) of the Corporation to purchase or other wise acquire for
consideration any shares of stock of the Corporation unless the Corporation
could, under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner. A "SUBSIDIARY" of the Corporation shall
mean any corporation or other entity of which securities or other ownership
interests having ordinary voting power sufficient to elect a majority of the
board of directors of such corporation or other entity or other persons
performing similar functions are beneficially owned, directly or indirectly, by
the Corporation or by any corporation or other entity that is otherwise
controlled by the Corporation.
6
<PAGE> 67
(C) The Corporation shall not issue any shares of Series A
Preferred Stock except upon exercise of Rights issued pursuant to that certain
Rights Agreement dated as of February 1, 1999 between the Corporation and
BankBoston, N.A., as Rights Agent, as it may be amended from time to time, a
copy of which is on file with the Secretary of the Corporation at its principal
executive office and shall be made available to stockholders of record without
charge upon written request therefor addressed to said Secretary.
Notwithstanding the foregoing sentence, nothing contained in the provisions
hereof shall prohibit or restrict the Corporation from issuing for any purpose
any series of Preferred Stock with rights and privileges similar to, different
from, or greater than, those of the Series A Preferred Stock.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and can celled promptly after the acquisition
thereof. All such shares upon their retirement and cancellation shall become
authorized but unissued shares of Preferred Stock, without designation as to
series, and such shares may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless the holders of shares of
Series A Preferred Stock shall have received for each share of Series A
Preferred Stock, subject to adjustment as hereinafter provided, (A) $650 plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment or, (B) if greater than the amount
specified in clause (i)(A) of this sentence, an amount equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, as the
same may be adjusted as hereinafter provided and (ii) to the holders of stock
ranking on a parity upon liquida tion, dissolution or winding up with the Series
A Preferred Stock, unless simultaneously therewith distributions are made
ratably on the Series A Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of shares of
Series A Preferred Stock are entitled under clause (i)(A) of this sentence and
to which the holders of such parity shares are entitled, in each case upon such
liquidation, dissolution
7
<PAGE> 68
or winding up. The amount to which holders of Series A Preferred Stock may be
entitled upon liquidation, dissolution or winding up of the Corporation pursuant
to clause (i)(B) of the foregoing sentence is hereinafter referred to as the
"PARTICIPATING LIQUIDATION AMOUNT" and the multiple of the amount to be
distributed to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the Corporation applicable pursuant to said clause
to the determination of the Participating Liquidation Amount, as said multiple
may be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "LIQUIDATION MULTIPLE". In the event the Corporation shall at
any time after the date shares of Common Stock are first publicly held declare
or pay any dividend on Common Stock payable in shares of Common Stock, or effect
a subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then, in each such case, the Liquidation Multiple thereafter
applicable to the determination of the Participating Liquidation Amount to which
holders of Series A Preferred Stock shall be entitled after such event shall be
the Liquidation Multiple applicable immediately prior to such event multiplied
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock of the
Corporation receive after the date shares of Common Stock are first publicly
held, in respect of their shares of Common Stock any share of capital stock of
the Corporation (other than any share of Common Stock of the Corporation),
whether by way of reclassification, recapitalization, reorganization, dividend
or other distribution or otherwise (a "TRANSACTION"), then, and in each such
event, the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall be adjusted so that after such event the holders of Series A
Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such Transaction multiplied by the additional dividends which the holder of a
share of Common Stock shall be entitled to receive by virtue of the receipt in
the Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder of a share of Common
8
<PAGE> 69
Stock shall be entitled to receive by virtue of the receipt in the Transaction
of such capital stock and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the Liquidation Multiple
in effect immediately prior to such Transaction multiplied by the addi tional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Corporation by virtue of the
receipt in the Transaction of such capital stock, as the case may be, all as
provided by the terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the
Corporation receive after the date shares of Common Stock are first publicly
held, in respect of their shares of Common Stock any right or warrant to
purchase Common Stock (including as such a right, for all purposes of this
paragraph, any security convertible into or exchangeable for Common Stock) at a
purchase price per share less than the Fair Market Value of a share of Common
Stock on the date of issuance of such right or warrant, then and in each such
event the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall each be adjusted so that after such event the Dividend Multiple, the
Vote Multiple and the Liquidation Multiple shall each be the product of the
Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case
may be, in effect immediately prior to such event multiplied by a fraction the
numerator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the maximum number
of shares of Common Stock which could be acquired upon exercise in full of all
such rights or warrants and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the number of shares of Common Stock which could be purchased, at
the Fair Market Value of the Common Stock at the time of such issuance, by the
maximum aggregate consideration payable upon exercise in full of all such rights
or warrants.
(C) In the event that holders of shares of Common Stock of the
Corporation receive after the date shares of Common Stock are first publicly
held, in respect of their shares of Common Stock any right or warrant to
purchase capital stock of the Corporation (other than shares of Common Stock),
including as such a right, for all purposes of this paragraph, any security
convertible into or exchangeable for capital stock of the Corporation (other
than Common Stock), at a purchase price per share less than the Fair Market
Value of such shares of capital
9
<PAGE> 70
stock on the date of issuance of such right or warrant, then and in each such
event the dividend rights, voting rights and rights upon liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall each be adjusted so that after such event each holder of a share of
Series A Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such event, to receive (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such event multiplied, first, by the additional dividends to which the holder
of a share of Common Stock shall be entitled upon exercise of such right or
warrant by virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction (as hereinafter defined)
and (ii) such addi tional voting rights as equal the Vote Multiple in effect
immedi ately prior to such event multiplied, first, by the additional voting
rights to which the holder of a share of Common Stock shall be entitled upon
exercise of such right or warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the Discount Fraction and
(iii) such additional distributions upon liquidation, dissolution or winding up
of the Corporation as equal the Liquidation Multiple in effect immediately prior
to such event multiplied, first, by the additional amount which the holder of a
share of Common Stock shall be entitled to receive upon liquidation, dissolution
or winding up of the Corporation upon exercise of such right or warrant by
virtue of the capital stock which could be acquired upon such exercise and
multiplied again by the Discount Fraction. For purposes of this paragraph, the
"DISCOUNT FRACTION" shall be a fraction the numerator of which shall be the
difference between the Fair Market Value of a share of the capital stock subject
to a right or warrant distributed to holders of shares of Common Stock of the
Corporation as contem plated by this paragraph immediately after the
distribution thereof and the purchase price per share for such share of capital
stock pursuant to such right or warrant and the denom inator of which shall be
the Fair Market Value of a share of such capital stock immediately after the
distribution of such right or warrant.
(D) For purposes of this Certificate of Designations, the
"FAIR MARKET VALUE" of a share of capital stock of the Corporation (including a
share of Common Stock) on any date shall be deemed to be the average of the
daily closing price per share thereof over the 30 consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date; provided,
however, that, in the event that such Fair Market Value of any
10
<PAGE> 71
such share of capital stock is determined during a period which includes any
date that is within 30 Trading Days after (i) the ex-dividend date for a
dividend or distribution on stock payable in shares of such stock or securities
convertible into shares of such stock, or (ii) the effective date of any
subdivision, split, combination, consolidation, reverse stock split or
reclassifica tion of such stock, then, and in each such case, the Fair Market
Value shall be appropriately adjusted by the Board of Directors of the
Corporation to take into account ex-dividend or post-effective date trading. The
closing price for any day shall be the last sale price, regular way, or, in
case, no such sale takes place on such day, the average of the closing bid and
asked prices, regular way (in either case, as reported in the applicable
transaction reporting system with respect to securi ties listed or admitted to
trading on the New York Stock Exchange), or, if the shares are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
applicable transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares are listed or
admitted to trading or, if the shares are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or if on any such
date the shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the shares selected by the Board of Directors of the Corporation.
The term "TRADING DAY" shall mean a day on which the principal national
securities exchange on which the shares are listed or admitted to trading is
open for the transaction of business or, if the shares are not listed or
admitted to trading on any national securities exchange, on which the New York
Stock Exchange or such other national securities exchange as may be selected by
the Board of Directors of the Corporation is open. If the shares are not
publicly held or not so listed or traded on any day within the period of 30
Trading Days applicable to the determination of Fair Market Value thereof as
aforesaid, "FAIR MARKET VALUE" shall mean the fair market value thereof per
share as determined in good faith by the Board of Directors of the Corporation.
In either case referred to in the foregoing sentence, the determination of Fair
Market Value shall be described in a statement filed with the Secretary of the
Corporation.
11
<PAGE> 72
Section 8. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, com bination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.
Section 9. Effective Time of Adjustments.
(A) Adjustments to the Series A Preferred Stock required by
the provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.
(B) The Corporation shall give prompt written notice to each
holder of a share of Series A Preferred Stock of the effect of any adjustment to
the voting rights, dividend rights or rights upon liquidation, dissolution or
winding up of the Corporation of such shares required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the Corporation to give
such notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment.
Section 10. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable at the option of the Corporation or any holder
thereof. Notwithstanding the foregoing sentence of this Section, the Corporation
may acquire shares of Series A Preferred Stock in any other manner permitted by
law, the provisions hereof and the Amended and Restated Certificate of
Incorporation of the Corporation.
Section 11. Ranking. Unless otherwise provided in the Amended
and Restated Certificate of Incorporation of the Corporation or a Certificate of
Designations relating to a subsequent series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to all other series
of the Corporation's preferred stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up and senior to
the Common Stock.
Section 12. Amendment. The provisions hereof and the Amended
and Restated Certificate of Incorporation of the Corporation shall not be
amended in any manner which would
12
<PAGE> 73
adversely affect the rights, privileges or powers of the Series A Preferred
Stock without, in addition to any other vote of stock holders required by law,
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series A Pre ferred Stock, voting together as a single class.
13
<PAGE> 74
IN WITNESS WHEREOF, I have executed and subscribed this
Certificate of Designations and do affirm the foregoing as true under the
penalties of perjury this ___ day of _________, 1999.
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------------
<PAGE> 1
EXHIBIT 5.1
[Kirkland & Ellis Letterhead]
January 27, 1999
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48018
Re: Delphi Automotive Systems Corporation Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as special counsel to Delphi Automotive Systems
Corporation, a Delaware corporation (the "Company"), in connection with the
proposed registration by the Company of 100,000,000 shares of its Common Stock,
par value $.01 per share (the "Common Stock"), plus up to an additional
15,000,000 shares (all of such shares, together with any additional shares
registered pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), the "Shares") of its Common Stock to cover over-allotments, if
any, pursuant to a Registration Statement on Form S-1 (Registration No.
333-67333), filed with the Securities and Exchange Commission (the "Commission")
under the Act (such Registration Statement, as amended or supplemented, is
hereinafter referred to as the "Registration Statement"). The Shares are to be
sold pursuant to an underwriting agreement (the "Underwriting Agreement") among
the Company, Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Schroder & Co. Inc., as representatives of the
several U.S. Underwriters, and Morgan Stanley & Co. International Limited,
Goldman Sachs International, Merrill Lynch International, Donaldson, Lufkin &
Jenrette International and J. Henry Schroder & Co. Limited, as representatives
of the several International Underwriters.
We have examined such corporate proceedings, documents, records
and matters of law as we have deemed necessary to enable us to render this
opinion. For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of
all documents submitted to us as copies. We have also assumed the legal
capacity of all natural persons, the genuineness of the signatures of persons
signing all documents in connection with which this opinion is rendered, the
authority of such persons signing on behalf of the parties thereto other than
the Company and the due authorization, execution and delivery of all documents
by the parties thereto other than the Company. As to any facts material to the
opinions expressed herein, we have relied upon the statements and
representations of officers and other representations of the Company and
others.
As of the date of this opinion, the Board of the Directors of
the Company has taken action to approve the issuance and sale of the Shares and
has delegated to the IPO Committee of the
<PAGE> 2
Delphi Automotive Systems Corporation
January 27, 1999
Page 2
Board of Directors (the "Pricing Committee") authority to determine and
approve certain matters regarding the issuance and sale of the Shares,
including the determination of the number of Shares to be sold, the price at
which the Shares are to be sold and the underwriting discounts and commissions
with respect thereto (such authorization is referred to herein as the "Pricing
Action").
Based upon and subject to the foregoing qualifications,
assumptions and limitations and the further limitations set forth below, we
hereby advise you that, in our opinion, upon the effectiveness of the Restated
Certificate of Incorporation of the Company, the Shares will be duly authorized
for issuance; and, when the Registration Statement has become effective under
the Act, the Pricing Committee has duly taken the Pricing Action, the Shares
have been issued in accordance with the terms of the Underwriting Agreement
upon receipt of the consideration contemplated thereby, and certificates
representing the Shares have been duly executed and delivered on behalf of the
Company and duly registered by the Company's Registrar, the Shares will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as Exhibit 5.1 to the Registration Statement. We also consent to the
reference to our firm under the heading "Legal Matters" in the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission. This opinion and consent may be
incorporated by reference in a subsequent registration statement on Form S-1
filed pursuant to Rule 462(b) under the Act with respect to the registration of
additional Shares for sale in the offering contemplated by the Registration
Statement.
We express no opinion as to any laws other than the General
Corporation Law of the State of Delaware and the Delaware case law decided
thereunder and the federal law of the United States of America. We do not find
it necessary for the purposes of this opinion, and accordingly we do not
purport to cover herein, the application of the securities or "Blue Sky" laws
of the various states to the issuance and sale of the Shares.
This opinion is limited to the specific issues addressed
herein, and no opinion may be inferred or implied beyond that expressly stated
herein. We assume no obligation to revise or supplement this opinion should
the applicable law be changed by legislative action, judicial decision or
otherwise after the date on which the Registration Statement is declared
effective by the Commission.
This opinion is furnished to you in connection with the filing
of the Registration Statement and is not to be used, circulated, quoted or
otherwise relied upon for any other purpose.
Very truly yours,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
MASTER SEPARATION AGREEMENT
dated as of
December 22, 1998
among
GENERAL MOTORS CORPORATION,
DELPHI AUTOMOTIVE SYSTEMS CORPORATION,
DELPHI AUTOMOTIVE SYSTEMS LLC,
DELPHI TECHNOLOGIES, INC.
and
DELPHI AUTOMOTIVE SYSTEMS (HOLDING), INC.
<PAGE> 2
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
ARTICLE 1
Definitions
<S> <C> <C>
Section 1.01 Defined Terms...............................................2
ARTICLE 2
Contribution and Assumption
Section 2.01 Contribution of Assets......................................6
Section 2.02 Assumption of Liabilities...................................7
Section 2.03 Methods of Transfer and Assumption.........................7
Section 2.04 Nonassignable Contracts.....................................8
Section 2.05 Transition Services.........................................8
ARTICLE 3
Ancillary Agreements
Section 3.01 General....................................................10
Section 3.02 Priority...................................................10
Section 3.03 Extensions of Transition Services..........................10
ARTICLE 4
Covenants
Section 4.01 IPO and Distribution Agreement.............................10
Section 4.02 Registration Rights Agreement..............................10
Section 4.03 Delayed Asset Transfers....................................10
ARTICLE 5
Indemnification
Section 5.01 Indemnification by Delphi..................................11
Section 5.02 Indemnification Procedures.................................11
Section 5.03 Certain Limitations........................................12
ARTICLE 6
Access to Information
Section 6.01 Restrictions on Disclosure of Information..................13
Section 6.02 Legally Required Disclosure of Confidential Information....13
Section 6.03 Access to Information......................................13
Section 6.04 Record Retention...........................................14
Section 6.05 Production of Witnesses....................................16
Section 6.06 Reimbursement..............................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE 7
Certain Claims and Litigation
<S> <C> <C>
Section 7.01 Product Liability Claims...................................16
Section 7.02 General Litigation.........................................17
Section 7.03 Employment Related Claims..................................18
Section 7.04 Cooperation................................................18
ARTICLE 8
Insurance Matters
Section 8.01 Delphi Insurance Coverage During the Transition Period.....19
Section 8.02 Delphi Insurance Coverage After the Transition Period......20
ARTICLE 9
Miscellaneous
Section 9.01 Entire Agreement...........................................20
Section 9.02 Governing Law..............................................20
Section 9.03 Descriptive Headings.......................................20
Section 9.04 Notices....................................................20
Section 9.05 Parties In Intersest.......................................21
Section 9.06 Counterparts...............................................21
Section 9.07 Binding Effect; Assignment.................................21
Section 9.08 Dispute Resolution.........................................21
Section 9.09 Severability...............................................22
Section 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative......22
Section 9.11 Amendment..................................................22
Section 9.12 Authority..................................................22
Section 9.13 Interpretation.............................................22
Schedule A Ancillary Agreements
Schedule B Delphi Financial Statements
Schedule C Facilities to be Transferred
Schedule D Covenants Not to Compete
Schedule E Domestic Ownership Interest Transfers
Schedule F International Ownership Interest Transfers
Schedule G Extension of Eligibility in the GM Vehicle Purchase Program -
Used Vehicle Program
Schedule H Extension of Eligibility in the GM New Vehicle Purchase
Program
Schedule I Certain Agreements with Respect to Divested Businesses
Schedule J Entities in Liquidation by 12/31/98 to be Retained by GM
Schedule K General Litigation Claims to be Transferred to Delphi
Schedule L General Litigation Claims to be Defended by GM at Delphi's
Expense
Schedule M Delphi Related General Litigation Claims for which GM will
Retain Liability
Schedule N Employment Related Claims to be Transferred to Delphi
Schedule O Employment Related Claims to be Jointly Defended by GM and
Delphi
Schedule P Entities Included in Delphi Financial Statements which are to
be retained by GM after 1/1/99
</TABLE>
ii
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MASTER SEPARATION AGREEMENT
This Master Separation Agreement ("Agreement") is entered into on
December 22, 1998 among General Motors Corporation, a Delaware corporation
("GM"), Delphi Automotive Systems Corporation, a Delaware corporation
("Delphi"), Delphi Automotive Systems LLC, a Delaware limited liability company
and, on the date hereof, a wholly owned subsidiary of GM ("DAS LLC"), Delphi
Technologies, Inc., a Delaware corporation and, on the date hereof, a wholly
owned subsidiary of GM ("DTI", and together with DAS LLC, the "Delphi U.S.
Subsidiaries") and Delphi Automotive Systems (Holding), Inc., a Delaware
corporation and, on the date hereof, a wholly owned subsidiary of GM ("Delphi
International Subsidiary"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in Article 1 hereof.
RECITALS
WHEREAS, the Board of Directors of GM has determined that it would be
appropriate and desirable to completely separate the Delphi Automotive Systems
Business from GM;
WHEREAS, GM has caused Delphi to be incorporated in order to effect
such separation, GM currently owns all of the issued and outstanding common
stock of Delphi, and Delphi currently conducts no business operations and has no
significant assets or liabilities;
WHEREAS, the Boards of Directors of GM and Delphi have each determined
that it would be appropriate and desirable for GM to contribute and transfer to
Delphi, and for Delphi to receive and assume, directly or indirectly,
substantially all of the assets and liabilities currently associated with the
Delphi Automotive Systems Business, including those assets and liabilities
currently held directly by GM in divisional form and the stock or similar
interests currently held by GM in subsidiaries and other entities that conduct
such business;
WHEREAS, GM and Delphi intend that the contribution and assumption of
assets and liabilities will qualify as a tax-free reorganization under Section
368(a)(1)(D) of the Code;
WHEREAS, GM and Delphi currently contemplate that, following the
contribution and assumption of assets and liabilities, Delphi will make an
initial public offering of an amount of its common stock that will reduce GM's
ownership of Delphi to not less than 80%;
WHEREAS, GM currently contemplates that, several months following such
initial public offering, GM will distribute to the holders of its common stock,
$1-2/3 par value, by means of an exchange offer and/or a pro rata distribution,
all of the shares of Delphi common stock owned by GM (the "Distribution");
WHEREAS, GM and Delphi intend that the Distribution will be tax-free to
GM and its stockholders under the Code; and
WHEREAS, the parties intend in this Agreement, including the Exhibits
and Schedules hereto, to set forth the principal arrangements between them
regarding the separation of the Delphi Automotive Systems Business from GM.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
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ARTICLE 1
DEFINITIONS
SECTION 1.01. Defined Terms. The following terms, as used herein, shall
have the following meanings:
"AFFILIATE" of any specified Person means any other Person directly or
indirectly Controlling, Controlled by, or under common Control with, such
specified Person; provided, however, that for purposes of this Agreement, (i) GM
and its subsidiaries (other than Delphi and its subsidiaries) shall not be
considered Affiliates of Delphi and (ii) Delphi and its subsidiaries shall not
be considered Affiliates of GM.
"AMENDED AND RESTATED TAX ALLOCATION AGREEMENT" means the Amended and
Restated Agreement for the Allocation of Federal, United States, State and Local
Income Tax, between GM and Delphi, a copy of which is attached hereto as Exhibit
L-3.
"ANCILLARY AGREEMENTS" means each of the agreements which are listed
on Schedule A hereto and which are attached as Exhibits A-1 through M-5 to this
Agreement, including any exhibits, schedules, attachments, tables or other
appendices thereto, and each agreement and other instrument contemplated
therein.
"ASSETS" means, except for cash and cash equivalents, any and all
assets, properties and rights, whether tangible or intangible, whether real,
personal or mixed, whether fixed, contingent or otherwise, and wherever located,
including, without limitation, the following:
(i) real property interests (including leases), land,
plants, buildings and improvements;
(ii) machinery, equipment, vehicles (other than GM
Product Evaluation Program vehicles), furniture and fixtures, leasehold
improvements, supplies, repair parts, tools, plant, laboratory and
office equipment and other tangible personal property, including any
and all leases with respect thereto, together with any rights or claims
arising out of the breach of any express or implied warranty by the
manufacturers or sellers of any of such assets or any component part
thereof;
(iii) inventories, including raw materials,
work-in-process, finished goods, parts and accessories;
(iv) notes, loans and accounts receivable (whether
current or not current), interests as beneficiary under letters of
credit, advances and performance and surety bonds;
(v) banker's acceptances, shares of stock, bonds,
debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral-trust
certificates, investment contracts, voting trust certificates, puts,
calls, straddles, options, swaps, collars, caps and other securities or
hedging arrangements of any kind;
(vi) financial, accounting and operating data and
records including, without limitation, books, records, electronic data,
notes, sales and sales promotional data, purchasing materials and data,
advertising materials, credit information, cost and pricing
information, customer and supplier lists, reference catalogs, payroll
and personnel records, facility blueprints and plant layouts, minute
books, stock ledgers, stock transfer records and other similar
property, rights and information;
(vii) Intellectual Property;
(viii) Contracts and all rights therein;
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(ix) prepaid expenses, deposits and retentions held by
third parties;
(x) claims, causes of action, choses in action, rights
under insurance policies, rights under express or implied warranties,
rights of recovery, rights of set-off, and rights of subrogation;
(xi) licenses, franchises, permits, authorizations and
approvals; and
(xii) goodwill and going concern value.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on
which banking institutions located in the State of New York or Michigan are
authorized or obligated by law or executive order to close.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, together with the rules and regulations promulgated thereunder.
