Delphi agrees to $361 million financial restatement lawsuit settlement

By Caroline Salls

Pittsburgh, Sept. 5 - Delphi Corp. has reached a $361 million settlement of a multidistrict lawsuit filed in connection with a restatement of the company's financial statements, according to an 8-K filed with the Securities and Exchange Commission.

According to the 8-K, Delphi, subsidiaries Delphi Trust I and Delphi Trust II and some current and former officers, directors and employees were named as defendants in several lawsuits that were filed beginning in March 2005 after the company said it would restate some of its financial statements.

The suits included class action lawsuits brought by buyers of publicly traded Delphi securities from March 7, 2000 through March 3, 2005; class action lawsuits brought on behalf of defined contribution employee benefit pension plan participants that invested in Delphi common stock; and shareholder derivative actions against some current and former Delphi directors and officers.

On Dec. 12, 2005, the class action lawsuits were consolidated into multidistrict litigation to be heard in the U.S. District Court for the Eastern District of Michigan.

However, on July 11, the court appointed a mediator for settlement negotiations, which resulted in the $361 million multidistrict lawsuit settlement.

Under the terms of the settlement, the securities plaintiffs will be granted a $204 million general unsecured claim against Delphi.

If an individual plaintiff opts out of the securities plaintiffs' settlement and ultimately receives a claim against Delphi, the amount received by the opt-out plaintiff will be deducted from the settlement amount.

However, Delphi said it will object to any claims filed by opt-out plaintiffs and will ask the court to expunge the opt-out claims.

The securities plaintiffs will also receive a distribution of up to $89 million in insurance proceeds, including a portion of the remaining proceeds not used by former officers and directors who were named as defendants and a $1.5 million distribution from some underwriters named in the securities suit.

In addition, Delphi's insurance carriers have agreed to contribute $20 million to fund any legal expenses incurred by the former officers and directors in defense of any future civil actions arising from the allegations raised in the securities lawsuit.

The pension plan plaintiffs will receive a $24.5 million general unsecured claim, but they will not have the option to opt out of their settlement.

The pension plan plaintiffs will also receive a $22.5 million insurance proceeds distribution.

Delphi said settlement amounts from insurers and underwriters will be paid in cash by Sept. 19.

The district court approved the preliminary certification of the class and scheduled a fairness hearing on the settlement for Nov. 13, and Delphi said the U.S. Bankruptcy Court for the Southern District of New York is expected to schedule a hearing on the settlement for late September.

As a result of the settlement, Delphi said it expects to recognize a $126 million gain from recognition of insurance proceeds and other contributions.

Meanwhile, Delphi said it expects to record a $206 million net expense in 2007 in connection with the settlement.

The company said it has separately agreed to reimburse $15 million in third-party expenses in exchange for related releases.

Shareholder demand denied

Delphi said it also received a demand from a shareholder that the company consider bringing a derivative action against some of the current and former directors and officers, alleging that the officers and directors made false and misleading statements in violation of federal securities laws and/or of their fiduciary duties.

The company said it appointed a special committee of the board of directors to evaluate the shareholder demand, and, although the special committee has decided not to grant the shareholders' request, it may assert the claims as affirmative defenses and set-offs against any action to collect on a proof of claim.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 05-44481.

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