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EXHIBIT 10.3
[DELPHI AUTOMOTIVE SYSTEMS LOGO]
Date: June 12, 1998
To: X.X. Xxxxxxx, X.X. Xxxxxxxxxx III
From: Xxxx Xxxxxxx, Xxxxxx XxXxxx
Subject: Final Settlement of Delphi/SPO Business Relationship Agreement
c: X. Xxxxxxxx, X. Xxxxxxxxxxx
The final meeting relative to the Delphi/SPO Business Relationship was held
today. As you may be aware, an agreement was reached with SPO in December 1997
which dissolved the Delphi/SPO Partnership and set up this new "more arm's
length" relationship. Since December, Delphi and SPO have been working
together to clarify the agreement to ensure consistent understanding and
administration of the agreement. The attached document is the amended
agreement. Our signatures represent our agreement to this revised document.
/s/ Xxxx Xxxxxxx /s/ X. X. XxXxxx
--------------------------- ------------------------
X. X. Xxxxxxx X. X. XxXxxx
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DELPHI/SPO BUSINESS RELATIONSHIP AGREEMENT
EFFECTIVE JANUARY 1, 1998
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OVERALL COMPONENTS OF AGREEMENT
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* Royalty Fees - Royalty fees will be paid on all Delphi supplied ACDelco
branded product sold to SPO USA. These royalty fees will apply to sales
through all SPO channels of distribution.
- Royalty fees will be calculated as a percentage of Delphi's selling
price to SPO excluding core charges, setup, and tooling, and will be
included in the per unit selling price to SPO. SPO will identify channel
of distribution at time of RFQ (Request for Quote), or as soon as it is
available, to ensure proper pricing from Delphi.
- The percentage is Division/Product specific as defined in the attached
detail
- Refer to Appendix A for a definitive discussion of royalty fees.
* Transition Fees - Transition fees are Division/Product specific amounts
which will be paid in four equal quarterly installments on March 30, June
30, September 30, and December 31 of each year of the agreement or as
mutually agreed.
* Exception: Delphi-I to be paid $500,000 total, one-time on January 30, 1998
- Transition fee calculation will exclude any adjustment for new part
numbers, except when a new part number replaces existing part numbers or
supercessions. Delphi will assist SPO in identification of these
replacements and supercessions.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* Incentive Fees - Incentive fees apply to Delphi-Chassis only and will be
paid in four equal quarterly installments on March 30, June 30, September
30, and December 31 of each year of the agreement.
* Engineering Development Fees - These engineering fees are amounts which are
intended to 100% compensate Delphi for new non-Delphi produced product or
new source development where SPO has exclusivity. These costs are incurred
at the request of the Product Team. The work definition will be agreed upon
in the joint Product Team. Delphi will determine if work will be done
in-house or be outsourced. Advanced forecasts of these projects in time for
budget allocation of resources will facilitate timely execution of the work.
The amount to be reimbursed is jointly agreed upon prior to initiation of
engineering work. To facilitate this process, Xxxxxx is responsible for
providing cost estimates to SPO. SPO will then provide the final authorizing
documentation to Delphi in the form of an actual purchase order to Delphi
for Engineering Services.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT (CONT'D)
- If the amount charged by Delphi for engineering services is considered
to be unacceptable by SPO, an appeal can be made to the Price Review
Committee.
- Refer to Appendix B for detail of engineering functions and the
responsible party for the release of Delphi/SPO related ACDelco products
(excluding GM O.E. Service Parts).
* Engineering Maintenance Fees - Engineering Maintenance fees are similar to
"Royalties" in that Delphi is compensated as a percentage to SPO total
purchases; however, these fees apply to non-Delphi sourced product when
Delphi provides engineering validation and ongoing technical support and
where SPO holds the contract with another supplier. These fees are equal to
2% of the supplier's price to SPO.
- It is the responsibility of the joint product teams to identify those
part numbers that are eligible for engineering maintenance fees.
* Exception: Dura Stop - Engineering Maintenance fee equal to 3% of
SPO's purchase price
* Option: Delphi Divisions may opt for a 1% Engineering Maintenance
fee plus an Engineering "Retainer" fee at an agreed upon amount.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* "Retainer" fees are to be agreed and authorized in a similar manner
to the Engineering Development fees.
* Bulk Sales will be exclusively administered by SPO for a 3% Administration
fee for all Divisions and products other than Delphi Packard.
* Refer to Appendix E for Bulk Sales parameters.
* Under no circumstances would a specific part number earn both Royalties and
Engineering Maintenance Fees.
* Delphi is the Tier-1 supplier to SPO and is responsible for any/all make/buy
decisions on Delphi produced product.
- Tier-1 supplier status means Delphi has engineering expertise.
- Delphi is responsible for engineering and development of all new parts
in product categories for which Delphi has engineering expertise. Delphi
will be compensated via royalties or engineering fees as previously
defined. Delphi may, at their discretion, contract engineering for all
or part of these projects.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* The process for determining market based transfer prices of ACDelco branded
product (See Appendix C) includes the utilization of a mutually agreeable
Third Party to validate Delphi's selling prices to SPO when Delphi and SPO
cannot agree on pricing
* Delphi is free to match these prices or exit the business
(Note: This process does not cover sale of the business)
- If Delphi chooses to exit the business
- SPO and Delphi would jointly develop the part numbers to be
included in the bid package
- Delphi will honor GM O.E.M. commitments, however, this does not
preclude Delphi from renegotiating with XXX or exiting the
business.