"COMMERCIAL TRAVEL SERVICES SUPPLY AGREEMENT" means the Commercial
Travel Services Supply Agreement, effective as of the date Contribution Date,
between GM and Delphi (or their respective Affiliates), a copy of which is
attached hereto as Exhibit J-2.
"COMMISSION" means the Securities and Exchange Commission.
"CONFIDENTIAL INFORMATION" means with respect to any party hereto, (i)
any Information concerning such party, its business or any of its Affiliates
that was obtained by another party hereto prior to the Contribution Date, (ii)
any Information concerning such party that is obtained by another party under
Section 6.03, or (iii) any other Information obtained by, or furnished to,
another party hereto prior to the Contribution Date, in each case that (a) was
marked "Proprietary" or "Company Private" or words of similar import by the
party owning such Information, or any Affiliate of such party, or (b) the party
owning such Information notified such other party in writing was confidential or
secret by the Contribution Date.
"CONSOLIDATED TAX PERIOD" has the meaning set forth in the Amended and
Restated Tax Allocation Agreement.
"CONTRACTS" means any contract, agreement, lease, license, sales order,
purchase order, instrument or other commitment that is binding on any Person or
any part of its property under applicable law.
"CONTRIBUTION DATE" means January 1, 1999.
"CONTROL" means the possession, direct or indirect, of the power to
direct or cause the direction of the management of the policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"CONTROLLING" and "CONTROLLED" have the corollary meanings ascribed thereto.
"DELPHI ASSETS" means all of GM's right, title and interest in and to
all Assets that (i) (x) are, except as set forth on Schedule P or as otherwise
provided herein or in an Ancillary Agreement, 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 (y) are to be transferred
pursuant to Section 2.01(c) of this Agreement (as and when transferred
thereunder) or (ii) 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 (iii) are expressly provided by
this Agreement or any Ancillary Agreement to be transferred to Delphi, or (iv)
are listed on Schedule C hereto (which sets forth the facilities to be
transferred to Delphi) or (v) 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
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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 preceding clause (v) 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 Sector of GM at any time on or before the
Contribution Date, including (i) all business operations whose financial
performance is reflected in the Delphi Financial Statements, (ii) all business
operations initiated or acquired by the Delphi Automotive Systems Sector of GM
after the date of the Delphi Financial Statements and (iii) all business
operations that were conducted at any time in the past by the Delphi Automotive
Systems Sector of GM or by any predecessor of such 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 Sector of GM.
"DELPHI COMMON STOCK" means the Common Stock, $0.01 par value per
share, of Delphi.
"DELPHI FINANCIAL STATEMENTS" means the financial statements
(including the notes thereto) of Delphi for the period ended September 30, 1998
as set forth in the IPO Registration Statement as amended at the date of this
Agreement, a copy of which is set forth on Schedule B attached hereto.
"DELPHI LIABILITIES" means all of the Liabilities of GM that (i) (x)
are, except as otherwise set forth on Schedule P or as otherwise provided herein
or in an Ancillary Agreement, reflected in the Delphi Financial Statements and
remain outstanding at the Contribution Date or (y) are to be transferred
pursuant to Section 2.01(c) of this Agreement (as and when transferred
thereunder), or (ii) 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 (iii) are expressly
provided by this Agreement or any Ancillary Agreement to be transferred to and
assumed by Delphi, or (iv) except as otherwise provided in an Ancillary
Agreement or other express agreement of the parties, are related to or arise out
of or in connection with the Delphi Assets, or (v) except as otherwise provided
in an Ancillary Agreement or other express agreement of the parties, are related
to or arise 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 Schedule D hereto) 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 the preceding clause (v) 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.
"DETERMINATION" has the meaning set forth in the NITA.
"DISTRIBUTION" has the meaning set forth in the preamble to this
Agreement.
"DISTRIBUTION DATE" means the date to be determined by GM in its sole
and absolute discretion when the Distribution is completed.
"EMPLOYEE MATTERS AGREEMENT" means the Employee Matters Agreement,
effective as of the Contribution Date, between GM and Delphi (or their
respective Affiliates), a copy of which is attached hereto as Exhibit B-1.
"FINANCIAL SERVICES SUPPLY AGREEMENT" means the Financial Services
Supply Agreement, effective as of the Contribution Date, between GM and Delphi
(or their respective Affiliates), a copy of which is attached hereto as Exhibit
J-4.
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"FINAL DETERMINATION" has the meaning set forth in the Amended and
Restated Tax Allocation Agreement.
"INCOME TAX RETURNS" has the meaning set forth in the Amended and
Restated Tax Allocation Agreement.
"INFORMATION" means all records, books, contracts, instruments,
computer data and other data.
"INTELLECTUAL PROPERTY" means any and all domestic and foreign patents
and patent applications, together with any continuations, continuations-in-part
or divisional applications thereof, and all patents issuing thereon (including
reissues, renewals and re-examinations of the foregoing); invention disclosures;
mask works; copyrights, and copyright applications and registrations;
trademarks, servicemarks, trade names, and trade dress, in each case together
with any applications and registrations therefor and all appurtenant goodwill
relating thereto; trade secrets, commercial and technical information, know-how,
proprietary or confidential information, including engineering, production and
other designs, notebooks, processes, drawings, specifications, formulae, and
technology; computer and electronic data processing programs and software
(object and source code), data bases and documentation thereof; inventions
(whether patented or not); and all other intellectual property under the laws of
any country throughout the world.
"IPO AND DISTRIBUTION AGREEMENT" means the agreement to be entered into
between GM and Delphi on or before the IPO Effective Date, the form of which is
attached hereto as Exhibit E-1.
"IPO EFFECTIVE DATE" means the date on which the IPO Registration
Statement is declared effective by the Commission.
"IPO REGISTRATION STATEMENT" means the registration statement on Form
S-1, Registration No. 333-67333 filed by Delphi with the Securities and Exchange
Commission in connection with the initial public offering of the Delphi Common
Stock, together with all amendments and supplements thereto.
"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.
"NITA" means the Agreement for the Indemnification of United States
Federal, State and Local Non-Income Taxes, between GM and Delphi, a copy of
which is attached hereto as Exhibit L-2.
"NON-INCOME TAXES" has the meaning set forth in the NITA.
"PERSON" means an individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated association, any other entity,
or a government or any department or agency or other unit thereof.
"PRIOR RELATIONSHIP" means the ownership relationship between GM and
Delphi at any time prior to the Contribution Date.
"REGISTRATION RIGHTS AGREEMENT" means the agreement to be entered into
between GM and Delphi on or before the IPO Effective Date, the form of which is
attached hereto as Exhibit E-2.
"REPRESENTATIVES" means directors, officers, employees, agents,
consultants, advisors, accountants, attorneys and representatives.
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"SUBSIDIARY" means with respect to any specified Person, any
corporation, any limited liability company, any partnership or other legal
entity of which such Person or any of its Subsidiaries Controls or owns,
directly or indirectly, more than 50% of the stock of other equity interest
entitled to vote on the election of the members to the board of directors or
similar governing body.
"SUPPLY AGREEMENT" means the Component Supply Agreement, effective as
of the Contribution Date, between GM and Delphi, a copy of which is attached
hereto as Exhibit K-1.
"THIRD-PARTY CLAIM" means any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, governmental or other
regulatory or administrative agency or commission or any arbitration tribunal
asserted by a Person other than any party hereto or their respective Affiliates
which gives rise to a right of indemnification hereunder.
ARTICLE 2
CONTRIBUTION AND ASSUMPTION
SECTION 2.01. Contribution of Assets.
(a) Except as provided for in Section 2.01(c), on the Contribution
Date, GM (i) hereby transfers (or causes its appropriate Subsidiaries and
Representatives to transfer) the Delphi Assets in the following order: (A) all
intellectual property to be transferred pursuant to the intellectual property
agreements attached hereto as Exhibits G-1 through G-5, to DTI (except that all
Delco Electronics Corporation intellectual property shall be transferred to DTI
after GM has transferred its stock ownership interest in DTI to Delco
Electronics Corporation), (B) its stock ownership interest in DTI to Delco
Electronics Corporation, (C) its stock ownership interest in Delco Electronics
Corporation to DAS LLC and (D) all other Delphi Assets located in the United
States, including the ownership interests listed on Schedule E but excluding
those listed on Schedule F, to either Delphi or DAS LLC, and (ii) will have
transferred or shall transfer as promptly as reasonably practicable (or cause
its appropriate Subsidiaries and Representatives to transfer) the Delphi Assets
located outside of the United States and the ownership interests of the United
States and foreign entities listed on Schedule F owning such Delphi Assets, to
either Delphi, the Delphi International Subsidiary, or such other Subsidiary as
Delphi may direct. Each of Delphi, the Delphi U.S. Subsidiaries and Delphi
International Subsidiary shall receive and accept such Delphi Assets, subject to
the terms and conditions of this Agreement. GM further transfers to Delphi on
the Contribution Date but after the transfers described in clause (i) above, its
membership interest in DAS LLC and its stock ownership interest in the Delphi
International Subsidiary, effective as of the Contribution Date. Each of Delphi,
the Delphi U.S. Subsidiaries and Delphi International Subsidiary acknowledges
and agrees that the foregoing transfers will be made "AS IS WHERE IS" and that
neither GM nor any Subsidiary of GM has made or will make any warranty, express
or implied, including without limitation any warranty of merchantability of
fitness for a particular purpose, with respect to any Delphi Asset.
(b) On the Contribution Date, GM shall contribute to Delphi cash
and/or cash equivalents in the aggregate amount of $1 billion. Additionally, GM
shall contribute to Delphi such additional amounts as GM and Delphi agree,
corresponding to the amounts Delphi will pay to GM (or an Affiliate of GM) in
connection with the Canada and Brazil transactions described in Exhibits H-1 and
H-2, respectively.
(c) Notwithstanding any other provision of this Agreement, this
Agreement shall not transfer or effect the assignment or assumption of any
Assets or Liabilities of the Delphi Automotive Systems Business provided for in
the agreements constituting Exhibits H-1 through H-110 referred to in Schedule A
to this Agreement, except as such Assets and Liabilities shall be transferred
and assumed on the dates and in accordance with the terms set forth herein and
in such agreements.
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(d) GM and Delphi additionally shall comply with the terms of the
letters from GM to Delphi, copies of which are attached hereto as Schedules G
and H, which relate to the extension of eligibility for Delphi employees to
participate in the GM Vehicle Purchase Programs.
SECTION 2.02. Assumption of Liabilities.
(a) General. Effective as of the Contribution Date, each of Delphi
and/or the Delphi U.S. Subsidiaries, as directed by Delphi, hereby assumes and
on a timely basis shall pay, perform, satisfy and discharge in accordance with
their terms the Delphi Liabilities relating to the operations of the Delphi
Automotive Systems Business in the United States. Delphi International
Subsidiary shall, and shall utilize its best efforts to recommend and encourage
its respective Subsidiaries and Affiliates to, assume and on a timely basis pay,
perform, satisfy and discharge in accordance with their terms, the Delphi
Liabilities relating to the operations of the Delphi Automotive Systems Business
outside of the United States.
(b) Divested Business. Delphi shall, with respect to the businesses and
operations divested by the Delphi Automotive Systems Business, assume all
Liabilities of GM related thereto; provided, however, that Delphi shall not
assume those Liabilities relating to operations divested by the Delphi
Automotive Systems Business to the extent such Liabilities are expressly
retained by GM pursuant to the terms of this Agreement or the Ancillary
Agreements (including without limitation, the Employee Matters Agreement, the
Environmental Matters Agreement and the Real Estate Matters Agreement) and the
Liabilities assumed by Delphi shall include, without limitation, the obligation
to satisfy all of the obligations of GM under the various agreements pursuant to
which the Delphi Automotive Systems Business effected such divestitures (the
"Divestiture Agreements"); provided, further, however, that notwithstanding the
foregoing or any other provision of this Agreement or any Ancillary Agreement,
responsibility for certain obligations relating to certain divestitures shall be
allocated between the parties as set forth on Schedule I hereto.
(c) Machinery and Equipment Leases Related to the Delphi Automotive
Systems Business. The parties hereto hereby agree that to the extent that GM
entered into a lease with a third party dated prior to the Contribution Date
pursuant to which GM agreed to lease (i) machinery and/or equipment for use by
the Delphi Automotive Systems Business and (ii) machinery and/or equipment for
use by GM businesses other than the Delphi Automotive Systems Business, upon
identification of any such lease, GM and Delphi will enter into a sublease with
terms identical or as similar as possible to such original lease pursuant to
which Delphi will sublease from GM that portion of the machinery and/or
equipment used by the Delphi Automotive Systems Business covered under such
original lease.
(d) Nonrecurring Costs and Expenses. Notwithstanding anything herein to
the contrary, any nonrecurring costs and expenses incurred by the parties hereto
to effect the transactions contemplated hereby which are not allocated pursuant
to the terms of this Agreement or any Ancillary Agreement shall be the
responsibility of the party which incurs such costs and expenses.
SECTION 2.03. Methods of Transfer and Assumption.
(a) The parties shall enter into the Ancillary Agreements, other than
the IPO and Distribution Agreement and the Registration Rights Agreement, on or
about the date of this Agreement. To the extent that the transfer of any Delphi
Asset or the assumption of any Delphi Liability is expressly provided for by the
terms of any Ancillary Agreement, the terms of such Ancillary Agreement shall
determine the manner of the transfer or assumption. It is the intent of the
parties that pursuant to Section 2.01, the transfer and assumption of all other
Delphi Assets and Delphi Liabilities shall be made effective as of the
Contribution Date, provided, however, that circumstances in various
jurisdictions outside the United States may require the transfer of certain
Assets and the assumption of certain Liabilities to occur in such other manner
and at such other time as the parties shall agree.
(b) The parties intend to complete the transfer of all Delphi Assets
and the assumption of all Delphi Liabilities effective on or prior to the
Contribution Date but shall, subject to Section 4.03 hereof, and to the extent
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that any such transfers and assumptions are not completed prior to the
Contribution Date, take all actions reasonably necessary or appropriate to
complete such transactions as promptly thereafter as possible. In addition to
those transfers and assumptions accurately identified and designated by the
parties to take place but which the parties are not able to effect prior to the
Contribution Date, there may exist (i) Assets that the parties discover were,
contrary to the agreements between the parties, by mistake or omission,
transferred to Delphi or retained by GM or (ii) Liabilities that the parties
discover were, contrary to the agreements between the parties, by mistake or
omission, assumed by Delphi or not assumed by Delphi. The parties shall, between
the Contribution Date and the earlier of the Distribution Date or six months
from the Contribution Date, cooperate in good faith to effect the transfer or
re-transfer of such Assets, and/or the assumption or re-assumption of such
Liabilities, to or by the appropriate party and shall not use the determination
of remedial actions contemplated herein to alter the original intent of the
parties hereto with respect to the Assets to be transferred to or Liabilities to
be assumed by Delphi. Each party shall reimburse the other or make other
financial adjustments (e.g., without limitation, cash reserves) or other
adjustments to remedy any mistakes or omissions relating to any of the Assets
transferred hereby or any of the Liabilities assumed hereby.
(c) Each party shall execute and deliver to each other party all such
documents, instruments, certificates and agreements in appropriate form, and to
make all filings and recordings and to take all such other actions, as shall be
necessary or reasonably requested by such other party, whether before or after
the Contribution Date, in order to give full effect to and evidence and perfect
the transfer and contribution of the Delphi Assets and the Delphi Liabilities as
contemplated hereby. However, Delphi acknowledges and agrees that neither GM nor
any Subsidiary of GM will comply with the provisions of any bulk transfer law of
any jurisdiction in connection with the transfer of any Delphi Asset.
(d) Any Subsidiary of Delphi that will receive any Delphi Asset or
assume any Delphi Liability shall for all purposes be deemed to be a party to
this Agreement.
SECTION 2.04. Nonassignable Contracts. Anything contained herein to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any Asset or Liability if an assignment or attempted assignment of the
same without the consent of another Person would constitute a breach thereof or
in any way impair the rights of a party thereunder or give to any third party
any rights with respect thereto. If any such consent is not obtained or if an
attempted assignment would be ineffective or would impair such party's rights
under any such Asset or Liability so that the party entitled to the benefits and
responsibilities of such purported transfer (the "Intended Transferee") would
not receive all such rights and responsibilities, then (x) the party purporting
to make such transfer (the "Intended Transferor") shall use commercially
reasonable efforts to provide or cause to be provided to the Intended
Transferee, to the extent permitted by law, the benefits of any such Asset or
Liability and the Intended Transferor shall promptly pay or cause to be paid to
the Intended Transferee when received all moneys received by the Intended
Transferor with respect to any such Asset and (y) in consideration thereof the
Intended Transferee shall pay, perform and discharge on behalf of the Intended
Transferor all of the Intended Transferor's Liabilities thereunder in a timely
manner and in accordance with the terms thereof which it may do without breach.
In addition, the Intended Transferor shall take such other actions as may
reasonably be requested by the Intended Transferee in order to place the
Intended Transferee, insofar as reasonably possible, in the same position as if
such Asset had been transferred as contemplated hereby and so all the benefits
and burdens relating thereto, including possession, use, risk of loss, potential
for gain and dominion, control and command, shall inure to the Intended
Transferee. If and when such consents and approvals are obtained, the transfer
of the applicable Asset shall be effected in accordance with the terms of this
Agreement. To the extent that the Delphi Liabilities include liabilities,
obligations or commitments pursuant to any contract, permit, license, franchise
or other Asset to which Delphi also has any rights, GM shall, to the extent such
asset is not a Delphi Asset, upon request by Delphi either assign such rights to
Delphi or assert and seek to enforce such rights for the benefit of Delphi.
SECTION 2.05. Transition Services.
(a) For a period of twelve months following the Contribution Date
(the "Transition Period"), GM shall use its reasonable best efforts to provide,
or cause its Affiliates to use their reasonable best efforts to provide,
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to Delphi or its Affiliates all Transition Services in the manner and at a
relative level of service consistent in all material respects with that provided
by GM or its Affiliates to the Delphi Automotive Systems Business immediately
prior to the Contribution Date. Delphi shall use all commercially reasonable
efforts to obtain all such Transition Services from a source other than GM and
its Affiliates commencing upon the conclusion of the Transition Period; provided
that, if (x) Delphi cannot obtain any Transition Service from a source other
than GM and its Affiliates and (y) such Transition Service is necessary in order
to operate the Delphi Automotive Systems Business in substantially the same
manner as it was conducted immediately prior to the Contribution Date, then GM
(or its Affiliates) shall provide such Transition Service to Delphi (or its
Affiliates) for an additional period not to exceed six months. For the purpose
of this Section 2.05, "Transition Services" means any services provided by GM,
its Affiliates or their suppliers to the Delphi Automotive Systems Business
immediately prior to the Contribution Date which Delphi reasonably identifies
and requests in writing that GM provide to it during the Transition Period;
provided that Transition Services expressly excludes any such services which
shall be provided to Delphi or its Affiliates pursuant to the terms of other
sections of this Agreement or any of the Ancillary Agreements; provided,
further, that Transition Services expressly excludes any such services which GM
would not be legally permitted to provide to a third party.
(b) Notwithstanding anything contained in this Agreement or in any
Ancillary Agreement to the contrary, except with respect to all services to be
provided by GM to Delphi pursuant to the Financial Services Supply Agreement,
the Commercial Travel Services Supply Agreement, any real estate leases and any
health care services to be provided by GM to Delphi pursuant to the Employee
Matters Agreement, for all Transition Services provided by GM (or its
Affiliates) to Delphi (or its Affiliates) pursuant to section 2.05(a) above and
for all other services to be provided by GM (or its Affiliates) to Delphi (or
its Affiliates) pursuant to any of the Ancillary Agreements, Delphi shall pay to
GM on or prior to the fifteenth day following the date of Delphi's receipt of an
invoice related to the provision of such services (x) in the case of any
Transition Service or any service to be provided 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 the Delphi Automotive Systems
Business as of the Contribution Date for such service, adjusted to reflect any
changes in the nature, cost or level of the services provided; provided that, if
no cost has historically been allocated to the Delphi Automotive Systems
Business for any Transition Service or for such other service, then Delphi shall
pay to GM (i) that portion of the total cost borne by GM which GM would have
allocated to Delphi under its internal allocation formula, plus (ii) any direct
user charges or similar type charges resulting from Delphi's use or services
which are not recouped by GM under the charges provided for in (i), plus (iii)
any other reasonable charges necessary to make GM whole for the provision of
such services or (y) 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. Payments under
this Section made on or after the first business day following the forty-fifth
day after the date of Delphi's receipt of the invoice related to the provision
of the relevant service shall be accompanied by a payment of interest to be
calculated as follows:
<TABLE>
<S><C>
Transitional Service (or other service) Payment x Prime Rate x Number of days late, to
---------- the date of actual
365 days payment.
</TABLE>
As used in this Section 2.05(b), the "Prime Rate" shall mean to the prime rate
as published in the Wall Street Journal on the first business day following the
forty-fifth day after the date of Delphi's receipt of the invoice related to the
provision of the relevant service.
(c) Notwithstanding anything contained in this Agreement or in any
Ancillary Agreement to the contrary, any charges to GM from outside suppliers
for the provision of Transition Services or any other services provided pursuant
to any Ancillary Agreement and any other costs which are attributable to the
operation of Delphi other than incidental costs provided in connection with
Transition Services or such other services which GM (or an Affiliate of GM)
incurs shall be submitted by GM to Delphi for payment and, except as GM may
otherwise agree in connection with any individual statement of charges which has
been submitted to GM, Delphi hereby agrees to make payment therefor either (i)
to such outside supplier in accordance with the payment terms of such outside
supplier or (ii) where GM is required to pay such outside supplier, on or before
the date on which GM notifies
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<PAGE> 13
Delphi it intends to make payment, or if GM does not provide such notice,
immediately after GM provides notice to Delphi that GM has made such payment.
(d) Notwithstanding anything to the contrary herein, Delphi shall be
responsible for providing the transitional services agreed to by the parties
(or, where no specific terms have been agreed to, then in accordance with the
terms of Section 2.05(b) hereof) with respect to the businesses set forth on
Schedule J hereto.
ARTICLE 3
ANCILLARY AGREEMENTS
(a) General. GM and Delphi acknowledge that the Ancillary Agreements,
other than the IPO and Distribution Agreement and the Registration Rights
Agreement, have been or will be entered into prior to the Contribution Date by
the parties hereto and/or by their respective Subsidiaries. GM and Delphi shall
take all steps reasonably necessary to cause their respective Subsidiaries and
Affiliates to enter into and perform such Ancillary Agreements in accordance
with their terms.
(b) Priority. Except with respect to Sections 2.05 (b) and (c) above,
to the extent that any Ancillary Agreement expressly addresses any matters
addressed by this Agreement, including, without limitation, matters covered by
Article 2 and Article 5 hereof, the terms and conditions of such Ancillary
Agreement shall govern the rights and obligations of the parties with respect to
such matters.
