Dana Corp. 8-K
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 8-K
CURRENT
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
August 4, 2006
DANA
CORPORATION
(Exact Name of Registrant as
Specified in Charter)
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Virginia
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1-1063
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34-4361040
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(State or Other Jurisdiction
of Incorporation)
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(Commission File
Number)
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(IRS Employer
Identification No.)
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4500 Dorr Street, Toledo,
Ohio
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43615
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(419) 535-4500
Not Applicable
(Former Name or Former Address,
if Changed Since Last Report)
Check the appropriate box below if the
Form 8-K
filing is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following
provisions:
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Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
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Soliciting material pursuant to
Rule 14a-12
under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement communications pursuant to
Rule 14d-2(b)
under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement communications pursuant to
Rule 13e-4(c)
under the Exchange Act (17 CFR
240.13e-4(c))
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TABLE OF CONTENTS
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Item 7.01.
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Regulation FD
Disclosure.
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Dana Credit Corporation (DCC), a wholly owned
subsidiary of Dana Corporation (Dana), has issued
notes from time to time under a number of note agreements (the
DCC Notes). At present, the aggregate principal
amount of DCC Notes outstanding is approximately
$399 million.
As previously disclosed, following Dana’s bankruptcy filing
in March 2006, the holders of a majority of the outstanding
principal amount of DCC Notes formed an Ad Hoc Committee of
Noteholders (the Ad Hoc Committee). The Ad Hoc
Committee asserted that the DCC Notes became immediately due and
payable without notice, presentment, demand, protest or other
action of any kind as a result of the commencement of
Dana’s bankruptcy.
Effective April 10, 2006, DCC and the Ad Hoc Committee
entered into a
30-day
forbearance agreement (the April Forbearance
Agreement) under which members of the Ad Hoc Committee
agreed to work with DCC toward a global consensual restructuring
of the DCC Notes and to forbear from exercising rights and
remedies with respect to any default or event of default under
the DCC Notes. In accordance with its terms, the April
Forbearance Agreement expired on or about May 9, 2006.
In connection with ongoing discussions, DCC intends to disclose
the following information to members of the Ad Hoc Committee and
other holders of the DCC Notes.
(i) Proposed Forbearance Agreement — DCC
and the Ad Hoc Committee are negotiating the terms of another
proposed Forbearance Agreement (the August Forbearance
Agreement) that would, among other things, allow DCC to
(i) market, sell and thereby monetize the value of its
lease and other portfolio assets, and (ii) use the proceeds
of such asset sales to make payments to certain holders of DCC
Notes.
A copy of the proposed August Forbearance Agreement is furnished
as Exhibit 99.1 to this report. Dana does not undertake to
furnish any updates to or subsequent drafts of the proposed
August Forbearance Agreement until such time, if any, as a
definitive agreement with respect to this matter has been
executed.
Under the proposed August Forbearance Agreement, holders of DCC
Notes that are or become signatories thereto (Forbearance
Noteholders) would agree to forbear from exercising any
rights or remedies under their respective DCC Notes until the
earlier of (i) an event of default under the August
Forbearance Agreement, (ii) the later of (a) the
allowance of any and all claims of DCC against Dana and
(b) the effective date of a plan of reorganization for Dana
in its bankruptcy case, or (iii) 24 months after the
effective date of the August Forbearance Agreement.
In exchange for such forbearance, as more fully described in the
proposed August Forbearance Agreement, DCC would agree to:
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grant to the Forbearance Noteholders security interests in the
assets of DCC and a pledge of the stock of its subsidiaries (as
may be practical);
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on the effective date of the August Forbearance Agreement (or as
soon thereafter as is practical), pay to the Forbearance
Noteholders an amount equal to all then accrued and unpaid
interest at the non-default contract rate on the DCC Notes held
by the Forbearance Noteholders;
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accrue interest on the principal amount outstanding under each
DCC Note held by each Forbearance Noteholder at the non-default
contract rate provided for under such DCC Note;
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use commercially reasonable efforts to sell the lease and
portfolio assets of DCC within the next 24 months and pay
the aggregate proceeds of such sales (so long as DCC retains not
less than $7.5 million of cash in the United States) to the
Forbearance Noteholders on a quarterly basis to be applied first
to the accrued and unpaid interest at the non-default
contractual rate and then on a pro rata basis to the outstanding
principal amount of the DCC Notes held by the Forbearance
Noteholders;
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use cash only to pay operating expenses and for the
above-described quarterly payments, and to not make any
acquisitions or investments (other than mutually acceptable cash
investments) or loans, dividends or similar payments to
Dana; and
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pay certain fees of the professionals retained by the Ad Hoc
Committee.
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2
Although DCC expects that it and the members of Ad Hoc Committee
will execute the August Forbearance Agreement in substantially
the form contained in Exhibit 99.1 hereto, the parties are
not legally bound to do so, and there can be no assurance that
the August Forbearance Agreement will be executed in the form
attached or at all. In the event that that the August
Forbearance Agreement is not executed, the holders of the DCC
Notes could attempt to exercise their rights and remedies under
the DCC Notes to seek repayment of amounts owed thereunder.
(ii) Tax Sharing Agreement Between Dana and
DCC — Dana and DCC file a consolidated federal tax
return and file consolidated or combined state tax returns where
allowable. Tax benefits and liabilities as between Dana and DCC
are computed under an inter-company tax sharing agreement
between Dana and DCC (the Tax Sharing Agreement),
a copy of which is furnished as Exhibit 99.2 to this report.