- Delphi will supply bridge runs for a maximum of six months. This
does not preclude SPO from requesting more than a six month
supply where Delphi is capable of producing additional volume
within a six month time frame. This additional production
request will be evaluated by Delphi in conjunction with exit
plans. Delphi will not be held past due for any part for which
the bridge run is complete.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
- Bridge run parts will be supplied at the higher of the current
Delphi price or the new supplier price.
- SPO is source responsible
- The Exit Responsibilities for Delphi and SPO, as noted above, are
summarized in Appendix D.
- Once Delphi ceases to provide ongoing engineering support, a
maintenance fee will no longer be paid on the related product
previously released but not produced by Delphi.
- SPO will accept price increases as validated by Third Party
evaluation
- A Price Review Committee with two members from SPO and two members from
Delphi will be named to mediate any instances where the Delphi Division
and SPO cannot agree on pricing.
- Agreement on Third Party cannot be unreasonably delayed
- Prices will be modified at completion of the study (effective date) and
will not be retroactive to January 1, 1998.
* Separate studies may be conducted by division and by product line.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
* New Private Label business, supported by a joint business case, will be
aggressively pursued by both partners. Neither partner should be unfavorably
impacted. Refer to Appendix F for Private Label parameters.
* Unless otherwise agreed, e.g. Saginaw Reman lines
* SPO will commit sufficient resources to grow Aftermarket sales of Delphi
produced product
- Delphi is free to re-negotiate the agreement if adequate sales growth
is not achieved.
- SPO is free to obtain product (volume) which Delphi is unable to
produce (i.e. cannot meet SPO production schedule).
* Delphi must validate potential suppliers and will receive
engineering fees accordingly.
* U.S. Agreement only
* This agreement is in effect indefinitely and can be terminated by either
party with 12 months notice; however, the agreement cannot be terminated
prior to December 31, 2000.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
- If plants/facilities/product lines are sold, that portion of the
agreement is considered terminated with respect to all Royalty fees,
Transition fees, Incentive fees, and exclusivity related to Bulk and
Private label sales.
- Packaging conversion (i.e. new ACDelco graphics) already agreed to but
not yet fully implemented will be carried out by Delphi; significant
expense items such as old packaging scrap will be paid by SPO. Delphi
will submit detailed quotes to SPO for completion of packaging
conversion. SPO will issue a Purchase Order to Delphi prior to
initiation of this work.
- Where applicable, Delphi will continue to maintain packaging
dimensions/specifications for Delphi supplied products.
* Additional conditions:
- Both Delphi and SPO will make a good faith effort to initiate Third
Party validation of transfer prices for ACDelco branded product at the
earliest possible date, with the objective of completion by the end of
calendar year 1998.
- For all Delphi Divisions, with the exception of Delphi-E, existing
pricing will carry over (with the addition of Royalty Fees) until such
time as the joint internal or Third Party validation has been
completed.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
Additional Conditions (con't)
* Prices will be modified at completion of the study and will not be
retroactive to January 1, 1998.
* Each Delphi Division, in conjunction with SPO, will prioritize the
product lines. If sufficient progress is not being made, matter
should be referred to Price Review Committee
* Warranty policy is for new defect only unless warranty rate is
significantly above current levels (i.e. 1997 experience)
- Delphi reserves the right to audit.
- SPO will work aggressively with Delphi to reduce warranty expense on all
private label business. Warranty levels will be reviewed by the joint
Product Teams quarterly to ensure these costs are within Business Case
assumptions.
- SPO and Xxxxxx will work together to initiate actions to reduce warranty
costs which exceed those assumptions and/or unreasonable warranty
expense.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
Additional conditions: (con't)
- SPO will provide annual and quarterly sales forecasts for Delphi
produced ACDelco branded product based on the following schedule:
- Annual Sales forecast - December 23, 1997 for 1998 Calendar year;
September 1, 1998 for 1999 Calendar year; and September 1, 1999 for 2000
Calendar year.
- Quarterly analysis of performance to forecast and updated forecast to be
provided as follows:
- Quarter 1 - December 15 of each year for Quarter 1 of next year
- Quarter 2 - April 15 of each year for Quarter 2
- Quarter 3 - July 15 of each year for Quarter 3
- Quarter 4 - October 15 of each year for Quarter 4
* The quarterly reviews noted above will be conducted with the
appropriate Delphi Divisional Aftermarket Business Team and/or with
the Delphi General Sales Manager. The exact dates may vary according
to the respective Business Team/Sales meeting schedules.
* The format and frequency of the sales forecasts currently provided
to the respective Delphi Divisions are detailed in Appendix G.