(c) Extensions of Transition Services. Delphi shall use all
commercially reasonable efforts to obtain services provided to it by GM under
the terms of the Ancillary Agreements relating to transitional services from a
source other than GM. Certain Ancillary Agreements relating to transitional
services provide that the parties may extend the transition service beyond the
termination of the transition periods provided for therein. The parties expect
that any such extension would be negotiated by GM and Delphi after the
Distribution. In the event of an extension of any transitional service, GM and
Delphi shall negotiate at arm's length the terms of any such extension,
including fair market value pricing for all such services.
ARTICLE 4
COVENANTS
SECTION 4.01. IPO and Distribution Agreement. GM and Delphi hereby
agree to execute and deliver, on or before the IPO Effective Date, the IPO and
Distribution Agreement, in form and substance substantially as set forth on
Exhibit E-1 hereto, with such modifications to such form as the parties shall
mutually deem reasonably necessary and desirable; provided, that GM shall be
entitled in its sole and absolute discretion at any time and from time to time
to make any modifications to the provisions thereof relating to the preservation
of the tax-free nature of the Distribution or the tax-free nature of the
transactions contemplated hereby as it shall reasonably deem necessary or
desirable.
SECTION 4.02. Registration Rights Agreement. GM and Delphi hereby agree
to execute and deliver, on or before the IPO Effective Date, the Registration
Rights Agreement, in form and substance substantially as set forth on Exhibit
E-2 hereto, with such modifications to such form as the parties shall mutually
deem reasonably necessary and desirable.
SECTION 4.03. Delayed Asset Transfers. GM and Delphi hereby agree to
use their best efforts and, where applicable, to cause their subsidiaries to use
their best efforts to consummate the transactions contemplated by
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<PAGE> 14
Section 2.01(c) hereof and the other provisions hereof as and when contemplated
in the relevant Ancillary Agreements.
ARTICLE 5
INDEMNIFICATION
SECTION 5.01. Indemnification by Delphi. Delphi and each Subsidiary of
Delphi which shall receive any Delphi Asset or Delphi Liability transferred
pursuant to the terms of this Agreement and their respective
successors-in-interest and assigns (the "Indemnifying Parties") shall jointly
and severally indemnify, defend and hold harmless GM and each of its
Subsidiaries and their respective successors-in-interest, and each of their
respective past and present Representatives (the "Indemnitees") against any
losses, claims, damages, liabilities or actions, resulting from, relating to or
arising, whether prior to or following the Contribution Date, out of or in
connection with (a) the Delphi Liabilities and/or (b) Delphi's conduct of its
business and affairs after the Contribution Date and the Indemnifying Parties
shall reimburse such entity, each such Subsidiary, each such
successor-in-interest and each such Representative for any reasonable attorneys'
fees or any other expenses reasonably incurred by any of them in connection with
investigating and/or defending any such loss, claim, damage, liability or
action.
SECTION 5.02. Indemnification Procedures.
(a) If any Indemnitee receives notice of the assertion of any
Third-Party Claim with respect to which an Indemnifying Party is obligated under
this Agreement to provide indemnification, such Indemnitee shall promptly give
such Indemnifying Party notice thereof (together with a copy of such Third-Party
Claim, process or other legal pleading) promptly after becoming aware of such
Third-Party Claim; provided, however, that the failure of any Indemnitee to give
notice as provided in this Section 5.02 shall not relieve any Indemnifying Party
of its obligations under this Section 5.02, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third-Party Claim in reasonable detail.
(b) An Indemnifying Party, at such Indemnifying Party's own expense
and through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably acceptable to the Indemnitee), may elect to defend any Third-Party
Claim. If an Indemnifying Party elects to defend a Third-Party Claim, then,
within ten Business Days after receiving notice of such Third-Party Claim (or
sooner, if the nature of such Third Party claim so requires), such Indemnifying
Party shall notify the Indemnitee of its intent to do so, and such Indemnitee
shall cooperate in the defense of such Third-Party Claim. Such Indemnifying
Party shall pay such Indemnitee's reasonable out-of-pocket expenses incurred in
connection with such cooperation. Such Indemnifying Party shall keep the
Indemnitee reasonably informed as to the status of the defense of such
Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of
its election to assume the defense of a Third-Party Claim, such Indemnifying
Party shall not be liable to such Indemnitee under this Section 5.02 for any
attorneys' fees or other expenses subsequently incurred by such Indemnitee in
connection with the defense thereof other than those expenses referred to in the
preceding sentence; provided, however, that such Indemnitee shall have the right
to employ one law firm as counsel, together with a separate local law firm in
each applicable jurisdiction ("Separate Counsel"), to represent such Indemnitee
in any action or group of related actions (which firm or firms shall be
reasonably acceptable to the Indemnifying Party) if, in such Indemnitee's
reasonable judgment at any time, either a conflict of interest between such
Indemnitee and such Indemnifying Party exists in respect of such claim, or there
may be defenses available to such Indemnitee which are significantly different
from or in addition to those available to such Indemnifying Party and the
representation of both parties by the same counsel would, in the reasonable
judgment of the Indemnitee, be inappropriate, and in that event (i) the
reasonable fees and expenses of such Separate Counsel shall be paid by such
Indemnifying Party (it being understood, however, that the Indemnifying Party
shall not be liable for the expenses of more than one Separate Counsel
(excluding local counsel) with respect to any Third-Party Claim (even if against
multiple Indemnitees)) and (ii) each of such Indemnifying Party and such
Indemnitee shall have the right to conduct its own defense in respect of such
claim. If an Indemnifying Party elects not to defend against a Third-Party
Claim, or fails to notify an Indemnitee of its election as provided in this
Section 5.02 within the period of ten Business
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<PAGE> 15
Days described above, the Indemnitee may defend, compromise, and settle such
Third-Party Claim and shall be entitled to indemnification hereunder (to the
extent permitted hereunder); provided, however, that no such Indemnitee may
compromise or settle any such Third-Party claim without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, the Indemnifying Party shall
not, without the prior written consent of the Indemnitee, (i) settle or
compromise any Third-Party Claim or consent to the entry of any judgment which
does not include as an unconditional term thereof the delivery by the claimant
or plaintiff to the Indemnitee of a written release from all liability in
respect of such Third-Party Claim or (ii) settle or compromise any Third-Party
Claim in any manner that would be reasonably likely to have a material adverse
effect on the Indemnitee.
SECTION 5.03. Certain Limitations.
(a) The amount of any indemnifiable losses or other liability for
which indemnification is provided under this Agreement shall be net of any
amounts actually recovered by the Indemnitee from third parties (including,
without limitation, amounts actually recovered under insurance policies) with
respect to such indemnifiable losses or other liability. Any Indemnifying Party
hereunder shall be subrogated to the rights of the Indemnitee upon payment in
full of the amount of the relevant indemnifiable loss. An insurer who would
otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification
provision hereof, have any subrogation rights with respect thereto. If any
Indemnitee recovers an amount from a third party in respect of an indemnifiable
loss for which indemnification is provided in this Agreement after the full
amount of such indemnifiable loss has been paid by an Indemnifying Party or
after an Indemnifying Party has made a partial payment of such indemnifiable
loss and the amount received from the third party exceeds the remaining unpaid
balance of such indemnifiable loss, then the Indemnitee shall promptly remit to
the Indemnifying Party the excess (if any) of (A) the sum of the amount
theretofore paid by such Indemnifying Party in respect of such indemnifiable
loss plus the amount received from the third party in respect thereof, less (B)
the full amount of such indemnifiable loss or other liability.
(b) The amount of any loss or other liability for which
indemnification is provided under this Agreement shall be (i) increased to take
account of any net tax cost incurred by the Indemnitee arising from the receipt
or accrual of an indemnification payment hereunder (grossed up for such
increase) and (ii) reduced to take account of any net tax benefit realized by
the Indemnitee arising from incurring or paying such loss or other liability. In
computing the amount of any such tax cost or tax benefit, the Indemnitee shall
be deemed to recognize all other items of income, gain, loss, deduction or
credit before recognizing any item arising from the receipt or accrual of any
indemnification payment hereunder or incurring or paying any indemnified loss.
Any indemnification payment hereunder shall initially be made without regard to
this Section 5.03(b) and shall be increased or reduced to reflect any such net
tax cost (including gross-up) or net tax benefit only after the Indemnitee has
actually realized such cost or benefit. For purposes of this Agreement, an
Indemnitee shall be deemed to have "actually realized" a net tax cost or a net
tax benefit to the extent that, and at such time as, the amount of taxes payable
by such Indemnitee is increased above or reduced below, as the case may be, the
amount of taxes that such Indemnitee would be required to pay but for the
receipt or accrual of the indemnification payment or the incurrence or payment
of such loss, as the case may be. The amount of any increase or reduction
hereunder shall be adjusted to reflect any Final Determination with respect to
the Indemnitee's liability for taxes, and payments between such indemnified
parties to reflect such adjustment shall be made if necessary.
(c) Any indemnification payment made under this Agreement shall be
characterized for tax purposes as if such payment were made immediately prior to
the Contribution Date.
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<PAGE> 16
ARTICLE 6
ACCESS TO INFORMATION
SECTION 6.01 Restrictions on Disclosure of Information.
(a) Without limiting any rights or obligations under any other
agreement between or among the parties hereto and/or any of their respective
Affiliates relating to confidentiality, for a period of three years following
the Contribution Date, each of the parties hereto agrees that it shall not, and
shall not permit any of its Affiliates or Representatives to, disclose any
Confidential Information to any Person, other than to such Affiliates or
Representatives on a need-to-know basis in connection with the purpose for which
the Confidential Information was originally disclosed. Notwithstanding the
foregoing, each of the parties hereto and its respective Affiliates and
Representatives may disclose such Confidential Information, and such Information
shall no longer be deemed Confidential Information, to the extent that such
party can demonstrate that such Confidential Information is or was (i) available
to such party outside the context of the Prior Relationship on a nonconfidential
basis prior to its disclosure by the other party, (ii) in the public domain
other than by the breach of this Agreement or by breach of any other agreement
between or among the parties hereto and/or any of their respective Affiliates
relating to confidentiality, or (iii) lawfully acquired outside the context of
the Prior Relationship on a nonconfidential basis or independently developed by,
or on behalf of, such party by Persons who do not have access to, or
descriptions of, any such Confidential Information. Additionally,
notwithstanding anything to the contrary herein, any Information provided by GM
to Delphi or by Delphi to GM shall, except as hereafter agreed to in writing by
the parties, not be deemed Confidential Information with respect to the use of
such Information by Delphi in the ordinary course of Delphi's business or by GM
in the ordinary course of GM's business, respectively.
(b) Each of the parties hereto shall maintain, and shall cause their
respective Affiliates to maintain, policies and procedures, and develop such
further policies and procedures as shall from time to time become necessary or
appropriate, to ensure compliance with this Section 6.01.
SECTION 6.02. Legally Required Disclosure of Confidential Information.
If any of the parties to this Agreement or any of their respective Affiliates or
Representatives becomes legally required to disclose any Confidential
Information, such disclosing party shall promptly notify the party owning the
Confidential Information (the "Owning Party") and shall use all commercially
reasonable efforts to cooperate with the Owning Party so that the Owning Party
may seek a protective order or other appropriate remedy and/or waive compliance
with this Section 6.02. All expenses reasonably incurred by the disclosing party
in seeking a protective order or other remedy shall be borne by the Owning
Party. If such protective order or other remedy is not obtained, or if the
Owning Party waives compliance with this Section 6.02, the disclosing party or
its Affiliate or Representative, as applicable, shall (a) disclose only that
portion of the Confidential Information which its legal counsel advises it is
compelled to disclose or else stand liable for contempt or suffer other similar
significant corporate censure or penalty, (b) use all commercially reasonable
efforts to obtain reliable assurance requested by the Owning Party that
confidential treatment will be accorded such Confidential Information, and (c)
promptly provide the Owning Party with a copy of the Confidential Information so
disclosed, in the same form and format so disclosed, together with a description
of all Persons to whom such Confidential Information was disclosed.
SECTION 6.03. Access to Information. During the Retention Period (as
defined in Section 6.04 below), each of the parties hereto shall cooperate with
and afford, and shall cause their respective Affiliates, Representatives,
Subsidiaries, successors and/or assignees, and shall use reasonable efforts to
cause joint ventures that are not Affiliates (collectively, "Related Parties")
to cooperate with and afford, to the other party reasonable access upon
reasonable advance written request to all information (other than information
which is (i) protected from disclosure by the attorney client privilege or work
product doctrine, (ii) proprietary in nature or (iii) the subject of a
confidentiality agreement between such party and a third party which prohibits
disclosure to the other party) within such party's or any Related Party's
possession which was created prior to the Contribution Date or, with
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<PAGE> 17
respect to any information which would be relevant to the provision of a
transitional service pursuant to this Agreement or any Ancillary Agreement,
information created during the period in which one party is providing the other
party with such transition service. Access to the requested information shall be
provided so long as it relates to the requesting party's (the "Requestor")
business, assets or liabilities, and access is reasonably required by the
Requestor as a result of the parties' Prior Relationship for purposes of
auditing, accounting, claims or litigation (except for claims or litigation
between the parties hereto), employee benefits, regulatory or tax purposes or
fulfilling disclosure or reporting obligations including, without limitation,
Information reasonably necessary for the preparation of reports required by or
filed under the Securities Exchange Act of 1934, as amended, with respect to any
period entirely or partially prior to the Contribution Date.
Access as used in this paragraph shall mean the obligation of a party
in possession of Information (the "Possessor") requested by the Requestor to
exert its reasonable best efforts to locate all requested Information that is
owned and possessed by Possessor or any Related Party. The Possessor, at its own
expense, shall conduct a diligent search designed to identify all requested
Information and shall collect all such Information for inspection by the
Requestor during normal business hours at the Possessor's place of business.
Subject to confidentiality and/or security provisions as the Possessor may
reasonably deem necessary, the Requestor may have all requested Information
duplicated at Requestor's expense. Alternatively, the Possessor may choose to
deliver, at its own expense, all requested Information to the Requestor in the
form it was requested by the Requestor. If so, the Possessor shall notify the
Requestor in writing at the time of delivery if such Information is to be
returned to the Possessor. In such case, the Requestor shall return such
Information when no longer needed to the Possessor at the Possessor's expense.
In connection with providing Information pursuant to this Section 6.03,
each of the parties hereto shall upon the request of the other party make
available its respective employees (and those of their respective Related
Parties, as applicable) to the extent that they are reasonably necessary to
discuss and explain all requested Information with and to the requesting party.
SECTION 6.04. Record Retention.
(a) Books and Records. Delphi shall preserve and keep all books and
records included in the Delphi Assets or otherwise in the possession of Delphi
or its Related Parties, whether in electronic form or otherwise, for no less
than ten years from the Contribution Date, or for any longer period as may be
required by any government agency, GM's record retention schedule effective as
of the Contribution Date or as GM may subsequently notify Delphi that such
schedule has been modified, litigation (including applicable "Litigation
Holds"), law, regulation, audit or appeal of taxes, tax examination or the
expiration of the periods described in Section 6.04 (c), where applicable (the
"Retention Period") at Delphi's sole cost and expense. If Delphi wishes to
dispose of any books and records or other documents which it is obligated to
retain under this Section 6.04 after the Retention Period, then Delphi shall
first provide 90 days' written notice to GM and GM shall have the right, at its
option and expense, upon prior written notice within such 90-day period, to take
possession of such books or records or other documents within 180 days after the
date of Delphi's notice to GM hereunder. Written notice of intent to dispose of
such books and records shall include a description of the books and records in
detail sufficient to allow GM to reasonably assess its potential need to retain
such materials. In the event Delphi enters into an agreement with a third party
to sell a portion of its business, together with the books and records related
thereto, GM shall have the right to duplicate such books and records prior to
any such disposition and, should the purchaser of the Delphi business be a
competitor of GM, GM shall have the right to prohibit the transfer or disclosure
to such party of that portion of the former books and records of GM which GM
notifies Delphi contain confidential and proprietary information. To the extent
that books and records of GM or any of its Affiliates which contain information
relating to the Delphi Automotive Systems Business are not included in the
Delphi Assets, GM agrees to cooperate with Delphi in providing Delphi with any
such information upon Delphi's reasonable request to the extent that any such
information exists and is reasonably separable from GM information unrelated to
the Delphi Automotive Systems Business. Delphi shall reimburse GM for all of its
reasonable out-of-pocket costs incurred in connection with any such request.
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<PAGE> 18
(b) Technical Documentation and Personnel. In addition to the
retention requirements of Section 6.04(a), for a period no less than the
Retention Period, Delphi, at its sole cost and expense, shall use its reasonable
best efforts to maintain all technical documentation in its possession or in the
possession of any of its Related Parties applicable to product design, test,
release, and validation at locations at which such technical documents shall be
reasonably accessible to GM upon request (at GM's sole cost and expense) and, to
the extent reasonably possible, through employees of Delphi who formerly
performed that task for GM. In addition to the obligations set forth in Section
6.05 hereof, Delphi shall, from time to time, at the reasonable request of GM,
cooperate fully with GM in providing GM, to the extent reasonably possible
through Delphi employees formerly employed by GM who previously performed the
same functions on behalf of GM, with technical assistance and information in
respect to any claims brought against GM involving the conduct of the Delphi
Automotive Systems Business prior to the Contribution Date, including
consultation and/or the appearance(s) of such persons on a reasonable basis as
expert or fact witnesses in trials or administrative proceedings. GM shall
reimburse Delphi for its reasonable out-of-pocket costs (travel, hotels, etc.)
of providing such services, consistent with GM's policies and practices
regarding such expenditures. Additionally, GM shall, from time to time, at the
reasonable request of Delphi, cooperate fully with Delphi in providing Delphi,
to the extent reasonably possible through applicable GM employees, with
technical assistance and information in respect to any claims brought against
Delphi involving the conduct of the Delphi Automotive Systems Business prior to
the Contribution Date, including consultation and/or the appearance(s) of such
persons on a reasonable basis as expert or fact witnesses in trials or
administrative proceedings. Delphi shall reimburse GM for its reasonable
out-of-pocket costs (travel, hotels, etc.) of providing such services,
consistent with Delphi's policies and practices regarding such expenditures.
In particular, Delphi shall: (i) retain all documents required to be
maintained by international, national, state, provincial, regional or local
regulations and all documents that may be reasonably required to establish due
care or to otherwise assist GM in pursuing, contesting or defending such claims;
(ii) make available its documents and records in connection with any pursuit,
contest or defense, including, subject to an appropriate confidentiality
agreement or protective order, documents that may be considered to be
"confidential" or subject to trade secret protection ; (iii) promptly respond to
discovery requests in connection with such claim, understanding and
acknowledging that the requirements of discovery in connection with litigation
require timely responses to interrogatories, requests to produce, requests for
admission and depositions and also understanding and acknowledging that any
delays in connection with responses to discovery may result in sanctions; (iv)
make available, as may be reasonably necessary and upon reasonable advance
notice and for reasonable periods so as not to interfere materially with
Delphi's business, mutually acceptable engineers, technicians or other
knowledgeable individuals to assist GM in connection with such claim, including
investigation into claims and occurrences described in this section and
preparing for and giving factual and expert testimony at depositions, court
proceedings, inquiries, hearings and trial; (v) make available facilities and
exemplar parts for the sole and limited use of assisting GM in the contest or
defense; and (vi) acknowledge that GM is responsible for and will control, as
between GM and Delphi, the conduct of the pursuit, contest or defense.
(c) Tax Related Records. GM and Delphi agree to retain all Income Tax
Returns, related schedules and workpapers, and all material records and other
documents as required under Section 6001 of the Code, as well as by any similar
provision of state or local income tax law, until the later of (i) the
expiration of the applicable statute of limitations for the tax period to which
the records relate, or (ii) the Final Determination has been made with respect
to all issues related to the final Consolidated Tax Period.
With respect to Non-Income Taxes, GM and Delphi agree to retain all
Non-Income Tax Returns, related schedules and workpapers, and all material
records and other documents as required under Federal, state or local law, until
the later of (i) the expiration of the applicable statute of limitations for the
tax period to which the records relate, or (ii) a Determination has been made
with respect to all issues for the tax periods to which NITA applies.
If either party wishes to dispose of any such records or documents
after such retention period, then the procedure described in (a) above shall
apply.
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<PAGE> 19
SECTION 6.05. Production of Witnesses. Until the six-year anniversary
of the Contribution Date, each of the parties hereto shall use all commercially
reasonable efforts, and shall cause each of their respective Affiliates to use
all commercially reasonable efforts, to make available to each other, upon
written request, its directors, officers, employees and other Representatives as
witnesses to the extent that any such Person may reasonably be required (giving
consideration to the business demands upon such Persons) in connection with any
legal, administrative or other proceedings in which the requesting party may
from time to time be involved; provided, however, that with respect to any legal
or administrative proceedings relating to the tax liability of any of the
parties hereto or any of their respective Affiliates, each of the parties hereto
shall, and shall cause each of their respective Affiliates to, make their
directors, officers, employees and other Representatives available as witnesses
until such time as the statute of limitations have expired with respect to all
tax years prior to and including the year in which the asset transfers
contemplated by this Agreement are consummated.
SECTION 6.06. Reimbursement. Unless otherwise provided in this Article
6, each party to this Agreement providing access, information or witnesses to
another party pursuant to Sections 6.03, 6.04 or 6.05 shall be entitled to
receive from the recipient, upon the presentation of invoices therefor, payment
for all reasonable out-of-pocket costs and expenses (excluding allocated
compensation, salary and overhead expense) as may be reasonably incurred in
providing such information or witnesses.
ARTICLE 7
CERTAIN CLAIMS AND LITIGATION
Section 7.01. Product Liability Claims.
(a) Applicability. GM and Delphi agree to the allocation of liability
for all claims and causes of action, however presented, alleging that parts,
components or systems that have been (i) manufactured by the Delphi Automotive
Systems Business or Delphi or its Affiliates, or (ii) manufactured by a third
party, whether sold or otherwise supplied separately, or incorporated into
components or systems of Delphi or its Affiliates, in each case, which have been
sold or otherwise supplied by the Delphi Automotive Systems Business, Delphi or
its Affiliates to GM, its Affiliates or customers of Delphi other than GM or its
Affiliates (the foregoing collectively constituting "Delphi Products") have
caused or been alleged to cause personal inuries, injuries to property or other
damages as set forth in this Section 7.01. The provisions in this Section 7.01
cover claims which include but are not limited to the following types of claims:
claims premised on theories of negligence, strict liability, express or implied
warranties of merchantability, fitness for ordinary use and/or compliance with
reasonable consumer expectations, failure to issue adequate warnings, negligent
and/or intentional misrepresentation, negligent and/or intentional infliction of
emotional distress, failure to provide replacement and/or retrofit parts, and
failure to conduct a recall or adequately conduct a recall that has been issued.
The provisions set forth in this Section 7.01 apply to claims for compensatory
damages as well as all claims for punitive or exemplary damages and all claims
for defective design as well as all claims for defective manufacture.
(b) Parts Components or Systems Manufactured by the Delphi
Automotive Systems Business Prior to January 1, 1999.
