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Dana Reaches Deals With Largest Unions, Centerbridge

Dana said Friday it has reached deals with the United Steelworkers and United Auto Workers on more than $100 million per year in cost cuts the car and truck parts maker needs to exit bankruptcy.

Dana also said Centerbridge Capital Partners has agreed to invest $500 million in exchange for convertible stock in the reorganized company and to facilitate up to $250 million of investment by others in exchange for convertible stock.

Both agreements need U.S. Bankruptcy Court approval and the labor deals must be ratified by the roughly 5,400 UAW and steelworkers union members. Dana plans to seek court approval on July 25 and the unions are expected to vote near term.

The labor deals also could make it easier for Dana to seek higher prices on its parts from customers and to negotiate concessions from suppliers, two of the several areas that it targeted for restructuring last November.

Dana, which filed for bankruptcy in March 2006, said it expected to file a reorganization plan by the beginning of September and to exit bankruptcy by the end of 2007. It has closed plants, shifted production to lower-cost regions and divested some businesses in the reorganization.

The four-year deals with the unions include a two-tier wage system to lower labor costs and establish trusts to cover retiree health care and long-term disability for the workers.

Dana has about $1.1 billion in unfunded nonpension benefit and long-term disability obligations under those plans. Upon emergence, the trusts will cover nonpension retiree benefits and long-term disability of current employees.

The company will contribute $704 million cash and $80 million common stock in the reorganized Dana to the voluntary employees' beneficiary association trusts. The proceeds from the Centerbridge deal in part would fund the trusts.

CENTERBRIDGE KEY TO LABOR DEALS

Dana has been in negotiations for months with the UAW and the steelworkers. It had sought bankruptcy court authority to impose cuts if it could not reach a deal, but the sides requested extensions over several weeks as talks progressed.

The UAW and steelworkers called the Centerbridge investment critical to reaching a settlement, which includes guarantees to limit debt. The steelworkers represent about 1,000 workers and plan a vote on July 20.

The unions also agreed to withdraw opposition to Dana's executive compensation plans in exchange for the settlement, which provides $21.6 million of common stock in the reorganized Dana for post-emergence bonuses to union workers.

The deals include buyouts of $22,500 to $45,000 for certain retirement-eligible and recently retired workers at plants in Indiana, Pennsylvania and Ohio as well.

Centerbridge said in a statement the unions had approached the private equity firm to advise and participate in the reorganization and it believed the investment would create significant upside for all constituents.

Centerbridge would control the makeup of the initial board, though its $500 million preferred stock investment would represent less than 25 percent of the common stock on an as-converted basis under preliminary forecasts, Dana said.

The closing of the Centerbridge investment will be subject to Dana filing a reorganization plan and disclosure statement by Sept. 3, but is not subject to further due diligence.

Centerbridge would be entitled to a breakup fee of up to $22.5 million, plus up to $4 million for expenses, if Dana chooses an alternative investment plan.

The initial board would have seven members, including CEO Michael Burns. Centerbridge would have the right to name three board members and provide a list to the creditors committee to name a fourth. The creditors committee would name two members.

Toledo, Ohio-based Dana had revenue of $8.5 billion in 2006. It has about 35,000 workers in 28 countries.

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