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DELPHI/SPO BUSINESS RELATIONSHIP
OVERALL COMPONENTS OF AGREEMENT
Additional conditions: (con't)
- Each Delphi plant will be responsible for coordinating with
their respective SPO Supplier Management representative any
desired changes relative to forecast frequency and the level of
detail required in the forecast (i.e., plant level,
manufacturing process level, product type level, or part
number.) Specific high level groupings will require Delphi to
advise SPO which parts belong to which groups. Upon receipt of
this information, SPO will update their system so future
forecasts and performance checks will have parts categorized
correctly. As new parts are released, Delphi will be responsible
for advising SPO of the appropriate grouping.
- These forecasts do not represent a commitment to purchase. They
are meant for planning purposes only.
* According to common practice, SPO Supplier Management will continue
to issue material schedules in response to the lead times provided
by each of the Delphi plants. These are issued weekly and cover
periods ranging from 3 to 16 weeks.
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DIVISION SPECIFIC
COMPONENTS OF AGREEMENT
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Packard
- Royalty - 2% on all ACDelco product
- Transition fee - $0
- All other conditions as set forth in the Overall Agreement
- Additional conditions:
* Delphi-Packard is free to continue to sell bulk components to
Pioneer and Xxxx.
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Interior
- Royalty - 2% on all ACDelco product (current product portfolio only)
- Transition Fee - $500,000 Lump Sum payable one-time only on January 30,
1998
- All other conditions as set forth in Overall Agreement
- Additional conditions:
* If plants/facilities or product lines are sold, this agreement is
terminated with respect to all Royalty and Transition fees.
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Saginaw
- Royalty - 2% on all ACDelco product
1.5% on non-exclusive Reman products
- Transition Fee - $0
- All other conditions as set forth in Overall Agreement
- Additional Conditions:
* Delphi-Saginaw is free to develop Private Label customer base for
Remanufactured Rack & Pinion, Remanufactured Half Shafts, and
Remanufactured Power Steering Pumps.
* Delphi-Saginaw will not sell to the existing ACDelco customer base
- SPO will approve Delphi-Saginaw customer list for nationally
branded manufacturers and marketers of like product
* Delphi-Saginaw is free to sell direct to low volume O.E. customers
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Xxxxxxxx
- Royalty - 3% on Compressors when Delphi-Xxxxxxxx implements
ACDelco brand on product for GM O.E. and Aftermarket
2% on all other Delphi-Xxxxxxxx produced ACDelco product
- Transition Fee - $0
- All other conditions as set forth in Overall Agreement
- Additional conditions:
* SPO will assign a dedicated resource to grow sales of
Xxxxxx-Xxxxxxxx produced product
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi-Chassis
- Royalty - 2% on all Delphi-Chassis produced ACDelco product
- Transition Fee: $0
- Engineering Maintenance Fees - 3% on all purchases of Dura Stop Branded
Product; 2% on Delphi-Chassis like product purchased from outside
suppliers (Specific products to be defined)
- Incentive Fees (Amount payable each year of the agreement):
* $8.1 Million on Delphi-Chassis produced ACDelco product
* $1.4 Million on Dura Stop Product
- All other conditions as set forth in Overall Agreement
- Additional conditions
* Transfer price increases would result in reduction of Incentive Fee
amount
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Royalty - 3.0% on ACDelco Branded Batteries
2.0% on all other ACDelco product
- Transition Fee - A calculation of net price adjustments based on the
difference between 1997 calendar year end pricing and revised pricing
including royalty, at actual monthly volume levels, will be utilized for
calculation of the transition fee, if any. When net price adjustments
exceed $53 million per year, (amount may be lower based on final
calendar year 1997 Partnership financials) transition fees will be paid
for the first two years of the agreement (1998 & 1999). (See attached
forecast of 1997 Delphi/SPO Partnership Adjustment). This transition fee
calculation will include all Delphi Energy & Engine Products including
Private Label Batteries.
- All other conditions as set forth in Overall Agreement
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
ESTIMATED 1997 PARTNERSHIP ADJUSTMENT
$MILS
-----
Delphi-Engine ($39)
Delphi-Energy ($14)
Delphi-Xxxxxxxx ($ 6)
Delphi-Chassis $11
Delphi-Saginaw ($ 1)
Delphi-Packard ($ 1)
Delphi-Interior ($ 0)
-----
Total Partnership Adj. ($50)
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Additional conditions:
* If plants/facilities or product lines are sold, this agreement is
terminated with respect to royalty and transition fees. Exclusivity
related to Bulk and Private Label sales will also be terminated.
* Delphi-E will reduce prices effective January 1, 1998 based on the
attached detail.
* Delphi will provide BDC (Battery Distribution Center) services based
on the existing customer service levels. Any changes from the
existing customer service levels will result in an adjusted price up
or down as appropriate. (Customer Service Menus as of December 19,
1997)
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Additional conditions (con't):
* Any changes to the existing Junk Battery programs, policies,
pricing, and return rates will be jointly developed and agreed to
with the intent of maximizing returns.
* For ACDelco branded batteries, Delphi and SPO will implement a Lead
Adjustment policy in conjunction with industry practice. A third
party review of current industry practices will be completed and
appropriate policy will be implemented on or before April 1, 1998.