(i) As between GM and Delphi, Delphi shall assume the defense
of all such claims involving Delphi Products sold or otherwise supplied
prior to January 1, 1999 to customers other than GM or an Affiliate or
Subsidiary of GM. Delphi shall indemnify, defend and hold harmless GM
and its Affiliates against any and all such claims. Delphi shall
reimburse GM and its Affiliates for any reasonable attorneys' fees or
other expenses reasonably incurred by GM subsequent to December 31,
1998 in connection with investigating and/or defending against any such
claim.
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<PAGE> 20
(ii) GM shall retain and/or assume the defense of all such
claims involving parts, components or systems manufactured by the
Delphi Automotive Systems Business prior to January 1, 1999 and sold or
otherwise supplied to GM or its Affiliates before, on, or after January
1, 1999. GM shall indemnify, defend and hold harmless Delphi and its
Affiliates against any and all such claims. GM shall reimburse Delphi
and its Affiliates for any reasonable attorneys' fees or other expenses
reasonably incurred by Delphi or its Affiliates subsequent to December
31, 1998 in connection with investigating and/or defending any such
claim or securing the indemnification and/or defense that GM is
required to provide pursuant to this paragraph.
(c) Parts, Components or Systems Manufactured, Sold or otherwise
Supplied by Delphi on or Subsequent to January 1, 1999.
(i) Delphi shall defend GM and its Affiliates against all
claims involving (A) parts, components or systems manufactured by
Delphi or its Affiliates which on or subsequent to January 1, 1999 are
sold or otherwise supplied to customers other than GM or its
Affiliates; and (B) parts, components or systems acquired by the Delphi
Automotive Systems Business or Delphi or its Affiliates from suppliers
thereto other than GM or its Affiliates and sold or otherwise supplied
by Delphi or its Affiliates on or subsequent to January 1, 1999 to
customers other than GM or its Affiliates. Delphi or its Affiliates
shall indemnify, defend and hold harmless GM and its Affiliates against
any and all such claims. Delphi or its Affiliates shall reimburse GM
and its Affiliates for any reasonable attorneys' fees or other expenses
reasonably incurred by GM and its Affiliates in connection with
investigating and/or defending any such claim or securing the
indemnification and/or defense that Delphi and its Affiliates are
required to provide pursuant to this paragraph.
(ii) The rights, obligations and liabilities of GM and Delphi
with respect to claims involving parts, components or systems
manufactured by Delphi or its affiliates subsequent to December 31,
1998 which are sold by Delphi or its Affiliates to GM or its Affiliates
shall be determined according to the terms of the agreements relating
to such sale.
(d) Recall and Warranty Campaigns. Claims of GM or its Affiliates
against the Delphi Automotive Systems Business in the nature of warranty and
recall campaigns relating to parts, components or systems sold by the Delphi
Automotive Systems Business to GM or its Affiliates (regardless of when or by
whom manufactured (but excluding parts or systems manufactured by GM or its
Affiliates)) which arise prior to or after the Contribution Date shall be
determined according to the terms of the agreements relating to the sale of such
parts, components or systems, all of which agreements are assumed by Delphi and
its Affiliates pursuant to the terms of the Supply Agreement.
(e) Notice. GM and Delphi agree that in the case of claims covered by
either paragraphs (b) or (c) above, the party receiving such a claim will notify
the other party within 30 days of receipt of written notice of the claim.
Thereafter, the party being notified of the claim shall have 30 days to respond.
The party first receiving such a claim shall take all reasonable action
necessary to defend against the claim including, but not limited to, responding
to court ordered deadlines before the expiration of the time for response.
Section 7.02. General Litigation.
(a) Claims to Be Transferred to Delphi. On the Contribution Date, the
legal responsibilities for the claims identified on Schedule K shall be
transferred in their entirety from GM to Delphi. As of the Contribution Date and
thereafter, Delphi shall assume the defense of these claims. Delphi shall
indemnify, defend and hold harmless GM against these claims. Delphi shall
reimburse GM for any reasonable attorneys fees and all other expenses reasonably
incurred by GM subsequent to the Contribution Date in connection with
investigating and/or defending against any such claim, including reimbursement
for any services provided by members of the GM Legal Staff.
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<PAGE> 21
(b) Claims to be Defended by GM at Delphi's Expense. GM shall defend
the claims identified in Schedule L; provided, however, that (i) Delphi shall
indemnify and hold harmless GM against any judgments entered against GM on the
claims identified on Schedule L or settlements of the claims identified on
Schedule L, provided that GM may not compromise or settle any such claim without
the prior written consent of Delphi, which shall not be unreasonably withheld or
delayed, (ii) GM shall promptly compromise or settle claim(s) identified on
Schedule L if Delphi so directs, (iii) GM shall promptly permit Delphi to assume
responsibility for the defense of the claims identified on Schedule L if Delphi
so requests and (iv) Delphi shall reimburse GM for any reasonable attorneys'
fees and all other expenses reasonably incurred by GM subsequent to the
Contribution Date in connection with defending against the claims identified on
Schedule L, including reimbursement for any services provided by members of the
GM Legal Staff.
(c) Claims for which GM will Retain Liability. GM shall defend the
claims identified on Schedule M and shall indemnify and hold harmless Delphi
against any judgments entered against Delphi on the claims identified in
Schedule M or settlements of the claims identified on Schedule M. GM shall
reimburse Delphi for any reasonable attorneys' fees and all other expenses
reasonably incurred by Delphi subsequent to the Contribution Date in connection
with defending against the claims identified on Schedule M, including
reimbursement for any services provided by members of the Delphi Legal Staff.
Section 7.03. Employment Related Claims.
(a) Claims to Be Transferred to Delphi. On the Contribution Date, the
legal responsibilities for the claims identified on Schedule N shall be
transferred in their entirety from GM to Delphi. Thereafter, Delphi shall assume
the defense of these claims. Delphi shall indemnify, defend and hold harmless GM
against these claims. Delphi shall reimburse GM for any reasonable attorneys'
fees and all other expenses reasonably incurred by GM subsequent to the
Contribution Date in connection with investigating and/or defending against any
such claim, including reimbursement for any services provided by members of the
GM Legal Staff.
(b) Claims to be Jointly Defended by GM and Delphi. GM and Delphi
shall jointly defend the claims identified in Schedule O; provided, however,
that (i) Delphi shall indemnify and hold harmless GM against any judgments
entered against GM on the claims identified in Schedule O or settlements of the
claims identified in Schedule O, provided that GM may not compromise or settle
any such claim regarding employees of Delphi without the prior consent of
Delphi, which consent shall not be unreasonably withheld or delayed and (ii)
Delphi and GM shall split the attorneys' fees and all other expenses reasonably
incurred subsequent to the Contribution Date in connection with defending
against the unemployment claims identified in Schedule O based on the number of
hourly employees of each organization that are claimants in the litigation.
(c) Unscheduled Claims. Delphi will have financial responsibility
for employment related claims regarding all Delphi Employees and Delphi
Terminated Employees (as those terms are defined in the Employee Matters
Agreement, a copy of which is attached hereto as Exhibit B-1) whether incurred
before or after the Contribution Date. If a claim is not scheduled, Delphi and
GM shall mutually determine whether the claim is treated under Paragraph (a) or
(b) above. Responsibility for new U.S. claims will be treated in the same
manner. Notwithstanding the above, 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 shall remain the
responsibility of GM.
Section 7.04. Cooperation. GM and Delphi and their respective
Affiliates shall cooperate with each other in the defense of any and all claims
covered under this Article 7 and afford to each other reasonable access upon
reasonable advance notice to witnesses and information (other than information
protected from disclosure by applicable privileges) that is reasonably required
to defend these claims as set forth in Article 6 of this Agreement. The
foregoing agreement to cooperate includes, but is not limited to, an obligation
to provide access to qualified assistance to provide information, witnesses and
documents to respond to discovery requests in specific lawsuits. In such cases,
cooperation shall be timely so that the party responding to discovery may meet
all court-imposed
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<PAGE> 22
deadlines. The party requesting information shall reimburse the party providing
information consistent with the terms of Section 6.06 of this Agreement. The
obligations set forth in this paragraph are more clearly defined in Section 6.01
through and including 6.06 of this Agreement, to which reference is hereby made.
ARTICLE 8
INSURANCE MATTERS
SECTION 8.01 Delphi Insurance Coverage During the Transition Period.
(a) Throughout the period beginning on the Contribution Date and
ending on the earlier of the Distribution Date or the first anniversary of the
Contribution Date (i.e., the "Insurance Transition Period"), GM shall, subject
to insurance market conditions and other factors beyond its control, maintain
policies of insurance, including for the benefit of Delphi or any of its
Affiliates, directors, officers, employees or other covered parties
(collectively, the "Delphi Covered Parties") which are comparable to those
maintained generally by GM; provided, however, that this provision shall not
apply to insurance applicable to employees and/or beneficiaries relating to
benefits provided under ERISA governed benefit plans or to Personal Umbrella
Liability Insurance; provided, further, however, that if GM determines that (i)
the amount or scope of such coverage will be reduced to a level materially
inferior to the level of coverage in existence immediately prior to the
Insurance Transition Period or (ii) the retention or deductible level applicable
to such coverage, if any, will be increased to a level materially greater than
the levels in existence immediately prior to the Insurance Transition Period, GM
shall give Delphi notice of such determination as promptly as practicable. Upon
notice of such determination, Delphi shall be entitled to no less than 60 days
to evaluate its options regarding continuance of coverage hereunder and may
cancel all or any portion of such coverage as of any day within such 60 day
period. Except as provided below, during the Insurance Transition Period, such
policies of insurance shall cover Delphi Covered Parties for liabilities and
losses insured prior to the Contribution Date. To the extent of any self insured
or other loss retentions with respect to insurance policies in force, Delphi
shall, during the Insurance Transition Period, be solely responsible for any
losses, damages and related expenses, not included in GM insurance program
expense allocations to Delphi, incurred by itself or Delphi Covered Parties
within such loss or retentions and shall not seek reimbursement or
indemnification thereof from GM.
(b) GM will use all commercially reasonable efforts to assist Delphi
Covered Parties in asserting claims under applicable insurance policies, and
shall adjust such policies, as necessary and practicable, to provide for Delphi
and GM recoveries consistent with their respective interests and shall not
unduly favor one insured party over another.
(c) Delphi shall promptly pay or reimburse GM, as the case may be,
for premium expenses, and Delphi Covered Parties shall promptly pay or reimburse
GM for any costs and expenses which GM may incur in connection with the
insurance coverages maintained pursuant to this Section 8.01, including but not
limited to any subsequent premium adjustments. All payments and reimbursements
by Delphi and Delphi Covered Parties to GM shall be made within fifteen (15)
days after Delphi's receipt of an invoice from GM. Late payments shall bear
interest at the Prime Rate (as defined in Section 2.05(b) hereof) and shall be
paid in accordance with the terms relating to payments of interest set forth in
Section 2.05(b) of this Agreement.
(d) To the full extent permitted by contract and law, the control and
administration of such insurance policies, including claims against insurance
policies and any modifications to terms or conditions of insurance policies,
shall remain with GM (except that any such action taken by GM shall treat fairly
all insured parties and their respective claims and shall not unduly favor one
insured party over another). Delphi and Delphi Covered Parties shall make all
reasonable efforts to facilitate GM's control and administration of such
policies.
(e) GM's insurance policies shall be applicable to Delphi losses, as
follows: (i) with respect to any insurance policies where coverage is provided
on a "claims-made" or "occurrences reported" basis, any events,
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<PAGE> 23
acts or omissions which may give rise to insured losses, or damages which give
rise to claims thereunder, must have occurred and notice given to GM prior to
expiration of the Insurance Transition Period; (ii) with respect to other types
of insurance policies, including those provided on an "occurrence" basis, any
events, acts or omissions giving rise to any insured losses or damages must have
occurred prior to expiration of the Insurance Transition Period; and (iii) with
respect to all claims under all insurance policies, coverage for events, acts or
omissions shall be interpreted consistent with the terms of such policies and
the intent of subparagraphs (i) and (ii) above.
(f) With respect to claims comprehended by the insurance policies, GM
and Delphi shall control the investigation, defense and settlement of all claims
as provided for in Article 7 of this Agreement; provided, however, that Delphi
may not effect any settlement with respect to any such claim without GM's prior
written consent (which consent shall not be unreasonably withheld or delayed)
unless such settlement (i) will have no direct impact on GM's future insurance
recoveries under relevant insurance policies, and (ii) will require that only
Delphi or Delphi Covered Parties, and not GM or its insurers, assume financial
responsibility for the settlement (under applicable deductibles or self-insured
retentions), any related expenses and/or any subsequent premium adjustments.
SECTION 8.02. Delphi Insurance Coverage After The Insurance Transition
Period. From and after expiration of the Insurance Transition Period, except as
provided herein, Delphi, and Delphi alone, shall be responsible for obtaining
and maintaining insurance programs for its risk of loss and such insurance
arrangements shall be separate and apart from GM's insurance programs.
Notwithstanding the foregoing, (a) GM, upon the request of Delphi, shall use all
commercially reasonable efforts to assist Delphi in the transition to its own
separate insurance programs from and after the Insurance Transition Period, and
shall provide Delphi with any information that is in the possession of GM and is
reasonably available and necessary to either obtain insurance coverages for
Delphi or to assist Delphi in preventing unintended self-insurance, in whatever
form, (b) each of GM and Delphi, at the request of the other, shall cooperate
with and use commercially reasonable efforts to assist the other in recoveries
from claims made under any insurance policy for the benefit of any insured
party; and (c) neither GM nor Delphi, nor any of their Affiliates, shall take
any action which would intentionally jeopardize or otherwise interfere with
either party's ability to collect any proceeds payable pursuant to any insurance
policy.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Entire Agreement. This Agreement, including all the
Ancillary Agreements and all other Exhibits and Schedules attached hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter hereof,
other than with respect to the Cash and Debt Management Agreement, dated as of
December 22, 1998, among the Corporate Sector of GM, the Global Automotive
Sector of GM and the Delphi Automotive Systems Sector of GM.
SECTION 9.02. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
SECTION 9.03. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.04. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy with answer back, by express or overnight mail delivered
by a nationally recognized air courier (delivery charges prepaid), or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
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<PAGE> 24
if to GM:
c/o General Motors Corporation
3031 West Grand Blvd.
Detroit, MI 48202
Attention: Warren G. Andersen
Telecopy: (313) 974-0685
if to Delphi, the Delphi U.S. Subsidiaries or Delphi International Subsidiary:
c/o Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, MI 48098
Attention: General Counsel
Telecopy: 248-813-2523
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. Any
notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first Business Day at the place at which such notice
or communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth Business Day at the place
from which such notice or communication was mailed following the day on which
such notice or communication was mailed.
SECTION 9.05. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their legal
representatives and successors, and each Subsidiary and each Affiliate of the
parties hereto, and nothing in this Agreement, express or implied, is intended
to confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement, except for Article 5 (which is intended to
be for the benefit of the Persons provided for therein and may be enforced by
such Persons).
SECTION 9.06. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
SECTION 9.07. Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto. The Schedules and Exhibits attached hereto or referred to herein are an
integral part of this Agreement and are hereby incorporated into this Agreement
and made a part hereof as if set forth in full herein.
SECTION 9.08. Dispute Resolution. Except as otherwise set forth in the
Ancillary Agreements, resolution of any and all disputes arising from or in
connection with this Agreement (excluding matters related to the Supply
Agreement), whether based on contract, tort, or otherwise (collectively,
"Disputes"), shall be exclusively governed by and settled in accordance with the
provisions of this Section 9.08. The parties hereto shall use all commercially
reasonable efforts to settle all Disputes without resorting to mediation,
arbitration, litigation or other third party dispute resolution mechanisms. If
any Dispute remains unsettled, a party hereto may commence proceedings hereunder
by first delivering a written notice from a Senior Vice President or comparable
executive officer of such party (the "Demand") to the other parties providing
reasonable description of the Dispute to the others and expressly requesting
mediation hereunder. The parties hereby agree to submit all Disputes to
non-binding mediation before a mediator reasonably acceptable to all parties
involved in such Dispute. If, after such mediation, the parties subject to such
mediation disagree regarding the mediator's recommendation, such Dispute shall
be submitted to arbitration under the terms hereof, which arbitration shall be
final, conclusive and binding upon the parties, their successors and assigns.
The arbitration shall be conducted in Detroit, Michigan by three arbitrators
acting by majority vote (the
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<PAGE> 25
"Panel") selected by agreement of the parties not later than ten (10) days after
the delivery of the recommendation provided by the mediator as described above
or, failing such agreement, appointed pursuant to the commercial arbitration
rules of the American Arbitration Association, as amended from time to time (the
"AAA Rules"). If an arbitrator so selected becomes unable to serve, his or her
successors shall be similarly selected or appointed. The arbitration shall be
conducted pursuant to the Federal Arbitration Act and such procedures as the
parties subject to such arbitration (each, a "Party") may agree, or, in the
absence of or failing such agreement, pursuant to the AAA Rules. Notwithstanding
the foregoing: (i) each Party shall have the right to audit the books and
records of the other Party that are reasonably related to the Dispute; (ii) each
Party shall provide to the other, reasonably in advance of any hearing, copies
of all documents which a Party intends to present in such hearing; and (iii)
each Party shall be allowed to conduct reasonable discovery through written
requests for information, document requests, requests for stipulation of fact
and depositions, the nature and extent of which discovery shall be determined by
the Parties; provided that if the Parties cannot agree on the terms of such
discovery, the nature and extent thereof shall be determined by the Panel which
shall take into account the needs of the Parties and the desirability of making
discovery expeditious and cost effective. The award shall be in writing and
shall specify the factual and legal basis for the award. The Panel shall
apportion all costs and expenses of arbitration, including the Panel's fees and
expenses and fees and expenses of experts, between the prevailing and
non-prevailing Party as the Panel deems fair and reasonable. The parties hereto
agree that monetary damages may be inadequate and that any party by whom this
Agreement is enforceable shall be entitled to seek specific performance of the
arbitrators' decision from a court of competent jurisdiction, in addition to any
other appropriate relief or remedy. Notwithstanding the foregoing, in no event
may the Panel award consequential, special, exemplary or punitive damages. Any
arbitration award shall be binding and enforceable against the parties hereto
and judgment may be entered thereon in any court of competent jurisdiction.
SECTION 9.09. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the fullest
extent possible.
SECTION 9.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 9.11. Amendment. No change or amendment will be made to this
Agreement or the Ancillary Agreements except by an instrument in writing signed
on behalf of each of the parties to such agreement.
SECTION 9.12. Authority. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement and the Ancillary Agreements, (b)
the execution, delivery and performance of this Agreement and the Ancillary
Agreements by it have been duly authorized by all necessary corporate or other
action, (c) it has duly and validly executed and delivered this Agreement and
the Ancillary Agreements, and (d) this Agreement and each Ancillary Agreement is
a legal, valid and binding obligation, enforceable against it in accordance with
its terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equity principles.
SECTION 9.13. Interpretation. The headings contained in this Agreement,
in any Exhibit or Schedule hereto and in the table or contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not
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<PAGE> 26
otherwise defined therein, shall have the meaning assigned to such term in this
Agreement. When a reference is made in this Agreement to an Article or a
Section, Exhibit or Schedule, such reference shall be to an Article or Section
of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.
After the Contribution Date, the Delphi Automotive Systems Business shall be
deemed to no longer exist and all references made herein to Delphi as a party
which operate as of a time following the Contribution Date, shall be deemed to
refer to Delphi, the Delphi U.S. Subsidiaries and Delphi International
Subsidiary as a single party.
******
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 27
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
GENERAL MOTORS CORPORATION
By: /s/ G. Richard Wagoner
----------------------------------
Name: G. Richard Wagoner
Title: President and Chief Operating Officer
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
By: /s/ J.T. Battenberg, III
----------------------------------
Name: J.T. Battenberg, III
Title: Chairman, Chief Executive Officer and
President
DELPHI AUTOMOTIVE SYSTEMS LLC
By: /s/ J.T. Battenberg, III
----------------------------------
Name: J.T. Battenberg, III
Title: Chief Executive Officer and
President
DELPHI TECHNOLOGIES, INC.
By: /s/ Andrew Brown, Jr
----------------------------------
Name: Andrew Brown, Jr.
Title: President
DELPHI AUTOMOTIVE SYSTEMS (HOLDING), INC.
By: /s/ John P. Arle
----------------------------------
Name: John P. Arle
Title: President
<PAGE> 1
Exhibit 10.7
INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT,
DATED AS OF _________ __, 1999,
BY AND BETWEEN
GENERAL MOTORS CORPORATION
AND
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions..............................................................................................2
2. The Initial Public Offering and the Distribution.........................................................9
2.1 The Initial Public Offering.....................................................................9
2.2 The Distribution................................................................................9
2.3 Certain Stockholder Matters.....................................................................9
2.4 Prior Relationship.............................................................................10
2.5 Further Assurances Regarding the Distribution..................................................10
2.6 Abandonment of the Distribution................................................................10
3. Expenses................................................................................................11
3.1 General........................................................................................11
3.2 Certain Expenses Relating to the Initial Public Offering.......................................11
3.3 Certain Expenses Relating to the Distribution..................................................11
4. Covenants To Preserve Tax-Free Status of the Distribution and the Qualification of the
Contribution as a D Reorganization......................................................................11
4.1 Representations and Warranties.................................................................11
4.2 Restrictions on Delphi.........................................................................12
4.3 Cooperation and Other Covenants................................................................15
4.4 Indemnification for Tax Liabilities............................................................17
4.5 Procedure for Indemnification for Tax Liabilities..............................................17
4.6 Arbitration....................................................................................18
4.7 Exclusive Remedies.............................................................................19
5. Certain Other Covenants.................................................................................19
5.1 Financial and Other Information................................................................19
5.2 Other Covenants................................................................................25
5.3 Covenants Regarding the Incurrence of Indebtedness.............................................26
6. Indemnification.........................................................................................28
6.1 Indemnification by Delphi......................................................................28
6.2 Indemnification by GM..........................................................................28
6.3 Other Liabilities..............................................................................29
6.4 Tax Effects of Indemnification.................................................................29
6.5 Effect of Insurance Upon Indemnification.......................................................30
6.6 Procedure for Indemnification Involving Third-Party Claims.....................................30
6.7 Procedure for Indemnification Not Involving Third-Party Claims.................................32
6.8 Exclusive Remedies.............................................................................32
</TABLE>
- i -
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
7. Miscellaneous...........................................................................................32
7.1 Dispute Resolution.............................................................................32
7.2 Survival.......................................................................................32
7.3 Complete Agreement.............................................................................32
7.4 Authority......................................................................................32
7.5 Governing Law..................................................................................33
7.6 Consent to Exclusive Jurisdiction..............................................................33
7.7 Notices........................................................................................33
7.8 Amendment and Modification.....................................................................35
7.9 Binding Effect; Assignment.....................................................................35
7.10 Third Party Beneficiaries......................................................................35
7.11 Counterparts...................................................................................35
7.12 Waiver.........................................................................................35
7.13 Severability...................................................................................36
7.14 Remedies.......................................................................................36
7.15 Performance....................................................................................36
7.16 References; Construction.......................................................................36
Exhibits
Agreements Subject to Section 5.2(c)......................................................................Exhibit A
</TABLE>
- ii -
<PAGE> 4
INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT
This INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT (the
"Agreement") is made and entered into as of _________ __, 1999, by and between
General Motors Corporation, a Delaware corporation ("GM"), and Delphi Automotive
Systems Corporation, a Delaware corporation and a wholly owned subsidiary of GM
("Delphi"). Certain capitalized terms used herein are defined in Section 1 of
this Agreement.