Under the Tax Sharing Agreement, each year DCC recognizes tax
benefits and liabilities for the estimated taxes refundable from
or payable to Dana using a method commonly referred to as the
“benefits for loss companies” method. Under this
method, (i) income tax benefits attributable to DCC based
on its current year net taxable loss are recognized by Dana as
an amount payable to DCC and by DCC as an amount receivable from
Dana and (ii) income tax liabilities attributable to DCC
based on its current year net taxable income are recognized by
Dana as an amount receivable from DCC and by DCC as an amount
payable to Dana. To the extent that any annual tax amounts
determined by Dana and DCC pursuant to the Tax Sharing Agreement
are subsequently adjusted as the result of audits by relevant
tax authorities or adjusted by the filing of amended tax
returns, the previously recorded amounts payable and receivable
are adjusted by Dana and DCC at such time as the tax audit
adjustments are agreed to and determined to be probable by Dana.
Dana has previously reported DCC’s plans to market and sell
its portfolio assets, and during the past several years, DCC has
completed several sales. As of August 1, 2006, DCC had
approximately $50 million in cash on hand from previous
asset sales and operations. DCC believes the marketing and sale
of its portfolio of remaining assets could generate aggregate
sale proceeds of approximately $200 to $300 million.
Accordingly, the continued sale of assets by DCC is expected to
generate additional tax liabilities owed to Dana by DCC under
the Tax Sharing Agreement of approximately $80 million to
$115 million.
From time to time, Dana and DCC have entered into amendments to
the original Tax Sharing Agreement. Copies of those amendments
are furnished as Exhibits 99.3 and 99.4 to this report.
Among other things, such amendments have eliminated DCC’s
liability to pay Dana for capital gains generated by DCC in
years 2002 through 2004 in connection with the sale of DCC
investments.
As of June 30, 2006, DCC had recorded approximately
$47 million as a net tax sharing receivable from Dana under
the Tax Sharing Agreement. This amount includes certain
assessments in connection with tax audit adjustment settlements
that have been agreed to by Dana, DCC and the Internal Revenue
Service (IRS); however, as further discussed
below, this amount does not reflect matters subject to current
tax audits by the IRS because the outcome of such audits has not
yet been agreed to or determined to be probable by Dana.
(iii) Current Tax Audits — The IRS is
currently examining certain stock sale transactions completed by
DCC during the years 2002 through 2004. DCC did not recognize
any tax liability for the approximately $640 million
capital gain on these stock sales transactions at the time
because DCC utilized Dana’s capital loss carryforward as an
offset. Furthermore, pursuant to the modified Tax Sharing
Agreement, DCC incurred no obligation to the extent the
obligation arose with respect to capital gains. Dana believes
that these stock sale transactions were completed in accordance
with appropriate tax regulations and that the likelihood of an
adverse outcome is remote. In the event, however, that the IRS
determines that gains from these transactions were not capital
in nature, then DCC’s gains on the transactions would be
re-characterized
as ordinary gains, and DCC would not be able to avail itself
under the modified Tax Sharing Agreement of any benefit
associated with Dana’s capital loss carryforward. If the
entire $640 million were re-characterized as ordinary gain,
and assuming a 35% tax rate, the Tax Sharing Agreement would
provide for an additional DCC liability to Dana of approximately
$224 million.
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This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements represent Dana’s expectations based on
current information and assumptions and are inherently subject
to risks and uncertainties. Dana’s actual results could
differ materially from those expressed or implied in such
statements due to a number of factors, including, without
limitation, the failure of DCC and the holders of the DCC Notes
to finalize and execute the proposed August Forbearance
Agreement as contemplated and a different outcome to the current
IRS tax audits than currently anticipated. Dana does not
undertake to update any forward-looking statements contained in
this report.
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Item 9.01.
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Financial
Statements and Exhibits.
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(d) Exhibits. The following exhibits are
furnished with this report.
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Number
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Exhibit
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99
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.1
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Proposed Forbearance Agreement by
and among Dana Credit Corporation and the Forbearing Noteholders
of Dana Credit Corporation
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99
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Tax Sharing Agreement, dated as of
March 27, 1986, by and between Dana Corporation and Dana
Credit Corporation
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99
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.3
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Amendment to Tax Sharing
Agreement, dated as of June 28, 2002, by and between Dana
Corporation and Dana Credit Corporation
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99
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.4
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Second Amendment to Tax Sharing
Agreement, dated as of October 15, 2003, by and between
Dana Corporation and Dana Credit Corporation
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4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
DANA CORPORATION
(Registrant)
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By:
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/s/ Michael L. DeBacker
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Michael L. DeBacker
Vice President, General Counsel and Secretary
Date: August 4, 2006
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EXHIBIT INDEX
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Number
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Exhibit
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99
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.1
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Proposed Forbearance Agreement by
and among Dana Credit Corporation and the Forbearing Noteholders
of Dana Credit Corporation
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99
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.2
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Tax Sharing Agreement, dated as of
March 27, 1986, by and between Dana Corporation and Dana
Credit Corporation
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99
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.3
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Amendment to Tax Sharing
Agreement, dated as of June 28, 2002, by and between Dana
Corporation and Dana Credit Corporation
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99
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.4
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Second Amendment to Tax Sharing
Agreement, dated as of October 15, 2003, by and between
Dana Corporation and Dana Credit Corporation
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