* "Meet Comp" customer allowances will be SPO's responsibility.
* ACDelco recognizes the need to improve the Core Management
Process at both SPO and Delphi-E. SPO will work with Delphi-E to
find a mutually satisfactory solution.
* Target completion April 1, 1998
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Additional conditions (con't):
* Warranty policy is new defect only. Delphi-E reserves the right to
audit.
* Any changes in labeling, cartons, graphics, etc. will be negotiated
with SPO.
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DELPHI/SPO BUSINESS RELATIONSHIP
DIVISION SPECIFIC COMPONENTS OF AGREEMENT
* Delphi Energy & Engine
- Schedule of Price Adjustments effective January 1, 1998*
* Spark Plugs
- Rapid Fire No change
- Conventional (16.7%)
- Platinum 3.6%
- Non-automotive (23.5%)
* Panel Air Filters (38.3%)
* X.X. Oil Filters (25.4%) (e.g. PF47 @ $1.17)
* Electric Fuel Pumps ( 3.5%)
* Batteries ($1.60) per unit (Weighted
Average excluding Sears)
* Reman Generators ( 5.0%)
* Price adjustments to be implemented on a percentage basis across the
applicable product lines, except batteries, where individual prices will be
adjusted but in total will average $1.60 based on 1997 Volumes. All other
Delphi-E product lines will be carryover pricing on January 1, 1998. Prices
will be modified based on timeline set forth in "Administration of
Agreement" section.
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ADMINISTRATION OF AGREEMENT
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DELPHI/SPO BUSINESS RELATIONSHIP
ADMINISTRATION OF AGREEMENT
* Proposed implementation time table for modification of pricing to reflect
market based reductions (Delphi-E only) and inclusion of royalty
* January 30, 1998 - Completion of ACDelco part number identification. SPO will
provide Delphi with complete list of ACDelco part numbers and prices.
* February 28, 1998 - Delphi will complete validation of ACDelco part number
list and selling prices.
* All disputed pricing will be resolved
- March 30, 1998 - Purchasing will input all selling prices, including
Royalty, retroactive to January 1, 1998.
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DELPHI ENGINE & ENERGY MARKET-BASED TRANSFER PRICING AND
TRANSITION FEE CALCULATION PROCESS
* The December 31, 1997 Price Tape is the Basis for calculating Transition Fees
for 1998 and 1999.
* A Quarterly Price Tape will be compared to the December 31, 1997 Price Tape.
* Estimated Market-Based prices will be implemented starting January 1, 1998.
- Transfer Prices will include Royalty Fees calculated off the estimated
market-based prices.
* The Per Unit Differential will be applied to SPO's Quarterly U.S. purchases
of ACDelco branded product to calculate the new market-based price
differential.
* The annual price adjustment for Delphi E & E is estimated to be $53m for 1998
and for 1999.
- The price adjustment will be finalized in the 1st quarter of 1998.
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DELPHI ENGINE & ENERGY MARKET-BASED TRANSFER PRICING AND
TRANSITION FEE CALCULATION PROCESS
* On a quarterly basis, the price adjustment will be established at 25% of the
$53m estimate, or 25% of the final 1997 price adjustment.
* The new market-based price differential less the quarterly price adjustment
will equal the Transition Fee due Delphi.
- Transfer Price increases to SPO are not excluded from this calculation.
* The Transition Fee calculation will be completed at the end of each quarter
from 1998 through 1999.
- Once a system for processing is in place, the transition fee calculation
will be completed monthly.
* The Transition Fee amount will be transferred to Delphi-A.
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SETTLEMENT OF 1997 PARTNERSHIP ADJUSTMENT
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DELPHI/SPO PARTNERSHIP
SETTLEMENT OF 1997 PARTNERSHIP ADJUSTMENT
* It is agreed that the 1997 Partnership Adjustment from Delphi will be no more
than $50.0 Million, and may be less, based on final calculation of 1997
Calendar Year Delphi/SPO Partnership Financials.
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DELPHI/SPO PARTNERSHIP
SETTLEMENT OF 1997 PARTNERSHIP ADJUSTMENT
MAXIMUM 1997 PARTNERSHIP ADJUSTMENT*
$MILS
-----
Delphi-Engine ($39)
Delphi-Energy ($14)
Delphi-Xxxxxxxx ($ 6)
Delphi-Chassis $11
Delphi-Saginaw ($ 1)
Delphi-Packard ($ 1)
Delphi-Interior ($ 0)
----
Total Partnership Adj. ($50)
* Adjustments may be less based on final 1997 Calendar Year Partnership
results.
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APPENDICES
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APPENDIX A
Page 1 of 3
DELPHI/SPO AGREEMENT
ROYALTY FEES
In recognition of the exclusive supply and selling agreement between Service
Parts Operations and Delphi Automotive Systems and its several divisions, SPO
agrees to pay Delphi certain royalty fees as compensation for exclusivity in the
domestic automotive aftermarket. This applies to both current and future Delphi
product.
ROYALTY ELIGIBLE PRODUCTS
Royalty fees will be paid on all agreed upon products, purchased by Service
Parts Operations - U.S. from Delphi. The agreed upon parts are defined as those
released into the SPO system as ACDelco exclusive and ACDelco common. Certain
ACDelco branded parts are introduced with GM dealer exclusive distribution.