RECITALS
WHEREAS, the Board of Directors of GM has determined that it would be
appropriate and desirable to completely separate the Delphi Automotive Systems
Business from GM;
WHEREAS, GM has caused Delphi to be incorporated in order to effect
such separation;
WHEREAS, GM and Delphi have previously entered into the Separation
Agreement and the Ancillary Agreements (other than this Agreement and the
Registration Rights Agreement), each effective as of January 1, 1999, pursuant
to which GM has contributed and transferred to Delphi, and Delphi has received
and assumed, the assets and liabilities then associated with the Delphi Business
as described therein;
WHEREAS, GM and Delphi intend that the Contribution qualify as a
tax-free reorganization under Section 368(a)(1)(D) of the Code;
WHEREAS, GM currently owns all of the issued and outstanding Delphi
Common Stock;
WHEREAS, Delphi has previously filed the IPO Registration Statement
with the SEC but it has not yet become effective;
WHEREAS, the parties currently contemplate that, reasonably promptly
following the execution of this Agreement, Delphi shall consummate the Initial
Public Offering;
WHEREAS, immediately following the consummation of the Initial Public
Offering, GM shall own approximately 82.3% of the outstanding shares of Delphi
Common Stock (or approximately 80.2% if the underwriters exercise their
over-allotment option in full in accordance with the Underwriting Agreement);
WHEREAS, concurrently with the execution of this Agreement, GM and
Delphi are entering into the Registration Rights Agreement;
- 1 -
<PAGE> 5
WHEREAS, GM currently intends to divest itself of its entire ownership
of Delphi during 1999 by distributing in the Distribution all of its shares of
Delphi Common Stock to the holders of GM $1 2/3 Common Stock;
WHEREAS, GM currently expects to accomplish the Distribution by means
of a split-off, a spin-off or some combination of both transactions;
WHEREAS, GM and Delphi intend that the Distribution will be tax-free to
GM and its stockholders under Section 355 of the Code;
WHEREAS, the parties intend in this Agreement to set forth the
principal arrangements between them regarding the Initial Public Offering and
the Distribution; and
WHEREAS, the parties hereto have determined that in order to accomplish
the objectives of the Initial Public Offering and the Distribution and to
facilitate the consummation thereof, it is necessary and desirable to
restructure certain intercompany relationships, allocate certain liabilities and
provide for certain indemnification, all as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereby agree as follows:
1. DEFINITIONS.
"Abandonment Notice" has the meaning set forth in Section 2.6.
"Acquisition Target" has the meaning set forth in Section 5.3(a)(i).
"Active Trade or Business" means the active conduct of the trade or
business (as defined in Section 355(b)(2) of the Code) conducted by Delphi
immediately prior to the applicable Distribution Date.
"Adjusted Delphi Indebtedness" has the meaning set forth in
Section 5.3.
"Affiliate" means a Delphi Affiliate or a GM Affiliate, as the case may
be.
"Agreement" has the meaning set forth in the Preamble.
"Ancillary Agreements" has the meaning ascribed to such term in the
Separation Agreement.
"Annual Financial Statements" has the meaning set forth in Section 5.1
(a)(vi).
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<PAGE> 6
"Business" means the Delphi Business or the GM Business, as the case
may be.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions located in the State of New York or Michigan are
authorized or obligated by law or executive order to close.
"Claim" has the meaning set forth in Section 6.7.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, together with the rules and regulations promulgated thereunder.
"Contribution" means the transfer of certain assets by GM to Delphi
(and the assumption by Delphi of certain liabilities) as contemplated by the
Separation Agreement.
"Control" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"CPR Rules" means the Rules for Non-Administered Arbitration of
Business Disputes promulgated by the Center for Public Resources, as in effect
on the date hereof.
"D Reorganization" means a transaction qualifying as a reorganization
under Section 368(a)(1)(D) of the Code.
"Delphi" has the meaning set forth in the Preamble.
"Delphi Affiliate" means a Person that, after giving effect to the
Distribution, directly or indirectly through one or more intermediaries, is
Controlled by, or is under common Control with Delphi.
"Delphi Automotive Systems Business" has the meaning ascribed to such
term in the Separation Agreement.
"Delphi Business" means any business or operations of Delphi or any
Delphi Affiliates, including, in all cases, any predecessor entities (including,
without limitation, the Delphi Automotive Systems Business).
"Delphi Capital Stock" means all classes or series of capital stock of
Delphi.
"Delphi Common Stock" means the Common Stock, par value $0.01 per
share, of Delphi.
"Delphi Indebtedness" has the meaning set forth in Section 5.3.
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<PAGE> 7
"Delphi Public Documents" has the meaning set forth in Section
5.1(a)(ix).
"Delphi Transfer Agent" means BankBoston, N.A., in its capacity as the
transfer agent and registrar for the Delphi Common Stock.
"Delphi's Auditors" has the meaning set forth in Section 5.1(b)(i).
"Dispute Notice" means written notice of any dispute between GM and
Delphi arising out of or relating to this Agreement, which shall set forth, in
reasonable detail, the nature of the dispute.
"Distribution" means the distribution of Delphi Common Stock by GM in
one or more transactions occurring after the Initial Public Offering that
collectively have the effect that all shares of Delphi Common Stock held by GM
are distributed to GM stockholders, whenever such transaction(s) shall occur.
"Distribution Date" means any date or dates, as the case may be,
determined by GM, in its sole and absolute discretion, to be a date on which
shares of Delphi Common Stock held by GM are distributed in connection with the
Distribution.
"Distribution Registration Statement" means any and all registration
statements, information statements or other documents filed by any party with
the SEC in connection with any transaction constituting part of the
Distribution, in each case as supplemented or amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, together with the rules and regulations promulgated
thereunder.
"FFO to Debt Ratio" has the meaning set forth in Section 5.3(c).
"GAAP" means generally accepted accounting principles, consistently
applied.
"GM" has the meaning set forth in the Preamble.
"GM Affiliate" means a Person that, after giving effect to the
Distribution, directly or indirectly through one or more intermediaries, is
Controlled by GM.
"GM Annual Statements" has the meaning set forth in Section 5.1(b)(ii).
"GM Business" means any business or operations of GM or any GM
Affiliates other than the Delphi Business.
"GM Disclosure Portions" means all material set forth in, or
incorporated by reference into, either the IPO Registration Statement or the
Distribution Registration Statement, as applicable, to the extent relating
exclusively to (i) GM and the GM Affiliates (excluding Delphi and the Delphi
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<PAGE> 8
Affiliates), (ii) the GM Business, (iii) GM's intentions with respect to the
Distribution or (iv) the terms of the Distribution, including, without
limitation, 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.
"GM Public Filings" has the meaning set forth in Section 5.1(a)(xiii).
"GM Transfer Agent" means BankBoston, N.A., in its capacity as the
transfer agent and registrar for the GM $1 2/3 Common Stock.
"GM $1 2/3 Common Stock" means the Common Stock, par value $1 2/3 per
share, of GM.
"GM's Auditors" has the meaning set forth in Section 5.1(b)(ii).
"Indemnifying Party" means a Person that is obligated to provide
indemnification under this Agreement.
"Indemnitee" means a Person that is entitled to seek indemnification
under this Agreement.
"Indemnity Payment" means an amount that an Indemnifying Party is
required to pay to an Indemnitee under this Agreement.
"Initial Public Offering" means the initial public offering by Delphi
of shares of Delphi Common Stock as contemplated by the IPO Registration
Statement.
"Insurance Proceeds" means the payment received by an insured from an
insurance carrier or paid by an insurance carrier on behalf of the insured, net
of any applicable premium adjustment and tax effect.
"IPO Registration Statement" means the Registration Statement on Form
S-1, Registration No. 333-67333, of Delphi, as supplemented and amended from
time to time.
"IRS" means Internal Revenue Service of the U.S. Department of Treasury
or any successor agency.
"Losses" means all losses, liabilities, claims, obligations, demands,
judgments, damages, dues, penalties, assessments, fines (civil or criminal),
costs, liens, expenses, forfeitures, settlements, or fees, reasonable attorneys'
fees and court costs, of any nature or kind, whether or not the same would
properly be reflected on a balance sheet, and "Loss" means any of these.
"Negotiation Period" means the period of 20 Business Days following the
initial meeting of the representatives of GM and Delphi following the receipt of
a Dispute Notice.
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<PAGE> 9
"Notice" means any notice, request, claim, demand, or other
communication under this Agreement.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Pre-Distribution Period" means the period of time from the date hereof
until the completion of the Distribution.
"Proposed Acquisition Transaction" means a transaction or series of
transactions as a result of which any Person or any group of related Persons
would (directly or indirectly) acquire, or have the right to acquire, from
Delphi or one or more holders of outstanding shares of Delphi Capital Stock, a
number of shares of Delphi Capital Stock that would comprise 50% or more of (A)
the value of all outstanding shares of Delphi Capital Stock as of the date of
such transaction, or in the case of a series of transactions, the date of the
last transaction of such series, or (B) the total combined voting power of all
outstanding shares of Voting Stock of Delphi as of the date of such transaction,
or in the case of a series of transactions, the date of the last transaction of
such series.
"Quarterly Financial Statements" has the meaning set forth in Section
5.1(a)(v).
"Registration Rights Agreement" means the Registration Rights Agreement
to be entered into between GM and Delphi concurrently with the execution and
delivery of this Agreement.
"Regulation S-K" means Regulation S-K of the General Rules and
Regulations promulgated by the SEC.
"Regulation S-X" means Regulation S-X of the General Rules and
Regulations promulgated by the SEC.
"Representation Date" means any date on which Delphi makes any
representation (i) to the IRS or to counsel selected by GM for the purpose of
obtaining a Subsequent Tax Opinion/Ruling, or (ii) to GM for the purpose of any
determination required to be made by GM pursuant to Section 4.2.
"Representation Letters" means the representation letters and any other
materials (including, without limitation, the ruling request and the related
supplemental submissions to the IRS) delivered or deliverable by GM and others
in connection with the rendering by Tax Counsel and the issuance by the IRS of
the Tax Opinions/Rulings, which to the extent related to Delphi shall be in form
and substance reasonably satisfactory to Delphi.
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<PAGE> 10
"Representative" means, with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants or attorneys.
"Request" has the meaning set forth in Section 6.7.
"Rights Plan" means the Agreement by and between Delphi and BankBoston,
N.A., as Rights Agent, as amended from time to time.
"SEC" means the United States Securities and Exchange Commission or any
successor agency.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, together with the rules and regulations promulgated thereunder.
"Separate Counsel" has the meaning set forth in Section 6.6(b).
"Separation Agreement" means the Master Separation Agreement by and
among GM, Delphi, Delphi Automotive Systems LLC, a Delaware limited liability
company and a wholly owned subsidiary of GM, Delphi Technologies, Inc., a
Delaware corporation and a wholly owned subsidiary of GM, and Delphi Automotive
Systems (Holding), Inc., a Delaware corporation and a wholly owned subsidiary of
GM, dated as of December 22, 1998, as amended from time to time.
"Service Agent" means (i) for GM, The Corporation Trust Company, with
offices on the date hereof at 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801; and (ii) for Delphi, The Corporation Trust Company, with
offices on the date hereof at 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801.
"Subsequent Tax Opinion/Ruling" means either (i) an opinion of counsel
selected by GM, in its sole and absolute discretion, confirming, in form and
substance reasonably satisfactory to GM, that, as a consequence of the
consummation of a subsequent transaction, no income, gain or loss for U.S.
federal income tax purposes will be recognized by GM, the stockholders or former
stockholders of GM, or any GM Affiliate with respect to the Distribution, or
(ii) an IRS private letter ruling to the same effect.
"Subsidiary" means with respect to any specified Person, any
corporation or other legal entity of which such Person or any of its
Subsidiaries Controls or owns, directly or indirectly, more than 50% of the
stock or other equity interest entitled to vote with respect to the election of
members to the board of directors or similar governing body; provided, however,
that for the purposes of this Agreement, neither Delphi nor any of the
Subsidiaries of Delphi shall be deemed to be Subsidiaries of GM or of any of the
Subsidiaries of GM.
"Tax" means (i) any income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of
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<PAGE> 11
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on, minimum, estimated, or other tax, assessment, or governmental charge of
any kind whatsoever imposed by any governmental authority, including any
interest, penalty, or addition thereto, whether disputed or not; (ii) liability
for the payment of any amounts of the type described in clause (i) above arising
as a result of being (or having been) a member of any group or being (or having
been) included or required to be included in any Tax Return related thereto; and
(iii) liability for the payment of any amounts of the type described in clause
(i) above as a result of any express or implied obligation to indemnify or
otherwise assume or succeed to the liability of any other Person.
"Tax Agreements" means, collectively, the (i) Agreement for the
Allocation of United States Federal, State and Local Income Taxes between GM and
Delphi, dated as of December 16, 1998, as amended from time to time; (ii)
Agreement for the Indemnification of United States Federal, State and Local
Non-Income Taxes between GM and Delphi, dated as of December 16, 1998, as
amended from time to time; (iii) Amended and Restated Agreement for the
Allocation of United States Federal, State and Local Income Taxes between GM and
Delphi, dated as of December 16, 1998, as amended from time to time; (iv)
Customs Consulting Agreement between GM and Delphi, dated as of December 16,
1998, as amended from time to time; and (v) Tax Compliance and Planning Services
Agreement by and between GM and Delphi, dated as of December 16, 1998, as
amended from time to time.
"Tax Control" means, with respect to Delphi, ownership of Delphi
Capital Stock which constitutes at least 80% of both (i) the total combined
voting power of all outstanding shares of Voting Stock of Delphi and (ii) each
class and series of Delphi Capital Stock other than Voting Stock of Delphi.
"Tax Counsel" means the law firm of Kirkland & Ellis.
"Tax-Free Status of the Distribution" means the nonrecognition of
taxable gain or loss for U.S. federal income tax purposes to GM, GM Affiliates
and GM's stockholders in connection with the Distribution.
"Tax Opinions/Rulings" means the opinions of Tax Counsel and the
rulings by the IRS deliverable to GM in connection with the Contribution and the
Distribution.
"Tax-Related Losses" means (i) all federal, state and local Taxes
(including interest and penalties thereon) imposed pursuant to any settlement,
final determination, judgment or otherwise; (ii) all accounting, legal and other
professional fees, and court costs incurred in connection with such taxes; and
(iii) all costs and expenses that may result from adverse tax consequences to GM
or GM's stockholders (including all costs, expenses and damages associated with
stockholder litigation or controversies) payable by GM or GM Affiliates.
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<PAGE> 12
"Third-Party Claim" means any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, governmental or other
regulatory or administrative agency or commission or any arbitration tribunal
asserted by a Person other than GM or any GM Affiliate or Delphi or any Delphi
Affiliate which gives rise to a right of indemnification hereunder.
"Underwriting Agreement" means the Underwriting Agreement between
Delphi and the underwriters relating to the Initial Public Offering, as amended
from time to time.
"Value" means with respect to any trade or business (or portion
thereof), the fair market value of the assets constituting such trade or
business, less the current liabilities associated with such trade or business,
in each case determined as of the applicable Distribution Date.
"Voting Stock" means with respect to any Person, all classes and series
of the capital stock of such Person entitled to vote generally in the election
of directors.
2. THE INITIAL PUBLIC OFFERING AND THE DISTRIBUTION.
2.1 THE INITIAL PUBLIC OFFERING. Delphi shall consult with, and
cooperate in all respects with, GM in connection with the pricing of the Delphi
Common Stock to be offered in the Initial Public Offering and shall, at GM's
direction, promptly take any and all actions necessary or desirable to
consummate the Initial Public Offering as contemplated by the IPO Registration
Statement and the Underwriting Agreement.
2.2 THE DISTRIBUTION. GM currently intends, following the consummation
of the Initial Public Offering, to complete the Distribution during 1999 by
means of a split-off, a spin-off or some combination of both transactions. GM
shall, in its sole and absolute discretion, determine whether to proceed with
all or part of the Distribution and all terms of the Distribution, including,
without limitation, 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 addition, GM may at any time and from time
to time until the completion of the Distribution modify or change the terms of
the Distribution, including, without limitation, by accelerating or delaying the
timing of the consummation of all or part of the Distribution. Delphi shall
cooperate with GM in all respects to accomplish the Distribution and shall, at
GM's direction, promptly take any and all actions necessary or desirable to
effect the Distribution, including, without limitation, the registration under
the Securities Act of Delphi Common Stock on an appropriate registration form or
forms to be designated by GM. GM shall select any investment banker(s) and
manager(s) in connection with the Distribution, as well as any financial
printer, solicitation and/or exchange agent and outside counsel for GM; provided
that nothing herein shall prohibit Delphi from engaging (at its own expense) its
own financial, legal, accounting and other advisors in connection with the
Distribution.
2.3 CERTAIN STOCKHOLDER MATTERS. From and after the distribution of
Delphi Common Stock in connection with any transaction(s) included as part of
the Distribution and until such Delphi Common Stock is duly transferred in
accordance with applicable law, Delphi shall regard the
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<PAGE> 13
Persons receiving Delphi Common Stock in such transaction(s) as record holders
of Delphi Common Stock in accordance with the terms of such transaction(s)
without requiring any action on the part of such Persons. Delphi agrees that,
subject to any transfers of such stock, (a) each such holder shall be entitled
to receive all dividends payable on, and exercise voting rights and all other
rights and privileges with respect to, the shares of Delphi Common Stock then
held by such holder and (b) each such holder shall be entitled, without any
action on the part of such holder, to receive one or more certificates
representing, or other evidence of ownership of, the shares of Delphi Common
Stock then held by such holder. GM shall cooperate, and shall instruct the GM
Transfer Agent to cooperate, with Delphi and the Delphi Transfer Agent, and
Delphi shall cooperate, and shall instruct the Delphi Transfer Agent to
cooperate, with GM and the GM Transfer Agent, in connection with all aspects of
the Distribution and all other matters relating to the issuance and delivery of
certificates representing, or other evidence of ownership of, the shares of
Delphi Common Stock distributed to the holders of GM $12/3 Common Stock in
connection with any transaction(s) included as part of the Distribution.
Following the Distribution, GM shall instruct the GM Transfer Agent to deliver
to the Delphi Transfer Agent true, correct and complete copies of the stock and
transfer records reflecting the holders of GM $12/3 Common Stock receiving
shares of Delphi Common Stock in connection with any transaction(s) included as
part of the Distribution.
2.4 PRIOR RELATIONSHIP. Delphi, with respect to Delphi and all of the
Delphi Affiliates, and GM, with respect to GM and all of the GM Affiliates,
agree to take all commercially reasonable action to discontinue their respective
uses as promptly as is commercially reasonable of any printed material that
indicates an ownership or other relationship between or among GM and Delphi or
any of their respective Affiliates that has changed as a result of the Initial
Public Offering, the Distribution or any other transactions contemplated hereby;
provided that this Section 2.4 shall not prohibit the use of printed material
containing appropriate and accurate references to such relationship.
2.5 FURTHER ASSURANCES REGARDING THE DISTRIBUTION. In addition to the
actions specifically provided for elsewhere in this Agreement, Delphi shall, at
GM's direction, use all commercially reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things commercially
reasonably necessary, proper or expeditious under applicable laws, regulations
and agreements in order to consummate and make effective the Distribution as
promptly as reasonably practicable. Without limiting the generality of the
foregoing, Delphi shall, at GM's direction, cooperate with GM, and execute and
deliver, or use all commercially reasonable efforts to cause to have executed
and delivered, all instruments, including instruments of conveyance, assignment
and transfer, and to make all filings with, and to obtain all consents,
approvals or authorizations of, any domestic or foreign governmental or
regulatory authority requested by GM in order to consummate and make effective
the Distribution.
2.6 ABANDONMENT OF THE DISTRIBUTION. The parties expressly acknowledge
and agree that GM is not obligated in any respect to proceed with or complete
the Distribution and that GM may, in its sole and absolute discretion, at any
time abandon its plans to proceed with or complete the Distribution. In the
event that GM so determines that it no longer intends to proceed with or
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<PAGE> 14
complete the Distribution, GM shall provide to Delphi a written notification of
such determination (an "Abandonment Notice"). Effective as of the date of the
Abandonment Notice, (a) provided that no Distribution Date has yet occurred,
Sections 4.2 and 4.3 of this Agreement shall terminate, become null and void and
have no further force and effect (it being expressly understood and agreed by
the parties that such Sections shall remain in full force and effect in the
event that a Distribution Date has occurred on or prior to the date of the
Abandonment Notice) and (b) GM's rights, and Delphi's obligations, set forth in
the Registration Rights Agreement shall immediately become effective.
3. EXPENSES.
3.1 GENERAL. Except as otherwise provided in this Agreement, the
Separation Agreement, any of the other Ancillary Agreements or any other
agreement between the parties relating to the Contribution, the Initial Public
Offering or the Distribution, all costs and expenses of either party hereto in
connection with the Contribution, the Initial Public Offering and the
Distribution shall be paid by the party that incurs such costs and expenses.
3.2 CERTAIN EXPENSES RELATING TO THE INITIAL PUBLIC OFFERING. GM shall
be responsible for the payment of all costs, fees and expenses relating to the
Initial Public Offering; provided that Delphi shall be responsible for the
payment of (a) the costs, fees and expenses of all of Delphi's financial, legal,
accounting and other advisors incurred in connection with the Initial Public
Offering and (b) any internal fees, costs and expenses incurred by Delphi or any
Delphi Affiliate in connection with the Initial Public Offering. GM shall be
entitled to any and all amounts received from the underwriters relating to
reimbursement for any costs, fees and expenses relating to the Initial Public
Offering.
3.3 CERTAIN EXPENSES RELATING TO THE DISTRIBUTION. GM shall generally
be responsible for the payment of all costs, fees and expenses relating to the
Distribution; provided that Delphi shall be responsible for the payment of (a)
the costs, fees and expenses of all of Delphi's financial, legal, accounting and
other advisors incurred in connection with the Distribution and (b) any internal
fees, costs and expenses incurred by Delphi or any Delphi Affiliate in
connection with the Distribution.
4. COVENANTS TO PRESERVE TAX-FREE STATUS OF THE DISTRIBUTION AND THE
QUALIFICATION OF THE CONTRIBUTION AS A D REORGANIZATION. Delphi and GM
hereby represent and warrant to, and covenant and agree with, each
other as follows:
4.1 REPRESENTATIONS AND WARRANTIES.
(a) Delphi. Delphi hereby represents and warrants that (i) it
has examined the Tax Opinions/Rulings and the Representation Letters,
and (ii) the facts presented and the representations made therein, to
the extent descriptive of Delphi or the Delphi Business (including,
without limitation, the business purposes for the Distribution, the
representations in the Representation Letters and Tax Opinions/Rulings
to the extent that they relate to
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<PAGE> 15
Delphi or the Delphi Business, and the plans, proposals, intentions and
policies of Delphi), are true, correct and complete in all material
respects.