Consistent with other dealer exclusive parts, for the length of time these items
are dealer exclusive, they will not earn automatic royalty fees. If such ACDelco
branded part numbers are identified to the SPO Finance Staff by Delphi, a manual
royalty calculation and payment will be made.
ROYALTY FEE SPECIFICS
Royalty fees will be calculated as a percentage of the agreed upon market based
transfer price. It is expected that Worldwide Purchasing will increase the
contract price SPO pays to Delphi by 1.5% to 3% based on the product line.
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APPENDIX A
Page 2 of 3
DELPHI/SPO AGREEMENT
ROYALTY FEES
The base level of royalty fees is 2%. Three exceptions to the 2% fee are as
follows:
1. ACDelco branded batteries will earn 3% in recognition of the value of
the ACDelco brand. If, at some point in time, ACDelco is no longer
specified on GM O.E. Batteries, the royalty would be reduced to 2%.
2. Air conditioning compressors can earn 3% when O.E. General Motors
compressors are clearly identified as ACDelco brand. ACDelco aftermarket
compressors must also be branded ACDelco to achieve this additional
royalty.
3. Per the request of Delphi Saginaw, certain Delphi Saginaw products will
earn 1.5% royalty fee and Delphi Saginaw will be able to market these
products outside our exclusive relationship. (Refer to exclusivity
exceptions detailed below.)
PRIVATE LABEL PRODUCTS
Due to the extremely competitive nature of private label business
agreements, royalty fees will not apply to these purchases.
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APPENDIX A
Page 3 of 3
DELPHI/SPO PARTNERSHIP
ROYALTY FEES
EXCLUSIVITY EXCEPTIONS
It is generally accepted that under certain circumstances, SPO or Purchasing may
request that Delphi supply parts or components to a SPO approved supplier (i.e.,
where Delphi would be the Tier II supplier). For example , SPO may request
Delphi to sell Oil Filters to an Engine Remanufacturer. In these cases, it is
approved that Delphi at their option sell the "competitor" the parts or
components direct. These instances will be discussed by Xxxxxx and SPO on a case
by case basis.
Whereas the foundation of this agreement is the exclusive distribution
relationship between Delphi and SPO, the following exception exists for Delphi
Saginaw:
Delphi Saginaw will be able to sell private label remanufactured rack and
pinion, remanufactured half shafts, remanufactured power steering pumps and
potentially other remanufactured product lines as mutually agreed. Delphi
Saginaw will develop a list of nationally branded manufacturers and marketers
and SPO (ACDelco sales management and the General Product Manager) will approve
those on the list or respond with exceptions to Delphi Saginaw. This list will
be agreed upon prior to developing a sales supply arrangement for these private
label products. Additionally, prices to the private label customers will not
disadvantage SPO's ACDelco competitive position.
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APPENDIX B
Page 1 of 1
DELPHI/SPO AGREEMENT
ENGINEERING RESPONSIBILITY FOR RELATED ACDELCO
PRODUCTS WHERE DELPHI RECEIVES
A ROYALTY OR ENGINEERING MAINTENANCE FEE
(EXCLUDING GM O.E. SERVICE PARTS)
------------------------------------------------------------------------------------------------------------------
SPO SPO
SPO DELPHI SPO SPECS/ SUPPLIER
FUNCTION/TASK MKTG ENG. ENG. CATALOG MGMT
------------------------------------------------------------------------------------------------------------------
Identify new product opportunities R C
------------------------------------------------------------------------------------------------------------------
Identify lack of product coverage R C
------------------------------------------------------------------------------------------------------------------
Initiate NPR (new part release) R I
------------------------------------------------------------------------------------------------------------------
Identify and communicate catalog corrections R I
------------------------------------------------------------------------------------------------------------------
Investigate and communicate catalog
technical corrections to Specifications I R I
------------------------------------------------------------------------------------------------------------------
Investigate NPR for need for new part
number or added application I R
------------------------------------------------------------------------------------------------------------------
Communicate release of added/revised usage
for existing part via Engineering document I R I
------------------------------------------------------------------------------------------------------------------
Communicate release of new part
number with usage via Engineering document I R I
------------------------------------------------------------------------------------------------------------------
Load base record for new part to SPO system r* R
------------------------------------------------------------------------------------------------------------------
Issue ECA (engineering change authorization)
to add usage to new part r* R
------------------------------------------------------------------------------------------------------------------
Load usage to SPO system R
------------------------------------------------------------------------------------------------------------------
Addition of sales channel for a part (i.e. GM I
Dealer or ACDelco) R
------------------------------------------------------------------------------------------------------------------
Discontinuation of sales channel for a part R I
------------------------------------------------------------------------------------------------------------------
* Lower case letter indicates future direction subject to Delphi product line
agreement
R - RESPONSIBLE A - APPROVE S - SUPPORT I - INFORM C - CONSULT
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APPENDIX C
Page 1 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 1
The Joint Product Teams will determine which ACDelco branded product lines
require a market-based price validation effort. That is, some product lines may
be already at market-based levels. It is also recognized that certain smaller
product lines in terms of sales volume would not be subject to the validation
effort.