(b) GM. GM hereby represents and warrants that (i) it has
examined the Tax Opinions/Rulings and the Representation Letters, and
(ii) the facts presented and the representations made therein, to the
extent descriptive of GM or the GM Business (including, without
limitation, the business purposes for the Distribution, the
representations in the Representation Letters and Tax Opinions/Rulings
to the extent that they relate to GM or the GM Business, and the plans,
proposals, intentions and policies of GM), are true, correct and
complete in all material respects.
4.2 RESTRICTIONS ON DELPHI.
(a) Pre-Distribution Period. Delphi shall not take any action
(such action to include, if relevant, the issuance of Delphi Capital
Stock upon the exercise by the holders thereof of all options or
convertible securities issued by Delphi) during the Pre-Distribution
Period if, as a result of taking such action, Delphi would issue a
number of shares of Delphi Capital Stock (including by way of the
exercise of stock options or the issuance of restricted stock) that
would cause GM to cease to have Tax Control of Delphi, unless prior to
the consummation of such transaction GM has determined, in its sole and
absolute discretion, which discretion shall be exercised in good faith
solely to preserve the Tax-Free Status of the Distribution, that such
transaction would not jeopardize the Tax-Free Status of the
Distribution. Notwithstanding the foregoing provisions of this Section
4.2(a), Delphi shall be permitted to issue stock options and restricted
stock awards to its employees so long as (i) Delphi repurchases
sufficient shares of issued and outstanding Delphi Capital Stock on or
prior to the date such options are exercisable or restricted stock is
vested (or deemed vested) to insure that, assuming the exercise of all
exercisable options and vesting of such restricted stock, GM would not
cease to have Tax Control of Delphi and (ii) Delphi provides GM with
prior written notification of the procedures by which Delphi intends to
comply with its obligation described in clause (i) above and GM
approves of such procedures (which approval shall not be unreasonably
withheld). All of the restrictions on Delphi contained in this Section
4.2 shall apply to Delphi during the Pre-Distribution Period as well as
the other periods specified in this Section 4.2.
(b) Proposed Acquisition Transactions. Until the first day
after the two-year anniversary of the latest Distribution Date, Delphi
shall not enter into any Proposed Acquisition Transaction or, to the
extent Delphi has the right to prohibit any Proposed Acquisition
Transaction, permit any Proposed Acquisition Transaction to occur
unless prior to the consummation of such Proposed Acquisition
Transaction GM has determined, in its sole and absolute discretion,
which discretion shall be exercised in good faith solely to preserve
the Tax-Free Status of the Distribution, that such Proposed Acquisition
Transaction would not jeopardize the Tax-Free Status of the
Distribution.
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<PAGE> 16
The foregoing shall not prohibit Delphi from entering into a contract
or agreement to consummate any Proposed Acquisition Transaction if such
contract or agreement requires satisfaction of the above-described
requirement prior to the consummation of such Proposed Acquisition
Transaction, such requirement to be satisfied through the cooperation
of the parties as described in Section 4.3(b)(ii).
(c) Continuation of Active Trade or Business. Until the
first day after the two-year anniversary of the latest Distribution
Date,
(i) Delphi shall continue to conduct the Active
Trade or Business.
(ii) Subject to clause (c)(iii) below, Delphi shall
not (A) liquidate, dispose of, or otherwise discontinue the
conduct of any portion of the Active Trade or Business with a
Value in excess of $2.0 billion or (B) dispose of any business
or assets that would cause Delphi to be operated in a manner
inconsistent in any material respect with the business
purposes for the Distribution as set forth in the
Representation Letters and Tax Opinions/Rulings, in each case
unless GM has determined, in its sole and absolute discretion,
which discretion shall be exercised in good faith solely to
preserve the Tax-Free Status of the Distribution, that such
liquidation, disposition, or discontinuance would not
jeopardize the Tax-Free Status of the Distribution.
(iii) Delphi shall not under any circumstances
liquidate, dispose of, or otherwise discontinue the conduct of
any portion of the Active Trade or Business if such
liquidation, disposition or discontinuance would breach
Section 4.2(d). Delphi shall continue the active conduct of
the Active Trade or Business primarily through officers and
employees of Delphi or its Subsidiaries (and not primarily
through independent contractors) who are not also officers or
employees of GM or of any GM Affiliates. Notwithstanding the
foregoing, (A) except with respect to any corporation or other
entity the status of which as the direct owner of an active
trade or business is material to the Tax-Free Status of the
Distribution, liquidations of any of Delphi's Subsidiaries
(including Delphi Automotive Systems LLC) into Delphi or one
or more Subsidiaries directly or indirectly controlled by
Delphi shall not be deemed to breach this Section 4.2(c) and
(B) Delphi shall not be prohibited from liquidating, disposing
of or otherwise discontinuing the conduct of one or more
trades or businesses that constituted part of the Active Trade
or Business, or any portion thereof, provided that, in the
case of this clause (B), the aggregate Value of such trades or
businesses, or portions thereof, so liquidated, disposed of or
discontinued shall not exceed $2.0 billion. For purposes of
the preceding sentence and clause (c)(ii) above, asset
retirements, sale-leaseback arrangements and discontinuances
of product lines within a trade or business the active conduct
of which is continued shall not be deemed a liquidation,
disposition or discontinuance of a trade or business or
portion thereof.
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<PAGE> 17
(iv) Solely for purposes of this Section 4.2(c),
Delphi shall not be treated as directly or indirectly
controlling a Subsidiary unless Delphi owns, directly or
indirectly, shares of capital stock of such Subsidiary
constituting (i) 80% or more of the total combined voting
power of all outstanding shares of Voting Stock of such
Subsidiary and (ii) 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.
(d) Continuity of Business.
(i) Until the first day after the two-year
anniversary of the latest Distribution Date, (A) Delphi shall
not voluntarily dissolve or liquidate, and (B) except in the
ordinary course of business, neither Delphi nor any
Subsidiaries directly or indirectly controlled by Delphi shall
sell, transfer, or otherwise dispose of or agree to dispose of
assets (including, for such purpose, any shares of capital
stock of such Subsidiaries) that, in the aggregate, constitute
more than (x) 60% of the gross assets of Delphi or (y) 60% of
the consolidated gross assets of Delphi (including Delphi
Automotive Systems LLC) and such Subsidiaries, unless prior to
the consummation of such transaction GM has determined, in its
sole and absolute discretion, which discretion shall be
exercised in good faith solely to preserve the Tax-Free Status
of the Distribution, that such transaction would not
jeopardize the Tax-Free Status of the Distribution. The amount
of gross assets of Delphi and such Subsidiaries shall be based
on the fair market value of each such asset as of the
applicable Distribution Date.
(ii) Sales, transfers or other dispositions by
Delphi or any of its Subsidiaries to Delphi or one or more
Subsidiaries directly or indirectly controlled by Delphi shall
not be included in any determinations under this Section
4.2(d) of whether such 60% or more of the gross assets of
Delphi or 60% of the consolidated gross assets of Delphi and
such Subsidiaries have been sold, transferred or otherwise
disposed of.
(iii) Solely for purposes of this Section 4.2(d),
Delphi shall not be treated as directly or indirectly
controlling a Subsidiary unless Delphi owns, directly or
indirectly, shares of capital stock of such Subsidiary
constituting (A) 80% or more of the total combined voting
power of all outstanding shares of Voting 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.
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(e) Discharge of Intracompany Indebtedness. Prior to the first
Distribution Date, Delphi shall fully discharge and satisfy all of the
then existing indebtedness owed to GM or any GM Affiliate (other than
payables incurred in the ordinary course of the business). From such
date until the first day after the two-year anniversary of the latest
Distribution Date, Delphi shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or allow to exist any such
indebtedness with GM or any GM Affiliate.
(f) Miscellaneous. Until the first day after the two-year
anniversary of the latest Distribution Date, Delphi shall not take, or
permit any of its Subsidiaries to take, any other actions or enter into
any transaction or series of transactions or agree to enter into any
other 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 in the Representation Letters, unless prior to the
consummation of such action or transaction GM has determined, in its
sole and absolute discretion, which discretion shall be exercised in
good faith solely to preserve the Tax-Free Status of the Distribution
and the qualification of the Contribution as a D Reorganization, 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. Notwithstanding the foregoing, if and to the extent
that any action or transaction is described in and permitted pursuant
to Sections 4.2(a), (b), (c), (d) and (e) such action or transaction
shall not be prohibited by this Section 4.2(f).
(g) Permitted Actions and Transactions. Notwithstanding the
foregoing, the provisions of Section 4.2 shall not prohibit Delphi from (i)
implementing, or otherwise complying with the provisions of, the Rights Plan
(or any successor stockholders rights plan of Delphi), and (ii) implementing any
transaction upon which the IRS has granted a favorable ruling in, or which is
described in reasonable detail in, any Tax Opinions/Rulings.
4.3 COOPERATION AND OTHER COVENANTS.
(a) Notice of Subsequent Delphi Actions. Each of Delphi and GM
shall furnish the other with a copy of any ruling requests or other
documents delivered to the IRS that relates to the Distribution or that
could otherwise be reasonably expected to have an impact on the
Tax-Free Status of the Distribution or the qualification of the
Contribution as a D Reorganization.
(b) Cooperation.
(i) Each of Delphi and GM shall cooperate with the other
and shall take (or refrain from taking) all such actions as
the other may reasonably request in connection with obtaining
any GM determination referred to in Section 4.2. Such
cooperation shall include, without limitation, providing any
information and/or representations reasonably requested by
the other to enable either party (or counsel
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<PAGE> 19
for such party) to obtain and maintain any Subsequent Tax
Opinion/Ruling that would permit any action described in
Section 4.2 to be taken by Delphi or a Delphi Affiliate. From
and after any Representation Date in connection with obtaining
any such determination or the receipt of a Subsequent Tax
Opinion/Ruling and until the first day after the two-year
anniversary of the date of such determination or receipt,
neither party shall take (nor shall it refrain from taking)
any action that would have caused such representation to be
untrue unless the other party has determined, in its sole and
absolute discretion, which discretion shall be exercised in
good faith solely to preserve the Tax-Free Status of the
Distribution and the qualification of the Contribution as a D
Reorganization, that such action would not jeopardize the
Tax-Free Status of the Distribution or the qualification of
the Contribution as a D Reorganization.
(ii) In the event that Delphi notifies GM that it
desires to take one of the actions described in Section 4.2
and GM concludes that such action might jeopardize the
Tax-Free Status of the Distribution or the qualification of
the Contribution as a D Reorganization, GM shall, at the
request of Delphi, elect either to (i) use all commercially
reasonable efforts to obtain a Subsequent Tax Opinion/Ruling
that would permit Delphi to take the specified action, and
Delphi shall cooperate in connection with such efforts, or
(ii) provide all reasonable cooperation to Delphi in
connection with Delphi obtaining such a Subsequent Tax
Opinion/Ruling in form and substance reasonably satisfactory
to GM; provided, however, that the reasonable costs and
expenses incurred by GM of obtaining any such Subsequent Tax
Opinion/Ruling shall be borne by GM.
(c) Notice.
(i) Until all restrictions set forth in Section 4.2
have expired, Delphi shall give GM written notice of any
intention to effect or permit an action or transaction
described in Section 4.2 and which is prohibited thereunder at
such time within a period of time reasonably sufficient to
enable GM (A) to make the determination referred to in Section
4.2 or (B) to prepare and seek any Subsequent Tax Opinion/
Ruling in connection with such proposed action or transaction.
Each such notice by Delphi shall set forth the terms and
conditions of the proposed action or transaction, including,
without limitation, as applicable, the nature of any related
action proposed to be taken by the Board of Directors of
Delphi, the approximate number of shares of Delphi Capital
Stock proposed to be transferred or issued, the approximate
Value of Delphi's assets (or assets of any of Delphi's
Subsidiaries) proposed to be transferred, the proposed
timetable for such action or transaction, and the number of
shares of Delphi Capital Stock otherwise then owned by the
other party to the proposed action or transaction, all with
sufficient particularity to enable GM to make any such
required determination, including information required to
prepare and seek a Subsequent Tax Opinion/Ruling in connection
with such proposed action or
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<PAGE> 20
transaction. All information provided by Delphi to GM pursuant
to this Section 4.3 shall be deemed subject to the
confidentiality obligations of Article 6 of the Separation
Agreement.
(ii) Promptly, but in any event within 15 Business
Days, after GM receives such written notice from Delphi, GM
shall evaluate such information and notify Delphi in writing
of (A) such determination or (B) of GM's intent to seek a
Subsequent Tax Opinion/Ruling and the proposed date for
submission of the request therefor, which date shall not be
more than 45 days after the date GM so notifies Delphi of GM's
intent to seek a Subsequent Tax Opinion/Ruling, provided that
such 45-day period shall be appropriately extended for any
period of noncompliance by Delphi with Section 4.3(b). If GM
makes a determination that an action or transaction described
in Section 4.2 would jeopardize the Tax-Free Status of the
Distribution or the qualification of the Contribution as a D
Reorganization, such notice to Delphi shall set forth, in
reasonable detail, the reasons therefor. GM shall notify
Delphi promptly, but in any event within two Business Days,
after the receipt of a Subsequent Tax Opinion/Ruling.
4.4 INDEMNIFICATION FOR TAX LIABILITIES.
(a) General. Notwithstanding any other provision of this
Agreement or any provision of any of the Tax Agreements to the contrary
but subject to Section 4.4(b), Delphi shall indemnify, defend and hold
harmless GM and each GM Affiliate (or any successor to any of them)
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
Delphi of any of its representations, warranties or covenants made
pursuant to this Agreement. All interest or penalties incurred in
connection with such Tax-Related Losses shall be computed for the time
period up to and including the date that Delphi pays its
indemnification obligation in full.
(b) Exceptions to Delphi's Indemnification. If GM (i) makes a
determination pursuant to any clause of Section 4.2, on the basis of a
Subsequent Tax Opinion/Ruling or otherwise, and (ii) delivers to Delphi
written notice of such determination pursuant to Section 4.3(c), Delphi
shall have no obligation pursuant to Section 4.4(a), except to the
extent that any Tax-Related Losses so incurred resulted from the
inaccuracy, incorrectness or incompleteness of any representation
provided by Delphi upon which such Subsequent Tax Opinion/Ruling and/or
determination was based.
(c) Timing and Method of Tax Indemnification Payments. Delphi
shall pay any amount due and payable to GM pursuant to this Section 4.4
on or before the 90th day following the earlier of agreement or
determination that such amount is due and payable to GM. All payments
pursuant to this Section 4.4 shall be made by wire transfer to the bank
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<PAGE> 21
account designated by GM for such purpose, and on the date of such wire
transfer Delphi shall give GM notice of the transfer.
4.5 PROCEDURE FOR INDEMNIFICATION FOR TAX LIABILITIES.
(a) Notice of Claim. If GM receives notice of the assertion of
any Third-Party Claim with respect to which Delphi may be obligated
under Section 4.4 to provide indemnification, GM shall give Delphi
notice thereof (together with a copy of such Third- Party Claim,
process or other legal pleading) promptly after becoming aware of such
Third- Party Claim; provided, however, that the failure of GM to give
notice as provided in this Section shall not relieve Delphi of its
obligations under Section 4.4, except to the extent that Delphi is
actually prejudiced by such failure to give notice. Such notice shall
describe such Third-Party Claim in reasonable detail.
(b) Obligation of Indemnifying Party.
(i) GM and Delphi shall jointly control the defense
of, and cooperate with each other with respect to defending,
any Third-Party Claim with respect to which Delphi is
obligated under Section 4.4 to provide indemnification,
provided that Delphi shall forfeit such joint control right
with respect to a particular Third-Party Claim if Delphi or
any Delphi Affiliate makes any public statement or filing, or
takes any action (including, but not limited to, the filing of
any submission or pleading, or the giving of a deposition or
production of documents, in any administrative or court
proceeding) in connection with such Third-Party Claim that is
inconsistent in a material respect with any representation or
warranty made by Delphi in this Agreement, the Tax
Opinions/Rulings, or the Representation Letters.
(ii) Delphi and GM shall exercise their rights to
jointly control the defense of any such Third-Party Claim
solely for the purpose of defeating such Third-Party Claim
and, unless required by applicable law, neither Delphi nor GM
shall make any statements or take any actions that could
reasonably result in the shifting of liability for any Losses
arising out of such Third-Party Claim from the party making
such statement or taking such action (or any of its
Affiliates) to the other party (or any of its Affiliates).
(iii) Statements made or actions taken by either
Delphi or GM in connection with the defense of any such
Third-Party Claim shall not prejudice the rights of such party
in any subsequent action or proceeding between the parties.
(iv) If either GM or Delphi fails to jointly defend
any such Third-Party Claim, the other party shall solely
defend such Third-Party Claim and the party failing to jointly
defend shall use commercially reasonable efforts to cooperate
with the other party in its defense of such Third-Party Claim;
provided, however, that GM
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<PAGE> 22
may not compromise or settle any such Third-Party Claim
without the prior written consent of Delphi, which consent
shall not be unreasonably withheld or delayed. All costs and
expenses of either party in connection with, and during the
course of, the joint control of the defense of any such
Third-Party Claim shall be initially paid by the party that
incurs such costs and expenses. Such costs and expenses shall
be reallocated and reimbursed in accordance with the
respective indemnification obligations of the parties at the
conclusion of the defense of such Third-Party Claim.
4.6 ARBITRATION. Any dispute between the parties arising out of or
relating to this Section 4, including the interpretation of this Section 4, or
any actual or purported breach of this Section 4, shall be resolved only in
accordance with the following provisions:
(a) Negotiation. GM and Delphi shall attempt in good faith to
resolve any such dispute promptly through negotiations of the parties.
In the event of any such dispute, either party may deliver a Dispute
Notice to the other party, and within 20 Business Days after the
receipt of such Dispute Notice, the appropriate representatives of GM
and Delphi shall meet to attempt to resolve such dispute. If such
dispute has not been resolved within the Negotiation Period, or if one
of the parties fails or refuses to negotiate such dispute, the issue
shall be settled by arbitration pursuant to Section 4.6(b). The results
of such arbitration shall be final and binding on the parties.
(b) Arbitration Procedure. Either party may initiate
arbitration with regard to such dispute by giving the other party
written notice either (i) at any time following the end of the
Negotiation Period, or (ii) if the parties do not meet within 20
Business Days of the receipt of the Dispute Notice, at any time
thereafter. The arbitration shall be conducted by three arbitrators in
accordance with the CPR Rules, except as otherwise provided in this
Section 4.6. Within 20 days following receipt of the written notice of
arbitration, GM and Delphi shall each appoint one arbitrator. The two
arbitrators so appointed shall appoint the third arbitrator. If either
GM or Delphi shall fail to appoint an arbitrator within such 20-day
period, the arbitration shall be by the sole arbitrator appointed by
the other party. Whether selected by GM and Delphi or otherwise, each
arbitrator selected to resolve such dispute shall be a tax attorney or
tax accountant who is generally recognized in the tax community as a
qualified and competent tax practitioner with experience in the tax
area involved in the issue or issues to be resolved. Such arbitrators
shall be empowered to determine whether Delphi is required to indemnify
GM pursuant to Section 4.4 and to determine the amount of the related
indemnification payment. Each of GM and Delphi shall bear 50% of the
aggregate expenses of the arbitrators. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. ss.ss.1-14. The
place of arbitration shall be New York, New York. The final decision of
the arbitrators shall be rendered no later than one year from the date
of the written notice of arbitration.
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<PAGE> 23
4.7 EXCLUSIVE REMEDIES. Except for the right to pursue equitable
remedies, the remedies provided in this Section 4 shall be deemed the sole and
exclusive remedies of the parties with respect to the subject matters of the
indemnification provisions of Section 4.4.
5. CERTAIN OTHER COVENANTS.
5.1 FINANCIAL AND OTHER INFORMATION.
(a) Financial Information. Delphi agrees that, for so long as
GM is required to consolidate Delphi's results of operations and
financial position or to account for its investment in Delphi under the
equity method of accounting (determined in accordance with generally
accepted accounting principles consistently applied):
(i) Delphi shall, and shall cause each of its
Subsidiaries to, maintain a system of internal accounting
controls that will provide reasonable assurance that: (A)
Delphi's and such Subsidiaries' books, records and accounts
fairly reflect all transactions and dispositions of assets and
(B) the specific objectives of accounting control are
achieved.
(ii) Delphi shall, and shall cause each of its
Subsidiaries (other than Delphi Automotive Systems India
Limited) to, maintain a fiscal year which commences on January
1 and ends on December 31 of each calendar year.
(iii) Delphi shall deliver to GM a trial balance
submission, which shall include amounts relating to each of
its Subsidiaries, in such format and detail as GM may request,
(A) with respect to each month (other than the last month of
each fiscal year), within four Business Days following the
last day of each such month, and (B) with respect to each
fiscal year, within five Business Days following December 31
of each such year.
(iv) As soon as practicable, and in any event within
seven Business Days after the end of each of the first three
fiscal quarters in each fiscal year of Delphi and within 14
Business Days after the end of each such fiscal year, Delphi
shall deliver to GM a consolidated income statement and
balance sheet for Delphi and its Subsidiaries for such fiscal
quarter or year, as the case may be.
(v) As soon as practicable, and in any event within 35
days after the end of each of the first three fiscal quarters
in each fiscal year of Delphi and no later than five days
before Delphi intends to file its Quarterly Financial
Statements (as defined below) with the SEC, Delphi shall
deliver to GM drafts of (A) the consolidated financial
statements of Delphi and its Subsidiaries (and notes thereto)
for such periods and for the period from the beginning of the
current fiscal year to the end of such quarter, setting forth
in each case in comparative form for each such fiscal
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<PAGE> 24
quarter of Delphi the consolidated figures (and notes thereto)
for the corresponding quarter and periods of the previous
fiscal year and all in reasonable detail and prepared in
accordance with Article 10 of Regulation S-X, and (B) a
discussion and analysis by management of Delphi's and its
Subsidiaries' financial condition and results of operations
for such fiscal period, including, without limitation, an
explanation of any material adverse change, all in reasonable
detail and prepared in accordance with Item 303(b) of
Regulation S-K. The information set forth in (A) and (B) above
is herein referred to as the "Quarterly Financial Statements."
No later than the earlier of (x) two Business Days prior to
the date Delphi publicly files the Quarterly Financial
Statements with the SEC or otherwise makes such Quarterly
Financial Statements publicly available or (y) two Business
Days prior to the date on which GM has notified Delphi that it
intends to file its quarterly financial statements with the
SEC, Delphi shall deliver to GM the final form of the
Quarterly Financial Statements certified by the chief
financial officer of Delphi as presenting fairly, in all
material respects, the financial condition and results of
operations of Delphi and its Subsidiaries; provided that
Delphi may continue to revise such Quarterly Financial
Statements prior to the filing thereof in order to make
corrections and non-substantive changes which corrections and
changes shall be delivered by Delphi to GM as soon as
practicable, and in any event within eight hours thereafter;
and, provided, further, that GM and Delphi financial
representatives shall actively consult with each other
regarding any changes (whether or not substantive) which
Delphi may consider making to its Quarterly Financial
Statements and related disclosures during the three Business
Days immediately prior to any anticipated filing with the SEC,
and Delphi shall obtain GM's consent prior to making any
change to Delphi's Quarterly Financial Statements or related
disclosures which would have an effect upon GM's financial
statements or related disclosures. In addition to the
foregoing, no Quarterly Financial Statement or any other
document which refers, or contains information with respect,
to the ownership of Delphi by GM, the separation of Delphi
from GM or the Distribution shall be filed with the SEC or
otherwise made public by Delphi or any of its Subsidiaries
without the prior written consent of GM.
(vi) Delphi shall deliver to GM as soon as practicable,
and in any event within 45 days after the end of each fiscal
year of Delphi and no later than 10 days before Delphi intends
to file its Annual Financial Statements (as defined below)
with the SEC, (A) drafts of the consolidated financial
statements of Delphi (and notes thereto) for such year,
setting forth in each case in comparative form the
consolidated figures (and notes thereto) for the previous
fiscal year and all in reasonable detail and prepared in
accordance with Regulation S-X and (B) a discussion and
analysis by management of Delphi's and its Subsidiaries'
financial condition and results of operations for such year,
including, without limitation, an explanation of any material
adverse change, all in reasonable detail and prepared in
accordance with Item 303(a) of Regulation S-K. The information
set forth in (A) and (B) above is herein referred to as the
"Annual Financial Statements." Delphi shall deliver to GM all
revisions to
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<PAGE> 25
such drafts as soon as any such revisions are prepared or
made. No later than the earlier of (1) five Business Days
prior to the date Delphi publicly files the Annual Financial
Statements with the SEC or otherwise makes such Annual
Financial Statements publicly available or (2) five Business
Days prior to the date on which GM has notified Delphi that it
intends to file its annual financial statements with the SEC,
Delphi shall deliver to GM the final form of the Annual
Financial Statements certified by the chief financial officer
of Delphi as presenting fairly, in all material respects, the
financial condition and results of operations of Delphi and
its Subsidiaries; provided that Delphi may continue to revise
such Annual Financial Statements prior to the filing thereof
in order to make corrections and non-substantive changes which
corrections and changes shall be delivered by Delphi to GM as
soon as practicable, and in any event within eight hours
thereafter; and, provided, further, that GM and Delphi
financial representatives shall actively consult with each
other regarding any changes (whether or not substantive) which
Delphi may consider making to its Annual Financial Statements
and related disclosures during the three Business Days
immediately prior to any anticipated filing with the SEC, and
Delphi shall obtain GM's consent prior to making any change to
Delphi's Annual Financial Statements or related disclosures
which would have an effect upon GM's financial statements or
related disclosures. In addition to the foregoing, no Annual
Financial Statement or any other document which refers, or
contains information with respect, to the ownership of Delphi
by GM, the separation of Delphi from GM or the Distribution
shall be filed with the SEC or otherwise made public by Delphi
or any of its Subsidiaries without the prior written consent
of GM. In any event, Delphi shall deliver to GM, no later than
80 days after the end of each fiscal year of Delphi, the final
form of the Annual Financial Statements accompanied by an
opinion thereon by Delphi's independent certified public
accountants.
(vii) Delphi shall deliver to GM all Quarterly and Annual
Financial Statements of each Subsidiary of Delphi which is
itself required to file financial statements with the SEC or
otherwise make such financial statements publicly available,
with such financial statements to be provided in the same
manner and detail and on the same time schedule as those
financial statements of Delphi required to be delivered to GM
pursuant to this Section 5.1.
(viii) All information provided by Delphi or any of its
Subsidiaries to GM pursuant to Sections 5.1(a)(iii) through
(vii) inclusive shall be consistent in terms of format and
detail and otherwise with the procedures in effect on the date
hereof with respect to the provision of such financial
information by the Delphi Automotive Systems Business and/or
Delphi and its Subsidiaries, as applicable, to GM (and, where
appropriate, as presently presented in financial reports to
GM's Board of Directors), with such changes therein as may be
requested by GM from time to time consistent with changes in
reporting by sectors and Subsidiaries of GM.
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<PAGE> 26
(ix) Delphi and each of its Subsidiaries which files
information with the SEC shall deliver to GM: (A) as soon as
the same are prepared, substantially final drafts of: (x) all
reports, notices and proxy and information statements to be
sent or made available by Delphi or any of its Subsidiaries to
their security holders, (y) all regular, periodic and other
reports to be filed under Sections 13, 14 and 15 of the
Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K
and Annual Reports to Shareholders), and (z) all registration
statements and prospectuses to be filed by Delphi or any of
its Subsidiaries with the SEC or any securities exchange
pursuant to the listed company manual (or similar
requirements) of such exchange (collectively, the documents
identified in clauses (x), (y) and (z) are referred to herein
as "Delphi Public Documents"), and (B) as soon as practicable,
but in no event later than four Business Days prior to the
date the same are printed, sent or filed, whichever is
earliest, final copies of all such Delphi Public Documents;
provided that Delphi may continue to revise such Delphi Public
Documents prior to the filing thereof in order to make
corrections and non-substantive changes which corrections and
changes shall be delivered by Delphi to GM as soon as
practicable, and in any event within eight hours thereafter;
and, provided, further, that GM and Delphi financial
representatives shall actively consult with each other
regarding any changes (whether or not substantive) which
Delphi may consider making to any of its Delphi Public
Documents and related disclosures prior to any anticipated
filing with the SEC, and Delphi shall obtain GM's consent
prior to making any change to its Delphi Public Documents or
related disclosures which would have an effect upon GM's
financial statements or related disclosures. In addition to
the foregoing, no Delphi Public Document or any other document
which refers, or contains information with respect, to the
ownership of Delphi by GM, the separation of Delphi from GM or
the Distribution shall be filed with the SEC or otherwise made
public by Delphi or any of its Subsidiaries without the prior
written consent of GM.
(x) Delphi shall, as promptly as practicable, deliver to
GM copies of all annual and other budgets and financial
projections (consistent in terms of format and detail and
otherwise with the procedures in effect on the date hereof)
relating to Delphi or any of its Subsidiaries and shall
provide GM an opportunity to meet with management of Delphi to
discuss such budgets and projections.
(xi) With reasonable promptness, Delphi shall deliver to
GM such additional financial and other information and data
with respect to Delphi and its Subsidiaries and their
business, properties, financial positions, results of
operations and prospects as from time to time may be
reasonably requested by GM.
(xii) Prior to issuance, Delphi shall deliver to GM copies
of substantially final drafts of all press releases and other
statements to be made available by Delphi or any of its
Subsidiaries to employees of Delphi or any of its Subsidiaries
or to the public concerning material developments in the
business, properties, earnings, results
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<PAGE> 27
of operations, financial condition or prospects of Delphi or
any of its Subsidiaries or the relationship between (A) Delphi
or any of its Subsidiaries and (B) GM or any of its
Affiliates. In addition, prior to the issuance of any such
press release or public statement, Delphi shall consult with
GM regarding any changes (other than typographical or other
similar minor changes) to such substantially final drafts.
Immediately following the issuance thereof, Delphi shall
deliver to GM copies of final drafts of all press releases and
other public statements. Delphi and GM will consult with each
other as to the timing of their annual and quarterly earnings
releases and will give each other an opportunity to review the
information therein relating to Delphi and its Subsidiaries
and to comment thereon.
(xiii) Delphi shall cooperate fully, and cause its
accountants to cooperate fully, with GM to the extent
requested by GM in the preparation of GM's public earnings
releases, quarterly reports on Form 10-Q, Annual Reports to
Shareholders, Annual Reports on Form 10-K, any Current Reports
on Form 8-K and any other proxy, information and registration
statements, reports, notices, prospectuses and any other
filings made by GM with the SEC, any national securities
exchange or otherwise made publicly available (collectively,
"GM Public Filings"). Delphi agrees to provide to GM all
information that GM reasonably requests in connection with any
GM Public Filings or that, in the judgment of GM's Legal
Staff, is required to be disclosed or incorporated by
reference therein under any law, rule or regulation. Such
information shall be provided by Delphi in a timely manner on
the dates requested by GM (which may be earlier than the dates
on which Delphi otherwise would be required hereunder to have
such information available) to enable GM to prepare, print and
release all GM Public Filings on such dates as GM shall
determine. Delphi shall cause its accountants to consent to
any reference to them as experts in any GM Public Filings
required under any law, rule or regulation. If and to the
extent requested by GM, Delphi shall diligently and promptly
review all drafts of such GM Public Filings and prepare in a
diligent and timely fashion any portion of such GM Public
Filing pertaining to Delphi. Prior to any printing or public
release of any GM Public Filing, an appropriate executive
officer of Delphi shall, if requested by GM, certify that the
information relating to Delphi, any Delphi Affiliate or the
Delphi Business in such GM Public Filing is accurate, true and
correct in all material respects. Unless required by law, rule
or regulation, Delphi shall not publicly release any financial
or other information which conflicts with the information with
respect to Delphi, any Delphi Affiliate or the Delphi Business
that is included in any GM Public Filing without GM's prior
written consent. Prior to the release or filing thereof, GM
shall provide Delphi with a draft of any portion of a GM
Public Filing containing information relating to Delphi and
its Subsidiaries and shall give Delphi an opportunity to
review such information and comment thereon; provided that GM
shall determine in its sole discretion the final form and
content of all GM Public Filings.
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<PAGE> 28
(b) Auditors and Audits; Annual Statements and Accounting.
Delphi agrees that, for so long as GM is required to consolidate
Delphi's results of operations and financial position or to account for
its investment in Delphi under the equity method of accounting (in
accordance with generally accepted accounting principles):
(i) Delphi shall not select a different accounting firm
than Deloitte & Touche, LLP to serve as its (and its
Subsidiaries') independent certified public accountants
("Delphi's Auditors") without GM's prior written consent
(which shall not be unreasonably withheld).
(ii) Delphi shall use its best efforts to enable the
Delphi Auditors to complete their audit such that they will
date their opinion on Delphi's audited annual financial
statements on the same date that GM's independent certified
public accountants ("GM's Auditors") date their opinion on
GM's audited annual financial statements (the "GM Annual
Statements"), and to enable GM to meet its timetable for the
printing, filing and public dissemination of the GM Annual
Statements.
(iii) Delphi shall provide to GM on a timely basis all
information that GM reasonably requires to meet its schedule
for the preparation, printing, filing, and public
dissemination of the GM Annual Statements. Without limiting
the generality of the foregoing, Delphi will provide all
required financial information with respect to Delphi and its
Subsidiaries to Delphi's Auditors in a sufficient and
reasonable time and in sufficient detail to permit Delphi's
Auditors to take all steps and perform all reviews necessary
to provide sufficient assistance to GM's Auditors with respect
to information to be included or contained in the GM Annual
Statements.
(iv) Delphi shall authorize Delphi's Auditors to make
available to GM's Auditors both the personnel who performed or
are performing the annual audit of Delphi and work papers
related to the annual audit of Delphi, in all cases within a
reasonable time prior to Delphi's Auditors' opinion date, so
that GM's Auditors are able to perform the procedures they
consider necessary to take responsibility for the work of
Delphi's Auditors as it relates to GM's Auditors' report on
GM's statements, all within sufficient time to enable GM to
meet its timetable for the printing, filing and public
dissemination of the GM Annual Statements.
(v) Delphi shall provide GM's internal auditors access
to Delphi's and its Subsidiaries, books and records so that GM
may conduct reasonable audits relating to the financial
statements provided by Delphi pursuant hereto as well as to
the internal accounting controls and operations of Delphi and
its Subsidiaries.
(vi) Delphi shall give GM as much prior notice as
reasonably practical of any proposed determination of, or any
significant changes in, its accounting estimates or accounting
principles from those in effect on the date hereof. Delphi
will consult
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with GM and, if requested by GM, Delphi will consult with GM's
independent public accountants with respect thereto. Delphi
will not make any such determination or changes without GM's
prior written consent if such a determination or a change
would be sufficiently material to be required to be disclosed
in Delphi's financial statements as filed with the SEC or
otherwise publicly disclosed therein.
(vii) Notwithstanding clause (vi) above, Delphi shall make
any changes in its accounting estimates or accounting
principles that are requested by GM in order for Delphi's
accounting estimates and principles to be consistent with
those of GM.
Nothing in this Section 5.1 shall require Delphi to violate any
agreement with any of its customers regarding the confidentiality of
commercially sensitive information relating to that customer or its
business; provided that in the event that Delphi is required under this
Section 5.1 to disclose any such information, Delphi shall use all
commercially reasonable efforts to seek to obtain such customer's
consent to the disclosure of such information.
5.2 OTHER COVENANTS. Delphi hereby covenants and agrees that, for
so long as GM beneficially owns at least 50% of the outstanding shares of Delphi
Common Stock:
(a) Delphi shall not, without the prior written consent of GM
(which it may withhold in its sole and absolute discretion), take, or
cause to be taken, directly or indirectly, any action, including making
or failing to make any election under the law of any state, which has
the effect, directly or indirectly, of restricting or limiting the
ability of GM to freely sell, transfer, assign, pledge or otherwise
dispose of shares of Delphi Common Stock or, other than as provided in
the Rights Plan, would restrict or limit the rights of any transferee
of GM as a holder of Delphi Common Stock. Without limiting the
generality of the foregoing, Delphi shall not, without the prior
written consent of GM (which it may withhold in its sole and absolute
discretion), (i) amend, supplement, restate, modify or alter the Rights
Plan or any successor stockholder rights plan in any manner that would
result in (A) the ownership of Delphi Common Stock by GM causing the
rights thereunder to detach or become exercisable and/or (B) GM and its
transferees not being entitled to the same rights thereunder as other
holders of Delphi Common Stock or (ii) take any action, or take any
action to recommend to its stockholders any action, which would among
other things, limit the legal rights of, or deny any benefit to, GM as
a Delphi stockholder in a manner not applicable to Delphi stockholders
generally.
(b) Delphi shall not, without the prior written consent of GM
(which it may withhold in its sole and absolute discretion), issue any
shares of Delphi Capital Stock or any rights, warrants or options to
acquire Delphi Capital Stock (including, without limitation, securities
convertible or exchangeable for Delphi Capital Stock), if after giving
effect to such issuances and considering all of the shares of Delphi
Capital Stock acquirable pursuant to such rights, warrants and options
to be outstanding on the date of such issuance (whether or
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not then exercisable), GM would own less than 50% of the then
outstanding shares of Delphi Common Stock.
(c) To the extent that GM is a party to any contracts or
agreements that provide that certain actions of GM's Subsidiaries may
result in GM being in breach of or in default under such agreements and
GM has advised Delphi of the existence, and has furnished Delphi with
copies, of such contracts or agreements (or the relevant portions
thereof), Delphi shall not take any actions that reasonably could
result in GM being in breach of or in default under any such contract
or agreement. As of the date hereof, the contracts and agreements (or
relevant portions thereof) applicable to this covenant are set forth on
Exhibit A attached hereto. Delphi hereby acknowledges and agrees that
GM has furnished it with copies of each contract or agreement (or the
relevant portion thereof) listed on Exhibit A. The parties acknowledge
and agree that, after the date hereof, GM may in good faith (and not
solely with the intention of imposing restrictions on Delphi pursuant
to this covenant) enter into additional contracts or agreements that
provide that certain actions of GM's Subsidiaries may result in GM
being in breach of or in default under such agreements. In such event,
Exhibit A shall be deemed to be automatically amended to reflect the
addition of any other contracts or agreements (or relevant portions
thereof) of which GM advises Delphi after the date hereof in accordance
with this Section 5.2(c). Delphi agrees to keep confidential and not to
disclose any information provided to it pursuant to this Section
5.2(c).
5.3 COVENANTS REGARDING THE INCURRENCE OF INDEBTEDNESS.
(a) Delphi hereby covenants and agrees that, for so long as GM
continues to beneficially own at least 50% of the outstanding shares of
Delphi Common Stock, Delphi shall not, and shall not permit any of its
Subsidiaries to, without GM's prior written consent (which it may
withhold in its sole and absolute discretion), take any of the
following actions:
(i) create, incur, assume or suffer to exist any Delphi
Indebtedness in excess of an aggregate of $5.0 billion
outstanding at any time; provided, however, that Delphi may
consummate, or agree to consummate, any acquisition or other
similar transaction or series of related transactions
involving Delphi or any of its Subsidiaries acquiring Control
of any Person (an "Acquisition Target") as a result of which
the Delphi Indebtedness would exceed $5.0 billion so long as
both (A) the Acquisition Target has an FFO to Debt Ratio equal
to or greater than 20% and (B) the Delphi Indebtedness after
giving effect to such transaction(s) (including, without
duplication, any Delphi Indebtedness incurred in connection
therewith and any Target Indebtedness that will become Delphi
Indebtedness as a result of such transaction(s)) would not
exceed $6.0 billion; and
(ii) consummate, or agree to consummate, any acquisition
or other similar transaction or series of related transactions
involving Delphi or any of its Subsidiaries acquiring Control
of any Acquisition Target with an FFO to Debt Ratio
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less than 20% unless the Adjusted Delphi Indebtedness would
not exceed $5.0 billion.
(b) In order to implement this Section 5.3, Delphi shall
notify GM in writing at least 15 Business Days prior to the time it or
any of its Subsidiaries contemplates incurring any Delphi Indebtedness
or agreeing to acquire Control of an Acquisition Target of its
intention to do so and shall either (i) demonstrate to GM's
satisfaction that this Section 5.3 shall not be violated by such
proposed additional Delphi Indebtedness or acquisition or (ii) obtain
GM's prior written consent to such proposed additional Delphi
Indebtedness or acquisition. Any such written notification from Delphi
to GM shall include documentation of any existing Delphi Indebtedness
and estimated Delphi Indebtedness after giving effect to such proposed
incurrence of additional Delphi Indebtedness or acquisition and, if
delivered in connection with any transaction(s) involving an
Acquisition Target, (A) documentation of the Acquisition Target's
Target Indebtedness, (B) calculations of the Acquisition Target's FFO
to Debt Ratio and (C) calculations of compliance with this Section 5.3,
including the Adjusted Delphi Indebtedness, if applicable. GM shall
have the right to verify the accuracy of such information and Delphi
shall cooperate fully with GM in such effort (including, without
limitation, by providing GM with access to the working papers and
underlying documentation related to any calculations used in
determining such information).
(c) For purposes of this Section 5.3, the following terms
shall have the following meanings:
"Adjusted Delphi Indebtedness" means, with respect to any
proposed transaction(s) involving an Acquisition Target, the sum of (i)
the Delphi Indebtedness immediately after giving effect to such
transaction(s) (including, without duplication, any Delphi Indebtedness
incurred in connection therewith and any Target Indebtedness that will
become Delphi Indebtedness as a result of such transaction(s)) and (ii)
the amount by which the number described in clause (ii) of the
definition of "FFO to Debt Ratio" set forth in this Section 5.3 would
need to be reduced in order for the Acquisition Target's FFO to Debt
Ratio to equal 20%.
"Delphi Indebtedness" means the sum of (i) the aggregate
principal amount of total liabilities (whether long-term or short-term)
for borrowed money (including capitalized leases) of Delphi and its
Subsidiaries, as determined for purposes of its consolidated financial
statements prepared in accordance with GAAP, and (ii) the aggregate
amount attributable to all factoring or securitization of receivables
and other financial assets by Delphi and its Subsidiaries in excess of
$1.2 billion.
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<PAGE> 32
"FFO to Debt Ratio" means, for any Acquisition Target, as of
immediately prior to Delphi acquiring Control of such Acquisition
Target in the proposed transaction(s), the percentage determined by
dividing (i) 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
prepared in accordance with GAAP, by (ii) the additional Delphi
Indebtedness that would be incurred in connection with such proposed
transaction(s), including, without limitation, any Target Indebtedness
that will become Delphi Indebtedness as a result of such proposed
transaction(s).
"Target Indebtedness" means, with respect to any proposed
transaction(s) involving an Acquisition Target, such Acquisition
Target's total obligations (whether short-term or long-term) for
borrowed money (including capitalized leases) as of immediately prior
to Delphi acquiring Control of such Acquisition Target in such proposed
transaction(s).
6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY DELPHI. Subject to Section 6.3, Delphi shall
indemnify, defend and hold harmless GM, all GM Affiliates and each of their
respective directors, officers and employees (in their capacities as such), from
and against:
(a) all Losses relating to, arising out of, or due to,
directly or indirectly, any breach by Delphi or any Delphi Affiliate of
any of the provisions of this Agreement;
(b) all Losses relating to, arising out of, or due to,
directly or indirectly, any incorrect, inaccurate or incomplete
financial and other information provided by Delphi or any Delphi
Affiliate to GM pursuant to Section 5.1 of this Agreement;
(c) all Losses relating to, arising out of, or due to any
untrue statement or alleged untrue statement of a material fact
contained in, or incorporated by reference into, the IPO Registration
Statement or the omission or alleged omission to state (whether
pursuant to direct statement or incorporation by reference) in the IPO
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein not misleading other than with
respect to the GM Disclosure Portions; and
(d) all Losses relating to, arising out of, or due to any
untrue statement or alleged untrue statement of a material fact
contained in, or incorporated by reference into, the Distribution
Registration Statement or the omission or alleged omission to state
(whether pursuant to direct statement or incorporation by reference) in
the Distribution Registration Statement a material fact required to be
stated therein or necessary to make the statements therein not
misleading other than with respect to the GM Disclosure Portions.
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6.2 INDEMNIFICATION BY GM. Subject to Section 6.3, GM shall indemnify,
defend, and hold harmless Delphi, all Delphi Affiliates, and each of their
respective directors, officers and employees (in their capacities as such), from
and against:
(a) all Losses relating to, arising out of, or due to,
directly or indirectly, any breach by GM or any GM Affiliate of any of
the provisions of this Agreement;
(b) all Losses relating to, arising out of, or due to any
untrue statement or alleged untrue statement of a material fact
contained in, or incorporated by reference into, the GM Disclosure
Portions of the IPO Registration Statement or the omission or alleged
omission to state (whether pursuant to direct statement or
incorporation by reference) in the GM Disclosure Portions of the IPO
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(c) all Losses relating to, arising out of, or due to any
untrue statement or alleged untrue statement of a material fact
contained in, or incorporated by reference into, the GM Disclosure
Portions of the Distribution Registration Statement or the omission or
alleged omission to state (whether pursuant to direct statement or
incorporation by reference) in the GM Disclosure Portions of the
Distribution Registration Statement a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
6.3 OTHER LIABILITIES.
(a) Except as provided in Section 6.4, this Section 6 shall
not be applicable to any Tax-Related Losses, which shall be governed by
Section 4 of this Agreement.