STEP 2
The Joint Product Teams will be responsible for generating a list of part
numbers to be reviewed for verification of Market Based Transfer Pricing. The
suggested criteria for creating the sample to be reviewed are:
1. Part number sample representing the product line's sales distribution
2. Strategic part numbers (provided by SPO PPD) e.g., recently introduced
part numbers.
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APPENDIX C
Page 2 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 2 continued:
If possible, part numbers are to be segmented by category, e.g., highly
engineered, commodity type, etc.
The file created will contain:
1. Part Number
2. Part Description
3. Current Transfer Price
4. Current Contract Number
5. Source code (shipping location)
6. Units sold for WD, Dealer and Other than Dealer
7. Dealer and XX xxxxx
8. Extended Dealer and WD sales
9. Last year First year usage
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APPENDIX C
Page 3 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 3
Representatives from SPO and Delphi, drawing on their expertise and
off-the-shelf data without subjecting individual part numbers or the list of
part numbers to the WWP Global Sourcing Process, will assess whether the part
number sample represents market based pricing. In addition, for low volume parts
within a product line, the pricing analysis should comprehend certain economic
factors, e.g. low volume production set up costs, decreased purchased material
leverage, tooling costs, etc.
If agreement on market based prices between SPO and the respective Delphi
Division is achieved, the agreed upon transfer prices will become effective
immediately. However, if either SPO or Delphi does not concur with the
recommended pricing, either Delphi or SPO can request the Price Review Committee
review the matter. The Price Review Committee will make a final decision to
accept the proposed pricing or decide to contract an independent third party to
validate a reasonable market based transfer price. The cost of the third party
validation effort will be shared 50 - 50 by SPO and the respective Delphi
Division. The study will be based on comparable product, market, services, and
brand.
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42
APPENDIX C
Page 4 of 5
DELPHI/SPO AGREEMENT
PROCESS FOR DETERMINING MARKET BASED TRANSFER PRICES
STEP 4
If SPO and the respective Delphi Division cannot reach a consensus on the market
based price(s) of the related parts based on the results of the third party
validation or quote, they can appeal again to the Price Review Committee, which
will make the final decision relative to which price to adopt as market based.
Refer to the flow chart on page 5 of this appendix.
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APPENDIX C
Page 5 of 5
PROCESS FOR DETERMINING MARKET
BASED TRANSFER PRICES
Product
Teams to YES Part Number Joint Review OKAY
Determine Which --> Sample Determined --> by SPO and --> New Transfer Prices Become
Product Lines by Product Teams Delphi Effective Immediately
Require
Analysis | NOT
| OKAY
| NO
| Price OKAY Final Decision to
Review --> Accept New Transfer
No Action Group Prices
Required;
Prices Remain | NOT
as is | OKAY
Contract
3rd Party to
Validate Market
Based Price
|
| NOT
OKAY Joint OKAY Price
New Transfer Prices Become <------ Review by ---> Review ---> Final Decision
Effective Immediately SPO and Group
Delphi
42
44
APPENDIX D
Page 1 of 1
DELPHI/SPO AGREEMENT
EXIT RESPONSIBILITY FOR RELATED ACDELCO PRODUCTS
(EXCLUDES SALE OF BUSINESS)
DELPHI SPO
FUNCTION/TASK DELPHI SPO DIVISION DELPHI SPO SUPPLIER
ENGRG.* ENGRG.* /SALES PURCH. PURCH. MGMT
Timely written notification of divestiture plans R I I I
Provide list of parts involved and production
discontinuance date for each part R I I I
Identify potential new/approved sources R R C C
Provide Tooling and equipment req'mnts R I I
Provide engineering prints (including Packaging
if applicable) R I R I I
Appoint divestiture coordinator I I R R I
Sourcing Responsibility for new source A I C R I
Validate new source processes &
manufacturing capabilities C# R I
Perform sample approval C# R I I
Determine bridge run or all-time buy C C C R
Determine disposition of existing tools & equipment R A A A
*Engineering Includes Product, Mfg. & Quality Engrg.
R - RESPONSIBLE A - APPROVE I - INFORM C - CONSULT
#Note: When Delphi Divests of Engineering Expertise, there will be a
transition period.
43
45
APPENDIX E
Page 1 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
A significant portion of the exclusivity agreement between SPO and Delphi
pertains to the management of direct Aftermarket Sales (i.e., Bulk Sales).
SPO will be the only organization selling parts and/or components to the
aftermarket.
AFTERMARKET: Any assembly, sub-assembly or component part sold into the
aftermarket for the purpose of repair, replacement, or maintenance of a
vehicle. (Exception: Delphi Packard Electrical Systems will continue to
sell directly to the aftermarket.)
The Delphi Divisions will continue to sell service replacement parts that are
exclusive to any original equipment business that Delphi may have. For example,
this comprehends Toyota service replacement parts branded as Toyota parts when
Delphi supplies the same part to Toyota as original equipment.