(b) This Section 6 shall not be applicable to any Losses
relating to, arising out of, or due to any breach of the provisions of
any other contract, agreement or understanding between GM or any GM
Affiliate and Delphi or any Delphi Affiliate, including, without
limitation, the Separation Agreement and any of the other Ancillary
Agreements, which Losses shall be governed by the terms of such
contract, agreement or understanding.
6.4 TAX EFFECTS OF INDEMNIFICATION.
(a) Any indemnification payment made under this Agreement
shall be characterized for tax purposes as if such payment were made
immediately prior to the latest Distribution Date, and shall therefore
be treated, to the extent permitted by law, as either (i) a
distribution from Delphi to GM or (ii) a capital contribution from GM
to Delphi.
(b) The amount of any Loss or Tax-Related Losses for which
indemnification is provided under this Agreement shall be (i) increased
to take account of net Tax cost, if any, incurred by the Indemnitee
arising from the receipt or accrual of an Indemnity Payment hereunder
(grossed up for such increase) and (ii) reduced to take account of net
Tax benefit,
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if any, realized by the Indemnitee arising from incurring or paying
such Loss or Tax-Related Losses. In computing the amount of any such
Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize
all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt or accrual of any
Indemnity Payment hereunder or incurring or paying any indemnified Loss
or Tax-Related Losses. Any Indemnity Payment hereunder shall initially
be made without regard to this Section 6.4 and shall be increased or
reduced to reflect any such net Tax cost (including gross-up) or net
Tax benefit only after the Indemnitee has actually realized such cost
or benefit. For purposes of this Agreement, an Indemnitee shall be
deemed to have "actually realized" a net Tax cost or a net Tax benefit
to the extent that, and at such time as, the amount of Taxes payable by
such Indemnitee is increased above or reduced below, as the case may
be, the amount of Taxes that such Indemnitee would be required to pay
but for the receipt or accrual of the Indemnity Payment or the
incurrence or payment of such Loss or Tax-Related Losses, as the case
may be. The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the
execution of Form 870-AD or successor form) with respect to the
Indemnitee's liability for Taxes, and payments between GM and Delphi to
reflect such adjustment shall be made if necessary.
6.5 EFFECT OF INSURANCE UPON INDEMNIFICATION. The amount which an
Indemnifying Party is required to pay to any Indemnitee pursuant to this Section
6 shall be reduced (including retroactively) by any Insurance Proceeds and other
amounts actually recovered by such Indemnitee in reduction of the related Loss,
it being understood and agreed that each of Delphi and GM shall use commercially
reasonable efforts to collect any such proceeds or other amounts to which it or
any of its Affiliates is entitled, without regard to whether it is the
Indemnifying Party hereunder. No Indemnitee shall be required, however, to
collect any such proceeds or other amounts prior to being entitled to
indemnification from an Indemnifying Party hereunder. If an Indemnitee receives
an Indemnity Payment in respect of a Loss and subsequently receives Insurance
Proceeds or other amounts in respect of such Loss, then such Indemnitee shall
pay to such Indemnifying Party an amount equal to the difference between (a) the
sum of the amount of such Indemnity Payment and the amount of such Insurance
Proceeds or other amounts actually received and (b) the amount of such Loss, in
each case adjusted (at such time as appropriate adjustment can be determined) to
reflect any premium adjustment attributable to such claim.
6.6 PROCEDURE FOR INDEMNIFICATION INVOLVING THIRD-PARTY CLAIMS.
(a) Notice of Claim. If any Indemnitee receives notice of the
assertion of any Third-Party Claim with respect to which an
Indemnifying Party is obligated under this Agreement to provide
indemnification (other than pursuant to Section 4), such Indemnitee
shall give such Indemnifying Party notice thereof (together with a copy
of such Third-Party Claim, process or other legal pleading) promptly
after becoming aware of such Third-Party Claim; provided, however, that
the failure of any Indemnitee to give notice as provided in this
Section shall not relieve any Indemnifying Party of its obligations
under this Section 6,
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except to the extent that such Indemnifying Party is actually
prejudiced by such failure to give notice. Such notice shall describe
such Third-Party Claim in reasonable detail.
(b) Obligation of Indemnifying Party. An Indemnifying Party,
at such Indemnifying Party's own expense and through counsel chosen by
such Indemnifying Party (which counsel shall be reasonably acceptable
to the Indemnitee), may elect to defend any Third-Party Claim. If an
Indemnifying Party elects to defend a Third-Party Claim, then, within
ten Business Days after receiving notice of such Third-Party Claim (or
sooner, if the nature of such Third-Party Claim so requires), such
Indemnifying Party shall notify the Indemnitee of its intent to do so,
and such Indemnitee shall cooperate in the defense of such Third-Party
Claim. Such Indemnifying Party shall pay such Indemnitee's reasonable
out-of-pocket expenses incurred in connection with such cooperation.
Such Indemnifying Party shall keep the Indemnitee reasonably informed
as to the status of the defense of such Third-Party Claim. After notice
from an Indemnifying Party to an Indemnitee of its election to assume
the defense of a Third-Party Claim, such Indemnifying Party shall not
be liable to such Indemnitee under this Section 6 for any legal or
other expenses subsequently incurred by such Indemnitee in connection
with the defense thereof other than those expenses referred to in the
preceding sentence; provided, however, that such Indemnitee shall have
the right to employ one law firm as counsel, together with a separate
local law firm in each applicable jurisdiction ("Separate Counsel"), to
represent such Indemnitee in any action or group of related actions
(which firm or firms shall be reasonably acceptable to the Indemnifying
Party) if, in such Indemnitee's reasonable judgment at any time, either
a conflict of interest between such Indemnitee and such Indemnifying
Party exists in respect of such claim, or there may be defenses
available to such Indemnitee which are different from or in addition to
those available to such Indemnifying Party and the representation of
both parties by the same counsel would be inappropriate, and in that
event (i) the reasonable fees and expenses of such Separate Counsel
shall be paid by such Indemnifying Party (it being understood, however,
that the Indemnifying Party shall not be liable for the expenses of
more than one Separate Counsel (excluding local counsel) with respect
to any Third-Party Claim (even if against multiple Indemnitees)) and
(ii) each of such Indemnifying Party and such Indemnitee shall have the
right to conduct its own defense in respect of such claim. If an
Indemnifying Party elects not to defend against a Third-Party Claim, or
fails to notify an Indemnitee of its election as provided in this
Section 6 within the period of ten Business Days described above, the
Indemnitee may defend, compromise, and settle such Third-Party Claim
and shall be entitled to indemnification hereunder (to the extent
permitted hereunder); provided, however, that no such Indemnitee may
compromise or settle any such Third-Party Claim without the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, the
Indemnifying Party shall not, without the prior written consent of the
Indemnitee, (i) settle or compromise any Third-Party Claim or consent
to the entry of any judgment which does not include as an unconditional
term thereof the delivery by the claimant or plaintiff to the
Indemnitee of a written release from all liability in respect of such
Third-Party Claim or (ii) settle or
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<PAGE> 36
compromise any Third-Party Claim in any manner that would be reasonably
likely to have a material adverse effect on the Indemnitee.
(c) Joint Defense of Certain Claims. Notwithstanding the
provisions of Section 6.6(b), GM and Delphi shall jointly control the
defense of, and cooperate with each other with respect to defending,
any Third-Party Claim with respect to which each party is claiming that
it is entitled to indemnification under Section 6.1 or 6.2. If either
GM or Delphi fails to defend jointly any such Third-Party Claim, the
other party shall solely defend such Third-Party Claim and the party
failing to defend jointly shall use all commercially reasonable efforts
to cooperate with the other party in its defense of such Third-Party
Claim; provided, however, that neither party may compromise or settle
any such Third-Party Claim without the prior written consent of the
other party, which consent shall not be unreasonably withheld or
delayed. All costs and expenses of either party in connection with, and
during the course of, the joint control of the defense of any such
Third-Party Claim shall be initially paid by the party that incurs such
costs and expenses. Such costs and expenses shall be reallocated and
reimbursed in accordance with the respective indemnification
obligations of the parties at the conclusion of the defense of such
Third-Party Claim.
6.7 PROCEDURE FOR INDEMNIFICATION NOT INVOLVING THIRD-PARTY
CLAIMS. If any Indemnitee desires to assert against an Indemnifying Party any
claim for indemnification under this Section 6 other than a Third-Party Claim (a
"Claim"), the Indemnitee shall deliver to the Indemnifying Party notice of its
demand for satisfaction of such Claim (a "Request"), specifying in reasonable
detail the amount of such Claim and the basis for asserting such Claim. Within
30 days after the Indemnifying Party has been given a Request, the Indemnifying
Party shall either (i) satisfy the Claim requested to be satisfied in such
Request by delivering to the Indemnitee payment by wire transfer or a certified
or bank cashier's check payable to the Indemnified Party in immediately
available funds in an amount equal to the amount of such Claim, or (ii) notify
the Indemnitee that the Indemnifying Party contests such Claim by delivering to
the Indemnitee a Dispute Notice, stating that the Indemnifying Party objects to
such Claim and specifying in reasonable detail the basis for contesting such
Claim. Any dispute described in clause (ii) of this Section 6.7 shall be subject
to the provisions of Section 7.1.
6.8 EXCLUSIVE REMEDIES. Except for the right to pursue equitable
remedies, the remedies provided in this Section 6 shall be deemed the sole and
exclusive remedies of the parties with respect to the subject matters of the
indemnification provisions of this Section 6.
7. MISCELLANEOUS.
7.1 DISPUTE RESOLUTION. GM and Delphi shall attempt in good faith
to resolve any dispute between the parties arising out of or relating to this
Agreement promptly through negotiations of the parties prior to seeking any
other legal or equitable remedy.
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7.2 SURVIVAL. The representations and warranties contained in this
Agreement shall survive the execution and delivery hereof and all Distribution
Dates until the expiration of all applicable statutes of limitations.
7.3 COMPLETE AGREEMENT. Except as otherwise set forth in this
Agreement, this Agreement and the exhibits hereto shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all prior agreements and understandings, whether written or
oral, between the parties with respect to such subject matter.
7.4 AUTHORITY. Each of the parties hereto represents to the other that
(a) it has the corporate power and authority to execute, deliver and perform
each of this Agreement and the Registration Rights Agreement, (b) the execution,
delivery and performance of each of this Agreement and the Registration Rights
Agreement by it has been duly authorized by all necessary corporate action, (c)
it has duly and validly executed and delivered each of this Agreement and the
Registration Rights Agreement, and (d) each of this Agreement and the
Registration Rights Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (other than the laws regarding
conflicts of laws) as to all matters, including matters of validity,
construction, effect, performance and remedies.
7.6 CONSENT TO EXCLUSIVE JURISDICTION. Any action, suit or proceeding
arising out of any claim that the parties cannot settle through good faith
negotiations (except any claim to which Section 4.6 applies) shall be litigated
exclusively in the state courts of Delaware. Each of the parties hereto hereby
irrevocably and unconditionally (a) submits to the jurisdiction of the state
courts of Delaware for any such action, suit or proceeding, (b) agrees not to
commence any such action, suit or proceeding except in the state courts of
Delaware, (c) waives, and agrees not to plead or to make, any objection to the
venue of any such action, suit or proceeding in the state courts of Delaware,
(d) waives, and agrees not to plead or to make, any claim that any such action,
suit or proceeding brought in the state courts of Delaware has been brought in
an improper or otherwise inconvenient forum, (e) waives, and agrees not to plead
or to make, any claim that the state courts of Delaware lack personal
jurisdiction over it, and (f) waives its right to remove any such action, suit
or proceeding to the federal courts except when such courts are vested with sole
and exclusive jurisdiction by statute. GM and Delphi shall cooperate with each
other in connection with any such action, suit or proceeding to obtain reliable
assurances that confidential treatment will be accorded any information that
either party shall reasonably deem to be confidential or proprietary. Each of
the parties hereto irrevocably designates and appoints its respective Service
Agent as its agent to receive service of process in any such action, suit or
proceeding. Each of the parties hereto further covenants and agrees that, until
the expiration of all applicable statutes of limitations relating to potential
claims under this Agreement, each such party shall maintain a duly appointed
agent for the service of summonses and other legal process in the State of
Delaware, and shall promptly notify
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the other party hereto of any change in the name or address of its Service Agent
and the name and address of any replacement for its Service Agent, if such agent
is no longer the Service Agent named herein. This Section 7.6 is meant to comply
with 6 Del. C. Section 2708. Notwithstanding anything contained in this Section
7.6, all claims for indemnification under Section 6 shall be governed by the
provisions thereof.
7.7 NOTICES. All Notices shall be in writing and shall be deemed given
upon (a) a transmitter's confirmation of a receipt of a facsimile transmission
(but only if followed by confirmed delivery of a standard overnight courier the
following Business Day or if delivered by hand the following Business Day), or
(b) confirmed delivery of a standard overnight courier or delivered by hand, to
the parties at the following addresses:
if to GM to:
General Motors Corporation
767 Fifth Avenue
New York, NY 10153
Attention: Treasurer
Telecopy No.: (212) 418-3630
with a copy to:
General Motors Corporation
3031 West Grand Boulevard
Detroit, MI 48202
Attention: Warren G. Andersen, Esq.
Telecopy No.: (313) 974-0685
with a copy to:
General Motors Corporation
100 Renaissance Center
Detroit, MI 48243
Attention: Chief Financial Officer
Telecopy No.: (313) 667-3122
and, if delivered pursuant to Section 4, with a copy to:
General Motors Corporation
3044 West Grand Boulevard
Detroit, MI 48202
Attention: Chief Tax Officer
Telecopy No.: (313) 556-1552
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if to Delphi, to:
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, MI 48098
Attention: General Counsel
Telecopy No.: (248) 813-2523
with a copy to:
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, MI 48098
Attention: Chief Financial Officer
Telecopy No.: (248) 813-2590
and, if delivered pursuant to Section 4, with a copy to:
Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, MI 48098
Attention: Chief Tax Officer
Telecopy No.: (248) 813-2590
or to such other address as either party hereto may have furnished to the other
party by a Notice in writing in accordance with this Section 7.7.
7.8 AMENDMENT AND MODIFICATION. This Agreement may not be amended or
modified in any respect except by a written agreement signed by both of the
parties hereto.
7.9 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon the parties hereto and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Except with respect to a merger of either party with another Person,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed.
7.10 THIRD PARTY BENEFICIARIES. The Indemnitees and their respective
successors shall be third party beneficiaries of the indemnification provisions
of Sections 4 and 6, as applicable, and shall be entitled to enforce those
provisions and in connection with such enforcement shall be subject to Section
7.6, in each such case as fully and to the same extent as if they were parties
to this Agreement. Except as provided in the previous sentence, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
any legal or equitable right, benefit or remedy
- 36 -
<PAGE> 40
of any nature whatsoever under or by reason of this Agreement, and no Person
(other than as provided in the previous sentence) shall be deemed a third party
beneficiary under or by reason of this Agreement.
7.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The Agreement may be
executed by facsimile signature.
7.12 WAIVER. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if it is in writing signed by the party against which such
waiver is to be asserted. Unless otherwise expressly provided in this Agreement,
no delay or omission on the part of any party in exercising any right or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right or privilege under this Agreement
operate as a waiver of any other right or privilege under this Agreement nor
shall any single or partial exercise of any right or privilege preclude any
other or further exercise thereof or the exercise of any other right or
privilege under this Agreement. No failure by either party to take any action or
assert any right or privilege hereunder shall be deemed to be a waiver of such
right or privilege in the event of the continuation or repetition of the
circumstances giving rise to such right unless expressly waived in writing by
the party against whom the existence of such waiver is asserted.
7.13 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. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.14 REMEDIES. Each of GM and Delphi shall be entitled to enforce its
rights under this Agreement specifically, to recover damages and costs
(including reasonable attorneys' fees) caused by any breach of any provision of
this Agreement and to exercise all other rights existing in its favor. Each of
GM and Delphi acknowledges and agrees that under certain circumstances the
breach by GM or any of its Affiliates or Delphi or any of its Affiliates of a
term or provision of this Agreement will materially and irreparably harm the
other party, that money damages will accordingly not be an adequate remedy for
such breach and that the non-defaulting party, in its sole discretion and in
addition to its rights under this Agreement and any other remedies it may have
at law or in equity, may apply to any court of law or equity of competent
jurisdiction (without posting any bond or deposit) for specific performance
and/or other injunctive relief in order to enforce or prevent any breach of the
provisions of this Agreement.
7.15 PERFORMANCE. Each of the parties hereto shall use all commercially
reasonable efforts to cause to be performed all actions, agreements and
obligations set forth herein to be performed by any Affiliate of such party.
- 37 -
<PAGE> 41
7.16 REFERENCES; CONSTRUCTION. The table of contents and the section
and other headings and subheadings contained in this Agreement and the exhibits
hereto are solely for the purpose of reference, are not part of the agreement of
the parties hereto, and shall not in any way affect the meaning or
interpretation of this Agreement or any exhibit hereto. All references to days
or months shall be deemed references to calendar days or months. All references
to "$" shall be deemed references to United States dollars. Unless the context
otherwise requires, any reference to a "Section" or an "Exhibit" shall be deemed
to refer to a section of this Agreement or an exhibit to this Agreement, as
applicable. The words "hereof," "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, unless otherwise
specifically provided, they shall be deemed to be followed by the words "without
limitation." This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing the document to be drafted.
* * * * * *
- 38 -
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first written above.
GENERAL MOTORS CORPORATION
By: ___________________________________________
Name:
Its:
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
By: ___________________________________________
Name:
Its:
<PAGE> 43
EXHIBIT A
AGREEMENTS SUBJECT TO SECTION 5.2(C)
1. GM is a party to various agreements containing the covenants described
on the pages attached hereto as Schedule A-1. Such covenants shall be
subject to Section 5.2(c) of the IPO and Distribution Agreement.
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT
FIRST AMENDMENT, dated as of January 27, 1999 (this "Amendment"),
to the $3,500,000,000 Competitive Advance and Revolving Credit Facility, dated
as of January 4, 1999 (the "Credit Agreement"), among DELPHI AUTOMOTIVE SYSTEMS
CORPORATION, a Delaware corporation (the "Borrower"), the several banks and
other financial institutions from time to time parties thereto (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
(in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed
to make certain loans and other extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested, and, upon this Amendment
becoming effective, the Lenders have agreed, that certain provisions of the
Credit Agreement be amended in the manner provided for in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement and used
herein shall, unless otherwise indicated, have the meanings given to them in the
Credit Agreement. Terms defined and used in this Amendment shall have the
meanings given to them in this Amendment.
2. Amendment to Subsection 2.5(b). Subsection 2.5(b) of the Credit
Agreement is hereby amended by adding after the word "Subsidiary" and prior to
the period in the eleventh line thereof the following: "; provided, that,
notwithstanding the foregoing, the aggregate amount of Commitment reductions
under this subsection 2.5(b) shall not exceed $2,000,000,000".
3. Conditions to Effectiveness. The amendments provided for herein
shall become effective upon the receipt by the Administrative Agent of
counterparts of this Amendment duly executed and delivered by the Borrower and
the Majority Lenders.
4. Representations and Warranties. The Borrower as of the date
hereof and after giving effect to the amendments contained herein, hereby
confirms, reaffirms and restates that each of the representations and warranties
made by it in or pursuant to Section 3 of the Credit Agreement is true and
correct in all material respects on and as of the date hereof as if made on and
as of the date hereof, except to the extent any such representation and warranty
<PAGE> 2
specifically relates to an earlier date, in which case such representation and
warranty shall have been true and correct as of such earlier date; provided,
that each reference to the Credit Agreement therein shall be deemed to be a
reference to the Credit Agreement after giving effect to this Amendment.
5. Payment of Expenses. The Borrower agrees to pay or reimburse
the Administrative Agent for all of its out-of-pocket costs and expenses
incurred in connection with the Amendment, any other documents prepared in
connection herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
6. Reference to and Effect on the Credit Agreement; Limited
Effect. On and after the date hereof and the satisfaction of the conditions
contained in paragraph 3 of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to the Credit
Agreement as amended hereby. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender under the Credit Agreement, nor
constitute a waiver of any provisions of the Credit Agreement. Except as
expressly amended herein, all of the provisions and covenants of the Credit
Agreement are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
7. Counterparts. This Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
8. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
By:
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By:
-----------------------------------
Name:
Title:
<PAGE> 4
BANK OF AMERICA NT & SA, as Syndication
Agent and Lender
By:
-----------------------------------
Name:
Title:
CITIBANK, N.A., as Syndication Agent and Lender
By:
-----------------------------------
Name:
Title:
DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH, as Syndication
Agent and Lender
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
BARCLAYS BANK PLC, as Syndication Agent
and Lender
By:
-----------------------------------
Name:
Title:
<PAGE> 5
BANQUE NATIONALE DE PARIS, as
Syndication Agent and Lender
By:
-----------------------------------
Name:
Title:
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED
By:
-----------------------------------
Name:
Title:
BANCA COMMERCIALE ITALIANA - NEW
YORK BRANCH
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
BANCA DI ROMA
By:
-----------------------------------
Name:
Title:
<PAGE> 6
BANKBOSTON, N.A.
By:
-----------------------------------
Name:
Title:
BANK OF MONTREAL
By:
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
-----------------------------------
Name:
Title:
BANK OF TOKYO - MITSUIBISHI TRUST
COMPANY
By:
-----------------------------------
Name:
Title:
<PAGE> 7
BAYERISCHE LANDESBANK
GIROZENTRALE
CAYMAN ISLANDS BRANCH
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
CIBC INC.
By:
-----------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
(NEW YORK BRANCH)
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE> 8
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
(PARIS HEAD OFFICE)
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
COMERICA BANK
By:
-----------------------------------
Name:
Title:
COMMERZBANK AKTIENGESELLSCHAFT,
CHICAGO BRANCH
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE> 9
CREDIT AGRICOLE INDOSUEZ
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
CREDIT LYONNAIS, CHICAGO BRANCH
By:
-----------------------------------
Name:
Title:
DAI ICHI KANGYO BANK LTD.
By:
-----------------------------------
Name:
Title:
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK AG,
CAYMAN ISLAND BRANCH
By:
-----------------------------------
Name:
Title:
<PAGE> 10
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:
-----------------------------------
Name:
Title:
GENERALE BANK
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE> 11
BAYERISCHE HYPO- UND VEREINSBANK AG
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
KBC BANK N.B.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By:
-----------------------------------
Name:
Title:
MARINE MIDLAND BANK
By:
-----------------------------------
Name:
Title:
<PAGE> 12
MIDLAND BANK PLC
By:
-----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By:
-----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By:
-----------------------------------
Name:
Title:
THE NORTHERN TRUST COMPANY
By:
-----------------------------------
Name:
Title:
THE SANWA BANK, LTD
NEW YORK BRANCH
By:
-----------------------------------
Name:
Title:
<PAGE> 13
SOCIETE GENERALE
By:
-----------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
-----------------------------------
Name:
Title:
WESTPAC BANKING CORPORATION
By:
-----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 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 27, 1999