ORIGINAL EQUIPMENT MARKET: Any assembly, sub-assembly or component part
incorporated into a vehicle or piece of equipment for the purpose of an
initial sale and subsequent required service replacement parts.
The roles and responsibilities related to direct aftermarket activities are
designated by the Joint Product Teams, Delphi and SPO as follows:
44
46
APPENDIX E
Page 2 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
DELPHI ROLES AND RESPONSIBILITIES
Provide Price List Information
- Part Number - Description
- Price - Lead-time
- Standard Pack - Minimum Order Quantity
* Meet quoted Lead-times
* Process quote requests
* Follow customer's Shipping Routing instructions
* Assure product carries no GM identification where and when practical
* No effort should be made to add GM identification
* Advise surplus, overrun, Less-than-OE product availability
* Advise new part numbers available
* Advise new product categories available
* Provide engineering data as required
* Assist in resolution of New Defective, shipping and billing claims
* Advise part number status (i.e. supercession, discontinue)
* Advise excess capacity
* Advise divestiture plans
* Advise capacity plans
* Participate in Product Team processes/responsibilities
45
47
APPENDIX E
Page 3 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
SPO ROLES AND RESPONSIBILITIES
* Provide a dedicated sales force
* Perform customer contact
* Prospect new distribution
* Develop new customer and market opportunities (Manufacturers & Marketers)
* Process customer orders
- Receive
- Format
- Edit
- Confirmation
* Process quotes
* Publish Price List
* Provide customer invoicing
* Provide customer order status
* Resolve New Defective, shipping and billing customer claims
46
48
APPENDIX E
Page 4 of 4
DELPHI/SPO AGREEMENT
DIRECT AFTERMARKET
SPO ROLES AND RESPONSIBILITIES (CONT.)
* Administer Credit & Collection process
* Hold customer receivables
* Provide sales reporting
* Forecast Annual Sales
* Assure customer adherence to Program "Standard and Guidelines"
* Assure customers sign Program "Terms and Conditions"
* Administer a common program approved by GM legal
* Maintain equitable distribution practices for customer base
* Analyze market conditions
* Provide New Customer Profiles for Product Team Review
* Participate in Product Team processes/responsibilities
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49
APPENDIX F
Page 1 of 2
DELPHI/SPO AGREEMENT
PRIVATE LABEL SALES
Consistent with the exclusive sales and supply agreement between SPO and Delphi,
private label sales will continue to be part of the ACDelco offering. For
example, SPO may sell a battery to Wal-Mart that is branded as a Wal-Mart
battery.
It is expected that on a product line by product line basis, the joint
product teams will review market share, capacity, the ACDelco and GM Parts
business plans; and develop business cases supporting private label
opportunities as appropriate. Delphi is free to bring forward any private label
opportunities. Delphi will work with SPO to secure this business, especially
where related to private label batteries. Where either party feels the other is
not acting in a manner to pursue and win this business, appeals to the Price
Review Committee can be initiated.
SPO recognizes the need to work with Delphi to maximize capacity utilization.
In those cases where the SPO forecast indicates there will be excess
manufacturing capacity, SPO is committed to investigating private label
opportunities which can result in additional net volume.
Under no circumstances should private label volume have preference over GM
Parts and ACDelco branded volume.
Both SPO and Delphi price review procedures should be followed. Appeals to
the approval process would flow to the Price Review Committee.
48
50
APPENDIX F
Page 2 of 2
DELPHI/SPO AGREEMENT
PRIVATE LABEL SALES
Private Label Roles and Responsibilities
SPO will be responsible for: Delphi will be responsible for:
* Sales * Manufacturing
* Marketing * Engineering
* Distribution (except batteries)
Private Label Transfer Price
Jointly the SPO and Delphi Finance and Purchasing departments, in conjunction
with joint product teams, will negotiate appropriate transfer prices. It is
expected that SPO will recover all variable expenses (including but not limited
to material, discounts & allowances, freight and warranty) and incremental
structural costs. For certain select customers to be mutually agreed upon by SPO
and Delphi-E, an exception will be made to this calculated private label
pricing; these select customers will be priced at SPO variable expense excluding
warranty. Warranty will be billed at the actual "as-incurred" cost levels. In
the case of these customers, SPO will work with Delphi-E to reduce the incurred
warranty expense to acceptable levels. SPO does not intend to profit directly
from nor subsidize private label sales. (Royalties are not paid on private label
sales.) With mutual agreement of SPO and Delphi, specific private label sales
may be administered under the bulk sales portion of this agreement.
49
51
APPENDIX G
Page 1 of 3
DELPHI/SPO AGREEMENT
FORMAT OF CURRENT SALES FORECAST PROVIDE TO DELPHI
--------------------------------------------------------------------------------------------------------------------------
PRODUCT TYPE TYPE OF FORECAST FREQUENCY
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
SPARK PLUG - ALL TYPES MARKETING GENERATED FORECAST FOR YEAR. UPDATED YEARLY
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED QUARTERLY
BY SUPPLIER MGT.- MANUAL PROCESS.
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
OIL FILTERS MARKETING GENERATED FORECAST BY MONTH UPDATED AS NEEDED.
FOR A CALENDAR YEAR. (MIN YEARLY)
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED WEEKLY BY
BY SUPPLIER MGT.- MANUAL PROCESS. SUPPLIER MANAGEMENT
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
AIR FILTERS MARKETING GENERATED FORECAST BY MONTH UPDATED AS NEEDED.
FOR A CALENDAR YEAR. (MIN YEARLY)
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED WEEKLY BY
BY SUPPLIER MGT.- MANUAL PROCESS. SUPPLIER MANAGEMENT
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
GAS FILTERS SUPPLIER MANAGEMENT PROVIDES A YEARLY UPDATED QUARTERLY
FORECAST BASED ON PAST YEARS SALES. BY SUPPLIER MGT.
BROKEN DOWN TO SPECIFIC PART NUMBERS REVIEWED QUARTERLY
BY SUPPLIER MGT.- MANUAL PROCESS. BY SUPPLIER MGT.
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
FUEL PUMPS MARKETING GENERATED FORECAST BY MONTH UPDATED YEARLY
ROLLERVANE FOR A CALENDAR YEAR. BY MARKETING.
SOLENOID BROKEN DOWN BY PRODUCT TYPE BY MARKETING. MONITORED MONTHLY BY
TBI SUPPLIER MGT.
MRA
PURCHASED
SENSOR KITS
--------------------------------------------------------------------------------------------------------------------------
50
52
APPENDIX G
Page 2 of 3
DELPHI/SPO AGREEMENT
FORMAT OF CURRENT SALES FORECAST PROVIDE TO DELPHI
--------------------------------------------------------------------------------------------------------------------------
PRODUCT TYPE TYPE OF FORECAST FREQUENCY
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
IGNITION FORECAST TO BE PROVIDED IN 1998
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
STARTERS & ALTERNATORS ANNUAL FORECAST BY MONTH BY PRODUCT PROVIDED ANNUALLY
UPDATED MONTHLY IF REQD
--------------------------------------------------------------------------------------------------------------------------
DELPHI E&E
MASS AIR FLOW SENSORS SUPPLIER MANAGEMENT PROVIDES LTPI AS GENERATED MONTHLY
PLASTIC AIR CLEANERS GENERATED BY SPARCS. SEND HARD COPY
PVC & F/BRTHR
SHEET METAL AIR CLEANERS
PURCH. F/BRTHR
OXYGEN SENSORS
CATALYTIC CONVERTERS
PURCH. OIL/GAS FILTERS
EXHAUST SENSORS
CFLS - 3819
SENSOR KITS
FUEL STRAINERS
PCV
PEDALS
TEMP. SENSORS
CONTROL MOD. SERVOS
SENSORS/SWITCHES
--------------------------------------------------------------------------------------------------------------------------
DELCO ELECTRONICS SUPPLIER MANAGEMENT PROVIDES LTPI AS PROVIDED MONTHLY
GENERATED BY SPARCS. SEND HARD COPY
--------------------------------------------------------------------------------------------------------------------------
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53
APPENDIX G
Page 3 of 3
DELPHI/SPO AGREEMENT
FORMAT OF CURRENT SALES FORECAST PROVIDE TO DELPHI
----------------------------------------------------------------------------------------------------------------------------
PRODUCT TYPE TYPE OF FORECAST FREQUENCY
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
DELPHI INTERIOR & LIGHTING FORECAST TO BE PROVIDED IN 1998
----------------------------------------------------------------------------------------------------------------------------
DELPHI CHASSIS LEVEL SCHEDULE - BRAKE PARTS ONLY PROVIDED WEEKLY
MARKETING PROVIDED ANNUAL FORECAST ON
BRAKES AND SHOCKS
----------------------------------------------------------------------------------------------------------------------------
DELPHI PACKARD SUPPLIER MANAGEMENT PROVIDES LTPI AS PROVIDED MONTHLY
GENERATED BY SPARCS. SEND HARD COPY
- WIRE SETS MARKETING INPUT FOR WEEKLY LEVEL REVIEWED WEEKLY
SCHEDULING TO SET CAPACITY REQUIREMENTS
----------------------------------------------------------------------------------------------------------------------------
DELPHI XXXXXXXX MARKETING PROVIDE FORECAST ANNUALLY OF PROVIDED ANNUALLY
PRODUCT GROUPS: MONTHLY REQUIREMENTS, BROKEN DOWN BY UPDATED MONTHLY IF REQD
- 3 - COMPRESSORS PRODUCT CATEGORY
- 3 - RADIATORS
- 4 - CONDENSERS
- 1 - EVAPORATORS
- 1 - MOTOR & FAN ASM
- 1 - HEATER CORES
--------------------------------------------------------------------------------------------------------------------------
DELPHI SAGINAW MARKETING PROVIDE FORECAST ANNUALLY OF
PRODUCTS GROUPS: MONTHLY REQUIREMENTS, BROKEN DOWN BY
- REMAN P & N PUMPS PRODUCT CATEGORY
- REMAN RACK & PINION - ALL MAKES
- REMAN RACK & PINION ETO
--------------------------------------------------------------------------------------------------------------------------
52
